AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1996
    
 
                                                       REGISTRATION NO. 333-4419
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
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                                AMENDMENT NO. 3
                                       TO
                                    FORM S-1
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
    
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                                 GUESS ?, INC.
             (Exact name of registrant as specified in its charter)
 
                                                    
         DELAWARE                       2345                      95-3679695
      (State or other             (Primary Standard            (I.R.S. Employer
      jurisdiction of                Industrial             Identification Number)
     incorporation or        Classification Code Number)
       organization)
1444 SOUTH ALAMEDA STREET LOS ANGELES, CALIFORNIA 90021 (213) 765-3100 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ROGER A. WILLIAMS CHIEF FINANCIAL OFFICER GUESS ?, INC. 1444 SOUTH ALAMEDA STREET LOS ANGELES, CALIFORNIA 90021 (213) 765-3100 (Name, address, including zip code, and telephone number, including area code, of agent for service) -------------------------- COPIES TO: William H. Hinman, Jr., Esq. Gregg A. Noel, Esq. Shearman & Sterling Jeffrey H. Cohen, Esq. 555 California Street Skadden, Arps, Slate, Meagher & Flom San Francisco, California 94104-1522 300 South Grand Avenue, Suite 3400 Los Angeles, California 90071
-------------------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE. -------------------------- If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / -------------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- GUESS ?, INC. CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
ITEM NUMBER ITEM LOCATION IN PROSPECTUS - --------- -------------------------------------------------- ---------------------------------------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus................... Facing Page; Cross-Reference Sheet; Outside Front Cover Page of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus....................................... Inside Front Cover Page of Prospectus; Additional Information; Table of Contents; Outside Back Cover Page of Prospectus 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges........................ Prospectus Summary; Risk Factors 4. Use of Proceeds................................... Prospectus Summary; Use of Proceeds 5. Determination of Offering Price................... Underwriting 6. Dilution.......................................... Dilution 7. Selling Security Holders.......................... Not Applicable 8. Plan of Distribution.............................. Outside Front Cover Page of Prospectus; Underwriting 9. Description of Securities to Be Registered........ Outside Front Cover Page of Prospectus; Prospectus Summary; Description of Capital Stock 10. Interests of Named Experts and Counsel............ Not Applicable 11. Information with Respect to Registrant............ Prospectus Summary; Risk Factors; Company History, the Reorganization and Prior S Corporation Status; Dividend Policy; Capitalization; Selected Financial Data; Selected Pro Forma Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Certain Transactions; Principal Stockholders; Shares Eligible for Future Sale; Description of Capital Stock; Financial Statements 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities...................................... Not Applicable
------------------------ This Registration Statement contains two forms of prospectus: one to be used in connection with an offering in the United States and Canada (the "U.S. Prospectus") and one to be used in a concurrent offering outside the United States and Canada (the "International Prospectus"). The U.S. Prospectus and the International Prospectus will be identical in all respects except for the front and back cover pages and the "Underwriting" section. The U.S. Prospectus is included herein and is followed by those pages to be used in the International Prospectus which differ from those in the U.S. Prospectus. Each of the pages for the International Prospectus included herein has been labeled "Alternate Page for International Prospectus." Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED JULY 30, 1996 PROSPECTUS 9,200,000 SHARES [LOGO] COMMON STOCK ------------------ Of the 9,200,000 shares of Common Stock of Guess ?, Inc. offered hereby, 7,360,000 shares are initially being offered in the United States and Canada by the U.S. Underwriters and 1,840,000 shares are initially being offered outside the United States and Canada by the International Managers. The initial public offering price and the aggregate underwriting discount per share are identical for each of the Offerings. See "Underwriting." Prior to the Offerings, there has been no public market for the Common Stock. It is currently estimated that the initial public offering price per share of Common Stock will be between $21 and $23. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price of the Common Stock. The Common Stock has been approved for listing on the New York Stock Exchange under the symbol "GES," subject to official notice of issuance. SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. --------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNT (1) COMPANY (2) Per Share........................... $ $ $ Total (3)........................... $ $ $
(1) The Company and the Principal Stockholders have agreed to indemnify the several Underwriters against certain liabilities, including certain liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company estimated to be $1,750,000. (3) The Company has granted to the U.S. Underwriters and the International Managers options, exercisable within 30 days after the date of this Prospectus, to purchase up to an additional 1,104,000 and 276,000 shares of Common Stock, respectively, to cover over-allotments, if any. If all such additional shares are purchased, the total Price to Public, Underwriting Discount and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ------------------------ The shares of Common Stock are offered by the several Underwriters, subject to prior sale, when, as and if issued to and accepted by them, and subject to the approval of certain legal matters by counsel for the Underwriters and certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the shares of Common Stock will be made in New York, New York on or about , 1996. ------------------------ MERRILL LYNCH & CO. MORGAN STANLEY & CO. INCORPORATED ---------------------------------- The date of this Prospectus is , 1996. [PICTURES] 2 PROSPECTUS SUMMARY THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE NOTED, ALL COMMON STOCK SHARE AMOUNTS, PER SHARE DATA AND OTHER INFORMATION SET FORTH IN THIS PROSPECTUS (I) HAVE BEEN ADJUSTED TO REFLECT A 32.66 FOR 1 STOCK SPLIT, WHICH WILL BE EFFECTED PRIOR TO CONSUMMATION OF THE OFFERINGS, AND (II) ASSUME THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTIONS HAVE NOT BEEN EXERCISED. UNLESS THE CONTEXT REQUIRES OTHERWISE, THE "COMPANY" OR "GUESS," AS USED IN THIS PROSPECTUS, MEANS GUESS ?, INC. AND GUESS? EUROPE, B.V., A NETHERLANDS CORPORATION ("GEBV"), GUESS ITALIA S.R.L., AN ITALIAN CORPORATION ("GUESS ITALIA," AND TOGETHER WITH GEBV, "GUESS EUROPE"), AND RANCHE LIMITED, A HONG KONG CORPORATION ("RANCHE" OR "GUESS ASIA"), EACH OF WHICH IS A CONSOLIDATED SUBSIDIARY OF GUESS ?, INC. THE COMPANY Guess ?, Inc. (the "Company" or "Guess"), founded in 1981 by the Marciano brothers, designs, markets, distributes and licenses one of the world's leading lifestyle collections of casual apparel, accessories and related consumer products. The Company's apparel for men and women is inspired by an appreciation of the American lifestyle combined with a European flair and is marketed under the trademarks GUESS, GUESS U.S.A., GUESS? AND TRIANGLE DESIGN and GUESS COLLECTION. The lines include full collections of denim and cotton clothing, including jeans, pants, overalls, skirts, dresses, shorts, blouses, shirts, jackets and knitwear. In addition, the Company has granted licenses to manufacture and distribute a broad range of products that complement the Company's apparel lines, including watches, clothing for infants and children, eyewear, footwear, activewear, home products and other fashion accessories. The Company's product quality combined with captivating advertising images have created a global brand franchise with products that appeal to style-conscious consumers across a broad spectrum of ages. The Company generates net revenue from wholesale and retail operations and licensing activities, which accounted for 56%, 35% and 9%, respectively, of net revenue in 1995. The Company's total net revenue in 1995 was $486.7 million and pro forma net earnings (as described herein) were $43.3 million. The Company achieves premium pricing for its products by emphasizing superior styling and quality. The Company maintains rigorous control over the quality of its products by performing its own design and development work and by closely monitoring the workmanship of its contractors and licensees. The enduring strength of the GUESS brand name and image is reinforced by the Company's consistent emphasis on innovative and distinctive design. Under the direction of Maurice Marciano, the Company's design department creates full lines of casual apparel that appeal to both men and women. During 1995, net sales of apparel for men and for women accounted for approximately 48% and 52%, respectively, of net revenue from the sale of apparel products. Each of the lines consists of a broad array of basic, recurring styles, complemented by more fashion-oriented items which reflect contemporary trends. During 1995, net sales of basic and fashion items accounted for approximately 49% and 51%, respectively, of the Company's net revenue from the sale of apparel products. The Company seeks to reach a broad consumer base through multiple channels of distribution. As of March 31, 1996, GUESS brand products were distributed by the Company, its licensees and international distributors to better department stores and upscale specialty stores, 112 stores operated by the Company (of which 65 were retail stores and 47 were factory outlet stores) and 205 stores operated by licensees and distributors. As a critical element of its distribution to department stores, the Company and its licensees utilize shop-in-shops to enhance brand recognition, permit more complete merchandising of the lines and differentiate the presentation of GUESS products. As of December 31, 1995, the Company's and its licensees' IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 3 products were sold in approximately 1,600 shop-in-shops worldwide. In order to protect the Guess image and enhance the exclusivity of the brand, the Company began in 1993 to withdraw its products from certain wholesale accounts which did not meet the Company's merchandising standards. Sales to such discontinued accounts represented approximately $51.1 million, $32.9 million and $3.8 million of the Company's net revenue in 1993, 1994 and 1995, respectively. The Company's own network of stores, in addition to providing a key opportunity for growth, allows the Company to present and merchandise its entire collection and to test market new product concepts. The Company intends to capitalize on the worldwide recognition of its brand name and the breadth of Guess lifestyle products by expanding its international operations. The Company has established Guess Europe in Italy and Guess Asia in Hong Kong to design, source and market products in Europe and the Pacific Rim. Guess has granted licenses for the manufacture and sale of GUESS branded products similar to the Company's, including men's and women's denim and knitwear, in markets such as Canada, Argentina, Mexico, the Philippines, South Korea, Brazil and Japan. Although Guess is in the early stages of its international expansion, GUESS brand products are currently sold in over 70 countries primarily through licensees and distributors. See "Business -- Business Strategy -- Increase International Presence." The desirability of the GUESS brand name among consumers has allowed the Company to selectively expand its product offerings through licensing arrangements. The Company believes its licensing strategy significantly broadens the distribution of GUESS brand products while limiting the Company's capital investment and operating expenses. The Company carefully selects its licensees and maintains strict control over the design, advertising, marketing and distribution of all licensed products in order to maintain a consistent global GUESS brand image. The Company's 26 licensees manufacture and distribute a broad array of related consumer products in the United States and international markets. The Company's most significant licenses include GUESS WATCHES, BABY GUESS, GUESS KIDS and GUESS EYEWEAR, which together accounted for approximately 48.1% of the Company's net royalties in 1995. The Company continues to capitalize on the GUESS brand image by granting licenses to introduce related products. Recently, the Company licensed the GUESS HOME COLLECTION and GUESS OUTERWEAR, as well as various accessory products. Under Paul Marciano's direction and supervision, Guess has created a consistent, high profile image through the use of its distinctive black and white print ads. The Company's in-house Advertising Department directs the media placement of all advertising worldwide, including placement by its licensees and distributors. On numerous occasions since 1986, the Company's advertising has garnered prestigious awards for creativity and excellence, including CLIO, BELDING and MOBIUS awards. Such awards are generally awarded on the basis of the judgment of prominent members of the advertising industry. By retaining control over its advertising programs, the Company is able to maintain the integrity of the GUESS brand image while realizing a substantial cost savings compared to the use of outside agencies. The Company requires its licensees and distributors to invest a percentage of their net sales of licensed products and net purchases of Guess products, respectively, in advertising, promotion and marketing. From 1992 through 1995, the Company's advertising expenditures, together with amounts spent by its licensees and its distributors (as reported to the Company by such licensees and distributors), exceeded $160 million. The Company's business strategy is designed to increase sales and profitability, while preserving the integrity and expanding the product depth and global reach of the GUESS brand. To provide greater management depth, the Company has recently recruited several key executives with substantial industry experience to faciliate the implementation of its business strategy. The business strategy consists of the following key elements: (i) to maintain high brand recognition, (ii) to increase international operations through increasing sales to existing and new distributors, increasing royalties from the growth of licensees' businesses, increasing the number of licensee- and distributor-operated retail stores and shop-in-shops and expanding direct sales penetration through Guess Europe, (iii) to increase both product and geographic licensing arrangements, (iv) to deepen the Company's product offerings to include new fabrications and product lines, (v) to expand and improve the productivity of the Company-operated retail and factory outlet store network and (vi) to expand and upgrade domestic shop-in-shops. 4 COMPANY HISTORY Maurice, Paul and Armand Marciano (the "Principal Executive Officers"), together with their brother Georges, began in the apparel business in France in 1972 and opened their first retail apparel stores in the United States in 1978 in California. The business of GUESS was founded in 1981 by the Marciano brothers. The Company was founded on the concept of a fashion jean with the first GUESS product being the "three-zip Marilyn" jean, which was stone-washed and adapted to fit the contours of a woman's body. Since that time, the Company's product offerings have grown to include full lines of men's and women's casual apparel. In August 1993, Georges Marciano sold his interest in Guess to the Company and a trust for the benefit of Paul Marciano. THE OFFERINGS Of the 9,200,000 shares of Common Stock, par value $.01 per share ("Common Stock"), to be sold in the Offerings, 7,360,000 shares are initially being offered in the United States and Canada by the U.S. Underwriters (the "U.S. Offering") and 1,840,000 shares are initially being offered outside the United States and Canada by the International Managers (the "International Offering," and together with the U.S. Offering, the "Offerings"). Common Stock offered by the Company hereby.......... 9,200,000 shares Common Stock to be outstanding after the Offerings (1)................................................ 41,882,000 shares Use of proceeds..................................... The estimated net proceeds to the Company of $188.0 million will be used to repay the S Distribution Notes (as defined herein) (estimated to have an aggregate principal amount between $180.0 million and $190.0 million). Any remaining net proceeds will be used to repay outstanding ad- vances under the Company's revolving credit facility. Listing............................................. The Common Stock has been approved for listing on the New York Stock Exchange ("NYSE") under the symbol "GES," subject to official notice of issuance.
- ------------------------ (1) Excludes approximately 5,000,000 shares of Common Stock reserved for issuance pursuant to awards under the Company's 1996 Equity Incentive Plan (the "1996 Equity Plan") and 1996 Non-Employee Directors' Stock Option Plan (the "Directors' Plan"), including options to purchase 1,207,405 shares of Common Stock to be granted immediately prior to the Offerings. Of such options, 1,137,598 will have an exercise price per share equal to the initial public offering price of the Common Stock and 69,807 will have an exercise price of $21.49 per share. The Company does not anticipate recording compensation expense relating to the grant of any such options. See "Management -- Employment Agreements," "-- 1996 Equity Incentive Plan" and "-- 1996 Non-Employee Directors' Stock Option Plan." ------------------------------ GUESS-Registered Trademark-, GUESS?-Registered Trademark-, GUESS? AND TRIANGLE DESIGN-Registered Trademark-, BABY GUESS-TM-, GUESS KIDS-Registered Trademark-, GUESS WATCHES-TM-, GUESS JEANS-TM-, GUESS U.S.A.-TM- and GUESS COLLECTION-TM- are included among the Company's trademarks. 5 SUMMARY FINANCIAL DATA
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, ------------------ ------------------------------------------------ JULY 2, JUNE 30, 1991 1992 1993 1994 1995 1995 1996 -------- -------- -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF EARNINGS DATA: Net revenue (1)........................................ $450,531 $512,766 $520,224 $547,812 $486,733 $229,652 $257,406 Earnings from operations............................... 104,469 109,973 114,464 117,807 82,928 42,375 43,905(2) Earnings before income taxes........................... 102,527 111,224 105,281 101,181 66,814 34,269 36,467 Net earnings........................................... 99,832 108,368 103,471 97,641 63,919 32,994 34,869 SUPPLEMENTAL STATEMENT OF EARNINGS DATA (3): Earnings before income taxes........................... 102,527 111,224 105,281 101,181 66,814 34,269 36,467(2) Income taxes........................................... 41,011 44,490 42,112 40,472 26,726 13,708 14,477 -------- -------- -------- -------- -------- -------- -------- Net earnings........................................... $ 61,516 $ 66,734 $ 63,169 $ 60,709 $ 40,088 $ 20,561 $ 21,990 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Net earnings per share (4)............................. $ 1.00 $ .55 Weighted average common shares outstanding (4)......... 40,026 39,811
PRO FORMA STATEMENT OF EARNINGS DATA (5): Earnings from operations....................................................................... $ 87,985 $ 45,817 $47,271 Earnings before income taxes................................................................... 72,145 37,912 39,993 Income taxes................................................................................... 28,858 15,165 15,877 -------- -------- -------- Net earnings................................................................................... $ 43,287 $ 22,747 $24,116 -------- -------- -------- -------- -------- -------- Net earnings per share (4)..................................................................... $ 1.08 $ .61 Weighted average common shares outstanding (4)................................................. 40,026 39,811
AS OF JUNE 30, 1996 ---------------------- AS ADJUSTED ACTUAL (6) --------- ----------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital....................................................................... $ 84,415 $ 88,078 Total assets.......................................................................... 229,735 237,179 Notes payable and long-term debt...................................................... 152,768 141,668 Net stockholders' equity.............................................................. 6,324 24,868
- ---------------------------------- (1) Includes net revenue from (i) sales to discontinued wholesale accounts that the Company determined did not meet its merchandising standards of $42.3 million, $51.1 million, $32.9 million and $3.8 million for 1992, 1993, 1994 and 1995, respectively, and $3.5 million and $407,000 for the six months ended July 2, 1995 and June 30, 1996, respectively, and (ii) wholesale sales of discontinued product lines of $82.6 million, $31.7 million, $5.3 million and $1.7 million for 1992, 1993, 1994 and 1995, respectively, and $1.5 million and $345,000 for the six months ended July 2, 1995 and June 30, 1996, respectively. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- General." (2) Includes non-recurring charges related to the write down of operating assets to be disposed of in contemplation of the Offerings of $3.6 million ($3.4 million (historical) and $2.2 million (supplemental and pro forma) on an after-tax basis, respectively) in the aggregate (the "Reorganization Charge") relating to (i) disposal of two currently active remote warehouse and production facilities, which are not expected to be used in the Company's operations after the Offerings, resulting in a net book loss of $2.4 million, and (ii) the net book loss of $1.2 million incurred by the Company in connection with the sale of one of its aircraft to an unaffiliated third party for $6.0 million in contemplation of the Offerings. The effects of the Reorganization Charge have not been given pro forma effect for any of the periods presented. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Six Months Ended June 30, 1996 Compared to Six Months Ended July 2, 1995." (3) Reflects adjustments for Federal and state income taxes as if the Company had been taxed as a C corporation rather than an S corporation. (4) Reflects 32,682,000 shares of Common Stock outstanding prior to the Offerings and the assumed issuance of 7,344,000 and 7,129,000 shares of Common Stock at an assumed initial public offering price of $22.00 per share to generate sufficient cash to pay the S Corporation Distribution (as defined herein) in an amount equal to retained earnings as of December 31, 1995 and June 30, 1996, respectively. (5) Pro forma operating results reflect adjustments to historical operating results for (i) the elimination of salaries and bonuses paid to the Principal Executive Officers in excess of an aggregate of $4.9 million per year, or $1.2 million per quarter (the estimated aggregate salaries and bonuses to be paid to the Principal Executive Officers under their respective employment agreements following the Offerings), (ii) the decrease in depreciation and operating costs of $2.6 million, $1.3 million and $1.2 million for the year ended December 31, 1995 and the six months ended July 2, 1995 and June 30, 1996, respectively, associated with an aircraft owned by the Company, which aircraft was sold in contemplation of the Offerings, (iii) the elimination of the minority interest in GEBV and Guess Italia through the merger of Marciano International (as defined herein) with and into the Company in connection with the Reorganization (as defined herein), resulting in the inclusion in net earnings of $274,000, $201,000 and $160,000 for the year ended December 31, 1995 and the six months ended July 2, 1995 and June 30, 1996, respectively, which amounts had previously been recorded as minority interest, and (iv) adjustments for Federal and state income taxes as if the Company had been taxed as a C corporation rather than an S corporation. See "Company History, the Reorganization and Prior S Corporation Status" and "Management -- Employment Agreements." For additional pro forma statement of earnings data for 1993, 1994 and 1995 and for the six months ended July 2, 1995 and June 30, 1996, see "Management's Discussion and Analysis of Financial Condition and Results of Operations." (6) The as adjusted amount includes $176.9 million of S Distribution Notes which represent the undistributed S corporation taxable earnings at June 30, 1996 that would have been distributed had the Company's S corporation status been terminated at such date and reflects the sale of shares of Common Stock by the Company hereby at the assumed initial public offering price of $22.00 per share and the application of the estimated net proceeds therefrom to repay indebtedness of the Company, including indebtedness under the S Distribution Notes. No adjustment has been made to give effect to the Company's earned and undistributed taxable S corporation earnings for the period from July 1, 1996 through the S Termination Date (as defined herein), which will be distributed as part of the S Corporation Distribution. Between July 1, 1996 and the S Termination Date, the Company anticipates the increase in the S Distribution Notes to be between approximately $3.1 million and $13.1 million. See "Use of Proceeds" and "Company History, the Reorganization and Prior S Corporation Status." 6 RISK FACTORS PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY SHOULD CONSIDER CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL AS OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, IN EVALUATING AN INVESTMENT IN THE COMMON STOCK. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED BY SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS DISCUSSED IN THIS PROSPECTUS, INCLUDING THE FACTORS SET FORTH BELOW AND IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS. COMPETITION AND OTHER FACTORS AFFECTING THE APPAREL AND RETAILING INDUSTRIES The apparel industry is highly competitive, fragmented and subject to rapidly changing consumer demands and preferences. The Company believes that its success depends in large part upon its ability to anticipate, gauge and respond to changing consumer demands and fashion trends in a timely manner and upon the continued appeal to consumers of the Guess image. Failure by the Company to identify and respond appropriately to changing consumer demands and fashion trends could adversely affect consumer acceptance of Guess products and may have a material adverse effect on the Company's financial condition and results of operations. Guess competes with numerous apparel manufacturers and distributors (including Calvin Klein, Ralph Lauren, DKNY, Tommy Hilfiger and Nautica). Moreover, several well-known designers have recently entered or re-entered the designer denim market with products generally priced lower than the Company's designer jeans products. Guess's retail and factory outlet stores face competition from other retailers. Additionally, the Company encounters substantial competition from department stores, including some of the Company's major retail customers. Many of the Company's competitors have greater financial resources than Guess. The Company's licensed apparel and accessories also compete with a substantial number of designer and non-designer lines. Although the level and nature of competition differ among its product categories, Guess believes that it competes primarily on the basis of its brand image, quality of design and workmanship and product assortment. Increased competition by existing and future competitors could result in reductions in sales or prices of Guess products that could have a material adverse effect on the Company's financial condition and results of operations. In addition, the apparel industry historically has been subject to substantial cyclical variations, and a recession in the general economy or uncertainties regarding future economic prospects that affect consumer spending habits could have a material adverse effect on the Company's financial condition and results of operations. DEPENDENCE UPON CERTAIN CUSTOMERS AND LICENSEES The Company's department store customers include major United States retailers. The Company's three largest customers accounted for approximately 26.0% of net revenue in 1995. During 1995, Bloomingdale's, Macy's and affiliated stores owned by Federated Department Stores together accounted for approximately 11.0% of the Company's net revenue; The May Company accounted for approximately 7.7% of the Company's net revenue; and Dillard's stores accounted for approximately 7.3% of the Company's net revenue. Although several of the Company's department store customers are under common ownership, no other single customer or group of related customers accounted for more than 3.0% of the Company's net revenue in this period. While the Company believes that purchasing decisions in many cases are made independently by each department store chain under common ownership, the trend may be toward more centralized purchasing decisions. A decision by the controlling owner of a group of department stores or any other significant customer to decrease the amount purchased from the Company or to cease carrying Guess products could have a material adverse effect on the Company's financial condition and results of operations. The retail industry has periodically experienced consolidation and other ownership changes. In the future, the Company's wholesale customers may consolidate, undergo restructurings or reorganizations, or realign these affiliations, any of which could decrease the number of stores that carry the Company's or its licensees' products or increase the ownership concentration within the retail industry. Approximately 48.1% of the Company's net royalties was derived from its top four licensed product lines, GUESS WATCHES (18.9% of 1995 net royalties), BABY GUESS (12.3%), GUESS KIDS (9.2%) and GUESS EYEWEAR (7.7%). The BABY GUESS and GUESS KIDS lines are licensed to the same entity. A substantial portion of sales of GUESS brand products by its licensees are also made to the Company's three largest customers. The inability of the Company to control 7 the quality, focus, image or distribution of its licensed products could impact consumer receptivity to the Company's products generally and, therefore, adversely affect the Company's financial condition and results of operations. RISKS ASSOCIATED WITH ACHIEVING AND MANAGING GROWTH To manage growth effectively, Guess will be required to continue to implement changes in certain aspects of its business, continue to expand its information systems and operations to respond to increased demand, attract and retain qualified personnel (including management), and develop, train and manage an increasing number of management-level and other employees. Failure to continue to enhance operating control systems or unexpected difficulties encountered during expansion could adversely affect the Company's financial condition and results of operations. As part of its operating strategy, Guess intends to continue to expand its network of retail stores. Factors beyond the Company's control may affect the Company's ability to expand, including general economic and business conditions affecting consumer spending. The actual number and type of such stores to be opened and their success will depend on various factors, including the performance of the Company's wholesale and retail operations, the acceptance by consumers of the Company's retail concepts, the ability of the Company to manage such expansion and hire and train personnel, the availability of desirable locations and the negotiation of acceptable lease terms for new locations. Certain of these factors are also beyond the Company's control. In addition, Guess's strategy relies heavily upon its ability to align itself with effective distributors and licensees that are able to deliver high-quality products consistent with the GUESS brand image in a timely fashion and to successfully integrate such distributors and licensees into its global distribution channels. A general failure by the Company to maintain and control its existing distribution and licensing arrangements or to procure additional distribution and licensing relationships could adversely affect the Company's growth strategy, which could adversely affect the Company's financial condition and results of operations. The Company's strategic plan for its wholesale division depends in part on its ability to expand its sales to international distributors, deepen its product offerings and expand and upgrade its shop-in-shop program. This strategy is subject to a number of factors beyond the Company's control including general economic conditions and changing consumer preferences. Between 1992 and 1995, net revenue from wholesale operations decreased 32%. There can be no assurance that the Company's business strategy will be successful in halting or reversing this decline in net revenue. DEPENDENCE UPON KEY PERSONNEL The success of Guess is largely dependent upon the personal efforts and abilities of its senior management, particularly Mr. Maurice Marciano, Chairman of the Board and Chief Executive Officer, Mr. Paul Marciano, President and Chief Operating Officer, and Mr. Armand Marciano, Senior Executive Vice President and Secretary. Effective upon consummation of the Offerings, Maurice, Paul and Armand Marciano will continue to beneficially own an aggregate of 78.0% of the Company's outstanding Common Stock and each will enter into employment agreements with the Company. Although the Company has recently recruited several key executives with substantial industry expertise, the extended loss of the services of one or more of the Principal Executive Officers could have a material adverse effect on the Company's operations. The Company does not currently have "key man" insurance with respect to any of such individuals. See "Management -- Employment Agreements." FOREIGN OPERATIONS AND SOURCING; IMPORT RESTRICTIONS During 1995, approximately 18% of the Company's purchases of raw materials, labor and finished goods for its apparel were made in Hong Kong and other Asian countries; approximately 4% were made in Europe; approximately 1% were made elsewhere outside the United States; and the balance of 77% were made in the United States, all through arrangements with independent contractors. In recent years, Guess has been increasing its sourcing of fabrics outside of the United States. In addition, Guess has been increasing its international sales and, in 1995, approximately 5.0% and 1.9% of the Company's net revenue was from product sales to customers in international markets and from net royalties paid by international 8 licensees, respectively. As a result, the Company's operations may be affected adversely by political instability resulting in the disruption of trade with the countries in which the Company's contractors, suppliers or customers are located, the imposition of additional regulations relating to imports, the imposition of additional duties, taxes and other charges on imports, significant fluctuations in the value of the dollar against foreign currencies or restrictions on the transfer of funds. The inability of a contractor to ship orders in a timely manner could cause the Company to miss the delivery date requirements of its customers for those items, which could result in cancellation of orders, refusal to accept deliveries or a reduction in sales prices. Further, since Guess is unable to return merchandise to its suppliers, it could be faced with a significant amount of unsold merchandise, which could have a material adverse effect on the Company's financial condition and results of operations. Sovereignty over Hong Kong is scheduled to be transferred from the United Kingdom to The People's Republic of China effective July 1, 1997. If the business climate in Hong Kong were to experience an adverse change as a result of the transfer, the Company believes it could relocate its production and sourcing facilities outside Hong Kong and replace the merchandise currently produced in Hong Kong with merchandise produced elsewhere without a material adverse effect on the Company's financial condition or results of operations. Nevertheless, there can be no assurance that the Company would be able to do so. The Company's import operations are subject to constraints imposed by bilateral textile agreements between the United States and a number of foreign countries, including Hong Kong, China, Taiwan and South Korea. These agreements, which have been negotiated bilaterally either under the framework established by the Arrangement Regarding International Trade in Textiles, known as the Multifiber Agreement, or other applicable statutes, impose quotas on the amounts and types of merchandise which may be imported into the United States from these countries. These agreements also allow the United States to impose restraints at any time and on very short notice on the importation of categories of merchandise that, under the terms of the agreements, are not currently subject to specified limits. Imported products are also subject to United States customs duties which comprise a material portion of the cost of the merchandise. A substantial increase in customs duties could have an adverse effect on the Company's financial condition or results of operations. The United States and the countries in which the Company's products are produced or sold may, from time to time, impose new quotas, duties, tariffs or other restrictions, or adversely adjust prevailing quota, duty or tariff levels, any of which could have a material adverse effect on the Company's financial condition or results of operations. DEPENDENCE ON UNAFFILIATED MANUFACTURERS The Company does not own or operate any manufacturing facilities other than cutting, silk-screen and embroidery machinery, and is therefore dependent upon independent contractors for the manufacture of its products. The Company's products are manufactured to its specifications by both domestic and international manufacturers. The inability of a manufacturer to ship the Company's products in a timely manner or to meet the Company's quality standards could adversely affect the Company's ability to deliver products to its customers in a timely manner. Delays in delivery could result in missing certain retailing seasons with respect to some or all of the Company's products or could otherwise have an adverse effect on the Company's financial condition and results of operations. The Company does not have long-term contracts with any manufacturers. PROTECTION OF TRADEMARKS Guess believes that its trademarks and other proprietary rights are important to its success and its competitive position. Accordingly, Guess devotes substantial resources to the establishment and protection of its trademarks on a worldwide basis. Nevertheless, there can be no assurance that the actions taken by the Company to establish and protect its trademarks and other proprietary rights will be adequate to prevent imitation of its products by others or to prevent others from seeking to block sales of Guess products as violative of the trademarks and proprietary rights of others. No assurance can be given that others will not assert rights in, or ownership of, trademarks and other proprietary rights of Guess. In addition, the laws of certain foreign countries do not protect proprietary rights to the same extent as do the laws of the United States. See "Business -- Trademarks." 9 FUTURE SALES BY PRINCIPAL STOCKHOLDERS; SHARES ELIGIBLE FOR FUTURE SALE The Common Stock offered hereby will be freely tradeable (other than by an "affiliate" of the Company as such term is defined in the Securities Act of 1933, as amended (the "Securities Act")) without restriction or registration under the Securities Act. Immediately after the Offerings, trusts controlled by and for the benefit of Maurice Marciano, Paul Marciano and Armand Marciano and their families, respectively (the "Principal Stockholders"), will beneficially own approximately 35.4%, 28.8% and 13.8%, respectively, of the outstanding Common Stock. Subject to the restrictions set forth below, the Principal Stockholders will be free to sell such shares from time to time to take advantage of favorable market conditions or for any other reason. Future sales of shares of Common Stock by the Company and its stockholders could adversely affect the prevailing market price of the Common Stock. Guess and the Principal Stockholders have entered into lock-up agreements with Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and Morgan Stanley & Co. Incorporated, as representatives of the U.S. Underwriters (the "U.S. Representatives"), and with Merrill Lynch International and Morgan Stanley & Co. International Limited, as representatives of the International Managers (the "International Representatives" and, together with the U.S. Representatives, the "Representatives"), pursuant to which the Company and the Principal Stockholders have agreed, subject to certain exceptions, not to, directly or indirectly, (i) sell, grant any option to purchase or otherwise transfer or dispose of any Common Stock or securities convertible into or exchangeable or exercisable for Common Stock or file a registration statement under the Securities Act with respect to the foregoing or (ii) enter into any swap or other agreement or transaction that transfers, in whole or in part, the economic consequence of ownership of the Common Stock, without the prior written consent of Merrill Lynch, for a period of 180 days after the date of this Prospectus. After such time, approximately 32,682,000 shares of Common Stock will be eligible for sale pursuant to Rule 144 promulgated under the Securities Act. In addition, the Principal Stockholders have rights to demand or participate in future registrations of shares of Common Stock under the Securities Act. Sales of substantial amounts of Common Stock in the public market, or the perception that such sales may occur, could have a material adverse effect on the market price of the Common Stock. See "Shares Eligible for Future Sale" and "Underwriting." CONTROL BY PRINCIPAL STOCKHOLDERS Following the consummation of the Offerings, the Principal Stockholders will have majority control of the Company and the ability to control the election of directors and the results of other matters submitted to a vote of stockholders. Such concentration of ownership, together with the anti-takeover effects of certain provisions in the Delaware General Corporation Law and in the Company's Certificate of Incorporation and Bylaws, may have the effect of delaying or preventing a change in control of the Company. See "Description of Capital Stock." The Board of Directors of the Company is expected to be comprised entirely of designees of the Principal Stockholders. See "Management" and "Principal Stockholders." ABSENCE OF PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE Prior to the Offerings, there has been no public market for the Common Stock, and there can be no assurance that an active trading market will develop or be sustained. The initial public offering price of the Common Stock offered hereby will be determined through negotiations among the Company, the Principal Stockholders and the Representatives and may bear no relationship to the market price for the Common Stock after the Offerings. Subsequent to the Offerings, prices for the Common Stock will be determined by the market and may be influenced by a number of factors, including depth and liquidity of the market for the Common Stock, investor perceptions of the Company, changes in conditions or trends in the Company's industry or in the industry of the Company's significant customers, publicly traded comparable companies and general economic and other conditions. See "Underwriting." DILUTION The initial public offering price is expected to be substantially higher than the book value per share of Common Stock. Investors purchasing shares of Common Stock in the Offerings will therefore incur immediate and substantial dilution of $21.43 per share, based upon the mid-point of the filing range set forth on the cover page of this Prospectus. See "Dilution." 10 FORWARD-LOOKING STATEMENTS When used in this Prospectus and the documents incorporated herein by reference, the words "believes," "anticipates," "expects" and similar expressions are intended to identify in certain circumstances, forward-looking statements. Such statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those projected, including the risks described in this "Risk Factors" section. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such statements. The Company also undertakes no obligation to update these forward-looking statements. 11 COMPANY HISTORY, THE REORGANIZATION AND PRIOR S CORPORATION STATUS Maurice, Paul and Armand Marciano, together with their brother Georges, began in the apparel business in France in 1972 and opened their first retail apparel stores in the United States in 1978 in California. The business of GUESS was founded in 1981 by the Marciano brothers. The Company was founded on the concept of a fashion jean with the first GUESS product being the "three-zip Marilyn" jean, which was stone-washed and adapted to fit the contours of a woman's body. Since that time, the Company's product offerings have grown to include full lines of men's and women's casual apparel. Guess ?, Inc. is a Delaware corporation organized in 1993 to succeed to the business of Guess ?, Inc., a California corporation ("Guess California"), that commenced operations in 1981. Guess California was the entity through which Maurice, Paul, Armand and Georges Marciano conducted the Guess business until August 1993. At that time, Guess California was merged into Guess ?, Inc., and the Company and a trust for the benefit of Paul Marciano repurchased the shares of Common Stock owned by Georges Marciano, who simultaneously resigned as Chairman and Chief Executive Officer of the Company and from its Board of Directors. Since the inception of Guess California, Georges Marciano, together with Maurice Marciano, had been primarily responsible for the creation of Guess California's product. Georges Marciano was primarily responsible for design while Maurice Marciano was responsible for product development. After the resignation of Georges Marciano, Maurice Marciano became responsible for all aspects of design along with his prior responsibilities for the development of the Company's strategic focus and expansion of its business and was named Chairman and Chief Executive Officer. See "Management." The purchase price for the shares of Common Stock repurchased by the Company was approximately $203.5 million. The Company financed such purchase with the proceeds from an offering of $130.0 million principal amount of 9 1/2% Senior Subordinated Notes due 2003 (the "Senior Subordinated Notes") and an $80.0 million short term loan (the "Bridge Loan"). The Bridge Loan was repaid in full in December 1993. As of the date hereof, $105.0 million principal amount of the Senior Subordinated Notes remains outstanding. Since 1983, Guess has elected to be treated for Federal and certain state income tax purposes as an S corporation under Subchapter S of the Internal Revenue Code of 1986, as amended (the "Code"), and comparable state laws. As a result, the earnings of the Company (including its predecessor) for such years have been included in the taxable income of the Company's stockholders for Federal and certain state income tax purposes, and the Company has generally not been subject to income tax on such earnings, other than California and other state franchise taxes. Prior to the consummation of the transactions related to the Offerings (the "Closing Date"), the Company's S corporation status will be terminated (the "S Termination Date"). Prior to the S Termination Date, the Company will declare a distribution to its stockholders that will include all of its previously earned and undistributed S corporation earnings through the S Termination Date (the "S Corporation Distribution"). The S Corporation Distribution will occur prior to the S Termination Date and will be comprised of promissory notes bearing interest at 8% per annum (the "S Distribution Notes"). Guess estimates that such undistributed taxable S corporation earnings will be between $180.0 million and $190.0 million as of the Closing Date, including a gain for income tax purposes recognized in connection with the sale of one of the Company's aircraft. See "Use of Proceeds." On and after the S Termination Date, the Company will no longer be treated as an S corporation and, accordingly, will be fully subject to Federal and state income taxes. See "Capitalization" and note 7 to the Company's consolidated financial statements. The Company's current primary subsidiaries include GEBV and Guess Italia. Marciano International, Inc., a Delaware corporation owned by certain of the Principal Stockholders ("Marciano International"), currently holds minority interests in GEBV and Guess Italia. Ranche is currently a wholly-owned subsidiary of GEBV. Prior to the consummation of the Offerings, (i) Marciano International will be merged with and into Guess, (ii) all of the capital stock of Guess Italia will be contributed to GEBV, (iii) the Company will effect a 32.66 for 1 split of the Common Stock and (iv) the S Corporation Distribution will be effected, whereby the Company will distribute to the Principal Stockholders the S Distribution Notes. Trusts for the respective benefit of Maurice Marciano, Paul Marciano and Armand Marciano (the "Marciano Trusts") will receive an 12 aggregate of $300,000 in connection with the merger of Marciano International with and into the Company. All of such transactions (together with the termination of the Company's S corporation status described above) are referred to herein as the "Reorganization." The Company's principal executive offices are located at 1444 South Alameda Street, Los Angeles, California 90021 and its telephone number is (213) 765-3100. USE OF PROCEEDS The net proceeds to the Company from the sale of the shares of Common Stock offered by the Company hereby are estimated to be approximately $188.0 million, based on an assumed initial public offering price of $22.00 per share. The Company intends to immediately use such net proceeds to repay substantially all of the S Distribution Notes (estimated to have an aggregate principal amount between $180.0 million and $190.0 million). The remaining net proceeds, if any, will be used to repay outstanding advances under the Company's revolving credit facility. The S Distribution Notes will bear interest at 8% and will mature one year from the Closing Date. Pending repayment of the S Distribution Notes, the Company will invest the net proceeds in short-term, interest bearing instruments or other investment grade securities. As of June 30, 1996, there was $43.0 million outstanding under the revolving credit facility, which bears interest at 7.0%. See "Company History, the Reorganization and Prior S Corporation Status" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." DIVIDEND POLICY The Company anticipates that, after payment of the S Corporation Distribution to the Principal Stockholders in connection with the termination of the S corporation status of the Company, all earnings will be retained for the foreseeable future for use in the operations of the business. Purchasers of shares of Common Stock in the Offerings will not receive any portion of the S Corporation Distribution. Any future determination as to the payment of dividends will be at the discretion of the Company's Board of Directors and will depend upon the Company's results of operations, financial condition, contractual restrictions and other factors deemed relevant by the Board of Directors. The agreement governing the Company's revolving credit facility (the "Credit Agreement") and the indenture pursuant to which the Senior Subordinated Notes were issued (the "Indenture") restrict the payment of dividends by the Company. For certain information regarding distributions made by the Company in 1993, 1994, 1995 and the six months ended June 30, 1996, see "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 13 CAPITALIZATION The following table sets forth the short-term debt and capitalization of the Company as of June 30, 1996 and as adjusted as of that date to give effect to (i) the S Corporation Distribution as if the Company's S corporation status had terminated on such date and (ii) an estimated $7.4 million of net deferred tax assets that would have been recorded had the Company's S corporation status been terminated on June 30, 1996, and as further adjusted to reflect the sale of shares of Common Stock by the Company in the Offerings and the application of the estimated net proceeds therefrom to repay indebtedness under the S Distribution Notes and the Credit Agreement. The information below should be read in conjunction with the Company's consolidated financial statements and the related notes thereto which are included elsewhere in this Prospectus. See "Use of Proceeds."
AS OF JUNE 30, 1996 ------------------------------------- AS FURTHER ACTUAL AS ADJUSTED ADJUSTED ----------- ----------- ----------- (IN THOUSANDS) Short-term debt: Current installments of long-term debt................................. $ 983 $ 983 $ 983 Short-term notes payable............................................... 3,073 179,973(1) 3,073 ----------- ----------- ----------- Total short-term debt................................................ $ 4,056 $ 180,956 $ 4,056 ----------- ----------- ----------- ----------- ----------- ----------- Long-term debt: Long-term debt, net of current installments............................ $ 43,712 $ 43,712 $ 32,612 9 1/2% Senior Subordinated Notes due 2003.............................. 105,000 105,000 105,000 ----------- ----------- ----------- Total long-term debt................................................. 148,712 148,712 137,612 Stockholders' equity: Preferred Stock, par value $.01 per share; 10,000,000 shares authorized, no shares issued and outstanding.......................... -- -- -- Common Stock, par value $.01 per share; 150,000,000 shares authorized, 52,713,000 shares issued, 32,682,000 shares outstanding actual and as adjusted, 41,882,000 shares outstanding as further adjusted, 20,031,000 shares held in treasury (2)................................ 35 35 127 Paid-in capital........................................................ 181 (19,883)(3) 168,025(3) Retained earnings (4).................................................. 156,836 7,444 7,444 Foreign currency translation adjustment................................ 48 48 48 Treasury stock, 20,031,000 shares repurchased (5)...................... (150,776) (150,776) (150,776) ----------- ----------- ----------- Net stockholders' equity (deficiency)................................ 6,324 (163,132) 24,868 ----------- ----------- ----------- Total capitalization................................................. $ 155,036 $ (14,420) $ 162,480 ----------- ----------- ----------- ----------- ----------- -----------
- ------------------------------ (1) The as adjusted amount includes $176.9 million of S Distribution Notes which represent the undistributed S corporation taxable earnings at June 30, 1996 that would have been distributed had the Company's S corporation status been terminated on such date. (2) Excludes approximately 5,000,000 shares of Common Stock reserved for issuance pursuant to awards under the 1996 Equity Plan and the Directors' Plan, including options to purchase 1,207,405 shares of Common Stock to be granted immediately prior to the Offerings. Of such options, 1,137,598 will have an exercise price per share equal to the initial public offering price of Common Stock and 69,807 will have an exercise price of $21.49 per share. The Company does not anticipate recording compensation expense relating to the grant of any such options. See "Management -- Employment Agreements," "-- 1996 Equity Incentive Plan" and "-- 1996 Non-Employee Directors' Stock Option Plan." (3) Reflects a reduction of $20.1 million of paid-in capital for that portion of the S Corporation Distribution which is in excess of financial statement retained earnings. The S Corporation Distribution exceeds financial statement retained earnings because of differences in the basis of certain assets and liabilities between the financial reporting and income tax presentation. (4) No adjustment has been made to give effect to the Company's earned and undistributed taxable S corporation earnings for the period from July 1, 1996 through the S Termination Date, which will be distributed as part of the S Corporation Distribution. Between July 1, 1996 and the S Termination Date, the Company anticipates the increase in the S Distribution Notes to be between approximately $3.1 million and $13.1 million. See "Use of Proceeds" and "Company History, the Reorganization and Prior S Corporation Status." (5) Represents the cost in excess of the allocable portion of retained earnings associated with the repurchase of Common Stock from a former principal stockholder of the Company. See note 7 to the Company's consolidated financial statements. 14 DILUTION The net tangible book value of the Company at June 30, 1996 was approximately $5.3 million, or $.16 per share of Common Stock. After giving effect to the Reorganization and the S Corporation Distribution as if it had been made as of June 30, 1996 and the Company's S corporation status had terminated at such date, the pro forma net tangible book value of the Company at June 30, 1996 would have been approximately $(164.2) million, or $(5.02) per share of Common Stock. After giving effect to the sale by the Company of shares of Common Stock in the Offerings and the application of the estimated net proceeds therefrom to repay indebtedness under the S Distribution Notes and the Company's Credit Agreement, the pro forma net tangible book value of the Company as adjusted at June 30, 1996 would have been approximately $23.8 million, or $.57 per share. See "Company History, the Reorganization and Prior S Corporation Status" and "Use of Proceeds." This represents an immediate increase in net tangible book value of $5.59 per share to the Principal Stockholders and an immediate net tangible book value dilution of $21.43 per share to investors purchasing shares in the Offerings. The following table illustrates this per share dilution: Assumed initial public offering price per share (1)............... $ 22.00 Net tangible book value at June 30, 1996...................... $ .16 Increase attributable to the establishment of deferred tax assets....................................................... .23 Decrease attributable to S Corporation Distribution........... (5.41) --------- Adjusted net tangible book value per share before the Offerings.................................................... (5.02) Increase attributable to new investors in the Offerings....... 5.59 --------- Net tangible book value, as further adjusted, per share after the Offerings (2).................................................... .57 --------- Dilution per share to new investors............................... $ 21.43 --------- ---------
- ------------------------------ (1) Before deducting estimated underwriting discounts and commissions and estimated expenses of the Offerings payable by the Company. (2) Excludes approximately 5,000,000 shares of Common Stock reserved for issuance pursuant to awards under the 1996 Equity Plan and the Directors' Plan, including options to purchase 1,207,405 shares of Common Stock to be granted immediately prior to the Offerings. Of such options, 1,137,590 will have an exercise price per share equal to the initial public offering price of the Common Stock and 69,807 will have an exercise price of $21.49 per share. The Company does not anticipate recording compensation expense relating to the grant of any such options. See "Management -- Employment Agreements," "-- 1996 Equity Incentive Plan" and "-- 1996 Non-Employee Directors' Stock Option Plan." 15 SELECTED FINANCIAL DATA The selected financial data set forth below have been derived from the consolidated financial statements of the Company and the related notes thereto. The statement of earnings data for the years ended December 31, 1993, 1994 and 1995 and the balance sheet data as of December 31, 1994 and 1995 are derived from the consolidated financial statements of the Company, which have been audited by KPMG Peat Marwick LLP, independent auditors and which are contained elsewhere in this Prospectus. The statement of earnings data for the years ended December 31, 1991 and 1992 and the balance sheet data as of December 31, 1991, 1992 and 1993 are derived from the consolidated financial statements of the Company, which have been audited but are not contained herein. Financial data as of June 30, 1996, and for the six month periods ended July 2, 1995 and June 30, 1996, are unaudited but, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such data. The results of operations for the six months ended June 30, 1996 are not necessarily indicative of the results to be expected for the entire year. The following selected financial data should be read in conjunction with the Company's consolidated financial statements and the related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations," which are included elsewhere in this Prospectus.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, ---------------------- ----------------------------------------------------- JULY 2, JUNE 30, 1991 1992 1993 1994 1995 1995 1996 --------- --------- --------- --------- --------- --------- ----------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF EARNINGS DATA: Net revenue: Product sales (1)......................... $ 436,398 $ 491,978 $ 491,444 $ 507,462 $ 440,359 $ 206,579 $ 232,111 Net royalties............................. 14,133 20,788 28,780 40,350 46,374 23,073 25,295 --------- --------- --------- --------- --------- --------- ----------- Total net revenue....................... 450,531 512,766 520,224 547,812 486,733 229,652 257,406 Cost of sales............................... 226,238 274,920 260,409 291,989 262,142 120,809 137,113 --------- --------- --------- --------- --------- --------- ----------- Gross profit................................ 224,293 237,846 259,815 255,823 224,591 108,843 120,293 Selling, general and administrative expenses................................... 119,824 127,873 145,351 138,016 141,663 66,468 72,829 Reorganization charge (2)................... -- -- -- -- -- -- 3,559 --------- --------- --------- --------- --------- --------- ----------- Earnings from operations.................. 104,469 109,973 114,464 117,807 82,928 42,375 43,905 Interest, net............................... (2,108) (1,162) (11,735) (16,948) (15,957) (7,926) (7,291) Non-operating income (expense).............. 166 2,413 2,552 322 (157) (180) (147) --------- --------- --------- --------- --------- --------- ----------- Earnings before income taxes.............. 102,527 111,224 105,281 101,181 66,814 34,269 36,467 Income taxes................................ 2,695 2,856 1,810 3,540 2,895 1,275 1,598 --------- --------- --------- --------- --------- --------- ----------- Net earnings.............................. $ 99,832 $ 108,368 $ 103,471 $ 97,641 $ 63,919 $ 32,994 $ 34,869 --------- --------- --------- --------- --------- --------- ----------- --------- --------- --------- --------- --------- --------- ----------- SUPPLEMENTAL STATEMENT OF EARNINGS DATA (3): Earnings before income taxes................ $ 102,527 $ 111,224 $ 105,281 $ 101,181 $ 66,814 $ 34,269 $ 36,467 Income taxes................................ 41,011 44,490 42,112 40,472 26,726 13,708 14,477 --------- --------- --------- --------- --------- --------- ----------- Net earnings................................ $ 61,516 $ 66,734 $ 63,169 $ 60,709 $ 40,088 $ 20,561 $ 21,990 --------- --------- --------- --------- --------- --------- ----------- --------- --------- --------- --------- --------- --------- ----------- Net earnings per share (4).................. $ 1.00 $ .55 Weighted average common shares outstanding (4)........................................ 40,026 39,811
AS OF JUNE 30, 1996 AS OF DECEMBER 31, ----------------------- ---------------------------------------------------------- AS 1991 1992 1993 1994 1995 ACTUAL ADJUSTED (5) ---------- ---------- ---------- ---------- ---------- ---------- ----------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital........................ $ 91,635 $ 114,732 $ 74,094 $ 83,127 $ 57,572 $ 84,415 $ 88,078 Total assets........................... 214,346 226,824 181,017 207,696 202,635 229,735 237,179 Notes payable and long-term debt....... 21,461 8,548 189,414 156,495 123,335 152,768 141,668 Net stockholders' equity (deficiency).......................... 149,022 167,390 (50,284) 373 10,997 6,324 24,868
(FOOTNOTES ON THE FOLLOWING PAGE) 16 (CONTINUED FROM PRIOR PAGE) (1) Includes net revenue from (i) sales to discontinued wholesale accounts that the Company determined did not meet its merchandising standards of $42.3 million, $51.1 million, $32.9 million and $3.8 million for 1992, 1993, 1994 and 1995, respectively, and $3.5 million and $407,000 for the six months ended July 2, 1995 and June 30, 1996, respectively, and (ii) wholesale sales of discontinued product lines of $82.6 million, $31.7 million, $5.3 million and $1.7 million for 1992, 1993, 1994 and 1995, respectively, and $1.5 million and $345,000 for the six months ended July 2, 1995 and June 30, 1996, respectively. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- General." (2) In contemplation of the Offerings, the Company recorded the Reorganization Charge for certain non-recurring charges related to the writedown of operating assets to be disposed of in the six months ended June 30, 1996 aggregating $3.6 million ($3.4 million (historical) and $2.2 million (supplemental and pro forma) on an after tax basis, respectively) relating to (i) disposal of two currently active remote warehouse and production facilities which are not expected to be used in the Company's operations after the Offerings, resulting in a net book loss of $2.4 million, and (ii) the net book loss of $1.2 million incurred by the Company in connection with the sale of one of its aircraft to an unaffiliated third party for $6.0 million. The effects of the Reorganization Charge have not been given pro forma effect for any of the periods presented. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Six Months Ended June 30, 1996 Compared to Six Months Ended July 2, 1995." (3) Reflects adjustments for Federal and state income taxes as if the Company had been taxed as a C corporation rather than an S corporation. (4) Reflects 32,682,000 shares of Common Stock outstanding prior to the Offerings and the assumed issuance of 7,344,000 and 7,129,000 shares of Common Stock at an assumed initial public offering price of $22.00 per share to generate sufficient cash to pay the S Corporation Distribution in an amount equal to retained earnings as of December 31, 1995 and June 30, 1996, respectively. (5) The as adjusted amount includes $176.9 million of S Distribution Notes which represents the undistributed S corporation taxable earnings at June 30, 1996 that would have been distributed had the Company's S corporation status been terminated at such date, and reflects the sale of shares of Common Stock by the Company hereby at the assumed initial public offering price of $22.00 per share and the application of the estimated net proceeds therefrom to repay indebtedness of the Company, including indebtedness under the S Distribution Notes. No adjustment has been made to give effect to the Company's earned and undistributed taxable S corporation earnings for the period from July 1, 1996 through the S Termination Date, which will be distributed as part of the S Corporation Distribution. Between July 1, 1996 and the S Termination Date, the Company anticipates the increase in the S Distribution Notes to be between approximately $3.1 million and $13.1 million. See "Use of Proceeds" and "Company History, the Reorganization and Prior S Corporation Status." 17 SELECTED PRO FORMA FINANCIAL DATA The selected pro forma statement of earnings data set forth below are presented for informational purposes only and may not necessarily be indicative of the results of operations of the Company as they may be in the future. The following selected pro forma financial data should be read in conjunction with the Company's consolidated financial statements and the related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations," which are included elsewhere in this Prospectus. Amounts reflect pro forma adjustments to historical operating results for (a) the elimination of salaries and bonuses paid to the three Principal Executive Officers in excess of an aggregate of $4.9 million per year, or $1.2 million per quarter (the estimated aggregate salaries and bonuses to be paid to the Principal Executive Officers under their respective employment agreements following the Offerings), (b) the decrease in depreciation and operating costs of $2.6 million, $1.3 million and $1.2 million for the year ended December 31, 1995 and the six months ended July 2, 1995 and June 30, 1996, respectively, associated with an aircraft owned by the Company, which aircraft was sold in contemplation of the Offerings, (c) the elimination of the minority interest in GEBV and Guess Italia through the merger of Marciano International with and into the Company in connection with the Reorganization, resulting in the inclusion in net earnings of $274,000, $201,000 and $160,000 for the year ended December 31, 1995 and the six months ended July 2, 1995 and June 30, 1996, respectively, which amounts had previously been recorded as minority interest and (d) adjustments for Federal and state income taxes as if the Company had been taxed as a C corporation rather than an S corporation. See "Company History, the Reorganization and Prior S Corporation Status" and "Management -- Employment Agreements." For additional pro forma statement of earnings data for 1993, 1994 and 1995 and for the six months ended July 2, 1995 and June 30, 1996, see "Management's Discussion and Analysis of Financial Condition and Results of Operations."
SIX MONTHS ENDED -------------------------- YEAR ENDED JULY 2, DECEMBER 31, 1995 1995 JUNE 30, 1996 ----------------- ----------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) PRO FORMA STATEMENT OF EARNINGS DATA: Net revenue: Product sales............................................................... $ 440,359 $ 206,579 $ 232,111 Net royalties............................................................... 46,374 23,073 25,295 -------- ----------- ------------- Total net revenue......................................................... 486,733 229,652 257,406 Cost of sales................................................................. 262,142 120,809 137,113 -------- ----------- ------------- Gross profit.................................................................. 224,591 108,843 120,293 Selling, general and administrative expenses.................................. 136,606 63,026 69,463 Reorganization charge......................................................... -- -- 3,559 -------- ----------- ------------- Earnings from operations.................................................... 87,985 45,817 47,271 Interest expense, net......................................................... (15,957) (7,926) (7,291) Non-operating income, net..................................................... 117 21 13 -------- ----------- ------------- Earnings before income taxes................................................ 72,145 37,912 39,993 Income taxes.................................................................. 28,858 15,165 15,877 -------- ----------- ------------- Net earnings................................................................ $ 43,287 $ 22,747 $ 24,116 -------- ----------- ------------- -------- ----------- ------------- Net earnings per share (1).................................................... $ 1.08 $ .61 Weighted average common shares outstanding (1)................................ 40,026 39,811
- ------------------------ (1) Amounts reflect 32,682,000 shares of Common Stock outstanding prior to the Offerings and the assumed issuance of 7,344,000 and 7,129,000 shares of Common Stock at an assumed initial public offering price of $22.00 per share to generate sufficient cash to pay the S Corporation Distribution in an amount equal to retained earnings as of December 31, 1995 and June 30, 1996, respectively. 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the "Selected Financial Data" and "Selected Pro Forma Financial Data" and the Company's consolidated financial statements and the related notes thereto, which are included elsewhere in this Prospectus. GENERAL The Company derives its revenue and net earnings from the worldwide sale of GUESS brand products through its wholesale, retail and licensing operations. Since its inception in 1982, the Company's net revenue has grown to $486.7 million in 1995. The Company has been profitable in every year of its operations and in 1995 generated pro forma net earnings (as described herein) of $43.3 million. The Company derives its net revenue from the sale of Guess men's and women's apparel to wholesale customers and distributors, the sale of Guess men's and women's apparel and its licensees' products through the Company's network of retail and factory outlet stores and net royalties from licensing activities. The following table sets forth the net revenue of the Company through its channels of distribution.
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED, ---------------------------------------------------- ---------------------------------- 1993 1994 1995 JULY 2, 1995 JUNE 30, 1996 ---------------- ---------------- ---------------- ---------------- ---------------- (IN THOUSANDS) Net revenue: Wholesale operations........ $348,879 67.1% $358,125 65.4% $270,931 55.7% $142,427 62.0% $144,782 56.3% Retail operations........... 142,565 27.4 149,337 27.2 169,428 34.8 64,152 27.9 87,329 33.9 -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ Net revenue from product sales.................... 491,444 94.5 507,462 92.6 440,359 90.5 206,579 89.9 232,111 90.2 Net royalties............... 28,780 5.5 40,350 7.4 46,374 9.5 23,073 10.1 25,295 9.8 -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ Total net revenue......... $520,224 100.0% $547,812 100.0% $486,733 100.0% $229,652 100.0% $257,406 100.0% -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ -------- ------
WHOLESALE OPERATIONS The Company, through its wholesale operations, designs, sources, markets and distributes its men's and women's apparel lines to wholesale customers in the United States and Italy, to international distributors and to the Company's network of retail and factory outlet stores. Wholesale operations include the Company's U.S. operations, Guess Europe and Guess Asia. Guess Europe was established in 1993 to provide a platform for increased international growth and to better service the Company's distributors and international licensees, and consists of a design studio, sales office, sourcing office and warehouse in Florence and a showroom in Milan. Ranche, which is a wholly owned subsidiary of the Company, consists of a sales office and sourcing office for the Company and a merchandising support operation for the Company's distributors and licensees. In addition, GEBV is a 50% joint venture partner in a sourcing agency located in Hong Kong. Since its inception, net revenue from the Company's wholesale operations grew to $396.9 million in 1992. Between 1992 and 1995, net revenue from wholesale operations decreased 32%, which, to a large extent, resulted from strategic business decisions implemented beginning in late 1992, including a renewed focus within the Company's wholesale operations on the sale of its core men's and women's product lines. As a result, the Company converted the boys' product line, the majority of the girls' product line and women's knits into licensing arrangements, which became effective at various times throughout 1993. Net revenue from wholesale operations attributable to these discontinued product lines was $82.6 million, $31.7 million, $5.3 million and $1.7 million for 1992, 1993, 1994 and 1995, respectively. Net sales by such licensees, as reported to the Company, aggregated $75.6 million, $109.6 million and $99.5 million for 1993, 1994 and 1995, respectively. See Note 12 to the Company's consolidated financial statements. Beginning in late 1993, the Company made the strategic decision to curtail distribution of its products to certain accounts which did not meet the Company's merchandising standards in order to protect the Guess image and enhance the exclusivity of the brand. Net sales to such discontinued accounts represented approximately $42.3 million, $51.1 million, $32.9 million and $3.8 million of the Company's net revenue in 1992, 1993, 1994 and 1995, respectively. In addition, the Company's net revenue declined during this period 19 as a result of increased competition in branded denim apparel, the then sluggish retail environment, the consolidation taking place among department store retailers and financial difficulties experienced by certain of the Company's wholesale customers. To address the decline in net revenue from wholesale operations, the Company is pursuing a strategy to deepen the Company's product offerings, increase the number of shop-in-shops and increase sales to international distributors. Based on positive consumer reaction, the Company has introduced the GUESS COLLECTION to selected better department stores for shipment in the Fall 1996 season. In addition, the Company intends to broaden its men's and women's lines to include khaki and other twill products beginning with the 1996 holiday/resort season. In November 1995 the Company introduced a new line of jeans under the "Bare Basics" label, with unique construction and fabrications and lower price points than traditional Guess jeans. The Company opened 18 shop-in-shops in the first quarter of 1996. The Company intends to open a total of 75 and 100 shop-in-shops in 1996 and 1997, respectively, and intends to support the introduction of the GUESS COLLECTION with a unique shop-in-shop program beginning in 1997. RETAIL OPERATIONS The Company's retail operations include 112 Company-operated retail and factory outlet stores primarily located in regional shopping malls in the United States, including one Company-operated retail store located in Florence, Italy. The Company's factory outlet stores serve as a distribution channel for discontinued styles, slow-moving inventory, returned goods and seconds. As of March 31, 1996, the domestic retail network included 64 retail stores located in 20 states and 47 factory outlet stores located in 27 states. The Company's strategy is to increase domestic sales by selectively expanding its network of retail stores, increasing the comparable store sales of its existing stores and closing stores that do not meet its financial objectives. Consistent with this strategy, the Company has opened two retail stores in the first quarter of 1996, and intends to open approximately five additional retail stores during the remainder of 1996 and approximately 15 additional retail stores during 1997. The Company's retail management team recently refined the Company's strategy to improve the productivity of its retail network by establishing new models for optimal store size, design and construction costs as well as staffing levels. In addition, in late 1995, the Company began to improve the merchandising mix in its stores and implement sophisticated information systems to improve inventory control. The Company believes that the implementation of these initiatives contributed to the increase in comparable retail and factory outlet store net revenue of 16.7% in the first quarter of 1996. The Company monitors the performance of each of its retail and factory outlet stores to ensure they meet minimum operating performance standards. Stores that do not meet these minimum standards or are unprofitable become candidates for closure. Since the beginning of 1993, the Company has closed 16 stores, including ten that were closed in 1995. During 1995, the Company recorded provisions for store closing expenses of $2.9 million and $1.0 million during the third and fourth quarters, respectively. These provisions include the costs the Company will incur in connection with completing the closure of three retail stores. The Company does not currently expect that it will be closing additional retail stores during the next 12 months. Costs of closing stores typically consist principally of lease termination costs and the write-off of certain leasehold improvements. 20 The following chart sets forth the store openings and closing since 1993, total average gross square footage, comparable store net revenue and net revenue per square foot.
FIRST QUARTER ENDED ----------------- YEAR ENDED DECEMBER 31, APRIL MARCH --------------------------- 2, 31, 1993 1994 1995 1995 1996 ------- ------- ------- ------- ------- Retail stores Beginning of period................. 39 36 53 53 63 Opened during period................ 1 19 15 1 2 Closed during period................ (4) (2) (5) (2) -- ------- ------- ------- ------- ------- End of Period....................... 36 53 63 52 65 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Factory stores Beginning of period................. 22 43 47 47 47 Opened during period................ 21 4 5 1 -- Closed during period................ -- -- (5) (1) -- ------- ------- ------- ------- ------- End of Period....................... 43 47 47 47 47 ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Comparable store sales increase (decrease)............................. (4.0)% (5.3)% (7.4)% (0.1)% 16.7% Total average gross square footage (1).................................... 341,000 425,000 543,000 507,000 593,000 Net revenue per average gross square foot................................... $ 418 $ 351 $ 312 $ 56 $ 68
- ------------------------ (1) Average gross square footage represents the square footage (including selling, stocking and all other areas) of the Company's stores. In the event a store was open for less than the full period presented, the average gross square footage was computed based on the percentage of time such store was open during the period. LICENSING OPERATIONS Guess has selectively licensed the use of its trademarks since 1982. The Company's strategy is to increase net royalties from selectively licensing the Guess name to producers of high-quality products that complement its lifestyle collection in the United States and other territories. In addition to licensing products which complement the Company's apparel products, Guess has granted licenses for the manufacture and sale of GUESS branded products similar to the Company's, including men's and women's denim and knitwear, in markets such as Canada, Argentina, Mexico, the Philippines, South Korea, Brazil and Japan. Licensing both expands distribution into new territories and broadens the spectrum of GUESS brand products. Licensed products include watches, clothing for infants and children, eyewear, footwear, activewear, home products and other fashion accessories. The Company's royalties, net of direct expenses, from such sales and nonrecurring fees increased from $28.8 million in 1993 to $46.4 million in 1995. Guess has 26 licensees, all of which are currently generating royalties. Net royalties from the four most significant licenses accounted for approximately 48.1% and 49.1% of the Company's net royalties in 1995 and the six months of 1996, respectively. In order to maintain its reputation for quality and style and to control the integrity of the brand name, the Company's licensing department strictly monitors product design, development, merchandising and marketing and meets regularly with licensees to ensure consistency with the Company's overall strategies, and to ensure uniformity and quality control. The Company regularly reviews the financial reports provided by its licensees in order to monitor sales trends, royalty calculations and pricing policies, among other things. All GUESS brand products, advertising, promotional and packaging materials must be approved in advance by Guess. The Company operates centers in Los Angeles, Hong Kong and Milan that assist in monitoring the quality of the products and operations of its licensees, as well as its distributors, in developing their territories and products. These centers allow the Company to ensure that all licensees and distributors comply with the strict Guess quality standards. 21 PRO FORMA RESULTS OF OPERATIONS The following table sets forth pro forma operating results for the periods indicated. Pro forma operating results reflect adjustments to historical operating results for (i) the elimination of salaries and bonuses paid to the Principal Executive Officers in excess of an aggregate of $4.9 million per year, or $1.2 million per quarter (the estimated aggregate salaries and bonuses to be paid to the Principal Executive Officers under their respective employment agreements following the Offerings), resulting in a decrease in compensation expense of $14.0 million, $3.3 million, $2.4 million, $2.2 million and $2.1 million for 1993, 1994, 1995 and the six months ended July 2, 1995 and June 30, 1995, (ii) the decrease in depreciation and operating costs of $2.6 million, $1.3 million and $1.2 million for the year ended December 31, 1995 and the six months ended July 2, 1995 and June 30, 1996, respectively, associated with an aircraft owned by the Company, which aircraft was sold in contemplation of the Offerings, (iii) the elimination of the minority interest in GEBV and Guess Italia through the merger of Marciano International with and into the Company in connection with the Reorganization, resulting in the inclusion in net earnings of $24,000, $280,000, $274,000, $201,000 and $160,000 for the years ended December 31, 1993, 1994 and 1995 and the six months ended July 2, 1995 and June 30, 1996, respectively, which amounts had previously been recorded as minority interest and (iv) adjustments for Federal and state income taxes as if the Company had been taxed as a C corporation rather than an S corporation. See "Company History, the Reorganization and Prior S Corporation Status" and "Management -- Employment Agreements."
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, ---------------------- ---------------------------------- JULY 2, JUNE 30, 1993 1994 1995 1995 1996 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS) Net revenue: Product sales...................................... $ 491,444 $ 507,462 $ 440,359 $ 206,579 $ 232,111 Net royalties...................................... 28,780 40,350 46,374 23,073 25,295 ---------- ---------- ---------- ---------- ---------- Total net revenue.............................. 520,224 547,812 486,733 229,652 257,406 Cost of sales........................................ 260,409 291,989 262,142 120,809 137,113 ---------- ---------- ---------- ---------- ---------- Gross profit......................................... 259,815 255,823 224,591 108,843 120,293 Selling, general and administrative expenses......... 127,971 131,711 136,606 63,026 69,463 Reorganization charge................................ -- -- -- -- 3,559 ---------- ---------- ---------- ---------- ---------- Earnings from operations........................... 131,844 124,112 87,985 45,817 47,271 Interest expense, net................................ (11,735) (16,948) (15,957) (7,926) (7,291) Non-operating income, net............................ 2,528 42 117 21 13 ---------- ---------- ---------- ---------- ---------- Earnings before income taxes....................... 122,637 107,206 72,145 37,912 39,993 Pro forma income taxes............................... 49,055 42,882 28,858 15,165 15,877 ---------- ---------- ---------- ---------- ---------- Pro forma net earnings............................. $ 73,582 $ 64,324 $ 43,287 $ 22,747 $ 24,116 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
22 The following table sets forth pro forma operating results as a percentage of net revenue for the periods indicated.
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, ------------------------ ------------------------------- JULY 2, JUNE 30, 1993 1994 1995 1995 1996 --------- --------- --------- ----------- ----------- Net revenue: Product sales.............................................. 94.5% 92.6% 90.5% 90.0% 90.2% Net royalties.............................................. 5.5 7.4 9.5 10.0 9.8 --------- --------- --------- ----- ----- Total net revenue...................................... 100.0 100.0 100.0 100.0 100.0 Cost of sales................................................ 50.1 53.3 53.9 52.6 53.3 --------- --------- --------- ----- ----- Gross profit................................................. 49.9 46.7 46.1 47.4 46.7 Selling, general and administrative expenses................. 24.6 24.0 28.1 27.4 27.0 Reorganization charge........................................ -- -- -- -- 1.3 --------- --------- --------- ----- ----- Earnings from operations................................... 25.3 22.7 18.1 20.0 18.4 Interest expense, net........................................ (2.3) (3.1) (3.3) (3.5) (2.8) Non-operating income, net.................................... 0.5 0.0 0.0 0.0 0.0 --------- --------- --------- ----- ----- Earnings before income taxes............................... 23.5 19.6 14.8 16.5 15.6 Pro forma income taxes....................................... 9.4 7.9 5.9 6.6 6.2 --------- --------- --------- ----- ----- Pro forma net earnings..................................... 14.1% 11.7% 8.9% 9.9% 9.4% --------- --------- --------- ----- ----- --------- --------- --------- ----- -----
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JULY 2, 1995 NET REVENUE. Net revenue increased $27.7 million or 12.1% to $257.4 million in the six months ended June 30, 1996 from $229.7 million in the six months ended July 2, 1995. Net revenue from wholesale operations increased $2.4 million to $144.8 million from $142.4 million, due principally to increased sales outside the United States of $12.1 million, partially offset by a $9.7 million decline in domestic wholesale sales. The decline in domestic wholesale sales resulted from a $3.1 million decline due to closing certain accounts and a $1.2 million decline due to the licensing out of certain apparel lines as described above. Net revenue from retail operations increased $23.1 million to $87.3 million from $64.2 million, primarily attributable to an increase of 14.4% in comparable store net revenue and from volume generated by 13 new store openings, offset by the closing of five stores. The increase in comparable store net revenue was primarily attributable to a more favorable merchandise mix and the implementation of improved inventory management systems. Net royalties increased 9.6% in the six months ended June 30, 1996 to $25.3 million from $23.1 million in the six months ended July 2, 1995. Net revenue from international operations comprised 11.6% and 6.8% of the Company's net revenue during the first six months of 1996 and 1995, respectively. GROSS PROFIT. Gross profit increased 10.5% to $120.3 million in the six months ended June 30, 1996 from $108.8 million in the six months ended July 2, 1995. The increase in gross profit resulted from increased net royalties and increased net revenue from product sales. Gross profit as a percentage of net revenue decreased to 46.7% in the six months ended June 30, 1996 as compared to 47.4% in the six months ended July 2, 1995 primarily as a result of the growth in net revenues derived from both international and retail operations, both of which generally have relatively lower gross profit margins. Gross profit from product sales increased 10.7% to $95.0 million in the six months ended June 30, 1996 from $85.8 million in the six months ended July 2, 1995. SG&A EXPENSES. Selling, general and administrative ("SG&A") expenses increased 9.6% in the six months ended June 30, 1996 to $72.8 million, or 28.3% of net revenue, from $66.5 million, or 28.9% of net revenue, in the six months ended July 2, 1995. On a pro forma basis, SG&A expenses would have increased 10.2% in the six months ended June 30, 1996 to $69.5 million, or 27.0% of net revenue, from $63.0 million, or 27.4% of net revenue, in the six months ended July 2, 1995. The increase in SG&A expense was primarily the 23 result of increased store expenses related to the expansion of the retail operation. The decrease in SG&A expenses as a percentage of net revenue was the result of fixed expenses being spread over a larger revenue base in the 1996 period. REORGANIZATION CHARGE. In anticipation of the Offerings, in the second quarter of 1996 the Company recorded reserves for certain non-recurring charges related to the writedowns of operating assets to be disposed of $3.6 million for: (i) disposal of two currently active remote warehouse and production facilities not expected to be used in the Company's operations after the Offerings, resulting in a net book loss of $2.4 million, and (ii) the net book loss of $1.2 million incurred by the Company in connection with the sale of one of its aircraft. The above charges are based upon the net book value of the related assets as of June 30, 1996. The Company intends to relocate the warehouse and production operations located at the remote facilities to its central facility in Los Angeles in an effort to centralize its operations and improve operating efficiencies. EARNINGS FROM OPERATIONS. Earnings from operations, including the reorganization charge described above, increased 3.6% to $43.9 million, or 17.1% of net revenue in the six months ended June 30, 1996, from $42.4 million, or 18.5% of net revenue, in the six months ended July 2, 1995. On a pro forma basis, earnings from operations would have increased 3.2% in the six months ended June 30, 1996 to $47.3 million, or 18.3% of net revenue, from $45.8 million, or 20.0% of net revenue, in the six months ended July 2, 1995. This increase resulted primarily from the increase in net revenue. INTEREST EXPENSE, NET. Net interest expense decreased 8.0% to $7.3 million in the six months ended June 30, 1996 from $7.9 million in the six months ended July 2, 1995. This decrease resulted primarily from lower outstanding debt. For the first six months of 1996, the average debt balance was $149.3 million, with an average effective interest rate of 9.3%. For the first six months of 1995, the average debt balance was $164.8 million, with an average effective interest rate of 9.4%. INCOME TAXES. For Federal and certain state income tax purposes, the Company has elected to be treated as an S corporation and therefore has generally not been subject to income tax on its earnings. The Company's income taxes, which represent state income taxes and foreign taxes, were $1.6 million and $1.3 million in the six months ended June 30, 1996 and July 2, 1995, respectively. The Company's S corporation status will terminate prior to the consummation of the Offerings and, therefore, the Company will be fully subject to Federal, state and foreign income taxes. On a pro forma basis, income taxes would have been $15.9 million and $15.2 million in the six months ended June 30, 1996 and July 2, 1995, respectively. NET EARNINGS. Net earnings increased 5.7% to $34.9 million, or 13.5% of net revenue, in the six months ended June 30, 1996, from $33.0 million, or 14.4% of net revenue, in the six months ended July 2, 1995. On a pro forma basis, net earnings would have increased 6.0% to $24.1 million, or 9.4% of net revenue, in the six months ended June 30, 1996, from $22.7 million, or 9.9% of net revenue, in the six months ended July 2, 1995. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 NET REVENUE. Net revenue decreased $61.1 million or 11.1% to $486.7 million in 1995 from $547.8 million in 1994. Net revenue from wholesale operations decreased $87.2 million to $270.9 million from $358.1 million, including a $29.1 million decline due to closing certain accounts, and a $3.6 million decline due to the licensing out of certain apparel lines as described above. Excluding these items, net revenue from wholesale operations would have decreased $54.5 million. The principal reasons for the decrease were a $49.3 million decline in domestic sales of men's and women's apparel and a $15.5 million decrease in off-price revenue (which represents net revenue from the liquidation of discontinued merchandise which carries lower margins), partially offset by increased sales outside the United States to international distributors of $10.3 million. The Company's domestic net sales declined during this period as a result of increased competition in branded denim apparel, the sluggish retail environment, the consolidation taking place among department store retailers and financial difficulties experienced by certain of the Company's wholesale customers. Net revenue from retail operations increased $20.1 million to $169.4 million from $149.3 million. This net increase reflects a 37.2% increase in Guess retail store net 24 revenue resulting from new store openings, somewhat offset by a 7.4% decline in comparable store net revenue, primarily attributable to the continued sluggish market conditions affecting the factory outlet stores. Net royalties increased 14.9% in 1995 to $46.4 million from $40.4 million in 1994. This increase was attributable to the continued growth in existing licensees' businesses as well as the addition of new licensees. Revenue from international operations (including net royalties from international licensees) comprised 6.9% and 3.7% of the Company's net revenue during 1995 and 1994, respectively. GROSS PROFIT. Gross profit decreased 12.2% to $224.6 million in 1995 from $255.8 million in 1994. Gross profit as a percentage of net revenue decreased to 46.1% in 1995 from 46.7% in 1994. The decrease in gross profit was attributable to a $67.1 million decrease in net revenue from product sales, partially offset by a $6.0 million increase in net royalties. Gross profit from product sales decreased 17.3% to $178.2 million in 1995 from $215.5 million in 1994. During the second half of 1995, the Company recorded a provision of $3.9 million for anticipated store closing expenses. Without the $3.9 million store closure provision, gross margin would have been 46.9% of net revenue in 1995 as compared with 46.7% of net revenue in 1994, respectively. SG&A EXPENSES. SG&A expenses increased 2.6% to $141.7 million, or 29.1% of net revenue, in 1995, from $138.0 million, or 25.2% of net revenue, in 1994. On a pro forma basis, SG&A expenses would have increased 3.7% in 1995 to $136.6 million, or 28.0% of net revenue, from $131.7 million, or 24.0% of net revenue, in 1994. This increase was primarily the result of the continued expansion of the retail division, an increase in advertising expenses and increased expenses relating to the installation and remodeling of twice as many shop-in-shops as were installed or remodeled in 1994. These increases were partially offset by reduced expenses resulting from cost containment efforts. The increase in SG&A expenses as a percentage of net revenue was the result of the above mentioned advertising and shop-in-shop expenditures being expensed as incurred together with fixed expenses being spread over a smaller revenue base during the 1995 period. EARNINGS FROM OPERATIONS. Earnings from operations decreased 29.6% to $82.9 million, or 17.0% of net revenue in 1995, from $117.8 million, or 21.5% of net revenue, in 1994. On a pro forma basis, earnings from operations would have decreased 29.1% in 1995 to $88.0 million, or 18.1% of net revenue, from $124.1 million, or 22.7% of net revenue, in 1994. This decline primarily resulted from a decrease in net revenue, which was partially offset by higher royalty income. INTEREST EXPENSE, NET. Net interest expense decreased 5.9% to $16.0 million for 1995 from $16.9 million in 1994. This decrease resulted from lower debt in 1995 which more than offset the effect of higher interest rates. For 1995, the average debt balance was $156.6 million, with an average effective interest rate of 9.5%. For 1994, the average debt balance was $183.2 million, with an average effective interest rate of 8.6%. INCOME TAXES. Income taxes were $2.9 million and $3.5 million in 1995 and 1994, respectively. On a pro forma basis, income taxes would have been $26.0 million and $42.9 million in 1995 and 1994, respectively. NET EARNINGS. Net earnings decreased 34.5% to $63.9 million, or 13.1% of net revenue, in 1995, from $97.6 million, or 17.8% of net revenue, in 1994. On a pro forma basis, net earnings would have decreased 32.7% to $43.3 million, or 8.9% of net revenue, in 1995, from $64.3 million, or 11.7% of net revenue, in 1994. YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993 NET REVENUE. Net revenue increased $27.6 million or 5.3% to $547.8 million in 1994 from $520.2 million in 1993. Net revenue from wholesale operations increased $9.2 million to $358.1 million from $348.9 million, including a $26.3 million decline due to the licensing of certain apparel lines previously produced by the Company and a $18.2 million decline due to closing certain accounts. Excluding these items, net revenue from wholesale operations would have increased $53.7 million. Net revenue from retail operations increased $6.7 million to $149.3 million from $142.6 million. This increase was attributable to new store openings, somewhat offset by a decline of $5.6 million or 5.3% in comparable store net revenue. This decline in comparable store net revenue was attributable to the factory outlet stores, which were affected by the severe East Coast weather in the early part of 1994, product assortment changes which were instituted in the 25 fall of 1993 and sluggish factory outlet market conditions. Net royalties increased 40.2% in 1994 to $40.4 million from $28.8 million in 1993. This increase was attributable to royalties from new licensees including the aforementioned boys, girls, and women's knit lines, as well as increased royalties from higher net revenue by existing licensees. Revenue from international operations comprised 3.7% and 2.7% of the Company's net revenue during 1994 and 1993, respectively. GROSS PROFIT. Gross profit decreased 1.5% to $255.8 million in 1994 from $259.8 million in 1993. Gross profit as a percentage of net revenue decreased to 46.7% in 1994 from 49.9% in 1993. The decrease in gross profit was attributable to a $15.6 million decrease in gross profit from product sales, partially offset by an $11.6 million increase in net royalties. Gross profit from product sales decreased 6.7% to $215.5 million in 1994 from $231.0 million in 1993. This decrease reflects an increase in production costs due to changes in fabrication and processing costs, as well as higher occupancy costs as a percentage of revenue due to the opening of new retail stores. SG&A EXPENSES. SG&A expenses decreased 5.1% to $138.0 million, or 25.2% of net revenue, in 1994, from $145.4 million, or 27.9% of net revenue, in 1993. On a pro forma basis, SG&A expenses would have increased 2.9% in 1994 to $131.7 million, or 24.0% of net revenue, from $128.0 million, or 24.6% of net revenue, in 1993. This increase was primarily attributable to the opening of a design studio in Florence, Italy and an increase in domestic design and selling expenses related to the additions of new stores. EARNINGS FROM OPERATIONS. Earnings from operations increased 2.9% to $117.8 million, or 21.5% of net revenue in 1994, from $114.5 million, or 22.0% of net revenue, in 1993. On a pro forma basis, earnings from operations would have decreased 5.9% in 1994 to $124.1 million, or 22.7% of net revenue, from $131.8 million, or 25.3% of net revenue, in 1993. NON-OPERATING INCOME. Non-operating income was $0.3 million for 1994 compared to $2.6 million in 1993. The non-operating income in 1993 was primarily a result of a lawsuit settlement. INTEREST EXPENSE, NET. Net interest expense increased to $16.9 million for 1994 from $11.7 million in 1993. This increase resulted from the full year effect of financing transactions entered into in connection with the recapitalization of the Company in August 1993, including the issuance of the Senior Subordinated Notes and borrowing under a revolving credit facility. For 1994, the average debt balance was $183.2 million, with an average effective interest rate of 8.6%. For 1993, the average debt balance was $90.5 million, with an average effective interest rate of 8.9%. INCOME TAXES. Income taxes were $3.5 million and $1.8 million in 1994 and 1993, respectively. On a pro forma basis, income taxes would have been $42.9 million and $49.1 million in 1994 and 1993, respectively. NET EARNINGS. Net earnings decreased 5.6% to $97.6 million, or 17.8% of net revenue, in 1994, from $103.5 million or 19.9% of net revenue, in 1993, primarily due to the increase in interest expense. On a pro forma basis, net earnings would have decreased 12.6% to $64.3 million, or 11.7% of net revenue, in 1994, from $73.6 million, or 14.1% of net revenue, in 1993. LIQUIDITY AND CAPITAL RESOURCES The Company has relied primarily upon internally generated funds, trade credit and bank borrowings to finance its operations and expansion and to make periodic distributions to its stockholders. As of June 30, 1996, the Company had working capital of $84.4 million, compared to $57.6 million at December 31, 1995. The $26.8 million increase in working capital primarily resulted from a $19.5 million increase in inventories, an $8.8 million increase in receivables and a $3.5 million decrease in payables, partially offset by a $5.4 million increase in accrued liabilities. The increase in inventory and receivables relates to seasonal requirements and the buildup of initial inventory of the Company's BARE BASICS line. The accounts receivable reserves aggregated $8.2 million at June 30, 1996, as compared with $8.6 million at June 30, 1995 and $10.8 million at December 31, 1995. The reduction in the reserves from December 31, 1995 to June 30, 1996 is principally due to the seasonal granting of markdowns (which are charged against the accounts receivable reserves) in the first quarter of 1996 related to product sales recorded in the fourth quarter of 1995 and is consistent with the Company's historical experience. 26 As part of the Company's management of its working capital, the Company performs all customer credit functions internally, including extension of credit and collections. The Company's bad debt write-offs were less than 0.5% of net revenue for the six months ended June 30, 1996 and year ended December 31, 1995. The Company's Credit Agreement provides for a $100.0 million revolving credit facility which includes a $20.0 million sublimit for letters of credit. As of June 30, 1996, the Company had $43.0 million in outstanding borrowings under the revolving credit facility and outstanding letters of credit of $8.6 million. As of June 30, 1996, the Company had $48.4 million available for future borrowings under such facility. The revolving credit facility will expire in December 1997. In addition to the revolving credit, the Company also has a $25.0 million letter of credit facility. As of June 30, 1996, the Company had $15.3 million outstanding under this facility. Capital expenditures, net of lease incentives granted, totaled $21.7 million for 1995 and $18.3 million for 1994. The Company estimates that its capital expenditures for 1996 will be approximately $20.0 million, primarily for the expansion of its retail stores and operations. As a result of the Company's treatment as an S corporation for Federal and certain state income tax purposes, the Company has provided to the Principal Stockholders periodic distributions for the payment of income taxes, as well as a return on their investment. The Company paid dividends, including amounts for taxes, of $117.7 million, $47.0 million, $53.3 million and $39.6 million in 1993, 1994, 1995 and the six months ended June 30, 1996, respectively. Prior to consummation of the Offerings, the Company will declare the S Corporation Distribution and distribute the S Distribution Notes, which notes will mature one year from the Closing Date of the Offerings. Prior to the consummation of the Offerings, the Company's S corporation status will be terminated. The Company anticipates that, after payment of the S Corporation Distribution (including repayment of the remaining balance of the S Distribution Notes), any earnings will be retained for the foreseeable future in the operations of the business. See "Company History, the Reorganization and Prior S Corporation Status" and "Dividend Policy." Subsequent to the consummation of the Offerings, the Company's cash flow needs will decrease as a result of decreased compensation to the Principal Executive Officers and the absence of stockholder distributions for the purposes of tax payments. Offsetting these decreases will be increases related to the need to apply funds to the payment of Federal and additional state income taxes. The net effect on cash for such changes is expected to increase the Company's cash flow. The Company anticipates that it will be able to satisfy its ongoing cash requirements through 1997, including retail and international expansion plans and interest payments on the Company's Senior Subordinated Notes, primarily with cash flow from operations, supplemented, if necessary, by borrowings under its Credit Agreement. SEASONALITY The Company's business is impacted by the general seasonal trends that are characteristic of the apparel and retail industries. The Company's wholesale operations generally experience stronger performance in the first and third quarters, while retail operations are generally stronger in the third and fourth quarters. As the timing of the shipment of products may vary from year to year, the results for any particular quarter may not be indicative of results for the full year. The Company has not had significant overhead and other costs generally associated with large seasonal variations. The following table sets forth certain unaudited quarterly data for the periods shown.
1994 1995 1996 ------------------------------------------ ------------------------------------------ -------------------- FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH FIRST SECOND QTR. QTR. QTR. QTR. QTR. QTR. QTR. QTR. QTR. QTR. --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- (IN THOUSANDS) Net revenue........ $ 122,729 $ 119,383 $ 160,783 $ 144,917 $ 124,903 $ 104,749 $ 133,129 $ 123,952 $ 134,898 $ 122,508 Gross profit....... 59,784 53,611 79,232 63,196 59,636 49,207 59,148 56,600 64,419 55,874
27 INFLATION The Company does not believe that the relatively moderate rates of inflation experienced in the United States over the last three years have had a significant effect on its net revenue or profitability. Although higher rates of inflation have been experienced in a number of foreign countries in which the Company's products are manufactured, the Company does not believe that they have had a material effect on the Company's net revenue or profitability. EXCHANGE RATES The Company receives United States dollars for substantially all of its product sales and its licensing revenues. Inventory purchases from offshore contract manufacturers are primarily denominated in United States dollars; however, purchase prices for the Company's products may be impacted by fluctuations in the exchange rate between the United States dollar and the local currencies of the contract manufacturers, which may have the effect of increasing the Company's cost of goods in the future. During the last two fiscal years, exchange rate fluctuations have not had a material impact on the Company's inventory costs. The Company currently does not engage in hedging activities with respect to such exchange rate risk. See "Risk Factors -- Foreign Operations." IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be disposed of," in March 1995 which is effective for fiscal years beginning after December 15, 1995. SFAS No. 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles and goodwill related to these assets and certain identifiable intangibles to be disposed of. Since the Company's current policy is consistent with the provisions of SFAS No. 121, it does not anticipate that the new pronouncement will impact its financial statements. In October 1995, the FASB issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 established a fair value-based method of accounting for compensation cost related to stock options and other forms of stock-based compensation plans. However, SFAS 123 allows an entity to continue to measure compensation costs using the principles of Accounting Principles Board pronouncement 25 if certain pro forma disclosures are made. SFAS 123 is effective for fiscal years beginning after December 15, 1995. The Company intends to adopt the provisions for pro forma disclosure requirements of SFAS 123 in fiscal 1996 and anticipates that SFAS 123 will not have a material impact on its financial statements. As of June 30, 1996, the Company had not issued any stock options or other instruments under which SFAS 123 would apply. 28 BUSINESS INTRODUCTION Guess, founded in 1981 by the Marciano brothers, designs, markets, distributes and licenses one of the world's leading lifestyle collections of casual apparel, accessories and related consumer products. The Company's apparel for men and women is inspired by an appreciation of the American lifestyle combined with a European flair and is marketed under the trademarks GUESS, GUESS U.S.A., GUESS? AND TRIANGLE DESIGN and GUESS COLLECTION. The lines include full collections of denim and cotton clothing, including jeans, pants, overalls, skirts, dresses, shorts, blouses, shirts, jackets and knitwear. In addition, the Company has granted licenses to manufacture and distribute a broad range of products that complement the Company's apparel lines, including watches, clothing for infants and children, eyewear, footwear, activewear, home products and other fashion accessories. The Company's product quality combined with captivating advertising images have created a global brand franchise with products that appeal to style-conscious consumers across a broad spectrum of ages. The Company generates revenue from wholesale and retail operations and licensing activities, which accounted for 56%, 35% and 9%, respectively, of net revenue in 1995. The Company's total net revenue in 1995 was $486.7 million and pro forma net earnings (as described herein) were $43.3 million. The Company achieves premium pricing for its products by emphasizing superior styling and quality. The Company maintains rigorous control over the quality of its products by performing its own design and development work and by closely monitoring the workmanship of its contractors and licensees. The enduring strength of the GUESS brand name and image is reinforced by the Company's consistent emphasis on innovative and distinctive design. Under the direction of Maurice Marciano, the Company's design department creates full lines of casual apparel that appeal to both men and women. During 1995, net sales of apparel for men and for women accounted for approximately 48% and 52%, respectively, of net revenue from the sale of apparel products. Each of the lines consists of a broad array of basic, recurring styles, complemented by more fashion-oriented items which reflect contemporary trends. During 1995, net sales of basic and fashion items accounted for approximately 49% and 51%, respectively, of the Company's net revenue from the sale of apparel products. The Company seeks to reach a broad consumer base through multiple channels of distribution. As of March 31, 1996, GUESS brand products were distributed by the Company, its licensees and international distributors to better department stores and upscale specialty stores, 112 stores operated by the Company (of which 65 were retail stores and 47 were factory outlet stores) and 205 stores operated by licensees and distributors. As a critical element of its distribution to department stores, the Company and its licensees utilize shop-in-shops to enhance brand recognition, permit more complete merchandising of the lines and differentiate the presentation of GUESS products. As of December 31, 1995, the Company's and its licensees' products were sold in approximately 1,600 shop-in-shops worldwide. In order to protect the Guess image and enhance the exclusivity of the brand, the Company began in 1993 to withdraw its products from certain wholesale accounts which did not meet the Company's merchandising standards. Sales to such discontinued accounts represented approximately $51.1 million, $32.9 million and $3.8 million of the Company's net revenue in 1993, 1994 and 1995, respectively. The Company's own network of stores, in addition to providing a key opportunity for growth, allows the Company to present and merchandise its entire collection and to test market new product concepts. The Company intends to capitalize on the worldwide recognition of its brand name and the breadth of Guess lifestyle products by expanding its international operations. The Company has established Guess Europe in Italy and Guess Asia in Hong Kong to design, source and market products in Europe and the Pacific Rim. Guess has granted licenses for the manufacture and sale of GUESS branded products similar to the Company's, including men's and women's denim and knitwear, in markets such as Canada, Argentina, Mexico, the Philippines, South Korea, Brazil and Japan. Although Guess is in the early stages of its international expansion, GUESS brand products are currently sold in over 70 countries primarily through licensees and distributors. 29 The desirability of the GUESS brand name among consumers has allowed the Company to selectively expand its product offerings through licensing arrangements. The Company believes its licensing strategy significantly broadens the distribution of GUESS brand products while limiting the Company's capital investment and operating expenses. The Company carefully selects its licensees, maintains strict control over the design, advertising, marketing and distribution of all licensed products in order to maintain a consistent global GUESS brand image. The Company's 26 licensees manufacture and distribute a broad array of related consumer products in the United States and international markets. The Company's most significant licenses include GUESS WATCHES, BABY GUESS, GUESS KIDS and GUESS EYEWEAR, which together accounted for approximately 48.1% of the Company's net royalties in 1995. The Company continues to capitalize on the GUESS brand image by granting licenses to introduce related products. Recently, the Company licensed the GUESS HOME COLLECTION and GUESS OUTERWEAR, as well as various accessory products. Under Paul Marciano's direction and supervision, Guess has created a consistent, high profile image through the use of its distinctive black and white print ads. The Company's in-house Advertising Department directs the media placement of all advertising worldwide, including placement by its licensees and distributors. On numerous occasions since 1986, the Company's advertising has garnered prestigious awards for creativity and excellence, including CLIO, BELDING and MOBIUS awards. Such awards are generally awarded on the basis of the judgment of prominent members of the advertising industry. By retaining control over its advertising programs, the Company is able to maintain the integrity of the GUESS brand image while realizing a substantial cost savings compared to the use of outside agencies. The Company requires its licensees and distributors to invest a percentage of their net sales of licensed products and net purchases of Guess products, respectively, in advertising, promotion and marketing. From 1992 through 1995, the Company's advertising expenditures, together with amounts spent by its licensees and its distributors (as reported to the Company by such licensees and distributors), exceeded $160.0 million. BUSINESS STRATEGY The Company's business strategy is designed to increase sales and profitability while preserving the integrity and expanding the product depth and global reach of the GUESS brand. Over the past three years, the Company has built the infrastructure necessary to support distribution and licensing of its products worldwide. To provide greater management depth, Company has recently recruited several key executives with substantial industry experience to facilitate the implementation of its business strategy, including Ken Duane, Andrea Weiss and Michael Wallen. The key elements of the strategy include: MAINTAIN HIGH BRAND RECOGNITION. The Company intends to continue its efforts to increase its revenues by enhancing consumer recognition of its brand name and image. Under the creative leadership of Paul Marciano, the Company's award-winning advertising has established the Guess signature image and reinforced the lifestyle concept of Guess and Guess-licensed products in mutually supportive marketing campaigns. In addition to the Company's expenditures, licensees are required to spend a percentage of total revenues in advertising. The aggregate advertising expenditures of the Company and its distributors and licensees (as reported to the Company by such licensees and distributors) were $50.7 million in 1995, a 16.2% increase over 1994. INCREASE INTERNATIONAL PRESENCE. The Company believes it is well-positioned to capitalize on the worldwide recognition of its brand name and the breadth of Guess lifestyle products by continuing to expand its distribution internationally through distributors and licensees. The Company has recently established Guess Europe in Italy and Guess Asia in Hong Kong to design, source and market products in Europe and the Pacific Rim, which will facilitate increased sales to existing and new distributors and licensees outside the United States. As of March 31, 1996, 164 Guess retail stores were operated internationally, 111 of which were operated by 13 licensees and 53 of which were operated by eight distributors. The Company has been advised by its distributors and licensees that they plan to establish approximately 35 new distributor-operated stores and approximately 21 licensee-operated stores, respectively, by the end of 1996, and approximately an additional 45 new distributor-operated stores and approximately 39 licensee-operated stores, respectively, by the end of 1997. 30 EXPAND LICENSING ARRANGEMENTS. The Company expects to continue to license the GUESS name selectively to producers of high quality products that complement its lifestyle collection. Since the beginning of 1993, the Company has added new licenses, which in 1995 represented approximately 30% of the Company's net royalties. Recently, the Company licensed the GUESS HOME COLLECTION and GUESS OUTERWEAR, as well as various accessory products. To maintain its reputation for quality and style and control the integrity of the brand name, the Company will continue to provide design, production and technical and marketing assistance to its licensees to ensure compliance with its strict marketing and product standards. EXPAND RETAIL STORE NETWORK. The Company believes an expanded retail network will reinforce consumer recognition of its brand name and enhance the presentation of the complete Guess merchandise collections. Since the beginning of 1993 through March 31, 1996, the Company has opened a total of 25 retail and 25 factory outlet stores (net of store closings). The percentage of net revenue generated by the retail network has increased from 19.3% to 38.5% of the Company's net revenue from product sales from 1992 through 1995. The Company intends to open approximately five additional retail stores during the remainder of 1996 and approximately 15 additional retail stores during 1997. The Company is currently completing the closure of three retail stores, the costs of which closures were reserved for in 1995. DEEPEN PRODUCT OFFERINGS. The Company has recently introduced new product lines and categories to complement its existing lines. In 1993, the Company introduced in its retail stores the GUESS COLLECTION and has since expanded this collection to a full line of higher priced women's apparel that incorporates a sophisticated combination of styles and colors. In 1995 and the first quarter of 1996, the GUESS COLLECTION accounted for approximately 11.4% and 14.6%, respectively, of net revenue from the Company's stores. Based on positive consumer reaction, the Company has introduced the GUESS COLLECTION to selected better department stores for shipment in the Fall 1996 season. In addition, the Company intends to broaden its men's and women's lines to include khaki and other twill products beginning with the 1996 holiday/resort season. In November 1995 the Company introduced a new line of jeans under the "Bare Basics" label, with unique construction and fabrications and lower price points than traditional Guess jeans. IMPROVE PRODUCTIVITY OF THE RETAIL STORE NETWORK. The Company's retail management team has recently refined the Company's strategy to improve the productivity of its retail network by establishing new models for optimal store size, design and construction costs as well as staffing levels. In addition, in late 1995, the Company began to improve the merchandising mix in its stores and implemented sophisticated information systems to improve inventory management. The Company believes that the implementation of these initiatives contributed to the increase in comparable factory outlet and retail store net revenue of 16.7% in the first quarter of 1996. EXPAND AND UPGRADE SHOP-IN-SHOP PROGRAM. To enhance the presence of Guess products in department stores, the Company intends to develop approximately 80 new shop-in-shops in 1996 and 100 in 1997, and remodel approximately 45 additional shops in 1996 and 55 in 1997. The design of the shops utilizes the distinctive Guess advertising to promote brand recognition and differentiate the location from its competition. The shops also facilitate ease of shopping by presenting a complete presentation of the Company's merchandise. In addition, the installation of these shops enables the Company to establish premium locations within the department stores and, therefore, compete more effectively against other products. 31 GENERAL The Company derives its net revenue from the sale of Guess men's and women's apparel to wholesale customers and distributors and the sale of Guess men's and women's apparel and its licensees' products through the Company's network of retail and factory outlet stores. The following table sets forth the net revenue of the Company through its channels of distribution.
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED ------------------------------------------------- -------------------------------- 1993 1994 1995 JULY 2, 1995 JUNE 30, 1996 --------------- --------------- --------------- --------------- --------------- (IN THOUSANDS) Net Revenue: Wholesale operations........ $348,879 67.1% $358,125 65.4% $270,931 55.7% $142,427 62.0% $144,782 56.2% Retail operations........... 142,565 27.4 149,337 27.2 169,428 34.8 64,154 27.9 87,329 33.9 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Net revenue from product sales...................... 491,444 94.5 507,462 92.6 440,359 90.5 206,581 89.9 232,111 90.1 Net royalties............... 28,780 5.5 40,350 7.4 46,374 9.5 23,074 10.1 25,295 9.9 -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- Total net revenue......... $520,224 100.0% $547,812 100.0% $486,733 100.0% $229,655 100.0% $257,406 100.0% -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- ----- -------- -----
The following table sets forth the Company's net revenue from product sales generated through such channels of distribution by product category (licensed products represent sales of licensed products by the Company's retail and factory outlet stores).
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------- 1993 1994 1995 ----------------------- ----------------------- ----------------------- PRODUCT - ---------------------------------------- Men's apparel........................... $ 239,767 48.8% $ 250,687 49.4% $ 194,945 44.3% Women's apparel......................... 199,405 40.6 225,268 44.4 210,945 47.9 Licensed and other products (1)......... 20,608 4.2 26,172 5.2 32,766 7.4 Discontinued apparel (1)................ 31,664 6.4 5,335 1.0 1,703 0.4 ---------- ----- ---------- ----- ---------- ----- Total (2)............................. $ 491,444 100.0% $ 507,462 100.0% $ 440,359 100.0% ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
- ------------------------------ (1) In late 1992, the Company entered into licensing agreements for the boys' product line, the majority of the girls' product line and women's knits, which were previously produced by the Company. While the licensing of such products reduced net revenue in 1993, the associated reduction in earnings from operations from such sales was substantially offset by the increase in net royalties from the new licenses. "Other products" represents retail operations' sales of such discontinued product lines. (2) Beginning in 1993, the Company began to withdraw its products from selected accounts which did not meet the Company's standards for merchandising. Net product sales to discontinued accounts represented approximately $51.1 million, $32.9 million and $3.8 million of the Company's net revenue from product sales in 1993, 1994 and 1995, respectively. PRODUCTS COMPANY PRODUCTS. The GUESS brand was founded upon its core product line of high-quality jeans and other denim casual wear. Guess has been marketing denim apparel since its inception in 1981, and has built and maintained a global brand franchise with products that appeal to style-conscious consumers across a broad spectrum of ages. The Company was founded on the concept of a fashion jean with the first Guess product being the "three-zip Marilyn" jean, which was stone-washed and adapted to fit the contours of a woman's body. Since its inception, the Company has expanded its products to include a broad range of denim and cotton clothing for men and women, including jeans, pants, overalls, skirts, dresses, shorts, blouses, shirts, jackets and knitwear. 32 The Company's apparel products are organized into two primary categories: men's apparel and women's apparel (including the GUESS COLLECTION). The following table sets forth the approximate range of current retail prices for the Company's products:
RANGE OF SUGGESTED RETAIL PRICES ---------------------- RANGE OF WOMEN'S MEN'S SUGGESTED - ----------------------------------- ------------------------------------ RETAIL PRICES ---------------------- Jeans.............................. $ 58 - $ 64 Jeans............................... $ 58 - $ 72 Shorts............................. 39 - 52 Shorts.............................. 39 - 60 Tops............................... 38 - 76 Woven Tops.......................... 40 - 78 Dresses............................ 68 - 82 Jackets............................. 82 - 162 Pants.............................. 60 - 68 T-Shirts............................ 22 - 88 Jackets............................ 78 - 80 Guess Collection................... 58 - 340
A major portion of the Company's men's and women's apparel lines consists of basic, recurring styles which the Company believes are less susceptible to fashion obsolescence and are less seasonal in nature than fashion product styles. Basic product styles provide the Company with a base of business that usually carries over from season to season and year to year. Basic products are primarily made of denim and include jeans, skirts, dresses, overalls and shorts in a variety of fits, washes and styles. To take advantage of contemporary trends, the Company complements its basic styles with more fashion-oriented items. Fashion products range in style from contemporary sportswear to casual apparel and include colored denim items, pants, shirts, jackets and knitwear, made of a variety of materials including fine cotton, man-made fabric and leather. A limited number of best-selling fashion items in a collection may be included in one or more subsequent collections, and a select few may be added to the Company's basic styles. In 1993, the Company expanded its line of women's apparel to include the GUESS COLLECTION, a collection of women's skirts, tops, jackets, blazers and blouses incorporating a sophisticated combination of colors and styles. The GUESS COLLECTION was introduced exclusively through Guess stores and, based upon positive consumer reaction, the Company expanded distribution of the GUESS COLLECTION to selected better department stores for shipment in the 1996 Fall season. The GUESS COLLECTION appeals to the contemporary segment of the apparel market and will generally be sold in separate selling areas from other Guess denim and casual apparel. LICENSED PRODUCTS. The high level of desirability of the GUESS brand name among consumers has allowed the Company to selectively expand its product offerings through licensing arrangements. The Company currently has 26 licensees. Sales of licensed products (as reported to the Company by its licensees) have grown from $451.7 million in 1993 to $736.5 million in 1995. The Company's net royalties from such sales and fees from new licensees increased from $28.8 million in 1993 to $46.4 million in 1995. Approximately 48.1% of the Company's net royalties was derived from its top four licensed product lines. These product lines are GUESS WATCHES (18.9% of 1995 net royalties), BABY GUESS (12.3%), GUESS KIDS (9.2%) and GUESS EYEWEAR (7.7%). GUESS WATCHES have been manufactured and distributed since 1983. The GUESS WATCH line includes approximately 408 styles of watches for men, women and children, and clocks. Retail prices range from approximately $55 to $125. In 1996, an upscale, higher-priced line of watches is planned to be introduced at a retail price range of $175 to $250. The BABY GUESS and GUESS KIDS product lines include infants', boys' and girls' clothing, accessories, infant layette items and baby hair care products. These products retail for $4.50 to $70 and are sold domestically in free-standing licensed stores, better department stores and through distributors in Asia. GUESS EYEWEAR is manufactured and distributed worldwide. The eyewear line offers styles ranging in retail price from $37 to $200. Guess eyewear is sold through optical specialty and department stores. 33 Guess also licenses a range of other products, including men's apparel, women's knitwear, footwear, activewear, athleticwear, leather goods, neckwear, jewelry and a home collection. Most of these licenses have been granted since 1993 and are in their early stage of development. DESIGN The enduring strength of the GUESS brand name and image is partially due to the Company's consistent emphasis on innovative and distinctive design. For the past 15 years, the Guess design teams have anticipated and adapted to changing consumer tastes while retaining the distinctive Guess image. Under the direction of Maurice Marciano, Guess garments are designed by an in-house staff of four design teams (men's, women's, GUESS COLLECTION and Guess Europe) located in Los Angeles and Florence, Italy. Guess design teams travel around the world in order to monitor fashion trends and discover new fabrics. Fabric shows in Europe and the United States provide additional opportunities to discover and sample new fabrics. These fabrics, together with the trends uncovered by the Company's designers serve as the primary source of inspiration for the Company's lines and collections. The Company also maintains a fashion library consisting of antique and contemporary garments as an additional source of creative concepts. In addition, design teams regularly meet with members of the sales, merchandising and retail operations to further refine the Company's products in order to meet the particular needs of the Company's markets. Many Guess products are developed using computer-aided design equipment which allows a designer to view and modify two- and three-dimensional images of a new design. By the end of 1996, the Company intends to link its Los Angeles and Florence design centers electronically so that individual designs may be accessed, modified and shared by designers in both locations. After working prototypes of each garment are prepared and reviewed, the pattern makers oversee the final production of each garment's pattern. As of March 31, 1996, the Company's design department employed 130 persons, approximately 27 of whom were designers and assistant designers. Licensed products are designed by both the Company and its licensees. A separate design team of 12 associates works with the Company's licensees and all licensee designs must be approved by the Company to ensure consistency with the Guess image. See "-- Licensing Agreements and Terms." DOMESTIC WHOLESALE CUSTOMERS The Company's domestic wholesale customers consist primarily of better department stores and select upscale specialty stores, which have the image and merchandising expertise that Guess requires for the effective presentation of its products. Leading wholesale customers include Federated Department Stores, The May Department Stores Company, Dillard Department Stores, Inc. and select upscale specialty stores. As of December 31, 1995, the Company sold its products directly to approximately 2,700 retail doors in the United States and approximately 350 doors in Italy. A key element of the Company's merchandising strategy is the shop-in-shop merchandising format, an exclusive selling area within a department store that presents a full array of Guess products using Guess signage and fixtures. As of December 31, 1995, there were approximately 1,160 shop-in-shops (excluding shop-in-shops installed by licensees) that feature Guess products (other than the GUESS COLLECTION) and the Company intends to increase the number of shop-in-shops by approximately 80 by the end of 1996 and approximately an additional 100 by the end of 1997. Guess also intends to establish GUESS COLLECTION shop-in-shops, in addition to existing shop-in-shops, in selected better department stores beginning in the Spring of 1997. The Company's close wholesale customer relationships have been achieved through innovative and effective marketing and merchandising and superior customer service. As of March 31, 1996, the Company had 77 sales representatives and 81 merchandise coordinators. The sales representatives are located in the Company's showrooms in New York, Los Angeles, Dallas, Atlanta, Chicago, Hong Kong, Milan and Florence. They coordinate with buyers for the Company's customers to determine the inventory level and product mix that should be carried in each store to maximize retail sell-through and enhance the customers' profit margins. Such inventory level and product mix are then used as the basis for developing sales projections and product needs for each wholesale customer. In addition, Guess sales representatives monitor the inventories of customers, which assists the Company in scheduling production. The merchandisers work with the store to ensure the Company's products are appropriately displayed. 34 Certain of the Company's domestic wholesale customers, including some under common ownership, have accounted for significant portions of the Company's net revenue. During 1995, Bloomingdale's, Macy's and affiliated stores owned by Federated Department Stores together accounted for approximately 11.0% of the Company's net revenue. During the same period, The May Company and Dillard's accounted for approximately 7.7% and 7.3% of the Company's net revenue, respectively. See "Risk Factors -- Dependence on Certain Customers and Licensees." DOMESTIC RETAIL OPERATIONS As of March 31, 1996, the Company's domestic retail operations consisted of 64 retail and 47 factory outlet stores operated directly by Guess in the United States, which principally sell GUESS label products. Guess retail stores outside the United States, with the exception of the Company-owned store in Florence, Italy, are owned and operated by the Company's distributors and licensees. See "-- International Business." Since the beginning of 1993 through March 31, 1996, the Company has opened a total of 35 retail and 30 factory outlet stores and has closed 10 retail and five factory outlet stores. The percentage of net revenue generated by the retail network has increased from 19.3% to 38.5% of the Company's net revenue from product sales from 1992 through 1995. The Company's retail management team has recently refined the Company's strategy to improve the productivity of its retail network by establishing new models for optimal store size, design and construction costs as well as staffing levels. In addition, in late 1995, the Company began to improve the merchandising mix in its stores and implemented sophisticated information systems to improve inventory management. The Company believes that the implementation of these initiatives contributed to the increase in comparable retail and factory outlet store net revenue of 16.7% in the first quarter of 1996. RETAIL STORES. The Company's 64 domestic retail stores typically range in size from approximately 3,400 to 8,500 square feet, with 61 locations in regional shopping malls and three stand-alone stores in areas of high foot traffic. The retail stores are located in 20 states with approximately an equal number of stores on both the East and West Coasts. Of the retail stores on the West Coast, 22 are located in California. The Company's retail stores carry a full assortment of men's and women's Guess merchandise, including most of its licensed products. Distribution through its own retail stores allows the Company to influence the merchandising and presentation of its products and to test market new product concepts. The Company's strategy is to increase its domestic sales by selectively expanding its network of retail stores and by increasing the productivity of its existing stores. Over the past year, Guess has significantly strengthened its retail operations management through the selective hiring of experienced well-respected retail professionals. The Company intends to continue to locate its stores in regional malls with a smaller number of flagship stores in major cities. As of March 31, 1996, the Company had opened two retail stores in 1996. The Company intends to open approximately five additional retail stores during the remainder of 1996 and 15 additional retail stores during 1997. The Company is currently completing the closure of three retail stores, the costs of which closures were reserved for in 1995. The Company does not currently expect that it will be closing additional retail stores during the next 12 months. FACTORY OUTLET STORES. The Company's 47 factory outlet stores typically range in size from approximately 2,100 to 7,500 square feet and are located in outlet malls and strip centers outside the shopping radius of the Company's wholesale customers and its retail stores. The factory outlet stores are located in 27 states, with no major concentration in any one state. These stores sell selected styles of Guess apparel and licensed products at a discount to value-conscious customers, enabling the Company to effectively control the distribution of its excess inventory, thereby protecting the Guess image. The Company plans to open one and close one factory outlet store in 1996. The Company has no plans to open additional factory outlet stores in 1997. INTERNATIONAL BUSINESS Given the high level of GUESS brand awareness in countries outside the United States, the Company believes that international distribution of GUESS brand products represents a significant opportunity to 35 increase revenue and profits. This awareness is partially a result of the substantial international advertising undertaken by the Company in advance of distributing products to these locations. Although Guess is in the early stages of its international expansion, GUESS brand products are currently sold in over 70 countries. Guess derives net revenue and earnings from outside the United States from three principal sources: (i) sales of GUESS brand apparel directly to 12 foreign distributors who distribute such apparel to better department stores, upscale specialty retail stores and Guess-licensed retail stores operated by Guess distributors or licensees, (ii) royalties from licensees who manufacture and distribute GUESS brand products outside the United States and (iii) sales of GUESS brand apparel by Guess Europe directly to upscale retail stores in Italy. Since 1991, the Company has been selling its products through distributors and licensees in Asia, the Middle East and Australia. In 1993, the Company opened a design studio, sourcing office, sales office and warehouse in Italy and in 1994 began sourcing, marketing and distributing products directly in Italy and executed a distribution agreement for Spain. Recently, Guess has entered into distribution agreements for Belgium, Greece and Hungary, and is in the process of negotiating additional arrangements in Europe and elsewhere including the United Kingdom, Israel, Holland and Turkey. As of March 31, 1996, 164 Guess retail stores were operated internationally, 111 of which were operated by 13 licensees and 53 of which were operated by eight distributors. The Company's distribution and license agreements generally provide detailed guidelines for store fittings, fixtures, merchandising and marketing programs and the appearance, merchandising and service standards of these stores are closely monitored to ensure the Guess image is maintained. The Company has been advised by its distributors and licensees that they plan to establish approximately 35 new distributor-operated stores and approximately 21 licensee-operated stores, respectively, by the end of 1996, and approximately an additional 45 new distributor-operated stores and approximately 39 licensee-operated stores, respectively, by the end of 1997. Guess also owns and operates a flagship Guess retail store located in Florence, Italy. As of December 31, 1995, there were approximately 220 shop-in-shops for GUESS brand products in stores outside the United States. See "Risk Factors -- Foreign Operations and Sourcing -- Import Restrictions." LICENSING AGREEMENTS AND TERMS The Company carefully selects and maintains tight control over its licensees. In evaluating a potential licensee, the Company considers the experience, financial stability, manufacturing performance and marketing ability of the proposed licensee and evaluates the marketability and compatibility of the proposed products with other GUESS brand merchandise. The Company's license agreements generally cover three years with an option to renew prior to expiration for an additional multi-year period. In addition to licensing products which complement the Company's apparel products, Guess has granted licenses for the manufacture and sale of GUESS branded products similar to the Company's, including men's and women's denim and knitwear, in markets such as Canada, Argentina, Mexico, the Philippines, South Korea, Brazil and Japan. Licenses granted to certain licensees which have produced high-quality products and otherwise have demonstrated exceptional operating performance, such as GUESS WATCHES and BABY GUESS, have been renewed repeatedly and in some cases expanded to include new products or markets. The typical license agreement requires that the licensee pay the Company the greater of a royalty based on a percentage of the licensee's net sales of licensed products or a guaranteed minimum royalty that typically increases over the term of the license agreement. Generally, licensees are required to spend a percentage of the net sales of licensed products for advertising and promotion of the licensed products. In addition, certain foreign licensees are required to contribute toward the protection of the Company's trademarks within the territories granted to such licensees, thereby assisting Guess in its efforts to prevent counterfeiting and other trademark infringement in such countries. The Company's licensing department strictly monitors product design, development, merchandising and marketing. All GUESS brand products, advertising, promotional and packaging materials must be approved in advance by Guess. The licensing department meets regularly with licensees to ensure consistency with Guess's overall marketing, merchandising and design strategies, and to ensure uniformity and quality control. See "Risk Factors -- Dependence upon Certain Customers and Licensees." 36 ADVERTISING, PUBLIC RELATIONS AND MARKETING The Company's advertising, public relations and marketing strategy is to promote a consistent high impact image which endures regardless of changing consumer trends. Since the Company's inception, Paul Marciano has had principal responsibility for the GUESS brand image and creative vision. All worldwide advertising and promotional material is controlled through the Company's Advertising Department based in Los Angeles, while Guess Public Relations and Special Events are based in New York. GUESS JEANS, GUESS U.S.A. and GUESS INC. images have been showcased in international print campaigns in dozens of major magazines, on billboards, bus shelters and telephone kiosks, on television and most recently in movie theaters throughout the United States. ADVERTISING. The Company's advertising strategy is designed to promote the Guess image rather than focus on specific products. The Company's distinctive black and white print advertisements have garnered prestigious awards, including CLIO, BELDING and MOBIUS awards for creativity and excellence. Such awards, which the Company has received on numerous occasions since 1986, are generally awarded on the basis of the judgment of prominent members of the advertising industry. Guess has maintained a high degree of consistency in its advertisements, using similar themes and images. The Company requires its licensees and distributors to invest a percentage of their net sales of licensed products and net purchases of Guess products, respectively, in advertising, promotion and marketing. From 1992 through 1995, the Company's advertising expenditures, together with amounts spent by its licensees and its distributors (as reported to the Company by such licensees and distributors), exceeded $160.0 million. The Company's in-house Advertising Department is responsible for media placement of all advertising worldwide including that of its licensees. The Company uses a variety of media, primarily black and white print and outdoor advertising in various countries. The Company has focused advertisement placement in national and international contemporary fashion/beauty and lifestyle magazines including VOGUE, GLAMOUR, VANITY FAIR, HARPERS BAZAAR, ELLE, W and DETAILS. By retaining control over its advertising programs, the Company is able to maintain the integrity of the GUESS brand image while realizing substantial cost savings compared to the use of outside agencies. The Company's Advertising Department consisted of 10 employees as of March 31, 1996. PUBLIC RELATIONS. The Company's Public Relations Department is responsible for communicating the Guess image to the public and news media worldwide. The Public Relations Department also coordinates local publicity and special events programs for the Company and its licensees, including in-store Guess model and celebrity appearances and fashion shows. The Guess Public Relations Department consisted of seven full time employees as of March 31, 1996. MARKETING. The Company utilizes various additional marketing tools such as corporate mailers, videos, newsletters, special events and a toll free Guess number to assist customers worldwide in finding Guess retail locations. The Company also produces 200,000 copies of the GUESS JOURNAL, a full color, oversized semi-annual magazine available in retail stores worldwide or through the Guess mailing list. The GUESS JOURNAL features trends in the arts, travel destinations, candid celebrity profiles, philanthropic events and Guess product information. The Company further strengthens communications with customers through the WORLD OF GUESS, the Company's Internet site on the World Wide Web. This global medium enables the Company to provide timely information in an entertaining fashion on the Company's history, Guess products and store locations to consumers and allows the Company to receive and respond directly to customer feedback. SOURCING AND PRODUCT DEVELOPMENT The Company sources products through numerous suppliers, many of whom have established relationships with the Company. The Company seeks to achieve the most efficient means for the timely delivery of its high quality products and continues to rebalance its sourcing by region in response to increasing demand within each region. The Company's fabric specialists work with fabric mills in the United States, Europe and Asia to develop woven and knitted fabrics that enhance the products' comfort, design and appearance. For a substantial portion of the Company's apparel products, fabric purchases take place generally four to five 37 months prior to the corresponding selling season. Apparel production (cut, manufacture and trim) generally begins after the Company has received customer orders. Delivery of finished goods to customers occurs approximately 90 to 120 days after receipt of customers' orders. The Company engages both domestic and foreign contractors for the production of its products. During 1995, the Company purchased approximately 77% of its raw materials, labor and finished goods in the United States, 18% in Hong Kong, Taiwan, South Korea and other Asian countries, 4% in Europe, and 1% elsewhere. The production and sourcing staffs in Los Angeles and Italy oversee all aspects of fabric acquisition, apparel manufacturing, quality control and production, as well as researching and developing new sources of supply. The Company operates product sourcing and quality control offices in Los Angeles, Hong Kong and Florence. The Company does not own any production equipment other than cutting, silkscreen and embroidery machinery. The Company's apparel products are produced for the Company by approximately 80 different contractors. None of the contractors engaged by the Company accounted for more than 10% of the Company's total production during 1995. The Company has long-term relationships with many of its contractors, although it does not have written agreements with them. The Company uses a variety of raw materials, principally consisting of woven denim, woven cotton and knitted fabrics and yarns. The Company must make commitments for a significant portion of its fabric purchases well in advance of sales, although the Company's risk is reduced because a substantial portion of the Company's products (approximately 43% in 1995) are sewn in basic denim. See "Risk Factors -- Foreign Operations and Sourcing; Import Restrictions," and "-- Dependence on Unaffiliated Manufacturers." QUALITY CONTROL The Company's quality control program is designed to ensure that all of the Company's products meet the Company's high quality standards. The Company monitors the quality of its fabrics prior to the production of garments and inspects prototypes of each product before production runs are commenced. The Company also performs random in-line quality control checks during and after production before the garments leave the contractor. Final random inspections occur when the garments are received in the Company's distribution centers. The Company currently has 25 full-time personnel engaged in quality control located in its Los Angeles office, five located in Hong Kong (who work for the joint venture) and four in Florence, including two independent contractors. The Company believes that its policy of inspecting its products at its distribution centers and at the contractors' facilities is important in maintaining the quality and reputation of its products. The Company also conducts inspections on all licensed products. The Company permits defective garments to be authorized for return for credit by the purchasers. Less than 0.6% of the garments shipped by the Company during each of the last three years has been returned under this policy. WAREHOUSE AND DISTRIBUTION CENTERS The Company utilizes distribution centers at three strategically located sites. Two of the distribution centers are operated by the Company and one is operated by an independent contractor. Distribution of the Company's products in the United States is centralized in the Los Angeles facility operated by the Company. The Company also operates a distribution center in Florence to service Europe. The Company utilizes a contract warehouse in Hong Kong that services the Pacific Rim. The Company currently intends to open a contract warehouse in Northern Europe for distribution to portions of Europe outside of Italy. The Company anticipates that such warehouse will become operational during the first half of 1997. In order to ensure that each of its retail customers receives merchandise in satisfactory condition, substantially all Company products are processed through one of the Company's distribution centers before delivery to the retail customer. Each customer is assigned to one of the Company's distribution centers, depending on the customer's location. 38 At its distribution center in Los Angeles, the Company has also developed a fully integrated and automated distribution system. The bar code scanning of merchandise, picking tickets and distribution cartons, together with radio frequency communications, provide timely, controlled, accurate and instantaneous updates to the distribution information systems. COMPETITION The apparel industry is highly competitive and fragmented, and is subject to rapidly changing consumer demands and preferences. The Company believes that its success depends in large part upon its ability to anticipate, gauge and respond to changing consumer demands and fashion trends in a timely manner and upon the continued appeal to consumers of the Guess image. Guess competes with numerous apparel manufacturers and distributors (including Calvin Klein, Ralph Lauren, DKNY, Tommy Hilfiger and Nautica). Moreover, several well-known designers have recently entered or re-entered the designer denim market with products generally priced lower than the Company's designer jeans products. The Company's retail and factory outlet stores face competition from other retailers. Additionally, the Company encounters substantial competition from department stores, including some of the Company's major retail customers. The Company's licensed apparel and accessories also compete with a substantial number of designer and non-designer lines. Many of the Company's competitors have greater financial resources than Guess. The Company's licensed products also compete with various other well-known consumer brands. Although the level and nature of competition differ among its product categories, Guess believes that it competes on the basis of its brand image, quality of design and workmanship and product assortment. TRADEMARKS The Company's trademarks include GUESS?, GUESS, GUESS? AND TRIANGLE DESIGN, BABY GUESS, GUESS KIDS, GUESS U.S.A. and GUESS COLLECTION. As of March 31, 1996, the Company had more than 1,500 U.S. and international registered trademarks or trademark applications pending with the trademark offices of the United States and over 137 countries around the world. From time to time, the Company adopts new trademarks in connection with the marketing of new product lines. The Company considers its trademarks to have significant value in the marketing of its products and, since shortly after the Company's inception, has acted aggressively to register and protect its trademarks worldwide. Like many well-known brands, the Company's trademarks are subject to infringement. Guess has a staff devoted to the monitoring and aggressive protection of its trademarks worldwide, which uses, among other things, available legal remedies to prevent unauthorized use of its trademarks. MANAGEMENT INFORMATION SYSTEMS The Company believes that advanced information processing is essential to maintaining its competitive position. Consequently, over the past three years (ending December 31, 1995), the Company has invested over $20.0 million in upgrading its management information systems. The Company is implementing systems which allow areas of the business to be more pro-active to customer requirements, to improve internal communication flow, to increase process efficiency, and to support management decisions. The Company's systems provide, among other things, comprehensive order processing, production, accounting and management information for the marketing, selling, manufacturing, retailing and distribution functions of the Company's business. The Company has developed a sophisticated software program that enables the Company to track, among other things, orders, manufacturing schedules, inventory and sales of Guess products. The program includes a centralized management information system which provides the various operating departments with integrated financial, sales, inventory and distribution related information. Computer-aided-design ("CAD") systems are utilized within both the design and marking and grading departments to develop fabrics and styles. The Company has these systems in place both domestically and internationally, allowing for this information to be shared. All style and fabric information is maintained in a line management system which streamlines communication between the design, sales and production departments. 39 The Company is a Quick Response ("QR") vendor which, via electronic data interchange ("EDI"), provides for customer orders to be shipped from 24 to 72 hours from the time of order receipt. The Company currently receives EDI orders on a worldwide basis, including its Singapore and London distributors. The Company's integrated and automated distribution system, utilizing bar code scanning of merchandise, pick tickets and shipping cartons, together with radio frequency communications, provide controlled, accurate, and instantaneous updates to the distribution information system. The retail systems allow for rapid stock replenishment, concise merchandise planning, and inventory accounting and control practices. The Company has installed sophisticated point-of-sale registers in Guess retail and factory outlet stores and is in the process of installing a computer network for such stores that will enable the Company to track inventory from store receipt to final sales. WHOLESALE BACKLOG The Company maintains a model stock program in its basic denim products under which Guess can replenish a customer's inventory within 48 hours. Guess generally receives orders for its fashion apparel three to five months prior to the time the products are delivered to stores. The bulk of the fashion product orders are received after test markets for the Fall and Spring seasons. As of June 30, 1996, the Company had unfilled wholesale orders, consisting primarily of orders for fashion apparel, of approximately $83.3 million, compared to $85.9 million of such orders as of July 2, 1995. Guess expects to fill substantially all of these orders in 1996. The backlog of wholesale orders at any given time is affected by a number of factors, including seasonality and the scheduling of manufacturing and shipment of products. Accordingly, a comparison of backlogs of wholesale orders from period to period is not necessarily meaningful and may not be indicative of eventual actual shipments. EMPLOYEES Guess believes that its employees ("associates") are one of its most valuable resources. As of March 31, 1996, there were approximately 2,600 associates. Total associates include approximately 1,100 in wholesale operations and approximately 1,500 in retail operations. Guess is not a party to any labor agreements and none of its associates is represented by a labor union. The Company considers its relationship with its associates to be good and has not experienced any interruption of its operations due to labor disputes. In addition, the Company was among the first in the apparel industry to implement a program to monitor the compliance of subcontractors with Federal minimum wage and overtime pay requirements. PROPERTIES Certain information concerning Guess's principal facilities, all of which are leased, is set forth below:
APPROXIMATE AREA LOCATION USE IN SQUARE FEET - ------------------------------- ----------------------------------------------- ---------------- 1444 South Alameda Street Principal executive and administrative offices, 514,000 Los Angeles, California design facilities, sales offices, distribution and warehouse facilities, production control, sourcing 1385 Broadway Administrative offices, public relations, 30,000 New York, New York showrooms Kowloon, Hong Kong Distribution, showrooms, licensing coordination 3,000 control Milan, Italy Showrooms 1,800 Florence, Italy Administrative offices, design facilities, 17,200 production control, sourcing, retail, distribution and warehouse facility
The Company's corporate, wholesale and retail headquarters and its production, warehousing and distribution facilities are located in Los Angeles, California and consist of seven adjacent buildings totaling 40 approximately 514,000 square feet. Certain of these facilities are leased from limited partnerships in which the sole partners are the Principal Stockholders pursuant to leases that expire in July 2008. The total lease payments to these limited partnerships are $208,000 per month with aggregate minimum lease commitments at December 31, 1995 totaling approximately $32.7 million. See "Certain Transactions." In addition, Guess leases its showrooms, advertising, licensing, sales and merchandising offices, remote warehousing facility and retail and factory outlet store locations under non-cancelable operating lease agreements expiring on various dates through November 2007. These facilities are located principally in the United States, with aggregate minimum lease commitments, at December 31, 1995, totaling approximately $135.8 million. The current terms of the Company's store leases, including renewal options, expire as follows:
NUMBER YEARS LEASE TERMS EXPIRE OF STORES - ------------------------------------------------------------------------------------ ------------- 1995-1997......................................................................... 3 1998-2000......................................................................... 9 2001-2003......................................................................... 22 2004-2006......................................................................... 65 2007-2009......................................................................... 11 2010-2012......................................................................... 2
Guess believes that its existing facilities are well maintained, in good operating condition and are adequate to support its present level of operations. See "Certain Transactions." See Notes 8 and 9 of Notes to Financial Statements for further information regarding current lease obligations. ENVIRONMENTAL MATTERS The Company is subject to federal, state and local laws, regulations and ordinances that (i) govern activities or operations that may have adverse environmental effects (such as emissions to air, discharges to water, and the generation, handling, storage and disposal of solid and hazardous wastes) or (ii) impose liability for the costs of clean up or other remediation of contaminated property, including damages from spills, disposals or other releases of hazardous substances or wastes, in certain circumstances without regard to fault. Certain of the Company's operations routinely involve the handling of chemicals and wastes, some of which are or may become regulated as hazardous substances. The Company has not incurred, and does not expect to incur, any significant expenditures or liabilities for environmental matters. As a result, the Company believes that its environmental obligations will not have a material adverse effect on its results of operations. LITIGATION Guess is a party to various claims, complaints and other legal actions that have arisen in the ordinary course of business from time to time. The Company believes that the outcome of all pending legal proceedings, in the aggregate, will not have a material adverse effect on the Company's financial condition or results of operations. 41 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information as of July 1, 1996 concerning the directors and executive officers of the Company:
NAME AGE POSITION - --------------------- --- --------------------------------------------------------------------------- Maurice Marciano 47 Chairman of the Board and Chief Executive Officer Paul Marciano 44 President, Chief Operating Officer and Director Armand Marciano 51 Senior Executive Vice President, Secretary and Director Ken Duane 39 President of Worldwide Sales -- Corporate Roger Williams 48 Executive Vice President and Chief Financial Officer Andrea Weiss 41 President of Retail Operations Michael Wallen 43 President, Retail Merchandising
Pursuant to the Stockholders' Agreement described herein under "Certain Transactions," the Principal Stockholders have agreed to vote their shares of Common Stock to elect each of Maurice, Paul and Armand Marciano, or one designee of any such person (if such designee shall be reasonably acceptable to the other Principal Stockholders), to the Board of Directors. Maurice, Paul and Armand Marciano are brothers. Maurice, Paul and Armand Marciano have worked together in the fashion industry for the last 25 years. MAURICE MARCIANO, who was one of the founders of the Company in 1981, has served as Chairman of the Board and Chief Executive Officer of the Company since August 1993. Mr. Marciano had served as President of the Company from June 1990 to September 1992 and as Executive Vice President from 1981 until June 1990. Mr. Marciano's responsibilities include the design direction of the Company, sales and merchandising, manufacturing and production as well as financial aspects of the Company. In addition, Mr. Marciano leads the marketing side of the business with Mr. Paul Marciano. Mr. Marciano has been a Director of the Company since 1981 (except for the period from January 1993 to May 1993). From February 1993 to May 1993, Mr. Marciano was Chairman and Chief Executive Officer and a Director of Pepe Clothing USA, Inc. PAUL MARCIANO joined the Company two months after its inception in 1981 and has served as creative director for Guess advertising worldwide since that time. He has served as President of the Company since September 1992 and as a Director of the Company since 1990. Mr. Marciano's responsibilities have included direct supervisory responsibility for international expansion, licensing, the legal department, MIS and developing the Advertising Department. Mr. Marciano is recognized for shaping the direction and look of the Company's advertising and creating the Company's signature image. Mr. Marciano served as Senior Executive Vice President of the Company from August 1990 to September 1992. ARMAND MARCIANO joined the Company two months after its inception in 1981 and has served as Senior Executive Vice President of the Company since November 1992. Mr. Marciano has direct supervisory responsibility for the Company's domestic retail and factory outlet stores. In addition, Mr. Marciano is responsible for the manufacturing, distribution, customer service and European exports aspects of the business. Mr. Marciano has been a Director and Secretary of the Company since 1983. From July 1988 to 1992, Mr. Marciano served as Executive Vice President of the Company. KEN DUANE joined the Company as President of Worldwide Sales -- Corporate in June 1996. From June 1990 to June 1996, Mr. Duane served as Executive Vice President Sales and Marketing for Nautica International. Mr. Duane had served as a Senior Vice President Sales and Marketing for Hugo Boss International from October 1985 to July 1990 and prior to that time was a Vice President and National Sales Manager for J. Schoeneman/Burberry's beginning June 1981. ROGER WILLIAMS has been the Executive Vice President and Chief Financial Officer of the Company since March 1994. From October 1992 to February 1994, he served as Executive Vice President and Chief Financial Officer of The Donna Karan Company. From July 1990 to October 1992, he was Executive Vice 42 President -- Operations and Chief Financial Officer of Authentic Fitness Corporation, a company formed in 1990 to acquire substantially all of the Activewear division of Warnaco, Inc., where Mr. Williams served in various capacities (ending with Senior Vice President and Chief Financial Officer) from May 1986 to June 1990. Since August 1994, Mr. Williams has served as a Director of Nantucket Industries, Inc. ANDREA WEISS joined Guess as President of Retail Operations for the Guess Retail and Factory Division in January 1996. Ms. Weiss was Senior Vice President and Director of Stores for Ann Taylor Stores and Ann Taylor Studio Shoe Stores, and an officer of Ann Taylor Stores Corporation, from July 1992 to February 1996. From March 1990 to July 1992, she was Director of Merchandise Operations for the Walt Disney World Resort, a division of The Walt Disney Company. From November 1987 to April 1990, she was Senior Vice President of Operations for the Naragansett Clothing Company, a specialty women's apparel retailer. Ms. Weiss sits on the Board of Common Ground, a non-profit organization. MICHAEL WALLEN has been President, Retail Merchandising since May 1995. From October 1993 to April 1995, Mr. Wallen served as Executive Vice President of G. H. Bass & Company, a division of Phillips-Van Heusen Corporation. From January 1992 to August 1993, he served as President of Merchandising of Macy's West, a division of R. H. Macy & Co., Inc. From January 1988 to January 1992, Mr. Wallen served as Senior Vice President of Macy's California, Inc., a subsidiary of R. H. Macy & Co., Inc. Mr. Wallen began his professional career with R. H. Macy & Co., Inc. in New York and spent 19 years with the firm. BOARD OF DIRECTORS The Company's Board of Directors is currently comprised of Maurice, Paul and Armand Marciano. Shortly following the consummation of the Offerings, the Company intends to appoint two directors who are neither officers nor employees of the Company or its affiliates and, within one year following consummation of the Offerings, to appoint an additional two such directors. Upon the appointment of the first two additional directors, the Board of Directors will establish an Audit Committee and a Compensation Committee. The Audit Committee will be responsible for recommending to the Board of Directors the engagement of the independent auditors of the Company and reviewing with the independent auditors the scope and results of the audits, the internal accounting controls of the Company, audit practices and the professional services furnished by the independent auditors. The Compensation Committee will be responsible for reviewing and approving all compensation arrangements for officers of the Company, and will also be responsible for administering the 1996 Equity Plan. The Company's Board of Directors is divided into three classes. Directors of each class will be elected at the annual meeting of stockholders held in the year in which the term for such class expires and will serve thereafter for three years. The first class, whose term will expire at the first annual meeting after the Offerings, currently consists of Armand Marciano; the second class, whose term will expire at the second annual meeting after the Offerings, currently consists of Paul Marciano; and the third class, whose term will expire at the third annual meeting after the Offerings, currently consists of Maurice Marciano. For further information on the effect of the classified Board of Directors, see "Description of Capital Stock -- Certain Certificate of Incorporation, Bylaws and Statutory Provisions Affecting Stockholders." The General Corporation Law of the State of Delaware (the "Delaware Corporation Law") provides that a company may indemnify its directors and officers as to certain liabilities. The Company's Restated Certificate of Incorporation and Restated Bylaws provide for the indemnification of its directors and officers to the fullest extent permitted by law, and the Company intends to enter into separate indemnification agreements with each of its directors and officers to effectuate these provisions and to purchase directors' and officers' liability insurance. The effect of such provisions is to indemnify, to the fullest extent permitted by law, the directors and officers of the Company against all costs, expenses and liabilities incurred by them in connection with any action, suit or proceeding in which they are involved by reason of their affiliation with the Company. See "Description of Capital Stock - -- Certain Certificate of Incorporation, Bylaws and Statutory Provisions Affecting Stockholders -- Director and Officer Indemnification." 43 COMPENSATION OF DIRECTORS Directors who are employees of the Company receive no compensation for serving on the Board of Directors. It is expected that directors who are not employees of the Company will receive an annual retainer fee of $15,000 for their services and attendance fees of $1,000 per meeting. All directors are reimbursed for expenses incurred in connection with attendance at board or committee meetings. In addition, pursuant to the Directors' Plan, each non-employee director of the Company, upon joining the Board of Directors, will receive non-qualified options to purchase 10,000 shares of Common Stock and will receive non-qualified options to purchase an additional 3,000 shares of Common Stock on the first day of each fiscal year thereafter. The exercise price of such options will be equal to 85% of the fair market value of the Common Stock on the respective date of grant, the term of the options will be ten years, and the options will become exercisable in 25% installments on each of the first four anniversaries of the date of grant. See "-- 1996 Non-Employee Directors' Stock Option Plan." EXECUTIVE COMPENSATION The following table sets forth each component of compensation paid or awarded to, or earned by, the Chief Executive Officer and the four most highly compensated executive officers other than the Chief Executive Officer serving as of December 31, 1995 (the "Named Executive Officers") for the fiscal years ended December 31, 1993, 1994 and 1995. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION ---------------------------------------------------------- OTHER ANNUAL ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1) COMPENSATION (2) - ------------------------------------ --------- ------------ ------------ ------------------- ------------------- Maurice Marciano 1995 $ 2,000,000 $ 1,200,000 $ 378,230 $ 2,250 Chairman of the Board and Chief 1994 2,000,000 1,950,000 438,990 2,250 Executive Officer (3) 1993 653,846 728,097 -- 2,250 Paul Marciano 1995 1,560,000 900,000 192,464 2,250 President and Chief Operating 1994 1,560,000 2,250,000 343,317 2,250 Officer 1993 1,560,000 3,700,485 33,302 2,250 Armand Marciano 1995 742,306 900,000 202,512 2,250 Senior Executive Vice President 1994 600,000 1,800,000 278,041 2,250 1993 599,997 3,700,485 32,743 2,250 Roger Williams 1995 450,000 -- 30,620 2,250 Executive Vice President and Chief 1994 342,308 100,000 147,152 -- Financial Officer Michael Wallen (4) 1995 246,154 25,000 55,792 -- President, Retail Merchandising
- ------------------------ (1) Amounts of 1995 Other Annual Compensation in excess of 25% of the total indicated for such executive officer include the following: (i) $192,256, $55,720 and $65,230 for transportation for Maurice Marciano, Paul Marciano and Armand Marciano, respectively, (ii) $179,000, $130,000, $130,000 and $18,400 for life insurance for Maurice Marciano, Paul Marciano, Armand Marciano and Roger Williams, respectively, and (iii) $55,701 for relocation and other housing related expenses for Michael Wallen. Amounts of 1994 Other Annual Compensation in excess of 25% of the total indicated for such executive officer include the following: (i) $248,103 and $89,012 for transportation for Maurice Marciano and Paul Marciano, respectively, (ii) $184,088, $212,026 and $207,115 for life insurance for Maurice Marciano, Paul Marciano and Armand Marciano, respectively, and (iii) $119,059 for relocation and other housing related expenses for Roger Williams. Amounts of 1993 Other Annual Compensation in excess of 25% of the total indicated for such executive officer include $33,302 and $32,743 for transportation for Paul Marciano and Armand Marciano, respectively. (FOOTNOTES CONTINUE ON THE FOLLOWING PAGE) 44 (CONTINUED FROM PRIOR PAGE) (2) Includes contributions to the Company's 401(k) Savings Plan dated January 1, 1992, by the Company for such executive officers. (3) Mr. Marciano rejoined the Company in August 1993. (4) Mr. Wallen joined the Company in May 1995. EMPLOYMENT AGREEMENTS The Company has entered into individual employment agreements (the "Executive Employment Agreements") with each of Maurice Marciano, Paul Marciano and Armand Marciano (the "Executives"). The initial term of the Executive Employment Agreements begins on the date of this Prospectus (the "Effective Date") and will terminate on the third anniversary of the Effective Date. The Executive Employment Agreements will automatically extend after the initial term for successive one-year terms, unless notice not to extend is given by either party at least 90 days prior to the end of the then current term. The Executive Employment Agreements provide for an annual base salary of $900,000, $900,000 and $650,000 for Maurice Marciano, Paul Marciano and Armand Marciano, respectively, which may be increased based on annual reviews by the Compensation Committee. In addition, the Executive Employment Agreements provide for annual bonuses to be determined in accordance with the Company's Bonus Plan (as defined below), with a minimum expected target bonus equal to 100% of base salary. Commencing on the expiration of the term of the Executive Employment Agreement, or earlier should the Executive Employment Agreement be terminated other than due to the Executive's death or for cause (as defined in the Executive Employment Agreements), the Company and Maurice Marciano, Paul Marciano or Armand Marciano, as the case may be, will enter into a two-year consulting agreement under which such Executive will render certain consulting services for which the Company will pay an annual consulting fee equal to 50% of such Executive's annual base salary, as in effect immediately prior to the commencement of the consulting period. In addition, each Executive is entitled to certain fringe benefits, including access to aircraft leased or owned by the Company and full Company-paid health and life insurance for himself and his immediate family during his lifetime. If any of the Executives is terminated without cause or resigns for good reason (as such terms are defined in the Executive Employment Agreements), then such Executive will receive as severance his then current base salary and annual target bonus for the remainder of his term of employment. The Executive will also continue to participate in Company-sponsored health, life insurance and other fringe benefit plans and programs during the severance period. Each Executive Employment Agreement further provides that upon the death or permanent disability of the Executive, such Executive (or his beneficiary) will receive a pro rata portion of his annual target bonus for the year in which the Executive's death or permanent disability occurs. The Executive Employment Agreements also include certain noncompetition, nonsolicitation and confidentiality provisions. The Company entered into an employment agreement with Ken Duane, dated as of May 14, 1996 (the "Duane Agreement"), pursuant to which Mr. Duane will serve as President of Worldwide Sales-Corporate for a term of three years. Under the Duane Agreement, Mr. Duane is entitled to (i) a base salary of $550,000, $600,000 and $650,000 in the first, second and third years of the term, respectively; (ii) a guaranteed bonus of $250,000 in the first year of the term, a performance bonus ranging from $100,000 to $300,000 in the second year of the term and a performance bonus ranging from $100,000 to $325,000 in the third year of the term; and (iii) participation in various health, life insurance and other fringe benefit plans and programs maintained by the Company. Immediately prior to the Offerings, Mr. Duane will be granted nonqualified options to purchase an aggregate of 104,705 shares of Common Stock, consisting of options to purchase 69,807 shares at an exercise price of $21.49 per share and options to purchase 34,898 shares at an exercise price equal to the price per share at which shares are sold in the Offerings. On the date of the Offerings, Mr. Duane will be fully vested in options to purchase 34,898 shares at an exercise price of $21.49 per share. On June 3, 1998, Mr. Duane will be fully vested in options to purchase 34,909 shares at an exercise price of $21.49 per share and on June 3, 1999, Mr. Duane will be fully vested in the remaining options to purchase 34,898 shares at an exercise price equal to the initial public offering price per share. In addition, Mr. Duane will receive a cash payment of $1.0 million prior to the Offerings. The Company does not anticipate recording any compensation expense in connection with such options. If the Company terminates 45 Mr. Duane's employment other than for cause (as defined in the Duane Agreement), he will be entitled to the balance of the compensation described above, subject to mitigation. The Duane Agreement also includes certain confidentiality provisions. The Company's employment agreement with Roger Williams (the "Williams Agreement"), pursuant to which Mr. Williams serves as Executive Vice President and Chief Financial Officer of the Company, expires on March 1, 1999. Under the Williams Agreement, Mr. Williams is entitled to (i) a base salary (currently $450,000 per year), subject to increase based upon an annual performance review by the Board, (ii) an annual performance bonus based upon the profitability of the Company of up to 50% of his base salary for such year and (iii) participation in various health, life insurance and other fringe benefit plans and programs maintained by the Company. Immediately prior to the Offerings, Mr. Williams will be granted nonqualified stock options to purchase 200,000 shares of Common Stock at an exercise price equal to the price per share at which shares are sold in the Offerings. Portions of Mr. Williams's stock options will vest and become exercisable each February 28 from 1997 through 1999, becoming fully exercisable as of March 1, 1999. Certain termination of employment and change of control events set forth in his employment agreement will accelerate the vesting of his stock options or enable Mr. Williams to immediately exercise his stock options to the extent then vested. In addition, if Mr. Williams's employment is terminated by the Company other than for cause, or if he resigns for good reason (as such terms are defined in the Williams Agreement), he will be entitled (i) to receive a lump sum cash payment equal to the sum of his base salary and his performance bonus for one year and (ii) to continue for the one-year period following his termination to be covered, together with his spouse and dependents, at the Company's expense, under all medical, health and accident insurance or other such health care arrangements maintained for his benefit immediately prior to such termination. Mr. Williams's employment agreement also includes certain noncompetition, nonsolicitation and confidentiality provisions. The Company entered into an employment agreement with Andrea Weiss, dated January 22, 1996 (the "Weiss Agreement"), pursuant to which Ms. Weiss will serve as President of Retail Operations of the Company for a term of two years. Under the Weiss Agreement, Ms. Weiss is entitled to (i) a base salary (currently $375,000 per year); (ii) an annual performance bonus ranging from $125,000 to $325,000, depending on the performance of the Retail Division of the Company; and (iii) participation in various health, life insurance and other fringe benefit plans and programs maintained by the Company. The Company has an option to extend the term of employment for an additional two years. Upon consummation of the Offerings, Ms. Weiss will be eligible to participate in the 1996 Equity Plan at a level commensurate with her executive level of employment. See "-- 1996 Equity Incentive Plan." If Ms. Weiss's employment is terminated by the Company other than for cause at any time during the first two years of her employment, she will be entitled to the balance of her salary for the two years plus up to an additional six months' salary. 1996 EQUITY INCENTIVE PLAN Prior to the consummation of the Offerings, the Company intends to adopt the 1996 Equity Plan. The 1996 Equity Plan will be administered by the Compensation Committee upon establishment thereof, and by the Board prior to that time (the "Committee"). The 1996 Equity Plan provides for the granting of incentive stock options (within the meaning of Section 422 of the Code) and nonqualified stock options, stock appreciation rights, restricted stock, performance units and performance shares (individually, an "Award," or collectively, "Awards") to those officers, and other key employees and consultants with potential to contribute to the future success of the Company or its subsidiaries; PROVIDED, that only employees may be granted incentive stock options. The Committee has discretion to select the persons to whom Awards will be granted (from among those eligible), to determine the type, size and terms and conditions applicable to each Award and the authority to interpret, construe and implement the provisions of the 1996 Equity Plan; PROVIDED, that in accordance with the requirements under Section 162(m) of the Code, no participant may receive a grant of stock options or stock appreciation rights with respect to more than 500,000 shares of Common Stock in any Plan year. The Compensation Committee's decisions are binding on the Company and persons eligible to participate in the 1996 Equity Plan and all other persons having any interest in the 1996 Equity Plan. It is presently anticipated that approximately 160 individuals will initially participate in the 1996 Equity Plan. 46 The maximum number of shares of Common Stock that may be subject to Awards under the 1996 Equity Plan, including Awards granted concurrently with the Offerings, is 4,500,000 shares, subject to adjustment in accordance with the terms of the 1996 Equity Plan. Common Stock issued under the 1996 Equity Plan may be either authorized but unissued shares, treasury shares or any combination thereof. Any shares of Common Stock subject to an Award which lapses, expires or is otherwise terminated prior to the issuance of such shares may become available for new Awards. The following table shows the dollar value and number of Options awarded to the individuals and groups listed below pursuant to the 1996 Equity Plan: NEW PLAN BENEFITS 1996 EQUITY INCENTIVE PLAN
DOLLAR NAME VALUE($)(1) NUMBER OF OPTIONS - --------------------------------------------------------------------------- ----------------- ------------------ Maurice Marciano........................................................... -- -- Paul Marciano.............................................................. -- -- Armand Marciano............................................................ -- -- Roger Williams............................................................. -- 200,000(2) Ken Duane.................................................................. $ 35,602 104,705(2) Andrea Weiss............................................................... -- 75,000(3) Michael Wallen............................................................. -- 50,000(3) Executive Group............................................................ $ 35,602 429,705 Non-Employee Director Group................................................ -- -- Non-Executive Officer Employee Group....................................... -- 777,700(3)
- ------------------------ (1) Represents the aggregate value of unexercised in-the-money options as of the date of the grant, assuming an initial public offering price of the Common Stock of $22.00 per share. The Company does not anticipate recording compensation expense relating to the grant of any such options. (2) See "-- Employment Agreements" above for the vesting schedule of such options. (3) The date of grant of the options will be the date of the Offerings, and the exercise price per share of such options will be the initial public offering price of the Common Stock in the Offerings. Such options generally vest over three or five-year periods, depending upon the employee's length of service with the Company. Set forth below is a description of the types of Awards which may be granted under the 1996 Equity Plan: STOCK OPTIONS. Options (each, an "Option") to purchase shares of Common Stock, which may be nonqualified or incentive stock options, may be granted under the 1996 Equity Plan at an exercise price (the "Option Price") determined by the Committee in its discretion, PROVIDED that the Option Price of incentive stock options may be no less than the fair market value of the underlying Common Stock on the date of grant (110% of fair market value in the case of an incentive stock option granted to a ten percent shareholder). Options will expire not later than ten years after the date on which they are granted (five years in the case of an incentive stock option granted to a ten percent shareholder). Options become exercisable at such times and in such installments as determined by the Compensation Committee; PROVIDED that all such Options will be fully exercisable within five years after the date on which they are granted, and such exercisability may be based on (i) length of service or (ii) the attainment of performance goals established by the Committee; PROVIDED FURTHER that no Option granted before August 15, 1996 to a person who is subject to Section 16 of the Exchange Act may be exercised within the first six months following the date of grant. Subject to the preceding proviso, the Committee may also accelerate the time or times at which any or all Options held by an optionee may be exercised. Payment of the Option Price must be made in full at the time of exercise in cash, certified or bank check, or other instrument acceptable to the Committee. In the 47 discretion of the Committee, payment in full or in part may also be made by tendering to the Company shares of Common Stock having a fair market value equal to the Option Price (or such portion thereof), by means of a "cashless exercise" procedure to be approved by the Committee or by withholding shares of Common Stock that would otherwise have been issued to the optionee in connection with the exercise of an Option. STOCK APPRECIATION RIGHTS. A stock appreciation right ("SAR") is an Award entitling the recipient to receive an amount equal to (or less than, if the Committee so determines at the time of grant) the excess of the fair market value of a share of Common Stock on the date of exercise over the exercise price per share specified for the SAR, multiplied by the number of shares of Common Stock with respect to which the SAR is then being exercised. An SAR granted in connection with an Option will be exercisable to the extent that the related Option is exercisable. Upon the exercise of an SAR related to an Option, the Option related thereto will be cancelled to the extent of the number of shares covered by such exercise and such shares will no longer be available for grant under the 1996 Equity Plan. Upon the exercise of a related Option, the SAR will be cancelled automatically to the extent of the number of shares covered by the exercise of the Option. SARs unrelated to an Option will contain such terms and conditions as to exercisability, vesting and duration as the Committee may determine, but such duration will not be greater than ten years. The Committee may accelerate the period for the exercise of an SAR. Payment upon exercise of an SAR will be made, at the election of the Committee, in cash, in shares of Common Stock or a combination thereof. In no event shall an SAR granted prior to August 15, 1996 be exercisable within the first six months after the date such SAR is granted, or in the case of an SAR granted prior to August 15, 1996 and in tandem with a Stock Option, within the first six months after the date of grant of the related stock option. The Committee may grant limited stock appreciation rights (an "LSAR") under the 1996 Equity Plan. An LSAR is an SAR which becomes exercisable only in the event of a "change in control" (as defined below). Any such LSAR will be settled solely in cash. An LSAR must be exercised within the 30-day period following a change in control. RESTRICTED STOCK. An Award of restricted stock ("Restricted Stock") is an Award of Common Stock which is subject to such restrictions as the Committee deems appropriate, including forfeiture conditions and restrictions against transfer for a period specified by the Committee. With respect to Restricted Stock Awards made prior to August 15, 1996, a participant may not sell, assign, transfer, pledge or otherwise dispose of such an Award during the six month period commencing on the date of the Award. Restricted Stock Awards may be granted under the 1996 Equity Plan for or without consideration. Restrictions on Restricted Stock may lapse in installments based on factors selected by the Committee. The Committee, in its sole discretion, may waive or accelerate the lapsing of restrictions in whole or in part. Prior to the expiration of the restricted period, except as otherwise provided by the Committee, a grantee who has received a Restricted Stock Award has the rights of a shareholder of the Company, including the right to vote and to receive cash dividends on the shares subject to the Award. Stock dividends issued with respect to shares covered by a Restricted Stock Award will be treated as additional shares under such Award and will be subject to the same restrictions and other terms and conditions that apply to the shares with respect to which such dividends are issued. PERFORMANCE SHARES; PERFORMANCE UNITS. A performance share Award (a "Performance Share") is an Award which represents the right to receive a specified number of shares of Common Stock upon satisfaction of certain specified performance criteria, subject to such other terms and conditions as the Committee deems appropriate. A performance unit (a "Performance Unit") is an Award of a number of units entitling the recipient to receive an amount equal to (or less than, if the Committee so determines at the time of grant) the excess of the fair market value of a share of Common Stock on the relevant date over the price per share specified for the Performance Unit, multiplied by the number of Units, upon satisfaction of certain specified performance criteria, subject to such other terms and conditions as the Committee deems appropriate. Performance objectives will be established before, or as soon as practicable after, the commencement of the performance period (the "Performance Period") and may be based on net earnings, operating earnings or income, absolute and/or relative return on equity or assets, earnings per share, cash flow, pre-tax profits, earnings growth, revenue growth, comparisons to peer companies, any combination of the foregoing and/or such other measures, including individual measures of performance, as the Committee deems 48 appropriate. Prior to the end of a Performance Period, the Committee, in its discretion and only under conditions which do not affect the deductibility of compensation attributable to Performance Shares or Performance Units, as the case may be, under Section 162(m) of the Code, may adjust the performance objectives to reflect an event which may materially affect the performance of the Company, a subsidiary or a division, including, but not limited to, market conditions or a significant acquisition or disposition of assets or other property by the Company, a subsidiary or a division. The extent to which a grantee is entitled to payment in settlement of a Performance Share Award or a Performance Unit Award at the end of the Performance Period will be determined by the Committee, in its sole discretion, based on whether the performance criteria have been met. Payment in settlement of a Performance Share Award or a Performance Unit Award will be made as soon as practicable following the last day of the Performance Period, or at such other time as the Committee may determine, in shares of Common Stock or cash, respectively. ADDITIONAL INFORMATION. Under the 1996 Equity Plan, if there is any change in the outstanding shares of Common Stock by reason of any stock dividend, recapitalization, merger, consolidation, stock split, combination or exchange of shares or other form of reorganization, or any other change involving the Common Stock, such proportionate adjustments as may be necessary (in the form determined by the Committee) to reflect such change will be made to prevent dilution or enlargement of rights with respect to the aggregate number of shares of Common Stock for which Awards in respect thereof may be granted under the 1996 Equity Plan, the number of shares of Common Stock covered by each outstanding Award and the price per share in respect thereof. Generally, an individual's rights under the 1996 Equity Plan may not be assigned or transferred (except in the event of death). In the event of a change in control and except as the Committee (as constituted prior to such change in control) may expressly provide otherwise: (i) all Options or SARs then outstanding will become fully exercisable as of the date of the change in control, whether or not then exercisable; (ii) all restrictions and conditions of all Restricted Stock Awards then outstanding will lapse as of the date of the change in control; (iii) all Performance Share Awards and Performance Unit Awards will be deemed to have been fully earned as of the date of the change in control and (iv) in the case of a change in control involving a merger of, or consolidation involving, the Company in which the Company is (A) not the surviving corporation (the "Surviving Entity") or (B) becomes a wholly owned subsidiary of the Surviving Entity or a parent thereof, each outstanding Option granted under the Plan and not exercised (a "Predecessor Option") will be converted into an option (a "Substitute Option") to acquire common stock of the Surviving Entity or its parent, which Substitute Option will have substantially the same terms and conditions as the Predecessor Option, with appropriate adjustments as to the number and kind of shares and exercise prices. The above notwithstanding, any Award granted before August 15, 1996 to a person who is subject to Section 16 of the Exchange Act and within six months of a change in control will not be afforded any such acceleration as to exercise, vesting and payment rights or lapsing as to conditions or restrictions. For purposes of the 1996 Equity Plan and the Directors' Plan, a "change in control" shall have occurred when (A) any person or "group" within the meaning of Sections 13(d) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than (x) the Company, any subsidiary of the Company, any employee benefit plan of the Company or of any subsidiary of the Company, or any person or entity organized, appointed or established by the Company or any subsidiary of the Company for or pursuant to the terms of any such plans or (y) Maurice Marciano, Paul Marciano or Armand Marciano, any trust established in whole or in part for the benefit of one or more of them or their family members, or any other entity controlled by one or more of them), alone or together with its affiliates and associates (collectively, an "Acquiring Person"), shall become the beneficial owner of 20% or more of either (i) the then outstanding shares of Common Stock or (ii) the combined voting power of the Company's then outstanding voting securities (except pursuant to an offer for all outstanding shares of Common Stock at a price and upon such terms and conditions as a majority of the Continuing Directors (as defined below) determine to be in the best interests of the Company and its shareholders (other than an Acquiring Person on whose behalf the offer is being made)), (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors and any new director (other than a director who is a representative or nominee of an Acquiring Person) whose election by the Board of Directors or nomination for election by the 49 Company's shareholders was approved by a vote of at least a majority of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved (collectively, the "Continuing Directors"), no longer constitute a majority of the Board of Directors, (C) the shareholders of the Company approve a merger or consolidation of the Company with any other corporation, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the Surviving Entity or a parent thereof) at least 80% of the combined voting power of the voting securities of the Company or such Surviving Entity or a parent thereof outstanding immediately after such merger or consolidation; or (D) the shareholders of the Company approve a plan of reorganization (other than a reorganization under the United States Bankruptcy Code) or complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; PROVIDED, HOWEVER, that a change in control shall not be deemed to have occurred in the event of (x) a sale or conveyance in which the Company continues as a holding company of an entity or entities that conduct all or substantially all of the business or businesses formerly conducted by the Company or (y) any transaction undertaken for the purpose of reincorporating the Company under the laws of another jurisdiction, if such transaction does not materially affect the beneficial ownership of the Company's capital stock. The 1996 Equity Plan will remain in effect until terminated by the Board of Directors and thereafter until all Awards granted thereunder are either satisfied by the issuance of shares of Common Stock or the payment of cash or terminated pursuant to the terms of the 1996 Equity Plan or under any Award agreements. Notwithstanding the foregoing, no Awards may be granted under the 1996 Equity Plan after the tenth anniversary of the effective date of the 1996 Equity Plan. The Board of Directors may at any time terminate, modify, suspend or amend the 1996 Equity Plan; PROVIDED, HOWEVER, that no such amendment, modification, suspension or termination may adversely affect an optionee's or grantee's rights under any Award theretofore granted under the 1996 Equity Plan, except with the consent of such optionee or grantee, and no such amendment or modification will be effective unless and until the same is approved by the shareholders of the Company where such shareholder approval is required to comply with Rule 16b-3 under the Exchange Act, Section 162(m) of the Code, or other applicable law, regulation or Nasdaq National Market or stock exchange rule. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS. Certain of the Federal income tax consequences to optionees and the Company of Options granted under the 1996 Equity Plan should generally be as set forth in the following summary. An employee to whom an incentive stock option ("ISO") which qualifies under Section 422 of the Code is granted will not recognize income at the time of grant or exercise of such Option. However, upon the exercise of an ISO, any excess in the fair market price of the Common Stock over the Option Price constitutes a tax preference item which may have alternative minimum tax consequences for the employee. If the employee sells such shares more than one year after the date of transfer of such shares and more than two years after the date of grant of such ISO, the employee will generally recognize a long-term capital gain or loss equal to the difference, if any, between the sale prices of such shares and the Option Price. The Company will not be entitled to a federal income tax deduction in connection with the grant or exercise of the ISO. If the employee does not hold such shares for the required period, when the employee sells such shares, the employee will recognize ordinary compensation income and possibly capital gain or loss (long-term or short-term, depending on the holding period of the stock sold) in such amounts as are prescribed by the Code and the regulations thereunder and the Company will generally be entitled to a Federal income tax deduction in the amount of such ordinary compensation income recognized by the employee. An employee to whom a nonqualified stock option ("NSO") is granted will not recognize income at the time of grant of such Option. When such employee exercises such NSO, the employee will recognize ordinary compensation income equal to the excess, if any, of the fair market value, as of the date of Option exercise, of the shares the employee receives upon such exercise over the Option Price paid. The tax basis of such shares to such employee will be equal to the Option Price paid plus the amount, if any, includible in the employee's gross income, and the employee's holding period for such shares will commence on the date on which the employee recognizes taxable income in respect of such shares. Gain or loss upon a subsequent sale 50 of any Common Stock received upon the exercise of a NSO generally would be taxed as capital gain or loss (long-term or short-term, depending upon the holding period of the stock sold). Certain additional rules apply if the Option Price is paid in shares previously owned by the participant. Subject to the applicable provisions of the Code and regulations thereunder, the Company will generally be entitled to a Federal income tax deduction in respect of a NSO in an amount equal to the ordinary compensation income recognized by the employee. This deduction will, in general, be allowed for the taxable year of the Company in which the participant recognizes such ordinary income. 1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN Prior to the consummation of the Offerings, the Company intends to adopt the Directors' Plan. The purposes of the Directors' Plan are to attract and retain as non-employee directors individuals with superior training, experience and ability and to provide additional incentives to such individuals by giving them an opportunity to participate in the ownership of Common Stock of the Company. All directors who are not employees of the Company are eligible to participate in the Directors' Plan. It is presently anticipated that approximately four individuals will participate in the Directors' Plan. Under the Directors' Plan, any person who is not an employee of the Company and who becomes a director either on or after the date of the Offerings will receive a non-qualified option (a "Non-Qualified Option") to purchase 10,000 shares of Common Stock on the date he or she becomes a director. In addition, on the first business day of each fiscal year of the Company, commencing January 1, 1997, while the Directors' Plan is in effect (each, an "Eligibility Date"), each non-employee director who has not been an employee of the Company at any time during the previous twelve months will receive a Non-Qualified Option to purchase 3,000 shares of Common Stock. The aggregate number of shares of Common Stock that may be issued under the Directors' Plan is 500,000, subject to adjustment in accordance with the terms of the Directors' Plan. Common Stock issued under the Directors' Plan may be either authorized but unissued shares, treasury shares or a combination thereof. Any shares of Common Stock subject to a Non-Qualified Option which lapses, expires or is otherwise terminated without the issuance of such shares may become available for new awards. All Non-Qualified Options granted under the Directors' Plan will vest and become exercisable in 25% installments in each of the first four anniversaries of the date of grant; PROVIDED that the participant may not exercise any Non-Qualified Option as to less than 100 shares at any one time or, if the total remaining number of shares is less than 100, the participant must exercise the entire remaining shares covered by the Non-Qualified Option. However, in the event of a "change in control" of the Company, (i) all Non-Qualified Options then outstanding will become fully exercisable and (ii) in the case of a change in control involving a merger of, or consolidation involving, the Company in which the Company is (A) not the Surviving Entity or (B) becomes a wholly owned subsidiary of the Surviving Entity or any parent thereof, each Predecessor Option will be converted into a Substitute Option to acquire common stock of the Surviving Entity or its parent, which Substitute Option will have substantially the same terms and conditions as the Predecessor Option, with appropriate adjustments as to the number and kind of shares and exercise prices. See "-- 1996 Equity Incentive Plan -- Additional Information" above for the definition of "change in control." In addition, if there is any change in the outstanding shares of Common Stock by reason of any stock dividend, recapitalization, merger, consolidation, stock split, combination or exchange of shares or other form of reorganization, or any other change involving the Common Stock, such proportionate adjustments as may be necessary (in the form determined by the Board) to reflect such change will be made to prevent dilution or enlargement of rights with regard to the aggregate number of shares of Common Stock for which Non-Qualified Options in respect thereof may be granted under the Directors' Plan, the number of shares of Common Stock covered by each outstanding Non-Qualified Option and the price per share in respect thereof. The price of the shares of Common Stock purchased upon exercise of a Non-Qualified Option will be equal to 85% of the fair market value of the Common Stock subject to such Non-Qualified Option as of the date of grant. The exercise price must be paid in full at the time of exercise in cash, certified or bank check, or other instrument acceptable to the Board of Directors. In the discretion of the Board, payment in full or in part may also be made by tendering to the Company shares of Common Stock having a fair market value 51 equal to the exercise price (or such portion thereof), by means of a "cashless exercise" procedure to be approved by the Board of Directors or by withholding shares of Common Stock that would otherwise have been issued to the optionee upon the exercise of the Non-Qualified Option. The Company may also loan optionees sufficient funds to exercise any Non-Qualified Option. ADDITIONAL INFORMATION. Non-Qualified Options granted or to be granted under the Directors' Plan are nontransferable. Each Non-Qualified Option granted will expire ten years from the date of grant and cannot be exercised after that time. In addition, if any participant ceases to be an eligible director for any reason other than death or disability, any Non-Qualified Option held by such participant may thereafter be exercised, to the extent it was exercisable at the time of termination, for a period of six months from the time of termination or the expiration of the stated term of such Non-Qualified Option, whichever period is shorter; PROVIDED, HOWEVER, that if such participant dies within such six-month period, any unexercised Non-Qualified Options held by such participant will be exercisable, to the extent exercisable at the time of death, for a period of one year from the date of such death or until the expiration of the stated term of any such Non-Qualified Option, whichever period is shorter. If any participant ceases to be an eligible director by reason of death or disability, any Non-Qualified Option held by such participant may thereafter be exercised, to the extent it was exercisable at the time of termination, for a period of one year from the date of such termination or until the expiration of the stated term of such Non-Qualified Option, whichever period is shorter; PROVIDED, that if a participant who is disabled dies within such one-year period, any unexercised Non-Qualified Option held by such participant will thereafter be exercisable, to the extent it was exercisable at the time of death, for a period of one year from the date of such death or until the expiration of the stated term of such Non-Qualified Option, whichever period is shorter. Unless it is terminated at an earlier date by the Board of Directors, the Directors' Plan shall terminate ten years after the date Non-Qualified Options are first granted under the Directors' Plan. The Board of Directors has full and exclusive discretionary authority to revise administrative rules and guidelines governing the Directors' Plan, to interpret the terms of the Directors' Plan and related agreements, to delegate its responsibility and authority under the Directors' Plan, and to generally supervise the administration of the Directors' Plan. In addition, the Board of Directors may amend, alter, suspend or discontinue the Directors' Plan at any time; PROVIDED, that the Board of Directors may not act to impair the rights of plan participants pursuant to Non-Qualified Options previously granted under the Directors' Plan without the optionee's consent. No amendment, alteration, suspension or termination will be effective unless and until the same is approved by the shareholders of the Company where such shareholder approval is required to comply with applicable law. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF NON-QUALIFIED OPTIONS. Although no Federal income tax liability accrues to a participant at the time a Non-Qualified Option is granted, the participant must recognize ordinary compensation income in the year in which the Non-Qualified Option is exercised equal to the amount by which the fair market value of the purchased shares on the date of exercise exceeds the exercise price. The tax basis of such shares to such participant will be equal to the exercise price paid plus the amount includible in the participant's gross income, and the participant's holding period for such shares will commence on the date on which the participant recognizes taxable income in respect of such shares. Gain or loss upon a subsequent sale of any Common Stock received upon the exercise of a Non-Qualified Option generally would be taxed as capital gain or loss (long-term or short-term, depending upon the holding period of the stock sold). Certain additional rules apply if the exercise price for a Non-Qualified Option is paid in shares previously owned by the participant. Subject to the applicable provisions of the Code and regulations thereunder, the Company will generally be entitled to an income tax deduction equal to the amount of ordinary compensation income the participant recognizes in connection with the exercise of any Non-Qualified Option. The deduction will, in general, be allowed for the taxable year of the Company in which the participant recognizes such ordinary compensation income. ANNUAL INCENTIVE BONUS PLAN Prior to the consummation of the Offerings, the Company intends to adopt an Annual Incentive Bonus Plan (the "Bonus Plan") which will be administered by the Compensation Committee after the Offerings. 52 Participation is based upon individual selection by the Compensation Committee from among key employees who, in the judgment of the Compensation Committee, are in a position to have a significant impact on the performance of the Company. It is anticipated that approximately 100 individuals will participate in the Bonus Plan. Awards are based upon the extent to which the Company's financial performance (in terms of net earnings, operating income, earnings per share, cash flow, absolute and/or relative return on equity or assets, pre-tax profits, earning growth, revenue growth, comparison to peer companies, any combination of the foregoing and/or other appropriate measures in such manner as the Compensation Committee deems appropriate) during the year has met or exceeded certain performance goals specified by the Compensation Committee. Some performance goals applicable to participants may include elements which specify individual achievement objectives directly related to such individual's areas of responsibility. In determining whether performance goals have been satisfied, the Compensation Committee in its discretion may direct that adjustments be made to the performance goals or actual financial performance as reported to reflect extraordinary changes that have occurred during the year. The Compensation Committee may alternatively grant a discretionary bonus. In the event a participant terminates employment prior to the end of a year for any reason other than disability, retirement or death, no award under the Bonus Plan will be paid for such year unless otherwise determined by the Compensation Committee in its sole discretion. If employment terminates by reason of disability, retirement or death, the participant will be entitled to receive a PRO RATA award. Because the performance goals under the Bonus Plan are determined by the Compensation Committee in its discretion, it is not possible to determine the benefits and amounts that will be received by any individual participant or group of participants in the future. The Board of Directors may terminate, modify or suspend the Bonus Plan, in whole or in part, at any time; provided that no such termination or modification may impair any rights which may have accrued under such Plan. 401(K) SAVINGS PLAN On January 1, 1992, the Company established the Guess ? Inc. Savings Plan (the "Savings Plan") under Section 401(k) of the Code. Under the Savings Plan, associates may contribute up to 15% of their compensation per year subject to the elective limits as defined by guidelines of the Internal Revenue Service (the "IRS") and the Company may make matching contributions in amounts not to exceed 1.5% of the associates' annual compensation. The Company's contributions to the Savings Plan during the years ended December 31, 1993, 1994 and 1995 aggregated $221,000, $213,000 and $261,000, respectively. Contributions to the Savings Plan during the six months ended July 2, 1995 and June 30, 1996 aggregated $132,000 and $134,000, respectively. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company did not have a Compensation Committee during 1995, but each of Maurice, Paul and Armand Marciano (each of whom also served as an executive officer of the Company during 1995) participated in deliberations concerning executive compensation. See "Certain Transactions" immediately below for information regarding related-party transactions involving each of Maurice, Paul and Armand Marciano. 53 CERTAIN TRANSACTIONS The Company is engaged in various transactions with entities affiliated with the Marciano Trusts and the other Principal Stockholders. The Company believes that each of the transactions discussed below was entered into on terms no less favorable to the Company than could have been obtained from an unaffiliated third party. LICENSE ARRANGEMENTS AND LICENSEE TRANSACTIONS On January 1, 1995, the Company entered into a licensing agreement with Charles David of California ("Charles David"). This new agreement superseded a prior license agreement dated September 28, 1990 and amended in May 1993. The Marciano Trusts and Nathalie Marciano (the spouse of Maurice Marciano) together own 50% of Charles David, and the remaining 50% is owned by the father-in-law of Maurice Marciano. The license agreement grants Charles David the rights to manufacture worldwide and distribute worldwide (except Japan) men's, women's and some children's leather and rubber footwear, excluding athletic footwear, which bear the GUESS logo and trademark. The license also includes related shoe care products and accessories. Gross royalties earned by the Company under such license agreement for the fiscal years ended December 31, 1993, 1994 and 1995, and for the six months ended June 30, 1996, was $1.7 million, $1.9 million, $2.1 million and $858,000, respectively. In the same respective periods, the Company purchased $3.7 million, $4.8 million, $6.4 million and $2.7 million of products from Charles David for resale in the Company's retail stores. On September 1, 1994, the Company entered into a licensing agreement with California Sunshine Active Wear, Inc. ("California Sunshine"), granting it the rights to manufacture and distribute certain men's and women's activewear, which bear the GUESS logo and trademark, in the United States. The Marciano Trusts together own 51% of California Sunshine. Gross royalties earned by the Company under such license agreement for the fiscal years ended December 31, 1994 and 1995, and for the six months ended June 30, 1996, was $0, $342,000 and $350,000, respectively. In the same respective periods, the Company purchased $0, $254,000 and $332,000 of products from California Sunshine for resale in the Company's retail stores. Effective January 1, 1995, the Company entered into a licensing agreement with Guess Italia, S.r.l. ("Guess Italia"), granting it the exclusive right in Italy and non-exclusive right in other parts of Europe to manufacture and distribute men's and women's apparel and accessories that bear the GUESS logo and trademark. Guess Italia is owned 79% by the Company and 21% by Marciano International, a company wholly owned by the Marciano Trusts that is to be merged into the Company as part of the Reorganization. Gross royalties earned by the Company under such license agreement for the fiscal year ended December 31, 1995 and for the six months ended June 30, 1996 was $505,000 and $266,000, respectively. During 1993, 1994 and 1995 and the six months ended June 30, 1996, the Company purchased $0, $0, $511,000 and $251,000 of products from Guess Italia for resale in the retail division's stores. The Company sold $0, $1.1 million, $411,000 and $94,000 of products to Guess Italia during 1993, 1994, 1995 and the six months ended June 30, 1996, respectively. The Company will pay the Marciano Trusts an aggregate of $300,000 in connection with the merger of Marciano International into the Company. During 1993 and 1994, the Company made advances to Guess Italia of $193,000 and $989,000, respectively. These advances were subsequently recorded as additional paid-in capital. On December 1, 1992, the Company entered into a licensing agreement with Nantucket Industries, Inc. ("Nantucket Industries") granting it the right to distribute and manufacture men's and women's innerwear, which bear the GUESS logo and trademark, in the United States. The Marciano Trusts together own 8.9% of Nantucket Industries. Gross royalties earned by the Company under such license agreement for the fiscal years ended December 31, 1993, 1994 and 1995, and for the six months ended June 30, 1996, was $47,000, $214,000, $264,000 and $157,000, respectively. In the same respective periods, the Company purchased $23,000, $201,000, $505,000 and $313,000 of products from Nantucket Industries for resale in the Company's retail stores. 54 PURCHASING AGENCY AGREEMENT On May 3, 1994, the Company entered into an agreement with Ranche to serve as a non-exclusive buying agent for the Company in Hong Kong, which agreement was terminated in the first quarter of 1996 when certain of Ranche's assets were transferred to Newtimes Guess Ltd., a Hong Kong corporation ("Newtimes") in which the Marciano Trusts, through their ownership of Marciano International, and the Company hold indirect ownership interests of 25% and 25%, respectively. Ranche is currently a wholly owned subsidiary of GEBV. In the fiscal year ended December 31, 1995, and in the six months ended June 30, 1996, Ranche earned commission income from the Company of $1.3 million and $192,000, respectively, in connection with supplying product. In addition, Ranche operates under a licensing arrangement to distribute product to authorized distributors. Gross royalties earned by the Company under such license for the fiscal year ended December 31, 1995, and for the six months ended June 30, 1996, was $240,000 and $133,000, respectively. In February 1996, the Company entered into a buying agency agreement with Newtimes. Pursuant to such agreement, the Company pays Newtimes a commission based upon the price of all raw materials purchased for the Company by Newtimes. As of June 30, 1996, the Company had paid Newtimes aggregate commissions of $186,000. In connection with the Reorganization, the Marciano Trusts' indirect interest in Newtimes will be transferred to the Company. SALE/LEASEBACK TRANSACTION On July 29, 1992, the Company sold its corporate and distribution facility in Los Angeles to a limited partnership in which the sole partners were the then existing stockholders under a sale/leaseback arrangement. The facility was sold for $24 million, of which $13 million was received in cash upon closing of escrow. The balance of $11 million was paid by issuance of a promissory note due in July 1994. The note was repaid in February 1993. The limited partnership obtained additional financing for its purchase of the facility through a loan from an institutional third party lender. The loan is secured by the partnership's interest in the facility and in the lease with the Company. Pursuant to the lease, the Company has agreed to indemnify the partnership against certain losses that may be incurred in connection with such loan. In August 1993, the partnership acquired and retired Georges Marciano's beneficial interest in such partnership, and the corporate general partner in such partnership redeemed Georges Marciano's beneficial interest in the corporate general partner. LEASES The Company leases warehouse and administrative facilities and one retail administrative facility from partnerships affiliated with the Marciano Trusts. The leases will expire in July 2008. Aggregate lease payments under such leases for the fiscal years ended December 31, 1993, 1994 and 1995 and the fiscal six months ended June 30, 1996 were $2.1 million, $2.6 million, $2.8 million and $1.3 million, respectively. LOANS TO EXECUTIVE OFFICERS In 1995, the Company loaned Mr. Wallen the sum of $200,000 at an annual interest rate of 7% in connection with certain moving expenses. This loan is scheduled to be repaid on August 31, 1999, with interest on the loan payable in four annual installments commencing August 31, 1996. If Mr. Wallen is an employee in good standing on August 31, 1996, the first interest payment will be waived. In 1994, the Company loaned Mr. Williams the sum of $400,000 in connection with certain moving expenses. The loan has been repaid in full. OTHER TRANSACTION On December 31, 1993, the Company wrote off a current note receivable (including accrued interest) in the amount of $521,000 from G&C Entertainment, Inc. ("G&C"), a corporation engaged in television and record production development. The Company acquired its 51% interest in equity of G&C in January 1993 from trusts for the benefit of Georges Marciano and Paul Marciano who were G&C's sole stockholders prior to such acquisition. G&C was dissolved in 1994. 55 STOCKHOLDERS' AGREEMENT Prior to consummation of the Offerings, the Principal Stockholders and the Company will amend and restate the Amended and Restated Shareholders' Agreement dated November 12, 1993 (the "Stockholders' Agreement"). Pursuant to the Stockholders' Agreement, the Principal Stockholders have agreed to vote their shares of Common Stock to elect each of Maurice, Paul and Armand Marciano, or one designee of any such person (if such designee shall be reasonably acceptable to the other Principal Stockholders) to the Board of Directors. The Stockholders' Agreement provides that each of the Principal Stockholders has granted to each other and to the Company rights of first refusal with respect to the sale of any shares of the Company's outstanding Common Stock (with certain limited exceptions). PURCHASE AGREEMENT On August 23, 1993, the Company repurchased 95% of the shares of Common Stock then held by Georges Marciano for a price of $203.5 million and a trust for the benefit of Paul Marciano purchased the remaining 5% of such shares for a price of $10.7 million. The purchase price for such shares was determined by negotiation among the Company, the Marciano Trusts and Georges Marciano. Among the factors considered in determining the purchase price were the past and present operations of the Company, the prospects for future earnings of the Company and other relevant factors. In connection with such repurchase, the Company and the Marciano Trusts agreed to release and indemnify Georges Marciano and the Georges Marciano Trust from and against any claims relating to certain specified matters, including the Company, its management, financing, operations and personnel, and the offer and sale of the Company's Senior Subordinated Notes. Any claim for such indemnity will be in the first instance the responsibility of the Company. As consideration for such indemnity and release, Georges Marciano and the Georges Marciano Trust released the Company and the Marciano Trusts from any claim relating to certain specified matters, including the Company, its management, financing, operations and personnel (other than certain excluded matters). In addition, the Company canceled the existing license agreement between it and an affiliate of Georges Marciano with respect to the GEORGES MARCIANO-Registered Trademark- trademarks, effective August 23, 1994, and agreed to assign to such affiliate all of the Company's right, title and interest in the GEORGES MARCIANO-Registered Trademark- trademarks, but reserved the right to use such trademarks until August 23, 1994. As consideration for such assignment, Georges Marciano agreed to refrain from any use of the GEORGES MARCIANO-Registered Trademark- trademarks until August 23, 1995. 56 PRINCIPAL STOCKHOLDERS The following table and the notes thereto set forth information, as of the date of this Prospectus, relating to beneficial ownership (as defined in Rule 13d-3 of the Exchange Act) of the Company's equity securities and each Principal Stockholder:
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP OF COMMON STOCK OF COMMON STOCK PRIOR TO THE AFTER THE OFFERINGS (1) OFFERINGS (1) -------------------- -------------------- NAME OF BENEFICIAL OWNERS NUMBER PERCENT NUMBER PERCENT - ---------------------------------------------------------------------- ----------- ------- ----------- ------- Maurice Marciano (2).................................................. 14,812,252 45.3% 14,812,252 35.4% Paul Marciano (3)..................................................... 12,062,736 36.9 12,062,736 28.8 Armand Marciano (4)................................................... 5,806,831 17.8 5,806,831 13.8 All directors and executive officers as a group (7 persons).......................................................... 32,681,819 100.0% 32,681,819 78.0%
- ------------------------------ (1) The address of each person listed above is c/o Guess ?, Inc., 1444 South Alameda Street, Los Angeles, California 90021. Subject to the Amended and Restated Stockholders' Agreement dated as of August 1, 1996 and applicable community property laws and similar laws, each person listed above has sole voting and investment power with respect to such shares. (2) Includes shares beneficially owned by Maurice Marciano as follows: 13,072,727 shares as trustee of the Maurice Marciano Trust (1995 Restatement) with respect to which he has sole voting and investment power; 1,094,332 shares as co-trustee of the Paul Marciano 1996 Grantor Retained Annuity Trust with respect to which he shares voting and investment power; and 645,193 shares as co-trustee of the Armand Marciano 1996 Grantor Retained Annuity Trust with respect to which he shares voting and investment power. (3) Includes shares beneficially owned by Paul Marciano as follows: 10,502,443 shares as trustee of the Paul Marciano Trust dated February 20, 1986 with respect to which he has sole voting and investment power; and 1,560,293 shares as co-trustee of the Maurice Marciano 1996 Grantor Retained Annuity Trust with respect to which he shares voting and investment power. (4) Includes shares beneficially owned by Armand Marciano as trustee of the Armand Marciano Trust dated February 20, 1986 with respect to which he has sole voting and investment power. 57 SHARES ELIGIBLE FOR FUTURE SALE Upon the consummation of the Offerings, the Company will have 41,882,000 shares of Common Stock outstanding. Of these shares, the 9,200,000 shares of Common Stock sold by the Company in the Offerings will be freely tradeable without restriction or further registration under the Securities Act, unless held by an "affiliate" of the Company (as that term is defined below). Any such affiliate will be subject to the resale limitations of Rule 144 adopted under the Securities Act. The remaining 32,682,000 shares of Common Stock outstanding are "restricted securities" for purposes of Rule 144 and are held by "affiliates" of the Company within the meaning of Rule 144 under the Securities Act. Restricted securities may not be resold in a public distribution except in compliance with the registration requirements of the Securities Act or pursuant to an exemption therefrom, including the exemption provided by Rule 144. The Principal Stockholders have contractual rights to demand or participate in future registrations of shares of Common Stock under the Securities Act. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), including a person who may be deemed to be an "affiliate" of the Company as that term is defined under the Securities Act, is entitled to sell within any three month period a number of shares beneficially owned for at least two years that does not exceed the greater of (i) 1% of the then outstanding shares of Common Stock or (ii) the average weekly trading volume of the outstanding shares of Common Stock during the four calendar weeks preceding such sale. Sales under Rule 144 are also subject to certain requirements as to the manner of sale, notice and the availability of current public information about the Company. However, a person (or persons whose shares are aggregated) who is not an "affiliate" of the Company during the 90 days preceding a proposed sale by such person and who has beneficially owned "restricted securities" for at least three years is entitled to sell such shares under Rule 144 without regard to the volume, manner of sale or notice requirements. As defined in Rule 144, an "affiliate" of an issuer is a person that directly or indirectly controls, or is controlled by, or is under common control with such issuer. The Company and the Principal Stockholders have agreed, subject to certain exceptions, not to, directly or indirectly, (i) sell, grant any option to purchase or otherwise transfer or dispose of any Common Stock or securities convertible into or exchangeable or exercisable for Common Stock or file a registration statement under the Securities Act with respect to the foregoing or (ii) enter into any swap or other agreement or transaction that transfers, in whole or in part, the economic consequence of ownership of the Common Stock, without the prior written consent of Merrill Lynch, for a period of 180 days after the date of this Prospectus. Effective upon the consummation of the Offerings, the Company intends to grant options covering approximately 1,207,405 shares of its Common Stock to certain of its employees pursuant to the 1996 Equity Plan. After such grants, an aggregate of approximately 3,792,595 shares will remain available for future option grants and other equity awards under the 1996 Equity Plan and the Directors' Plan. See "Management -- 1996 Equity Incentive Plan" and "-- 1996 Non-Employee Directors' Stock Option Plan." The Company intends to file a registration statement under the Securities Act to register all of the shares of Common Stock reserved for issuance under the 1996 Equity Plan and Directors' Plan. Such registration statement is expected to be filed as soon as practicable after the date of the Offerings and will automatically become effective upon filing. Shares issued under the 1996 Equity Plan and the Directors' Plan after the registration statement is filed may thereafter be sold in the open market, subject, in the case of the various holders, to the Rule 144 volume limitations applicable to affiliates and any transfer restrictions imposed on the date of the grant. Prior to the Offerings, there has been no public market for the Common Stock. No predictions can be made of the effect, if any, that future sales of shares of Common Stock, and options to acquire shares of Common Stock, or the availability of shares for future sale, will have on the market price prevailing from time to time. Sales of substantial amounts of Common Stock in the public market, or the perception that such sales may occur, could have a material adverse effect on the market price of the Common Stock. See "Risk Factors -- Future Sales by Principal Stockholders; Shares Eligible for Future Sale." 58 DESCRIPTION OF CAPITAL STOCK The following summary description of the capital stock of the Company is qualified in its entirety by reference to the form of Restated Certificate of Incorporation of the Company (the "Restated Certificate") and form of Restated Bylaws of the Company, to become effective prior to the closing of the Offerings, a copy of each of which is filed as an exhibit to the Registration Statement of which this Prospectus forms a part. The authorized capital stock of the Company consists of 150,000,000 shares of Common Stock, par value $.01 per share, and 10,000,000 shares of Preferred Stock, par value $.01 per share (the "Preferred Stock"). COMMON STOCK Holders of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of the shareholders, including the election of directors. The Restated Certificate does not provide for cumulative voting in the election of directors. Accordingly, holders of a majority of the shares of Common Stock entitled to vote in any election of directors may elect all of the directors standing for election. Subject to preferences that may be applicable to any Preferred Stock outstanding at the time, holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available therefor. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of the Company, holders of Common Stock are entitled to share ratably in all assets remaining after payment of the Company's liabilities and the liquidation preference, if any, of any outstanding shares of Preferred Stock. Holders of Common Stock have no preemptive rights and no rights to convert their Common Stock into any other securities and there are no redemption provisions with respect to such shares. All of the outstanding shares of Common Stock are fully paid and non-assessable. The rights, preferences and privileges of holders of Common Stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of Preferred Stock which the Company may designate and issue in the future. At present there is no established trading market for the Common Stock. The Common Stock has been approved for listing on the NYSE under the symbol "GES," subject to official notice of issuance. The transfer agent and registrar for the Common Stock is The First National Bank of Boston. PREFERRED STOCK The Restated Certificate provides that the Board of Directors, without further action by the stockholders, may issue shares of the Preferred Stock in one or more series and may fix or alter the relative, participating, optional or other rights, preferences, privileges and restrictions, including the voting rights, redemption provisions (including sinking fund provisions), dividend rights, dividend rates, liquidation preferences and conversion rights, and the description of and number of shares constituting any wholly unissued series of Preferred Stock. The Board of Directors, without further stockholder approval, can issue Preferred Stock with voting and conversion rights which could adversely affect the voting power of the holders of Common Stock. No shares of Preferred Stock presently are outstanding and the Company currently has no plans to issue shares of Preferred Stock. The issuance of Preferred Stock in certain circumstances may have the effect of delaying or preventing a change of control of the Company without further action by the stockholders, may discourage bids for the Company's Common Stock at a premium over the market price of the Common Stock and may adversely affect the market price and the voting and other rights of the holders of Common Stock. CERTAIN CERTIFICATE OF INCORPORATION, BYLAWS AND STATUTORY PROVISIONS AFFECTING STOCKHOLDERS CLASSIFIED BOARD OF DIRECTORS. The Company's Board of Directors is divided into three classes of directors serving staggered terms. One class of directors will be elected at each annual meeting of stockholders for a three-year term. See "Management -- Board of Directors." At least two annual meetings of stockholders, instead of one, generally will be required to change the majority of the Company's Board of Directors. 59 SPECIAL MEETING OF STOCKHOLDERS; STOCKHOLDER ACTION BY WRITTEN CONSENT. The Restated Certificate provides that any action required or permitted to be taken by the Company's stockholders may be effected only at a duly called annual or special meeting of stockholders. Additionally, the Restated Certificate and Bylaws provide that special meetings of the stockholders of the Company may be called only by the Chairman of the Board of Directors, the Chief Executive Officer or the President of the Company. ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS. The Company's Bylaws provide that stockholders seeking to bring business before or to nominate directors at any meeting of stockholders, must provide timely notice thereof in writing. To be timely, a stockholder's notice must be delivered to, or mailed and received at, the principal executive offices of the Company not less than 60 days nor more than 90 days prior to the anniversary date of the immediately preceding annual meeting of stockholders; PROVIDED, HOWEVER, that (i) in the event that the annual meeting is called for a date that is not within 30 days before or after such anniversary date, or (ii) in the case of the annual meeting of stockholders held during the 1997 fiscal year of the Corporation, notice by the stockholder in order to be timely must be so received not later than the close of business on the tenth day following the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs. The Bylaws also specify certain requirements for a stockholder's notice to be in proper written form. These provisions may preclude some stockholders from bringing matters before the stockholders or from making nominations for directors. DIRECTOR AND OFFICER INDEMNIFICATION. The Delaware Corporation Law provides that a Delaware corporation may include provisions in its certificate of incorporation relieving each of its directors of monetary liability arising out of his or her conduct as a director for breach of his or her fiduciary duty except liability for (i) any breach of such director's duty of loyalty to the corporation or its stockholders, (ii) acts or omissions that are not in good faith or involve intentional misconduct or a knowing violation of law, (iii) conduct violating Section 174 of the Delaware Corporation Law (which section relates to unlawful distributions) or (iv) any transaction from which a director derived an improper personal benefit. The Company's Restated Certificate includes such provisions. To the fullest extent permitted by the Delaware Corporation Law, as amended from time to time, the Company's Restated Certificate and Bylaws provide that the Company shall indemnify and advance expenses to each of its currently acting and former directors and officers, and may so indemnify and advance expenses to each of its current and former employees and agents. The Company believes the foregoing provisions are necessary to attract and retain qualified persons as directors and officers. Prior to the consummation of the Offerings, the Company intends to enter into separate indemnification agreements with each of its directors and executive officers in order to effectuate such provisions. 60 CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS The following is a general discussion of certain United States Federal tax consequences of the acquisition, ownership and disposition of Common Stock by a holder that is an individual, corporation, estate or trust and, for United States Federal income tax purposes, is not a "United States person" (a "Non-United States Holder"). This discussion is based upon the United States Federal tax law now in effect, which is subject to change, possibly retroactively. For purposes of this discussion, a "United States person" means a citizen or resident of the United States; a corporation, a partnership or other entity created or organized in the United States or under the laws of the United States or of any political subdivision thereof; or an estate or trust whose income is includible in gross income for United States Federal income tax purposes regardless of its source. This discussion does not consider any specific facts or circumstances that may apply to a particular Non-United States Holder. Prospective investors are urged to consult their tax advisors regarding the United States Federal tax consequences of acquiring, holding and disposing of Common Stock, as well as any tax consequences that may arise under the laws of any foreign, state, local or other taxing jurisdiction. DIVIDENDS Dividends paid to a Non-United States Holder will generally be subject to withholding of United States Federal income tax at the rate of 30% (or at a reduced tax treaty rate), unless the dividend is effectively connected with the conduct of a trade or business within the United States by the Non-United States Holder, in which case the dividend will be subject to the United States Federal income tax on net income on the same basis that applies to United States persons generally. In the case of a Non-United States Holder which is a corporation, such effectively connected income also may be subject to the branch profits tax. Non-United States Holders should consult their tax advisors concerning any applicable income tax treaties that may provide for a lower rate of withholding or other rules different from those described above. GAIN ON DISPOSITION A Non-United States Holder will generally not be subject to United States Federal income tax on gain recognized on a sale or other disposition of Common Stock unless (i) the gain is effectively connected with the conduct of a trade or business within the United States by the Non-United States Holder, (ii) in the case of a Non-United States Holder who is a nonresident alien individual and holds the Common Stock as a capital asset, such holder is present in the United States for 183 or more days in the taxable year of disposition and either such individual has a "tax home" in the United States or the gain is attributable to an office or other fixed place of business maintained by such individual in the United States or (iii) the Company is or has been a "U.S. real property holding corporation" for United States Federal income tax purposes (which the Company does not believe that it is or is likely to become). Gain that is effectively connected with the conduct of a trade or business within the United States by the Non-United States Holder will be subject to the United States Federal income tax on net income on the same basis that applies to United States persons generally (and, with respect to corporate holders, under certain circumstances, the branch profits tax) but will not be subject to withholding. Non-United States Holders should consult their own tax advisors concerning any applicable treaties that may provide for different rules. FEDERAL ESTATE TAXES Common Stock owned or treated as owned by an individual who is not a citizen or resident (for United States estate tax purposes) of the United States at the date of death will be included in such individual's estate for United States Federal estate tax purposes, unless an applicable estate tax treaty provides otherwise. INFORMATION REPORTING AND BACKUP WITHHOLDING The Company generally must report annually to the Internal Revenue Service and to each Non-United States Holder the amount of dividends paid to, and the tax withheld with respect to, such holder, regardless of whether any tax was actually withheld. This information may also be made available to the tax authorities of a country in which the Non-United States Holder resides. 61 Under temporary United States Treasury regulations, United States information reporting requirements and backup withholding tax will generally not apply to dividends paid on the Common Stock to a Non-United States Holder at an address outside the United States. Payments by a United States office of a broker of the proceeds of a sale of the Common Stock is subject to both backup withholding at a rate of 31% and information reporting unless the holder certifies its Non-United States Holder status under penalties of perjury or otherwise establishes an exemption. Information reporting requirements (but not backup withholding) will also apply to payments of the proceeds of sales of the Common Stock by foreign offices of United States brokers, or foreign brokers with certain types of relationships to the United States, unless the broker has documentary evidence in its records that the holder is a Non-United States Holder and certain other conditions are met, or the holder otherwise establishes an exemption. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules will, in certain circumstances, be refunded or credited against the Non-United States Holder's United States Federal income tax liability, provided that the required information is furnished to the Internal Revenue Service. PROPOSED REGULATIONS Under current United States Treasury regulations, dividends paid to an address in a foreign country are presumed to be paid to a resident of that country (unless the payor has knowledge to the contrary) for purposes of the withholding discussed above and, under the current interpretation of United States Treasury regulations, for purposes of determining the applicability of a tax treaty rate. Under recently proposed United States Treasury regulations that are proposed to be effective for payments made after December 31, 1997 (the "Proposed Regulations"), however, a Non-United States Holder of Common Stock who wishes to claim the benefit of an applicable treaty rate would be required to satisfy applicable certification requirements. Under the Proposed Regulations, dividend payments would also be made subject to information reporting and backup withholding unless these applicable certification requirements are satisfied. In addition, under the Proposed Regulations, in the case of Common Stock held by a foreign partnership, (x) the certification requirement would generally be applied to the partners of the partnership and (y) the partnership would be required to provide certain information, including a United States taxpayer identification number. The Proposed Regulations also provide look-through rules for tiered partnerships. There can be no assurance that the Proposed Regulations will be adopted or as to the provisions that they will include if and when adopted in temporary or final form. 62 UNDERWRITING Subject to the terms and conditions set forth in a purchase agreement (the "U.S. Purchase Agreement") among the Company and each of the underwriters named below (the "U.S. Underwriters"), and concurrently with the sale of 1,840,000 shares of Common Stock to the International Managers (as defined below), the Company has agreed to sell to each of the U.S. Underwriters, and each of the U.S. Underwriters severally has agreed to purchase from the Company, the number of shares of Common Stock set forth opposite its name below.
NUMBER U.S. UNDERWRITERS OF SHARES ----------- Merrill Lynch, Pierce, Fenner & Smith Incorporated................................................ Morgan Stanley & Co. Incorporated..................................... ----------- Total....................................................... 7,360,000 ----------- -----------
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated are acting as representatives (the "U.S. Representatives") of the U.S. Underwriters. The Company has also entered into a purchase agreement (the "International Purchase Agreement" and, together with the U.S. Purchase Agreement, the "Purchase Agreements") with certain underwriters outside the United States and Canada (collectively, the "International Managers," and together with the U.S. Underwriters, the "Underwriters"), for whom Merrill Lynch International and Morgan Stanley & Co. International Limited are acting as representatives of the International Managers (the "International Representatives" and, together with the U.S. Representatives, the "Representatives"). Subject to the terms and conditions set forth in the International Purchase Agreement, and concurrently with the sale of 7,360,000 shares of Common Stock to the U.S. Underwriters pursuant to the U.S. Purchase Agreement, the Company has agreed to sell to the International Managers and the International Managers have severally agreed to purchase from the Company, an aggregate of 1,840,000 shares of Common Stock. The initial public offering price per share of Common Stock and the underwriting discount per share of Common Stock are identical under the U.S. Purchase Agreement and the International Purchase Agreement. In the U.S. Purchase Agreement and the International Purchase Agreement, the several U.S. Underwriters and the several International Managers, respectively, have agreed, subject to the terms and conditions set forth therein, to purchase all of the shares of Common Stock being sold pursuant to each such Agreement if any of the shares of Common Stock being sold pursuant to such Agreement are purchased. Under certain circumstances, the commitments of non-defaulting U.S. Underwriters or International Managers (as the case may be) may be increased. The purchase of shares of Common Stock by the U.S. Underwriters is conditioned upon the purchase of shares of Common Stock by the International Managers, and vice versa. The U.S. Underwriters and the International Managers have entered into an intersyndicate agreement (the "Intersyndicate Agreement") providing for the coordination of their activities. The Underwriter's are permitted to sell shares of Common Stock to each other for purposes of resale at the initial public offering price, less an amount not greater than the selling concession. Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and any dealer to whom they sell shares of Common Stock will not offer to sell or sell shares of Common Stock to persons who are non-U.S. or non-Canadian persons or to persons they believe intend to resell to persons who are non-U.S. or non-Canadian persons, and the International Managers and any dealer to whom they sell shares of Common Stock will not offer to sell or sell shares of Common Stock to U.S. persons or to Canadian persons or to persons they believe intend to resell to U.S. persons or Canadian persons, except in the case of transactions pursuant to the Intersyndicate Agreement. 63 The U.S. Representatives have advised the Company that the U.S. Underwriters propose initially to offer the shares of Common Stock to the public at the initial public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of $ per share of Common Stock on sales to certain other dealers. The U.S. Underwriters may allow, and such dealers may reallow, a discount not in excess of $ per share of Common Stock on sales to certain other dealers. After the initial public offering, the public offering price, concession and discount may be changed. At the request of the Company, the U.S. Underwriters have reserved up to 750,000 shares of Common Stock for sale at the initial public offering price to directors, officers, employees, business associates and related persons of the Company. The number of shares of Common Stock available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. Any reserved shares which are not so purchased will be offered by the Underwriters to the general public on the same basis as the other shares offered hereby. Certain individuals purchasing reserved shares may be required to agree not to sell, offer or otherwise dispose of any shares of Common Stock for a period of three months after the date of this Prospectus. The Company,the Principal Stockholders and certain executive officers have agreed, subject to certain exceptions, not to, directly or indirectly, (i) sell, grant any option to purchase or otherwise transfer or dispose of any Common Stock or securities convertible into or exchangeable or exercisable for Common Stock or file a registration statement under the Securities Act with respect to the foregoing or (ii) enter into any swap or other agreement or transaction that transfers, in whole or in part, the economic consequence of ownership of the Common Stock, without the prior written consent of Merrill Lynch, for a period of 180 days after the date of this Prospectus. The Company has granted an option to the U.S. Underwriters, exercisable within 30 days after the date of this Prospectus, to purchase up to an aggregate of 1,104,000 additional shares of Common Stock at the initial public offering price set forth on the cover page of this Prospectus, less the underwriting discount. The U.S. Underwriters may exercise this option only to cover over-allotments, if any, made on the sale of the Common Stock offered hereby. To the extent that the U.S. Underwriters exercise this option, each U.S. Underwriter will be obligated, subject to certain conditions, to purchase a number of additional shares of Common Stock proportionate to such U.S. Underwriter's initial amount reflected in the foregoing table. The Company also has granted an option to the International Managers, exercisable within 30 days after the date of this Prospectus, to purchase up to an aggregate of 276,000 additional shares of Common Stock to cover over-allotments, if any, on terms similar to those granted to the U.S. Underwriters. Prior to the Offerings, there has been no public market for the shares of Common Stock of the Company. The initial public offering price has been determined through negotiations between the Company and the Representatives. Among the factors considered in determining the initial public offering price, in addition to prevailing market conditions, are price-earnings ratios of publicly traded companies that the Representatives believe to be comparable to the Company, certain financial information of the Company, the history of, and the prospects for, the Company and the industry in which it competes, an assessment of the Company's management, its past and present operations, the prospects for, and timing of, future revenues of the Company, the present state of the Company's development, and the above factors in relation to market values and valuation measures of other companies engaged in activities similar to the Company. There can be no assurance that an active trading market will develop for the Common Stock or that the Common Stock will trade in the public market subsequent to the Offerings at or above the initial public offering price. The Underwriters do not intend to confirm sales of the Common Stock offered hereby to any accounts over which they exercise discretionary authority. The Company and the Principal Stockholders have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make in respect thereof. 64 LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company by Shearman & Sterling, Los Angeles, California. Certain legal matters relating to the Offerings will be passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom, Los Angeles, California. Shearman & Sterling has from time to time represented certain of the Underwriters in connection with unrelated legal matters. Skadden, Arps, Slate, Meagher & Flom has from time to time represented the Company in connection with unrelated legal matters. EXPERTS The consolidated financial statements and schedule of the Company as of December 31, 1994 and 1995, and for each of the years in the three year period ended December 31, 1995, have been included herein and in the registration statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company is subject to the informational requirements of the Exchange Act and, in accordance therewith, files reports and other information with the Securities and Exchange Commission. Such reports and other information filed by the Company may be inspected without charge at the Securities and Exchange Commission's principal office in Washington, D.C., and at the following regional offices of the Commission: Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of all or any part thereof may be obtained from the Public Reference Section, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 upon payment of the prescribed fees. Upon listing of the Common Stock on the NYSE, such reports and other information can also be inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005. In addition, the Commission maintains a World Wide Web site on the Internet at http:// www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The Company has filed with the Securities and Exchange Commission a Registration Statement on Form S-1 under the Securities Act with respect to the Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company or such Common Stock, reference is made to the Registration Statement and the schedules and exhibits filed as a part thereof. Statements contained in this Prospectus regarding the contents of any contract or any other document are not necessarily complete and, in each instance, reference is hereby made to the copy of such contract or other document filed as an exhibit to such Registration Statement. The Registration Statement, including exhibits thereto, may be inspected without charge office of the Securities and Exchange Commission. Copies of all or any part thereof may be obtained upon payment of the prescribed fees. The Company intends to furnish its stockholders with annual reports containing financial statements audited by independent certified public accountants and with quarterly reports containing unaudited financial information for each of the first three quarters of each fiscal year. 65 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Independent Auditors' Report.................................................... F-2 Consolidated Balance Sheets at December 31, 1994, 1995 (audited) and June 30, 1996 and pro forma June 30, 1996 (unaudited)................................... F-3 Consolidated Statements of Earnings for the years ended December 31, 1993, 1994, 1995 (audited) and the six months ended July 2, 1995 and June 30, 1996 (unaudited).................................................................... F-4 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1993, 1994, 1995 (audited) and six months ended July 2, 1995 and June 30, 1996 (unaudited).................................................................... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994, 1995 (audited) and six months ended July 2, 1995 and June 30, 1996 (unaudited).................................................................... F-6 Notes to Consolidated Financial Statements...................................... F-7
F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Guess ?, Inc.: We have audited the accompanying consolidated financial statements of Guess ?, Inc. and Subsidiaries as listed in the accompanying index. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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 audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Guess ?, Inc. and Subsidiaries as of December 31, 1994 and 1995 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Los Angeles, California March 1, 1996 F-2 GUESS ?, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1994 AND 1995, JUNE 30, 1996 AND PRO FORMA JUNE 30, 1996 (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS
PRO FORMA JUNE 30, JUNE 30, 1996 (NOTE 1994 1995 1996 1) ---------- ---------- ---------- ------------ (UNAUDITED) Current assets: Cash........................................................... $ 5,994 $ 6,417 $ 5,442 $ 5,442 Receivables: Trade receivables, net of reserves aggregating, $10,391, $10,849 and $8,222 at December 31, 1994 and 1995 and June 30, 1996, respectively...................................... 23,505 22,886 31,403 31,403 Royalties.................................................... 9,728 9,975 10,875 10,875 Other........................................................ 5,267 4,040 3,427 3,427 ---------- ---------- ---------- ------------ 38,500 36,901 45,705 45,705 Inventories (note 3)........................................... 83,772 72,889 92,340 92,340 Prepaid expenses............................................... 4,837 5,557 6,845 6,845 Deferred tax assets (note 1)................................... -- -- -- 3,663 ---------- ---------- ---------- ------------ Total current assets....................................... 133,103 121,764 150,332 153,995 Property and equipment, at cost, net of accumulated depreciation and amortization (note 4)....................................... 59,725 68,199 67,346 67,346 Long-term investments (note 2)................................... 3,136 3,394 3,408 3,408 Deferred tax assets (note 1)..................................... -- -- -- 3,781 Other assets, at cost, net of accumulated amortization of $1,800, $2,279 and $2,680 at December 31, 1994 and 1995 and June 30, 1996, respectively (note 7)..................................... 11,732 9,278 8,649 8,649 ---------- ---------- ---------- ------------ $ 207,696 $ 202,635 $ 229,735 $ 237,179 ---------- ---------- ---------- ------------ ---------- ---------- ---------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current installments of notes payable and long-term debt (notes 5 and 7)...................................................... $ 4,696 $ 4,123 $ 4,056 $ 4,056 Accounts payable............................................... 29,840 40,701 37,221 37,221 Accrued expenses............................................... 14,431 18,332 23,865 23,865 Income taxes payable (note 6).................................. 1,009 1,036 775 775 S corporation distribution notes (note 1)...................... -- -- -- 176,900 ---------- ---------- ---------- ------------ Total current liabilities.................................. 49,976 64,192 65,917 242,817 Notes payable and long-term debt, net of current installments (notes 5 and 7)................................................. 151,799 119,212 148,712 148,712 Minority interest................................................ 53 75 247 247 Other liabilities................................................ 5,495 8,159 8,535 8,535 ---------- ---------- ---------- ------------ 207,323 191,638 223,411 400,311 Stockholders' equity (notes 1, 7 and 13): Preferred stock, $.01 par value. Authorized 10,000,000 shares; no shares issued and outstanding.............................. -- -- -- -- Common stock, $.01 par value. Authorized 150,000,000 shares; issued 52,713,000 shares, outstanding 32,682,000 shares, 20,031,000 shares held in Treasury............................ 35 35 35 35 Paid-in capital................................................ 181 181 181 (19,883) Retained earnings.............................................. 150,948 161,567 156,836 7,444 Foreign currency translation adjustment........................ (15) (10) 48 48 Treasury stock, 20,031,000 shares repurchased.................. (150,776) (150,776) (150,776) (150,776) ---------- ---------- ---------- ------------ Net stockholders' equity (deficiency)........................ 373 10,997 6,324 (163,132) Commitments, contingencies and subsequent events (notes 5, 9, 13 and 14)......................................................... ---------- ---------- ---------- ------------ $ 207,696 $ 202,635 $ 229,735 $ 237,179 ---------- ---------- ---------- ------------ ---------- ---------- ---------- ------------
See accompanying notes to consolidated financial statement F-3 GUESS ?, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND SIX MONTHS ENDED JULY 2, 1995 AND JUNE 30, 1996 (IN THOUSANDS, EXCEPT SHARE DATA)
JULY 2, JUNE 30, 1993 1994 1995 1995 1996 --------- --------- ------------ --------- ------------ (UNAUDITED) Net revenue: Product sales..................................... $ 491,444 $ 507,462 $ 440,359 $ 206,579 $ 232,111 Net royalties..................................... 28,780 40,350 46,374 23,073 25,295 --------- --------- ------------ --------- ------------ 520,224 547,812 486,733 229,652 257,406 Cost of sales (note 8).............................. 260,409 291,989 262,142 120,809 137,113 --------- --------- ------------ --------- ------------ Gross profit........................................ 259,815 255,823 224,591 108,843 120,293 Selling, general and administrative expenses (note 8)................................................. 145,351 138,016 141,663 66,468 72,829 Reorganization charge (note 14)..................... -- -- -- -- 3,559 --------- --------- ------------ --------- ------------ Earnings from operations.......................... 114,464 117,807 82,928 42,375 43,905 Non-operating income (expense): Interest, net..................................... (11,735) (16,948) (15,957) (7,926) (7,291) Other, net........................................ 2,552 322 (157) (180) (147) --------- --------- ------------ --------- ------------ (9,183) (16,626) (16,114) (8,106) (7,438) Earnings before income taxes...................... 105,281 101,181 66,814 34,269 36,467 Income taxes (note 6)............................... 1,810 3,540 2,895 1,275 1,598 --------- --------- ------------ --------- ------------ Net earnings...................................... $ 103,471 $ 97,641 $ 63,919 $ 32,994 $ 34,869 --------- --------- ------------ --------- ------------ --------- --------- ------------ --------- ------------ Supplemental pro forma financial information (note 1): Earnings before income taxes, as presented.......... $ 105,281 $ 101,181 $ 66,814 $ 34,269 $ 36,467 Pro forma provision for income taxes (unaudited).... 42,112 40,472 26,726 13,708 14,477 --------- --------- ------------ --------- ------------ Pro forma net earnings (unaudited).................. $ 63,169 $ 60,709 $ 40,088 $ 20,561 $ 21,990 --------- --------- ------------ --------- ------------ --------- --------- ------------ --------- ------------ Pro forma net earnings per share.................... $ 1.00 $ .55 Weighted average common shares outstanding.......... 40,026,000 39,811,000 ------------ ------------ ------------ ------------
See accompanying notes to consolidated financial statements F-4 GUESS ?, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND THE SIX MONTHS ENDED JUNE 30, 1996 (IN THOUSANDS)
FOREIGN CURRENCY COMMON PAID-IN RETAINED TRANSLATION TREASURY STOCK CAPITAL EARNINGS ADJUSTMENT STOCK TOTAL ------------- ----------- ---------- ------------- ---------- ---------- Balance at December 31, 1992................ $ 35 $ 181 $ 167,174 $ -- $ -- $ 167,390 Net earnings.............................. -- -- 103,471 -- -- 103,471 Stockholder distributions................. -- -- (117,656) -- -- (117,656) Foreign currency translation adj.......... -- -- -- (31) -- (31) Repurchase of treasury stock.............. -- -- (52,682) -- (150,776) (203,458) --- ----- ---------- --- ---------- ---------- Balance at December 31, 1993................ 35 181 100,307 (31) (150,776) (50,284) Net earnings.............................. -- -- 97,641 -- -- 97,641 Stockholder distributions................. -- -- (47,000) -- -- (47,000) Foreign currency translation adj.......... -- -- -- 16 -- 16 --- ----- ---------- --- ---------- ---------- Balance at December 31, 1994................ 35 181 150,948 (15) (150,776) 373 Net earnings.............................. -- -- 63,919 -- -- 63,919 Stockholder distributions................. -- -- (53,300) -- -- (53,300) Foreign currency translation adj.......... -- -- -- 5 -- 5 --- ----- ---------- --- ---------- ---------- Balance at December 31, 1995................ 35 181 161,567 (10) (150,776) 10,997 Net earnings (unaudited).................. -- -- 34,869 -- -- 34,869 Stockholder distributions (unaudited).............................. -- -- (39,600) -- -- (39,600) Foreign currency translation adj. (unaudited).............................. -- -- -- 58 -- 58 --- ----- ---------- --- ---------- ---------- Balance at June 30, 1996 (unaudited)................................ $ 35 $ 181 $ 156,836 $ 48 $ (150,776) $ 6,324 --- ----- ---------- --- ---------- ---------- --- ----- ---------- --- ---------- ----------
See accompanying notes to consolidated financial statement F-5 GUESS ?, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND SIX MONTHS ENDED JULY 2, 1995 AND JUNE 30, 1996 (IN THOUSANDS)
JULY 2, JUNE 30, 1993 1994 1995 1995 1996 --------- --------- --------- --------- ----------- (UNAUDITED) Cash flows from operating activities: Net earnings................................................ $ 103,471 $ 97,641 $ 63,919 $ 32,994 $ 34,869 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization of property and equipment... 10,322 12,070 14,277 6,822 8,379 Amortization of deferred charges.......................... 251 515 1,373 801 669 (Gain) loss on disposition of property and equipment...... (223) 726 814 259 100 Foreign currency translation adjustment................... (31) (5) (14) 17 33 Contributions from minority interest...................... 29 24 22 (51) 172 Undistributed equity method earnings...................... -- (72) (117) (21) (9) (Increase) decrease in: Receivables............................................. 46,708 (14,628) 1,599 (12,119) (8,803) Inventories............................................. (20,357) (3,353) 10,884 6,097 (19,451) Prepaid expenses........................................ (245) (1,516) (720) (309) (1,288) Other assets............................................ (1,620) 180 1,858 428 234 Increase (decrease) in: Accounts payable........................................ (9,259) 8,043 10,861 2,294 (3,479) Accrued expenses........................................ 1,303 (1,337) 3,658 1,728 5,367 Income taxes payable.................................... (2,380) 795 22 (191) (261) --------- --------- --------- --------- ----------- Net cash provided by operating activities............. 127,969 99,083 108,436 38,749 16,532 --------- --------- --------- --------- ----------- Cash flows from investing activities: Net decrease in short-term investments...................... 22,782 5,000 -- -- -- Purchases of property and equipment......................... (14,965) (19,779) (23,757) (12,527) (7,986) Proceeds from the disposition of property and equipment..... 2,425 172 192 127 360 Lease incentives granted.................................... 1,573 1,503 2,015 1,248 261 Purchase of long-term investments........................... -- (3,136) (23) (122) -- --------- --------- --------- --------- ----------- Net cash provided by (used in) investing activities... 11,815 (16,240) (21,573) (11,274) (7,365) --------- --------- --------- --------- ----------- Cash flows from financing activities: Proceeds from notes payable and long-term debt.............. 280,520 222,040 131,193 75,254 105,943 Proceeds from Bridge Loan................................... 80,000 -- -- -- -- Repayment of notes payable and long-term debt............... (99,655) (254,959) (164,353) (63,861) (76,510) Repayments of Bridge Loan................................... (80,000) -- -- -- -- Distributions to stockholders............................... (117,656) (47,000) (53,300) (41,800) (39,600) Repurchase of treasury stock................................ (203,458) -- -- -- -- --------- --------- --------- --------- ----------- Net cash used in financing activities................. (140,249) (79,919) (86,460) (30,407) (10,167) --------- --------- --------- --------- ----------- Effect of exchange rates on cash.............................. -- 20 20 (10) 25 Net increase (decrease) in cash....................... (465) 2,944 423 (2,942) (975) Cash at beginning of period................................... 3,515 3,050 5,994 5,994 6,417 --------- --------- --------- --------- ----------- Cash at end of period......................................... $ 3,050 $ 5,994 $ 6,417 $ 3,052 $ 5,442 --------- --------- --------- --------- ----------- --------- --------- --------- --------- ----------- Supplemental disclosures: Cash paid during the period for: Interest.................................................. $ 7,189 $ 16,380 $ 15,396 $ 7,627 $ 6,926 Income taxes.............................................. 4,259 2,879 1,925 1,467 1,856 --------- --------- --------- --------- ----------- --------- --------- --------- --------- -----------
See accompanying notes to consolidated financial statements F-6 GUESS ?, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Guess ?, Inc. (the "Company") designs, develops and markets quality contemporary jeans and other casual wear for men and women. The Company distributes it products through major department stores, specialty retailers, foreign distributors and its network of Company-owned and -operated retail and factory outlet stores. BASIS OF PRESENTATION The consolidated financial statements include the accounts of the Company and its foreign subsidiaries, Guess Italia, S.r.l. and Guess? Europe, B.V. The Company has a 79% and 50% interest in Guess Italia S.r.l. and Guess? Europe, B.V., respectively. The remaining 21% of Guess Italia S.r.l. and 50% of Guess? Europe, B.V. is owned by Marciano International, Inc. ("Marciano International"), a related party, which is wholly-owned by the stockholders of the Company. Accordingly, all references herein to "Guess ?, Inc." include the consolidated results of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. INTERIM FINANCIAL DATA The interim consolidated financial data as of June 30, 1996 and for the six months ended July 2, 1995 and June 30, 1996 is unaudited. This information reflects all adjustments, consisting of normal recurring adjustments, that in the opinion of management, are necessary to present fairly the financial position and results of operations of the Company for the periods indicated. Results of operations for the interim periods are not necessarily indicative of the results of operations for the full year. INVENTORIES Inventories are valued at the lower of cost (first-in, first-out) or market. TRADE AND ROYALTY RECEIVABLES The Company extends trade credit to its customers in the ordinary course of business. None of the receivables due from customers at December 31, 1994 and 1995 and June 30, 1996 involved factored accounts or other contingencies relating to third-party risk, except to the extent that the Company has chosen to insure certain accounts from risk of loss under a catastrophic loss policy. The Company has licensing arrangements with 27 licensees for use of its name and trademark. Royalty payments received by the Company are generally on a percentage of the licensees' net sales and require that minimum royalty payments be made if specified minimum sales levels are not obtained. Royalty income is net of direct expenses aggregating $2,387,000, $2,813,000, $2,331,000, $1,114,000 and $1,006,000 for 1993, 1994, 1995 and the six months ended July 2, 1995 and June 30, 1996, respectively. The licensing agreements expire on various dates through December 2003. REVENUE RECOGNITION The Company recognizes revenue from the sale of merchandise upon shipment. The Company accrues for estimated sales returns and allowances in the period in which the related revenue is recognized. Royalty income is based upon licensees' net sales. SIGNIFICANT CUSTOMERS Individual customers aggregating in excess of 10% of net sales for the years ended December 31, 1993, 1994 and 1995 and the six months ended July 2, 1995 and June 30, 1996 are summarized as follows:
SIX MONTHS ENDED, YEAR ENDED DECEMBER 31, -------------------------- ------------------------------- JULY 2, JUNE 30, 1993 1994 1995 1995 1996 --------- --------- --------- ----------- ------------- Customer A..................................................... 11.5% 10.3% 11.0% 11.7% 8.2%
F-7 GUESS ?, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) DEPRECIATION AND AMORTIZATION Depreciation and amortization of property and equipment are provided using the straight-line method over the following useful lives: 18 to 31 Building and building improvements................................... years Land improvements.................................................... 5 years Machinery and equipment.............................................. 3 to 5 years Corporate aircraft................................................... 5 to 10 years Corporate vehicles................................................... 3 years
Leasehold improvements are amortized over the lesser of the estimated useful life of the asset or the term of the lease. Construction in progress is not depreciated until the related asset is completed. FOREIGN CURRENCY TRANSLATION In accordance with the Financial Accounting Standards Board Statement No. 52, balance sheet accounts of the Company's foreign operations are translated from foreign currencies into U.S. dollars at year end rates while income and expenses are translated at the weighted average exchange rates for the year. The related translation adjustments are reflected as a foreign currency translation adjustment in the consolidated balance sheet. INCOME TAXES The Company has elected to be treated for Federal and certain state income tax purposes as an S corporation under Subchapter S of the Internal Revenue Code and comparable state laws. As a result, the earnings of the Company have been included in the taxable income of the Company's stockholders for Federal and certain state income tax purposes, and the Company has generally not been subject to income tax on such earnings, other than California and other state franchise taxes. In February 1992, the Financial Accounting Standards Board issued Statement No. 109, "Accounting for Income Taxes." One of the provisions of Statement No. 109 enables companies to record deferred tax assets for the future benefit to be derived from certain deductible temporary differences. The Company has adopted the provisions of Statement No. 109 effective January 1, 1993; however, as differences giving rise to deferred tax assets are immaterial, the Company has not recorded any deferred tax assets at December 31, 1994 and 1995. PRO FORMA NET EARNINGS Pro forma net earnings represents the results of operations adjusted to reflect a provision for income taxes on historical earnings before income taxes, which gives effect to the change in the Company's income tax status to a C corporation as a result of the public sale of its common stock. When the Company terminates its S corporation status, which is expected to occur immediately prior to the consummation of the Offerings, it will record an earnings benefit resulting from the establishment of net deferred tax assets. The amount of the benefit to be recorded (approximately $8.9 million) at June 30, 1996 will be dependent upon temporary differences existing at the date of termination of the Company's S corporation status. The principal difference between the pro forma income tax rate and Federal statutory rate of 35% relates primarily to state income taxes. Pro forma net earnings per share has been computed by dividing pro forma net earnings by the weighted average number of shares of common stock outstanding during the period. The pro forma net earnings per share gives effect to the issuance of shares of common stock to generate sufficient cash to pay the S Corporation Distribution is an amount equal to retained earnings. F-8 GUESS ?, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PRO FORMA BALANCE SHEET INFORMATION Pro forma balance sheet information as of June 30, 1996 has been presented to reflect i) the S corporation distribution (the "S Corporation Distribution") to be made in an amount equal to the previously earned and undistributed taxable S corporation earnings aggregating approximately $176.9 million through the date of termination of the Company's S corporation status as if such distribution had been made at June 30, 1996 and the Company's S corporation status had been terminated at such date and ii) an estimated $7.4 million of net deferred tax assets that would have been recorded had the Company's S corporation status been terminated on June 30, 1996. The pro forma paid-in capital reflects a reduction of $20.1 million for that portion of the S Corporation Distribution which is in excess of financial statement retained earnings. No adjustment has been made to give effect to the Company's earned and undistributed taxable S corporation earnings for the period from July 1, 1996 through the S Termination Date, which will be distributed as part of the S Corporation Distribution. CREDIT RISK The Company sells its merchandise principally to customers throughout the United States and Europe. Management performs regular evaluations concerning the ability of its customers to satisfy their obligations and records a provision for doubtful accounts based upon these evaluations. The Company's credit losses for the periods presented are insignificant and have not exceeded management's estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of the Company's financial instruments, which principally include cash, short and long-term investments, trade receivables, accounts payable and accrued expenses, approximates fair value due to the relatively short maturity of such instruments. The fair value of the Company's debt instruments are based on the amount of future cash flows associated with each instrument discounted using the Company's borrowing rate. At December 31, 1994 and 1995 and June 30, 1996, the carrying value of all financial instruments was not materially different from fair value. USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from these estimates. RECLASSIFICATIONS Certain reclassifications have been made to the 1993, 1994 and 1995 financial statements to conform to the June 30, 1996 presentation. 2. INVESTMENTS Long-term investments consist of equity securities aggregating $3,136,000, $3,394,000 and $3,408,000 at December 31, 1994 and 1995 and June 30, 1996, respectively. The investments are generally accounted for under the equity method of accounting. Supplemental information on investee companies has not been provided as it is immaterial to the consolidated financial statements. F-9 GUESS ?, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 3. INVENTORIES Inventories at December 31, 1994 and 1995 and June 30, 1996 are summarized as follows (in thousands):
1994 1995 --------- --------- JUNE 30, 1996 ----------- (UNAUDITED) Raw materials........................................................ $ 17,047 $ 9,788 $ 13,125 Work in process...................................................... 14,032 11,264 10,517 Finished goods....................................................... 52,693 51,837 68,698 --------- --------- ----------- $ 83,772 $ 72,889 $ 92,340 --------- --------- ----------- --------- --------- -----------
4. PROPERTY AND EQUIPMENT Property and equipment at December 31, 1994 and 1995 and June 30, 1996 is summarized as follows (in thousands):
1994 1995 --------- --------- JUNE 30, 1996 ----------- (UNAUDITED) Land and land improvements........................................... $ 5,725 $ 5,729 $ 5,729 Building and building improvements................................... 8,435 8,446 8,446 Leasehold improvements............................................... 25,470 36,059 37,844 Machinery and equipment.............................................. 40,389 48,279 50,565 Corporate aircraft................................................... 18,324 19,138 21,206 Construction in progress............................................. 363 2,269 3,021 --------- --------- ----------- 98,706 119,920 126,811 Less accumulated depreciation and amortization....................... 38,981 51,721 59,465 --------- --------- ----------- $ 59,725 $ 68,199 $ 67,346 --------- --------- ----------- --------- --------- -----------
Construction in progress at December 31, 1994 and 1995 and June 30, 1996 represents the costs associated with the construction of buildings and improvements used in the Company's operations and other capitalizable expenses for projects in progress. F-10 GUESS ?, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 5. NOTES PAYABLE AND LONG-TERM DEBT Notes payable and long-term debt at December 31, 1994 and 1995 and June 30, 1996 are summarized as follows (in thousands):
1994 1995 ---------- ---------- JUNE 30, 1996 ----------- (UNAUDITED) 9 1/2% Senior Subordinated Notes due 2003 (see note 7)...................... $ 115,000 $ 105,000 $ 105,000 Advances under secured $100,000,000 long-term line of credit with a syndicate of banks, interest is variable, with an average annual effective rate of 6.42% in 1994 and 7.94% in 1995, 7.01% in the six months ended June 30, 1996 and payable monthly............................................... 35,000 13,000 43,000 Note payable, secured by corporate aircraft, bearing interest at 10.59% per year, due in quarterly installments of $665,385 through December 1995...... 1,895 -- -- Note payable, secured by corporate aircraft, bearing interest at 8.23% per year, payable in quarterly installments of $221,003 through March 1998..... 2,499 1,799 1,427 Other, including capitalized leases......................................... 2,101 3,536 3,341 ---------- ---------- ----------- 156,495 123,335 152,768 Less current installments................................................... 4,696 4,123 4,056 ---------- ---------- ----------- $ 151,799 $ 119,212 $ 148,712 ---------- ---------- ----------- ---------- ---------- -----------
Aggregate maturities of notes payable and long-term debt at December 31, 1995 are summarized as follows: December 31, (in thousands): 1996.................................................................... $ 4,123 1997.................................................................... 13,995 1998.................................................................... 217 1999.................................................................... -- 2000.................................................................... -- Thereafter.............................................................. 105,000 --------- $ 123,335 --------- ---------
The Company had outstanding standby letters of credit aggregating $9.0 at December 31, 1995 under its $100 million long term line of credit. Additionally, the Company has a $25 million letter of credit facility pursuant to which $1.1 million in letters of credit were outstanding at December 31, 1995. During 1994 and 1995, the Company repurchased $15.0 million and $10.0 million of the Senior Subordinated Notes, respectively. Additionally, the related deferred financing costs of $468,000 and $281,000 were written off to interest expense during 1994 and 1995, respectively. F-11 GUESS ?, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 6. INCOME TAXES The provision for state income taxes for the years ended December 31, 1993, 1994 and 1995 and the six months ended July 2, 1995 and June 30, 1996 consists of the following (in thousands):
JULY 2, JUNE 30, 1993 1994 1995 1995 1996 --------- --------- --------- --------- ----------- Current income tax.................................... $ 3,014 $ 3,540 $ 2,895 $ 1,275 $ 1,598 Deferred tax benefit.................................. (1,204) -- -- -- -- --------- --------- --------- --------- ----------- $ 1,810 $ 3,540 $ 2,895 $ 1,275 $ 1,598 --------- --------- --------- --------- ----------- --------- --------- --------- --------- -----------
Deferred income tax benefits in 1993 resulted from timing differences in the recognition of revenue and expense for financial reporting purposes and income tax purposes. These differences related principally to a lawsuit settlement, depreciation expense and officers' compensation. 7. STOCK REPURCHASE On August 23, 1993, the Company and certain of its stockholders completed the purchase of all of the common stock owned by a selling stockholder. The Company purchased 20,031,000 shares, representing 38% of the then outstanding shares, from the selling stockholder (the "Company Purchased Shares"). The total purchase price for the Company Purchased Shares aggregated $203.5 million. To consummate the acquisition of the Company Purchased Shares, the Company used proceeds from the sale of 9 1/2% Senior Subordinated Notes due 2003 (the "Senior Subordinated Notes") aggregating $130.0 million principal amount and a Bridge Loan of $80.0 million. The Senior Subordinated Notes have a maturity date of August 15, 2003 and accrue interest, payable semiannually, at an original rate of interest of 10%. On February 7, 1994, the Company exchanged these Notes for publicly registered notes which reduced this interest rate to 9 1/2%, until maturity. The notes are redeemable at the option of the Company, in whole or in part, on or after August 15, 1998, at various redemption prices. Additionally, the Company may redeem up to 35% of the original aggregate principal amount of the Senior Subordinated Notes at any time on or prior to August 15, 1996 in the event of a Public Equity Offering in which the Company receives proceeds of not less than $30.0 million, at a redemption price of 109% of the principal amount of the notes redeemed. In connection with the purchase of the Company Purchased Shares, the Company charged retained earnings $52.7 million, representing the selling stockholder's allocable portion of retained earnings as of August 23, 1993, the purchase date. The remaining cost of the acquired shares, or $150.8 million, representing purchase price in excess of the selling stockholder's allocated retained earnings, was recorded as treasury stock in the accompanying consolidated financial statements. Deferred financing costs totaling $3.3 million were incurred in connection with the sale of the Senior Subordinated Notes, and $2.4 million were incurred in connection with the Bridge Loan. Such deferred financing costs, plus expenses of the offering of the Senior Subordinated Notes and Bridge Loan, have been capitalized as deferred financing costs and will be amortized over the respective terms of the related indebtedness. The costs related to the Bridge Loan were fully amortized upon the repayment of the Bridge Loan and recorded as interest expense in the accompanying Consolidated Statement of Earnings. See also note 5. 8. RELATED PARTY TRANSACTIONS The Company is engaged in various transactions with entities affiliated with trusts for the respective benefit of Maurice, Paul and Armand Marciano (the "Marciano Trusts"). The Company believes that each F-12 GUESS ?, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 8. RELATED PARTY TRANSACTIONS (CONTINUED) of the companies, in which the Marciano Trusts have an investment, and related party transactions discussed below were entered into on terms no less favorable to the Company than could have been obtained from an unaffiliated third party. LICENSE ARRANGEMENTS AND LICENSEE TRANSACTIONS On January 1, 1995, the Company entered into a licensing agreement with Charles David of California ("Charles David"). This new agreement superseded a prior license agreement dated September 28, 1990 and amended in May 1993. The Marciano Trusts and Nathalie Marciano (the spouse of Maurice Marciano) together own 50% of Charles David, and the remaining 50% is owned by the father-in-law of Maurice Marciano. The license agreement grants Charles David the rights to manufacture worldwide and distribute worldwide (except Japan) men's, women's and some children's leather and rubber footwear, excluding athletic footwear, which bear the GUESS logo and trademark. The license also includes related shoe care products and accessories. Gross royalties earned by the Company under such license agreement for the fiscal years ended December 31, 1993, 1994 and 1995, and for the six months ended June 30, 1996, was $1,707,000, $1,893,000, $2,117,000 and $858,000, respectively. In the same respective periods, the Company purchased $3,715,000, $4,814,000, $6,357,000 and $2,725,000 of products from Charles David for resale in the retail division's stores. On September 1, 1994, the Company entered into a licensing agreement with California Sunshine Active Wear, Inc. ("California Sunshine"), granting it the rights to manufacture and distribute certain men's and women's activewear, which bear the GUESS logo and trademark, in the United States. The Marciano Trusts together own 51% of California Sunshine. Gross royalties earned by the Company under such license agreement for the fiscal years ended December 31, 1994 and 1995, and for the six months ended June 30, 1996, was $0, $342,000 and $350,000, respectively. In the same periods, the Company purchased $0, $254,000 and $332,000 of products from California Sunshine for resale in the retail division's stores. Effective January 1, 1995, the Company entered into a licensing agreement with Guess Italia, S.r.l. ("Guess Italia"), granting it the exclusive right in Italy and non-exclusive right in other parts of Europe to manufacture and distribute men's and women's apparel and accessories that bear the GUESS logo and trademark. Guess Italia is owned 79% by the Company and 21% by Marciano International, Inc., a company wholly owned by the Marciano Trusts, and being merged into the Company as a part of the Reorganization. Gross royalties earned by the Company under such license agreement for the fiscal year ended December 31, 1995, and for the six months ended June 30, 1996, was $505,000 and $266,000, respectively. During 1993, 1994 and 1995 and the six months ended June 30, 1996, the Company purchased $0, $0, $511,000 and $251,000 of products from Guess Italia for resale in the retail division's stores. The Company sold $0, $1,100,000, $411,000 and $94,000 of products to Guess Italia during 1993, 1994, 1995 and the six months ended June 30, 1996, respectively. The Company will pay the Marciano Trusts an aggregate of $300,000 in connection with the merger of Marciano International, Inc. into the Company. On May 3, 1994, the Company entered into an agreement with Ranche Limited ("Ranche") to serve as a non-exclusive buying agent for the Company in Hong Kong, which agreement was terminated in the first quarter of 1996. Ranche is currently a wholly owned subsidiary of Guess Europe, B.V. In the fiscal year ended December 31, 1995, and in the six months ended June 30, 1996, Ranche earned commission income from the Company of $1,334,000 and $192,000, respectively, in connection with supplying product. In addition, Ranche operates under a licensing arrangement to distribute product to authorized distributors. Aggregate royalty income earned by the Company under such license for the fiscal year ended December 31, 1995, and for the six months ended June 30, 1996, was $240,000 and $133,000, respectively. F-13 GUESS ?, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 8. RELATED PARTY TRANSACTIONS (CONTINUED) On December 1, 1992, the Company entered into a licensing agreement with Nantucket Industries, Inc. ("Nantucket Industries") granting it the right to distribute and manufacture men's and women's innerwear, which bear the GUESS logo and trademark, in the United States. The Marciano Trusts together own 8.9% of Nantucket Industries. Gross royalties earned by the Company under such license agreement for the fiscal years ended December 31, 1993, 1994 and 1995, and for the six months ended June 30, 1996, was $47,000, $214,000, $264,000 and $157,000, respectively. In the same respective periods, the Company purchased $23,000, $201,000, $505,000 and $313,000 of products from Nantucket Industries for resale in the retail division's stores. LEASES The Company leases manufacturing, warehouse and administrative facilities and one retail administrative facility from partnerships affiliated with the Marciano Trusts. The leases will expire in July 2008. Aggregate lease payments under such leases for the fiscal years ended December 31, 1993, 1994 and 1995 and the six months ended July 2, 1995 and June 30, 1996 were $2,065,000, $2,610,000, $2,803,000, $1,250,000 and $1,286,000, respectively. 9. COMMITMENTS AND CONTINGENCIES LEASES The Company leases its showrooms and retail store locations under operating lease agreements expiring on various dates through July 2008. Some of these leases require the Company to make periodic payments for property taxes and common area operating expenses. Certain leases include rent abatements and scheduled rent escalations, for which the effects are being amortized and recorded over the lease term. The Company also leases some of its equipment under operating lease agreements expiring at various dates through May, 1999. Future minimum rental payments under noncancelable operating leases at December 31, 1995 are as follows: Year ending December 31, (in thousands): 1996.................................................................... $ 19,784 1997.................................................................... 20,525 1998.................................................................... 19,205 1999.................................................................... 17,481 2000.................................................................... 16,509 Thereafter.............................................................. 74,964 --------- $ 168,468 --------- ---------
Rental expense for all operating leases during the years ended December 31, 1993, 1994, and 1995 aggregated $13,276,000, $16,295,000, and $21,940,000 respectively. Rental expenses for the six months ended July 2, 1995 and June 30, 1996 aggregated $10,087,000 and $12,640,000, respectively. INCENTIVE BONUSES Certain officers of the Company are entitled to incentive bonuses based on the Company's profits. LITIGATION The Company is a party to various claims, complaints, and other legal actions that have arisen in the ordinary course of business from time to time. The Company believes that the outcome of all pending legal proceedings, in the aggregate, will not have a material adverse effect on the Company's financial condition or the results of its operations. F-14 GUESS ?, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 10. 401(K) SAVINGS PLAN On January 1, 1992, the Company established the Guess ? Inc. Savings Plan (the "Savings Plan") under Section 401(k) of the Internal Revenue Code. Under the Savings Plan, associates may contribute up to 15% of their compensation per year subject to the elective limits as defined by Internal Revenue Service guidelines and the Company may make matching contributions in amounts not to exceed 1.5% of the associates' annual compensation. The Company's contributions to the Savings Plan during the years ended December 31, 1993, 1994 and 1995 aggregated $221,000, $213,000 and $261,000, respectively. Contributions to the Savings Plan during the six months ended July 2, 1995 and June 30, 1996 aggregated $132,000 and $134,000, respectively. 11. QUARTERLY INFORMATION (UNAUDITED) The following is a summary of the unaudited quarterly financial information for the years ended December 31, 1994 and 1995 (in thousands):
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ---------- ---------- ---------- ---------- 1994 Net revenue............................................ $ 122,729 $ 119,383 $ 160,783 $ 144,917 Gross profit........................................... 59,784 53,611 79,232 63,196 Earnings before income taxes........................... 24,186 16,627 36,591 23,777 Net earnings........................................... 23,479 16,064 35,333 22,765 SUPPLEMENTAL PRO FORMA EARNINGS: Earnings before income taxes........................... 24,186 16,627 36,591 23,777 Net earnings........................................... 14,512 9,976 21,955 14,266 1995 Net revenue............................................ 124,903 104,749 133,129 123,952 Gross profit........................................... 59,636 49,207 59,148 56,600 Earnings before income taxes........................... 21,271 12,998 17,322 15,223 Net earnings........................................... 20,712 12,282 16,484 14,441 SUPPLEMENTAL PRO FORMA EARNINGS: Earnings before income taxes........................... 21,271 12,998 17,322 15,223 Net earnings........................................... 12,763 7,798 10,395 9,132
12. INTERNATIONAL REVENUE Net revenue is summarized as follows for the years ended December 31, 1993, 1994 and 1995 and the six months ended July 2, 1995 and June 30, 1996:
SIX MONTHS ENDED ---------------------- JULY 2, JUNE 30, 1993 1994 1995 1995 1996 ---------- ---------- ---------- ---------- ---------- Domestic................................... $ 506,301 $ 527,296 $ 453,344 $ 214,028 $ 228,235 International.............................. 13,923 20,516 33,389 15,624 29,171 ---------- ---------- ---------- ---------- ---------- $ 520,224 $ 547,812 $ 486,733 $ 229,652 $ 257,406 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
International revenue includes domestic sales to international markets, sales of product from international subsidiaries and net royalties from foreign licenses. F-15 GUESS ?, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DECEMBER 31, 1994 AND 1995 AND JUNE 30, 1996 13. SUBSEQUENT EVENTS In May 1996, the Board of Directors authorized the filing of a registration statement for an initial public offering of the Company's common stock. Prior to the consummation of the Offerings, (i) Marciano International, which is owned by the Marciano Trusts and currently holds an interest in the subsidiaries of Guess, will be merged with and into Guess, (ii) all of the capital stock of Guess Italia will be contributed to Guess? Europe, B.V., (iii) the Company will effect a 32.66 to 1 split of the Common Stock and (iv) as part of the S Corporation Distribution, the Company will distribute to its stockholders promissory notes bearing interest at 8% per annum (the "S Distribution Notes"). The Company will pay the Marciano Trusts an aggregate of $300,000 in connection with the merger of Marciano International, Inc. into the Company. All of such transactions are referred to as the "Reorganization." Concurrently with the consummation of the transactions related to the Offerings (the "Closing Date"), the Company's S corporation status will be terminated (the "S Termination Date"). Prior to the S Termination Date, the Company will declare a distribution to its stockholders that will include all of its previously earned and undistributed S corporation earnings through the date of termination of the Company's S corporation status. The S Corporation Distribution will occur prior to the S Termination Date and will be comprised of the S Distribution Notes. Between July 1, 1996 and the S Termination Date, the Company anticipates the increase in the S Distribution Notes to be between $3.1 million and $13.1 million, including a gain for income tax purposes recognized as a result of the sale of one of the Company's aircraft. On and after the S Termination Date, the Company will no longer be treated as an S corporation and, accordingly, will be fully subject to Federal and state income taxes. Immediately prior to the Offerings, the Company will grant options to purchase 1,207,405 shares pursuant to the Company's 1996 Equity Incentive Plan. Of such options, 1,137,598 will have an exercise price equal to the initial public offering price for shares of common stock to be sold in the Offerings and 69,807 will have an exercise price of $21.49 per share. The Company does not anticipate recording any compensation expense as a result of granting such options. 14. REORGANIZATION CHARGE In the second quarter of 1996, the Company recorded a provision of $3.6 million for certain non-recurring charges relating to the writedown of operating assets associated with the (i) disposal of two currently active remote warehouse and production facilities, in contemplation of the Offerings, which are not expected to be used in the Company's operations after the Offerings, and (ii) the net book loss incurred by the Company in connection with the sale of one of its aircraft in contemplation of the Offerings. F-16 - ------------------------------------------- ------------------------------------------- - ------------------------------------------- ------------------------------------------- NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. -------------- TABLE OF CONTENTS
PAGE ----- Prospectus Summary............................. 3 Risk Factors................................... 7 Company History, the Reorganization and Prior S Corporation Status............................ 12 Use of Proceeds................................ 13 Dividend Policy................................ 13 Capitalization................................. 14 Dilution....................................... 15 Selected Financial Data........................ 16 Selected Pro Forma Financial Data.............. 18 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 19 Business....................................... 29 Management..................................... 42 Certain Transactions........................... 54 Principal Stockholders......................... 57 Shares Eligible for Future Sale................ 58 Description of Capital Stock................... 59 Certain United States Federal Tax Consequences to Non-United States Holders.................. 61 Underwriting................................... 63 Legal Matters.................................. 65 Experts........................................ 65 Additional Information......................... 65 Index to Financial Statements.................. F-1
9,200,000 SHARES [LOGO] COMMON STOCK ------------------- PROSPECTUS ------------------- MERRILL LYNCH & CO. MORGAN STANLEY & CO. INCORPORATED , 1996 - ------------------------------------------- ------------------------------------------- - ------------------------------------------- ------------------------------------------- Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED JULY 30, 1996 PROSPECTUS 9,200,000 SHARES [LOGO] COMMON STOCK ------------------ Of the 9,200,000 shares of Common Stock of Guess ?, Inc. offered hereby, 1,840,000 shares are initially being offered outside the United States and Canada by the International Managers and 7,360,000 shares are initially being offered in the United States and Canada by the U.S. Underwriters. The initial public offering price and the aggregate underwriting discount per share are identical for each of the Offerings. See "Underwriting." Prior to the Offerings, there has been no public market for the Common Stock. It is currently estimated that the initial public offering price per share of Common Stock will be between $21 and $23. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price of the Common Stock. The Common Stock has been approved for listing on the New York Stock Exchange under the symbol "GES," subject to official notice of issuance. SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNT (1) COMPANY (2) Per Share........................... $ $ $ Total (3)........................... $ $ $
(1) The Company and the Principal Stockholders have agreed to indemnify the several Underwriters against certain liabilities, including certain liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses payable by the Company estimated to be $1,750,000. (3) The Company has granted to the International Managers and the U.S. Underwriters options, exercisable within 30 days after the date of this Prospectus, to purchase up to an additional 276,000 and 1,104,000 shares of Common Stock, respectively, to cover over-allotments, if any. If all such additional shares are purchased, the total Price to Public, Underwriting Discount and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." -------------------------- The shares of Common Stock are offered by the several Underwriters, subject to prior sale, when, as and if issued to and accepted by them, and subject to the approval of certain legal matters by counsel for the Underwriters and certain other conditions. The Underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part. It is expected that delivery of the shares of Common Stock will be made in New York, New York on or about , 1996. -------------------------- MERRILL LYNCH INTERNATIONAL MORGAN STANLEY & CO. INTERNATIONAL ---------------------------------------- The date of this Prospectus is , 1996. [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] UNDERWRITING Subject to the terms and conditions set forth in an international purchase agreement (the "International Purchase Agreement") among the Company and each of the underwriters named below (the "International Managers"), and concurrently with the sale of 7,360,000 shares of Common Stock to the U.S. Underwriters (as defined below), the Company has agreed to sell to each of the International Managers, and each of the International Managers severally has agreed to purchase from the Company, the number of shares of Common Stock set forth opposite its name below.
NUMBER INTERNATIONAL MANAGERS OF SHARES ----------- Merrill Lynch International........................................... Morgan Stanley & Co. International Limited............................ ----------- Total....................................................... 1,840,000 ----------- -----------
Merrill Lynch International and Morgan Stanley & Co. International Limited are acting as representatives (the "International Representatives") of the International Managers. The Company has also entered into a purchase agreement (the "U.S. Purchase Agreement" and, together with the International Purchase Agreement, the "Purchase Agreements") with certain underwriters in the United States and Canada (collectively, the "U.S. Underwriters," and together with the International Managers, the "Underwriters"), for whom Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated are acting as representatives (the "U.S. Representatives" and, together with the International Representatives, the "Representatives"). Subject to the terms and conditions set forth in the U.S. Purchase Agreement, and concurrently with the sale of 1,840,000 shares of Common Stock to the International Managers pursuant to the International Purchase Agreement, the Company has agreed to sell to the U.S. Underwriters, and the U.S. Underwriters have severally agreed to purchase from the Company, an aggregate of 7,360,000 shares of Common Stock. The initial public offering price per share of Common Stock and the underwriting discount per share of Common Stock are identical under the International Purchase Agreement and the U.S. Purchase Agreement. In the International Purchase Agreement and the U.S. Purchase Agreement, the several International Managers and the several U.S. Underwriters, respectively, have agreed, subject to the terms and conditions set forth therein, to purchase all of the shares of Common Stock being sold pursuant to each such Agreement if any of the shares of Common Stock being sold pursuant to such Agreement are purchased. Under certain circumstances, the commitments of non-defaulting International Managers or U.S. Underwriters (as the case may be) may be increased. The purchase of shares of Common Stock by the International Managers is conditioned upon the purchase of shares of Common Stock by the U.S. Underwriters and vice versa. The International Managers and the U.S. Underwriters have entered into an intersyndicate agreement (the "Intersyndicate Agreement") providing for the coordination of their activities. The Underwriters are permitted to sell shares of Common Stock to each other for purposes of resale at the initial public offering price, less an amount not greater than the selling concession. Under the terms of the Intersyndicate Agreement, the International Managers and any dealer to whom they sell shares of Common Stock will not offer to sell or sell shares of Common Stock to persons who are U.S. or Canadian persons or to persons they believe intend to resell to persons who are U.S. or Canadian persons, and the U.S. Underwriters and any dealer to whom they sell shares of Common Stock will not offer to sell or sell shares of Common Stock to non-U.S. persons or to non-Canadian persons or to persons they believe intend to resell to non-U.S. persons or non-Canadian persons, except in the case of transactions pursuant to the Intersyndicate Agreement. The International Representatives have advised the Company that the International Managers propose initially to offer the shares of Common Stock to the public at the initial public offering price set forth on the cover 63 [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] page of this Prospectus, and to certain selected dealers at such price less a concession not in excess of $ per share of Common Stock. The International Managers may allow, and such dealers may reallow, a discount not in excess of $ per share of Common Stock on sales to certain other dealers. After the initial public offering, the public offering price, concession and discount may be changed. Each International Manager has agreed that (i) it has not offered or sold, and, for a period of six months following consummation of the Offerings, will not offer or sell, to persons in the United Kingdom, other than to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has complied with and will comply with all applicable provisions of the Financial Services Act 1986 with respect to anything done by it in relation to the shares of Common Stock in, from or otherwise involving the United Kingdom and (iii) it has only issued or passed on and will only issue or pass on in the United Kingdom any document received by it in connection with the issue of the shares of Common Stock to a person who is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995, or is a person to whom such document may otherwise lawfully be issued or passed on. Purchasers of the shares hereby may be required to pay stamp taxes and other charges in accordance with the laws and practices of the country of purchase, in addition to the offering price set forth on the cover page hereby. At the request of the Company, the U.S. Underwriters have reserved up to 750,000 shares of Common Stock for sale at the initial public offering price to directors, officers, employees, business associates and related persons of the Company. The number of shares of Common Stock available for sale to the general public will be reduced to the extent such persons purchase such reserved shares. Any reserved shares which are not so purchased will be offered by the Underwriters to the general public on the same basis as the other shares offered hereby. Certain individuals purchasing reserved shares may be required to agree not to sell, offer or otherwise dispose of any shares of Common Stock for a period of three months after the date of this Prospectus. The Company, the Principal Stockholders and certain executive officers have agreed, subject to certain exceptions, not to, directly or indirectly, (i) sell, grant any option to purchase or otherwise transfer or dispose of any Common Stock or securities convertible into or exchangeable or exercisable for Common Stock or file a registration statement under the Securities Act with respect to the foregoing or (ii) enter into any swap or other agreement or transaction that transfers, in whole or in part, the economic consequence of ownership of the Common Stock, without the prior written consent of Merrill Lynch, for a period of 180 days after the date of this Prospectus. The Company has granted an option to the International Managers, exercisable within 30 days after the date of this Prospectus, to purchase up to an aggregate of 276,000 additional shares of Common Stock at the initial public offering price set forth on the cover page of this Prospectus, less the underwriting discount. The International Managers may exercise this option only to cover over-allotments, if any, made on the sale of the Common Stock offered hereby. To the extent that the International Managers exercise this option, each International Manager will be obligated, subject to certain conditions, to purchase a number of additional shares of Common Stock proportionate to such International Manager's initial amount reflected in the foregoing table. The Company also has granted an option to the U.S. Underwriters, exercisable within 30 days after the date of this Prospectus, to purchase up to an aggregate of 1,104,000 additional shares of Common Stock to cover over-allotments, if any, on terms similar to those granted to the International Managers. Prior to the Offerings, there has been no public market for the shares of Common Stock of the Company. The initial public offering price has been determined through negotiations between the Company and the Representatives. Among the factors considered in determining the initial public offering price, in addition to prevailing market conditions, are price-earnings ratios of publicly traded companies that the Representatives believe to be comparable to the Company, certain financial information of the Company, 64 [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] the history of, and the prospects for, the Company and the industry in which it competes, an assessment of the Company's management, its past and present operations, the prospects for, and timing of, future revenues of the Company, the present state of the Company's development, and the above factors in relation to market values and valuation measures of other companies engaged in activities similar to the Company. There can be no assurance that an active trading market will develop for the Common Stock or that the Common Stock will trade in the public market subsequent to the Offerings at or above the initial public offering price. The Underwriters do not intend to confirm sales of the Common Stock offered hereby to any accounts over which they exercise discretionary authority. The Company and the Principal Stockholders have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make in respect thereof. 65 [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] LEGAL MATTERS The validity of the Common Stock offered hereby will be passed upon for the Company by Shearman & Sterling, Los Angeles, California. Certain legal matters relating to the Offerings will be passed upon for the Underwriters by Skadden, Arps, Slate, Meagher & Flom, Los Angeles, California. Shearman & Sterling has from time to time represented certain of the Underwriters in connection with unrelated legal matters. Skadden, Arps, Slate, Meagher & Flom has from time to time represented the Company in connection with unrelated legal matters. EXPERTS The consolidated financial statements and schedule of the Company as of December 31, 1994 and 1995, and for each of the years in the three year period ended December 31, 1995, have been included herein and in the registration statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company is subject to the informational requirements of the Exchange Act and, in accordance therewith, files reports and other information with the Securities and Exchange Commission. Such reports and other information filed by the Company may be inspected without charge at the Securities and Exchange Commission's principal office in Washington, D.C., and at the following regional offices of the Commission: Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of all or any part thereof may be obtained from the Public Reference Section, Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 upon payment of the prescribed fees. Upon listing of the Common Stock on the NYSE, such reports and other information can also be inspected at the offices of the NYSE, 20 Broad Street, New York, New York 10005. In addition, the Commission maintains a World Wide Web site on the Internet at http:// www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The Company has filed with the Securities and Exchange Commission a Registration Statement on Form S-1 under the Securities Act with respect to the Common Stock offered hereby. This Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto. For further information with respect to the Company or such Common Stock, reference is made to the Registration Statement and the schedules and exhibits filed as a part thereof. Statements contained in this Prospectus regarding the contents of any contract or any other document are not necessarily complete and, in each instance, reference is hereby made to the copy of such contract or other document filed as an exhibit to such Registration Statement. The Registration Statement, including exhibits thereto, may be inspected without charge office of the Securities and Exchange Commission. Copies of all or any part thereof may be obtained upon payment of the prescribed fees. The Company intends to furnish its stockholders with annual reports containing financial statements audited by independent certified public accountants and with quarterly reports containing unaudited financial information for each of the first three quarters of each fiscal year. 66 [ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS DOCUMENT IS BEING DISTRIBUTED IN THE UNITED KINGDOM ONLY TO PERSONS OF A KIND DESCRIBED IN ARTICLE 11(3) OF THE FINANCIAL SERVICES ACT 1988 (INVESTMENT ADVERTISEMENTS) (EXEMPTIONS) ORDER 1995 OR TO WHOM IT WOULD OTHERWISE BE LAWFUL SO TO DO. -------------- TABLE OF CONTENTS
PAGE ----- Prospectus Summary............................. 3 Risk Factors................................... 7 Company History, the Reorganization and Prior S Corporation Status............................ 12 Use of Proceeds................................ 13 Dividend Policy................................ 13 Capitalization................................. 14 Dilution....................................... 15 Selected Financial Data........................ 16 Selected Pro Forma Financial Data.............. 18 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................... 19 Business....................................... 29 Management..................................... 42 Certain Transactions........................... 54 Principal Stockholders......................... 57 Shares Eligible for Future Sale................ 58 Description of Capital Stock................... 59 Certain United States Federal Tax Consequences to Non-United States Holders.................. 61 Underwriting................................... 63 Legal Matters.................................. 66 Experts........................................ 66 Additional Information......................... 66 Index to Financial Statements.................. F-1
9,200,000 SHARES [LOGO] COMMON STOCK ------------------- PROSPECTUS ------------------- MERRILL LYNCH INTERNATIONAL MORGAN STANLEY & CO. INTERNATIONAL , 1996 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. SEC registration fee............................................ $ 83,911 NASD fee........................................................ 24,834 NYSE listing fee................................................ 235,100 Blue sky fees................................................... 25,000 Printing and engraving expenses................................. 221,000 Accountants' fees and expenses.................................. 185,000 Attorneys' fees and expenses.................................... 425,000 Transfer agent fees............................................. 10,000 Miscellaneous................................................... 540,155 --------- Total......................................................... $1,750,000 --------- ---------
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Pursuant to Section 145 of the General Corporation Law of Delaware (the "Delaware Corporation Law"), Article IX of the Bylaws of the Registrant, a copy of which is filed as Exhibit 3.2 to this Registration Statement, provides that the Registrant shall indemnify any person in connection with any threatened, pending or completed legal proceeding (other than a legal proceeding by or in the right of the Registrant) by reason of the fact that he is or was a director or officer of the Registrant or is or was serving at the request of the Registrant as a director, officer, employee or agent of another corporation, partnership or other enterprise against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with such legal proceeding if he acted in good faith and in a manner that he reasonably believed to be in or not opposed to the best interests of the Registrant, and, with respect to any criminal action or proceeding, if he had no reasonable cause to believe that his conduct was unlawful. If the legal proceeding is by or in the right of the Registrant, the director or officer may be indemnified by the Registrant against expenses (including attorneys' fees) actually and reasonably incurred in connection with the defense or settlement of such legal proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Registrant and except that he may not be indemnified in respect of any claim, issue or matter as to which he shall have been adjudged to be liable to the Registrant unless a court determines otherwise. Article IX of the Registrant's Bylaws allows the Registrant to maintain director and officer liability insurance on behalf of any person who is or was a director or officer of the Registrant or such person who serves or served as director, officer, employee or agent of another corporation, partnership or other enterprise at the request of the Registrant. Pursuant to Section 102(b)(7) of the Delaware Corporation Law, Article VII of the Restated Certificate of Incorporation of the Registrant, a copy of which is filed as Exhibit 3.1 to this Registration Statement, provides that no director of the Registrant shall be personally liable to the Registrant or its stockholders for monetary damages for any breach of his fiduciary duty as a director; provided, however, that such clause shall not apply to any liability of a director (1) for any breach of his duty of loyalty to the Registrant or its stockholders, (2) for acts or omissions that are not in good faith or involve intentional misconduct or a knowing violation of the law, (3) under Section 174 of the Delaware Corporation Law, or (4) for any transaction from which the director derived an improper personal benefit. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. In connection with the organization of the Registrant in August 1993, Armand Marciano purchased 100 shares of common stock of the Registrant. On August 23, 1993, Armand Marciano sold such shares to Guess ?, Inc., a California corporation ("Guess California"), the Registrant's predecessor. Thereafter, in connection with the merger of Guess California with and into the Registrant pursuant to an Agreement and Plan of Merger between the Registrant and Guess California, all of the then outstanding shares of common II-1 stock of the Registrant were cancelled and retired, and all of the then outstanding shares of the common stock of Guess California were converted into and became shares of common stock of the Registrant. In addition, on August 23, 1993, Guess California sold $130.0 million principal amount of 9 1/2% Senior Subordinated Notes due 2003 (the "Senior Subordinated Notes") to Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith, Incorporated ("Merrill Lynch") at 100% of the principal amount thereof (less aggregate discounts of $3.25 million). Each of such transactions was exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), in reliance on Section 4(2) of the Securities Act on the basis that such transaction did not involve a public offering. In accordance with the agreement pursuant to which Merrill Lynch purchased the Senior Subordinated Notes, Merrill Lynch agreed to offer and sell the Senior Subordinated Notes only to "qualified institutional buyers" (as defined in Rule 144A under the Securities Act), a limited number of institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) and pursuant to offers and sales that occur outside the United States within the meaning of Regulation S under the Securities Act. Except for the transactions referred to above, there have not been any recent sales of unregistered securities by the Registrant. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) Exhibits
EXHIBIT NUMBER DESCRIPTION - --------- ---------------------------------------------------------------------- 1.1. Form of U.S. Purchase Agreement. 1.2. Form of International Purchase Agreement. 3.1. Restated Certificate of Incorporation of the Registrant. 3.2. Bylaws of the Registrant. 4.1. Indenture, dated August 23, 1993, between the Registrant and First Trust National Association, as Trustee. (1) 4.2. First Supplemental Indenture, dated August 23, 1993, between the Registrant and First Trust National Association, as Trustee. (1) 4.3. Specimen stock certificate. 5.1. Opinion of Shearman & Sterling. 10.1. Form of Amended and Restated Stockholders' Agreement. 10.2. Letter Agreement, dated July 9, 1993, among the Registrant, Georges Marciano, Maurice Marciano, Paul Marciano, Armand Marciano and trusts for their respective benefit. (1) 10.3. Employment Agreement, dated March 1, 1994, between the Registrant and Roger A. Williams. (3) 10.4. Letter Agreement, dated January 22, 1996, between the Registrant and Andrea Weiss. 10.5. Employment Agreement, dated as of May 14, 1996, between the Registrant and Francis K. Duane. 10.6. General Release and Indemnity Agreement, dated August 23, 1993, among Maurice, Paul and Armand Marciano, their respective trusts, the Registrant, Georges Marciano and his trust. (1) 10.7. General Release Agreement, dated August 23, 1993, among Maurice, Paul and Armand Marciano, their respective trusts, the Registrant, and Georges Marciano and his trust. (1) 10.8. Cancellation and Reassignment Agreement, dated August 23, 1993, among the Registrant, MSKMarciano, Inc., Georges Marciano, Inc. and Georges Marciano. (1) 10.9. Alameda Lease, dated July 29, 1992, among the Registrant and 1444 Partners, Ltd. (1)
II-2
EXHIBIT NUMBER DESCRIPTION - --------- ---------------------------------------------------------------------- 10.10. Revolving Credit Agreement, dated as of December 20, 1993, between the Registrant and The First National Bank of Boston, as agent, and Sanwa Bank California, as co-agent, and the group of financial institution party thereto (the "Revolving Credit Agreement"). (3) 10.11. Security Agreement, dated December 20, 1993, between the Registrant and the First National Bank of Boston, as agent for itself and for certain lenders. (3) 10.12. Amendment No. 1 to the Revolving Credit Agreement, dated January 20, 1994, among the parties thereto. (4) 10.13. Amendment No. 2 to the Revolving Credit Agreement, dated April 1, 1994, among the parties thereto. (4) 10.14. Amendment No. 3 to the Revolving Credit Agreement, dated July 18, 1994, among the parties thereto. (4) 10.15. Amendment No. 4 to the Revolving Credit Agreement, dated October 24, 1994, among the parties thereto. (4) 10.16. Amendment No. 5 to the Revolving Credit Agreement, dated February 13, 1995, among the parties thereto. (5) 10.17. Amendment No. 6 to the Revolving Credit Agreement, dated September 14, 1995, among the parties thereto. (5) 10.18. Amendment No. 7 to the Revolving Credit Agreement, dated December 22, 1995, among the parties thereto. (5) 10.19. Amendment No. 8 to the Revolving Credit Agreement, dated February 13, 1996, among the parties thereto. 10.20. Agreement as to Consignment of Documents and Related Matters, dated December 22, 1995, between the Registrant and The First National Bank of Boston. (5) 10.21. 1996 Equity Incentive Plan. 10.22. 1996 Non-Employee Directors' Stock Option Plan. 10.23. Annual Incentive Bonus Plan. 10.24. Form of Employment Agreement between the Registrant and Maurice Marciano. 10.25. Form of Employment Agreement between the Registrant and Paul Marciano. 10.26. Form of Employment Agreement between the Registrant and Armand Marciano. 10.27. Registration Rights Agreement, dated as of August 1, 1996, among the Registrant and certain stockholders of the Registrant. 10.28. Form of Indemnification Agreement among the Registrant and certain stockholders of the Registrant. 10.29. Form of Indemnification Agreement. 21.1. List of Subsidiaries. 23.1. Consent of KPMG Peat Marwick LLP, independent certified public accountants. 23.2. Consent of Shearman & Sterling (included in Exhibit 5.1). +24.1. Power of Attorney.
II-3 (b) Financial Statement Schedule:
DESCRIPTION ------------------------------------------------------------------------------ Schedule II Valuation and Qualifying Accounts
- ------------------------ + Previously filed. (1) Incorporated by reference from the Registration Statement on Form S-1 (Registration No. 33-69236) originally filed by the Company on September 22, 1993. (2) Incorporated by reference from Amendment No. 1 to the Registration Statement on Form S-1 (File No. 33-69236) filed by the Company on November 24, 1993. (3) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended March 27, 1994. (4) Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1994. (5) Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1995. ITEM 17. UNDERTAKINGS. (a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the Common Stock being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (b) The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. (c) The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Los Angeles, State of California, on July 30, 1996. GUESS ?, INC. By: * ----------------------------------- Name: Maurice Marciano Title: CHIEF EXECUTIVE OFFICER Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE - ----------------------------------- ------------------------- ---------------- Chairman of the Board and * Chief Executive Officer - ----------------------------------- (Principal Executive July 29, 1996 Maurice Marciano Officer) * President, Chief - ----------------------------------- Operating Officer and July 29, 1996 Paul Marciano Director * Senior Executive Vice - ----------------------------------- President, Secretary and July 29, 1996 Armand Marciano Director /s/ ROGER A. WILLIAMS Chief Financial Officer - ----------------------------------- (Principal Financial and July 29, 1996 Roger A. Williams Accounting Officer) /s/ ROGER A. WILLIAMS Attorney-in-fact for the - ----------------------------------- persons marked above Roger A. Williams with an * II-5 SCHEDULE II GUESS ?, INC. & SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995 (IN THOUSANDS)
BALANCE AT CHARGED TO DEDUCTIONS BALANCE BEGINNING COSTS AND AND AT END DESCRIPTION OF PERIOD EXPENSES WRITE-OFFS OF PERIOD - ------------------------------------------------------------------ ----------- ------------- ----------- --------- As of December 31, 1993 Allowance for obsolescence...................................... $ 1,026 -- $ (26) $ 1,000 Accounts receivable............................................. 9,235 7,505 (834) 15,906 As of December 31, 1994 Allowance for obsolescence...................................... 1,000 1,400 -- 2,400 Accounts receivable............................................. 15,906 758 (6,273) 10,391 As of December 31, 1995 Allowance for obsolescence...................................... 2,400 2,352 (392) 4,360 Accounts receivable............................................. 10,391 5,147 (4,689) 10,849
S-1 EXHIBIT INDEX
EXHIBIT SEQUENTIALLY NUMBER DESCRIPTION NUMBER PAGE - --------- ------------------------------------------------------------------------------------- ------------- 1.1. Form of U.S. Purchase Agreement. 1.2. Form of International Purchase Agreement. 3.1. Restated Certificate of Incorporation of the Registrant. 3.2. Bylaws of the Registrant. 4.1. Indenture, dated August 23, 1993, between the Registrant and First Trust National Association, as Trustee. (1) 4.2. First Supplemental Indenture, dated August 23, 1993, between the Registrant and First Trust National Association, as Trustee. (1) 4.3. Specimen stock certificate. 5.1. Opinion of Shearman & Sterling. 10.1. Form of Amended and Restated Stockholders' Agreement. 10.2. Letter Agreement, dated July 9, 1993, among the Registrant, Georges Marciano, Maurice Marciano, Paul Marciano, Armand Marciano and trusts for their respective benefit. (1) 10.3. Employment Agreement, dated March 1, 1994, between the Registrant and Roger A. Williams. (3) 10.4. Letter Agreement, dated January 22, 1996, between the Registrant and Andrea Weiss. 10.5. Employment Agreement, dated as of May 14, 1996, between the Registrant and Francis K. Duane. 10.6. General Release and Indemnity Agreement, dated August 23, 1993, among Maurice, Paul and Armand Marciano, their respective trusts, the Registrant, Georges Marciano and his trust. (1) 10.7. General Release Agreement, dated August 23, 1993, among Maurice, Paul and Armand Marciano, their respective trusts, the Registrant, and Georges Marciano and his trust. (1) 10.8. Cancellation and Reassignment Agreement, dated August 23, 1993, among the Registrant, MSKMarciano, Inc., Georges Marciano, Inc. and Georges Marciano. (1) 10.9. Alameda Lease, dated July 29, 1992, among the Registrant and 1444 Partners, Ltd. (1) 10.10. Revolving Credit Agreement, dated as of December 20, 1993, between the Registrant and The First National Bank of Boston, as agent, and Sanwa Bank California, as co-agent, and the group of financial institution party thereto (the "Revolving Credit Agreement"). (3) 10.11. Security Agreement, dated December 20, 1993, between the Registrant and the First National Bank of Boston, as agent for itself and for certain lenders. (3) 10.12. Amendment No. 1 to the Revolving Credit Agreement, dated January 20, 1994, among the parties thereto. (4) 10.13. Amendment No. 2 to the Revolving Credit Agreement, dated April 1, 1994, among the parties thereto. (4) 10.14. Amendment No. 3 to the Revolving Credit Agreement, dated July 18, 1994, among the parties thereto. (4)
EXHIBIT SEQUENTIALLY NUMBER DESCRIPTION NUMBER PAGE - --------- ------------------------------------------------------------------------------------- ------------- 10.15. Amendment No. 4 to the Revolving Credit Agreement, dated October 24, 1994, among the parties thereto. (4) 10.16. Amendment No. 5 to the Revolving Credit Agreement, dated February 13, 1995, among the parties thereto. (5) 10.17. Amendment No. 6 to the Revolving Credit Agreement, dated September 14, 1995, among the parties thereto. (5) 10.18. Amendment No. 7 to the Revolving Credit Agreement, dated December 22, 1995, among the parties thereto. (5) 10.19. Amendment No. 8 to the Revolving Credit Agreement, dated February 13, 1996, among the parties thereto. 10.20. Agreement as to Consignment of Documents and Related Matters, dated December 22, 1995, between the Registrant and The First National Bank of Boston. (5) 10.21. 1996 Equity Incentive Plan. 10.22. 1996 Non-Employee Directors' Stock Option Plan. 10.23. Annual Incentive Bonus Plan. 10.24. Form of Employment Agreement between the Registrant and Maurice Marciano. 10.25. Form of Employment Agreement between the Registrant and Paul Marciano. 10.26. Form of Employment Agreement between the Registrant and Armand Marciano. 10.27. Registration Rights Agreement, dated as of August 1, 1996, among the Registrant and certain stockholders of the Registrant. 10.28. Indemnification Agreement, dated , 1996, among the Registrant and certain stockholders of the Registrant. 10.29. Form of Indemnification Agreement. 21.1. List of Subsidiaries. 23.1. Consent of KPMG Peat Marwick LLP, independent certified public accountants. 23.2. Consent of Shearman & Sterling (included in Exhibit 5.1). +24.1. Power of Attorney.
- ------------------------ + Previously filed (1) Incorporated by reference from the Registration Statement on Form S-1 (Registration No. 33-69236) originally filed by the Company on September 22, 1993. (2) Incorporated by reference from Amendment No. 1 to the Registration Statement on Form S-1 (File No. 33-69236) filed by the Company on November 24, 1993. (3) Incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended March 27, 1994. (4) Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1994. (5) Incorporated by reference from the Company's Annual Report on Form 10-K for the year ended December 31, 1995.


                                7,360,000 Shares

                                  GUESS ?, INC.

                            (a Delaware corporation)

                                  Common Stock

                           (Par Value $.01 Per Share)


                             U.S. PURCHASE AGREEMENT

                                                                          , 1996


MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
MORGAN STANLEY & CO. INCORPORATED
     as U.S. Representatives of the several U.S. Underwriters
c/o Merrill Lynch & Co.
  Merrill Lynch, Pierce, Fenner & Smith Incorporated
  North Tower
  World Financial Center
  New York, New York  10281-1209

Dear Sirs:

          Guess ?, Inc., a Delaware corporation (the "Company"), hereby 
confirms its agreement with the Maurice Marciano Trust (1995 Restatement) 
(the "Maurice Marciano Trust"), the Paul Marciano Trust under Trust Dated 
February 20, 1986 (the "Paul Marciano Trust") and the Armand Marciano Trust 
Under Trust Dated February 20, 1986 (the "Armand Marciano Trust," and, 
together with the Maurice Marciano Trust, and the Paul Marciano Trust, the 
"Principal Stockholders") and Merrill Lynch & Co., Merrill Lynch, Pierce, 
Fenner & Smith Incorporated ("Merrill Lynch"), Morgan Stanley & Co. 
Incorporated ("Morgan Stanley") and each of the other underwriters named in 
Schedule A hereto (collectively, the "U.S. Underwriters," which term shall 
also include any underwriter substituted as hereinafter provided in Section 
10 hereof), for whom Merrill Lynch and Morgan Stanley are acting as 
representatives (in such capacity, Merrill Lynch and Morgan Stanley shall 
hereinafter be 





referred to as the "U.S. Representatives"), with respect to the sale by the 
Company, and the purchase by the U.S. Underwriters, acting severally and not 
jointly, of the respective numbers of shares of Common Stock, par value $.01 
per share, of the Company ("Common Stock") set forth in said Schedule B and 
with respect to the grant by the Company to the U.S. Underwriters, acting 
severally and not jointly, of the option described in Section 2(b) hereof to 
purchase all or any part of 1,104,000 additional shares of Common Stock to 
cover over-allotments.  The aforesaid 7,360,000 shares of Common Stock (the 
"Initial U.S. Securities") to be purchased by the U.S. Underwriters and all 
or any part of the 1,104,000 shares of Common Stock subject to the option 
described in Section 2(b) hereof (the "Option U.S. Securities") are 
collectively hereinafter called the "U.S. Securities."

          It is understood that the Company is concurrently entering into an
agreement, dated the date hereof (the "International Purchase Agreement"),
providing for the issuance and sale by the Company of an aggregate of 1,840,000
shares of Common Stock (the "Initial International Securities") through
arrangements with certain underwriters outside the United States and Canada (the
"International Managers" which, together with the U.S. Underwriters, shall be
referred to as the "Underwriters"), for whom Merrill Lynch International and
Morgan Stanley & Co. International Limited are acting as representatives (the
"International Representatives").  The Company has also granted to the
International Managers an option to purchase all or any part of 276,000 shares
of Common Stock (the "International Option Securities" which, together with the
Initial International Securities, shall be referred to as the "International
Securities") to cover over-allotments.  The U.S. Securities and the
International Securities are hereinafter collectively referred to as the
"Offered Securities."

          The Company understands that the U.S. Underwriters will simultaneously
enter into an agreement with the International Managers dated the date hereof
(the "Intersyndicate Agreement") providing for the coordination of certain
transactions among the U.S. Underwriters and the International Managers, under
the direction of Merrill Lynch, Pierce, Fenner & Smith Incorporated.

          You have advised us that you and the other U.S. Underwriters, acting
severally and not jointly, desire to purchase the Initial U.S. Securities and,
if the U.S. Underwriters so elect, the U.S. Option Securities, and that you have
been authorized by the other U.S. Underwriters to execute this Agreement on
their behalf.

          The initial public offering price per share for the U.S. Securities
and the purchase price per share for the U.S. Securities shall be agreed upon by
the Company and the U.S. Representatives, acting on behalf of the several U.S.
Underwriters, and such agreement shall be set forth in Schedule C hereto.  The
offering of the U.S. Securities will be governed by this Agreement.  The
purchase price per share for the International Securities to be paid by 


                                 2


the several International Managers shall be identical to the purchase price 
per share for the U.S. Securities to be paid by the several U.S. Underwriters 
hereunder.

          The Company has filed with the Securities and Exchange Commission 
(the "Commission") a registration statement on Form S-1 (No. 333-4419), for 
the registration of 10,580,000 shares of Common Stock, under the Securities 
Act of 1933, as amended (the "1933 Act"), including the related preliminary 
prospectus, such amendments thereto, if any, and such amended preliminary 
prospectuses as may have been required to the date hereof and will file such 
additional amendments thereto and such amended or supplemental prospectuses 
as may hereafter be required.  Promptly after execution and delivery of this 
Agreement, the Company will either (i) prepare and file a prospectus in 
accordance with the provisions of Rule 430A ("Rule 430A") of the rules and 
regulations of the Commission under the 1933 Act (the "1933 Act Regulations") 
and paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or 
(ii) if the Company has elected to rely upon Rule 434 ("Rule 434") of the 
1933 Act Regulations, prepare and file a term sheet (a "Term Sheet") in 
accordance with the provisions of Rule 434 and Rule 424(b).  Two forms of 
prospectus are to be used in connection with the offering and sale of the 
Offered Securities:  one relating to the U.S. Securities (the "Form of U.S. 
Prospectus") and one relating to the International Securities (the "Form of 
International Prospectus").  The Form of International Prospectus is 
identical to the Form of U.S. Prospectus, except for the front cover and back 
cover pages and the information under the caption "Underwriting." The 
information included in such prospectus or in such Term Sheet, as the case 
may be, that was omitted from such registration statement at the time it 
became effective but that is deemed to be part of such registration statement 
at the time it became effective (a) pursuant to paragraph (b) of Rule 430A is 
referred to as "Rule 430A Information" or (b) pursuant to paragraph (d) of 
Rule 434 is referred to as "Rule 434 Information."  Each Form of U.S. 
Prospectus and Form of International Prospectus used before such registration 
statement became effective, and any Form of U.S. Prospectus or Form of 
International Prospectus that omitted, as applicable, the Rule 430A 
Information or the Rule 434 Information, that was used after such 
effectiveness and prior to the execution and delivery of this Agreement, is 
herein called a "preliminary prospectus." Such registration statement, 
including the exhibits thereto and schedules thereto, if any, at the time it 
became effective and including the Rule 430A Information and the Rule 434 
Information, as applicable, as from time to time amended or supplemented 
pursuant to the 1933 Act, is herein called the "Registration Statement."  Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act 
Regulations is herein referred to as the "Rule 462(b) Registration 
Statement," and after such filing the term "Registration Statement" shall 
include the Rule 462(b) Registration Statement.  The Form of U.S. Prospectus 
and Form of International Prospectus included in the Registration Statement 
at the time it becomes effective are herein called the "U.S. Prospectus" and 
"International Prospectus," respectively, and collectively, the 
"Prospectuses," except that, (y) if the final U.S. Prospectus or 
International Prospectus first furnished to the U.S. Underwriters or the 
International Managers after the execution of this Agreement or the 
International 

                                3




Purchase Agreement, as the case may be, for use in connection with the 
offering of the Offered Securities differs from the prospectuses included in 
the Registration Statement at the time it becomes effective (whether or not 
such prospectus is required to be filed pursuant to Rule 424(b)), the terms 
"U.S. Prospectus," "International Prospectus" and "Prospectuses" shall refer 
to the final U.S. Prospectus and/or International Prospectus first furnished 
to the U.S. Underwriters and/or International Managers, as the case may be, 
for such use and (z) if Rule 434 is relied on, the terms "U.S. Prospectus," 
"International Prospectus" and "Prospectuses" shall refer to the preliminary 
U.S. Prospectus and/or International Prospectus last furnished to the U.S. 
Underwriters and/or International Managers, as the case may be, in connection 
with the offering of the Offered Securities together with the Term Sheet.

          The Company has reserved up to 460,000 of the Initial U.S. Securities
to be sold by the Company for offering and sale to certain of the Company's
employees and certain other persons pursuant to a reserve share program (the
"Reserve Share Program").  These Offered Securities will be sold to the
employees and other persons by the U.S. Underwriters pursuant to this Agreement
at the public offering price.  Any such shares not purchased by such persons by
the end of the first business day after either (a) the later of the date on
which the Registration Statement and any Rule 462(b) Registration Statement has
become effective or (b) if the Company has elected to rely on Rule 430A, the
date of this Agreement, will be offered to the public by the U.S. Underwriters
as set forth in the U.S. Prospectus.

          The Company understands that the U.S. Underwriters propose to make a
public offering of the Offered Securities as soon as the U.S. Representatives
deem advisable after this Agreement has been executed and delivered.

          Section 1.  REPRESENTATIONS AND WARRANTIES.  (a)  The Company
represents and warrants to each U.S. Underwriter as of the date hereof and as of
the Closing Time referred to in Section 2(c) hereof, as follows:

          (i)  COMPLIANCE WITH REGISTRATION REQUIREMENTS.  The Registration
     Statement has become effective under the 1933 Act and no stop order
     suspending the effectiveness of the Registration Statement has been issued
     under the 1933 Act and no proceedings for that purpose have been instituted
     or are pending or, to the knowledge of the Company, are contemplated by the
     Commission, and any request on the part of the Commission for additional
     information has been complied with.

          At the respective times the Registration Statement and any post-
     effective amendments thereto became effective and at the Closing Time (and,
     if any Option Securities are purchased, up to the Date of Delivery referred
     to below), the Registration Statement and any amendments or supplements
     thereto complied and will comply in all material respects with the
     requirements of the 1933 Act and the 1933 Act Regula-

                                  4


     tions and did not contain and will not contain an untrue statement of a 
     material fact or omit to state a material fact required to be stated
     therein or necessary to make the statements therein not misleading and,
     to the Company's knowledge, the Prospectuses and preliminary prospectuses
     comply or will comply in all material respects with any applicable laws or 
     regulations of foreign jurisdictions in which the Prospectuses and 
     preliminary prospectuses, as amended or supplemented, if applicable, are
     distributed in connection with the Reserve Share Program.  The 
     Prospectuses, at the date hereof (unless the term "Prospectuses" refers
     to prospectuses which have been provided to the U.S. Underwriters by the 
     Company for use in connection with the offering of Offered Securities which
     differ from the Prospectuses on file at the Commission, in which case at 
     the time the Prospectuses is first provided to the U.S. Underwriters for
     their use) and at the Closing Time, does not and will not include an 
     untrue statement of a material fact or omit to state a material fact 
     necessary in order to make the statements therein, in the light of the 
     circumstances under which they were made, not misleading; and if Rule 434
     is used, the Company will comply with the requirements of Rule 434; 
     PROVIDED, HOWEVER, that the representations and warranties in this 
     subsection shall not apply to statements in or omissions from the 
     Registration Statement or Prospectuses made in reliance upon and in 
     conformity with information furnished to the Company in writing by or
     on behalf of any Underwriter through the Representatives expressly for
     use in the Registration Statement or Prospectuses.

          (ii)  INDEPENDENT ACCOUNTANTS.  KPMG Peat Marwick LLP, which are
     reporting upon certain audited financial statements and supporting
     schedules included in the Registration Statement, are independent public
     accountants as required by the 1933 Act and the 1933 Act Regulations.

          (iii)  FINANCIAL STATEMENTS.  The financial statements included in the
     Registration Statement and the Prospectuses, together with the related
     schedules and notes present fairly the consolidated financial position of
     the Company, Guess Italia S.r.l. ("Guess Italia") and Guess Europe B.V.
     ("Guess Europe" and, together with the Company and Guess Italia, the "Guess
     Companies") at the dates indicated and the results of operations for the
     periods specified; said financial statements have been prepared in
     conformity with generally accepted accounting principles ("GAAP") applied
     on a consistent basis throughout the periods involved; and the supporting
     schedules, if any, included in the Registration Statement present fairly
     the information required to be stated therein.  The selected consolidated
     financial data and the summary financial data included in the Prospectuses
     present fairly the information shown therein and have been compiled on a
     basis consistent with that of the audited financial statements or, in the
     case of the interim periods presented, the unaudited financial statements
     of the Guess Companies, in each case included in the Registration
     Statement.  The pro forma financial information of the Guess Companies
     included in the Prospectuses presents fairly the 


                                 5


     information shown therein, have been prepared in accordance with the 
     Commission's rules and guidelines with respect to pro forma financial 
     information and have been properly compiled on the bases described 
     therein, and, in the opinion of the Company, the assumptions used in 
     the preparation thereof are reasonable and the adjustments used therein
     are appropriate to give effect to the transactions and circumstances 
     referred to therein.

          (iv)  NO MATERIAL ADVERSE CHANGE IN BUSINESS.  Since the respective
     dates as of which information is given in the Registration Statement and
     the Prospectuses, except as otherwise stated therein or contemplated
     thereby, (A) there has been no material adverse change in the condition,
     financial or otherwise, or in the earnings, business affairs or business
     prospects of the Company and its Subsidiaries (as defined herein)
     considered as one enterprise (a "Material Adverse Change"), whether or not
     arising in the ordinary course of business, (B) there have been no
     transactions entered into by the Company, other than those in the ordinary
     course of business, which are required to be disclosed under the 1933 Act
     and the 1933 Act Regulations, and (C) there has been no dividend or
     distribution of any kind declared, paid or made by the Company on any class
     of its capital stock, except for a dividend or distribution in respect of
     the net earnings of the Company from _____ to the Closing Time.

          (v)  GOOD STANDING OF THE COMPANY.  The Company has been duly
     incorporated and is validly existing as a corporation in good standing
     under the laws of the State of Delaware with corporate power and authority
     to own, lease and operate its properties and to conduct its business as
     described in the Prospectuses and to enter into and perform its obligations
     under this Agreement, and to consummate the transactions with respect to
     which it is a participant contemplated hereby and thereby and in the
     Registration Statement (including (i) the reorganization and the S
     corporation distribution as described in the Prospectuses under the caption
     "Company History, The Reorganization and Prior S Corporation Status"
     (collectively, the "Reorganization Transactions"); and the Company is duly
     qualified as a foreign corporation to transact business and is in good
     standing in each jurisdiction in which such qualification is required,
     whether by reason of the ownership or leasing of property or the conduct of
     business, except where the failure to so qualify could not, singly or in
     the aggregate, reasonably be expected to have a material adverse effect on
     the condition, financial or otherwise, or in the earnings, business affairs
     or business prospects of the Company and its Subsidiaries considered as one
     enterprise (a "Material Adverse Effect").

          (vi)  SUBSIDIARIES.  The Company owns, and as of the date of
     termination of the Company's S corporation status (the "S Termination
     Date") will own, no equity interest in any entity other than those equity
     interests listed on Exhibits A and B hereto, respectively (such entities on
     Exhibit A are hereinafter referred to as the "Subsidiar-

                                         6


     ies").  As of the date hereof and as of the S Termination Date, the Company
     has, or will have, good and marketable title to all equity interests listed
     on Exhibit A or B, respectively, free and clear of any pledge, lien, 
     security interest, charge, claim or encumbrance of any kind.

          (vii)  CAPITALIZATION; AUTHORIZATION AND DESCRIPTION OF OFFERED
     SECURITIES.  At the Closing Time the authorized, issued and outstanding
     capital stock of the Company will be as set forth in the Prospectuses under
     the "Actual" column under the caption "Capitalization"; all of the shares
     of issued and outstanding Common Stock have been duly authorized and
     validly issued and are fully paid and nonassessable and, to the best
     knowledge of the Company, are owned of record and beneficially by the
     Principal Stockholders free and clear of any liens, claims, charges,
     pledges or encumbrances of any kind, except for restrictions imposed by the
     Restated Shareholders' Agreement dated _____, 1996 between the Company and
     the Principal Stockholders; none of the outstanding shares of Common Stock
     of the Company was issued in violation of preemptive rights of any
     stockholder of the Company; the Offered Securities to be sold by the
     Company pursuant to the Purchase Agreements have been duly authorized for
     issuance and sale to the Underwriters pursuant to the Purchase Agreements
     and, when issued and delivered by the Company pursuant to the Purchase
     Agreements against payment of the consideration set forth herein, will be
     validly issued and fully paid and nonassessable; the Common Stock conforms
     to all statements relating thereto contained in the Prospectuses and such
     description conforms to the rights set forth in the instruments defining
     the same; no holder of the Offered Securities will be subject to personal
     liability by reason of being such a holder; and the Offered Securities are
     not subject to preemptive or other similar rights arising by operation of
     law, under the charter or bylaws of the Company, under any agreement to
     which the Company is a party or otherwise.

          (viii)  ABSENCE OF DEFAULTS AND CONFLICTS.  None of the Guess
     Companies is (a) in violation of its charter or bylaws or (b) in breach or
     default in the performance or observance of any obligation, agreement,
     covenant or condition contained in any contract, indenture, mortgage, loan,
     credit agreement, note, lease or other agreement or instrument to which any
     of the Guess Companies is a party or by which any of them may be bound, or
     to which any of their property or assets is subject (collectively,
     "Agreements and Instruments"), excluding in each case in this clause (b),
     breaches or defaults which, individually or in the aggregate, could not,
     singly or in the aggregate, reasonably be expected to have a Material
     Adverse Effect; and the execution, delivery and performance of this
     Agreement and the consummation of the transactions contemplated herein and
     in the Registration Statement (including (i) the Reorganization
     Transactions and (ii) the use of proceeds from the sale of the Offered
     Securities as described in the Prospectuses under the caption "Use of
     Proceeds") and compliance by 

                                         7



     the Company with its obligations hereunder and thereunder have been duly 
     authorized by all necessary corporate action and do not and will not,
     whether with or without the giving of notice or passage of time or both, 
     conflict with or constitute a breach of, or default under, or result in the
     creation or imposition of any lien, charge or encumbrance upon any property
     or assets of the Guess Companies pursuant to any Agreements and Instruments
     (other than with respect to which any of the Guess Companies shall have 
     obtained at or prior to the Closing Time such amendments, waivers or 
     consents, as the case may be, as shall be necessary so that at the Closing
     Time the representation and warranty contained in this paragraph (viii) 
     shall be accurate without regard to this parenthetical), excluding in each
     case, conflicts, breaches or defaults which, individually or in the 
     aggregate, could not reasonably be expected to have a Material Adverse 
     Effect, nor will such action result in any violation of the provisions of
     the charter or bylaws of any of the Guess Companies or any applicable law, 
     statute, rule, regulation, judgment, order, writ or decree of any 
     government, government instrumentality or court, domestic or foreign, 
     having jurisdiction over any of the Guess Companies or any of their 
     assets or properties.

          (ix)  ABSENCE OF LABOR DISPUTES.  No labor dispute with the employees
     of any of the Guess Companies exists or, to the knowledge of the Company,
     is imminent, and the Company is not aware of any existing or imminent labor
     disturbance by the employees of any of the Guess Companies principal
     suppliers, manufacturers, customers or contractors, which, in either case,
     may reasonably be expected to result in a Material Adverse Effect.

          The Company is in compliance with all applicable federal, state, and
     local laws relating to the payment of wages to employees (including,
     without limitation, the Fair Labor Standards Act, as amended), except
     insofar as the failure to comply with such laws would not reasonably be
     expected to have a Material Adverse Effect.

          (x)  ABSENCE OF PROCEEDINGS.  There is no action, suit or proceeding
     before or by any court or governmental agency or body, domestic or foreign,
     now pending or, to the knowledge of the Company, threatened, against or
     affecting the Company which is required to be disclosed in the Registration
     Statement (other than as disclosed therein), or which could, singly or in
     the aggregate, reasonably be expected to result in a Material Adverse
     Effect, or could, singly or in the aggregate, reasonably be expected to
     materially and adversely affect the properties or assets of the Company or
     which could, singly or in the aggregate, reasonably be expected to
     materially and adversely affect the consummation of this Agreement or the
     performance by the Company of its obligations hereunder.

                                         8




          (xi)  ACCURACY OF EXHIBITS.  There are no contracts or documents to
     which the Company is a party which are required to be described in or filed
     as exhibits to the Registration Statement which have not been described,
     filed or incorporated by reference as required.

          (xii)  POSSESSION OF INTELLECTUAL PROPERTY.  Except as disclosed in
     the Prospectuses, each of the Guess Companies owns or possesses, or can
     acquire on reasonable terms, adequate patents, patent licenses, trademarks,
     service marks and trade names necessary to carry on its business as
     presently conducted, and none of the Guess Companies have received any
     notice of infringement of or conflict with asserted rights of others with
     respect to any patents, patent licenses, trademarks, service marks or trade
     names that in the aggregate, if the subject of an unfavorable decision,
     ruling or finding, would reasonably be expected to have a Material Adverse
     Effect.

          (xiii)  ABSENCE OF FURTHER REQUIREMENTS.  No filing with, or
     authorization, approval, consent, license, order, registration,
     qualification or decree of, any court or governmental authority, agency or
     body is necessary or required for the performance by the Company of its
     obligations hereunder, in connection with the offering or sale of the
     Offered Securities hereunder or the consummation of the transactions
     contemplated by this Agreement, except (i) such as have already been
     obtained or as may be required under the 1933 Act or the 1933 Act
     Regulations or state securities laws and (ii) such as have been obtained,
     to the Company's knowledge, under the securities laws and regulations of
     foreign jurisdictions in which the Offered Securities are offered outside
     the United States in connection with the Reserve Share Program.

          (xiv)  POSSESSION OF LICENSES AND PERMITS.  Each of the Guess
     Companies (A) possesses all material governmental certificates, permits,
     licenses, approvals, consents and other authorizations (collectively,
     "Governmental Licenses") necessary to conduct the business it now operates
     and (B) has not received any notice of proceedings relating to the
     revocation or modification of any such Governmental Licenses except, in the
     case of clauses (A) and (B), as could not reasonably be expected to result
     in a Material Adverse Effect.

          (xv)  TITLE TO PROPERTY.  Each of the Guess Companies has sufficient
     title for the use made and proposed to be made of all of its properties,
     whether real or personal, free and clear of all liens, encumbrances and
     defects, except as stated in the Prospectuses or such as could not, singly
     or in the aggregate, reasonably be expected to have a Material Adverse
     Effect; and all of the leases material to the business of the Guess
     Companies, and under which any of the Guess Companies holds properties
     described in the Prospectuses, are in full force and effect, and none of
     the Guess Companies has notice of any material claim of any sort that has
     been asserted by anyone adverse to the 

                                         9



     rights of the Company under any of the leases mentioned above, or affecting
     or questioning the rights of any of the Guess Companies to the continued 
     possession of such leased premises under any such lease. 

          (xvi)  AUTHORIZATION OF AGREEMENT.  Each of the Purchase Agreements
     have been duly and validly authorized, executed and delivered by the
     Company.

          (xvii)  RELATIONS WITH CUBA.  To the knowledge of the Guess Companies,
     none of the Guess Companies has done, or is presently doing, business with
     the government of Cuba or with any person located in Cuba.

          (xviii)  ACCURACY OF DESCRIPTIONS.  The descriptions in the
     Registration Statement of laws, regulations and rules, of legal and
     governmental proceedings and of contracts, agreements, leases and other
     documents including, without limitation, under the headings "Description of
     Capital Stock -- Delaware Law and Certain Corporate Provisions" are
     accurate in all material respects.

          (xix)  ENVIRONMENTAL LAWS.  Except as could not, singly or in the
     aggregate, reasonably be expected to have a Material Adverse Effect or
     otherwise require disclosure in the Registration Statement or the
     Prospectuses, (i) each of the Guess Companies is in compliance with all
     applicable federal, state or local laws and regulations ("Environmental
     Laws") relating to pollution or protection of human health or the
     environment, or otherwise relating to the use, treatment, storage,
     disposal, transport or handling of toxic or hazardous substances or wastes,
     or petroleum products ("Materials of Environmental Concern"), including
     compliance with all permits, licenses, approvals or authorizations
     ("Permits") required under any Environmental Laws, (ii) with respect to the
     Company or any person or entity for whom the Company or any Subsidiary has
     retained or assumed (either contractually or by operation of law) liability
     therefor, (A) none of the Guess Companies has received any communication
     from any person or entity alleging violation of any Environmental Laws, and
     there is no pending or, to its knowledge, threatened claim, action,
     investigation or notice for site investigations, clean up, response costs,
     natural resources or property damages, personal injuries, attorney's fees,
     or penalties (collectively, "Environmental Claims"), and (B) there are no
     conditions that, to the best knowledge of any of the Guess Companies, could
     reasonably be expected to form the basis of any Environmental Claim against
     any of the Guess Companies.  The Company has reviewed the Environmental
     Laws applicable to the Guess Companies' business, operations and properties
     for the purposes of determining any capital or operating expenditures
     required or anticipated over the current and the next fiscal year for any
     site investigation, clean up or remediation, compliance with Environmental
     Laws or any Permit, or any potential liability to third parties, and, on
     the basis of such review, the Company has reasonably concluded that such
     matters 

                                         10



     could not have a Material Adverse Effect or otherwise require
     disclosure in the Registration Statement or Prospectuses.

          (xx)  NO RELATED PARTY TRANSACTIONS.  Except as disclosed in the
     Prospectuses, there are no (i) outstanding loans, advances or guarantees of
     indebtedness by any of the Guess Companies to or for the benefit, directly
     or indirectly, of any of the officers or directors of any of the Guess
     Companies or (ii) any other related party transactions required by the 1933
     Act or by the 1933 Act Regulations to be disclosed in the Prospectuses.

          (xxi)  INTERNAL ACCOUNTING METHODOLOGY.  The Company maintains a
     system of internal accounting controls sufficient to provide reasonable
     assurance that (i) transactions are executed in accordance with
     management's general or specific authorizations, (ii) transactions are
     recorded as necessary to permit preparation of financial statements in
     conformity with GAAP and to maintain accountability for assets, (iii)
     access to assets is permitted only in accordance with management's general
     or specific authorization, and (iv) the recorded accountability for assets
     is compared with existing assets at reasonable intervals and appropriate
     action is taken with respect to any differences.

          (xxii)  TAXES.  The Company has filed all material federal, state and
     foreign income and franchise tax returns and has paid all taxes shown as
     due thereon, other than taxes which are being contested in good faith and
     for which adequate reserves have been established in accordance with GAAP;
     and the Company has no knowledge of any tax deficiency which has been or
     might be asserted or threatened against the Company which would reasonably
     be expected to have a Material Adverse Effect.  No material Federal, state,
     local or foreign transfer, sales or other taxes will be imposed on the
     Company as a result of the consummation of the Reorganization Transactions
     [other than ______].

          (xxiii)  Effective as of August 1, 1983, the Company validly elected S
     Corporation status (as defined in Section 1361 of the Internal Revenue Code
     of 1986, as amended (the "Code")) for federal and certain state income tax
     purposes and has validly continued to qualify as an S corporation in each
     such jurisdiction since such date and will continue to so qualify until the
     S Termination Date.

          (xxiv)  NYSE APPLICATION.  The Common Stock has been approved for
     listing on the New York Stock Exchange (the "NYSE") under the symbol "GES,"
     subject to notice of official issuance.

     (b)  Each of the Principal Stockholders represents and warrants to, and
agrees with, each U.S. Underwriter as of the date hereof and as of the Closing
Time as follows:

                                         11




          (i)  Prior to the Closing Time, each of the Principal Stockholders
     shall contribute all of the outstanding shares of MI held by such Principal
     Stockholders to the Company (the "Contribution").  Immediately prior to the
     Contribution, all of the outstanding shares of capital stock of MI had been
     duly authorized and validly issued and were fully paid and nonassessable. 
     The Maurice Marciano Trust represents and warrants that immediately prior
     to the Contribution it owned of record and beneficially 44.8% of the
     outstanding shares of capital stock of MI; the Paul Marciano Trust
     represents and warrants that, immediately prior to the Contribution, it
     owned of record and beneficially 35.5% of the outstanding shares of capital
     stock of MI; and the Armand Marciano Trust represents and warrants that,
     immediately prior to the Contribution, it owned of record and beneficially
     19.7% of the outstanding shares of capital stock of MI.  Each Principal
     Stockholder represents and warrants that, immediately prior to the
     Contribution, it had good and marketable title to all such shares, free and
     clear of any pledge, lien, security interest, charge, claim or encumbrance
     of any kind.

          (ii)  Each Principal Stockholder is familiar with the Prospectuses and
     has (A) no reason to believe that the representations and warranties of the
     Company in Section 1(a) above are not accurate in all material respects,
     (B) no knowledge of any material fact, condition or information not
     disclosed in the Prospectuses that has adversely affected or should
     reasonably be expected to materially and adversely affect the business of
     the Company and its Subsidiaries, taken as a whole, after giving effect to
     the Reorganization Transactions, or (C) no reason to believe that the
     Prospectuses contains any untrue statement of a material fact or omits to
     state any material fact required to be stated therein or necessary to make
     the statements therein, in the light of the circumstances under which they
     were made, not misleading.

     (c)  Any certificate signed by any officer of the Company and delivered to
the U.S. Representatives or to counsel for the U.S. Underwriters shall be deemed
a representation and warranty by the Company to each U.S. Underwriter, as to the
matters covered thereby.

     (d)  The liability of the Principal Stockholders for breach of the
representation and warranty set forth in clause (b)(ii) above is limited as set
forth in Section 6(a) below.

          Section 2.  SALE AND DELIVERY TO U.S. UNDERWRITERS; CLOSING.  (a)  On
the basis of the representations and warranties herein contained and subject to
the terms and conditions herein set forth, the Company agrees to sell the number
of U.S. Securities set forth in Schedule B to each U.S. Underwriter, and each
U.S. Underwriter, severally and not jointly, agrees to purchase from the
Company, at the price per share set forth in Schedule C, the number of Initial
U.S. Securities set forth in Schedule A opposite the name of such U.S.-

                                         12



Underwriter, plus any additional number of Initial U.S. Securities which such
U.S. Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof.

     (b)  In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
hereby grants an option to the U.S. Underwriters, severally and not jointly, to
purchase up to all of the Option U.S. Securities at the purchase price per share
set forth in Schedule C.  The option granted will expire 30 days after the date
hereof and may be exercised, in whole or in part (but not more than once), only
for the purpose of covering over-allotments which may be made in connection with
the offering and distribution of the Initial U.S. Securities upon notice by the
U.S. Representatives to the Company setting forth the number of Option U.S.
Securities as to which the several U.S. Underwriters are then exercising the
option and the time and date of payment and delivery for such Option U.S.
Securities.  Such time and date of delivery (a "Date of Delivery") shall be
determined by the U.S. Representatives, but shall not be later than the third
(fourth, if the exercise occurs after 4:30 P.M. New York time) full business day
after the exercise of said option, nor in any event prior to the Closing Time,
as hereinafter defined, unless otherwise agreed by the U.S. Representatives and
the Company.  If the option is exercised as to all or any portion of the Option
U.S. Securities, each of the U.S. Underwriters, acting severally and not
jointly, will purchase that proportion of the total number of Options U.S.
Securities then being purchased which the number of Initial U.S. Securities set
forth in Schedule A opposite the name of such U.S. Underwriter bears to the
total number of Initial U.S. Securities, subject in each case to such
adjustments as the U.S. Representatives in their discretion shall make to
eliminate any purchases of fractional interests, plus any additional number of
Option U.S. Securities which such U.S. Underwriter may become obligated to
purchase pursuant to the provisions of Section 10 hereof.  

     (c)  Payment of the purchase price for the Initial U.S. Securities shall be
made at the office of Skadden, Arps, Slate, Meagher & Flom, 300 South Grand
Avenue, Los Angeles, California, or at such other place as shall be agreed upon
by the U.S. Representatives and the Company, at 7:00 A.M. California time on the
third (fourth, if the pricing occurs after 4:30 P.M. New York time) business day
(unless postponed in accordance with the provisions of Section 10) after the
date hereof, or such other time not later than ten business days after such date
as shall be agreed upon by the U.S. Representatives and the Company (such time
and date of payment and delivery being herein called the "Closing Time"). 
Payment shall be made to the Company by wire transfer of immediately available
funds payable to a bank account designated by the Company against delivery to
the U.S. Representatives for the respective accounts of the U.S. Underwriters of
certificates for the Initial U.S. Securities to be purchased by them. 
Certificates for the Initial U.S. Securities shall be in such denominations and
registered in such names as the U.S. Representatives may request in writing at
least two business days before the Closing Time.  It is understood that each
U.S. Underwriter has authorized the U.S. Representatives, for their account, to
accept delivery of, receipt for, and make payment 

                                         13



of the purchase price for, the Initial U.S. Securities which it has agreed to 
purchase.  Merrill Lynch, individually and not as representative of the U.S. 
Underwriters, may (but shall not be obligated to) make payment of the 
purchase price for the Initial U.S. Securities to be purchased by any U.S. 
Underwriter whose funds have not been received by the Closing Time, but such 
payment shall not relieve such U.S. Underwriter from its obligations 
hereunder.  The certificates for the Initial U.S. Securities will be made 
available for examination and packaging by the U.S. Representatives not later 
than 10:00 A.M. on the last business day prior to the Closing Time.

     (d)  In addition, in the event that any or all of the Option U.S.
Securities are purchased by the U.S. Underwriters, payment of the purchase price
for such Option U.S. Securities shall be made at the above-mentioned offices of
Skadden, Arps, Slate, Meagher & Flom, or at such other place as shall be agreed
upon by the U.S. Representatives and the Company, on the Date of Delivery as
specified in the notice from the U.S. Representatives to the Company.  Payment
shall be made to the Company by wire transfer of immediately available funds to
a bank account designated by the Company, against delivery to the U.S.
Representatives for the respective accounts of the U.S. Underwriters of
certificates for the Option U.S. Securities to be purchased by them. 
Certificates, if any, for the Option U.S. Securities, if any, shall be in such
denominations and registered in such names as the U.S. Representatives may
request in writing at least two business days before the Closing Time or the
relevant Date of Delivery, as the case may be.  It is understood that each U.S.
Underwriter has authorized the U.S. Representatives, for their accounts, to
accept delivery of, receipt for, and make payment of the purchase price for the
Option U.S. Securities, if any, which it has agreed to purchase.  Merrill Lynch,
individually and not as representative of the U.S. Underwriters, may (but shall
not be obligated to) make payment of the purchase price for the Option U.S.
Securities, if any, to be purchased by any U.S. Underwriter whose funds have not
been received by the relevant Date of Delivery, as the case may be, but such
payment shall not relieve such U.S. Underwriter from its obligations hereunder. 
The certificates for the Option U.S. Securities, if any, will be made available
for examination and packaging by the U.S. Representatives not later than 10:00
A.M. on the last business day prior to the relevant Date of Delivery.  For
purposes of this agreement, "business day" means a day on which the NYSE is open
for business.

     (e)  The U.S. Underwriters agree to serve a maximum of 750,000 Initial U.S.
Shares for offering and sale to directors, officers, employees, business
associates and related persons of the Company, at the public offering price. 
Any such shares not purchased by such persons by the end of the second business
day after either (a) the later of the date on which the Registration Statement
and any Rule 462(b) Registration Statement has become effective or, (b) if the
Company has elected to rely upon Rule 430A, the date of the Prospectus, will be
offered to the public by the U.S. Underwriters as set forth in the Prospectus.

                                         14




          Section 3.  COVENANTS OF THE COMPANY.  The Company covenants with each
U.S. Underwriter as follows:

     (a)  The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A and will notify the U.S. Representatives immediately
of (i) the effectiveness of the Registration Statement and of the effectiveness
of any post-effective amendment to the Registration Statement or of the filing
of any amendment or supplement to the U.S. Prospectus, (ii) the receipt of any
comments from the Commission, (iii) any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement to the
U.S. Prospectus or for additional information, and (iv) the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of any preliminary
prospectus, or the suspension of the qualification of the U.S. Securities for
offering or sale in any jurisdiction or the initiation or threatening of any
proceedings for that purpose.  If the Company has elected to rely on Rule 430A,
the Company will promptly effect the filings necessary pursuant to Rule 424(b)
and will take such steps as it deems necessary to ascertain promptly whether the
form of prospectus transmitted for filing under Rule 424(b) was received for
filing by the Commission and, in the event that it was not, it will promptly
file such prospectus.  The Company will make every reasonable effort to prevent
the issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible moment.

     (b)  The Company will give the U.S. Representatives notice of its intention
to file or prepare any amendment to the Registration Statement (including any
filing under Rule 462(b)), any Term Sheet or any amendment, supplement or
revision to either the prospectus included in the Registration Statement at the
time it became effective or to the U.S. Prospectus will furnish the U.S.
Representative with copies of any such documents a reasonable amount of time
prior to such proposed filing or use, as the case may be, and will not file or
use any such document to which the U.S. Representatives or counsel for the U.S.
Underwriters shall reasonably object.

     (c)  The Company will deliver to the U.S. Representatives and counsel for
the U.S. Underwriters signed copies of the Registration Statement as originally
filed and of each amendment thereto (including exhibits filed therewith) and
signed copies of all consents and certificates of experts and will also deliver
to the U.S. Representatives a conformed copy of the Registration Statement as
originally filed and of each amendment or post-effective amendment or supplement
or Term Sheet thereto (without exhibits) for each of the U.S. Underwriters.

     (d)  The Company has delivered to each U.S. Underwriter, without charge, as
many copies of each preliminary prospectus as such U.S. Underwriter reasonably
requested, and the Company hereby consents to the use of such copies for the
purposes permitted by the 1933 

                                         15



Act.  The Company will furnish to each U.S. Underwriter, without charge, from 
time to time, during the period when the U.S. Prospectus is required to be 
delivered under the 1933 Act or the Securities Exchange Act of 1934, as 
amended (the "1934 Act"), such number of copies of the U.S. Prospectus (as 
amended or supplemented) and the Term Sheet, if any, as such U.S. Underwriter 
may reasonably request for the purposes contemplated by the 1933 Act, the 
1933 Act Regulations, the 1934 Act or the rules and regulations of the 
Commission under the 1934 Act (the "1934 Act Regulations").

     (e)  The Company will comply with the 1933 Act and the 1933 Act Regulations
and the 1934 Act and the 1934 Act Regulations so as to permit the completion of
the distribution of the Offered Securities as contemplated in this Agreement and
in the U.S. Prospectus.  If at any time when a prospectus is required to be
delivered in connection with such distribution of the U.S. Securities any event
shall occur or condition shall exist as a result of which it is necessary, in
the opinion of counsel for the U.S. Underwriters or for the Company, to amend
the Registration Statement or amend or supplement the U.S. Prospectus in order
that the U.S. Prospectus will not include any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein not misleading in the light of the circumstances existing at the time it
is delivered to a purchaser, or if it shall be necessary, in the opinion of such
counsel, at any such time to amend the Registration Statement or amend or
supplement the U.S. Prospectus in order to comply with the requirements of the
1933 Act or the 1933 Act Regulations, the Company will promptly prepare and file
with the Commission, subject to Section 3(b), such amendment or supplement as
may be necessary to correct such statement or omission or to make the
Registration Statement or the U.S. Prospectus comply with such requirements, and
the Company will furnish to the U.S. Underwriters such number of copies of such
amendment or supplement as the Representatives shall reasonably request.

     (f)  The Company will endeavor, in cooperation with the U.S. Underwriters,
to qualify the Offered Securities for offering and sale under the applicable
securities laws of such states and other jurisdictions of the United States as
the U.S. Representatives may designate; PROVIDED, HOWEVER, that the Company
shall not be obligated to file any general consent to service of process or to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to taxation in
respect of doing business in any jurisdiction in which it is not otherwise
subject.  In each jurisdiction in which the Offered Securities have been so
qualified, the Company will file such statements and reports as may be required
by the laws of such jurisdiction to continue such qualification in effect for a
period of not less than one year from the date hereof and the effective date of
any Rule 462(b) Registration Statement.  The Company will inform the Florida
Department of Banking and Finance if, to the best of its knowledge, prior to the
completion of the distribution of the Offered Securities by the U.S.
Underwriters, the Company commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba.  Such information will be

                                         16



provided within 90 days of the commencement thereof or after a change to any
such previously reported information.

     (g)  The Company will timely file such reports pursuant to the 1934 Act as
are necessary in order to make generally available to its security holders as
soon as practicable, but not later than 60 days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 of the 1933 Act Regulations) covering a twelve-month period beginning
not later than the first day of the Company's fiscal quarter next following the
"effective date" (as defined in said Rule 158) of the Registration Statement.

     (h)  During a period of 180 days from the date hereof, the Company will
not, without Merrill Lynch's prior written consent, directly or indirectly, (i)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any share
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or file any registration statement under the 1933
Act with respect to any of the foregoing or (ii) enter into any swap or any
other agreement or any transaction that transfers, in whole or in part, directly
or indirectly, the economic consequence of ownership of the Common Stock,
whether any such swap or transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Stock or other securities, in cash or
otherwise.  The foregoing sentence shall not apply to (A) the Offered Securities
to be sold hereunder or under the International Purchase Agreement, (B) any
shares of Common Stock issued or options to purchase Common Stock granted
pursuant to (I) any existing employment agreement or (II) existing employee
benefit plans of the Company referred to in the U.S. Prospectus or (C) any
shares of Common Stock issued pursuant to any existing non-employee director
stock plan or dividend reinvestment plan referred to in the U.S. Prospectus.

     (i)   If the Company uses Rule 434 of the 1933 Act Regulations, it will
comply with the requirements of Rule 434 of such regulations and the U.S.
Prospectus will not be "materially different," as such term is used in Rule 434
of the 1933 Act Regulations, from the U.S. Prospectus first given to the U.S.
Underwriters for their use.

     (j)   The Company will use its best efforts to effect the listing of the
Offered Securities on the NYSE.

     (k)   The Company will use the net proceeds received by it from the sale of
the Offered Securities in the manner specified in the U.S. Prospectus under the
caption "Use of Proceeds."

     (l)   The Company will file with the Commission such reports on Form SR as
may be required pursuant to Rule 463 of the 1933 Act Regulations.

                                         17




     (m)   If the Company elects to rely upon Rule 462(b), the Company shall
both file a Rule 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) and pay the applicable fees in accordance with Rule 111 of the
1933 Act Regulations by the time confirmations are sent or given, as specified
by Rule 462(b)(2).

     (n)  The Company hereby agrees that it will ensure that the Offered
Securities sold to persons pursuant to the Reserve Share Program will be
restricted as required by the National Association of Securities Dealers, Inc.
(the "NASD") or the NASD rules from sale, transfer, assignment, pledge or
hypothecation for a period of three months following the date of the
effectiveness of the Registration Statement.  The U.S. Underwriters will notify
the Company as to which persons will need to be so restricted.  At the request
of the U.S. Underwriters, the Company will direct the transfer agent to place a
stop transfer restriction upon such securities for such period of time.  Should
the Company release, or seek to release, from such restrictions any Offered
Securities sold pursuant to the Reserve Share Program, the Company agrees to
reimburse the U.S. Underwriters for any reasonable expenses including, without
limitation, legal expenses they incur directly in connection with such release.

          Section 4.  PAYMENT OF EXPENSES.  The Company will pay all expenses
incident to the performance of its obligations under this Agreement, including
(i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, including any post-effective amendments, (ii) the
preparation, issuance and delivery of the certificates for the U.S. Securities,
if any, to the U.S. Underwriters, including any stock transfer taxes payable
upon the sale of the Offered Securities to the Underwriters and the transfer of
the Offered Securities between the U.S. Underwriters and the International
Managers, (iii) the fees and disbursements of the Company's counsel and
accountants, (iv) the qualification of the Offered Securities under securities
laws in accordance with the provisions of Section 3(f) hereof, including
reasonable filing fees and the fees and disbursements of counsel for the U.S.
Underwriters in connection therewith and in connection with the preparation,
printing and delivery to the U.S. Underwriters of copies of the Blue Sky Survey
and any supplement thereto, (v) the printing and delivery to the U.S.
Underwriters of copies of the Registration Statement as originally filed and of
each amendment thereto, of each preliminary prospectus, any Term Sheets and of
the U.S. Prospectus and any amendments or supplements thereto, (vi) the fees and
expenses of the listing of the Common Stock on the NYSE, (vii) the filing fees
incident to, and the reasonable fees and disbursements of counsel to the U.S.
Underwriters in connection with, the review by the National Association of
Securities Dealers, Inc. (the "NASD") of the terms of the sale of the Offered
Securities, (viii) the copying and distribution to the U.S. Underwriters of this
Agreement, the agreement among U.S. Underwriters, the International Purchase
Agreement, the agreement among International Managers and the Intersyndicate
Agreement, (ix) the fees and expenses of any transfer agent or registrar for the
Common Stock, (x) the reasonable fees and disbursements of counsel to the
Company and the U.S. Underwriters in connection with 


                                         18



the Reserve Share Program, and (xi) stamp duties or similar taxes or duties, 
if any, incurred by the U.S. Underwriters in connection with the Reserve 
Share Program.

          If this Agreement is terminated by the U.S. Representatives in
accordance with the provisions of Section 5, 9(a)(i) or 11 hereof, the Company
shall reimburse the U.S. Underwriters for all of their out-of-pocket expenses,
including the reasonable fees and disbursements of counsel for the U.S.
Underwriters.

          Section 5.  CONDITIONS OF U.S. UNDERWRITERS' OBLIGATIONS.  The
obligations of the several U.S. Underwriters to purchase and pay for the U.S.
Securities that they have respectively agreed to purchase pursuant to this
Agreement (including any U.S. Option Securities as to which the option granted
in Section 2 has been exercised and the Date of Delivery determined by you is
the same as the Closing Time) are subject to the accuracy in all material
respects (except that such phrase "in all material respects" shall be
disregarded to the extent any such representation and warranty is qualified by
"material," "material adverse change," "Material Adverse Effect" or any phrase
using any such term) of the representations and warranties of the Company and
the Principal Stockholders herein contained or in certificates of any officer of
any of the Company or certificates by or on behalf of the Principal Stockholders
delivered pursuant to the provisions hereof, to the performance by the Company
of its obligations hereunder, and to the following further conditions:

     (a)  The Registration Statement, including any Rule 462(b) Registration
Statement, shall have become effective on the date of this Agreement.  At the
Closing Time, no stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings therefor
initiated or threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with.  The price
of the Offered Securities and any price-related information previously omitted
from the effective Registration Statement and any Term Sheet used pursuant to
Rule 434 shall have been transmitted to the Commission for filing pursuant to
Rule 424(b) within the prescribed time period and, prior to the Closing Time,
the Company shall have provided evidence satisfactory to the U.S.
Representatives of such timely filing, or a post-effective amendment providing
such information shall have been promptly filed and declared effective.

                                         19




     (b)  At the Closing Time, the U.S. Representatives shall have received:

          (i)  The favorable opinion, dated as of the Closing Time, of Shearman
     & Sterling, special counsel for the Company, substantially in the form
     attached hereto as Exhibit C and in form and substance satisfactory to
     counsel for the Underwriters.

          (ii)  The favorable opinion, dated as of the Closing Time, of Skadden,
     Arps, Slate, Meagher & Flom, counsel for the U.S. Underwriters, with
     respect to the matters set forth in (a), (e), (f) (solely as to preemptive
     rights arising by operation of law or under the charter or bylaws of the
     Company), (h) thru (j), inclusive, and (l) (solely as to the information in
     the Prospectuses under the caption "Description of Capital Stock"), of
     Exhibit C, except that, with respect to the matters referred to in (e), no
     opinion need be expressed as to whether any of the Company's outstanding
     shares of Common Stock, other than the Offered Securities, have been duly
     authorized or validly issued or are fully paid or nonassessable.

          In addition, Skadden, Arps, Slate, Meagher & Flom shall state that
     they have participated in conferences with directors, officers and other
     representatives of the Company, the Representatives, the Company's
     independent accountants and counsel for the Underwriters at which
     conferences the contents of the Registration Statement and the Prospectuses
     and related matters were discussed and, although they are not passing upon,
     and they do not assume responsibility for, the accuracy, completeness or
     fairness of the statements contained in the Registration Statement or
     Prospectuses (except for financial statements and other financial data
     included therein), and they have not made any independent check or
     verification thereof, on the basis of the foregoing, nothing has come to
     their attention that would lead them to believe that the Registration
     Statement including the Rule 430A Information and Rule 434 Information (if
     applicable), (except for financial statements and schedules and other
     financial data included therein, as to which such counsel need make no
     statement), at the time it became effective, contained an untrue statement
     of a material fact or omitted to state a material fact required to be
     stated therein or necessary to make the statements therein not misleading
     or that the Prospectuses or any amendment or supplement thereto (except for
     financial statements and schedules and other financial data included as to
     which such counsel need make no statement), at the time the Prospectuses
     were issued, at the time any such amended or supplemental prospectus was
     issued or at the Closing Time, included or includes an untrue statement of
     a material fact or omitted or omits to state a material fact necessary in
     order to make the statements therein, in the light of the circumstances
     under which they were made, not misleading.

     (c)  At the Closing Time there shall not have been, since the date hereof
or since the respective dates as of which information is given in the
Registration Statement and the 

                                         20



Prospectuses, any Material Adverse Change, whether or not arising in the 
ordinary course of business, and the U.S. Representatives shall have received 
a certificate of the chief executive officer of the Company and of the chief 
financial officer of the Company, dated as of the Closing Time, to the effect 
that (i) since the respective dates as of which information is given in the 
Registration Statement and the Prospectuses, there has been no such Material 
Adverse Change, (ii) the representations and warranties of the Company in 
Section 1(a) hereof are true and correct in all material respects (except 
that such phrase "in all material respects" shall be disregarded to the 
extent any such representation and warranty is qualified by "material," 
"material adverse change," "Material Adverse Effect" or any phrase using any 
such term) with the same force and effect as though expressly made at and as 
of the Closing Time, (iii) the Company has complied with all agreements and 
satisfied all conditions on its part to be performed or satisfied at or prior 
to the Closing Time, and (iv) no stop order suspending the effectiveness of 
the Registration Statement has been issued and no proceedings for that 
purpose have been initiated or threatened by the Commission and (y) a 
certificate of the Principal Stockholders, dated as of the Closing Time, to 
the effect that (i) the representations and warranties of the Principal 
Stockholders in Section 1(b) hereof are true and correct in all material 
respects (except that such phrase "in all material respects" shall be 
disregarded to the extent any such representation and warranty is qualified 
by "material," "material adverse change," "Material Adverse Effect" or any 
phrase using any such term) with the same force and effect as though 
expressly made at and as of the Closing Time and (ii) the Principal 
Stockholders have complied with all agreements and satisfied all conditions 
on its part to be performed or satisfied at or prior to the Closing Time.

     (d)  At the time of the execution of this Agreement, the U.S.
Representatives shall have received from KPMG Peat Marwick LLP, a letter dated
such date, in form and substance satisfactory to the U.S. Representatives, to
the effect that (i) they are independent public accountants with respect to the
Company within the meaning of the 1933 Act and the 1933 Act Regulations; (ii) it
is their opinion that the financial statements and supporting schedules included
in the Registration Statement and covered by their opinions therein comply as to
form in all material respects with the applicable accounting requirements of the
1933 Act and the 1933 Act Regulations; (iii) based upon the limited procedures
set forth in detail in such letter, nothing has come to their attention which
causes them to believe that (A) the unaudited financial statements and
supporting schedules of the Company included in the Registration Statement do
not comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act and the 1933 Act Regulations or are not presented
in conformity with GAAP applied on a basis substantially consistent with that of
the audited financial statements included in the Registration Statement, (B) the
unaudited income statement data set forth under "Selected Financial Data" in the
Prospectuses were not determined on a basis substantially consistent with that
used in determining the corresponding amounts in the audited financial
statements included in the Registration Statement, or (C) at a specified date
not more than five days prior to the date of this Agreement, there has been any
change in the capital 

                                         21



stock of the Company or any increase in the long term debt of the Company or 
any decrease in current assets or total assets as compared with the amounts 
shown in the balance sheet included in the Registration Statement or, during 
the period from June 30, 1996 to a specified date not more than five days 
prior to the date of this Agreement, there were any decreases, as compared 
with the corresponding period in the preceding year, in net sales, net 
income, or net income per share of the Company, except in all instances for 
changes, increases or decreases which the Registration Statement and the 
Prospectuses disclose have occurred or may occur or which are otherwise 
immaterial to the Company and its Subsidiaries considered as one enterprise; 
and (iv) in addition to the audit referred to in their opinions and the 
limited procedures referred to in clause (iii) above, they have carried out 
certain specified procedures, not constituting an audit, with respect to 
certain amounts, percentages and financial information which are included in 
the Registration Statement and Prospectuses and which are specified by the 
U.S. Representatives, and have found such amounts, percentages and financial 
information to be in agreement with the relevant accounting, financial and 
other records of the Company identified in such letter.  Such letter shall 
also include such statements regarding pro forma financial information as the 
U.S. Representatives shall reasonably request.

     (e)  At the Closing Time, the U.S. Representatives shall have received from
KPMG Peat Marwick L.L.P., a letter, dated as of the Closing Time, to the effect
that they reaffirm the statements made in the letter furnished pursuant to
subsection (d) of this Section, except that the specified date referred to shall
be a date not more than five days prior to the Closing Time and, to the further
effect that they have each carried out procedures as specified in clause (iv) of
subsection (d) of this Section with respect to certain amounts, percentages and
financial information specified by the U.S. Representatives and have found such
amounts, percentages and financial information to be in agreement with the
records specified in such clause (iv).

     (f)  At the Closing Time and at the Date of Delivery, the U.S. Securities
shall have been approved for listing on the NYSE, subject only to official
notice of issuance.

     (g)  The NASD shall not have raised any objection with respect to the
fairness and reasonableness of the underwriting terms and arrangements.

     (h)  At the Closing Time, the Reorganization Transactions shall have been
consummated substantially as described in the Prospectuses.

     (i)  At the Closing Time and at the Date of Delivery, if any, counsel for
the U.S. Underwriters shall have been furnished with such documents and opinions
as they may reasonably require for the purpose of enabling them to pass upon the
issuance and sale of the U.S. Securities as herein contemplated and related
proceedings, or in order to evidence the accuracy of any of the representations
or warranties, or the fulfillment of any of the conditions, herein contained;
and all proceedings taken by the Company in connection with the

                                  22



issuance and sale of the Offered Securities as herein contemplated shall be 
satisfactory in form and substance to the U.S. Representatives and counsel 
for the U.S. Underwriters.

     (j)  In the event that the U.S. Underwriters exercise their option provided
in Section 2(b) hereof to purchase all or any portion of the Option U.S.
Securities, the representations and warranties of the Company contained herein
and the statements in any certificates furnished by the Company hereunder shall
be true and correct as of the Date of Delivery and, at the Date of Delivery, the
U.S. Representatives shall have received:

     (i)  A certificate, dated such Date of Delivery, of the chairman and chief
     executive officer of the Company and of the chief financial officer of the
     Company, confirming that the respective certificate delivered at the
     Closing Time pursuant to Section 5(c) hereof remains true and correct as of
     such Date of Delivery.

     (ii) The favorable opinion of Shearman & Sterling, counsel for the Company,
     in form and substance satisfactory to counsel for the U.S. Underwriters,
     dated such Date of Delivery, relating to the Option U.S. Securities to be
     purchased on such Date of Delivery and otherwise to the same effect as the
     opinion required by Section 5(b)(i) hereof.

     (iii)     The favorable opinion of Skadden, Arps, Slate, Meagher & Flom,
     counsel for the U.S. Underwriters, dated such Date of Delivery, relating to
     the Option U.S. Securities to be purchased on such Date of Delivery and
     otherwise to the same effect as the opinion required by Section 5(b)(ii)
     hereof.

     (iv) A letter from KPMG Peat Marwick LLP, in form and substance
     satisfactory to the U.S. Representatives and dated such Date of Delivery,
     substantially the same in form and substance as the letters furnished to
     the U.S. Representatives pursuant to Section 5(e) hereof, except that the
     "specified date" in the letter furnished pursuant to this Section 5(i)(iv)
     shall be a date not more than five days prior to such Date of Delivery.

          If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by the U.S. Representatives by notice to the Company at any time at or prior to
the Closing Time, and such termination shall be without liability of any party
to any other party except as provided in Section 4 hereof.

          Section 6.  INDEMNIFICATION.  (a)  The Company and each of the
Principal Stockholders severally agrees as to himself or itself to indemnify and
hold harmless each U.S. Underwriter and each person, if any, who controls any
U.S. Underwriter within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act as follows:

                                   23



          (i)  against any and all loss, liability, claim, damage and expense
     whatsoever, as incurred, arising out of any untrue statement or alleged
     untrue statement of a material fact contained in the Registration Statement
     (or any amendment thereto), including the Rule 430A Information and the
     Rule 434 Information, if applicable, or the omission or alleged omission
     therefrom of a material fact required to be stated therein or necessary to
     make the statements therein not misleading or arising out of any untrue
     statement or alleged untrue statement of a material fact contained in any
     preliminary prospectus or the Prospectuses (or any amendment or supplement
     thereto) or the omission or alleged omission therefrom of a material fact
     necessary in order to make the statements therein, in the light of the
     circumstances under which they were made, not misleading;

          (ii)  against any and all loss, liability, claim, damage and expense
     whatsoever, as incurred, to the extent of the aggregate amount paid in
     settlement of any litigation, or any investigation or proceeding by any
     governmental agency or body, commenced or threatened, or of any claim
     whatsoever based upon any such untrue statement or omission, or any such
     alleged untrue statement or omission; PROVIDED THAT (subject to Section
     6(d) below) any such settlement is effected with the written consent of the
     Company and such Principal Stockholder;

          (iii)  against any and all expense whatsoever, as incurred (including
     the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
     incurred in investigating, preparing or defending against any litigation,
     or any investigation or proceeding by any governmental agency or body,
     commenced or threatened, or any claim whatsoever based upon any such untrue
     statement or omission, or any such alleged untrue statement or omission, to
     the extent that any such expense is not paid under (i) or (ii) above; and

          (iv)  against any and all loss, liability, claim, damage and expense
     whatsoever, as incurred, arising out of an untrue statement or alleged
     untrue statement of a material fact contained in the prospectus wrapper
     material prepared by or with the consent of the Company for distribution in
     foreign jurisdictions in connection with the Reserve Share Program attached
     to the Prospectuses or any preliminary prospectus or caused by any omission
     or alleged omission to state therein a material fact required to be stated
     therein or necessary to make the statements therein, when considered in
     conjunction with the Prospectuses or such preliminary prospectus, not
     misleading;

PROVIDED, HOWEVER, that such indemnity of each Principal Stockholder shall (x)
be with reference to information relating to such Principal Stockholder
furnished to the Company in writing by such Principal Stockholder expressly for
use in the Registration Statement, any preliminary prospectus, the Prospectuses
or any amendments or supplements thereto or (y) arise out of any material breach
or alleged material breach of any representation, warranty, 

                                  24



covenant or agreement of such Principal Stockholder contained in this 
Agreement and PROVIDED, FURTHER, that (x) each Principal Stockholder's 
aggregate liability under this Section 6 and for any breach of the 
representations and warranties of such Principal Stockholder set forth in 
Section 1(b)(ii) of this Agreement (together with any liability of such 
Principal Stockholder under Section 6 of the International Purchase Agreement 
or for any breach of the representations and warranties set forth in Section 
1(b)(ii) of the International Purchase agreement) shall be limited to an 
amount equal to the aggregate amount of undistributed earnings previously 
allocated, represented by promissory notes previously distributed and to be 
subsequently paid out of the proceeds of the offerings, to such Principal 
Stockholder; (y) the foregoing indemnity agreement by the Company or such 
Principal Stockholder does not apply to any loss, liability, claim, damage or 
expense to the extent arising out of an untrue statement or omission or 
alleged untrue statement or omission made in reliance upon and in conformity 
with written information furnished to the Company by any U.S. Underwriter 
through you expressly for use in the Registration Statement (or any amendment 
thereto, including the Rule 430A Information and the Rule 434 Information, if 
applicable, or any preliminary U.S. prospectus or the U.S. Prospectus (or any 
amendment or supplement thereto) and (z) if the Company has complied with its 
obligations under Section 3(e) hereof, the foregoing indemnity agreement with 
respect to any preliminary U.S. prospectus shall not inure to the benefit of 
any U.S. Underwriter from whom the person asserting any such loss, claim, 
damage or liability purchased Offered Securities (or any person who controls 
such U.S. Underwriter within the meaning of Section 15 of the 1933 Act) if a 
copy of the U.S. Prospectus (as then amended or supplemented if the Company 
shall have furnished any amendments or supplements thereto) was not sent or 
given by or on behalf of any Underwriter to such person, if such is required 
by law, at or prior to the written confirmation of the sale of such Offered 
Securities to such person and if the U.S. Prospectus (as so amended or 
supplemented) would have cured the defect giving rise to such loss, claim, 
damage or liability.

          In making a claim for indemnification under this Section 6 (other than
pursuant to clause (a)(iii) of this Section 6) or contribution under Section 7
hereof by the Company or the Principal Stockholders, the indemnified parties may
proceed against either (1) both the Company and the Principal Stockholders
jointly or (2) the Company only, but may not proceed solely against the
Principal Stockholders.  In the event that the indemnified parties are entitled
to seek indemnity or contribution hereunder against any loss, liability, claim,
damage or expense to which this paragraph applies then, as a precondition to any
indemnified party obtaining indemnification or contribution from any of the
Principal Stockholders, the indemnified parties shall first obtain a final
judgment from a trial court that such indemnified parties are entitled to
indemnity or contribution under this Agreement from the Company and the
Principal Stockholders with respect to such loss, liability, claim, damage or
expense (the "Final Judgment") and shall seek to satisfy such Final Judgment in
full from the Company by making a written demand upon the Company for such
satisfaction.  Only in the event such Final Judgment shall remain unsatisfied in
whole or in part 45 days following the date of

                                  25



receipt by the Company of such demand shall any indemnified party have the 
right to take action to satisfy such Final Judgment by making demand directly 
on the Principal Stockholders (but only if and to the extent the Company has 
not already satisfied such Final Judgment, whether by settlement, release or 
otherwise).  The indemnified parties may exercise this right to first seek to 
obtain payment from the Company and thereafter obtain payment from the 
Principal Stockholders without regard to the pursuit by any party of its 
rights to the appeal of such Final Judgment.  The indemnified parties shall, 
however, be relieved of their obligation to first obtain a Final Judgment, to 
seek to obtain payment from the Company with respect to such Final Judgment 
or, having sought such payment, to wait such 45 days after failure by the 
Company to immediately satisfy any such Final Judgment if (A) the Company 
files a petition for relief under the United States Bankruptcy Code (the 
"Bankruptcy Code"), (B) an order for relief is entered against the Company in 
an involuntary case under the Bankruptcy Code, (C) the Company makes an 
assignment for the benefit of its creditors, or (D) any court orders or 
approves the appointment of a receiver or custodian for the Company or a 
substantial portion of its assets.  The foregoing provisions of this 
paragraph are not intended to require any indemnified party to obtain a Final 
Judgment against the Company or the Principal Stockholders before obtaining 
reimbursement of expenses pursuant to clause (a)(iii) of this Section 6.  
However, the indemnified parties shall first seek to obtain such 
reimbursement in full from the Company by making a written demand upon the 
Company for such reimbursement. Only in the event such expenses shall remain 
unreimbursed in whole or in part 45 days following the date of receipt by the 
Company of such demand shall any indemnified party have the right to receive 
reimbursement of such expenses from the Principal Stockholders by making 
written demand directly on the Principal Stockholders (but only if and to the 
extent the Company has not already satisfied the demand for reimbursement, 
whether by settlement, release or otherwise).  The indemnified parties shall, 
however, be relieved of their obligation to first seek to obtain such 
reimbursement in full from the Company or, having made written demand 
therefor, to wait such 45 days after failure by the Company to immediately 
reimburse such expenses if (I) the Company files a petition for relief under 
the Bankruptcy Code, (II) an order for relief is entered against the Company 
in an involuntary case under the Bankruptcy Code, (III) the Company makes an 
assignment for the benefit of its creditors, or (IV) any court orders or 
approves the appointment of a receiver or custodian for the Company or a 
substantial portion of its assets.  Notwithstanding anything to the contrary 
contained herein, the provisions of this paragraph shall not apply to any 
claim for indemnity pursuant to clause (a)(ii) (if the indemnified parties 
are entitled to  seek indemnity under such clause (a)(ii) with respect to a 
settlement that has been effected with the written consent of such Principal 
Stockholder but not with the written consent of the Company).

     (b)  Each U.S. Underwriter severally agrees to indemnify and hold harmless
the Company, its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act and the Principal
Stockholders against any and all loss, liability, 

                                  26



claim, damage and expense described in the indemnity contained in subsection 
(a) of this Section, as incurred, but only with respect to untrue statements 
or omissions, or alleged untrue statements or omissions, made in the 
Registration Statement (or any amendment thereto), including the Rule 430A 
Information and the Rule 434 Information, if applicable, or any preliminary 
prospectus or the U.S. Prospectus (or any amendment or supplement thereto) in 
reliance upon and in conformity with written information furnished to the 
Company by such U.S. Underwriter through the U.S. Representatives expressly 
for use in the Registration Statement (or any amendment thereto) or such 
preliminary prospectus or the U.S. Prospectus (or any amendment or supplement 
thereto).

     (c)  Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
hereunder or which it may have otherwise than on account of this indemnity
agreement.  In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Company.  An indemnifying party may
participate at its own expense in the defense of any such actions; PROVIDED,
HOWEVER, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party.  In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances.  No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.

     (d)  If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 6(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request (provided that in
the case of a request to the Principal Stockholders, the requirement to wait 45
days after making a demand for reimbursement for expenses from the Company shall
have been satisfied or is not applica-

                                  27




ble pursuant to the terms of Section 6(a)), (ii) such indemnifying party 
shall have received notice of the terms of such settlement at least 30 days 
prior to such settlement being entered into and (iii) such indemnifying party 
shall not have reimbursed such indemnified party in accordance with such 
request prior to the date of such settlement.

     (e)  The provisions of this Section 6 and Section 7 hereof shall not affect
any agreement among the Company and any Principal Stockholder with respect to
indemnification and contribution.

     (f)  In connection with the Reserve Share Program, the Company agrees to
indemnify and hold harmless the U.S. Underwriters from and against any and all
losses, expenses and liabilities incurred by them as a result of (i) the failure
of the designated employees or other persons to pay for and accept delivery of
shares which, immediately following the effectiveness of the Registration
Statement, were subject to a properly confirmed agreement to purchase and (ii)
the violation of any securities laws of foreign jurisdictions where Offered
Securities are offered pursuant to the Reserve Share Program.

          Section 7.  CONTRIBUTION.  If the indemnification provided for in
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Principal Stockholders, on the one hand, and the U.S.
Underwriters, on the other hand, from the offering of the Offered Securities
pursuant to this Agreement or (ii) if the allocation provided by clause (i) is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company and the Principal Stockholders, on the one hand,
and the U.S. Underwriters, on the other hand, in connection with the statements
or omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.

          The relative benefits received by the Company and the Principal
Stockholders, on the one hand, and the U.S. Underwriters, on the other hand, in
connection with the offering of the Offered Securities pursuant to this
Agreement shall be deemed to be in the same respective proportions as the total
net proceeds from the offering of the Offered Securities pursuant to this
Agreement (before deducting expenses) received by the Company (including any
proceeds transferred to the Principal Stockholders directly or indirectly) and
the total underwriting discount received by the U.S. Underwriters, in each case
as set forth on the cover of the U.S. Prospectus, or, if Rule 434 is used, the
corresponding location on the Term Sheet, bear to the aggregate initial public
offering price of the Offered Securities as set forth on such cover.

                                  28




          The relative fault of the Company and the Principal Stockholders, on
the one hand, and the U.S. Underwriters, on the other hand, shall be determined
by reference to, among other things, whether the untrue or allegedly untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company, the Principal
Stockholders  or by the U.S. Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.

          The Company, the Principal Stockholders and the U.S. Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section were determined by pro rata allocation (even if the U.S. Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section.  The aggregate amount of losses, liabilities, claims,
damages and expenses incurred by an indemnified party and referred to above in
this Section shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based upon any
such untrue or allegedly untrue statement or omission or alleged omission.

          Notwithstanding the provisions of this Section 7, no U.S. Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the U.S. Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such U.S. Underwriter has otherwise been required to pay by reason of such
untrue or allegedly untrue statement or omission or alleged omission.

          Notwithstanding the provisions of this Section 7, the aggregate
liability of each Principal Stockholder under this Section 7 and for any breach
of the representation and warranty of such Principal Stockholder set forth in
Section 1(b)(ii) of this Agreement (together with any liability of such
Principal Stockholder under Section 7 of the International Purchase Agreement or
for any breach of the representation and warranty set forth in Section 1(b)(ii)
of the International Purchase Agreement) shall be limited to an amount equal to
the aggregate amount of undistributed earnings previously allocated, represented
by promissory notes previously distributed and to be subsequently paid out of
the proceeds of the offerings, to such Principal Stockholder.

          No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.  For purposes of
this Section, each person, if any, who controls a U.S. Underwriter within the
meaning of Section 15 of the 1933 Act shall have the same rights to contribution
as such U.S. Underwriter, and each director of the Company, each

                                  29



officer of the Company who signed the Registration Statement, and each 
person, if any, who controls the Company within the meaning of Section 15 of 
the 1933 Act shall have the same rights to contribution as the Company.

          For purposes of this Section, each person, if any, who controls a U.S.
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such U.S.
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20 of the
1934 Act shall have the same rights to contribution as the Company.  The U.S.
Underwriters' respective obligations to contribute pursuant to this Section are
several in proportion to the number of Initial U.S. Securities set forth
opposite their respective names in Schedule A hereto and not joint.

          Section 8.  REPRESENTATIONS, WARRANTIES, AGREEMENTS AND INDEMNITIES TO
SURVIVE DELIVERY.  All representations, warranties, agreements and indemnities
contained in this Agreement, or contained in certificates of officers of the
Company or the Principal Stockholders submitted pursuant hereto, shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of any U.S. Underwriter or controlling person, or by or on behalf
of the Company or the Principal Stockholders, and shall survive delivery of the
U.S. Securities to the U.S. Underwriters.

          Section 9.  TERMINATION OF AGREEMENT.  (a)  The U.S. Representatives
may terminate this Agreement, by notice to the Company, at any time at or prior
to the Closing Time (i) if there has been, since the time of execution of this
Agreement or since the respective dates as of which information is given in the
U.S. Prospectus, any Material Adverse Change, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States or elsewhere or any
outbreak of hostilities or escalation thereof or other calamity or crisis or any
change or development involving a prospective change in national or
international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of the U.S.
Representatives, impracticable to market the U.S. Securities or to enforce
contracts for the sale of the U.S. Securities, or (iii) if trading in the Common
Stock has been suspended or limited by the Commission or the NYSE, or if trading
generally on the NYSE or in the over-the-counter market has been suspended or
materially limited, or minimum or maximum prices for trading have been fixed, or
maximum ranges for prices have been required, by such exchange or systems or by
order of the Commission, the NASD or any other governmental authority, or (iv)
if a banking moratorium has been declared by either federal, New York or
California authorities.

                                   30



          (b)  If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except as
provided in Section 4 hereof, and provided further that Sections 1, 6 and 7
shall survive such termination and remain in full force and effect.

          Section 10.  DEFAULT BY ONE OR MORE OF THE U.S. UNDERWRITERS.  If one
or more of the U.S. Underwriters shall fail at the Closing Time to purchase the
Initial U.S. Securities which it or they are obligated to purchase under this
Agreement (the "Defaulted Securities"), the U.S. Representatives shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting U.S. Underwriters, or any other underwriters, to purchase all,
but not less than all, of the Defaulted Securities in such amounts as may be
agreed upon and upon the terms herein set forth; if, however, the U.S.
Representatives shall not have completed such arrangements within such 24-hour
period, then:

          (a)  if the number of Defaulted Securities does not exceed 10% of the
     Offered Securities, each of the non-defaulting U.S. Underwriters shall be
     obligated, severally and not jointly, to purchase the full amount thereof
     in the proportions that their respective underwriting obligations hereunder
     bear to the underwriting obligations of all non-defaulting U.S.
     Underwriters, or

          (b)  if the number of Defaulted Securities exceeds 10% of the Offered
     Securities, this Agreement shall terminate without liability on the part of
     any non-defaulting U.S. Underwriter.

          No action taken pursuant to this Section shall relieve any defaulting
U.S. Underwriter from liability in respect of its default.

          In the event of any such default which does not result in a
termination of this Agreement, either the U.S. Representatives or the Company
shall have the right to postpone the Closing Time for a period not exceeding
seven days in order to effect any required changes in the Registration Statement
or U.S. Prospectus or in any other documents or arrangements.

          Section 11.  DEFAULT BY THE COMPANY.  If the Company shall fail at the
Closing Time or at the Date of Delivery to sell and deliver the number of U.S.
Securities which it is obligated to sell hereunder, then the U.S. Underwriters
may, at their option, by notice from the U.S. Representatives to the Company
terminate this Agreement without any liability on the part of any non-defaulting
party except as provided in Section 4.

          Section 12.  NOTICES.  All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication.  Notices to the U.S.
Underwriters shall be directed to the

                                  31



U.S. Representatives, c/o Merrill Lynch & Co. at 10900 Wilshire Boulevard, 
Suite 900, Los Angeles, California 90024, attention of James F. Flaherty, 
III, Managing Director; notices to the Company or any Principal Stockholder 
shall be directed to the Company or such Principal Stockholder, as the case 
may be, at Guess ?, Inc., 1444 South Alameda Street, Los Angeles, California 
90021, Attention:  Maurice Marciano.

          Section 13.  PARTIES.  This Agreement shall inure to the benefit of
and be binding upon the U.S. Underwriters, the Principal Stockholders and the
Company and their respective successors.  Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person, firm or
corporation, other than the U.S. Underwriters, the Principal Stockholders and
the Company and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained.  This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the U.S. Underwriters, the Principal Stockholders and the
Company and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation.  No purchaser of U.S.
Securities from any U.S. Underwriter shall be deemed to be a successor by reason
merely of such purchase.

          Section 14.  GOVERNING LAW AND TIME.  THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE.  Except as otherwise set
forth herein, specified times of the day refer to New York City time.

          Section 15.  PRINCIPAL STOCKHOLDERS.  Each of the Maurice Marciano
Trust (1995 Restatement) and Maurice Marciano (collectively, the "Maurice
Marciano Parties"), the Paul Marciano Trust Under Trust Dated February 20, 1986
and Paul Marciano (collectively, the "Paul Marciano Parties") and the Armand
Marciano Trust Under Trust Dated February 20, 1986 and Armand Marciano
(collectively, the "Armand Marciano Parties") agrees that the representations
and warranties, indemnities and agreements of the Maurice Marciano Trust (1995
Restatement), the Paul Marciano Trust under Trust Dated February 20, 1986 or the
Armand Marciano Trust Under Trust Dated February 20, 1986 set forth in this
Agreement  shall be deemed to have been given or made (subject to any
limitations specifically set forth herein), jointly and severally, by each of
the Maurice Marciano Parties, the Paul Marciano Parties or the Armand Marciano
Parties, respectively.

                                  32



          If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
among the U.S. Underwriters, the Principal Stockholders and the Company in
accordance with its terms.

                              Very truly yours,

                              GUESS ?, INC.
             


                              By: _________________________________
                                  Name:
                                  Title:



                              PRINCIPAL STOCKHOLDERS

Maurice Marciano              THE MAURICE MARCIANO TRUST
                              (1995 RESTATEMENT) 


_________________________          By:__________________________________
                                         Maurice Marciano, as Trustee


Paul Marciano                 THE PAUL MARCIANO TRUST UNDER
                              TRUST DATED FEBRUARY 20, 1986


_________________________          By:__________________________________
                                          Paul Marciano, as Trustee


Armand Marciano               THE ARMAND MARCIANO TRUST UNDER
                              TRUST DATED FEBRUARY 20, 1986


_________________________          By:___________________________________
                                          Armand Marciano, as Trustee


                                  33




CONFIRMED AND ACCEPTED,
as of the date first above written:


MERRILL LYNCH, PIERCE, FENNER & SMITH
          INCORPORATED
MORGAN STANLEY & CO. INCORPORATED
By: Merrill Lynch, Pierce, Fenner & Smith
          Incorporated



By__________________________________
        Authorized Signatory

For each of themselves and as U.S. Representatives of the other
U.S. Underwriters named in Schedule A hereto.

                                  34





                                   SCHEDULE A




                                         Number of Initial
                                         U.S. Securities to be         Total Number
                                         Purchased from                of Initial U.S. Securities
Name of U.S. Underwriter                 the Company                   to be Purchased
- -----------------------                  --------------------          --------------------------
                                                                 
Merrill Lynch, Pierce, 
   Fenner & Smith 
   Incorporated

Morgan Stanley & Co. Incorporated


                                                                             ----------

Total    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   7,360,000

Sch A-1 SCHEDULE B Number of Initial Number of Option Maximum Number U.S. Securities to U.S. Securities of U.S. Securities to be Sold to be Sold to be Sold ----------------- ----------------- ----------------- Guess ?, Inc. 7,360,000 1,104,000 8,464,000 TOTAL. . . . . . . . . . . . . . . -----------------
Sch B-1 SCHEDULE C 7,360,000 Shares GUESS ?, INC. (a Delaware corporation) Common Stock (Par Value $.01 Per Share) 1. The initial public offering price per share for the U.S. Securities, determined as provided in Section 2 of the U.S. Purchase Agreement shall be $ . 2. The purchase price per share for the U.S. Securities to be paid by the several U.S. Underwriters shall be $ , being an amount equal to the initial public offering price set forth above less $ per share; PROVIDED THAT the purchase price per share for any Option U.S. Securities (as defined in the U.S. Purchase Agreement) purchased upon exercise of the over-allotment option described in Section 2(b) of the U.S. Purchase Agreement shall be reduced by an amount per share equal to any dividends declared by the Company and payable on the Initial U.S. Securities (as defined in the U.S. Purchase Agreement) but not payable on the Option U.S. Securities. 1 EXHIBIT A EQUITY INVESTMENTS (as of Pricing Date) Entity Percentage Interest - ------ ------------------- Guess Europe, B.V. 100% Guess Italia S.r.l. 100% Ranche Limited [100%] [New Times Guess, Ltd] 50% 1 EXHIBIT B EQUITY INVESTMENTS (as of S Termination Date) Entity Percentage Interest - ------ ------------------- 1 EXHIBIT C FORM OF OPINION OF COUNSEL TO THE COMPANY [Form to be prepared by Company counsel to the following effect and to be attached as Exhibit C] a. The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware. b. The Company has the corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and to enter into and perform its obligations under this Agreement. c. The Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in each jurisdiction set forth on Exhibit A hereto. d. The authorized, issued and outstanding capital stock of the Company is as set forth in the U.S. Prospectus in the column entitled "Actual" under the caption "Capitalization"; and none of the outstanding shares of capital stock of the Company was issued in violation of preemptive rights of any stockholder of the Company arising by operation of law, under the charter or bylaws of the Company or, to such counsel's knowledge, under any agreement to which the Company is a party. e. All of the outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable. The Offered Securities have been duly authorized for issuance and sale to the U.S. Underwriters pursuant to this Agreement and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration required pursuant to this Agreement, will be validly issued and fully paid and nonassessable. f. The issuance of the Offered Securities was not subject, at the date of issue, to statutory preemptive or other similar rights arising by operation of law, under the charter or bylaws of the Company or, to the best of their knowledge, otherwise. g. This Agreement and the International Purchase Agreement have been duly authorized, executed and delivered by the Principal Stockholders. 2 h. This Agreement and the International Purchase Agreement have been duly authorized, executed and delivered by the Company. i. The Registration Statement, including any Rule 462(b) Registration Statement, was declared effective under the 1933 Act; any required filing of the U.S. Prospectus pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); and, to the best of their knowledge and information, no stop order suspending the effectiveness of the Registration Statement has been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission. j. The Registration Statement, including any Rule 462(b) Registration Statement, the Rule 430A Information and the Rule 434 Information, as applicable, the Prospectuses, and each amendment or supplement to the Registration Statement and Prospectuses, as of their respective effective or issue dates (other than the financial statements, notes thereto other financial information and supporting schedules included therein, as to which no opinion need be rendered) complied as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. [k. To the best of their knowledge, there is no pending or threatened action, suit, proceeding, inquiry or investigation to which the Company is a party, or to which the property of the Company is subject, before or brought by any court or governmental agency or body, which could, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect or which could, singly or in the aggregate, reasonably be expected to materially and adversely affect the properties or assets thereof or the consummation of this Agreement or the performance of the Company's obligations hereunder or the transactions contemplated by the Registration Statement.] l. The Common Stock conforms to the description thereof contained in the Prospectuses under the caption "Description of Capital Stock" and the information in the Prospectuses under the captions "Shares Eligible for Future Sale" "Description of Capital Stock," "Certain United States Federal Tax Consequences to Non-United States Holders" and in the Registration Statement under Items 14 and 15, to the extent that it constitutes matters of law or legal proceedings or legal conclusions, has been reviewed by them and fairly present the information disclosed therein in all material respects. m. Such counsel does not know of any pending or threatened legal or governmental proceedings, required to be described in the Prospectuses that are not described as required, nor of any contracts or documents of a character required to be described or referred to in the Registration Statement or the Prospectuses or to be filed as exhibits to the Registration Statement that are not described, referred to or filed as required. 3 n. No consent, approval, authorization or order of any court or governmental agency or body is required for the issue sale and delivery of the Offered Securities or the performance by the Company of its obligations under the Purchase Agreements, except such consents, approvals, authorizations, registrations or qualifications as have been obtained under the Securities Act or under the rules of the National Association of Securities Dealers, Inc. or as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Offered Securities by the Underwriters and as may be required under foreign law in connection with the purchase and distribution of the Offered Securities by the International Managers. o. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein and in the Registration Statement and compliance by the Company with its obligations hereunder and thereunder will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to the agreements or instruments set forth on Exhibit B hereto, nor will such action result in any violation of the provisions of the charter or bylaws of the Company, or any applicable law (applicable law for this purpose shall be limited to those United States, California and Delaware statutes, laws or regulations currently in effect which, in such counsel's experience, are normally applicable to transactions of the type contemplated by this Agreement). p. This Agreement has been duly executed and delivered by the Principal Stockholders. To the best of such counsel's knowledge, the execution and delivery of this Agreement by the Principal Stockholders and the sale and delivery of the Offered Securities to be sold by the Principal Stockholders do not and will not conflict with, or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Principal Stockholders under any contract, indenture, mortgage, loan, credit or factoring agreement, note, lease or other agreement or instrument set forth on Exhibit C hereto or any existing applicable law, rule, regulation, judgment, order or decree of any government, governmental instrumentality or court, domestic or foreign, having jurisdiction over the Principal Stockholders or any of the Principal Stockholders' properties. In addition, such opinion shall contain a statement substantially to the following effect: "We have not verified, and are not passing upon and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement or Prospectuses, other than those mentioned in subparagraph (l) above. We have, however, generally reviewed and discussed 4 such statements with certain officers of the Guess Companies, its auditors and your representatives. In the course of this review and discussion, no facts have come to our attention that lead us to believe that (i) the Registration Statement (except for the financial statements, notes thereto and other financial information and schedules included therein or omitted therefrom, as to which we have not been requested to omment), at the time the Registration Statement became effective, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) the Prospectuses (except for the financial statements, notes thereto and other financial information included therein or omitted therefrom, as to which we have not been requested to comment), at the time the Prospectuses were issued or on the date hereof, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or (iii) if the Company has elected to rely upon Rule 434, the Prospectuses are "materially different," as such term is used in Rule 434, from the prospectuses included in the original Registration Statement at the time it became effective, except that such counsel may state that it expresses no opinion or belief with respect to the financial statements, schedules and other financial information included in or excluded from the Registration Statement, as amended, or the Prospectuses, as amended or supplemented." 5




                                1,840,000 Shares

                                  GUESS ?, INC.

                            (a Delaware corporation)

                                  Common Stock

                           (Par Value $.01 Per Share)


                        INTERNATIONAL PURCHASE AGREEMENT

                                                                          , 1996


MERRILL LYNCH INTERNATIONAL
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
     as Lead Managers for the several Managers
     c/o Merrill Lynch International
     20 Farringdon Road
     London EC1M 3NH
     England

Ladies and Gentlemen:

          Guess ?, Inc., a Delaware corporation (the "Company"), hereby confirms
its agreement with the Maurice Marciano Trust (1995 Restatement) (the "Maurice
Marciano Trust"), the Paul Marciano Trust under Trust Dated February 20, 1986
(the "Paul Marciano Trust") and the Armand Marciano Trust Under Trust Dated
February 20, 1986 (the "Armand Marciano Trust," and, together with the Maurice
Marciano Trust, and the Paul Marciano Trust, the "Principal Stockholders") and
Merrill Lynch International ("MLI"), Morgan Stanley & Co. International Limited
("Morgan Stanley International") and each of the other underwriters named in
Schedule A hereto (collectively, the "International Managers," which term shall
also include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom MLI and Morgan Stanley International are acting as
representatives (in such capacity, MLI and Morgan Stanley International shall
hereinafter be referred to as the "Lead Managers"), with respect to the sale by
the Company, and the purchase by the International Managers, acting severally
and not jointly, of the respective numbers of shares of Common Stock, par value
$.01 per share, of the Company ("Common Stock") set forth in said




Schedule B and with respect to the grant by the Company to the International 
Managers, acting severally and not jointly, of the option described in 
Section 2(b) hereof to purchase all or any part of 276,000 additional shares 
of Common Stock to cover over-allotments.  The aforesaid 1,840,000 shares of 
Common Stock (the "Initial International Securities") to be purchased by the 
International Managers and all or any part of the 276,000 shares of Common 
Stock subject to the option described in Section 2(b) hereof (the 
"International Option Securities") are collectively hereinafter called the 
"International Securities."

          It is understood that the Company is concurrently entering into an
agreement, dated the date hereof (the "U.S. Purchase Agreement"), providing for
the issuance and sale by the Company of an aggregate of 7,360,000 shares of
Common Stock (the "Initial U.S. Securities") through arrangements with certain
underwriters inside the United States and Canada (the "U.S. Underwriters" which,
together with the International Managers, shall be referred to as the
"Underwriters"), for whom Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") and Morgan Stanley & Co. Incorporated are
acting as representatives (the "U.S. Representatives").  The Company has also
granted to the U.S. Underwriters an option to purchase all or any part of
1,104,000 shares of Common Stock (the "Option Securities" which, together with
the Initial U.S. Securities, shall be referred to as the "U.S. Securities") to
cover over-allotments.  The U.S. Securities and the International Securities are
hereinafter collectively referred to as the "Offered Securities."

          The Company understands that the U.S. Underwriters will simultaneously
enter into an agreement with the International Managers dated the date hereof
(the "Intersyndicate Agreement") providing for the coordination of certain
transactions among the U.S. Underwriters and the International Managers, under
the direction of Merrill Lynch, Pierce, Fenner & Smith Incorporated.

          You have advised us that you and the other International Managers,
acting severally and not jointly, desire to purchase the Initial International
Securities and, if the International Managers, so elect, the International
Option Securities, and that you have been authorized by the other International
Managers to execute this Agreement on their behalf.

          The initial public offering price per share for the International
Securities and the purchase price per share for the International Securities
shall be agreed upon by the Company and the Lead Managers, acting on behalf of
the several International Managers, and such agreement shall be set forth in
Schedule C hereto.  The offering of the International Securities will be
governed by this Agreement.  The purchase price per share for the U.S.
Securities to be paid by the several U.S. Underwriters shall be identical to the
purchase price per share for the International Securities to be paid by the
several International Managers hereunder.

          The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-4419), for the
registration of 

                                         2



10,580,000 shares of Common Stock, under the Securities Act of 1933, as 
amended (the "1933 Act"), including the related preliminary prospectus, such 
amendments thereto, if any, and such amended preliminary prospectuses as may 
have been required to the date hereof and will file such additional 
amendments thereto and such amended or supplemental prospectuses as may 
hereafter be required.  Promptly after execution and delivery of this 
Agreement, the Company will either (i) prepare and file a prospectus in 
accordance with the provisions of Rule 430A ("Rule 430A") of the rules and 
regulations of the Commission under the 1933 Act (the "1933 Act Regulations") 
and paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or 
(ii) if the Company has elected to rely upon Rule 434 ("Rule 434") of the 
1933 Act Regulations, prepare and file a term sheet (a "Term Sheet") in 
accordance with the provisions of Rule 434 and Rule 424(b).  Two forms of 
prospectus are to be used in connection with the offering and sale of the 
Offered Securities:  one relating to the U.S. Securities (the "Form of U.S. 
Prospectus") and one relating to the International Securities (the "Form of 
International Prospectus").  The Form of International Prospectus is 
identical to the Form of U.S. Prospectus, except for the front cover and back 
cover pages and the information under the caption "Underwriting." The 
information included in such prospectus or in such Term Sheet, as the case 
may be, that was omitted from such registration statement at the time it 
became effective but that is deemed to be part of such registration statement 
at the time it became effective (a) pursuant to paragraph (b) of Rule 430A is 
referred to as "Rule 430A Information" or (b) pursuant to paragraph (d) of 
Rule 434 is referred to as "Rule 434 Information."  Each Form of U.S. 
Prospectus and Form of International Prospectus used before such registration 
statement became effective, and any Form of U.S. Prospectus or Form of 
International Prospectus that omitted, as applicable, the Rule 430A 
Information or the Rule 434 Information, that was used after such 
effectiveness and prior to the execution and delivery of this Agreement, is 
herein called a "preliminary prospectus." Such registration statement, 
including the exhibits thereto and schedules thereto, if any, at the time it 
became effective and including the Rule 430A Information and the Rule 434 
Information, as applicable, as from time to time amended or supplemented 
pursuant to the 1933 Act, is herein called the "Registration Statement."  Any 
registration statement filed pursuant to Rule 462(b) of the 1933 Act 
Regulations is herein referred to as the "Rule 462(b) Registration 
Statement," and after such filing the term "Registration Statement" shall 
include the Rule 462(b) Registration Statement.  The Form of U.S. Prospectus 
and Form of International Prospectus included in the Registration Statement 
at the time it becomes effective are herein called the "U.S. Prospectus" and 
"International Prospectus," respectively, and collectively, the 
"Prospectuses," except that, (y) if the final U.S. Prospectus or 
International Prospectus first furnished to the U.S. Underwriters or the 
International Managers after the execution of this Agreement or the 
International Purchase Agreement, as the case may be, for use in connection 
with the offering of the Offered Securities differs from the prospectuses 
included in the Registration Statement at the time it becomes effective 
(whether or not such prospectus is required to be filed pursuant to Rule 
424(b)), the terms "U.S. Prospectus," "International Prospectus" and 
"Prospectuses" shall refer to the final U.S. Prospectus and/or International 
Prospectus first furnished to the U.S. Underwriters and/or International 
Managers, as the case may be, for such use and (z) if Rule 434 is relied on, 
the terms "U.S. Prospectus,"

                                         3



"International Prospectus" and "Prospectuses" shall refer to the preliminary 
U.S. Prospectus and/or International Prospectus last furnished to the U.S. 
Underwriters and/or International Managers, as the case may be, in connection 
with the offering of the Offered Securities together with the Term Sheet.

          The Company has reserved up to 750,000 of the Initial U.S. Securities
to be sold by the Company for offering and sale to certain of the Company's
employees and certain other persons pursuant to a reserve share program (the
"Reserve Share Program").  These Offered Securities will be sold to the
employees and other persons by the U.S. Underwriters pursuant to this Agreement
at the public offering price.  Any such shares not purchased by such persons by
the end of the first business day after either (a) the later of the date on
which the Registration Statement and any Rule 462(b) Registration Statement has
become effective or (b) if the Company has elected to rely on Rule 430A, the
date of this Agreement, will be offered to the public by the U.S. Underwriters
as set forth in the U.S. Prospectus.

          The Company understands that the International Managers propose to
make an offering of the Offered Securities as soon as the Lead Managers deem
advisable after this Agreement has been executed and delivered.

          Section 1.  REPRESENTATIONS AND WARRANTIES.  (a)  The Company
represents and warrants to each International Manager as of the date hereof and
as of the Closing Time referred to in Section 2(c) hereof, as follows:

          (i)  COMPLIANCE WITH REGISTRATION REQUIREMENTS.  The Registration
     Statement has become effective under the 1933 Act and no stop order
     suspending the effectiveness of the Registration Statement has been issued
     under the 1933 Act and no proceedings for that purpose have been instituted
     or are pending or, to the knowledge of the Company, are contemplated by the
     Commission, and any request on the part of the Commission for additional
     information has been complied with.

          At the respective times the Registration Statement and any post-
     effective amendments thereto became effective and at the Closing Time (and,
     if any Option Securities are purchased, up to the Date of Delivery referred
     to below), the Registration Statement and any amendments or supplements
     thereto complied and will comply in all material respects with the
     requirements of the 1933 Act and the 1933 Act Regulations and did not
     contain and will not contain an untrue statement of a material fact or omit
     to state a material fact required to be stated therein or necessary to make
     the statements therein not misleading and, to the Company's knowledge, the
     Prospectuses and preliminary prospectuses comply or will comply in all
     material respects with any applicable laws or regulations of foreign
     jurisdictions in which the Prospectuses and preliminary prospectuses, as
     amended or supplemented, if applicable, are distributed in connection with
     the Reserve Share Program.  The Prospectuses, at the 

                                         4




     date hereof (unless the term "Prospectuses" refers to prospectuses which 
     have been provided to the U.S. Underwriters by the Company for use in 
     connection with the offering of Offered Securities which differ from the 
     Prospectuses on file at the Commission, in which case at the time the 
     Prospectuses is first provided to the Underwriters for their use) and at 
     the Closing Time, does not and will not include an untrue statement of a 
     material fact or omit to state a material fact necessary in order to make 
     the statements therein, in the light of the circumstances under which they 
     were made, not misleading; and if Rule 434 is used, the Company will 
     comply with the requirements of Rule 434; PROVIDED, HOWEVER, that the 
     representations and warranties in this subsection shall not apply to 
     statements in or omissions from the Registration Statement or Prospectuses 
     made in reliance upon and in conformity with information furnished to the
     Company in writing by or on behalf of any Underwriter through the 
     Representatives expressly for use in the Registration Statement or 
     Prospectuses.

          (ii)  INDEPENDENT ACCOUNTANTS.  KPMG Peat Marwick LLP, which are
     reporting upon certain audited financial statements and supporting
     schedules included in the Registration Statement, are independent public
     accountants as required by the 1933 Act and the 1933 Act Regulations.

          (iii)  FINANCIAL STATEMENTS.  The financial statements included in the
     Registration Statement and the Prospectuses, together with the related
     schedules and notes present fairly the consolidated financial position of
     the Company, Guess Italia S.r.l. ("Guess Italia") and Guess Europe B.V.
     ("Guess Europe" and, together with the Company and Guess Italia, the "Guess
     Companies") at the dates indicated and the results of operations for the
     periods specified; said financial statements have been prepared in
     conformity with generally accepted accounting principles ("GAAP") applied
     on a consistent basis throughout the periods involved; and the supporting
     schedules, if any, included in the Registration Statement present fairly
     the information required to be stated therein.  The selected consolidated
     financial data and the summary financial data included in the Prospectuses
     present fairly the information shown therein and have been compiled on a
     basis consistent with that of the audited financial statements or, in the
     case of the interim periods presented, the unaudited financial statements
     of the Guess Companies, in each case included in the Registration
     Statement.  The pro forma financial information of the Guess Companies
     included in the Prospectuses presents fairly the information shown therein,
     have been prepared in accordance with the Commission's rules and guidelines
     with respect to pro forma financial information and have been properly
     compiled on the bases described therein, and, in the opinion of the
     Company, the assumptions used in the preparation thereof are reasonable and
     the adjustments used therein are appropriate to give effect to the
     transactions and circumstances referred to therein.

          (iv)  NO MATERIAL ADVERSE CHANGE IN BUSINESS.  Since the respective
     dates as of which information is given in the Registration Statement and
     the Prospectuses, 

                                         5



     except as otherwise stated therein or contemplated
     thereby, (A) there has been no material adverse change in the condition,
     financial or otherwise, or in the earnings, business affairs or business
     prospects of the Company and its Subsidiaries (as defined herein)
     considered as one enterprise (a "Material Adverse Change"), whether or not
     arising in the ordinary course of business, (B) there have been no
     transactions entered into by the Company, other than those in the ordinary
     course of business, which are required to be disclosed under the 1933 Act
     and the 1933 Act Regulations, and (C) there has been no dividend or
     distribution of any kind declared, paid or made by the Company on any class
     of its capital stock, except for a dividend or distribution in respect of
     the net earnings of the Company from _____ to the Closing Time.

          (v)  GOOD STANDING OF THE COMPANY.  The Company has been duly
     incorporated and is validly existing as a corporation in good standing
     under the laws of the State of Delaware with corporate power and authority
     to own, lease and operate its properties and to conduct its business as
     described in the Prospectuses and to enter into and perform its obligations
     under this Agreement, and to consummate the transactions with respect to
     which it is a participant contemplated hereby and thereby and in the
     Registration Statement (including (i) the reorganization and the S
     corporation distribution as described in the Prospectuses under the caption
     "Company History, The Reorganization and Prior S Corporation Status"
     (collectively, the "Reorganization Transactions"); and the Company is duly
     qualified as a foreign corporation to transact business and is in good
     standing in each jurisdiction in which such qualification is required,
     whether by reason of the ownership or leasing of property or the conduct of
     business, except where the failure to so qualify could not, singly or in
     the aggregate, reasonably be expected to have a material adverse effect on
     the condition, financial or otherwise, or in the earnings, business affairs
     or business prospects of the Company and its Subsidiaries considered as one
     enterprise (a "Material Adverse Effect").

          (vi)  SUBSIDIARIES.  The Company owns, and as of the date of
     termination of the Company's S corporation status (the "S Termination
     Date") will own, no equity interest in any entity other than those equity
     interests listed on Exhibits A and B hereto, respectively (such entities on
     Exhibit A are hereinafter referred to as the "Subsidiaries").  As of the
     date hereof and as of the S Termination Date, the Company has, or will
     have, good and marketable title to all equity interests listed on Exhibit A
     or B, respectively, free and clear of any pledge, lien, security interest,
     charge, claim or encumbrance of any kind.

          (vii)  CAPITALIZATION; AUTHORIZATION AND DESCRIPTION OF OFFERED
     SECURITIES.  At the Closing Time the authorized, issued and outstanding
     capital stock of the Company will be as set forth in the Prospectuses under
     the "Actual" column under the caption "Capitalization"; all of the shares
     of issued and outstanding Common Stock have been duly authorized and
     validly issued and are fully paid and nonassessable and, to the 

                                         6



     best knowledge of the Company, are owned of record and beneficially by the
     Principal Stockholders free and clear of any liens, claims, charges,
     pledges or encumbrances of any kind, except for restrictions imposed by the
     Restated Shareholders' Agreement dated _____, 1996 between the Company and
     the Principal Stockholders; none of the outstanding shares of Common Stock
     of the Company was issued in violation of preemptive rights of any
     stockholder of the Company; the Offered Securities to be sold by the
     Company pursuant to the Purchase Agreements have been duly authorized for
     issuance and sale to the Underwriters pursuant to the Purchase Agreements
     and, when issued and delivered by the Company pursuant to the Purchase
     Agreements against payment of the consideration set forth herein, will be
     validly issued and fully paid and nonassessable; the Common Stock conforms
     to all statements relating thereto contained in the Prospectuses and such
     description conforms to the rights set forth in the instruments defining
     the same; no holder of the Offered Securities will be subject to personal
     liability by reason of being such a holder; and the Offered Securities are
     not subject to preemptive or other similar rights arising by operation of
     law, under the charter or bylaws of the Company, under any agreement to
     which the Company is a party or otherwise.

          (viii)  ABSENCE OF DEFAULTS AND CONFLICTS.  None of the Guess
     Companies is (a) in violation of its charter or bylaws or (b) in breach or
     default in the performance or observance of any obligation, agreement,
     covenant or condition contained in any contract, indenture, mortgage, loan,
     credit agreement, note, lease or other agreement or instrument to which any
     of the Guess Companies is a party or by which any of them may be bound, or
     to which any of their property or assets is subject (collectively,
     "Agreements and Instruments"), excluding in each case in this clause (b),
     breaches or defaults which, individually or in the aggregate, could not,
     singly or in the aggregate, reasonably be expected to have a Material
     Adverse Effect; and the execution, delivery and performance of this
     Agreement and the consummation of the transactions contemplated herein and
     in the Registration Statement (including (i) the Reorganization
     Transactions and (ii) the use of proceeds from the sale of the Offered
     Securities as described in the Prospectuses under the caption "Use of
     Proceeds") and compliance by the Company with its obligations hereunder and
     thereunder have been duly authorized by all necessary corporate action and
     do not and will not, whether with or without the giving of notice or
     passage of time or both, conflict with or constitute a breach of, or
     default under, or result in the creation or imposition of any lien, charge
     or encumbrance upon any property or assets of the Guess Companies pursuant
     to any Agreements and Instruments (other than with respect to which any of
     the Guess Companies shall have obtained at or prior to the Closing Time
     such amendments, waivers or consents, as the case may be, as shall be
     necessary so that at the Closing Time the representation and warranty
     contained in this paragraph (viii) shall be accurate without regard to this
     parenthetical), excluding in each case, conflicts, breaches or defaults
     which, individually or in the aggregate, could not reasonably be expected
     to have a Material Adverse Effect, nor will such action result in any
     viola-

                                         7




     tion of the provisions of the charter or bylaws of any of the Guess
     Companies or any applicable law, statute, rule, regulation, judgment,
     order, writ or decree of any government, government instrumentality or
     court, domestic or foreign, having jurisdiction over any of the Guess
     Companies or any of their assets or properties.

          (ix)  ABSENCE OF LABOR DISPUTES.  No labor dispute with the employees
     of any of the Guess Companies exists or, to the knowledge of the Company,
     is imminent, and the Company is not aware of any existing or imminent labor
     disturbance by the employees of any of the Guess Companies principal
     suppliers, manufacturers, customers or contractors, which, in either case,
     may reasonably be expected to result in a Material Adverse Effect.

          The Company is in compliance with all applicable federal, state, and
     local laws relating to the payment of wages to employees (including,
     without limitation, the Fair Labor Standards Act, as amended), except
     insofar as the failure to comply with such laws would not reasonably be
     expected to have a Material Adverse Effect.

          (x)  ABSENCE OF PROCEEDINGS.  There is no action, suit or proceeding
     before or by any court or governmental agency or body, domestic or foreign,
     now pending or, to the knowledge of the Company, threatened, against or
     affecting the Company which is required to be disclosed in the Registration
     Statement (other than as disclosed therein), or which could, singly or in
     the aggregate, reasonably be expected to result in a Material Adverse
     Effect, or could, singly or in the aggregate, reasonably be expected to
     materially and adversely affect the properties or assets of the Company or
     which could, singly or in the aggregate, reasonably be expected to
     materially and adversely affect the consummation of this Agreement or the
     performance by the Company of its obligations hereunder.

          (xi)  ACCURACY OF EXHIBITS.  There are no contracts or documents to
     which the Company is a party which are required to be described in or filed
     as exhibits to the Registration Statement which have not been described,
     filed or incorporated by reference as required.

          (xii)  POSSESSION OF INTELLECTUAL PROPERTY.  Except as disclosed in
     the Prospectuses, each of the Guess Companies owns or possesses, or can
     acquire on reasonable terms, adequate patents, patent licenses, trademarks,
     service marks and trade names necessary to carry on its business as
     presently conducted, and none of the Guess Companies have received any
     notice of infringement of or conflict with asserted rights of others with
     respect to any patents, patent licenses, trademarks, service marks or trade
     names that in the aggregate, if the subject of an unfavorable decision,
     ruling or finding, would reasonably be expected to have a Material Adverse
     Effect.

                                         8




          (xiii)  ABSENCE OF FURTHER REQUIREMENTS.  No filing with, or
     authorization, approval, consent, license, order, registration,
     qualification or decree of, any court or governmental authority, agency or
     body is necessary or required for the performance by the Company of its
     obligations hereunder, in connection with the offering or sale of the
     Offered Securities hereunder or the consummation of the transactions
     contemplated by this Agreement, except (i) such as have already been
     obtained or as may be required under the 1933 Act or the 1933 Act
     Regulations or state securities laws and (ii) such as have been obtained,
     to the Company's knowledge, under the securities laws and regulations of
     foreign jurisdictions in which the Offered Securities are offered outside
     the United States in connection with the Reserve Share Program.

          (xiv)  POSSESSION OF LICENSES AND PERMITS.  Each of the Guess
     Companies (A) possesses all material governmental certificates, permits,
     licenses, approvals, consents and other authorizations (collectively,
     "Governmental Licenses") necessary to conduct the business it now operates
     and (B) has not received any notice of proceedings relating to the
     revocation or modification of any such Governmental Licenses except, in the
     case of clauses (A) and (B), as could not reasonably be expected to result
     in a Material Adverse Effect.

          (xv)  TITLE TO PROPERTY.  Each of the Guess Companies has sufficient
     title for the use made and proposed to be made of all of its properties,
     whether real or personal, free and clear of all liens, encumbrances and
     defects, except as stated in the Prospectuses or such as could not, singly
     or in the aggregate, reasonably be expected to have a Material Adverse
     Effect; and all of the leases material to the business of the Guess
     Companies, and under which any of the Guess Companies holds properties
     described in the Prospectuses, are in full force and effect, and none of
     the Guess Companies has notice of any material claim of any sort that has
     been asserted by anyone adverse to the rights of the Company under any of
     the leases mentioned above, or affecting or questioning the rights of any
     of the Guess Companies to the continued possession of such leased premises
     under any such lease. 

          (xvi)  AUTHORIZATION OF AGREEMENT.  Each of the Purchase Agreements
     have been duly and validly authorized, executed and delivered by the
     Company.

          (xvii)  RELATIONS WITH CUBA.  To the knowledge of the Guess Companies,
     none of the Guess Companies has done, or is presently doing, business with
     the government of Cuba or with any person located in Cuba.

          (xviii)  ACCURACY OF DESCRIPTIONS.  The descriptions in the
     Registration Statement of laws, regulations and rules, of legal and
     governmental proceedings and of contracts, agreements, leases and other
     documents including, without limitation, under the headings "Description of
     Capital Stock -- Delaware Law and Certain Corporate Provisions" are
     accurate in all material respects.

                                         9




          (xix)  ENVIRONMENTAL LAWS.  Except as could not, singly or in the
     aggregate, reasonably be expected to have a Material Adverse Effect or
     otherwise require disclosure in the Registration Statement or the
     Prospectuses, (i) each of the Guess Companies is in compliance with all
     applicable federal, state or local laws and regulations ("Environmental
     Laws") relating to pollution or protection of human health or the
     environment, or otherwise relating to the use, treatment, storage,
     disposal, transport or handling of toxic or hazardous substances or wastes,
     or petroleum products ("Materials of Environmental Concern"), including
     compliance with all permits, licenses, approvals or authorizations
     ("Permits") required under any Environmental Laws, (ii) with respect to the
     Company or any person or entity for whom the Company or any Subsidiary has
     retained or assumed (either contractually or by operation of law) liability
     therefor, (A) none of the Guess Companies has received any communication
     from any person or entity alleging violation of any Environmental Laws, and
     there is no pending or, to its knowledge, threatened claim, action,
     investigation or notice for site investigations, clean up, response costs,
     natural resources or property damages, personal injuries, attorney's fees,
     or penalties (collectively, "Environmental Claims"), and (B) there are no
     conditions that, to the best knowledge of any of the Guess Companies, could
     reasonably be expected to form the basis of any Environmental Claim against
     any of the Guess Companies.  The Company has reviewed the Environmental
     Laws applicable to the Guess Companies' business, operations and properties
     for the purposes of determining any capital or operating expenditures
     required or anticipated over the current and the next fiscal year for any
     site investigation, clean up or remediation, compliance with Environmental
     Laws or any Permit, or any potential liability to third parties, and, on
     the basis of such review, the Company has reasonably concluded that such
     matters could not have a Material Adverse Effect or otherwise require
     disclosure in the Registration Statement or Prospectuses.

          (xx)  NO RELATED PARTY TRANSACTIONS.  Except as disclosed in the
     Prospectuses, there are no (i) outstanding loans, advances or guarantees of
     indebtedness by any of the Guess Companies to or for the benefit, directly
     or indirectly, of any of the officers or directors of any of the Guess
     Companies or (ii) any other related party transactions required by the 1933
     Act or by the 1933 Act Regulations to be disclosed in the Prospectuses.

          (xxi)  INTERNAL ACCOUNTING METHODOLOGY.  The Company maintains a
     system of internal accounting controls sufficient to provide reasonable
     assurance that (i) transactions are executed in accordance with
     management's general or specific authorizations, (ii) transactions are
     recorded as necessary to permit preparation of financial statements in
     conformity with GAAP and to maintain accountability for assets, (iii)
     access to assets is permitted only in accordance with management's general
     or specific authorization, and (iv) the recorded accountability for assets
     is compared with existing assets at reasonable intervals and appropriate
     action is taken with respect to any differences.

                                         10




          (xxii)  TAXES.  The Company has filed all material federal, state and
     foreign income and franchise tax returns and has paid all taxes shown as
     due thereon, other than taxes which are being contested in good faith and
     for which adequate reserves have been established in accordance with GAAP;
     and the Company has no knowledge of any tax deficiency which has been or
     might be asserted or threatened against the Company which would reasonably
     be expected to have a Material Adverse Effect.  No material Federal, state,
     local or foreign transfer, sales or other taxes will be imposed on the
     Company as a result of the consummation of the Reorganization Transactions
     [other than ______].

          (xxiii)  Effective as of August 1, 1983, the Company validly elected S
     Corporation status (as defined in Section 1361 of the Internal Revenue Code
     of 1986, as amended (the "Code")) for federal and certain state income tax
     purposes and has validly continued to qualify as an S corporation in each
     such jurisdiction since such date and will continue to so qualify until the
     S Termination Date.

          (xxiv)  NYSE APPLICATION.  The Common Stock has been approved for
     listing on the New York Stock Exchange (the "NYSE") under the symbol "GES,"
     subject to notice of official issuance.

     (b)  Each of the Principal Stockholders represents and warrants to, and
agrees with, each International Manager as of the date hereof and as of the
Closing Time as follows:

          (i)  Prior to the Closing Time, each of the Principal Stockholders
     shall contribute all of the outstanding shares of MI held by such Principal
     Stockholders to the Company (the "Contribution").  Immediately prior to the
     Contribution, all of the outstanding shares of capital stock of MI had been
     duly authorized and validly issued and were fully paid and nonassessable. 
     The Maurice Marciano Trust represents and warrants that immediately prior
     to the Contribution it owned of record and beneficially 44.8% of the
     outstanding shares of capital stock of MI; the Paul Marciano Trust
     represents and warrants that, immediately prior to the Contribution, it
     owned of record and beneficially 35.5% of the outstanding shares of capital
     stock of MI; and the Armand Marciano Trust represents and warrants that,
     immediately prior to the Contribution, it owned of record and beneficially
     19.7% of the outstanding shares of capital stock of MI.  Each Principal
     Stockholder represents and warrants that, immediately prior to the
     Contribution, it had good and marketable title to all such shares, free and
     clear of any pledge, lien, security interest, charge, claim or encumbrance
     of any kind.

          (ii)  Each Principal Stockholder is familiar with the Prospectuses and
     has (A) no reason to believe that the representations and warranties of the
     Company in Section 1(a) above are not accurate in all material respects,
     (B) no knowledge of any material fact, condition or information not
     disclosed in the Prospectuses that has adversely 

                                         11



     affected or should reasonably be expected to materially and adversely 
     affect the business of the Company and its Subsidiaries, taken as a 
     whole, after giving effect to the Reorganization Transactions, or
     (C) no reason to believe that the Prospectuses contains any untrue 
     statement of a material fact or omits to state any material fact required
     to be stated therein or necessary to make the statements therein, in the
     light of the circumstances under which they were made, not misleading.

     (c)  Any certificate signed by any officer of the Company and delivered to
the Lead Managers or to counsel for the International Managers shall be deemed a
representation and warranty by the Company to each International Manager, as to
the matters covered thereby.

     (d)  The liability of the Principal Stockholders for breach of the
representation and warranty set forth in clause (b)(ii) above is limited as set
forth in Section 6(a) below.

          Section 2.  SALE AND DELIVERY TO INTERNATIONAL MANAGERS; CLOSING. (a)
On the basis of the representations and warranties herein contained and subject
to the terms and conditions herein set forth, the Company agrees to sell the
number of International Securities set forth in Schedule B to each International
Manager, and each International Manager, severally and not jointly, agrees to
purchase from the Company, at the price per share set forth in Schedule C, the
number of Initial International Securities set forth in Schedule A opposite the
name of such International Manager, plus any additional number of Initial
International Securities which such International Manager, may become obligated
to purchase pursuant to the provisions of Section 10 hereof.

     (b)  In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
hereby grants an option to the International Managers, severally and not
jointly, to purchase up to all of the International Option Securities at the
purchase price per share set forth in Schedule C.  The option granted will
expire 30 days after the date hereof and may be exercised, in whole or in part
(but not more than once), only for the purpose of covering over-allotments which
may be made in connection with the offering and distribution of the Initial
International Securities upon notice by the Lead Managers to the Company setting
forth the number of International Option Securities as to which the several
International Managers are then exercising the option and the time and date of
payment and delivery for such International Option Securities.  Such time and
date of delivery (a "Date of Delivery") shall be determined by the Lead
Managers, but shall not be later than the third (fourth, if the exercise occurs
after 4:30 P.M. New York time) full business day after the exercise of said
option, nor in any event prior to the Closing Time, as hereinafter defined,
unless otherwise agreed by the Lead Managers and the Company.  If the option is
exercised as to all or any portion of the International Option Securities, each
of the International Managers, acting severally and not jointly, will purchase
that proportion of the total number of International Option Securities then
being purchased which the number of Initial U.S. Securities set forth in
Schedule A opposite the name of such International Manager bears to the total
number of Initial International Securities, subject in 

                                         12



each case to such adjustments as the Lead Managers in their discretion shall 
make to eliminate any purchases of fractional interests, plus any additional 
number of International Option Securities which such International Manager 
may become obligated to purchase pursuant to the provisions of Section 10 
hereof.  

     (c)  Payment of the purchase price for the Initial International 
Securities shall be made at the office of Skadden, Arps, Slate, Meagher & 
Flom, 300 South Grand Avenue, Los Angeles, California, or at such other place 
as shall be agreed upon by the U.S. Representatives and the Company, at 7:00 
A.M. California time on the third (fourth, if the pricing occurs after 4:30 
P.M. New York time) business day (unless postponed in accordance with the 
provisions of Section 10) after the date hereof, or such other time not later 
than ten business days after such date as shall be agreed upon by the Lead 
Managers and the Company (such time and date of payment and delivery being 
herein called the "Closing Time"). Payment shall be made to the Company by 
wire transfer of immediately available funds payable to a bank account 
designated by the Company against delivery to the Lead Managers for the 
respective accounts of the International Managers of certificates for the 
Initial International Securities to be purchased by them. Certificates for 
the Initial International Securities shall be in such denominations and 
registered in such names as the Lead Managers may request in writing at least 
two business days before the Closing Time.  It is understood that each 
International Manager has authorized the Lead Managers, for their account, to 
accept delivery of, receipt for, and make payment of the purchase price for, 
the Initial International Securities which it has agreed to purchase. Merrill 
Lynch, individually and not as representative of the International Managers, 
may (but shall not be obligated to) make payment of the purchase price for 
the Initial International Securities to be purchased by any International 
Manager whose funds have not been received by the Closing Time, but such 
payment shall not relieve such International Manager from its obligations 
hereunder. The certificates for the Initial International Securities will be 
made available for examination and packaging by the Lead Managers not later 
than 10:00 A.M. on the last business day prior to the Closing Time.

     (d)  In addition, in the event that any or all of the International Option
Securities are purchased by the International Managers, payment of the purchase
price for such International Option Securities shall be made at the above-
mentioned offices of Skadden, Arps, Slate, Meagher & Flom, or at such other
place as shall be agreed upon by the Lead Managers and the Company, on the Date
of Delivery as specified in the notice from the Lead Managers to the Company. 
Payment shall be made to the Company by wire transfer of immediately available
funds to a bank account designated by the Company, against delivery to the Lead
Managers for the respective accounts of the International Managers of
certificates for the International Option Securities to be purchased by them. 
Certificates, if any, for the International Option Securities, if any, shall be
in such denominations and registered in such names as the Lead Managers may
request in writing at least two business days before the Closing Time or the
relevant Date of Delivery, as the case may be.  It is understood that each
International Manager has authorized the Lead Managers, for their accounts, to
accept

                                         13



delivery of, receipt for, and make payment of the purchase price for the 
International Option Securities, if any, which it has agreed to purchase. 
Merrill Lynch, individually and not as representative of the International 
Managers, may (but shall not be obligated to) make payment of the purchase 
price for the International Option Securities, if any, to be purchased by any 
International Managers whose funds have not been received by the relevant 
Date of Delivery, as the case may be, but such payment shall not relieve such 
International Managers from its obligations hereunder.  The certificates for 
the International Option Securities, if any, will be made available for 
examination and packaging by the Lead Managers not later than 10:00 A.M. on 
the last business day prior to the relevant Date of Delivery.  For purposes 
of this agreement, "business day" means a day on which the NYSE is open for 
business.

     (e)  The U.S. Underwriters agree to serve a maximum of 750,000 Initial U.S.
Shares for offering and sale to directors, officers, employees, business
associates and related persons of the Company, at the public offering price. 
Any such shares not purchased by such persons by the end of the second business
day after either (a) the later of the date on which the Registration Statement
and any Rule 462(b) Registration Statement has become effective or, (b) if the
Company has elected to rely upon Rule 430A, the date of the U.S. Prospectus,
will be offered to the public by the U.S. Underwriters as set forth in the U.S.
Prospectus.

          Section 3.  COVENANTS OF THE COMPANY.  The Company covenants with each
U.S. Underwriter as follows:

     (a)  The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A and will notify the Lead Managers immediately of (i)
the effectiveness of the Registration Statement and of the effectiveness of any
post-effective amendment to the Registration Statement or of the filing of any
amendment or supplement to the International Prospectus, (ii) the receipt of any
comments from the Commission, (iii) any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement to the
International Prospectus or for additional information, and (iv) the issuance by
the Commission of any stop order suspending the effectiveness of the
Registration Statement or any order preventing or suspending the use of any
preliminary prospectus, or the suspension of the qualification of the
International Securities for offering or sale in any jurisdiction or the
initiation or threatening of any proceedings for that purpose.  If the Company
has elected to rely on Rule 430A, the Company will promptly effect the filings
necessary pursuant to Rule 424(b) and will take such steps as it deems necessary
to ascertain promptly whether the form of prospectus transmitted for filing
under Rule 424(b) was received for filing by the Commission and, in the event
that it was not, it will promptly file such prospectus.  The Company will make
every reasonable effort to prevent the issuance of any stop order and, if any
stop order is issued, to obtain the lifting thereof at the earliest possible
moment.

     (b)  The Company will give the Lead Managers notice of its intention to
file or prepare any amendment to the Registration Statement (including any
filing under Rule

                                         14



462(b)), any Term Sheet or any amendment, supplement or revision to either 
the prospectus included in the Registration Statement at the time it became 
effective or to the U.S. Prospectus will furnish the Lead Managers with 
copies of any such documents a reasonable amount of time prior to such 
proposed filing or use, as the case may be, and will not file or use any such 
document to which the Lead Managers or counsel for the International Managers 
shall reasonably object.

     (c)  The Company will deliver to the Lead Managers and counsel for the
International Managers signed copies of the Registration Statement as originally
filed and of each amendment thereto (including exhibits filed therewith) and
signed copies of all consents and certificates of experts and will also deliver
to the Lead Managers a conformed copy of the Registration Statement as
originally filed and of each amendment or post-effective amendment or supplement
or Term Sheet thereto (without exhibits) for each of the International Managers.

     (d)  The Company has delivered to each International Manager, without
charge, as many copies of each preliminary prospectus as such International
Manager reasonably requested, and the Company hereby consents to the use of such
copies for the purposes permitted by the 1933 Act.  The Company will furnish to
each International Manager, without charge, from time to time, during the period
when the International Prospectus is required to be delivered under the 1933 Act
or the Securities Exchange Act of 1934, as amended (the "1934 Act"), such number
of copies of the International Prospectus (as amended or supplemented) and the
Term Sheet, if any, as such. Underwriter may reasonably request for the purposes
contemplated by the 1933 Act, the 1933 Act Regulations, the 1934 Act or the
rules and regulations of the Commission under the 1934 Act (the "1934 Act
Regulations").

     (e)  The Company will comply with the 1933 Act and the 1933 Act Regulations
and the 1934 Act and the 1934 Act Regulations so as to permit the completion of
the distribution of the Offered Securities as contemplated in this Agreement and
in the International Prospectus.  If at any time when a prospectus is required
to be delivered in connection with such distribution of the International
Securities any event shall occur or condition shall exist as a result of which
it is necessary, in the opinion of counsel for the International Managers or for
the Company, to amend the Registration Statement or amend or supplement the
International Prospectus in order that the International Prospectus will not
include any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the light of
the circumstances existing at the time it is delivered to a purchaser, or if it
shall be necessary, in the opinion of such counsel, at any such time to amend
the Registration Statement or amend or supplement the International Prospectus
in order to comply with the requirements of the 1933 Act or the 1933 Act
Regulations, the Company will promptly prepare and file with the Commission,
subject to Section 3(b), such amendment or supplement as may be necessary to
correct such statement or omission or to make the Registration Statement or the
International Prospectus comply

                                         15



with such requirements, and the Company will furnish to the International 
Managers such number of copies of such amendment or supplement as the 
Representatives shall reasonably request.

     (f)  The Company will endeavor, in cooperation with the International
Managers, to qualify the Offered Securities for offering and sale under the
applicable securities laws of such states and other jurisdictions outside of the
United States as the Lead Managers may designate; PROVIDED, HOWEVER, that the
Company shall not be obligated to file any general consent to service of process
or to qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to taxation in
respect of doing business in any jurisdiction in which it is not otherwise
subject.  In each jurisdiction in which the Offered Securities have been so
qualified, the Company will file such statements and reports as may be required
by the laws of such jurisdiction to continue such qualification in effect for a
period of not less than one year from the date hereof and the effective date of
any Rule 462(b) Registration Statement.  The Company will inform the Florida
Department of Banking and Finance if, to the best of its knowledge, prior to the
completion of the distribution of the Offered Securities by the International
Managers, the Company commences engaging in business with the government of Cuba
or with any person or affiliate located in Cuba.  Such information will be
provided within 90 days of the commencement thereof or after a change to any
such previously reported information.

     (g)  The Company will timely file such reports pursuant to the 1934 Act as
are necessary in order to make generally available to its security holders as
soon as practicable, but not later than 60 days after the close of the period
covered thereby, an earnings statement (in form complying with the provisions of
Rule 158 of the 1933 Act Regulations) covering a twelve-month period beginning
not later than the first day of the Company's fiscal quarter next following the
"effective date" (as defined in said Rule 158) of the Registration Statement.

     (h)  During a period of 180 days from the date hereof, the Company will
not, without Merrill Lynch's prior written consent, directly or indirectly, (i)
offer, pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any share
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or file any registration statement under the 1933
Act with respect to any of the foregoing or (ii) enter into any swap or any
other agreement or any transaction that transfers, in whole or in part, directly
or indirectly, the economic consequence of ownership of the Common Stock,
whether any such swap or transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Stock or other securities, in cash or
otherwise.  The foregoing sentence shall not apply to (A) the Offered Securities
to be sold hereunder or under the International Purchase Agreement, (B) any
shares of Common Stock issued or options to purchase Common Stock granted
pursuant to (I) any existing employment agreement or (II) existing employee
benefit plans of the Company referred to in


                                         16



the International Prospectus or (C) any shares of Common Stock issued 
pursuant to any existing non-employee director stock plan or dividend 
reinvestment plan referred to in the International Prospectus.

     (i)   If the Company uses Rule 434 of the 1933 Act Regulations, it will
comply with the requirements of Rule 434 of such regulations and the
International Prospectus will not be "materially different," as such term is
used in Rule 434 of the 1933 Act Regulations, from the International Prospectus
first given to the International Managers for their use.

     (j)   The Company will use its best efforts to effect the listing of the
Offered Securities on the NYSE.

     (k)   The Company will use the net proceeds received by it from the sale of
the Offered Securities in the manner specified in the International Prospectus
under the caption "Use of Proceeds."

     (l)   The Company will file with the Commission such reports on Form SR as
may be required pursuant to Rule 463 of the 1933 Act Regulations.

     (m)   If the Company elects to rely upon Rule 462(b), the Company shall
both file a Rule 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) and pay the applicable fees in accordance with Rule 111 of the
1933 Act Regulations by the time confirmations are sent or given, as specified
by Rule 462(b)(2).

     (n)  The Company hereby agrees that it will ensure that the Offered
Securities sold to persons pursuant to the Reserve Share Program will be
restricted as required by the National Association of Securities Dealers, Inc.
(the "NASD") or the NASD rules from sale, transfer, assignment, pledge or
hypothecation for a period of three months following the date of the
effectiveness of the Registration Statement.  The U.S. Underwriters will notify
the Company as to which persons will need to be so restricted.  At the request
of the U.S. Underwriters, the Company will direct the transfer agent to place a
stop transfer restriction upon such securities for such period of time.  Should
the Company release, or seek to release, from such restrictions any Offered
Securities sold pursuant to the Reserve Share Program, the Company agrees to
reimburse the U.S. Underwriters for any reasonable expenses including, without
limitation, legal expenses they incur directly in connection with such release.

          Section 4.  PAYMENT OF EXPENSES.  The Company will pay all expenses
incident to the performance of its obligations under this Agreement, including
(i) the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and of each
amendment thereto, including any post-effective amendments, (ii) the
preparation, issuance and delivery of the certificates for the International
Securities, if any, to the International Managers, including any stock transfer
taxes payable upon the sale of the Offered Securities to the Underwriters and
the transfer of the Offered

                                         17



Securities between the U.S. Underwriters and the
International Managers, (iii) the fees and disbursements of the Company's
counsel and accountants, (iv) the qualification of the Offered Securities under
securities laws in accordance with the provisions of Section 3(f) hereof,
including reasonable filing fees and the fees and disbursements of counsel for
the International Managers in connection therewith and in connection with the
preparation, printing and delivery to the International Managers of copies of
the Blue Sky Survey and any supplement thereto, (v) the printing and delivery to
the International Managers of copies of the Registration Statement as originally
filed and of each amendment thereto, of each preliminary prospectus, any Term
Sheets and of the International Prospectus and any amendments or supplements
thereto, (vi) the fees and expenses of the listing of the Common Stock on the
NYSE, (vii) the filing fees incident to, and the reasonable fees and
disbursements of counsel to the U.S. Underwriters in connection with, the review
by the National Association of Securities Dealers, Inc. (the "NASD") of the
terms of the sale of the Offered Securities, (viii) the copying and distribution
to the International Managers of this Agreement, the agreement among U.S.
Underwriters, the U.S. Purchase Agreement, the agreement among International
Managers and the Intersyndicate Agreement, (ix) the fees and expenses of any
transfer agent or registrar for the Common Stock, (x) the reasonable fees and
disbursements of counsel to the Company and the U.S. Underwriters in connection
with the Reserve Share Program, and (xi) stamp duties or similar taxes or
duties, if any, incurred by the U.S. Underwriters in connection with the Reserve
Share Program.

          If this Agreement is terminated by the Lead Managers in accordance
with the provisions of Section 5, 9(a)(i) or 11 hereof, the Company shall
reimburse the International Managers for all of their out-of-pocket expenses,
including the reasonable fees and disbursements of counsel for the International
Managers.

          Section 5.  CONDITIONS OF INTERNATIONAL MANAGERS' OBLIGATIONS.  The
obligations of the several International Managers to purchase and pay for the
International Securities that they have respectively agreed to purchase pursuant
to this Agreement (including any International Option Securities as to which the
option granted in Section 2 has been exercised and the Date of Delivery
determined by you is the same as the Closing Time) are subject to the accuracy
in all material respects (except that such phrase "in all material respects"
shall be disregarded to the extent any such representation and warranty is
qualified by "material," "material adverse change," "Material Adverse Effect" or
any phrase using any such term) of the representations and warranties of the
Company and the Principal Stockholders herein contained or in certificates of
any officer of any of the Company or certificates by or on behalf of the
Principal Stockholders delivered pursuant to the provisions hereof, to the
performance by the Company of its obligations hereunder, and to the following
further conditions:

     (a)  The Registration Statement, including any Rule 462(b) Registration
Statement, shall have become effective on the date of this Agreement.  At the
Closing Time, no stop order suspending the effectiveness of the Registration
Statement shall have been issued under

                                         18



the 1933 Act or proceedings therefor initiated or threatened by the 
Commission, and any request on the part of the Commission for additional 
information shall have been complied with.  The price of the Offered 
Securities and any price-related information previously omitted from the 
effective Registration Statement and any Term Sheet used pursuant to Rule 434 
shall have been transmitted to the Commission for filing pursuant to Rule 
424(b) within the prescribed time period and, prior to the Closing Time, the 
Company shall have provided evidence satisfactory to the Lead Managers of 
such timely filing, or a post-effective amendment providing such information 
shall have been promptly filed and declared effective.

     (b)  At the Closing Time, the Lead Managers shall have received:

          (i)  The favorable opinion, dated as of the Closing Time, of Shearman
     & Sterling, special counsel for the Company, substantially in the form
     attached hereto as Exhibit C and in form and substance satisfactory to
     counsel for the Underwriters.

          (ii)  The favorable opinion, dated as of the Closing Time, of Skadden,
     Arps, Slate, Meagher & Flom, counsel for the International Managers, with
     respect to the matters set forth in (a), (e), (f) (solely as to preemptive
     rights arising by operation of law or under the charter or bylaws of the
     Company), (h) thru (j), inclusive, and (l) (solely as to the information in
     the Prospectuses under the caption "Description of Capital Stock"), of
     Exhibit C, except that, with respect to the matters referred to in (e), no
     opinion need be expressed as to whether any of the Company's outstanding
     shares of Common Stock, other than the Offered Securities, have been duly
     authorized or validly issued or are fully paid or nonassessable.

          In addition, Skadden, Arps, Slate, Meagher & Flom shall state that
     they have participated in conferences with directors, officers and other
     representatives of the Company, the Representatives, the Company's
     independent accountants and counsel for the Underwriters at which
     conferences the contents of the Registration Statement and the Prospectuses
     and related matters were discussed and, although they are not passing upon,
     and they do not assume responsibility for, the accuracy, completeness or
     fairness of the statements contained in the Registration Statement or
     Prospectuses (except for financial statements and other financial data
     included therein), and they have not made any independent check or
     verification thereof, on the basis of the foregoing, nothing has come to
     their attention that would lead them to believe that the Registration
     Statement including the Rule 430A Information and Rule 434 Information (if
     applicable), (except for financial statements and schedules and other
     financial data included therein, as to which such counsel need make no
     statement), at the time it became effective, contained an untrue statement
     of a material fact or omitted to state a material fact required to be
     stated therein or necessary to make the statements therein not misleading
     or that the Prospectuses or any amendment or supplement thereto (except for
     financial statements and schedules and other financial data included as to
     which such counsel need make no statement), at the time the Prospectuses
     were 

                                         19



     issued, at the time any such amended or supplemental prospectus was
     issued or at the Closing Time, included or includes an untrue statement of
     a material fact or omitted or omits to state a material fact necessary in
     order to make the statements therein, in the light of the circumstances
     under which they were made, not misleading.

     (c)  At the Closing Time there shall not have been, since the date hereof
or since the respective dates as of which information is given in the
Registration Statement and the Prospectuses, any Material Adverse Change,
whether or not arising in the ordinary course of business, and the Lead Managers
shall have received a certificate of the chief executive officer of the Company
and of the chief financial officer of the Company, dated as of the Closing Time,
to the effect that (i) since the respective dates as of which information is
given in the Registration Statement and the Prospectuses, there has been no such
Material Adverse Change, (ii) the representations and warranties of the Company
in Section 1(a) hereof are true and correct in all material respects (except
that such phrase "in all material respects" shall be disregarded to the extent
any such representation and warranty is qualified by "material," "material
adverse change," "Material Adverse Effect" or any phrase using any such term)
with the same force and effect as though expressly made at and as of the Closing
Time, (iii) the Company has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied at or prior to the Closing
Time, and (iv) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
initiated or threatened by the Commission and (y) a certificate of the Principal
Stockholders, dated as of the Closing Time, to the effect that (i) the
representations and warranties of the Principal Stockholders in Section 1(b)
hereof are true and correct in all material respects (except that such phrase
"in all material respects" shall be disregarded to the extent any such
representation and warranty is qualified by "material," "material adverse
change," "Material Adverse Effect" or any phrase using any such term) with the
same force and effect as though expressly made at and as of the Closing Time and
(ii) the Principal Stockholders have complied with all agreements and satisfied
all conditions on its part to be performed or satisfied at or prior to the
Closing Time.

     (d)  At the time of the execution of this Agreement, the Lead Managers
shall have received from KPMG Peat Marwick LLP, a letter dated such date, in
form and substance satisfactory to the Lead Managers, to the effect that (i)
they are independent public accountants with respect to the Company within the
meaning of the 1933 Act and the 1933 Act Regulations; (ii) it is their opinion
that the financial statements and supporting schedules included in the
Registration Statement and covered by their opinions therein comply as to form
in all material respects with the applicable accounting requirements of the 1933
Act and the 1933 Act Regulations; (iii) based upon the limited procedures set
forth in detail in such letter, nothing has come to their attention which causes
them to believe that (A) the unaudited financial statements and supporting
schedules of the Company included in the Registration Statement do not comply as
to form in all material respects with the applicable accounting requirements of
the 1933 Act and the 1933 Act Regulations or are not presented in conformity
with GAAP applied on a basis substantially consistent with that of the audited

                                         20



financial statements included in the Registration Statement, (B) the unaudited
income statement data set forth under "Selected Financial Data" in the
Prospectuses were not determined on a basis substantially consistent with that
used in determining the corresponding amounts in the audited financial
statements included in the Registration Statement, or (C) at a specified date
not more than five days prior to the date of this Agreement, there has been any
change in the capital stock of the Company or any increase in the long term debt
of the Company or any decrease in current assets or total assets as compared
with the amounts shown in the balance sheet included in the Registration
Statement or, during the period from June 30, 1996 to a specified date not more
than five days prior to the date of this Agreement, there were any decreases, as
compared with the corresponding period in the preceding year, in net sales, net
income, or net income per share of the Company, except in all instances for
changes, increases or decreases which the Registration Statement and the
Prospectuses disclose have occurred or may occur or which are otherwise
immaterial to the Company and its Subsidiaries considered as one enterprise; and
(iv) in addition to the audit referred to in their opinions and the limited
procedures referred to in clause (iii) above, they have carried out certain
specified procedures, not constituting an audit, with respect to certain
amounts, percentages and financial information which are included in the
Registration Statement and Prospectuses and which are specified by the Lead
Managers, and have found such amounts, percentages and financial information to
be in agreement with the relevant accounting, financial and other records of the
Company identified in such letter.  Such letter shall also include such
statements regarding pro forma financial information as the U.S. Representatives
shall reasonably request.

     (e)  At the Closing Time, the Lead Managers shall have received from KPMG
Peat Marwick L.L.P., a letter, dated as of the Closing Time, to the effect that
they reaffirm the statements made in the letter furnished pursuant to subsection
(d) of this Section, except that the specified date referred to shall be a date
not more than five days prior to the Closing Time and, to the further effect
that they have each carried out procedures as specified in clause (iv) of
subsection (d) of this Section with respect to certain amounts, percentages and
financial information specified by the Lead Managers and have found such
amounts, percentages and financial information to be in agreement with the
records specified in such clause (iv).

     (f)  At the Closing Time and at the Date of Delivery, the International
Securities shall have been approved for listing on the NYSE, subject only to
official notice of issuance.

     (g)  The NASD shall not have raised any objection with respect to the
fairness and reasonableness of the underwriting terms and arrangements.

     (h)  At the Closing Time, the Reorganization Transactions shall have been
consummated substantially as described in the Prospectuses.

                                         21




     (i)  At the Closing Time and at the Date of Delivery, if any, counsel for
the International Managers shall have been furnished with such documents and
opinions as they may reasonably require for the purpose of enabling them to pass
upon the issuance and sale of the International Securities as herein
contemplated and related proceedings, or in order to evidence the accuracy of
any of the representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company in
connection with the issuance and sale of the Offered Securities as herein
contemplated shall be satisfactory in form and substance to the Lead Managers
and counsel for the International Managers.

     (j)  In the event that the International Managers exercise their option
provided in Section 2(b) hereof to purchase all or any portion of the
International Option Securities, the representations and warranties of the
Company contained herein and the statements in any certificates furnished by the
Company hereunder shall be true and correct as of the Date of Delivery and, at
the Date of Delivery, the Lead Managers shall have received:

     (i)  A certificate, dated such Date of Delivery, of the chairman and chief
     executive officer of the Company and of the chief financial officer of the
     Company, confirming that the respective certificate delivered at the
     Closing Time pursuant to Section 5(c) hereof remains true and correct as of
     such Date of Delivery.

     (ii) The favorable opinion of Shearman & Sterling, counsel for the Company,
     in form and substance satisfactory to counsel for the International
     Managers, dated such Date of Delivery, relating to the International Option
     Securities to be purchased on such Date of Delivery and otherwise to the
     same effect as the opinion required by Section 5(b)(i) hereof.

     (iii)     The favorable opinion of Skadden, Arps, Slate, Meagher & Flom,
     counsel for the International Managers, dated such Date of Delivery,
     relating to the International Option Securities to be purchased on such
     Date of Delivery and otherwise to the same effect as the opinion required
     by Section 5(b)(ii) hereof.

     (iv) A letter from KPMG Peat Marwick LLP, in form and substance
     satisfactory to the Lead Managers and dated such Date of Delivery,
     substantially the same in form and substance as the letters furnished to
     the Lead Managers pursuant to Section 5(e) hereof, except that the
     "specified date" in the letter furnished pursuant to this Section 5(i)(iv)
     shall be a date not more than five days prior to such Date of Delivery.

          If any condition specified in this Section shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be terminated
by the Lead Managers by notice to the Company at any time at or prior to the
Closing Time, and such termination shall be without liability of any party to
any other party except as provided in Section 4 hereof.

                                         22




          Section 6.  INDEMNIFICATION.  (a)  The Company and each of the
Principal Stockholders severally agrees as to himself or itself to indemnify and
hold harmless each International Manager and each person, if any, who controls
any International Manager within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:

          (i)  against any and all loss, liability, claim, damage and expense
     whatsoever, as incurred, arising out of any untrue statement or alleged
     untrue statement of a material fact contained in the Registration Statement
     (or any amendment thereto), including the Rule 430A Information and the
     Rule 434 Information, if applicable, or the omission or alleged omission
     therefrom of a material fact required to be stated therein or necessary to
     make the statements therein not misleading or arising out of any untrue
     statement or alleged untrue statement of a material fact contained in any
     preliminary prospectus or the Prospectuses (or any amendment or supplement
     thereto) or the omission or alleged omission therefrom of a material fact
     necessary in order to make the statements therein, in the light of the
     circumstances under which they were made, not misleading;

          (ii)  against any and all loss, liability, claim, damage and expense
     whatsoever, as incurred, to the extent of the aggregate amount paid in
     settlement of any litigation, or any investigation or proceeding by any
     governmental agency or body, commenced or threatened, or of any claim
     whatsoever based upon any such untrue statement or omission, or any such
     alleged untrue statement or omission; PROVIDED THAT (subject to Section
     6(d) below) any such settlement is effected with the written consent of the
     Company and such Principal Stockholder;

          (iii)  against any and all expense whatsoever, as incurred (including
     the fees and disbursements of counsel chosen by Merrill Lynch), reasonably
     incurred in investigating, preparing or defending against any litigation,
     or any investigation or proceeding by any governmental agency or body,
     commenced or threatened, or any claim whatsoever based upon any such untrue
     statement or omission, or any such alleged untrue statement or omission, to
     the extent that any such expense is not paid under (i) or (ii) above; and

          (iv)  against any and all loss, liability, claim, damage and expense
     whatsoever, as incurred, arising out of an untrue statement or alleged
     untrue statement of a material fact contained in the prospectus wrapper
     material prepared by or with the consent of the Company for distribution in
     foreign jurisdictions in connection with the Reserve Share Program attached
     to the Prospectuses or any preliminary prospectus or caused by any omission
     or alleged omission to state therein a material fact required to be stated
     therein or necessary to make the statements therein, when considered in
     conjunction with the Prospectuses or such preliminary prospectus, not
     misleading;

                                         23




PROVIDED, HOWEVER, that such indemnity of each Principal Stockholder shall (x)
be with reference to information relating to such Principal Stockholder
furnished to the Company in writing by such Principal Stockholder expressly for
use in the Registration Statement, any preliminary prospectus, the Prospectuses
or any amendments or supplements thereto or (y) arise out of any material breach
or alleged material breach of any representation, warranty, covenant or
agreement of such Principal Stockholder contained in this Agreement and
PROVIDED, FURTHER, that (x) each Principal Stockholder's aggregate liability
under this Section 6 and for any breach of the representations and warranties of
such Principal Stockholder set forth in Section 1(b)(ii) of this Agreement
(together with any liability of such Principal Stockholder under Section 6 of
the U.S. Purchase Agreement or for any breach of the representations and
warranties set forth in Section 1(b)(ii) of the U.S. Purchase Agreement) shall
be limited to an amount equal to the aggregate amount of undistributed earnings
previously allocated, represented by promissory notes previously distributed and
to be subsequently paid out of the proceeds of the offerings, to such Principal
Stockholder; (y) the foregoing indemnity agreement by the Company or such
Principal Stockholder does not apply to any loss, liability, claim, damage or
expense to the extent arising out of an untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in conformity with
written information furnished to the Company by any International Manager
through you expressly for use in the Registration Statement (or any amendment
thereto, including the Rule 430A Information and the Rule 434 Information, if
applicable, or any preliminary international prospectus or the International
Prospectus (or any amendment or supplement thereto) and (z) if the Company has
complied with its obligations under Section 3(e) hereof, the foregoing indemnity
agreement with respect to any preliminary International prospectus shall not
inure to the benefit of any International Manager from whom the person asserting
any such loss, claim, damage or liability purchased Offered Securities (or any
person who controls such International Manager within the meaning of Section 15
of the 1933 Act) if a copy of the International Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of any Underwriter to such
person, if such is required by law, at or prior to the written confirmation of
the sale of such Offered Securities to such person and if the International
Prospectus (as so amended or supplemented) would have cured the defect giving
rise to such loss, claim, damage or liability.

          In making a claim for indemnification under this Section 6 (other than
pursuant to clause (a)(iii) of this Section 6) or contribution under Section 7
hereof by the Company or the Principal Stockholders, the indemnified parties may
proceed against either (1) both the Company and the Principal Stockholders
jointly or (2) the Company only, but may not proceed solely against the
Principal Stockholders.  In the event that the indemnified parties are entitled
to seek indemnity or contribution hereunder against any loss, liability, claim,
damage or expense to which this paragraph applies then, as a precondition to any
indemnified party obtaining indemnification or contribution from any of the
Principal Stockholders, the indemnified parties shall first obtain a final
judgment from a trial court that such indemnified parties are entitled to
indemnity or contribution under this Agreement from the Company and

                                         24



the Principal Stockholders with respect to such loss, liability, claim, 
damage or expense (the "Final Judgment") and shall seek to satisfy such Final 
Judgment in full from the Company by making a written demand upon the Company 
for such satisfaction.  Only in the event such Final Judgment shall remain 
unsatisfied in whole or in part 45 days following the date of receipt by the 
Company of such demand shall any indemnified party have the right to take 
action to satisfy such Final Judgment by making demand directly on the 
Principal Stockholders (but only if and to the extent the Company has not 
already satisfied such Final Judgment, whether by settlement, release or 
otherwise).  The indemnified parties may exercise this right to first seek to 
obtain payment from the Company and thereafter obtain payment from the 
Principal Stockholders without regard to the pursuit by any party of its 
rights to the appeal of such Final Judgment.  The indemnified parties shall, 
however, be relieved of their obligation to first obtain a Final Judgment, to 
seek to obtain payment from the Company with respect to such Final Judgment 
or, having sought such payment, to wait such 45 days after failure by the 
Company to immediately satisfy any such Final Judgment if (A) the Company 
files a petition for relief under the United States Bankruptcy Code (the 
"Bankruptcy Code"), (B) an order for relief is entered against the Company in 
an involuntary case under the Bankruptcy Code, (C) the Company makes an 
assignment for the benefit of its creditors, or (D) any court orders or 
approves the appointment of a receiver or custodian for the Company or a 
substantial portion of its assets.  The foregoing provisions of this 
paragraph are not intended to require any indemnified party to obtain a Final 
Judgment against the Company or the Principal Stockholders before obtaining 
reimbursement of expenses pursuant to clause (a)(iii) of this Section 6.  
However, the indemnified parties shall first seek to obtain such 
reimbursement in full from the Company by making a written demand upon the 
Company for such reimbursement. Only in the event such expenses shall remain 
unreimbursed in whole or in part 45 days following the date of receipt by the 
Company of such demand shall any indemnified party have the right to receive 
reimbursement of such expenses from the Principal Stockholders by making 
written demand directly on the Principal Stockholders (but only if and to the 
extent the Company has not already satisfied the demand for reimbursement, 
whether by settlement, release or otherwise).  The indemnified parties shall, 
however, be relieved of their obligation to first seek to obtain such 
reimbursement in full from the Company or, having made written demand 
therefor, to wait such 45 days after failure by the Company to immediately 
reimburse such expenses if (I) the Company files a petition for relief under 
the Bankruptcy Code, (II) an order for relief is entered against the Company 
in an involuntary case under the Bankruptcy Code, (III) the Company makes an 
assignment for the benefit of its creditors, or (IV) any court orders or 
approves the appointment of a receiver or custodian for the Company or a 
substantial portion of its assets.  Notwithstanding anything to the contrary 
contained herein, the provisions of this paragraph shall not apply to any 
claim for indemnity pursuant to clause (a)(ii) (if the indemnified parties 
are entitled to  seek indemnity under such clause (a)(ii) with respect to a 
settlement that has been effected with the written consent of such Principal 
Stockholder but not with the written consent of the Company).

                                         25




     (b)  Each International Manager severally agrees to indemnify and hold
harmless the Company, its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act and the
Principal Stockholders against any and all loss, liability, claim, damage and
expense described in the indemnity contained in subsection (a) of this Section,
as incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the International
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by such
International Manager through the Lead Managers expressly for use in the
Registration Statement (or any amendment thereto) or such preliminary prospectus
or the International Prospectus (or any amendment or supplement thereto).

     (c)  Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against it in
respect of which indemnity may be sought hereunder, but failure to so notify an
indemnifying party shall not relieve such indemnifying party from any liability
hereunder or which it may have otherwise than on account of this indemnity
agreement.  In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Company.  An indemnifying party may
participate at its own expense in the defense of any such actions; PROVIDED,
HOWEVER, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party.  In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances.  No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.

     (d)  If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 6(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 45

                                         26



days after receipt by such indemnifying party of the aforesaid request 
(provided that in the case of a request to the Principal Stockholders, the 
requirement to wait 45 days after making a demand for reimbursement for 
expenses from the Company shall have been satisfied or is not applicable 
pursuant to the terms of Section 6(a)), (ii) such indemnifying party shall 
have received notice of the terms of such settlement at least 30 days prior 
to such settlement being entered into and (iii) such indemnifying party shall 
not have reimbursed such indemnified party in accordance with such request 
prior to the date of such settlement.

     (e)  The provisions of this Section 6 and Section 7 hereof shall not affect
any agreement among the Company and any Principal Stockholder with respect to
indemnification and contribution.

     (f)  In connection with the Reserve Share Program, the Company agrees to
indemnify and hold harmless the International Managers from and against any and
all losses, expenses and liabilities incurred by them as a result of (i) the
failure of the designated employees or other persons to pay for and accept
delivery of shares which, immediately following the effectiveness of the
Registration Statement, were subject to a properly confirmed agreement to
purchase and (ii) the violation of any securities laws of foreign jurisdictions
where Offered Securities are offered pursuant to the Reserve Share Program.

          Section 7.  CONTRIBUTION.  If the indemnification provided for in
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Principal Stockholders, on the one hand, and the International
Managers, on the other hand, from the offering of the Offered Securities
pursuant to this Agreement or (ii) if the allocation provided by clause (i) is
not permitted by applicable law, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) above but also the
relative fault of the Company and the Principal Stockholders, on the one hand,
and the International Managers, on the other hand, in connection with the
statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.

          The relative benefits received by the Company and the Principal
Stockholders, on the one hand, and the International Managers, on the other
hand, in connection with the offering of the Offered Securities pursuant to this
Agreement shall be deemed to be in the same respective proportions as the total
net proceeds from the offering of the Offered Securities pursuant to this
Agreement (before deducting expenses) received by the Company (including any
proceeds transferred to the Principal Stockholders directly or indirectly) and
the total underwriting discount received by the International Managers, in each
case as set forth on the cover of the International Prospectus, or, if Rule 434
is used, the corresponding

                                         27



location on the Term Sheet, bear to the aggregate initial public offering 
price of the Offered Securities as set forth on such cover.

          The relative fault of the Company and the Principal Stockholders, on
the one hand, and the International Managers, on the other hand, shall be
determined by reference to, among other things, whether the untrue or allegedly
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company, the Principal
Stockholders  or by the International Managers and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.

          The Company, the Principal Stockholders and the International Managers
agree that it would not be just and equitable if contribution pursuant to this
Section were determined by pro rata allocation (even if the International
Managers were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section.  The aggregate amount of losses, liabilities, claims,
damages and expenses incurred by an indemnified party and referred to above in
this Section shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based upon any
such untrue or allegedly untrue statement or omission or alleged omission.

          Notwithstanding the provisions of this Section 7, no International
Manager shall be required to contribute any amount in excess of the amount by
which the total price at which the International Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such International Manager has otherwise been required to pay
by reason of such untrue or allegedly untrue statement or omission or alleged
omission.

          Notwithstanding the provisions of this Section 7, the aggregate
liability of each Principal Stockholder under this Section 7 and for any breach
of the representation and warranty of such Principal Stockholder set forth in
Section 1(b)(ii) of this Agreement (together with any liability of such
Principal Stockholder under Section 7 of the U.S. Purchase Agreement or for any
breach of the representation and warranty set forth in Section 1(b)(ii) of the
U.S. Purchase Agreement) shall be limited to an amount equal to the aggregate
amount of undistributed earnings previously allocated, represented by promissory
notes previously distributed and to be subsequently paid out of the proceeds of
the offerings, to such Principal Stockholder.

          No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.  For purposes of
this Section, each person, if 

                                         28



any, who controls an International Manager within the meaning of Section 15 
of the 1933 Act shall have the same rights to contribution as such 
International Manager, and each director of the Company, each officer of the 
Company who signed the Registration Statement, and each person, if any, who 
controls the Company within the meaning of Section 15 of the 1933 Act shall 
have the same rights to contribution as the Company.

          For purposes of this Section, each person, if any, who controls an
International Manager within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
International Manager, and each director of the Company, each officer of the
Company who signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as the Company. 
The International Managers' respective obligations to contribute pursuant to
this Section are several in proportion to the number of Initial International
Securities set forth opposite their respective names in Schedule A hereto and
not joint.

          Section 8.  REPRESENTATIONS, WARRANTIES, AGREEMENTS AND INDEMNITIES TO
SURVIVE DELIVERY.  All representations, warranties, agreements and indemnities
contained in this Agreement, or contained in certificates of officers of the
Company or the Principal Stockholders submitted pursuant hereto, shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of any International Manager or controlling person, or by or on
behalf of the Company or the Principal Stockholders, and shall survive delivery
of the International Securities to the International Manager. 

          Section 9.  TERMINATION OF AGREEMENT.  (a)  The Lead Managers may
terminate this Agreement, by notice to the Company, at any time at or prior to
the Closing Time (i) if there has been, since the time of execution of this
Agreement or since the respective dates as of which information is given in the
International Prospectus, any Material Adverse Change, whether or not arising in
the ordinary course of business, or (ii) if there has occurred any material
adverse change in the financial markets in the United States or elsewhere or any
outbreak of hostilities or escalation thereof or other calamity or crisis or any
change or development involving a prospective change in national or
international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of the Lead Managers,
impracticable to market the International Securities or to enforce contracts for
the sale of the International Securities, or (iii) if trading in the Common
Stock has been suspended or limited by the Commission or the NYSE, or if trading
generally on the NYSE or in the over-the-counter market has been suspended or
materially limited, or minimum or maximum prices for trading have been fixed, or
maximum ranges for prices have been required, by such exchange or systems or by
order of the Commission, the NASD or any other governmental authority, or (iv)
if a banking moratorium has been declared by either federal, New York or
California authorities.

                                         29




          (b)  If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other party except as
provided in Section 4 hereof, and provided further that Sections 1, 6 and 7
shall survive such termination and remain in full force and effect.

          Section 10.  DEFAULT BY ONE OR MORE OF THE INTERNATIONAL MANAGERS.  If
one or more of the U.S. Underwriters shall fail at the Closing Time to purchase
the Initial International Securities which it or they are obligated to purchase
under this Agreement (the "Defaulted Securities"), the U.S. Representatives
shall have the right, within 24 hours thereafter, to make arrangements for one
or more of the non-defaulting International Managers, or any other underwriters,
to purchase all, but not less than all, of the Defaulted Securities in such
amounts as may be agreed upon and upon the terms herein set forth; if, however,
the Lead Managers shall not have completed such arrangements within such 24-hour
period, then:

          (a)  if the number of Defaulted Securities does not exceed 10% of the
     Offered Securities, each of the non-defaulting International Managers shall
     be obligated, severally and not jointly, to purchase the full amount
     thereof in the proportions that their respective underwriting obligations
     hereunder bear to the underwriting obligations of all non-defaulting
     International Managers, or

          (b)  if the number of Defaulted Securities exceeds 10% of the Offered
     Securities, this Agreement shall terminate without liability on the part of
     any non-defaulting International Manager.

          No action taken pursuant to this Section shall relieve any defaulting
International Manager from liability in respect of its default.

          In the event of any such default which does not result in a
termination of this Agreement, either the Lead Managers or the Company shall
have the right to postpone the Closing Time for a period not exceeding seven
days in order to effect any required changes in the Registration Statement or
International Prospectus or in any other documents or arrangements.

          Section 11.  DEFAULT BY THE COMPANY.  If the Company shall fail at the
Closing Time or at the Date of Delivery to sell and deliver the number of
International Securities which it is obligated to sell hereunder, then the
International Managers may, at their option, by notice from the Lead Managers to
the Company terminate this Agreement without any liability on the part of any
non-defaulting party except as provided in Section 4.

          Section 12.  NOTICES.  All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication.  Notices to the
International Managers shall be directed to the Lead Managers, c/o Merrill Lynch
& International at 20 Farringdon Road, London 

                                         30



EC1M 3NH, Attention:  Marco Martins; notices to the Company or any Principal 
Stockholder shall be directed to the Company or such Principal Stockholder, 
as the case may be, at Guess ?, Inc., 1444 South Alameda Street, Los Angeles, 
California 90021, Attention: Maurice Marciano.

          Section 13.  PARTIES.  This Agreement shall inure to the benefit of
and be binding upon the U.S. Underwriters, the Principal Stockholders and the
Company and their respective successors.  Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person, firm or
corporation, other than the International Managers, the Principal Stockholders
and the Company and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained.  This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the International Managers, the Principal Stockholders and
the Company and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation.  No purchaser of International
Securities from any International Manager shall be deemed to be a successor by
reason merely of such purchase.

          Section 14.  GOVERNING LAW AND TIME.  THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE
TO AGREEMENTS MADE AND TO BE PERFORMED IN SAID STATE.  Except as otherwise set
forth herein, specified times of the day refer to New York City time.

          Section 15.  PRINCIPAL STOCKHOLDERS.  Each of the Maurice Marciano
Trust (1995 Restatement) and Maurice Marciano (collectively, the "Maurice
Marciano Parties"), the Paul Marciano Trust Under Trust Dated February 20, 1986
and Paul Marciano (collectively, the "Paul Marciano Parties") and the Armand
Marciano Trust Under Trust Dated February 20, 1986 and Armand Marciano
(collectively, the "Armand Marciano Parties") agrees that the representations
and warranties, indemnities and agreements of the Maurice Marciano Trust (1995
Restatement), the Paul Marciano Trust under Trust Dated February 20, 1986 or the
Armand Marciano Trust Under Trust Dated February 20, 1986 set forth in this
Agreement  shall be deemed to have been given or made (subject to any
limitations specifically set forth herein), jointly and severally, by each of
the Maurice Marciano Parties, the Paul Marciano Parties or the Armand Marciano
Parties, respectively.

                                         31



          If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
among the International Managers, the Principal Stockholders and the Company in
accordance with its terms.

                              Very truly yours,

                              GUESS ?, INC.
             


                              By: _________________________________
                                  Name:
                                  Title:



                              PRINCIPAL STOCKHOLDERS

Maurice Marciano              THE MAURICE MARCIANO TRUST
                              (1995 RESTATEMENT) 


_________________________          By:__________________________________
                                         Maurice Marciano, as Trustee


Paul Marciano                 THE PAUL MARCIANO TRUST UNDER
                              TRUST DATED FEBRUARY 20, 1986


_________________________          By:__________________________________
                                          Paul Marciano, as Trustee


Armand Marciano               THE ARMAND MARCIANO TRUST UNDER
                              TRUST DATED FEBRUARY 20, 1986


_________________________          By:___________________________________
                                          Armand Marciano, as Trustee


                                         32



CONFIRMED AND ACCEPTED,
as of the date first above written:


MERRILL LYNCH, INTERNATIONAL
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
By: Merrill Lynch International



By__________________________________
        Authorized Signatory

For each of themselves and as Lead Managers of the other
International Managers named in Schedule A hereto.

                                         33




                                   SCHEDULE A



                                       Number of Initial             
                                       International Securities      Total Number of
                                       to be Purchased from          Initial International Securities
Name of International Manager          the Company                   to be Purchased
- -----------------------------          ------------------------      --------------------------------
                                                               
Merrill Lynch International

Morgan Stanley & Co. International
  Limited





                                                                       -------------

Total    . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1,840,000
                                                                       -------------

Sch A-1 SCHEDULE B Number of Initial Number of Option Maximum Number International U.S. Securities of U.S. Securities Securities to be Sold to be Sold to be Sold --------------------- ---------------- ------------------- Guess ?, Inc. 1,840,000 276,000 2,116,000 ------------ TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sch B-1 SCHEDULE C 1,840,000 Shares GUESS ?, INC. (a Delaware corporation) Common Stock (Par Value $.01 Per Share) 1. The initial public offering price per share for the International Securities, determined as provided in Section 2 of the International Purchase Agreement shall be $ . 2. The purchase price per share for the International Securities to be paid by the several International Managers shall be $ , being an amount equal to the initial public offering price set forth above less $ per share; PROVIDED THAT the purchase price per share for any International Option Securities (as defined in the International Purchase Agreement) purchased upon exercise of the over- allotment option described in Section 2(b) of the International Purchase Agreement shall be reduced by an amount per share equal to any dividends declared by the Company and payable on the Initial U.S. Securities (as defined in the International Purchase Agreement) but not payable on the International Option Securities. 1 EXHIBIT A EQUITY INVESTMENTS (as of Pricing Date) Entity Percentage Interest - ------ ------------------- Guess Europe, B.V. 100% Guess Italia S.r.l. 100% Ranche Limited [100%] [New Times Guess, Ltd] 50% 1 EXHIBIT B EQUITY INVESTMENTS (as of S Termination Date) Entity Percentage Interest - ------ ------------------- 1 EXHIBIT C FORM OF OPINION OF COUNSEL TO THE COMPANY [Form to be prepared by Company counsel to the following effect and to be attached as Exhibit C] a. The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware. b. The Company has the corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement and to enter into and perform its obligations under this Agreement. c. The Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in each jurisdiction set forth on Exhibit A hereto. d. The authorized, issued and outstanding capital stock of the Company is as set forth in the International Prospectus in the column entitled "Actual" under the caption "Capitalization"; and none of the outstanding shares of capital stock of the Company was issued in violation of preemptive rights of any stockholder of the Company arising by operation of law, under the charter or bylaws of the Company or, to such counsel's knowledge, under any agreement to which the Company is a party. e. All of the outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable. The Offered Securities have been duly authorized for issuance and sale to the International Managers pursuant to this Agreement and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration required pursuant to this Agreement, will be validly issued and fully paid and nonassessable. f. The issuance of the Offered Securities was not subject, at the date of issue, to statutory preemptive or other similar rights arising by operation of law, under the charter or bylaws of the Company or, to the best of their knowledge, otherwise. g. This Agreement and the U.S. Purchase Agreement have been duly authorized, executed and delivered by the Principal Stockholders. h. This Agreement and the U.S. Purchase Agreement have been duly authorized, executed and delivered by the Company. 2 i. The Registration Statement, including any Rule 462(b) Registration Statement, was declared effective under the 1933 Act; any required filing of the International Prospectus pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); and, to the best of their knowledge and information, no stop order suspending the effectiveness of the Registration Statement has been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission. j. The Registration Statement, including any Rule 462(b) Registration Statement, the Rule 430A Information and the Rule 434 Information, as applicable, the Prospectuses, and each amendment or supplement to the Registration Statement and Prospectuses, as of their respective effective or issue dates (other than the financial statements, notes thereto other financial information and supporting schedules included therein, as to which no opinion need be rendered) complied as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. [k. To the best of their knowledge, there is no pending or threatened action, suit, proceeding, inquiry or investigation to which the Company is a party, or to which the property of the Company is subject, before or brought by any court or governmental agency or body, which could, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect or which could, singly or in the aggregate, reasonably be expected to materially and adversely affect the properties or assets thereof or the consummation of this Agreement or the performance of the Company's obligations hereunder or the transactions contemplated by the Registration Statement.] l. The Common Stock conforms to the description thereof contained in the Prospectuses under the caption "Description of Capital Stock" and the information in the Prospectuses under the captions "Shares Eligible for Future Sale" "Description of Capital Stock," "Certain United States Federal Tax Consequences to Non-United States Holders" and in the Registration Statement under Items 14 and 15, to the extent that it constitutes matters of law or legal proceedings or legal conclusions, has been reviewed by them and fairly present the information disclosed therein in all material respects. m. Such counsel does not know of any pending or threatened legal or governmental proceedings, required to be described in the Prospectuses that are not described as required, nor of any contracts or documents of a character required to be described or referred to in the Registration Statement or the Prospectuses or to be filed as exhibits to the Registration Statement that are not described, referred to or filed as required. n. No consent, approval, authorization or order of any court or governmental agency or body is required for the issue sale and delivery of the Offered Securities or the performance by the Company of its obligations under the Purchase Agreements, except such consents, approvals, authorizations, registrations or qualifications as have been obtained under the Securities Act or under the rules of the National Association of 3 Securities Dealers, Inc. or as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Offered Securities by the Underwriters and as may be required under foreign law in connection with the purchase and distribution of the Offered Securities by the International Managers. o. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein and in the Registration Statement and compliance by the Company with its obligations hereunder and thereunder will not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to the agreements or instruments set forth on Exhibit B hereto, nor will such action result in any violation of the provisions of the charter or bylaws of the Company, or any applicable law (applicable law for this purpose shall be limited to those United States, California and Delaware statutes, laws or regulations currently in effect which, in such counsel's experience, are normally applicable to transactions of the type contemplated by this Agreement). p. This Agreement has been duly executed and delivered by the Principal Stockholders. To the best of such counsel's knowledge, the execution and delivery of this Agreement by the Principal Stockholders and the sale and delivery of the Offered Securities to be sold by the Principal Stockholders do not and will not conflict with, or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Principal Stockholders under any contract, indenture, mortgage, loan, credit or factoring agreement, note, lease or other agreement or instrument set forth on Exhibit C hereto or any existing applicable law, rule, regulation, judgment, order or decree of any government, governmental instrumentality or court, domestic or foreign, having jurisdiction over the Principal Stockholders or any of the Principal Stockholders' properties. In addition, such opinion shall contain a statement substantially to the following effect: "We have not verified, and are not passing upon and do not assume any responsibility for, the accuracy, completeness or fairness of the statements contained in the Registration Statement or Prospectuses, other than those mentioned in subparagraph (l) above. We have, however, generally reviewed and discussed such statements with certain officers of the Guess Companies, its auditors and your representatives. In the course of this review and discussion, no facts have come to our attention that lead us to believe that (i) the Registration Statement (except for the financial statements, notes thereto and other financial information and schedules included therein or omitted therefrom, as to which we have not been requested to comment), at the time the Registration Statement became effective, contained any untrue statement of a material fact or 4 omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) the Prospectuses (except for the financial statements, notes thereto and other financial information included therein or omitted therefrom, as to which we have not been requested to comment), at the time the Prospectuses were issued or on the date hereof, contained any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, or (iii) if the Company has elected to rely upon Rule 434, the Prospectuses are "materially different," as such term is used in Rule 434, from the prospectuses included in the original Registration Statement at the time it became effective, except that such counsel may state that it expresses no opinion or belief with respect to the financial statements, schedules and other financial information included in or excluded from the Registration Statement, as amended, or the Prospectuses, as amended or supplemented." 5

                                                                     EXHIBIT 3.1

                                    RESTATED

                          CERTIFICATE OF INCORPORATION

                                       OF

                                  GUESS ?, INC.


          Guess ?, Inc., a corporation organized and existing under the laws of
the State of Delaware, hereby certifies as follows:

          1.   The name of the corporation is Guess ?, Inc.  Guess ?, Inc. was
     originally incorporated under the name Alameda Holdings, Inc., and the
     original Certificate of Incorporation of the corporation was filed with the
     Secretary of State of the State of Delaware on August 3, 1993.  A Restated
     Certificate of Incorporation of the corporation was filed on November 12,
     1993.

          2.   This Restated Certificate of Incorporation restates and
     integrates and further amends the provisions of the Certificate of
     Incorporation of this corporation and was duly adopted by the written
     consent of the stockholders of the Corporation in accordance with the
     provisions of Sections 228, 242 and 245 of the General Corporation Law of
     the State of Delaware.

          3.   The text of the Restated Certificate of Incorporation as
     heretofore amended or supplemented is hereby restated and further amended
     to read in its entirety as follows:


                                   "ARTICLE I

                                      NAME

SECTION 1.1.  NAME.  The name of the Corporation is Guess ?, Inc. (hereinafter,
the "CORPORATION").


                                   ARTICLE II

          REGISTERED OFFICE AND REGISTERED AGENT; LOCATION OF MEETINGS
                         AND CORPORATE BOOKS AND RECORDS

          SECTION 2.1.  OFFICE AND AGENT.  The address of the registered office
of the Corporation in the State of Delaware is 1209 Orange Street, in the City
of Wilmington,




County of New Castle.  The name of its registered agent at that address is The
Corporation Trust Company.

          SECTION 2.2.  MEETINGS; BOOKS AND RECORDS.  Meetings of stockholders
may be held outside of the State of Delaware.  The books of the Corporation may
be kept outside of the State of Delaware at such place or places as may be
designated from time to time by the Board of Directors or in the Bylaws of the
Corporation.


                                   ARTICLE III

                        CORPORATE PURPOSES AND EXISTENCE

          SECTION 3.1.  CORPORATE PURPOSES AND EXISTENCE.  The purpose of the
Corporation is to engage in any lawful act or activity for which a corporation
may be organized under the General Corporation Law of the State of Delaware as
set forth in Title 8 of the Delaware Code.  The Corporation is to have perpetual
existence.


                                   ARTICLE IV

                                 CAPITALIZATION

          SECTION 4.1.  AUTHORIZED CAPITAL.  The total number of shares of
capital stock that the Corporation shall have the authority to issue is:

          (a)  150,000,000 shares of common stock, par value $.01 per share (the
     "COMMON STOCK"); and

          (b)  10,000,000 shares of preferred stock, par value $.01 per share
     (the "PREFERRED STOCK").

          SECTION 4.2.  STOCK SPLIT.  Each share of common stock, par value $.01
per share, of the Corporation issued and outstanding, or retained in treasury,
as of the opening of business on the day on which this Restated Certificate of
Incorporation is filed with the Secretary of State of the State of Delaware,
shall be converted into 32.664669 shares of Common Stock without further action
by the Corporation or any stockholder thereof.  No fractional shares shall be
issued upon such conversion and if any stockholder of the Corporation shall be
entitled to less than one full share of Common Stock, such stockholder shall be
paid cash in lieu of such fractional share equal to the fair value of such
fractional share at the time of such conversion.

          SECTION 4.3.  ISSUANCE.  The shares of stock of the Corporation may be
issued by the Corporation from time to time for such consideration as from time
to time may


                                        2




be fixed by the Board of Directors of the Corporation; and all issued shares of
the Corporation shall be deemed fully paid and non-assessable.

          SECTION 4.4.  COMMON STOCK.  (a)  IDENTICAL RIGHTS AND PRIVILEGES; NO
PREEMPTIVE RIGHTS.  All outstanding shares of Common Stock shall be identical
and shall entitle the holders thereof to the same rights and privileges.  The
holders of shares of Common Stock shall have no preemptive or preferential
rights of subscription to any shares of any class of capital stock of the
Corporation.

          (b)  DIVIDENDS AND DISTRIBUTIONS.  When, as and if dividends or
distributions are declared on outstanding shares of Common Stock, whether
payable in cash, in property or in securities of the Corporation, the holders of
outstanding shares of Common Stock shall be entitled to share equally, share for
share, in such dividends and distributions.

          (c)  LIQUIDATION.  Upon any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of outstanding
shares of Common Stock shall be entitled to share equally, share for share, in
the assets of the Corporation to be distributed among the holders of shares of
the Common Stock.

          (d)  VOTING RIGHTS.  (i)  IN GENERAL.  The holders of outstanding
shares of Common Stock shall have the right to vote on the election and removal
of the directors of the Corporation and on all other matters to be voted on by
the shareholders of the Corporation.

          (ii)  PROCEDURES AT MEETINGS.  At every meeting with respect to
matters on which the holders of outstanding shares of Common Stock are entitled
to vote, the holders of outstanding shares of Common Stock shall be entitled to
one vote per share.

          SECTION 4.5.  PREFERRED STOCK.  Shares of the preferred stock of the
Corporation may be issued from time to time in one or more classes or series,
each of which class or series shall have such distinctive designation or title
as shall be fixed by the Board of Directors of the Corporation prior to the
issuance of any shares thereof.  Each such class or series of preferred stock
shall have such voting powers, full or limited, or no voting powers, and such
other relative, participating, optional or other rights, preferences, privileges
and restrictions, including the voting rights, redemption provisions (including
sinking fund provisions), dividend rights, dividend rates, liquidation
preferences and conversion rights, and such qualifications, limitations or
restrictions thereof, as shall be stated in such resolution or resolutions
providing for the issuance of such class or series of preferred stock as may be
adopted from time to time by the Board of Directors prior to the issuance of any
shares thereof pursuant to the authority hereby expressly vested in it, all in
accordance with the laws of the State of Delaware.  Any action by the Board of
Directors under this Section 4.5 shall require the affirmative vote of a
majority of the members of the Board of Directors then in office.


                                        3




                                    ARTICLE V

                                 INDEMNIFICATION

          SECTION 5.1.  INDEMNIFICATION.  (a)  The Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.  The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person seeking indemnification did not act in good faith
and in a manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.

          (b)  The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery of the State of Delaware or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.

          (c)  To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
Section 5.1, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.


                                        4




          (d)  Any indemnification under subsections (a) and (b) of this Section
5.1 (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in such subsections (a) and
(b).  Such determination shall be made (i) by a majority vote of directors who
are not parties to such action, suit or proceeding even though less than a
quorum, or (ii) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (iii) by the stockholders
of the Corporation.

          (e)  Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation authorized in this Article V.  Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors of the Corporation deems
appropriate.

          (f)  The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this Article V shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, by-law, agreement, vote
of stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office.

          (g)  The Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of Section 145 of the General Corporation
Law.

          (h)  For purposes of this Article V, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Article V with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.


                                        5




          (i)  For purposes of this Article V, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves service by, such director, officer, employee or
agent with respect to any employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Article V.

          (j)  The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article V shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.

          (k)  No amendment or repeal of this Article V shall apply to or have
any effect upon any right to indemnification provided hereunder with respect to
acts or omissions occurring prior to such amendment or repeal.


                                   ARTICLE VI

                             INTERESTED TRANSACTIONS

          SECTION 6.1.  INTERESTED TRANSACTIONS.  No contract or other
transaction between the Corporation and any person, firm, association or
corporation and no act of the Corporation shall, in the absence of fraud, be
invalidated or in any way affected by the fact that any of the Directors of the
Corporation are pecuniarily or otherwise interested, directly or indirectly, in
such contract, transaction or act, or are related to or interested in, as a
director, stockholder, officer, employee, member or otherwise, such person,
firm, association or corporation.  Any Director so interested or related who is
present at any meeting of the Board of Directors or committee or directors at
which action on any such contract, transaction or act is taken may be counted in
determining the presence of a quorum at such meeting and may vote thereat with
respect to such contract, transaction or act with like force and effect as if he
was not so interested or related.  No Director so interested or related shall,
because of such interest or relationship, be disqualified from holding his
office or be liable to the Corporation or any stockholder or creditor thereof
for any loss incurred by the Corporation under or by reason of such contract,
transaction or act, or be accountable for any gains or profits he may have
realized therein.


                                        6




                                   ARTICLE VII

                             LIABILITY OF A DIRECTOR

          SECTION 7.1.  LIABILITY OF A DIRECTOR.  (a)  A director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law of the State of Delaware or (iv) for
any transaction from which the director derived any improper personal benefit.

          (b)  Any repeal or modification of this Article VII shall not
adversely affect any right or protection of a director of the Corporation
existing at the time of such repeal or modification.


                                  ARTICLE VIII

                  MANAGEMENT OF THE AFFAIRS OF THE CORPORATION

          SECTION 8.1.  MANAGEMENT OF THE AFFAIRS OF THE CORPORATION.  (a)  The
business and affairs of the Corporation shall be managed by its Board of
Directors, which may exercise all the powers of the Corporation and do all such
lawful acts and things that are not conferred upon or reserved to the
stockholders by law, by this Restated Certificate of Incorporation or by the
Bylaws of the Corporation (the "BYLAWS").

          (b)  The following provisions are inserted for the limitation and
regulation of the powers of the Corporation and of its directors and
stockholders:

          (i)  The Board of Directors shall have the power to make, alter,
     amend, change or repeal the Bylaws by the affirmative vote of a majority of
     the members of the Board of Directors then in office.  In addition, the
     Bylaws may be made, altered, amended, changed or repealed by the
     stockholders of the Corporation upon the affirmative vote of the holders of
     at least 66-2/3% of the outstanding capital stock entitled to vote thereon.

          (ii)  The number of directors of the Corporation shall be as from time
     to time fixed by, or in the manner provided in, the Bylaws of the
     Corporation.  The directors shall be divided into three classes, designated
     Class I, Class II and Class III.  Each class shall consist, as nearly as
     may be possible, of one-third of the total number of directors constituting
     the entire Board of Directors.  The term of the initial Class I directors
     shall terminate on the date of the 1997 annual meeting of stockholders; the
     term of the initial Class II directors shall terminate on the date of the
     1998 annual


                                        7




     meeting of stockholders; and the term of the initial Class III directors
     shall terminate on the date of the 1999 annual meeting of stockholders.  At
     each annual meeting of stockholders beginning in 1997, successors to the
     class of directors whose term expires at that annual meeting shall be
     elected for a three year term.  If the number of directors is changed, any
     increase or decrease shall be apportioned among the classes so as to
     maintain the number of directors in each class as nearly equal as possible,
     but in no case will a decrease in the number of directors shorten the term
     of any incumbent director.  A director shall hold office until the annual
     meeting for the year in which his term expires and until his successor
     shall be elected and shall qualify, subject, however, to prior death,
     resignation, retirement, disqualification or removal from office.

          The term of a director elected to fill a newly created directorship or
     other vacancy shall expire at the same time as the terms of the other
     directors of the class for which the new directorship is created or in
     which the vacancy occurred.  Any vacancy on the Board of Directors that
     results from an increase in the number of directors and any other vacancy
     occurring on the Board of Directors, howsoever resulting, may be filled by
     a majority of the directors then in office, even if less than a quorum, or
     by a sole remaining director.  Any director so elected by the Board of
     Directors to fill a vacancy shall hold office for a term that shall
     coincide with the term of the class to which such director shall have been
     elected.

          Notwithstanding the foregoing, whenever the holders of any one or more
     classes or series of preferred stock issued by the Corporation shall have
     the right, voting separately by class or series, to elect directors at an
     annual or special meeting of stockholders, the election, term of office,
     filling of vacancies and other features of such directorships shall be
     governed by the terms of this Restated Certificate of Incorporation or the
     resolution or resolutions adopted by the Board of Directors pursuant to
     Section 4.5 applicable thereto, and such directors so elected shall not be
     divided into classes pursuant to this clause (b) of Article VIII unless
     expressly provided by such terms.

          (iii)  Subject to the rights, if any, of the holders of shares of
     preferred stock then outstanding, any or all of the directors of the
     Corporation may be removed from office at any time by the stockholders of
     the Corporation, but only for cause and only by the affirmative vote of the
     holders of a majority of the outstanding shares of the Corporation then
     entitled to vote generally in the election of directors, considered for
     purposes of this paragraph as one class.

          (iv)  Any action required or permitted to be taken at any annual or
     special meeting of stockholders may be taken only upon the vote of the
     stockholders at an annual or special meeting duly noticed and called, as
     provided herein and in the Bylaws of the Corporation, and may not be taken
     by a written consent of the stockholders pursuant to the General
     Corporation Law of the State of Delaware.



                                        8




          (v)  Special meetings of the stockholders of the Corporation for any
     purpose or purposes may be called at any time by the Chairman of the Board
     of Directors, the Chief Executive Officer or the President of the
     Corporation.  Special meetings of the stockholders of the Corporation may
     not be called by any other person or persons.

          (vi)  The Board of Directors shall have the exclusive authority and
     power to determine whether and to what extent, and at what times and
     places, and under what conditions and regulations, the accounts and books
     of the Corporation, or any of them, shall be open to inspection of
     stockholders; and no stockholder shall have any right to inspect any
     account, book or document of the Corporation except as conferred by
     applicable law or authorized by the Bylaws or by the Board of Directors.

          The Corporation may in its Bylaws confer powers upon the Board of
Directors in addition to the foregoing and in addition to the powers and
authorities expressly conferred upon the Board of Directors by applicable law.


                                   ARTICLE IX

                                   AMENDMENTS

          SECTION 9.1.  AMENDMENTS.  Notwithstanding anything contained in this
Restated Certificate of Incorporation to the contrary, the affirmative vote of
the holders of at least 66-2/3% of the outstanding shares of Common Stock shall
be required to amend or repeal, or adopt any provision inconsistent with, clause
(b) of Article VIII or this Article IX of this Restated Certificate of
Incorporation.


                                    ARTICLE X

                                PRIVATE PROPERTY

          SECTION 10.1.  PRIVATE PROPERTY.  The private property of the
stockholders of the Corporation shall not be subject to the payment of corporate
debts to any extent whatsoever."

          This Restated Certificate of Incorporation shall be effective upon its
filing with the Secretary of State of the State of Delaware.


                                        9




          IN WITNESS WHEREOF, this Restated Certificate of Incorporation has
been signed under the seal of the Corporation this _________ day of July, 1996.


                              GUESS ?, INC.


                              By:
                                 --------------------------------------------
                                Name:   Maurice Marciano
                                Title:  Chairman and Chief Executive Officer




ATTEST:


By:
   ----------------------------------------------
  Name:   Armand Marciano
  Title:  Secretary


                                       10

                                                                     EXHIBIT 3.2

                                                           Adopted July __, 1996






- -------------------------------------------------------------------------------


                                     BYLAWS

                                       OF

                                  GUESS ?, INC.


- -------------------------------------------------------------------------------




                                TABLE OF CONTENTS


SECTION                                                                     PAGE


                                    ARTICLE I

                                     OFFICES

     1.01.  Registered Office. . . . . . . . . . . . . . . . . . . . . . . .   1
     1.02.  Other Offices. . . . . . . . . . . . . . . . . . . . . . . . . .   1

                                   ARTICLE II

                            MEETINGS OF STOCKHOLDERS

     2.01.  Annual Meetings. . . . . . . . . . . . . . . . . . . . . . . . .   1
     2.02.  Special Meetings . . . . . . . . . . . . . . . . . . . . . . . .   1
     2.03.  Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . .   2
     2.04.  Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . .   2
     2.05.  Adjournments . . . . . . . . . . . . . . . . . . . . . . . . . .   2
     2.06.  Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   3
     2.07.  Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   3
     2.08.  Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . . . .   3
     2.09.  Advance Notice of Business to be Transacted at Stockholder 
            Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . .   3

                                   ARTICLE III

                               BOARD OF DIRECTORS

     3.01.  General Powers . . . . . . . . . . . . . . . . . . . . . . . . .   5
     3.02.  Number and Term of Office. . . . . . . . . . . . . . . . . . . .   5
     3.04.  Resignation. . . . . . . . . . . . . . . . . . . . . . . . . . .   6
     3.05.  Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . .   7
     3.06.  Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . .   7
     3.07.  Committees of the Board. . . . . . . . . . . . . . . . . . . . .   8
     3.08.  Directors' Consent in Lieu of Meeting. . . . . . . . . . . . . .   9
     3.09.  Action by Means of Telephone or Similar Communications 
            Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . .   9
     3.10.  Compensation . . . . . . . . . . . . . . . . . . . . . . . . . .   9


                                       (i)




SECTION                                                                     PAGE


                                   ARTICLE IV

                                    OFFICERS

     4.01.  Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . .   9
     4.02.  Authority and Duties . . . . . . . . . . . . . . . . . . . . . .  10
     4.03.  Term of Office, Resignation and Removal. . . . . . . . . . . . .  10
     4.04.  Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . .  10
     4.05.  The Chairman . . . . . . . . . . . . . . . . . . . . . . . . . .  10
     4.06.  The Chief Executive Officer. . . . . . . . . . . . . . . . . . .  10
     4.07.  The President. . . . . . . . . . . . . . . . . . . . . . . . . .  11
     4.08.  The Chief Operating Officer. . . . . . . . . . . . . . . . . . .  11
     4.09.  Vice Presidents. . . . . . . . . . . . . . . . . . . . . . . . .  11
     4.10.  The Secretary. . . . . . . . . . . . . . . . . . . . . . . . . .  11
     4.11.  Assistant Secretaries. . . . . . . . . . . . . . . . . . . . . .  12
     4.12.  The Chief Financial Officer. . . . . . . . . . . . . . . . . . .  12
     4.13.  Assistant Financial Officers . . . . . . . . . . . . . . . . . .  12

                                    ARTICLE V

              CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, AND PROXIES

     5.01.  Execution of Documents . . . . . . . . . . . . . . . . . . . . .  12

                                   ARTICLE VI

                         SHARES AND TRANSFERS OF SHARES

     6.01.  Certificates Evidencing Shares . . . . . . . . . . . . . . . . .  13
     6.02.  Stock Ledger . . . . . . . . . . . . . . . . . . . . . . . . . .  13
     6.03.  Transfers of Shares. . . . . . . . . . . . . . . . . . . . . . .  14
     6.04.  Addresses of Stockholders. . . . . . . . . . . . . . . . . . . .  14
     6.05.  Lost, Destroyed and Mutilated Certificates . . . . . . . . . . .  14
     6.06.  Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . .  14
     6.07.  Fixing Date for Determination of Stockholders of Record. . . . .  14

                                   ARTICLE VII

                                      SEAL

     7.01.  Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15


                                      (ii)





SECTION                                                                     PAGE


                                  ARTICLE VIII

                                   FISCAL YEAR

     8.01.  Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . .  15

                                   ARTICLE IX

                          INDEMNIFICATION AND INSURANCE

     9.01.  Indemnification. . . . . . . . . . . . . . . . . . . . . . . . .  15
     9.02.  Insurance for Indemnification. . . . . . . . . . . . . . . . . .  17

                                    ARTICLE X

                                   AMENDMENTS

     10.01.  Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . .  18


                                      (iii)




                                                           Adopted July __, 1996


                                     BYLAWS

                                       OF

                                  GUESS ?, INC.



                                    ARTICLE I

                                     OFFICES

          SECTION 1.01.  REGISTERED OFFICE.  The registered office of Guess ?,
Inc. (the "CORPORATION") in the State of Delaware shall be at the principal
office of The Corporation Trust Company in the City of Wilmington, County of New
Castle, and the registered agent in charge thereof shall be The Corporation
Trust Company.

          SECTION 1.02.  OTHER OFFICES.  The Corporation may also have an office
or offices at any other place or places within or without the State of Delaware
as the Board of Directors of the Corporation (the "BOARD") may from time to time
determine or the business of the Corporation may from time to time require.


                                   ARTICLE II

                            MEETINGS OF STOCKHOLDERS

          SECTION 2.01.  ANNUAL MEETINGS.  The annual meeting of stockholders of
the Corporation for the election of directors of the Corporation ("DIRECTORS"),
and for the transaction of such other business as may properly come before such
meeting, shall be held at such place, date and time as shall be fixed by the
Board and designated in the notice or waiver of notice of such annual meeting.

          SECTION 2.02.  SPECIAL MEETINGS.  Special meetings of stockholders for
any purpose or purposes may be called by the Chairman of the Board (the
"CHAIRMAN"), the Chief Executive Officer of the Corporation (the "CHIEF
EXECUTIVE OFFICER") or the President of the Corporation (the "PRESIDENT"), to be
held at such place, date and time as shall be designated in the notice or waiver
of notice thereof.

          Only such business as is stated in the written notice of a special
meeting may be acted upon thereat.




          SECTION 2.03.  NOTICE OF MEETINGS.  (a)  Except as otherwise provided
by law, written notice of each annual or special meeting of stockholders stating
the place, date and time of such meeting and, in the case of a special meeting,
the purpose or purposes for which such meeting is to be held, shall be given
personally or by first-class mail (airmail in the case of international
communications) to each stockholder entitled to vote thereat, not less than 10
nor more than 60 days before the date of such meeting.  If mailed, such notice
shall be deemed to be given when deposited in the United States mail, postage
prepaid, directed to the stockholder at such stockholder's address as it appears
on the records of the Corporation.  If, prior to the time of mailing, the
Secretary shall have received from any stockholder a written request that
notices intended for such stockholder are to be mailed to some address other
than the address that appears on the records of the Corporation, notices
intended for such stockholder shall be mailed to the address designated in such
request.

          (b)  Notice of a special meeting of stockholders may be given by the
person or persons calling the meeting, or, upon the written request of such
person or persons, such notice shall be given by the Secretary of the
Corporation (the "SECRETARY") or any Assistant Secretary on behalf of such
person or persons.  If the person or persons calling a special meeting of
stockholders give notice thereof, such person or persons shall deliver a copy of
such notice to the Secretary.  Each request to the Secretary for the giving of
notice of a special meeting of stockholders shall state the purpose or purposes
of such meeting.

          SECTION 2.04.  WAIVER OF NOTICE.  Notice of any annual or special
meeting of stockholders need not be given to any stockholder who files a written
waiver of notice with the Secretary, signed by the person entitled to notice,
whether before or after such meeting.  Neither the business to be transacted at,
nor the purpose of, any meeting of stockholders need be specified in any written
waiver of notice thereof.  Attendance of a stockholder at a meeting, in person
or by proxy, shall constitute a waiver of notice of such meeting, except when
such stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the grounds that
the notice of such meeting was inadequate or improperly given.

          SECTION 2.05.  ADJOURNMENTS.  Whenever a meeting of stockholders,
annual or special, is adjourned to another date, time or place, notice need not
be given of the adjourned meeting if the date, time and place thereof are
announced at the meeting at which the adjournment is taken.  If the adjournment
is for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder entitled to vote thereat.  At the adjourned meeting, any
business may be transacted which might have been transacted at the original
meeting.

          When any meeting is convened the presiding officer, if directed by the
Board, may adjourn the meeting if (a) no quorum is present for the transaction
of business, or (b) the Board determines that adjournment is necessary or
appropriate to enable the stockholders 


                                        2





(i) to consider fully information which the Board determines has not been made
sufficiently or timely available to stockholders or (ii) otherwise to exercise
effectively their voting rights.

          SECTION 2.06.  QUORUM.  Except as otherwise provided by law or the
Certificate of Incorporation of the Corporation as in effect from time to time
(the "CERTIFICATE OF INCORPORATION"), whenever a class of stock of the
Corporation is entitled to vote as a separate class, or whenever classes of
stock of the Corporation are entitled to vote together as a single class, on any
matter brought before any meeting of stockholders, whether annual or special,
holders of shares entitled to cast a majority of the votes entitled to be cast
by all the holders of the shares of stock of such class voting as a separate
class, or classes voting together as a single class, as the case may be,
outstanding and entitled to vote thereat, present in person or by proxy, shall
constitute a quorum at any such meeting of stockholders.  If, however, such
quorum shall not be present in person or by proxy at any meeting of
stockholders, the stockholders entitled to vote thereat may adjourn the meeting
from time to time in accordance with Section 2.05 hereof until a quorum shall be
present in person or by proxy.

          SECTION 2.07.  VOTING.  Except as otherwise provided by law or the
Certificate of Incorporation or these Bylaws, when a quorum is present with
respect to any matter brought before any meeting of the stockholders, the vote
of the holders of shares entitled to cast a majority of the votes entitled to be
cast by all the holders of the shares constituting such quorum shall decide any
such matter.  Unless otherwise provided in the Certificate of Incorporation,
each stockholder present in person or by proxy at a meeting of the stockholders
shall be entitled to cast one vote for each share of the capital stock entitled
to vote thereat held by such stockholder.

          SECTION 2.08.  PROXIES.  Each stockholder entitled to vote at a
meeting of stockholders or to express, in writing, consent to or dissent from
any corporate action without a meeting may authorize another person or persons
to act for such stockholder by proxy.  Such proxy shall be filed with the
Secretary before such meeting of stockholders or such corporate action without a
meeting, at such time as the Board may require.  No proxy shall be voted or
acted upon more than three years from its date, unless the proxy provides for a
longer period.

          SECTION 2.09.  ADVANCE NOTICE OF BUSINESS TO BE TRANSACTED AT
STOCKHOLDER MEETINGS.  No business may be transacted at an annual meeting of
stockholders, other than business that is either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board
(or any duly authorized committee thereof), (b) otherwise properly brought
before the annual meeting by or at the direction of the Board (or any duly
authorized committee thereof) or (c) otherwise properly brought before the
annual meeting by any stockholder of the Corporation (i) who is a stockholder of
record on the date of the giving of the notice provided for in this Section 2.09
and on the record date for the determination of stockholders entitled to vote at
such annual meeting and (ii) who complies with the notice procedures set forth
in this Section 2.09.


                                        3




          In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Corporation.

          To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the anniversary
date of the immediately preceding annual meeting of stockholders; PROVIDED,
HOWEVER, that (i) in the event that the annual meeting is called for a date that
is not within 30 days before or after such anniversary date, or (ii) in the case
of the annual meeting of stockholders held during the 1997 fiscal year of the
Corporation, notice by the stockholder in order to be timely must be so received
not later than the close of business on the tenth day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure of the date of the annual meeting was made, whichever first occurs.

          To be in proper written form, a stockholder's notice to the Secretary
must set forth as to each matter such stockholder proposes to bring before the
annual meeting (a) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (b) the name and record address of such stockholder, (c) the
class or series and number of shares of capital stock of the Corporation which
are owned beneficially or of record by such stockholder, (d) a description of
all arrangements or understandings between such stockholder and any other person
or persons (including their names) in connection with the proposal of such
business by such stockholder and any material interest of such stockholder in
such business and (e) a representation that such stockholder intends to appear
in person or by proxy at the annual meeting to bring such business before the
meeting.

          No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 2.09, PROVIDED, HOWEVER, that, once
business has been properly brought before the annual meeting in accordance with
such procedures, nothing in this Section 2.09 shall be deemed to preclude
discussion by any stockholder of any such business.  If the chairman of an
annual meeting determines that business was not properly brought before the
annual meeting in accordance with the foregoing procedures, the chairman shall
declare to the meeting that the business was not properly brought before the
meeting and such business shall not be transacted.


                                        4




                                   ARTICLE III

                               BOARD OF DIRECTORS

          SECTION 3.01.  GENERAL POWERS.  The business and affairs of the
Corporation shall be managed by the Board, which may exercise all such powers of
the Corporation and do all such lawful acts and things as are not by law, the
Certificate of Incorporation or these Bylaws directed or required to be
exercised or done by stockholders.

          SECTION 3.02.  NUMBER AND TERM OF OFFICE.  Subject to the rights, if
any, of holders of preferred stock of the Corporation, the Board shall consist
of not less than three nor more than fifteen members, the exact number of which
shall be fixed from time to time by the Board.  The Board shall, by resolution
passed by a majority of the Board, designate the directors to serve as initial
Class I, Class II and Class III directors upon filing of the Certificate of
Incorporation with the Secretary of State of the State of Delaware.  Except as
provided in Section 3.05 of this Article III, directors shall be elected by a
plurality of the votes cast at annual meetings of stockholders, and each
director so elected shall hold office as provided by Article VIII of the
Certificate of Incorporation.  None of the directors need be stockholders of the
Corporation.

          SECTION 3.03.  NOMINATION OF DIRECTORS AND ADVANCE NOTICE THEREOF. 
Only persons who are nominated in accordance with the following procedures shall
be eligible for election as directors of the Corporation except as may be
otherwise provided in the Certificate of Incorporation with respect to the right
of holders of preferred stock of the Corporation to nominate and elect a
specified number of directors in certain circumstances.  Nominations of persons
for election to the Board of Directors may be made at any annual meeting of
stockholders, or at any special meeting of stockholders called for the purpose
of electing directors, (a) by or at the direction of the Board (or any duly
authorized committee thereof) or (b) by any stockholder of the Corporation
(i) who is a stockholder of record on the date of the giving of the notice
provided for in this Section and on the record date for the determination of
stockholders entitled to vote at such meeting and (ii) who complies with the
notice procedures set forth in this Section 3.03.

          In addition to any other applicable requirements, for a nomination to
be made by a stockholder, such stockholder must have given timely notice thereof
in proper written form to the Secretary of the Corporation.

          To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation (a) in the case of any annual meeting, not less than 60 days nor
more than 90 days prior to the anniversary date of the immediately preceding
annual meeting of stockholders; PROVIDED, HOWEVER, that (i) in the event that
the annual meeting is called for a date that is not within 30 days before or
after such anniversary date, or (ii) in the case of the annual meeting of
stockholders held during the 1997 fiscal year of the Corporation, notice by the
stockholder in order to be 


                                        5




timely must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever first occurs; and (b) in the case of a special meeting of stockholders
called for the purpose of electing directors, not later than the close of
business on the tenth day following the day on which notice of the date of the
special meeting was mailed or public disclosure of the date of the special
meeting was made, whichever first occurs.

          To be in proper written form, a stockholder's notice to the Secretary
must set forth (a) as to each person whom the stockholder proposes to nominate
for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital stock of the
Corporation which are owned beneficially or of record by the person and (iv) any
other information relating to the person that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nomination(s) are to be made by such stockholder, (iv) a
representation that such stockholder intends to appear in person or by proxy at
the meeting to nominate the persons named in its notice and (v) any other
information relating to such stockholder that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder.  Each
proposed nominee shall consent in writing to being named as a nominee and to
serve as a director if elected, and such written consent must be submitted with
the stockholder's notice to the Secretary.

          No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 3.03.  If the chairman of the meeting determines that a nomination was
not made in accordance with the foregoing procedures, the chairman shall declare
to the meeting that the nomination was defective and such defective nomination
shall be disregarded.

          SECTION 3.04.  RESIGNATION.  Any Director may resign at any time by
giving written notice to the Board, the Chairman, the Chief Executive Officer,
the President or the Secretary.  Such resignation shall take effect at the time
specified in such notice or, if the time be not specified, upon receipt thereof
by the Board, the Chairman, the Chief Executive Officer, the President or the
Secretary, as the case may be.  Unless otherwise specified therein, acceptance
of such resignation shall not be necessary to make it effective.


                                        6




          SECTION 3.05.  VACANCIES.  Vacancies occurring in the Board and newly
created directorships may be filled by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director.  Any
director elected to fill a vacancy shall hold office for a term that shall
coincide with the term of the class to which such director shall have been
elected.

          SECTION 3.06.  MEETINGS.  (a)  ANNUAL MEETINGS.  As soon as
practicable after each annual election of Directors by the stockholders, the
Board shall meet for the purpose of organization and the transaction of other
business, unless it shall have transacted all such business by written consent
pursuant to Section 3.08 hereof.

          (b)  OTHER MEETINGS.  Other meetings of the Board shall be held at
such times as the Board, the Chairman, the Chief Executive Officer, the
President or the Secretary shall from time to time determine.

          (c)  NOTICE OF MEETINGS.  The Secretary or any Assistant Secretary
shall give written notice to each Director of each meeting of the Board, which
notice shall state the place, date, time and purpose of such meeting.  Notice of
each such meeting shall be given to each Director, if by mail, addressed to him
at his residence or usual place of business, at least two days before the day on
which such meeting is to be held, or shall be sent to him at such place by
telecopy, telegraph, cable, or other form of recorded communication, or be
delivered personally or by telephone not later than the day before the day on
which such meeting is to be held.  A written waiver of notice, signed by the
Director entitled to notice, whether before or after the time of the meeting
referred to in such waiver, shall be deemed equivalent to notice.  Neither the
business to be transacted at, nor the purpose of any meeting of the Board need
be specified in any written waiver of notice thereof.  Attendance of a Director
at a meeting of the Board shall constitute a waiver of notice of such meeting,
except as provided by law.


          (d)  PLACE OF MEETINGS.  The Board may hold its meetings at such place
or places within or without the State of Delaware as the Board or the Chairman
may from time to time determine, or as shall be designated in the respective
notices or waivers of notice of such meetings.

          (e)  QUORUM AND MANNER OF ACTING.  A majority of the total number of
Directors (but not less than two) shall constitute a quorum for the transaction
of business at any meeting of the Board, and the vote of a majority of those
Directors present at any such meeting at which a quorum is present shall be
necessary for the passage of any resolution or act of the Board, except as
otherwise expressly required by law, the Certificate of Incorporation or these
Bylaws.  In the absence of a quorum for any such meeting, a majority of the
Directors present thereat may adjourn such meeting from time to time until a
quorum shall be present.


                                        7




          (f)  ORGANIZATION.  At each meeting of the Board, one of the following
shall act as chairman of the meeting and preside, in the following order of
precedence:

               (i)    the Chairman;

               (ii)   the Chief Executive Officer or President;

               (iii)  any Director chosen by a majority of the Directors
                      present.

The Secretary or, in the case of his absence, any person (who shall be an
Assistant Secretary, if an Assistant Secretary is present) whom the chairman of
the meeting shall appoint shall act as secretary of such meeting and keep the
minutes thereof.

          SECTION 3.07.  COMMITTEES OF THE BOARD.  The Board may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more Directors.  The Board may designate one or
more Directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of such committee.  In the absence or
disqualification of a member of a committee, and in the absence of a designation
by the Board of an alternate member to replace the absent or disqualified
member, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another Director to act at the meeting in the place of any
such absent or disqualified member.  Any committee of the Board, to the extent
provided in the resolution of the Board designating such committee, shall have
and may exercise all the powers and authority of the Board in the management of
the business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; PROVIDED, HOWEVER,
that no such committee shall have such power or authority in reference to
amending the Certificate of Incorporation (except that such a committee may, to
the extent authorized in the resolution or resolutions providing for the
issuance of shares of stock adopted by the Board as provided in Section 151(a)
of the General Corporation Law of the State of Delaware (the "GENERAL
CORPORATION LAW"), fix the designations and any of the preferences or rights of
such shares relating to dividends, redemption, dissolution, any distribution of
assets of the Corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes of stock of the Corporation or fix the
number of shares of any series of stock or authorize the increase or decrease of
the shares of any series), adopting an agreement of merger or consolidation
under Section 251, 252, 254, 255, 256, 257, 258, 263, or 264 of the General
Corporation Law, recommending to the stockholders the sale, lease or exchange of
all or substantially all the Corporation's property and assets, recommending to
the stockholders a dissolution of the Corporation or the revocation of a
dissolution, or amending these Bylaws; PROVIDED, FURTHER, HOWEVER, that, unless
expressly so provided in the resolution of the Board designating such committee,
no such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law.  Each committee
of the Board shall keep 


                                        8




regular minutes of its proceedings and report the same to the Board when so
requested by the Board.


          SECTION 3.08.  DIRECTORS' CONSENT IN LIEU OF MEETING.  Any action
required or permitted to be taken at any meeting of the Board or of any
committee thereof may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by all the members of the Board or such committee and such
consent is filed with the minutes of the proceedings of the Board or such
committee.

          SECTION 3.09.  ACTION BY MEANS OF TELEPHONE OR SIMILAR COMMUNICATIONS
EQUIPMENT.  Any one or more members of the Board, or of any committee thereof,
may participate in a meeting of the Board or such committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting by such means shall constitute presence in person at such meeting.

          SECTION 3.10.  COMPENSATION.  Unless otherwise restricted by the
Certificate of Incorporation, the Board may determine the compensation of
Directors.  In addition, as determined by the Board, Directors may be reimbursed
by the Corporation for their expenses, if any, in the performance of their
duties as Directors.  No such compensation or reimbursement shall preclude any
Director from serving the Corporation in any other capacity and receiving
compensation therefor.


                                   ARTICLE IV

                                    OFFICERS

          SECTION 4.01.  OFFICERS.  The officers of the Corporation shall be the
Chairman, the President, the Chief Executive Officer, the Chief Operating
Officer, the Secretary and the Chief Financial Officer and may include one or
more Vice Presidents (which may include Senior Vice Presidents, Executive Vice
Presidents and Senior Executive Vice Presidents) and one or more Assistant
Secretaries and one or more Assistant Financial Officers.  Any two or more
offices may be held by the same person.

          SECTION 4.02.  AUTHORITY AND DUTIES.  All officers, as between
themselves and the Corporation, shall have such authority and perform such
duties in the management of the Corporation as may be provided in these Bylaws
or, to the extent not so provided, by resolution of the Board.

          SECTION 4.03.  TERM OF OFFICE, RESIGNATION AND REMOVAL.  (a)  Each
officer shall be elected or appointed by, or in such matter as shall be
determined by, the Board and shall hold office for such term as may be
determined by the Board.  Each officer shall hold 


                                        9




office until his successor has been appointed and qualified or his earlier death
or resignation or removal in the manner hereinafter provided.  The Board may
require any officer to give security for the faithful performance of his duties.

          (b)  Any officer may resign at any time by giving written notice to
the Board, the Chairman, the Chief Executive Officer, the President or the
Secretary.  Such resignation shall take effect at the time specified in such
notice or, if the time be not specified, at the time it is accepted by the
Board, the Chairman, the President or the Secretary, as the case may be.  Unless
otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective.

          (c)  All officers and agents appointed by the Board shall be subject
to removal, with or without cause, at any time by the Board.

          SECTION 4.04.  VACANCIES.  Any vacancy occurring in any office of the
Corporation, for any reason, shall be filled by action of the Board.  Unless
earlier removed pursuant to Section 4.03 hereof, any officer appointed by the
Board to fill any such vacancy shall serve only until such time as the unexpired
term of his predecessor expires unless reappointed by the Board.

          SECTION 4.05.  THE CHAIRMAN.  The Chairman shall have the power to
call special meetings of stockholders, to call special meetings of the Board
and, if present, to preside at all meetings of stockholders and all meetings of
the Board.  The Chairman shall perform all duties incident to the office of
Chairman of the Board and all such other duties as may from time to time be
assigned to him by the Board or these Bylaws.

          SECTION 4.06.  THE CHIEF EXECUTIVE OFFICER.  The Chief Executive
Officer shall, together with the President and subject to the control of the
Board, have general and active management and control of the business and
affairs of the Corporation and shall see that all orders and resolutions of the
Board are carried into effect.  The Chief Executive Officer shall perform all
duties incident to the office of Chief Executive Officer and all such other
duties as may from time to time be assigned to him by the Board or these Bylaws.

          SECTION 4.07.  THE PRESIDENT.  The President shall, together with the
Chief Executive Officer and subject to the control of the Board, have general
and active management and control of the business and affairs of the Corporation
and shall see that all orders and resolutions of the Board are carried into
effect.  The President shall perform all duties incident to the office of
President and all such other duties as may from time to time be assigned to him
by the Board or these Bylaws.

          SECTION 4.08.  THE CHIEF OPERATING OFFICER.  The Chief Operating
Officer shall, subject to the control of the Board, the Chief Executive Officer
and the President, have general and active management and control of the
operation of the business of the Corporation and shall see that all orders and
resolutions of the Board, the Chief Executive 


                                       10





Officer and the President are carried into effect.  The Chief Operating Officer
shall perform all duties incident to the office of Chief Operating Officer and
all such other duties as may from time to time be assigned to him by the Board
or these Bylaws.

          SECTION 4.09.  VICE PRESIDENTS.  Vice Presidents of the Corporation
("VICE PRESIDENTS"), if any, in order of their seniority or in any other order
determined by the Board, shall generally assist the Chief Executive Officer, the
President and the Chief Operating Officer perform such other duties as the Board
or the President shall prescribe, and in the absence or disability of the Chief
Executive Officer, the President or the Chief Operating Officer, shall perform
the duties and exercise the powers of the Chief Executive Officer, the President
or the Chief Operating Officer, as the case may be.

          SECTION 4.10.  THE SECRETARY.  The Secretary shall, to the extent
practicable, attend all meetings of the Board and all meetings of stockholders
and shall record all votes and the minutes of all proceedings in a book to be
kept for that purpose, and shall perform the same duties for any committee of
the Board when so requested by such committee.  He shall give or cause to be
given notice of all meetings of stockholders and of the Board, shall perform
such other duties as may be prescribed by the Board, the Chairman, the Chief
Executive Officer or the President, under whose supervision he shall act.  He
shall keep in safe custody the seal of the Corporation and affix the same to any
instrument that requires that the seal be affixed to it and which shall have
been duly authorized for signature in the name of the Corporation and, when so
affixed, the seal shall be attested by his signature or by the signature of the
Chief Financial Officer of the Corporation or an Assistant Secretary or
Assistant Financial Officer of the Corporation.  He shall keep in safe custody
the certificate books and stockholder records and such other books and records
of the Corporation as the Board, the Chairman, the Chief Executive Officer or
the President may direct and shall perform all other duties incident to the
office of Secretary and such other duties as from time to time may be assigned
to him by the Board, the Chairman, the Chief Executive Officer or the President.

          SECTION 4.11.  ASSISTANT SECRETARIES.  Assistant Secretaries of the
Corporation ("ASSISTANT SECRETARIES"), if any, in order of their seniority or in
any other order determined by the Board, shall generally assist the Secretary
and perform such other duties as the Board or the Secretary shall prescribe,
and, in the absence or disability of the Secretary, shall perform the duties and
exercise the powers of the Secretary.

          SECTION 4.12.  THE CHIEF FINANCIAL OFFICER.  The Chief Financial
Officer shall have the care and custody of all the funds of the Corporation and
shall deposit such funds in such banks or other depositories as the Board, or
any officer or officers, or any officer and agent jointly, duly authorized by
the Board, shall, from time to time, direct or approve.  He shall disburse the
funds of the Corporation under the direction of the Board, the Chairman or the
President.  He shall keep a full and accurate account of all moneys received and
paid on account of the Corporation and shall render a statement of his accounts
whenever the Board, the Chairman or the President shall so request.  He shall
perform all 


                                       11




other necessary actions and duties in connection with the administration of the
financial affairs of the Corporation and shall generally perform all the duties
usually appertaining to the office of treasurer of a corporation.  When required
by the Board, he shall give bonds for the faithful discharge of his duties in
such sums and with such sureties as the Board shall approve.


          SECTION 4.13.  ASSISTANT FINANCIAL OFFICERS.  Assistant Financial
Officers of the Corporation, if any, in order of their seniority or in any other
order determined by the Board, shall generally assist the Chief Financial
Officer and perform such other duties as the Board or the Chief Financial
Officer shall prescribe, and, in the absence or disability of the Chief
Financial Officer, shall perform the duties and exercise the powers of the Chief
Financial Officer.


                                    ARTICLE V

              CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, AND PROXIES

          SECTION 5.01.  EXECUTION OF DOCUMENTS.  The Chairman, the Chief
Executive Officer, the President and the Chief Operating Officer, and the
officers, employees and agents of the Corporation designated by the Board (or
any duly authorized committee thereof to the extent permitted by law), shall
have power to execute and deliver deeds, contracts, mortgages, bonds,
debentures, checks, drafts and other orders for the payment of money and other
documents for and in the name of the Corporation, and each such officer,
employee and agent, without further action by the Board, may delegate such power
(including authority to redelegate) by any means, written or oral, to other
officers, employees or agents of the Corporation; and, unless so designated or
expressly authorized by these Bylaws, no officer or agent or employee shall have
any power or authority to bind the Corporation by any contract or engagement or
to pledge its credit or to render it liable pecuniarily for any purpose or to
any amount.

          SECTION 5.02.  DEPOSITS.  All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
or otherwise as the Board, or any officer of the Corporation to whom power in
this respect shall have been given by the Board, shall direct.

          SECTION 5.03.  PROXIES IN RESPECT OF STOCK OR OTHER SECURITIES OF
OTHER CORPORATIONS.  The Board shall designate the officers of the Corporation
who shall have authority from time to time to appoint an agent or agents of the
Corporation to exercise in the name and on behalf of the Corporation the powers
and rights that the Corporation may have as the holder of stock or other
securities in any other corporation, and to vote or consent in respect of such
stock or securities.  Such designated officers may instruct the person or
persons so appointed as to the manner of exercising such powers and rights, and
such designated officers may execute or cause to be executed in the name and on
behalf of 


                                       12




the Corporation and under its corporate seal, or otherwise, such written
proxies, powers of attorney or other instruments as they may deem necessary or
proper in order that the Corporation may exercise such powers and rights.


                                   ARTICLE VI

                         SHARES AND TRANSFERS OF SHARES

          SECTION 6.01.  CERTIFICATES EVIDENCING SHARES.  Every owner of shares
of stock of the Corporation shall be entitled to have a certificate certifying
the number and class of shares of stock of the Corporation owned by him, which
certificate shall be in such form as may be prescribed by the Board. 
Certificates shall be issued in consecutive order and shall be numbered in the
order of their issue, and shall be signed by the Chairman, the Chief Executive
Officer, the President, the Chief Operating Officer or any Vice President and by
the Secretary, any Assistant Secretary, the Chief Financial Officer or any
Assistant Financial Officer.  Any or all signatures on the certificate may be a
facsimile.  In the event any such officer who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to hold such
office or to be employed by the Corporation before such certificate is issued,
such certificate may be issued by the Corporation with the same effect as if
such officer had held such office on the date of issue.

          SECTION 6.02.  STOCK LEDGER.  A stock ledger in one or more
counterparts shall be kept by the Secretary, in which shall be recorded the name
and address of each person, firm or corporation owning the shares evidenced by
each certificate for stock issued by the Corporation, the number of shares of
stock evidenced by each such certificate, the date of issuance thereof and, in
the case of cancellation, the date of cancellation.  Except as otherwise
expressly required by law, the person in whose name shares of stock stand on the
stock ledger of the Corporation shall be deemed the owner and recordholder
thereof for all purposes as regards the Corporation.

          SECTION 6.03.  TRANSFERS OF SHARES.  Registration of transfers of
shares of stock shall be made only in the stock ledger of the Corporation upon
request of the registered holder of such shares, or of his attorney thereunto
authorized by power of attorney duly executed and filed with the Secretary, and
upon the surrender of the certificate or certificates evidencing such shares
properly endorsed or accompanied by a stock power duly executed, together with
such proof of the authenticity of signatures as the Corporation may reasonably
require.

          SECTION 6.04.  ADDRESSES OF STOCKHOLDERS.  Each stockholder shall
designate to the Secretary an address at which notices of meetings and all other
corporate notices may be served or mailed to such stockholder, and, if any
stockholder shall fail to so designate such an address, corporate notices may be
served upon such stockholder by mail directed to 


                                       13




the mailing address, if any, as the same appears in the stock ledger of the
Corporation or at the last known mailing address of such stockholder.

          SECTION 6.05.  LOST, DESTROYED AND MUTILATED CERTIFICATES.  A holder
of shares of stock of the Corporation shall promptly notify the Corporation of
any loss, destruction or mutilation of any certificate or certificates
evidencing all or any such shares of stock.  The Board may, in its discretion,
cause the Corporation to issue a new certificate in place of any certificate
theretofore issued by it and alleged to have been mutilated, lost, stolen or
destroyed, upon the surrender of the mutilated certificate or, in the case of
loss, theft or destruction of the certificate, upon satisfactory proof of such
loss, theft or destruction, and the Board may, in its discretion, require the
recordholder of the shares of stock evidenced by the lost, stolen or destroyed
certificate or his legal representative to give the Corporation a bond
sufficient to indemnify the Corporation against any claim made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.

          SECTION 6.06.  REGULATIONS.  The Board may make such other rules and
regulations as it may deem expedient, not inconsistent with these Bylaws,
concerning the issue, transfer and registration of certificates evidencing
shares of stock of the Corporation.


          SECTION 6.07.  FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF
RECORD.  In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or to express consent to, or to dissent from, corporate action, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board may fix, in advance, a record date, which shall not be more than 60
nor less than 10 days before the date of such meeting, nor more than 60 days
prior to any other such corporate action.  A determination of the stockholders
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of such meeting; PROVIDED, HOWEVER, that the Board may fix a new
record date for the adjourned meeting.


                                   ARTICLE VII

                                      SEAL

          SECTION 7.01.  SEAL.  The Board may approve and adopt a corporate
seal, which shall be in the form of a circle and shall bear the full name of the
Corporation, the year of its incorporation and the words "Corporate Seal
Delaware".


                                       14




                                  ARTICLE VIII

                                   FISCAL YEAR

          SECTION 8.01.  FISCAL YEAR.  The fiscal year of the Corporation shall
end on the thirty-first day of December of each year unless changed by
resolution of the Board.


                                   ARTICLE IX

                          INDEMNIFICATION AND INSURANCE

          SECTION 9.01. INDEMNIFICATION.  (a)  The Corporation shall indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.  The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of NOLO CONTENDERE or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.


          (b)  The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the Corporation to procure a judgment in
its favor by reason of the fact that he is or was a director, officer, employee
or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Court of Chancery of the State of Delaware or the court in which such action
or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the 


                                       15




circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.

          (c)  To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Section 9.01(a) and (b) of these
Bylaws, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.

          (d)  Any indemnification under Section 9.01(a) and (b) of these Bylaws
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 9.01(a) and (b) of these
Bylaws.  Such determination shall be made (i) by a majority vote of directors
who are not parties to such action, suit or proceeding even though less than a
quorum, or (ii) if there are no such directors, if such directors so direct, by
independent legal counsel in a written opinion, or (iii) by the stockholders of
the Corporation.

          (e)  Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation pursuant to this Article IX.  Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board deems appropriate.

          (f)  The indemnification and advancement of expenses provided by, or
granted pursuant to, other Sections of this Article IX shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any law, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office.

          (g)  For purposes of this Article IX, references to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Article IX with respect to the
resulting or surviving corporation as he 


                                       16




would have with respect to such constituent corporation if its separate
existence had continued.

          (h)  For purposes of this Article IX, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves service by, such director,
officer, employee or agent with respect to any employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article IX.

          (i)  The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article IX shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.

          SECTION 9.02.  INSURANCE FOR INDEMNIFICATION.  The Corporation may
purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not the Corporation
would have the power to indemnify him against such liability under the
provisions of Section 145 of the General Corporation Law.


                                    ARTICLE X

                                   AMENDMENTS

          SECTION 10.01.  AMENDMENTS.  These Bylaws may be altered, amended or
repealed, in whole or in part, or new Bylaws may be adopted, either by the Board
or by the stockholders of the Corporation upon the affirmative vote of the
holders of at least 66-2/3% of the outstanding capital stock entitled to vote
thereon.


                                       17
 



                                                                                                                        EXHIBIT 4.3


              Temporary Certificate--Exchangeable for Definitive Engraved Certificate When Ready for Delivery

   NUMBER                                                                                                            SHARES

                                               [LOGO]   GUESS ?, INC.


THIS CERTIFICATE IS TRANSFERABLE IN THE CITIES        INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE        SEE REVERSE FOR
           OF BOSTON OR NEW YORK                                                                                CERTAIN DEFINITIONS
                                                                                                                 CUSIP 401617 10 5


      This Certifies that





     is the record holder of

                                     FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF

                                                             GUESS ?, INC.

     transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender
     of this certificate properly endorsed. This certificate is not valid until countersigned by the Transfer
     Agent and registered by the Registrar.

       WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers.

       Dated:



                                                                   [SEAL]                   
        /s/ ARMAND MARCIANO                                                                             /s/ MAURICE MARCIANO

              SECRETARY                                                                                         CHAIRMAN


COUNTERSIGNED AND REGISTERED:
  THE FIRST NATIONAL BANK OF BOSTON
           TRANSFER AGENT AND REGISTRAR

BY


                    AUTHORIZED SIGNATURE


___________________________________________________
/                                                 /
/  AMERICAN BANK NOTE COMPANY    JULY 12, 1996 dw /
/  3504 ATLANTIC AVENUE                           /
/  SUITE 12                                       /
/  LONG BEACH, CA 90807              045133fc     /
/  (310) 989-2333                                 /
/  (FAX) (310) 426-7450  308-19x  proof __  REV 1 /
/_________________________________________________/


The Corporation shall furnish without charge to each stockholder who so requests a statement of the owners, designations, preferences and relative, participating, optional or other special rights of each class of stock of the Corporation or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Such requests shall be made to the Corporation's Secretary at the principal office of the Corporation. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ...........Custodian............ TEN ENT -- as tenants by the entities (Cust) (Minor) JT TEN -- as joint tenants with rights of under Uniform Gifts to Minors survivorship and not as tenants Act............................. in common (Minor) UNIF TRF MIN ACT -- .......Custodian (until age ....) (Cust) ..........under Uniform Transfers (Minor) to Minors Act.................... (state) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, ______________________________________ hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ______________________________________ / / /_____________________________________/ ____________________________________________________________________________________________________ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE) ____________________________________________________________________________________________________ ____________________________________________________________________________________________________ ______________________________________________________________________________________________Shares of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint ____________________________________________________________________________________________Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated _________________________________ X _______________________________________________________ X _______________________________________________________ NOTICE: THE SIGNATURE(S): TO THE ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed By __________________________________________ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCK- BROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15.



                                                                    EXHIBIT 5.1

                       [LETTERHEAD OF SHEARMAN & STERLING]



                                 July 29, 1996


Guess ?, Inc.
1444 South Alameda Street
Los Angeles, California 90021

Ladies and Gentlemen:

     We are acting as counsel for Guess ?, Inc., a Delaware corporation (the 
"Company"), in connection with the filing by the Company with the Securities 
and Exchange Commission of a Registration Statement on Form S-1 (No. 
333-4419) (the "Registration Statement") covering the registration under the 
Securities Act of 1933, as amended (the "Act"), of shares of the Company's 
common stock, par value $.01 per share (the "Shares"). The Shares are to be 
sold by the Company pursuant to the terms of (i) a purchase agreement (the 
"U.S. Purchase Agreement") among the Company and the several U.S. 
underwriters named therein and (ii) a purchase agreement (the "International 
Purchase Agreement" and, together with the U.S. Purchase Agreement, the 
"Purchase Agreements") among the Company and the several international 
underwriters named therein.

     We have examined originals, or copies certified or otherwise identified 
to our satisfaction, of such documents and corporate and public records as we 
have deemed necessary as a basis for the opinion hereinafter expressed. In 
our examination, we have assumed the genuineness of all signatures, the 
authenticity of all documents presented to us as originals and the conformity 
to the originals of all documents presented to us as copies. In rendering our 
opinion, we have relied as to factual matters upon officers of the Company 
and certificates of public officials.

     Our opinion expressed herein is limited to the General Corporation Law 
of the State of Delaware.

     Based on the foregoing and having regard for such legal considerations 
as we deem relevant, we are of the opinion that, upon approval of the 
Company's Restated Certificate of Incorporation by the Company's Board of 
Directors and stockholders and the filing of the Restated Certificate of 
Incorporation with the Secretary of State of the State of




                                      2

Guess ?, Inc.                                                     July 29, 1996


Delaware, the Shares, when issued and delivered in accordance with the terms 
of the Purchase Agreements, will be validly issued, fully paid and 
non-assessable.

     We hereby consent to the use of this opinion as Exhibit 5.1 to the 
Registration Statement and to the use of our name under the caption "Legal 
Matters" contained in the prospectus which is included in the Registration 
Statement. In addition, we consent to the incorporation by reference of this 
opinion into any related registration statement subsequently filed pursuant 
to Rule 462(b) of the Act. In giving this consent, we do not thereby concede 
that we come within the category of persons whose consent is required by the 
Act or the General Rules and Regulations promulgated thereunder.


                                               Very truly yours,

                                               /s/ SHEARMAN & STERLING


                                 AMENDED AND RESTATED
                               SHAREHOLDERS' AGREEMENT

          THIS AMENDED AND RESTATED SHAREHOLDERS' AGREEMENT is entered into as
of August __, 1996 (this "Restated Agreement"), by and among Maurice Marciano,
as Trustee of the Maurice Marciano Trust under Trust dated February 24, 1986,
Paul Marciano, as Trustee of the Paul Marciano Trust under Trust dated February
20, 1986, and Armand Marciano, as Trustee of the Armand Marciano Trust under
Trust dated February 20, 1986, (collectively, the "Initial Stockholders") and
Guess ?, Inc., a Delaware corporation, having its principal office and place of
business at 1444 South Alameda Street, Los Angeles, California 90021
(hereinafter referred to as the "Corporation").

         WHEREAS, the Initial Stockholders are currently the owners of
29,382,001 shares or all of the issued and outstanding shares (the "Shares") of
the Corporation's common stock, par value $.01 per share (the "Common Stock"),
and, after the proposed offering of up to 10,580,000 shares of Common Stock by
the Corporation, the Initial Stockholders will continue to own approximately 70%
of the Corporation's issued and outstanding capital stock;

         WHEREAS, the Initial Stockholders and the Corporation are parties to a
Restated Shareholders' Agreement dated as of November 12, 1993, as amended to
date (the "Shareholders' Agreement"), which governs, among other issues, the
management and ownership of the shares of Common Stock owned by the
Stockholders; 

         WHEREAS, the Stockholders and the Corporation desire to further amend
and restate the Shareholders' Agreement in its entirety and to add additional
parties to this Restated Agreement as Stockholder; and

         WHEREAS, the Maurice Marciano 1996 Grantor Retained Annuity Trust, the
Paul Marciano 1996 Grantor Retained Annuity Trust and the Armand Marciano 1996
Grantor Retained Annuity Trust (collectively, the "Transferee Stockholders" and,
together with the Initial Stockholders, being referred to herein, collectively,
as the "Stockholders") collectively hold the remaining 3,299,818 shares or 10%
of the Common Stock and desire to become parties to this Restated Agreement, and
the Initial Stockholders and the Corporation are willing to add them as parties
thereto.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth herein, the parties hereto agree that the Shareholders'
Agreement is hereby further amended and restated to read in its entirety as
follows:

1.  TERM OF AGREEMENT

         This Restated Agreement shall be effective from the date hereof until
the earliest to occur of any of the following:


                                          2

              (i)  The cessation for a substantial period of time of the
    Corporation's business;

              (ii) The liquidation or dissolution of the Corporation;

              (iii)     The entry of a decree or order by a court having
    jurisdiction adjudging the Corporation bankrupt or insolvent or seeking
    reorganization, arrangement, adjustment or composition of or in respect of
    the Corporation, or appointing a custodian, receiver, liquidator, trustee
    (or other similar official) of the Corporation or ordering the winding up
    or the liquidation of its affairs and the continuance of such decree or
    order unstayed and in effect for a period of 60 consecutive days;

              (iv) A permitted transfer of all of the Shares by the
    Stockholders;

              (v)  Only one Stockholder shall own shares of Common Stock or
    other voting securities of the Corporation; or

              (vi) The aggregate amount of Common Stock held by the
    Stockholders shall constitute less than 10% of the issued and outstanding
    Common Stock.

              

2.  VOTING AGREEMENT

         Each of the Stockholders hereby covenants and agrees that, so long as
it is a stockholder of the Corporation, he will vote (or cause the voting of)
the shares of Common Stock of the Corporation then owned by it (or any such
shares which he has the right to vote, pursuant to any agreement or proxy), in
favor of the election of each of Messrs. Maurice Marciano, Paul Marciano and
Armand Marciano, in their individual capacities (collectively, the
"Individuals") (or, if any of them shall decline to serve, the designee (if any)
of such person, if such designee shall be reasonably acceptable to the other
Individuals) to the Board of Directors of the Corporation (the "Board").  In the
event of the death or disability of any of the Individuals, the executor,
conservator or lawful heir of such person shall assume such





                                          3

person's right to designate a Director (including such executor, conservator or
lawful heir) for election as aforesaid.  

3.  LEGENDS ON CERTIFICATES

         The certificates evidencing the shares of Common Stock held by the
Stockholders shall bear any legends required by federal or state securities law
and the following legend required by Section 202(a) of the Delaware General
Corporation Law (the "DGCL"):

         "The shares represented by this Certificate may not be
         assigned, sold, transferred, hypothecated, or otherwise
         disposed of, except in accordance with the Amended and
         Restated Stockholders' Agreement dated as of August __,
         1996, which is on file at the office of the issuer."

4.  RESTRICTIONS ON DISPOSITION

         A.   Subject to Subsection E below, no Stockholder shall voluntarily
transfer, sell, assign, pledge, encumber, grant any option with respect to, or
otherwise create any legal or equitable interest in any shares of Common Stock
owned by it except pursuant to a sale of all or any part of such shares of
Common Stock for cash, notes or Public Equity Securities (as hereinafter
defined), or a combination of the three, made in accordance with Subsection B
below.  As used herein, "Public Equity Securities" shall mean any securities
which are either listed on a national securities exchange or are traded on the
National Association of Securities Dealers Automated Quotation System and which,
in the hands of the Stockholder or Stockholders receiving them in payment for
any Shares, will be (i) freely transferable without registration under the
Securities Act of 1933, as amended, or any applicable state securities law, and
(ii) free and clear of any liens, claims, right to purchase or sell or other
encumbrance of any kind.

         B.   If any Stockholder shall receive a bona fide offer (an "Offer")
to purchase any of the shares of Common Stock owned by it (the "Offered Shares")
for cash, notes or Public Equity Securities, or a combination thereof, that
Stockholder (the "Offering Stockholder") shall first offer in writing (a "Sale
Notice") to sell the Offered Shares to those Initial Stockholders not selling
Offered Shares and the Corporation (collectively, the "Offerees") on the same
terms and conditions as are contained in the Offer; PROVIDED, HOWEVER, that the
date for consummation of such sale to the Offerees (the "Offeree Closing Date")
shall be no less than 20 nor more than 30 days after the date of receipt of the
Sale Notice by the Offerees; and PROVIDED FURTHER, that such Offeree shall be
entitled to substitute any combination of cash and Public Equity Securities for
the cash and Public Equity Securities components of the Offer so long as on the
Offeree Closing Date the total consideration in the form of cash and Public
Equity Securities offered by such Offerees is equal to the total consideration
in the form of cash and Public Equity Securities in the Offer.  Each Offeree
shall have the right to purchase all (but not less than all) of the Offered
Shares 




                                          4


and shall exercise such right by tendering written notice thereof to the
Offering Stockholder within 30 days of receipt of the Sale Notice.  If more than
one Offeree exercises its right to purchase the Offered Shares (each, a
"Purchaser"), each such Purchaser shall be entitled to purchase Offered Shares
in the following priority:  (x) first, to the Offerees that are Initial
Stockholders, each of whom shall be entitled to purchase the number of the
Offered Shares which bears the same relationship to the total number of Offered
Shares as the number of shares of Common Stock owned by such Initial Stockholder
bears to the total number of shares of Common Stock owned by all of the Offerees
that are Initial Stockholders, and (y) second, to the Corporation, to the extent
that the Initial Stockholders do not elect to purchase all of the Offered
Shares. 

         To the extent that either the Initial Stockholders or the Corporation
do not purchase the Offered Shares on or before the Offeree Closing Date, then
the Offering Stockholder may sell such unpurchased Offered Shares as above
provided to the third party pursuant to the Offer at any time within three
months after the expiration of the 30 day period provided above, but only on
terms and conditions no less favorable to the Offering Stockholder than those
specified in the Offer.

         C.   For purposes of Subsection B above, all offers to the Offerees by
the Offering Stockholder shall state the entire terms of such offer, including,
without limitation, purchase price, form of consideration and financing terms
and shall include a copy of the Offer made by the third party.

         D.   In the event that any shares of Common Stock owned by any
Stockholder who is a party hereto shall be sold upon execution sale or shall
otherwise be transferred pursuant to legal process or shall be transferred
pursuant to an agreement entered into in connection with a divorce or separation
between the beneficial owner of such shares and such person's spouse, or any
arrangement with creditors of any Stockholder, the beneficial owner of shares of
Common Stock held by such Stockholder or the Corporation or any other legal
proceeding, the other Stockholders and the Corporation, in accordance with the
procedures established in Section B above, shall have an option to purchase the
shares so sold or transferred from the transferee at the same price paid by the
transferee for such shares by written notice given to the transferee for such
shares, by written notice given to such transferee within 30 days after the
execution sale or such other transfer.  In the event that no price is paid by
the transferee, the other Stockholders and the Corporation shall have the option
to purchase such shares, in accordance with the procedures established in
Section B above, at the appraised fair market value of such shares, as
determined by an independent appraiser of recognized standing selected by the
Corporation.  Until the expiration of the 30-day period referred to above, such
transferee shall be obligated to vote the shares of Common Stock transferred to
it in accordance with the terms of this Restated Agreement.




                                          5


         E.   Nothing in this Section shall prohibit the transfer of shares,
(1) on the death of the settlor of any Stockholder, (a) by his will or other
instrument disposing of his property on death (including an instrument creating
any Stockholder), (b) pursuant to the laws of descent and distribution
applicable to his estate, (2) by any Stockholder to its settlor (identified in
the instrument creating the Stockholder, as in effect on the date hereof) or to
any one or more of the lineal descendants of such settlor, or to any trust for
the exclusive benefit of any such lineal descendants; PROVIDED, that any such
transfer in trust shall not be prohibited solely because the terms of such trust
provide a remainder interest to or for the benefit of one or more persons who is
not a lineal descendant of the settlor, so long as such interest is payable only
in the event that neither such settlor nor any such lineal descendant of the
settlor is then living or (3) in connection with a registered offering of shares
of Common Stock by any Stockholder pursuant to the Registration Rights Agreement
dated August __, 1996 among the Stockholders and the Corporation.  Any successor
or transferee who receives shares pursuant to an event described in clause (1)
or (2) above shall, as a condition of such transfer, enter into an agreement to
be bound by the provisions of this Restated Agreement in its entirety, shall be
deemed to be a "Stockholder" hereunder and, for purposes of this subsection, if
an individual, shall be deemed to be the "settlor of a Stockholder."  

5.  ARBITRATION OF DISPUTES

         Any controversy or claim arising out of or relating to this Restated
Agreement or the breach thereof shall be settled by submission to binding
arbitration at the request of any party to such controversy or claim.  In such
event, arbitration shall be conducted before a single Primary Arbitrator in the
State of California, County of Los Angeles.  Such Primary Arbitrator shall be
selected by a panel of three arbitrators.  Each of the Initial Stockholders
shall be entitled to select one member of such panel of arbitrators who is
reasonably acceptable to the other Stockholders.  If the Stockholders are unable
to agree on all the members of such panel of arbitrators, then the remaining
arbitrators shall be selected by an administrator of the Judicial Arbitration
and Mediation Services, Inc. from its panel of retired judges.  The Primary
Arbitrator shall conduct such arbitration in accordance with the rules
established by the panel of arbitrators.  Judgment may be entered on the
arbitrator's award in any court having jurisdiction.  To the extent necessary to
obtain any provisional relief of any dispute or controversy or clam arising
under or in connection with this Restated Agreement, the parties hereto
expressly consent to the jurisdiction of the state courts located in the State
of California, County of Los Angeles, and consent that any service of process
therefor may be made by personal service upon the parties hereto wherever each
may be located, or by certified or registered mail directed to the parties
hereto at each such party's respective address as set forth in Section 13
hereof. 




                                          6

6.  BENEFIT

         Except upon the occurrence of a termination event as provided in
Section 1, this Restated Agreement shall be binding upon and shall operate for
the benefit of the parties hereto, their respective successors and assigns. 

7.  INVALIDITY OF ANY PROVISION

         The invalidity or unenforceability of any provision of this Restated
Agreement shall not affect the other provisions hereof, and the Restated
Agreement shall be construed in all respects as if such invalid or unenforceable
provisions were omitted, provided that the parties shall negotiate in good faith
to replace the invalid provision with a valid provision reflecting the same
balance of economic interests.

8.  MODIFICATION OF AGREEMENT

         No modification, amendment or waiver of any of the provisions of this
Restated Agreement shall be valid unless made in writing and signed by the
Corporation and each Stockholder or other party subject to this Restated
Agreement from time to time.

9.  FURTHER ACTION 

         A.   The Corporation shall not register, and shall instruct any
transfer agent for the Common Stock not to register, on the books of the
Corporation any transfer, pledge or encumbrance of any shares of Common Stock
subject to this Agreement, unless such transfer, pledge or encumbrance complies
with terms of this Agreement and the Stockholders agree to provide the
Corporation (or any such transfer agent) with such documents, including an
opinion of counsel as to compliance with the terms of this Restated Agreement,
as the Corporation (or any such transfer agent) may reasonably request.

         B.   A copy of this Restated Agreement shall be made a part of the
minutes of the Corporation.

10. ATTORNEY'S FEES AND COSTS     

         If any action at law or in equity (including any arbitration
proceeding under Section 5 above) is necessary to enforce or interpret the terms
of this Restated Agreement, the prevailing party shall be entitled to reasonable
attorneys' fees, costs, and necessary disbursements, in addition to any other
relief to which he may be entitled.




                                          7

11. APPLICABLE LAW

         This Restated Agreement shall be construed in accordance with the laws
of the State of Delaware.

12. ENTIRE AGREEMENT

         This Restated Agreement supersedes all agreements as to the subject
matter hereof among the Stockholders and the Corporation including in each case
amendments thereto, previously executed by the Stockholders and the Corporation.
This Restated Agreement sets forth all of the provisions, covenants, agreements,
conditions and undertakings between the parties hereto with respect to the
subject matter hereof, and supersedes all prior and contemporaneous agreements
and understandings express or implied, oral or written as to the subject matter
hereof.  

13. NOTICES

         Unless otherwise specified herein, all notices, requests, demands and
other communications to be given under this Restated Agreement shall be in
writing and shall be deemed given if (i) delivered in person, or by United
States mail, certified or registered, with return receipt requested, (ii) if
sent by telex or facsimile transmission, with a copy mailed on the same day in
the manner provided in (i) above, when transmitted and receipt is confirmed by
telephone, or (iii) if otherwise actually delivered:

    TO THE CORPORATION:      1444 South Alameda Street, Los Angeles, California
                             90021, with copies to each Director and each
                             Stockholder as their names and addresses appear on
                             the records of the Corporation;

    TO ANY STOCKHOLDER:      As the name and address of such Stockholder appears
                             on the record of stockholders of the Corporation;

or at such other address as may have been furnished by such person in writing to
the other parties.  Any such notice, demand or other communication shall be
deemed to have been given on the date actually delivered or as of the date
mailed, as the case may be.

                               [Signature pages follow]




                                         S-1


         IN WITNESS WHEREOF, the undersigned have caused this Restated
Agreement to be executed as of the date first hereinabove written.
 
                                       GUESS ?, INC.


                                       By: 
                                            ----------------------------------
                                            Name:
                                            Title:


                                       STOCKHOLDERS

                                       MAURICE MARCIANO TRUST
                                       (1995 RESTATEMENT)


                                       By:                                     
                                            ------------------------------------
                                            Maurice Marciano
                                            Trustee


                                       PAUL MARCIANO TRUST
                                       DATED FEBRUARY 20, 1986


                                       By: 
                                            -----------------------------------
                                            Paul Marciano
                                            Trustee


                                       ARMAND MARCIANO TRUST
                                       DATED FEBRUARY 20, 1986


                                       By:                                     
                                            ----------------------------------
                                            Armand Marciano
                                            Trustee



                                         S-2



                                       MAURICE MARCIANO 1996 GRANTOR RETAINED
                                       ANNUITY TRUST


                                       By: 
                                            ------------------------------------
                                            Paul Marciano
                                            Co-Trustee


                                       By: 
                                            -----------------------------------
                                            Gary W. Hampar
                                            Co-Trustee


                                       PAUL MARCIANO 1996 GRANTOR RETAINED 
                                       ANNUITY TRUST
         

                                       By: 
                                            ----------------------------------
                                            Maurice Marciano
                                            Co-Trustee


                                       By: 
                                            ----------------------------------
                                            Joseph H. Sugerman
                                            Co-Trustee


                                       ARMAND MARCIANO 1996 GRANTOR RETAINED 
                                       ANNUITY TRUST


                                       By: 
                                            --------------------------------
                                            Maurice Marciano
                                            Co-Trustee


                                       By: 
                                            ---------------------------------
                                            Marc E. Petas
                                            Co-Trustee


                                                                    EXHIBIT 10.4

                                January 22, 1996


Ms. Andrea Weiss
124 West 60th Street
New York, NY  10023

Dear Andrea:

Congratulations on your decision to join Guess?, Inc.

I am pleased to confirm your employment with Guess as President of Retail
Operations.  You will have full responsibility for the day to day general
management of the operations of the retail division.  You will report directly
to the Board of Directors; Paul, Armand and me.

Your minimum compensation for the first year will be $375,000.00, of which
$50,000.00 will be paid within thirty (30) days of your joining Guess.  The
balance of your minimum compensation for the first year, namely $325,000.00,
will be paid to you in bi-weekly installments.

Within sixty (60) days of your joining Guess, you will meet with the Board of
Directors and discuss a business plan for the Retail Division prepared by you.
Upon mutual agreement of the business plan, the following bonus plan will be in
effect:

If the business plan for the first year is exceeded by 50% or more you shall
receive a bonus of $200,000.00.  If the business plan is exceeded by 100% or
more, you shall receive a bonus of $325,000.00.  If the business plan is merely
achieved for the first year, you shall receive a bonus of $125,000.00.

Your base salary for the second year shall be $375,000.00 upon achievement of
the first year business plan.  In the event the business plan is not achieved
for the first year, your base salary for the second year shall be $325,000.00.

If the agreed upon business plan for the second year is exceeded by 50% or more
you shall receive a bonus of $200,000.00.  If the business plan for the second
year is exceeded by 100% or more you shall receive a bonus of $325,000.00.  If
the business plan for the second year is merely achieved, you shall receive a
bonus of $125,000.00.

The term of your employment shall be for a minimum of two (2) years.  Guess will
have an option to extend the term of your employment for an additional two (2)
years; provided, however, that if Guess elects not to exercise the option, Guess
will pay you your then monthly salary for up to six (6) months, or until you
find suitable employment, whichever



                                        2

first occurs.  In this regard, Guess will provide the services of J.D. Ross
International to assist you.

Assuming Guess exercises its option for the third year, and assuming the
business plan was achieved in either the first or second year, your base salary
for the third and fourth year will be $400,000.00.  Assuming, however, the
business plan was not achieved in either the first or second year, your base
salary in the third year will be $350,000.00.  The bonus structure for the third
and fourth years will be the same as the bonus structure for the first and
second years, depending upon the level of achievement of the mutually agreed
upon business plan for the third and fourth year.

If Guess terminates your employment other than for cause at any time during the
first two years of your employment, you shall be entitled to the balance of your
base salary for the two years.  Guess will also pay you up to an additional six
months salary or until you find suitable employment, whichever first occurs.
Guess will provide the services of J.D. Ross International to assist you in this
regard.  If Guess terminates your employment other than for cause in the third
or fourth year of your employment, you shall be entitled to the balance of your
base salary for the remainder of the term.

You will also receive a car allowance of $12,000.00 per year.

If Guess goes public during the term of your employment, you will be eligible to
participate in an employee stock option plan at a level commensurate with your
executive level of employment.

You will be eligible for health insurance and other benefits provided to other
Guess employees at your executive level.  Susan Tenney, Director of Personnel,
will provide you with a summary and details of these benefit plans.

We look forward to your joining us, and a prosperous future together.

                                        Very truly yours,
                                        Guess ?, Inc.


                                           /s/ MAURICE MARCIANO
                                        ----------------------------------------
                                        MAURICE MARCIANO
                                        Chairman and Chief Executive Officer

Agreed and Accepted



                                        3

   /s/ ANDREA WEISS
- ---------------------------
Andrea Weiss




                                                                    EXHIBIT 10.5

                              EMPLOYMENT AGREEMENT

     EMPLOYMENT AGREEMENT (the "Agreement"), dated as of May 14, 1996, between
GUESS ?, INC., a Delaware corporation (the "Employer"), and FRANCIS K. DUANE
(the "Executive").

     The Employer wishes to employ the Executive, and the Executive wishes to
accept such employment, on the terms and conditions set forth in this Agreement.

     Accordingly, the Employer and the Executive hereby agree as follows:

     1.   EMPLOYMENT, DUTIES AND ACCEPTANCE.

          1.1  EMPLOYMENT, DUTIES.  Effective as of the Commencement Date (as
defined in Section 2), the Executive shall be employed by the Employer during
the Term (as defined in Section 2) to render exclusive and full-time services to
the Employer, as President of Worldwide Sales-Corporate, reporting to the Chief
Executive Officer of the Employer and performing such duties as may be assigned
to the Executive by the Chief Executive Officer and/or the Board of Directors of
the Employer.

          1.2  ACCEPTANCE.  The Executive accepts such employment and agrees to
render the services described above.  During the Term, the Executive agrees to
devote the Executive's entire business time, energy and skill to such
employment, and to use the Executive's best efforts, skill and ability to
promote the Employer's interests, but this shall not be construed as preventing
the Executive from (a) investing his personal assets in businesses which do not
compete with the Employer in such form or manner as will not require any
services on the part of the Executive in the operation or the affairs of the
companies in which such investments are made and in which his participation is
solely that of an investor, (b) purchasing securities in any corporation whose
securities are regularly traded provided that such purchase shall not result in
his collectively owning beneficially at any time five percent or more of the
equity securities of any corporation engaged in a business competitive to that
of the Employer, and (c) participating in conferences, preparing or publishing
papers or books or teaching so long as the Board of Directors approves of such
activities prior to the Executive's engaging in them.  Prior to commencing any
activity described in clause (c) above, the Executive shall inform the Board of
Directors in writing of such proposed activity.

          1.3  PLACE OF EMPLOYMENT.  Executive's offices shall be located in New
York City.  Executive acknowledges that Employer's executive offices are located
in Los Angeles and that he will be required to travel to Los Angeles from time
to time upon the reasonable request of the Chief Executive Officer and/or the
Employer's Board of Directors.



     2.   TERM OF EMPLOYMENT.

          2.1  THE TERM.  The term of the Executive's employment under this
Agreement shall commence on or about June 1, 1996, but not later than June 15,
1996 (the "Commencement Date") and shall, unless sooner terminated pursuant to
Section 4 hereof, end three (3) years from the Commencement Date (the "Term").

     3.   COMPENSATION; BENEFITS.

          3.1  SALARY.  As compensation for services to be rendered pursuant to
this Agreement, the Employer agrees to pay the Executive, during each year of
the Term, a base salary (each a "Base Salary") at the following rates:

               Period                   Base Salary
               ------                   -----------

               First Year               $550,000.00
               Second Year              $600,000.00
               Third Year               $650,000.00

The Base Salary shall be payable in equal installments, in accordance with the
Employer's payroll policy.

          3.2  BONUSES.  In addition to the amounts to be paid to the Executive
pursuant to Section 3.1, the following bonus program shall apply to the
Executive with respect to each year of the Term:  (a) For the first year of the
Term, the Executive shall receive a guaranteed bonus of Two Hundred Fifty
Thousand Dollars ($250,000.00) which shall be paid in four equal quarterly
payments.  The first payment of Sixty-Two Thousand Five Hundred Dollars
($62,500.00) shall be paid upon execution of this Agreement; (b) A target bonus
of Three Hundred Thousand Dollars ($300,000.00) shall apply to the second year
of the Term.  One Hundred Thousand Dollars ($100,000.00) of said target bonus
shall be guaranteed.  The guaranteed portion shall be paid in four equal
quarterly payments; (c) A target bonus of Three Hundred Twenty-Five Thousand
Dollars ($325,000.00) shall apply to the third year of the Term.  One Hundred
Thousand Dollars ($100,000.00) of said target bonus shall be guaranteed.  The
guaranteed portion of the target bonus shall be paid in four equal quarterly
payments; (d) Employer's Chief Executive Officer and Executive shall meet within
ninety (90) days of the Commencement Date and mutually agree on target
performance goals for the Employer.  The mutually-agreed goals will be used to
determine the not guaranteed portions of the target bonuses for the second and
third years of the Term; (e) Notwithstanding the target performance goals
referred to in 3.2(d) Executive shall receive at least fifty percent (50%) of
the target bonus applicable to the second and third years of the Term, as set
forth in 3.2(b) and 3.2(c), in the event Employer meets the earnings projections
of the current Employer Business Plan; (f) For purposes of the target bonus
computations referred to in 3.2(e), the June 30, 1998 and June 30, 1999 Employer
financials shall be compared with the respective projections (twelve months
ended June 30, 1998 or June 30,


                                        2



1999) in the current Employer Business Plan; (g) Any payments of the not
guaranteed portions of the target bonuses shall be paid on or before September
1, 1998 and September 1, 1999, respectively.

          3.3  BUSINESS EXPENSES.  The Employer shall pay or reimburse the
Executive for all reasonable expenses actually incurred or paid by the Executive
during the Term in the performance of the Executive's services under this
Agreement, upon presentation of expenses statements or vouchers or such other
supporting information as the Employer customarily requires of its other
executives.

          3.4  STOCK OPTIONS.

               3.4.1  In the event that an initial public offering of common
stock ("IPO") of the Employer occurs during the Term, then Employer shall grant
to Executive options (the "Options") to purchase one hundred fifty thousand
(150,000) shares of common stock of Employer (the "Stock") comprising options to
purchase one hundred thousand shares (100,000) of the Stock at an exercise price
of Five Dollars ($5.00) per share and options to purchase fifty thousand
(50,000) shares of the Stock at an exercise price of the greater of (i) Fifteen
Dollars ($15.00) per share, or (ii) the initial public offering price.

               3.4.2  The Executive shall be fully vested in options to purchase
fifty thousand (50,000) shares of Stock at Five Dollars ($5.00) per share on the
date of the IPO ("First Options").  If an IPO occurs during the second year of
the Term, the Executive shall be fully vested in the First Options on the date
of the IPO and in options to purchase an additional fifty thousand (50,000)
shares of Stock at Five Dollars ($5.00) per share on the last day of the second
year ("Second Options").  If the IPO occurs during the third year of the Term,
the Executive shall be fully vested in the First Options and Second Options on
the date of the IPO and the Executive shall be fully vested in options to
purchase an additional fifty thousand (50,000) shares of Stock at an exercise
price of the greater of (i) Fifteen Dollars ($15.00) per share, or (ii) the
initial public offering price, at the end of the third completed year of
employment ("Third Options").  The Options shall expire and not be exercisable
one year following the end of the Term.  The Options shall be granted ONLY IF
the Employer makes an IPO during the Term of employment.  If the number of
issued and outstanding shares following an IPO exceeds or is less than sixty
million (60,000,000), the parties agree that the number of shares covered by the
First, Second and Third Options and the Options' exercise price shall be reduced
or increased proportionately.  For example, if the number of post IPO issued and
outstanding shares is 50,000,000, the total number of shares covered by the
Options shall be reduced to 125,000, 41,667 for each of the First, Second and
Third Options and the exercise prices will increase to six dollars ($6.00) per
share for the First and Second Options and the greater of (i) Eighteen dollars
($18.00) per share, or (ii) the IPO price for the Third Options.  Likewise, if
the number of post IPO issued and outstanding shares is 70,000,000, the total
number of shares covered by the Options shall be increased to 175,000, 58,333
for each of the First, Second and Third Options and the exercise price will
decrease to Four Dollars Twenty-Nine cents ($4.29) per


                                        3



share for the First and Second Options and the greater of (i) Twelve Dollars
Eighty-Six Cents ($12.86) or (ii) the IPO price for the Third Options.  All of
the shares of Stock received by the Executive pursuant to the exercise of any of
the Options shall be freely tradeable and not subject to restriction.  The
Employer shall reserve and keep available out of its authorized but unissued
Stock such number of shares of Stock as shall be necessary to fulfill its
obligations hereunder.

               3.4.3  If an IPO does not occur during the Term, the Options
rights shall be replaced with phantom stock rights which are intended to provide
the Executive with a cash payment functionally related to the increase in value
of the Employer during the Term over and above a base computational value.  The
base computational value shall equal $1,054,664, which is two and one-half
percent (2-1/2%) of the Employer's net earnings as reported on the Employer's
Form 10-K for the fiscal year ended December 31, 1995 reduced by a provision for
federal income taxes at a thirty-four percent (34%) rate [(.025 x 63,919,000 x
 .66), the "Base Amount")].  At the end of the Term, two and one-half percent (2-
1/2%) of the Employer's similarly computed net earnings reduced by a provision
for federal income taxes at a thirty-four percent (34%) rate for the immediate
four prior fiscal quarters shall be determined.  The Executive shall be entitled
to a cash payment (within sixty days from the end of the Term) equal to one-
third (1/3) of the increase so computed over the Base Amount for each completed
employment year of the Term.

               3.4.4  At any time on or after the Commencement Date and prior to
an IPO, Executive shall be entitled to receive a cash payment of One Million
Dollars ($1,000,000.00).  Such payment shall become payable when the Executive
gives the Chief Executive Officer a written notice to pay such sum.  Payment
shall be made within thirty (30) days following delivery of such notice.  If the
Executive elects to receive such cash payment, the exercise price of the First
Options and the Second Options shall become Fifteen Dollars ($15.00) per share
subject to adjustment as provided in Paragraph 3.4.2, if applicable.

          3.5  VACATION.  During the Term, the Executive shall be entitled to a
paid vacation period or periods taken in accordance with the vacation policy of
the Employer; PROVIDED, that the Executive shall be entitled to not less than
four (4) weeks paid vacation for each year of the Term.

          3.6  FRINGE BENEFITS.  During the Term, the Executive shall be
entitled to all benefits for which the Executive shall be eligible under any so-
called "fringe" benefit plan which the Employer provides to its executive
officers generally.  However, if any time Employer's life insurance, disability
insurance and/or medical insurance plans are less advantageous than Executive's
current insurance plans, Employer shall at least match Executive's current
insurance plan benefits.  In addition:  (a) Employer shall provide the Executive
with the use of an automobile reasonably selected by the Executive and approved
by the Employer equivalent to the automobile currently utilized by the
Executive.  Employer shall pay all reasonable expenses associated with the
operation of such automobile including,


                                        4



without limitation, all reasonable maintenance and insurance expenses;
(b) Employer shall reimburse the Executive for all reasonable expenses
associated with Executive's membership in the New York Athletic Club or
equivalent club.

          3.7  WITHHOLDING.  All compensation of the Executive by the Employer
provided for in this Agreement, whether in the form of cash or "fringe"
benefits, shall be subject to such deductions or amounts to be withheld as
required by applicable law and regulations.

     4.   TERMINATION.

          4.1  TERMINATION FOR CAUSE.  In the event of Executive's plea of nolo
contendere or the conviction of the Executive of any felony involving
intentional conduct on the part of the Executive, the commission by the
Executive of fraud or theft against, or embezzlement from the Employer or any of
its subsidiaries or affiliates, the willful misconduct by the Executive in
connection with the performance of the Executive's duties hereunder or chronic
alcoholism or drug abuse which materially effects Executive's performance
hereunder, the Employer may, by written notice to the Executive, terminate the
Term (a "Termination for Cause") and, upon such Termination for Cause, the Term
shall terminate and the Executive shall be entitled to receive no further
amounts or benefits hereunder; PROVIDED, that the Employer shall be obligated to
pay to the Executive, within sixty (60) days of the date of termination, all
unpaid Base Salary accrued, and provide the Executive with all benefits and
expense reimbursement to which the Executive would otherwise be entitled,
through and including the date of termination.

          4.2  BY REASON OF EXECUTIVE'S DEATH.  Upon the death of Executive, the
Term of employment shall terminate and Executive's estate shall be entitled to
receive all accrued but unpaid Base Salary, bonuses, expenses reimbursements,
stock option or phantom stock rights and fringe benefits to which the Executive
would otherwise be entitled through and including the date of termination.

          4.3  BY REASON OF EXECUTIVE'S PERMANENT DISABILITY.  Permanent
disability shall occur if Executive is incapacitated or prevented from
substantially complying with each and all of his material obligations hereunder
whether such incapacity or prevention arises by reason of illness, mental or
physical disability, when such incapacity or prevention occurs for sixty (60) or
more consecutive days or for an aggregate of ninety (90) days, in any six (6)
month period, if at the expiration of the consecutive sixty (60) day period or
ninety (90) day period Executive's disability will continue so that he will not
be able to return to work on a full-time basis within the next sixty (60) days.
If Executive becomes permanently disabled, Employer may terminate the Term of
employment upon written notice to Executive (or Executive's personal
representative, if applicable), effective upon the date of receipt thereof (the
"Disability Commencement Date").  In the event of a termination by Employer by
reason of Executive's permanent disability, Executive shall be entitled to
receive all accrued but unpaid Base Salary, bonuses, expense reimbursements,
stock option or phantom stock


                                        5



rights and fringe benefits to which Executive would otherwise be entitled
through and including the Disability Commencement Date.

          4.4  TERMINATION WITHOUT CAUSE.  If the Employer terminates this
Agreement prior to the term prescribed by Paragraph 2.1 hereof for reasons other
than those prescribed by Paragraphs 4.1 through 4.3 hereof, the Executive shall
be entitled, subject to his obligation under applicable law, if any, to mitigate
his damages, to receive all of compensation provided for herein for the
remainder of the Term, including, without limitation, Base Salary, Target
Bonuses if target performance goals are met, the Options prescribed by
Paragraphs 3.4.1 and 3.4.2 or the benefits prescribed by Paragraph 3.4.3 and the
one million dollar (1,000,000.00) cash payment provided for in Paragraph 3.4.4
hereof.  Payment of such compensation shall constitute the sole obligation of
the Employer resulting from such termination of this Agreement.

     5.   INTELLECTUAL PROPERTY.

          The Employer shall be the exclusive owner of all right, title and
interest in and to all the products and proceeds of the Executive's services
hereunder, including, but not limited to, all materials, ideas, concepts,
formats, suggestions, developments, arrangements, packages, programs and other
intellectual properties that the Executive may acquire, obtain, develop or
create in connection with and during the term of the Executive's employment by
the Employer, free and clear of any claims by the Executive (or anyone claiming
under the Executive) of any kind or character whatsoever (other than the
Executive's right to receive compensation hereunder).  The Executive shall, at
the request of the Employer, execute such assignments, certificates or other
instruments as the Employer may from time to time deem necessary or desirable to
evidence, establish, maintain, perfect, protect, enforce or defend its rights,
title or interest in or to any such properties.

     6.   EMPLOYER'S PROPRIETARY AND CONFIDENTIAL INFORMATION.

          6.1  Executive acknowledges that while employed by Employer, he will
have access to and will become acquainted with trade secrets and confidential
proprietary information and data concerning Employer, including its operations
and business, and the identity and requirements of its customers, etc.
("Confidential Information") and agrees that he will not disclose such
Confidential Information, directly or indirectly, or use them in any way, either
while employed by Employer or subsequent to the termination (regardless of
cause) of such employment, except as required to fulfill his duties to Employer;
provided, however, that Executive shall have no such obligation with respect to
such information as he possessed prior to his employment with Employer or with
respect to such information as is or becomes generally available to the public
other than as a result of Executive's breach of his obligations hereunder; and
provided further that Executive may disclose such Confidential Information to
the extent required by a court order.


                                        6



          6.2  Additionally, Executive acknowledges and agrees that during the
Term all memorandum, notes and records compiled by Executive or made available
to Executive concerning Employer's business are Employer's property and are to
be delivered to Employer upon the termination of this Agreement.

          6.3  Executive acknowledges and agrees that irreparable damage will
result to Employer in the event of a breach by him of paragraphs 5 or 6 of this
Agreement.  Accordingly, Executive agrees that Employer shall be entitled to
enforce its rights under each of said paragraphs, in the event of a breach or
threatened breach thereof, in a court of equity, and shall be entitled to seek a
decree of specific performance or appropriate injunctive relief.  Such remedies
shall be cumulative and not exclusive and shall be in addition to any other
rights or remedies available to Employer.

     7.   NOTICES.

          All notices, requests, consents and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given if delivered personally, sent by overnight courier or mailed
first-class, postage prepaid, by registered or certified mail (notices mailed
shall be deemed to have been given on the date mailed) or sent by telecopier, as
follows (or to such other address as either party shall designate by notice in
writing to the other in accordance herewith):

               If to the Employer, to:

               Guess ?, Inc.
               1444 S. Alameda Street
               Los Angeles, CA  90021
               Attention:  Maurice Marciano

               If to the Executive, to:

               Francis K. Duane
               78 Wiffle Tree Lane
               New Caanan, CT  06840

               with a copy to:

               William J. Wedge, Esq.
               68 School Street
               Weston, MA  02193


                                        7



     8.   REPRESENTATIONS AND WARRANTIES.

          8.1  The Executive has the unfettered right to enter into this
Agreement on the terms and subject to the conditions hereof, and the Executive
has not done or permitted to be done anything which may curtail or impair any of
the rights granted to the Employer herein.

          8.2  Neither the execution and delivery by the Executive of this
Agreement nor the performance by the Executive of any of the Executive's
obligations hereunder constitute or will constitute a violation or breach of, or
a default under, any agreement, arrangement or understanding to which the
Executive is a party or by which the Executive is bound.

          8.3  The representations and warranties contained in this Section 8
shall survive the execution and delivery of this Agreement.

     9.   GENERAL.

          9.1  This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York applicable to agreements made
and to be performed entirely in New York.

          9.2  The section headings contained herein are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.

          9.3  This Agreement sets forth the entire agreement and understanding
of the parties relating to the subject matter hereof, and supersedes all prior
agreements, arrangements and understandings, written or oral, relating to the
subject matter hereof.  No representation, promise or inducement has been made
by either party that is not embodied in this Agreement, and neither party shall
be bound by or liable for any alleged representation, promises of inducement not
so set forth.

          9.4  This Agreement, and the Executive's rights and obligations
hereunder, may not be assigned by the Executive.

          9.5  This Agreement may be amended, modified, superseded, cancelled,
renewed or extended and the terms or covenants hereof may be waived, only by a
written instrument executed by the parties hereto, or in the case of a waiver,
by the party waiving compliance.  The failure of a party at any time or times
require performance of any provision hereof shall in no manner affect the right
at a later time to enforce the same.  No waiver by either party of the breach of
any term or covenant contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be, or construed as
a further or continuing waiver of any such breach, or a waiver of this breach of
any other term or covenant contained in this Agreement.


                                        8



          9.6  The Employer and the Executive agree that except as required by
law, they will keep confidential and not disclose to any non-affiliated third
party other than the agents and representatives of the Employer and the
Executive, the terms and provisions of this Agreement; PROVIDED, that, the
Employer may disclose the terms and provisions of this Agreement as required by
any federal or state securities laws or the requirements of any national
securities exchange or to any of its lenders, investment bankers, accountants,
attorneys or advisors.

          9.7  Both Employer and Executive have been represented by counsel in
connection with the negotiation and preparation of this Agreement.  For purposes
of interpretation both Employer and Executive shall have been deemed to have
drafted this Agreement.

          9.8  This Agreement or any amendment hereto may be signed in any
number of counterparts, each of which shall be an original, but all of which
taken together shall constitute an agreement (or amendment as the case may be).

          IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

                                        GUESS ?, INC.



                                        By:  /s/ MAURICE MARCIANO
                                           -------------------------------------
                                            Maurice Marciano
                                            Chief Executive Officer



                                             /s/ FRANCIS K. DUANE
                                           -------------------------------------
                                            Francis K. Duane



                                        9



                                                                   EXHIBIT 10.19

                 EIGHTH AMENDMENT TO REVOLVING CREDIT AGREEMENT

     THIS EIGHTH AMENDMENT TO REVOLVING CREDIT AGREEMENT (the "Amendment") is
made as of this 13th day of February, 1996, by and among GUESS ?, INC. (the
"Company"), a Delaware corporation, having its chief executive office at 1444 S.
Alameda St., Los Angeles, California, 90021, THE FIRST NATIONAL BANK OF BOSTON
("FNB"), AS AGENT (the "Agent"), with its head office at 100 Federal Street,
Boston, Massachusetts 02110 and the Lenders, as defined below.

     WHEREAS, the Company and FNB, as Agent and Lender are parties to a
Revolving Credit Agreement dated as of December 20, 1993 as amended by a First
Amendment to Revolving Credit Agreement dated as of January 20, 1994, by a
Second Amendment and Waiver to Revolving Credit Agreement dated as of April 1,
1994, by a Third Amendment and Waiver to the Revolving Credit Agreement dated as
of July 18, 1994, by a Fourth Amendment and Waiver to the Revolving Credit
Agreement dated as of October 24, 1994, by a Fifth Amendment to Revolving Credit
Agreement dated as of February 13, 1995, by a Sixth Amendment to Revolving
Credit Agreement dated as of September 14, 1995 and by a Seventh Amendment to
Revolving Credit Agreement dated as of December 22, 1995 (collectively the
"Credit Agreement") along with SANWA BANK CALIFORNIA ("Sanwa"), AS CO-AGENT AND
LENDER, THE INDUSTRIAL BANK OF JAPAN, LIMITED ("Industrial"), AS LENDER, CREDIT
LYONNAIS LOS ANGELES BRANCH ("Lyonnais"), AS LENDER and SUMITOMO BANK OF
CALIFORNIA ("Sumitomo"), AS LENDER; (collectively with FNB, as Lender, the
"Lenders")

     WHEREAS, the Company has requested that certain changes to the Credit
Agreement be made to reflect the following: (i) the formation of Guess ? Europe,
B.V. a corporation organized under the laws of the Netherlands ("Guess Europe")
for the purposes of facilitating the distribution of product in Europe in which
the Company will hold a 50% interest, (ii) the formation of Newtimes Guess ?
Limited.  ("Newtimes Guess Parent") a British Virgin Islands corporation in
which Guess Europe will hold a 50% interest and in which Indigo Consultants, Ltd
(an existing corporation which is neither owned or controlled by the Company or
any of its affiliates) will hold a 50% interest and Newtimes Guess? Limited a
Hong Kong corporation 100% owned by Newtimes Guess Parent ("Newtimes Guess")
(Newtimes Guess Parent and/or Newtimes Guess will act as buying agents for the
Company), (iii) the sale of the fixed and a small amount of other assets of
Ranche Limited ("Ranche"), the existing buying agent, to Newtimes Guess Parent,
Newtimes Guess and Guess Hong Kong and the eventual dissolution, liquidation or
merger of Ranche into Guess Europe and (iv) the formation of a new entity as a
100% subsidiary of Guess Europe ("Guess Hong Kong") which will act as a selling
agent to certain licensees and related parties of product;

     WHEREAS, the Company has represented that neither Guess Hong Kong, Guess
Europe Newtimes Guess Parent or Newtimes Guess will own any of the inventory of
the



                                        2

Company and that the letters of credit issued under the Credit Agreement shall
not be used to acquire inventory for any of Guess Hong Kong, Guess Europe,
Newtimes Guess Parent and Newtimes Guess;

     WHEREAS, the Company has requested that Newtimes Guess Parent and Newtimes
Guess not be treated as Subsidiaries under the Credit Agreement except to permit
certain investments in and loans to Newtimes Guess Parent and Newtimes Guess by
the Company; and

     WHEREAS, the Company shall continue to guaranty the obligations of Ranche
under the Ranche letter of credit facility with FNB (the "Ranche LC Facility")
until all of the Obligations of Ranche are fulfilled or the letters of credit
expire undrawn under the Ranche LC Facility.

     NOW THEREFORE, for a good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged and agreed, the Agent, the Lenders
and the Company hereby agree to amend the Credit Agreement as hereinafter
provided.

     Section 1.     DEFINITIONS.  Except as otherwise defined herein, the
capitalized terms used herein shall have the meanings ascribed to them in the
Credit Agreement.  The definitions of terms defined herein are hereby
incorporated in the Credit Agreement by reference.

     Section 2.     AMENDMENTS TO THE CREDIT AGREEMENT.  From and after the date
hereof the Credit Agreement is hereby amended as follows:

            2.1. Section 1.1 of the Credit Agreement is hereby amended by
adding the following definition:

            "NEWTIMES GUESS PARENT.  Newtimes Guess ?, Limited, a corporation
            owned 50% by the Guess? Europe, B.V. and 50% by Indigo Consultants,
            Ltd."

            2.2  Section 1.1 of the Credit Agreement is hereby amended by
adding the following definition:

            "NEWTIMES GUESS.  Newtimes Guess ?, Limited, a corporation owned
            100% by the Newtimes Guess Parent."

            2.3  Section 1.1 of the Credit Agreement is hereby amended by
adding the following to the end of the definition of "Subsidiary".



                                        3

            "Notwithstanding the forgoing, each of Newtimes Guess Parent and
            Newtimes Guess shall not be a Subsidiary unless Guess Europe, B.V.
            at anytime owns more than 50% of the shares or ownership interests
            in Newtimes Guess Parent."

            2.4. Section 6.9 (i) of the Credit Agreement is amended to read as
follows::

            "(i) existing Investments in Subsidiaries and new Investments in
            Subsidiaries, Newtimes Guess Parent and Newtimes Guess not to
            exceed $10,000,000 in the aggregate at any one time."

     Section 3.     CONSENT OF THE LENDERS.  The Lenders consent under Section
6.6 of the Credit Agreement to the current sale of the fixed and a small amount
of other assets of Ranche to Newtimes Guess Parent, Newtimes Guess and Guess
Hong Kong and to the dissolution, liquidation or merger of Ranche not earlier
than the payment or expiration of the outstanding letters of credit under the
Ranche LC Facility and the transfer of the remaining cash or cash equivalents in
Ranche upon such dissolution, liquidation or merger to Guess Europe.

     Section 4.     CONDITIONS TO THIS AMENDMENT.  The agreements of Agent as
set forth in this Amendment are subject to the fulfillment of the following
conditions:

            (a)  Receipt by Agent of a fully executed copy of this Eighth
            Amendment, executed by the Company and the Required Lenders;

            (b)  Receipt by Agent of evidence that all of the transactions
            contemplated by this amendment have been completed; provided that
            the Company may rely on this amendment as being enforceable in
            undertaking such transactions;

            (c)  Receipt by the Agent of a duly executed Certificate of
            Secretary of the Company certifying as to the incumbency of the
            officers of the Company and the board of directors resolutions
            authorizing the execution and delivery of this Amendment and
            related agreements and such other matters as Agent may required;
            and

            (d)  Receipt by the Agent of such other documents, instruments and
            agreements as Agent may reasonably request in connection herewith
            or in order to effectuate the matters described herein.

     Section 5.     GENERAL



                                        4

            5.1. The Company hereby represents and warrants that (i) each of
the representations set forth in the Credit Agreement, as amended hereby (other
than those which specifically speak as of a date other than the date of this
Amendment), is true, correct and complete in all respects on the date hereof,
and (ii) no event has occurred and is continuing and no condition exists which
constitutes or, with the passage of time or the giving of notice, or both would
constitute a Default or an Event of Default under the Credit Agreement as
amended hereby.

            5.2. The Company hereby represents and warrants that the execution
and delivery of this Amendment and all other documents and agreements, now or
hereafter entered into or delivered, and all other actions, now or hereafter
taken, by the Company in connection with this Amendment are within the corporate
power of the Company and have been duly authorized by all necessary corporate
action, and no further corporate action is necessary to authorize the execution
and delivery of this Amendment and all related documents or to make them, and
all of their respective terms and provisions, the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms, except as limited in bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights generally, and except as the remedy of specific performance or of
injunctive relief is subject to the discretion of the court before which any
proceeding therefor may be brought.

            5.3  This Amendment may be executed in any number of counterparts,
each of which when executed and delivered shall be deemed an original, but all
of which together shall constitute one instrument.  In making proof of this
Amendment, it shall not be necessary to account for more than one counterpart
hereof signed by each of the parties hereto.  Except to the extent specifically
amended or supplemented hereby, all of the items, conditions and provisions of
the Credit Agreement shall remain unmodified, and the Credit Agreement, as
amended and supplemented by this Amendment, is confirmed as being in full force
and effect.

     IN WITNESS WHEREOF, the parties hereto have executed this amendment under
seal as of the day first above-written by their respective officers, hereunto
duly authorized.

                                        Guess ?, Inc.

                                        By:   /s/ Roger A. Williams
                                           -------------------------------------
                                        Title:   EVP and CFO
                                              ----------------------------------

                        SIGNATURES CONTINUED ON NEXT PAGE




                                        5

                                        The First National Bank of Boston, as
                                        Agent and Lender

                                        By:   /s/ DEBRA L. ZURKA
                                           -------------------------------------
                                        Title:   Vice President
                                              ----------------------------------

                                        Consented to in accordance with Section
                                        9.7 of the Credit Agreement

                                        Sanwa Bank California, as Co-Agent and
                                        Lender

                                        By:   /s/ NICOLE GARNIER
                                           -------------------------------------
                                        Title:   Vice President
                                              ----------------------------------

                                        The Industrial Bank of Japan, Limited,
                                        as Lender

                                        By:    /s/ MASATAKE YASHIRO
                                           -------------------------------------
                                        Title:   General Manager
                                              ----------------------------------

                                        Credit Lyonnais Los Angeles Branch, as
                                        Lender

                                        By:   /s/ DAVID L. MILLER
                                           -------------------------------------
                                        Title:   Vice President
                                              ----------------------------------

                                        Sumitomo Bank of California, as Lender

                                        By:   /s/ MATTHEW R. VAN STEENHUYSE
                                           -------------------------------------
                                        Title:   Vice President
                                              ----------------------------------






                                  GUESS ?, INC.
                           1996 EQUITY INCENTIVE PLAN





                                TABLE OF CONTENTS


                                                                            PAGE

     1.   PURPOSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   1

     2.   DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .   1

     3.   ADMINISTRATION OF THE PLAN . . . . . . . . . . . . . . . . . . . .   4

     4.   DURATION OF PLAN . . . . . . . . . . . . . . . . . . . . . . . . .   5

     5.   SHARES OF STOCK SUBJECT TO THE PLAN. . . . . . . . . . . . . . . .   5

     6.   MAXIMUM NUMBER OF SHARES PER ELIGIBLE INDIVIDUAL . . . . . . . . .   5

     7.   ELIGIBLE INDIVIDUALS . . . . . . . . . . . . . . . . . . . . . . .   6

     8.   STOCK OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .   6

     9.   RESTRICTED STOCK AWARDS. . . . . . . . . . . . . . . . . . . . . .   8

     10.  PERFORMANCE SHARE AWARDS . . . . . . . . . . . . . . . . . . . . .   9

     11.  PERFORMANCE UNITS. . . . . . . . . . . . . . . . . . . . . . . . .  11

     12.  STOCK APPRECIATION RIGHTS. . . . . . . . . . . . . . . . . . . . .  12

     13.  TERMINATION OF EMPLOYMENT. . . . . . . . . . . . . . . . . . . . .  14

     14.  NON-TRANSFERABILITY. . . . . . . . . . . . . . . . . . . . . . . .  16

     15.  RECAPITALIZATION OR REORGANIZATION . . . . . . . . . . . . . . . .  16

     16.  CHANGE IN CONTROL. . . . . . . . . . . . . . . . . . . . . . . . .  17

     17.  AMENDMENT OF THE PLAN. . . . . . . . . . . . . . . . . . . . . . .  17

     18.  MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . .  18





                                  GUESS ?, INC.
                           1996 EQUITY INCENTIVE PLAN

          1.   PURPOSE.  The purposes of the Guess ?, Inc. 1996 Equity Incentive
Plan (the "PLAN") are to attract, retain and motivate officers and other key
employees and consultants of Guess ?, Inc., a Delaware corporation (the
"COMPANY"), and its Subsidiaries (as hereinafter defined), to compensate them
for their contributions to the growth and profits of the Company and to
encourage ownership by them of stock of the Company.

          2.   DEFINITIONS.  For purposes of the Plan, the following terms shall
be defined as follows:

          "AFFILIATE" and "ASSOCIATE" have the respective meanings ascribed to
     such terms in Rule 12b-2 promulgated under the Exchange Act.

          "AWARD" means an award made pursuant to the terms of the Plan to an
     Eligible Individual (as hereinafter defined) in the form of Stock Options,
     Restricted Stock Awards, Performance Share Awards, Performance Units or
     Stock Appreciation Rights.

          "AWARD AGREEMENT" means a written agreement granting an Award, which
     is executed by the Participant and by an officer on behalf of the Company,
     and containing such terms and conditions as the Committee deems appropriate
     and that are not inconsistent with the terms of the Plan.

          "BENEFICIAL OWNER" has the meaning ascribed to such term in Rule 13d-3
     promulgated under the Exchange Act.

          "BOARD" means the Board of Directors of the Company.

          A "CHANGE IN CONTROL" of the Company shall be deemed to have occurred
     when (A) any Person (other than (x) the Company, any Subsidiary of the
     Company, any employee benefit plan of the Company or of any Subsidiary of
     the Company, or any person or entity organized, appointed or established by
     the Company or any Subsidiary of the Company for or pursuant to the terms
     of any such plan or (y) Maurice Marciano, Paul Marciano or Armand Marciano,
     or any trust established in whole or in part for the benefit of one or more
     of them or their family members, or any other entity controlled by one or
     more of them), alone or together with its Affiliates and Associates
     (collectively, an "ACQUIRING PERSON"), shall become the Beneficial Owner of
     twenty percent (20%) or more of the then outstanding shares of Common Stock
     or the Combined Voting Power of the Company (except pursuant to an offer
     for all outstanding shares of Common Stock at a price and upon such terms
     and conditions as a majority of the Continuing Directors determine to be in
     the best interests of the Company and its shareholders (other than an
     Acquiring Person on





                                        2


     whose behalf the offer is being made)), (B) during any period of two
     consecutive years, individuals who at the beginning of such period
     constitute the Board, and any new director (other than a director who is a
     representative or nominee of an Acquiring Person) whose election by the
     Board or nomination for election by the Company's shareholders was approved
     by a vote of at least a majority of the directors then still in office who
     either were directors at the beginning of the period or whose election or
     nomination for election was previously so approved (collectively, the
     "CONTINUING DIRECTORS"), cease for any reason to constitute a majority of
     the Board, (C) the shareholders of the Company approve a merger or
     consolidation of the Company with any other corporation, other than a
     merger or consolidation which would result in the voting securities of the
     Company outstanding immediately prior thereto continuing to represent
     (either by remaining outstanding or by being converted into voting
     securities of the Surviving Entity (as defined in Section 16 hereof) or any
     Parent of such Surviving Entity) at least 80% of the Combined Voting Power
     of the Company, such Surviving Entity or the Parent of such Surviving
     Entity outstanding immediately after such merger or consolidation, or (D)
     the shareholders of the Company approve a plan of reorganization (other
     than a reorganization under the United States Bankruptcy Code) or complete
     liquidation of the Company or an agreement for the sale or disposition by
     the Company of all or substantially all of the Company's assets; PROVIDED,
     HOWEVER, that a change in control shall not be deemed to have occurred in
     the event of (x) a sale or conveyance in which the Company continues as a
     holding company of an entity or entities that conduct all or substantially
     all of the business or businesses formerly conducted by the Company or
     (y) any transaction undertaken for the purpose of incorporating the Company
     under the laws of another jurisdiction, if such transaction does not
     materially affect the beneficial ownership of the Company's capital stock.

          "CODE" means the Internal Revenue Code of 1986, as amended, and the
     applicable rulings and regulations thereunder.

          "COMBINED VOTING POWER" means the combined voting power of the
     Company's then outstanding voting securities.

          "COMMITTEE" means the Compensation Committee of the Board, any
     successor committee thereto or any other committee appointed by the Board
     to administer the Plan; PROVIDED that, prior to the establishment of the
     Compensation Committee of the Board, or the appointment by the Board of any
     other committee to administer the Plan, "COMMITTEE" means the Board.  The
     Committee shall consist of at least two individuals and shall serve at the
     pleasure of the Board.

          "COMMON STOCK" means the Common Stock, par value $.01 per share, of
     the Company.





                                        3


          "DISABILITY" means, with respect to any Participant, that, as a result
     of incapacity due to physical or mental illness, such Participant is, or is
     reasonably likely to become, unable to perform his or her duties for more
     than six (6) consecutive months or six (6) months in the aggregate during
     any twelve (12) month period.

          "ELIGIBLE INDIVIDUALS" means the individuals described in Section 7
     who are eligible for Awards under the Plan.

          "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
     and the applicable rulings and regulations thereunder.

          "FAIR MARKET VALUE" means, on any given date, the closing price of the
     shares of Common Stock, as reported on the New York Stock Exchange for such
     date or, if Common Stock was not traded on such date, on the next preceding
     day on which Common Stock was traded; PROVIDED that if the Common Stock is
     not then traded on the New York Stock Exchange, Fair Market Value means the
     fair market value thereof as of the relevant date of determination as
     determined in accordance with a valuation methodology approved by the
     Committee.

          "INCENTIVE STOCK OPTION" means a Stock Option which is an "incentive
     stock option" within the meaning of Section 422 of the Code and designated
     by the Committee as an Incentive Stock Option in an Award Agreement.

          "NONQUALIFIED STOCK OPTION" means a Stock Option which is not an
     Incentive Stock Option.

          "PARENT" means any corporation which is a "parent corporation" within
     the meaning of Section 424(e) of the Code with respect to the relevant
     entity.

          "PARTICIPANT" means an Eligible Individual to whom an Award has been
     granted under the Plan.

          "PERFORMANCE SHARE AWARD" means a conditional Award of shares of
     Common Stock granted to an Eligible Individual pursuant to Section 10
     hereof.

          "PERFORMANCE UNIT" means a conditional Award to receive all or some
     portion of the appreciation on shares of Common Stock granted to an
     Eligible Individual pursuant to Section 11 hereof.

          "PERSON" means any person, entity or "group" within the meaning of
     Section 13(d)(3) or Section 14(d)(2) of the Exchange Act.





                                        4


          "RESTRICTED STOCK AWARD" means an Award of shares of Common Stock
     granted to an Eligible Individual pursuant to Section 9 hereof.

          "RETIREMENT" means retirement from active employment with the Company
     and its Subsidiaries on or after the attainment of age 55, or such other
     retirement date as may be approved by the Committee for purposes of the
     Plan and specified in the applicable Award Agreement.

          "STOCK APPRECIATION RIGHT" means an Award to receive all or some
     portion of the appreciation on shares of Common Stock granted to an
     Eligible Individual pursuant to Section 12 hereof.

          "STOCK OPTION" means an Award to purchase shares of Common Stock
     granted to an Eligible Individual pursuant to Section 8 hereof.

          "SUBSIDIARY" means (i) any corporation which is a "subsidiary
     corporation" within the meaning of Section 424(f) of the Code with respect
     to the Company or (ii) any other corporation or other entity in which the
     Company, directly or indirectly, has an equity or similar interest and
     which the Committee designates as a Subsidiary for the purposes of the
     Plan.

          "TEN PERCENT SHAREHOLDER" means an Eligible Individual who, at the
     time an Incentive Stock Option is to be granted to him or her, owns (within
     the meaning of Section 422(b)(6) of the Code) stock possessing more than
     ten percent (10%) of the total combined voting power of all classes of
     stock of the Company, or of a Parent or a Subsidiary.

          3.   ADMINISTRATION OF THE PLAN.

          (a)  The Plan shall be administered by the Committee, and the
Committee shall make the determinations set forth in this subsection 3(a), based
on the recommendations of the Company's management; PROVIDED, HOWEVER, that with
respect to any Participant the deductibility of whose Award may, in the
reasonable belief of the Committee, be subject to the deduction limitation of
Section 162(m) of the Code, the Committee shall exercise sole discretion
regarding administration of the Plan and the determinations set forth in this
subsection 3(a).  The Committee shall have full power and authority, subject to
the express provisions hereof, (i) to select Participants from the Eligible
Individuals, (ii) to make Awards in accordance with the Plan, (iii) to determine
the number of Shares subject to each Award or the cash amount payable in
connection with an Award, (iv) to determine the terms and conditions of each
Award, including, without limitation, those related to vesting, forfeiture,
payment and exercisability, and including the authority to amend the terms and
conditions of an Award after the granting thereof to a Participant in a manner
that is not prejudicial to the





                                        5


rights of such Participant in such Award, (v) to specify and approve the
provisions of the Award Agreements delivered to Participants in connection with
their Awards, (vi) to construe and interpret any Award Agreement delivered under
the Plan, (vii) to prescribe, amend and rescind rules and procedures relating to
the Plan, (viii) to vary the terms of Awards to take account of tax, securities
law and other regulatory requirements of foreign jurisdictions and (ix) to make
all other determinations and to formulate such procedures as may be necessary or
advisable for the administration of the Plan.

          (b)  The Committee shall have full power and authority, subject to the
express provisions hereof, to construe and interpret the Plan.

          (c)  All determinations by the Committee in carrying out and
administering the Plan and in construing and interpreting the Plan shall be
final, binding and conclusive for all purposes and upon all persons interested
herein.

          (d)  No member of the Committee shall be liable for anything
whatsoever in connection with the administration of the Plan except such
person's own willful misconduct.  Under no circumstances shall any member of the
Committee be liable for any act or omission of any other member of the
Committee.  In the performance of its functions with respect to the Plan, the
Committee shall be entitled to rely upon information and advice furnished by the
Company's officers, the Company's accountants, the Company's counsel and any
other party the Committee deems necessary, and no member of the Committee shall
be liable for any action taken or not taken in reliance upon any such advice.

          4.   DURATION OF PLAN.  The Plan shall remain in effect until
terminated by the Board of Directors and thereafter until all Awards granted
under the Plan are satisfied by the issuance of shares of Common Stock or the
payment of cash or are terminated under the terms of the Plan or under the Award
Agreement entered into in connection with the grant thereof.  Notwithstanding
the foregoing, no Awards may be granted under the Plan after the tenth
anniversary of the Effective Date (as defined in Section 18(l)).

          5.   SHARES OF STOCK SUBJECT TO THE PLAN.  Subject to adjustment as
provided in Section 15(b) hereof, the number of shares of Common Stock that may
be issued under the Plan pursuant to Awards shall not exceed, in the aggregate,
4,500,000 shares.  Such shares may be either authorized but unissued shares,
treasury shares or any combination thereof.  Any shares subject to an Award
which lapses, expires or is otherwise terminated without the issuance of such
shares may again be available for purposes of the Plan.

          6.   MAXIMUM NUMBER OF SHARES PER ELIGIBLE INDIVIDUAL.   In accordance
with the requirements under Section 162(m) of the Code, no Eligible Individual
shall receive grants of Stock Options and SARs with respect to an aggregate of
more than 500,000 shares of Common Stock in any Plan year.





                                        6


          7.   ELIGIBLE INDIVIDUALS.  Awards may be granted by the Committee to
individuals ("ELIGIBLE INDIVIDUALS") who are officers or other key employees or
consultants of the Company or a Subsidiary with the potential to contribute to
the future success of the Company or its Subsidiaries.  Awards shall not be
affected by any change of duties or positions so long as the holder continues to
be an employee or consultant of the Company or of a Subsidiary.

          8.   STOCK OPTIONS.  Stock Options granted under the Plan may be in
the form of Incentive Stock Options or Nonqualified Stock Options; PROVIDED that
only employees may be granted Incentive Stock Options.  Stock Options granted
under the Plan shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the terms of
the Plan, as the Committee shall deem appropriate:

          (a)  AWARD AGREEMENT.  Stock Options shall be evidenced by an Award
     Agreement in such form and containing such terms and conditions as the
     Committee deems appropriate and which are not inconsistent with the terms
     of the Plan.

          (b)  TERMS OF STOCK OPTIONS GENERALLY.  Subject to the terms of the
     Plan and the applicable Award Agreement, each Stock Option shall entitle
     the Participant to whom such Stock Option was granted to purchase, upon
     payment of the relevant exercise price, the number of shares of Common
     Stock specified in the Award Agreement.

          (c)  EXERCISE PRICE.  The exercise price per share of Common Stock
     purchasable under a Stock Option shall be determined by the Committee at
     the time of grant and set forth in the Award Agreement; PROVIDED, HOWEVER,
     that with respect to Incentive Stock Options, the exercise price shall not
     be less than one hundred percent (100%) of the Fair Market Value of a share
     of Common Stock on the date of grant (110% in the case of an Incentive
     Stock Option granted to a Ten Percent Shareholder).  The exercise price for
     any Stock Options granted concurrently with the initial public offering
     will be equal to the initial public offering price.

          (d)  OPTION TERM.  The term of each Stock Option shall be fixed by the
     Committee and set forth in the Award Agreement; PROVIDED, HOWEVER, that a
     Stock Option shall not be exercisable after the expiration of ten (10)
     years after the date the Stock Option is granted (five (5) years in the
     case of an Incentive Stock Option granted to a Ten Percent Shareholder).

          (e)  EXERCISABILITY.  A Stock Option shall be exercisable at such time
     or times and subject to such terms and conditions as shall be determined by
     the  Committee; PROVIDED that a Stock Option shall be freely exercisable
     within 5 years






                                        7


     after the date on which such Stock Option is granted; PROVIDED FURTHER that
     notwithstanding any other provision of the Plan, no Stock Option granted
     prior to August 15, 1996 shall be exercisable during the first six (6)
     months after the date such Stock Option is granted.  In no case may a Stock
     Option be exercised as to less than 100 shares at any one time (or the
     remaining shares covered by the Stock Option if less than 100) during the
     term of the Stock Option.  Only whole shares shall be issued pursuant to
     the exercise of any Stock Option.The Committee may provide that Stock
     Options shall be exercisable in whole or in part based upon length of
     service or attainment of specified performance criteria.  Subject to the
     first sentence of this paragraph, the Committee, in its sole discretion,
     may provide for the acceleration of vesting of a Stock Option, in whole or
     in part, based on such factors or criteria (including specified performance
     criteria) as the Committee may determine.

          (f)  METHOD OF EXERCISE.  A Stock Option may be exercised, in whole or
     in part, by giving written notice of exercise to the Secretary of the
     Company specifying the number of shares to be purchased, and containing any
     representations required by the Committee.  Such notice shall be
     accompanied by payment in full of the exercise price either by cash,
     certified or bank check, or other instrument acceptable to the Committee.
     As determined by the Committee in its sole discretion, payment of the
     exercise price may also be made in full or in part by tendering to the
     Company shares of Common Stock (having a Fair Market Value as of the date
     of exercise of such Stock Option equal to the exercise price (or such
     portion thereof)).  Common Stock used to pay the exercise price may be
     shares that are already owned by the  Participant, or the Company may
     withhold shares of Common Stock that would otherwise have been received by
     the Participant upon exercise of the Stock Option.  In its discretion, in
     accordance with rules and procedures established by the Committee for this
     purpose, the Committee may also permit a Participant to exercise an Option
     through a "cashless exercise" procedure approved by the Committee involving
     a broker or dealer approved by the Committee, provided that the Participant
     has delivered an irrevocable notice of exercise (the "NOTICE") to the
     broker or dealer and such broker or dealer agrees:  (A) to sell immediately
     the number of shares of Common Stock specified in the Notice to be acquired
     upon exercise of the Option in the ordinary course of its business, (B) to
     pay promptly to the Company the aggregate exercise price (plus the amount
     necessary to satisfy any applicable tax liability) and (C) to pay to the
     Participant the balance of the proceeds of the sale of such shares over the
     amount determined under clause (B) of this sentence, less applicable
     commissions and fees; PROVIDED, HOWEVER, that the Committee may modify the
     provisions of this sentence to the extent necessary to conform the exercise
     of the Option to Regulation T under the Exchange Act or any other
     applicable rules.  The manner in which the exercise price may be paid may
     be subject to certain conditions specified by the Committee, including,
     without limitation, conditions intended to avoid the imposition of
     liability against the individual under Section 16 of the





                                        8


     Exchange Act.  If requested by the Committee, the Participant shall deliver
     the Award Agreement evidencing an exercised Stock Option to the Secretary
     of the Company, who shall endorse thereon a notation of such exercise and
     return such Award Agreement to the Participant exercising the Option.  No
     fractional shares (or cash in lieu thereof) shall be issued upon exercise
     of a Stock Option and the number of shares that may be purchased upon
     exercise shall be rounded to the nearest number of whole shares.

          (g)  RIGHTS AS SHAREHOLDER.  A Participant shall have no rights as a
     shareholder with respect to any shares of Common Stock issuable upon
     exercise of a Stock Option until a certificate or certificates evidencing
     the shares of Common Stock shall have been issued to the Participant and,
     subject to Section 15(b), no adjustment shall be made for dividends or
     distributions or other rights in respect of any share for which the record
     date is prior to the date on which the Participant shall become the holder
     of record thereof.

          (h)  SPECIAL RULE FOR INCENTIVE STOCK OPTIONS.  With respect to
     Incentive Stock Options granted under the Plan, if the aggregate Fair
     Market Value (determined as of the date the Incentive Stock Option is
     granted) of the number of shares with respect to which Incentive Stock
     Options are exercisable for the first time by a Participant during any
     calendar year under all plans of the Company or a Parent or Subsidiary
     exceeds One Hundred Thousand Dollars ($100,000) or such other limit as may
     be required by the Code, such Incentive Stock Options shall be treated, to
     the extent of such excess, as Nonqualified Stock Options.

          9.   RESTRICTED STOCK AWARDS.  Restricted Stock Awards granted under
the Plan shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the Plan, as
the Committee shall deem appropriate:

          (a)  AWARD AGREEMENT.  Restricted Stock Awards shall be evidenced by
     an Award Agreement in such form and containing such restrictions, terms and
     conditions as the Committee deems appropriate and which are not
     inconsistent with the terms of the Plan, including, without limitation,
     restrictions on the sale, assignment, transfer or other disposition of such
     shares and provisions requiring that a Participant forfeit such shares upon
     a termination of employment for specified reasons within a specified period
     of time.

          (b)  TERMS OF RESTRICTED STOCK AWARDS GENERALLY.  Restricted Stock
     Awards may be granted under the Plan in such form as the Committee may from
     time to time approve.  Restricted Stock Awards





                                        9


     may be granted for no consideration or such consideration as the Committee
     deems appropriate.   Restricted Stock Awards may be granted alone or in
     addition to other Awards under the Plan.  Subject to the terms of the Plan,
     the Committee shall determine the number of shares of Common Stock subject
     to each Restricted Stock Award granted to a Participant, and the Committee
     may impose different terms and conditions on any particular Restricted
     Stock Award granted to any Participant.  Subject to the following sentence,
     the Committee, in its sole discretion, may provide for the lapse of
     restrictions in installments and may waive or accelerate such restrictions
     in whole or in part, based on such factors or criteria, including specified
     performance criteria, as the Committee may determine.  With respect to
     Restricted Stock Awards made prior to August 15, 1996, a Participant may
     not sell, assign, transfer, pledge, encumber or otherwise dispose of shares
     of Common Stock received under such a Restricted Stock Award during the
     six-month period commencing on the date of the Award.  Upon expiration of
     any applicable restriction period or lapse of any restrictions, the
     Participant shall be vested in the Restricted Stock Award, or applicable
     portion thereof.

          (c)  EVIDENCE OF OWNERSHIP.  Each Participant receiving a Restricted
     Stock Award shall be issued a certificate or certificates in respect of
     such shares of Common Stock at the time of grant.  Such certificate shall
     be registered in the name of such Participant, and shall bear an
     appropriate legend referring to the terms, conditions and restrictions
     applicable to such Award.  The Committee may require that the certificate
     or certificates evidencing such shares be held in custody by the Company
     until the restrictions thereon shall have lapsed, and that, as a condition
     of any Restricted Stock Award, the Participant shall have delivered a stock
     power, endorsed in blank, relating to the Common Stock covered by such
     Award.

          (d)  RIGHTS AS SHAREHOLDER.  Except as otherwise provided by the
     Committee in its sole discretion, a Participant shall have, with respect to
     the shares of Common Stock received under a Restricted Stock Award, all of
     the rights of a shareholder of the Company, including the right to vote the
     shares and the right to receive any cash dividends.  Stock dividends issued
     with respect to shares covered by a Restricted Stock Award shall be treated
     as additional shares under the Restricted Stock Award and shall be subject
     to the same restrictions and other terms and conditions that apply to the
     shares with respect to which such dividends are issued.

          10.  PERFORMANCE SHARE AWARDS.  Performance Share Awards granted under
the Plan shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the Plan, as
the Committee shall deem appropriate:

          (a)  AWARD AGREEMENT.  Performance Share Awards shall be evidenced by
     an Award Agreement in such form and containing such terms and conditions as
     the Committee deems appropriate and which are not inconsistent with the
     terms of the





                                       10


     Plan.  Each Award Agreement shall set forth the number of shares of Common
     Stock to be received by a Participant upon satisfaction of certain
     specified performance criteria and subject to such other terms and
     conditions as the Committee deems appropriate.

          (b)  TERMS OF PERFORMANCE SHARE AWARDS GENERALLY.  Performance Share
     Awards may be granted under the Plan in such form as the Committee may from
     time to time approve.  Performance Share Awards may be granted for no
     consideration or such consideration as the Committee deems appropriate.
     Performance Share Awards may be granted alone or in addition to other
     Awards under the Plan.  Subject to the terms of the Plan, the Committee
     shall determine the number of shares of Common Stock subject to each
     Performance Share Award granted to a Participant.

          (c)  PERFORMANCE GOALS.  Performance Share Awards shall provide that,
     in order for a Participant to be entitled to receive shares of Common Stock
     under such Award, the Company, a Subsidiary and/or the Participant must
     achieve certain specified performance goals ("PERFORMANCE GOALS") over a
     designated performance period ("PERFORMANCE PERIOD").  The Performance
     Goals and Performance Period shall be established by the Committee in its
     sole discretion.  The Committee shall establish the Performance Goals for
     each Performance Period before, or as soon as practicable after, the
     commencement of the Performance Period.  In setting Performance Goals, the
     Committee may use such measures as net earnings, operating earnings or
     income, absolute and/or relative return on equity or assets, earnings per
     share, cash flow, pretax profits, earnings growth, revenue growth,
     comparison to peer companies, any  combination of the foregoing, or such
     other measure or measures of performance, including individual measures of
     performance, in such manner as it deems appropriate.  Prior to the end of a
     Performance Period, with respect to any Participant the deductibility of
     whose Performance Award will not, in the reasonable belief of the
     Committee, be subject to the deduction limitation of Section 162(m) of the
     Code, the Committee may, in its discretion, adjust the performance
     objectives to reflect a Change in Capitalization (as hereinafter defined)
     or any other event which may materially affect the performance of the
     Company, a Subsidiary or a division, including, but not limited to, market
     conditions or a significant acquisition or disposition of assets or other
     property by the Company, a Subsidiary or a division.  With respect to any
     Participant, the deductibility of whose Performance Award may, in the
     reasonable belief of the Committee, be subject to the deduction limitation
     of Section 162(m) of the Code, the Committee shall not be entitled to
     exercise the discretion conferred upon it in the preceding sentence to the
     extent the existence or exercise of such discretion would result in a loss
     of tax deductibility under such Section 162(m) of the Code.  The extent to
     which a Participant is entitled to payment of a Performance Share Award at
     the end of the Performance Period shall be determined by the Committee, in
     its sole discretion, based on the Committee's





                                       11


     determination of whether the Performance Goals established by the Committee
     in the granting of such Performance Share Award have been met.

          (d)  PAYMENT OF AWARDS.  Payment in settlement of a Performance Share
     Award shall be made as soon as practicable following the conclusion of the
     respective Performance Period, or at such other time as the Committee shall
     determine, in shares of Common Stock.

          (e)  RIGHTS AS SHAREHOLDER.  Except as otherwise provided by the
     Committee in the applicable Award Agreement, a Participant shall have no
     rights as a shareholder with respect to a Performance Share Award until a
     certificate or certificates evidencing the shares of Common Stock shall
     have been issued to the Participant following the conclusion of the
     Performance Period, and, subject to Section 15(b), no adjustment shall be
     made for dividends or distributions or other rights in respect of any share
     for which the record date is prior to the date on which the Participant
     shall become the holder of record thereof.

          11.  PERFORMANCE UNITS.  Awards of Performance Units shall be subject
to the following terms and conditions and shall contain such additional terms
and conditions, not inconsistent with the terms of the Plan, as the Committee
shall deem appropriate:

          (a)  AWARD AGREEMENT.  Awards of Performance Units shall be evidenced
     by an Award Agreement in such form and containing such terms and conditions
     as the Committee deems appropriate and which are not inconsistent with the
     terms of the Plan.

          (b)  TERMS OF PERFORMANCE UNITS GENERALLY.  Each Performance Unit
     shall entitle the Participant to whom such Performance Unit was granted to
     receive, upon satisfaction of certain specified performance criteria and
     subject to such other terms and conditions as the Committee deems
     appropriate, the amount specified in Section 11(d).  Performance Units may
     be granted alone or in addition to other Awards under the Plan.

          (c)  PERFORMANCE GOALS.  Awards of Performance Units shall provide
     that, in order for a Participant to be entitled to payment under such
     Award, the Company, a Subsidiary and/or the Participant must achieve
     certain specified Performance Goals over a designated Performance Period.
     The Performance Goals and Performance Period shall be established by the
     Committee in its sole discretion.  The Committee shall establish the
     Performance Goals for each Performance Period before, or as soon as
     practicable after, the commencement of the Performance Period.  In setting
     Performance Goals, the Committee may use such measures as net earnings,
     operating earnings or income, absolute and/or relative return on equity or
     assets, earnings per





                                       12


     share, cash flow, pretax profits, earnings growth, revenue growth,
     comparison to peer companies, any combination of the foregoing, or such
     other measure or measures of performance, including individual measures of
     performance, in such manner as it deems appropriate.  Prior to the end of a
     Performance Period, with respect to any Participant the deductibility of
     whose Performance Unit Awards will not, in the reasonable belief of the
     Committee, be subject to Section 162(m) of the Code, the Committee may, in
     its discretion, adjust the performance objectives to reflect a Change in
     Capitalization (as hereinafter defined) or any other event which may
     materially affect the performance of the Company, a Subsidiary or a
     division, including, but not limited to, market conditions or a significant
     acquisition or disposition of assets or other property by the Company, a
     Subsidiary or a division with respect to any Participant, the deductibility
     of whose Performance Unit Award may, in the reasonable belief of the
     Committee, be subject to Section 162(m) of the Code, the Committee shall
     not be entitled to exercise the discretion conferred upon it in the
     preceding sentence to the extent the existence or exercise of such
     discretion would result in a loss of tax deductibility under such Section
     162(m) of the Code.  The extent to which a Participant is entitled to
     payment of a Performance Unit Award at the end of the Performance Period
     shall be determined by the Committee, in its sole discretion, based on the
     Committee's determination of whether the Performance Goals established by
     the Committee in the granting of such Performance Unit Award have been met.

          (d)  PAYMENT OF AWARDS.  Payment in settlement of a Performance Unit
     Award shall be made as soon as practicable following the conclusion of the
     respective Performance Period, or at such other time as the Committee shall
     determine, in cash.  The amount of any such payment shall be determined by
     multiplying (i) the difference between the Fair Market Value of one share
     of Common Stock on the relevant date and the price per share specified for
     the Performance Unit by (ii) the number of Performance Units.
     Notwithstanding the foregoing, the Committee may limit in any manner the
     amount payable with respect to any Performance Unit by including such a
     limit in the Award Agreement at the time the Performance Unit is granted.

          (e)  RIGHTS AS SHAREHOLDER.  A Participant shall have no rights as a
     shareholder with respect to an Award of Performance Units.

          12.  STOCK APPRECIATION RIGHTS.  Stock Appreciation Rights granted
under the Plan shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the terms of
the Plan, as the Committee shall deem appropriate.

          (a)  AWARD AGREEMENT.  Stock Appreciation Rights shall be evidenced by
     an Award Agreement in such form and containing such terms and conditions as
     the





                                       13


     Committee deems appropriate and which are not inconsistent with the terms
     of the Plan.

          (b)  TERMS OF STOCK APPRECIATION RIGHTS GENERALLY.  Subject to the
     terms of the Plan and the applicable Award Agreement, each Stock
     Appreciation Right shall entitle the Participant to whom such Stock
     Appreciation Right was granted to receive, upon exercise thereof, the
     amount specified in Section 12(e).  A Stock Appreciation Right may be
     granted alone or in addition to other Awards, or in tandem with a Stock
     Option.  If granted in tandem with a Stock Option, a Stock Appreciation
     Right shall cover the same number of shares of Common Stock as covered by
     the Stock Option (or such lesser number of shares as the Committee may
     determine).

          (c)  EXERCISE PRICE.  The exercise price per share of Common Stock
     subject to a Stock Appreciation Right shall be determined by the Committee
     at the time of grant and set forth in the Award Agreement.

          (d)  EXERCISE.  A Stock Appreciation Right may be exercised by a
     Participant in accordance with procedures established by the Committee,
     except that in no event shall a Stock Appreciation Right granted prior to
     August 15, 1996 be exercisable within the first six (6) months after the
     date such Stock Appreciation Right is granted, or in the case of a Stock
     Appreciation Right granted prior to August 15, 1996 and in tandem with a
     Stock Option, within the first six (6) months after the date of grant of
     the related Stock Option.  A Stock Appreciation Right granted in tandem
     with a Stock Option shall be exercisable only at such time or times and to
     the extent the related Stock Option shall be exercisable, and shall have
     the same term and exercise price as the related Stock Option.  A Stock
     Appreciation Right unrelated to a Stock Option shall contain such terms and
     conditions as to exercisability (subject to the first sentence of this
     Section 12(d)) and duration as the Committee shall determine, but in no
     event shall any such Stock Appreciation Right have a term of greater than
     ten (10) years.  The Committee, in its sole discretion, may provide for the
     acceleration of vesting of a Stock Appreciation Right, in whole or in part,
     based on such factors or criteria (including specified performance
     criteria) as the Committee may determine.  Upon exercise of a Stock
     Appreciation Right granted in tandem with a Stock Option, the related Stock
     Option shall be cancelled automatically to the extent of the number of
     shares covered by such exercise, and such shares shall no longer be
     available for grant under the Plan.  If the related Stock Option is
     exercised as to some or all of the shares covered by the tandem grant, the
     related Stock Appreciation Right shall be cancelled automatically to the
     extent of the number of shares covered by the Stock Option exercise.  A
     Stock Appreciation Right granted in tandem with an Incentive Stock Option
     may be exercised only when the Fair Market Value of the Common Stock
     subject to the Incentive Stock Option exceeds the exercise price of such
     Stock Option.





                                       14


          (e)  AMOUNT OF PAYMENT.  In the event a Participant exercises a Stock
     Appreciation Right, such Participant shall be entitled to receive an amount
     determined by multiplying (a) the difference between the Fair Market Value
     of one share of Common Stock on the date of exercise and the exercise price
     per share specified for the Stock Appreciation Right by (b) the number of
     shares in respect of which the Stock Appreciation Right shall have been
     exercised.  Notwithstanding the foregoing, the Committee may limit in any
     manner the amount payable with respect to any Stock Appreciation Right by
     including such a limit in the Award Agreement at the time the Stock
     Appreciation Right is granted.

          (f)  FORM OF PAYMENT.  Payment upon exercise of a Stock Appreciation
     Right shall be made in cash, in shares of Common Stock, or some combination
     thereof, as the Committee shall determine in its sole discretion.

          (g)  RIGHTS AS SHAREHOLDER.  A Participant shall have no rights as a
     shareholder with respect to any Stock Appreciation Right unless and until a
     certificate or certificates evidencing shares of Common Stock are issued to
     the Participant as payment upon exercise of such Stock Appreciation Right,
     and, subject to Section 15(b), no adjustment shall be made for dividends or
     distributions or other rights in respect of any share for which the record
     date is prior to the date on which the Participant shall become the holder
     of record thereof.

          (h)  LIMITED STOCK APPRECIATION RIGHTS.  The Committee may grant to an
     Eligible Individual a Stock Appreciation Right (a "LIMITED STOCK
     APPRECIATION RIGHT") pursuant to which the Participant shall have the right
     to surrender such Limited Stock Appreciation Right or any portion thereof
     to the Company within thirty (30) days following a Change in Control and to
     receive from the Company in exchange therefor a cash payment in an amount
     equal to (a) the number of shares of Common Stock under the Limited Stock
     Appreciation Right or portion thereof which is being exercised, multiplied
     by (b) the excess of (i) the greater of (A) the highest price per share of
     Common Stock paid in connection with the Change in Control or (B) the
     highest Fair Market Value per share of Common Stock in the 90 day period
     preceding such Change in Control, over (ii) the Fair Market Value of a
     share of Common Stock on the date the Limited Stock Appreciation Right was
     granted as set forth in the Award Agreement.  Limited Stock Appreciation
     Rights granted under the Plan shall contain such additional terms and
     conditions, not inconsistent with the Plan, as the Committee deems
     appropriate.

          13.  TERMINATION OF EMPLOYMENT.

          (a)  DISABILITY OR RETIREMENT.  Except as may otherwise be provided by
the Committee in its sole discretion at the time of grant or subsequent thereto,
if a Participant's





                                       15


employment with the Company and its Subsidiaries terminates by reason of
Disability or Retirement, (i) any Stock Option or Stock Appreciation Right held
by the Participant may thereafter be exercised, to the extent it was exercisable
on the date of termination, for a period (the "EXERCISE PERIOD") of one year
from the date of such Disability or Retirement or until the expiration of the
stated term of the Stock Option or Stock Appreciation Right, whichever period is
shorter, and to the extent not exercisable on the date of termination of
employment, such Stock Option or Stock Appreciation Right shall be forfeited;
PROVIDED, HOWEVER, that if a Participant terminates employment by reason of
Retirement and such Participant holds an Incentive Stock Option, the Exercise
Period shall not exceed the shorter of three months from the date of Retirement
and the remainder of the stated term of such Incentive Stock Option; PROVIDED
FURTHER, HOWEVER, that if the Participant dies during the Exercise Period, any
unexercised Stock Option or Stock Appreciation Right held by such Participant
may thereafter be exercised to the extent it was exercisable on the date of
Disability or Retirement, by the legal representative of the estate or legatee
of the Participant under the will of the Participant, for a period of one year
from the date of such death or until the expiration of the stated term of such
Stock Option or Stock Appreciation Right, whichever period is shorter (or, in
the case of an Incentive Stock Option, for a period equal to the remainder of
the Exercise Period), and (ii) if such termination is prior to the end of any
applicable restriction period (with respect to a Restricted Stock Award) or
Performance Period (with respect to a Performance Share Award or a Performance
Unit Award), the number of shares of Common Stock subject to such Award which
have not been earned or the corresponding Award payment, as the case may be, as
of the date of Disability or Retirement shall be forfeited.  In determining
whether to exercise its discretion under the first sentence of this
Section 13(a) with respect to an Incentive Stock Option the Committee may
consider the provisions of Section 422 of the Code.

          (b)  OTHER TERMINATIONS.  Unless the Committee determines otherwise in
its sole discretion at the time of grant or subsequent thereto, if a
Participant's employment with the Company and its Subsidiaries terminates for
any reason other than death, Disability or Retirement, (i) any Stock Option or
Stock Appreciation Right held by the Participant may thereafter be exercised, to
the extent it was exercisable on the date of termination, for a period of sixty
(60) days from the date of such termination of employment or until the
expiration of the stated term of such Stock Option or Stock Appreciation Right,
whichever period is shorter, and to the extent not exercisable on the date of
termination of employment, such Stock Option or Stock Appreciation Right shall
be forfeited, and (ii) if such termination is prior to the end of any applicable
restriction period (with respect to a Restricted Stock Award) or Performance
Period (with respect to a Performance Share Award or a Performance Unit Award),
the number of shares of Common Stock subject to such Award which have not been
earned or the corresponding Award payment, as the case may be, as of the date of
such termination of employment shall be forfeited.  In determining whether to
exercise its discretion under the first sentence of this Section 13(c) with
respect to an






                                       16


Incentive Stock Option, the Committee may consider the provisions of Section 422
of the Code.

          14.  NON-TRANSFERABILITY.  No Award granted under the Plan or any
rights or interests therein shall be sold, transferred, assigned, pledged or
otherwise encumbered or disposed of except by will or by the laws of descent and
distribution or, except in the case of an Incentive Stock Option, pursuant to a
"qualified domestic relations order" ("QDRO") as defined in the Code or Title I
of the Employee Retirement Income Security Act of 1974, as amended, and the
rules and regulations thereunder; PROVIDED, HOWEVER, that the Committee may,
subject to such terms and conditions as the Committee shall specify, permit the
transfer of an Award granted after August 15, 1996 that is not an Incentive
Stock Option to a Participant's family members or to one or more trusts
established in whole or in part for the benefit of one or more of such family
members; PROVIDED FURTHER that the restrictions in this sentence shall not apply
to the shares received in connection with an Award after the date that the
restrictions on transferability of such shares set forth in the applicable Award
Agreement have lapsed.  During the lifetime of a Participant, a Stock Option or
Stock Appreciation Right shall be exercisable only by, and payments in
settlement of Awards shall be payable only to, the Participant or, if
applicable, the "alternate payee" under a QDRO or the family member or trust to
whom such Stock Option, Stock Appreciation Award or other Award has been
transferred in accordance with the previous sentence.

          15.  RECAPITALIZATION OR REORGANIZATION.

          (a)  The existence of the Plan, the Award Agreements and the Awards
granted hereunder shall not affect or restrict in any way the right or power of
the Company or the shareholders of the Company to make or authorize any
adjustment, recapitalization, reorganization or other change in the Company's
capital structure or its business, any merger or consolidation of the Company,
any issue of stock or of options, warrants or rights to purchase stock or of
bonds, debentures, preferred or prior preference stocks whose rights are
superior to or affect the Common Stock or the rights thereof or which are
convertible into or exchangeable for Common Stock, or the dissolution or
liquidation of the Company, or any sale or transfer of all or any part of its
assets or business, or any other corporate act or proceeding, whether of a
similar character or otherwise.

          (b)  Notwithstanding any provision of the Plan or any Award Agreement,
in the event of any change in the outstanding Common Stock by reason of a stock
dividend, recapitalization, reorganization, merger, consolidation, stock split,
combination or exchange of shares (a "CHANGE IN CAPITALIZATION"), (i) such
proportionate adjustments as may be necessary (in the form determined by the
Committee in its sole discretion) to reflect such change shall be made to
prevent dilution or enlargement of the rights of Participants under the Plan
with respect to the aggregate number of shares of Common Stock for which Awards
in respect thereof may be granted under the Plan, the number of shares of Common
Stock





                                       17


covered by each outstanding Award, and the exercise or Award prices in respect
thereof and (ii) the Committee may make such other adjustments, consistent with
the foregoing, as it deems appropriate in its sole discretion.

          16.  CHANGE IN CONTROL.  In the event of a Change in Control and
except as the Committee (as constituted immediately prior to such Change in
Control) may otherwise determine in its sole discretion, (i) all Stock Options
or Stock Appreciation Rights then outstanding shall become fully exercisable as
of the date of the Change in Control, whether or not then exercisable, (ii) all
restrictions and conditions of all Restricted Stock Awards then outstanding
shall lapse as of the date of the Change in Control, (iii) all Performance Share
Awards and Performance Unit Awards shall be deemed to have been fully earned as
of the date of the Change in Control, and (iv) in the case of a Change in
Control involving a merger of, or consolidation involving, the Company in which
the Company is (A) not the surviving corporation (the "SURVIVING ENTITY") or (B)
becomes a wholly owned subsidiary of the Surviving Entity or any Parent thereof,
each outstanding Stock Option granted under the Plan and not exercised (a
"PREDECESSOR OPTION") will be converted into an option (a "SUBSTITUTE OPTION")
to acquire common stock of the Surviving Entity or its Parent, which Substitute
Option will have substantially the same terms and conditions as the Predecessor
Option, with appropriate adjustments as to the number and kind of shares and
exercise prices.  Notwithstanding the preceding sentence, any Award granted
prior to August 15, 1996 and within six (6) months of a Change in Control shall
not be afforded any such acceleration as to exercise, vesting and payment rights
or lapsing as to conditions or restrictions.

          17.  AMENDMENT OF THE PLAN.  The Board or Committee may at any time
and from time to time terminate, modify, suspend or amend the Plan in whole or
in part, except that no termination, modification, suspension or amendment shall
be effective without shareholder approval if such approval is required to comply
with Rule 16b-3 under the Exchange Act, Section 162(m) of the Code, or to comply
with any other law, regulation or stock exchange rule.  No termination,
modification, suspension or amendment of the Plan shall, without the consent of
a Participant to whom any Awards shall previously have been granted, adversely
affect his or her rights under such Awards.  Notwithstanding any provision
herein to the contrary, the Board or Committee shall have broad authority to
amend the Plan or any Stock Option to take into account changes in applicable
tax laws, securities laws, accounting rules and other applicable state and
federal laws.

          18.  MISCELLANEOUS.

          (a)  TAX WITHHOLDING.  (i)  No later than the date as of which an
amount first becomes includable in the gross income of the Participant for
applicable income tax purposes with respect to any award under the Plan, the
Participant shall pay to the Company or make arrangements satisfactory to the
Committee regarding the payment of any federal,





                                       18


state or local taxes of any kind required by law to be withheld with respect to
such amount.  Unless otherwise determined by the Committee, in accordance with
rules and procedures established by the Committee, the minimum required
withholding obligations may be settled with Common Stock, including Common Stock
that is part of the award that gives rise to the withholding requirement.  The
obligation of the Company under the Plan shall be conditioned upon such payment
or arrangements and the Company shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
Participant.

          (ii) The applicable Award Agreement for an Incentive Stock Option
shall provide that if a Participant makes a disposition, within the meaning of
Section 424(c) of the Code and the regulations promulgated thereunder, of any
share of Common Stock issued to such Participant pursuant to the exercise of an
Incentive Stock Option within the two-year period commencing on the day after
the date of the grant or within the one-year period commencing on the day after
the date of transfer of such share of Common Stock to the Participant pursuant
to such exercise, the Participant shall, within ten (10) days of such
disposition, notify the Company thereof, by delivery of written notice to the
Company at its principal executive office.

          (b)  LOANS.  On such terms and conditions as shall be approved by the
Committee, the Company may directly or indirectly lend money to a Participant to
accomplish the purposes of the Plan, including to assist such Participant to
acquire or carry shares of Common Stock acquired upon the exercise of Stock
Options granted hereunder, and the Committee may also separately lend money to
any Participant to pay taxes with respect to any of the transactions
contemplated by the Plan.

          (c)  NO RIGHT TO GRANTS OR EMPLOYMENT.  No Eligible Individual or
Participant shall have any claim or right to receive grants of Awards under the
Plan.  Nothing in the Plan or in any Award or Award Agreement shall confer upon
any employee of the Company or any Subsidiary any right to continued employment
with the Company or any Subsidiary, as the case may be, or interfere in any way
with the right of the Company or a Subsidiary to terminate the employment of any
of its employees at any time, with or without cause.

          (d)  UNFUNDED PLAN.  The Plan is intended to constitute an unfunded
plan for incentive compensation.  With respect to any payments not yet made to a
Participant by the Company, nothing contained herein shall give any such
Participant any rights that are greater than those of a general creditor of the
Company.  In its sole discretion, the Committee may authorize the creation of
trusts or other arrangements to meet the obligations created under the Plan to
deliver Common Stock or payments in lieu thereof with respect to awards
hereunder.





                                       19


          (e)  OTHER EMPLOYEE BENEFIT PLANS.  Payments received by a Participant
under any Award made pursuant to the provisions of the Plan shall not be
included in, nor have any effect on, the determination of benefits under any
other employee benefit plan or similar arrangement provided by the Company.

          (f)  SECURITIES LAW RESTRICTIONS.  The Committee may require each
Eligible Individual purchasing or acquiring shares of Common Stock pursuant to a
Stock Option or other Award under the Plan to represent to and agree with the
Company in writing that such Eligible Individual is acquiring the shares for
investment and not with a view to the distribution thereof.  All certificates
for shares of Common Stock delivered under the Plan shall be subject to such
stock-transfer orders and other restrictions as the Committee may deem advisable
under the rules, regulations, and other requirements of the Securities and
Exchange Commission, the New York Stock Exchange or any other exchange upon
which the Common Stock is then listed, and any applicable federal or state
securities law, and the Committee may cause a legend or legends to be put on any
such certificates to make appropriate reference to such restrictions.  No shares
of Common Stock shall be issued hereunder unless the Company shall have
determined that such issuance is in compliance with, or pursuant to an exemption
from, all applicable federal and state securities laws.

          (g)  COMPLIANCE WITH RULE 16B-3.  (i)  The Plan is intended to comply
with Rule 16b-3 under the Exchange Act or its successors under the Exchange Act
and the Committee shall interpret and administer the provisions of the Plan or
any Award Agreement in a manner consistent therewith.  To the extent any
provision of the Plan or Award Agreement or any action by the Committee fails to
so comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Committee.  Moreover, in the event the Plan or an Award
Agreement does not include a provision required by Rule 16(b)(3) to be stated
therein, such provision (other than one relating to eligibility requirements, or
the price and amount of Awards) shall be deemed automatically to be incorporated
by reference into the Plan or such Award Agreement insofar as Participants
subject to Section 16 of the Exchange Act are concerned.

          (ii) Notwithstanding anything contained in the Plan or any Award
Agreement to the contrary, if the consummation of any transaction under the Plan
would result in the possible imposition of liability on a Participant pursuant
to Section 16(b) of the Exchange Act, the Committee shall have the right, in its
sole discretion, but shall not be obligated, to defer such transaction to the
extent necessary to avoid such liability, but in no event for a period in excess
of 180 days.

          (h)  DEDUCTIBILITY UNDER CODE SECTION 162(M).  Awards granted under
the Plan to Eligible Individuals which the Committee reasonably believes may be
subject to the deduction limitation of Section 162(m) of the Code shall not be
exercisable, and payment under the Plan in connection with such an Award shall
not be made, unless and until the





                                       20


Committee has determined in its sole discretion that such exercise or payment
would no longer be subject to the deduction limitation of Section 162(m) of the
Code.

          (i)  AWARD AGREEMENT.  Each Eligible Individual receiving an Award
under the Plan shall enter into an Award Agreement in a form specified by the
Committee agreeing to the terms and conditions of the Award and such other
matters as the Committee shall, in its sole discretion, determine.  In the event
of any conflict or inconsistency between the Plan and any such Award Agreement,
the Plan shall govern, and the Award Agreement shall be interpreted to minimize
or eliminate any such conflict or inconsistency.

          (j)  EXPENSES.  The costs and expenses of administering the Plan shall
be borne by the Company.

          (k)  APPLICABLE LAW.  Except as to matters of federal law, the Plan
and all actions taken thereunder shall be governed by and construed in
accordance with the laws of the State of Delaware without giving effect to
conflicts of law principles.

          (l)  EFFECTIVE DATE.  The Plan shall be effective as of the date (the
"EFFECTIVE DATE") the Plan is approved by the Board, PROVIDED that the Plan is
approved by the affirmative votes of a majority of shares of Common Stock or by
written consent of a majority of shares of Common Stock.  Awards granted under
the Plan prior to such shareholder approval shall be and are made subject to
defeasance by the failure of the shareholders to approve the Plan.



                         GUESS ?, INC. 1996 NON-EMPLOYEE
                          DIRECTORS' STOCK OPTION PLAN


1.   PURPOSE OF THE PLAN.

          The purpose of this Plan is to enable the Company to attract and
retain as non-employee directors individuals with superior training, experience
and ability and to provide additional incentive to such Eligible Directors by
giving them an opportunity to participate in the ownership of the Company.

2.   DEFINITIONS.

          For purposes of the Plan, the following terms shall be defined as set
forth below:

          "AFFILIATE" and "ASSOCIATE" have the respective meanings ascribed 
to such terms in Rule 12b-2 promulgated under the Exchange Act.

          "AWARD AGREEMENT" means a written agreement between the Company and
the Optionee regarding the grant and exercise of Options to purchase shares of
Common Stock and the terms and conditions thereof.

          "BENEFICIAL OWNER" has the meaning ascribed to such term in Rule 
13d-3 promulgated under the Exchange Act.

          "BOARD" means the Board of Directors of the Company.

          "CODE" means the Internal Revenue Code of 1986, as amended from time
to time, and any successor thereto.

          "COMBINED VOTING POWER" means the combined voting power of the
Company's then outstanding voting securities.

          "COMMON STOCK" means the Common Stock of the Company, par value $.01
per share.

          "COMPANY" means Guess ?, Inc., a Delaware corporation, including any
wholly owned subsidiary or affiliate, or any successor organization.

          "DISABILITY" means permanent and total disability within the meaning
of Section 22(e)(3) of the Code.

          "ELIGIBLE DIRECTOR" means a person who is a member of the Board and
who is not an employee of the Company.

          "ELIGIBILITY DATE" means the first business day of each of the
Company's fiscal years, commencing January 1, 1997, while this Plan is in
effect.



                                        2

          "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

          "FAIR MARKET VALUE" means, on any given date, the closing price of the
shares of Common Stock, as reported on the New York Stock Exchange for such date
or, if Common Stock was not traded on such date, on the next preceding day on
which Common Stock was traded; PROVIDED that if the Common Stock is not then
traded on the New York Stock Exchange, Fair Market Value means the fair market
value thereof as of the relevant date of determination as determined in
accordance with a valuation methodology approved by the Board.

          "INCENTIVE STOCK OPTION" means any Option intended to be designated as
an "incentive stock option" within the meaning of Section 422 of the Code.

          "NONQUALIFIED STOCK OPTION" means any Option that is not an Incentive
Stock Option.

          "OPTION" means any option to purchase shares of the Common Stock of
the Company granted pursuant to this Plan.

          "OPTIONEE" means an Eligible Director who receives an Option under the
Plan.

          "PERSON" means any person or "group" within the meaning of Section
13(d)(3) or Section 14(d)(2) of the Exchange Act.

          "PLAN" means the Guess ?, Inc. Non-Employee Directors' Stock Option
Plan, as hereinafter amended from time to time.

          "RULES" means the regulations promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act, as amended from time
to time.

          "SUBSIDIARY" means (i) any corporation which is a "subsidiary
corporation" within the meaning of Section 424(f) of the Code with respect to
the Company or (ii) any other corporation or other entity in which the Company,
directly or indirectly, has an equity or similar interest and which the Board
designates as a subsidiary for purposes of the Plan.

          Except where otherwise indicated by the context, any masculine
terminology used herein shall also include the feminine and vice versa, and the
definition of any term herein in the singular shall also include the plural and
vice versa.



                                        3

3.   SHARES SUBJECT TO THE PLAN.

          Except as provided in Section 9, the aggregate number of shares of
Common Stock that may be issued under the Plan is 500,000.  Such shares may
include authorized but unissued shares of Common Stock, treasury shares or a
combination of both. In the event the number of shares of Common Stock issued
under the Plan and the number of shares of Common Stock subject to outstanding
awards equals the maximum number of shares of Common Stock authorized under the
Plan, no further awards shall be made unless the Plan is amended (in accordance
with the Rules, if necessary) or additional shares of Common Stock become
available for further awards under the Plan.  If and to the extent that Options
granted under the Plan terminate, expire or are canceled without having been
exercised, such shares shall again be available for subsequent awards under the
Plan.

4.   ADMINISTRATION OF THE PLAN.

          (a)    ADMINISTRATION.  The Plan shall be administered by the Board.
Subject to the provisions of the Plan, the Board shall be authorized to:

          (i)    adopt, revise and repeal such administrative rules, guidelines
     and practices governing this Plan as it shall from time to time deem
     advisable;

          (ii)   interpret the terms and provisions of the Plan and any Option
     issued under the Plan (and any agreements relating thereto), and otherwise
     settle all claims and disputes arising under the Plan;

          (iii)  delegate responsibility and authority for the operation and
     administration of the Plan, appoint employees and officers of the Company
     to act on its behalf, and employ persons to assist in the fulfilling of its
     responsibilities under the Plan; and

          (iv)   otherwise supervise the administration of the Plan; PROVIDED,
     HOWEVER, that the Board shall have no discretion with respect to the
     selection of Eligible Directors to receive Options hereunder, the number of
     shares of Common Stock covered by such Option or the price or timing of any
     Options granted hereunder; PROVIDED FURTHER that any action by the Board
     relating to the Plan will be taken only if approved by the affirmative vote
     of a majority of the directors who are not then eligible to participate
     under the Plan.

          (b)    DELEGATION TO A COMMITTEE.  The Board may delegate to a
committee of the Board any or all of its authority for administration of the
Plan and, if such delegation occurs, all references to the Board in this Plan
shall be deemed references to the committee to the extent provided in the
resolution establishing the committee.



                                        4

          (c)    LOANS TO OPTIONEES.  The Board, in its absolute discretion,
may provide that the Company loan to Optionees sufficient funds to exercise any
Option and/or to pay any withholding due upon exercise of such Option.  The
Board shall have the authority to make such determinations at any time and shall
establish repayment terms, including installments, maturity and interest rates.

5.   EFFECTIVE DATE AND TERM OF THE PLAN.

          The Plan shall be effective as of the date the Plan is approved by the
Board, PROVIDED that the Plan is approved by the affirmative votes of a majority
of shares of Common Stock or by written consent of a majority of shares of
Common Stock.  Options granted under the Plan prior to such shareholder approval
shall be and are made subject to defeasance by the failure of the shareholders
to approve the Plan.  The Plan shall continue in effect until the earlier of
(a) ten years from the date of the first grant of Options or (b) the termination
of the Plan by action of the Board.  No Options shall be granted pursuant to the
Plan on or after such termination date, but Options granted prior to such date
may extend beyond that date.  The Board shall have the right to suspend or
terminate the Plan at any time except with respect to any Options then
outstanding.

6.   OPTION GRANTS.

          (a)    NUMBER OF OPTIONS GRANTED.  The following number of Options
are hereby granted to each Eligible Director under the Plan:

          (i)    With respect to each person who first becomes an Eligible
     Director on or after the date of the Company's initial public offering of
     Common Stock, an Option to purchase 10,000 shares of Common Stock is
     granted as of the date such person first becomes an Eligible Director.

          (ii)   On each Eligibility Date, with respect to each Eligible
     Director who has not been an employee of the Company at any time during
     the 12 months immediately preceding the relevant Eligibility Date, an
     Option to purchase 3,000 shares of Common Stock is granted to such
     Eligible Director.

          (b)    NONQUALIFIED STOCK OPTIONS.  All Options granted hereunder
shall be Nonqualified Stock Options.  No Option granted pursuant to this Plan
may be designated as an Incentive Stock Option.

          (c)    AMENDMENTS TO THIS SECTION 6.  Notwithstanding any other
provision of the Plan, until August 15, 1996, this Section 6 may not be amended
more then once, except



                                        5

for amendments necessary to conform the Plan to changes in the provisions of, or
the regulations relating to, the Code.

7.   TERMS AND CONDITIONS OF OPTIONS.

          (a)    AWARD AGREEMENT.  Each Option granted hereunder shall be
evidenced by an Award Agreement containing such terms and conditions which are
not inconsistent with the terms of the Plan.

          (b)    OPTION PRICE.  The Option price per share of Common Stock
covered by an Option granted hereunder shall be 85% of the Fair Market Value of
the Common Stock as of the date of grant.

          (c)    OPTION TERM. The term of each Option shall be ten years.  No
Option shall be exercised by any person after expiration of the term of the
Option.

          (d)    EXERCISABILITY.  Subject to Section 9(b), Options shall become
exercisable with respect to one-fourth of the shares of Common Stock covered
thereby on each anniversary of the date of grant.  In no case may an Option be
exercised as to less than 100 shares at any one time (or the remaining shares
covered by the Option if less than 100) during the term of the Option.  Only
whole shares shall be issued pursuant to the exercise of any Option.

          (e)    METHOD OF EXERCISE.  Shares may be purchased or acquired
pursuant to an Option granted hereunder by giving written notice of exercise to
the Company, specifying the number of shares as to which the Optionee desires
to exercise the Option, and containing any representations required by the
Board.  On or before the date specified for completion of the purchase of
shares pursuant to an Option, the Optionee must have paid the Company the full
purchase price of such shares in cash, certified or bank check, or other
instrument acceptable to the Board.  As determined by the Board in its sole
discretion, payment in full or in part may also be made by tendering to the
Company shares of previously acquired unrestricted Common Stock of the Company
(having a Fair Market Value as of the date the Option is exercised equal to the
exercise price (or such portion thereof)).  Common Stock used to pay the
exercise price may be shares that are already owned by the Optionee, or the
Company may withhold shares of Common Stock that would otherwise have been
received by the Optionee upon exercise of the Option.  In its discretion, in
accordance with rules and procedures established by the Board for this purpose,
the Board may also permit an Optionee to exercise an Option through a "cashless
exercise" procedure approved by the Board involving a broker or dealer approved
by the Board, provided that the Optionee has delivered an irrevocable notice of
exercise (the "NOTICE") to the broker or dealer and such broker or dealer
agrees:  (A) to sell immediately the number of shares of Common Stock specified
in the



                                        6

Notice to be acquired upon exercise of the Option in the ordinary course of its
business, (B) to pay promptly to the Company the aggregate exercise price (plus
the amount necessary to satisfy any applicable tax liability) and (C) to pay to
the Optionee the balance of the proceeds of the sale of such shares over the
amount determined under clause (B) of this sentence, less applicable commissions
and fees; PROVIDED, HOWEVER, that the Board may modify the provisions of this
sentence to the extent necessary to conform the exercise of the Option to
Regulation T under the Exchange Act or any other applicable rules.  The manner
in which the exercise price may be paid may be subject to certain conditions
specified by the Board, including, without limitation, conditions intended to
avoid the imposition of liability against the individual under Section 16 of the
Exchange Act.  If requested by the Board, the Optionee shall deliver the Award
Agreement evidencing an exercised Option to the Secretary of the Company, who
shall endorse thereon a notation of such exercise and return such Award
Agreement to the Optionee exercising the Option.  No fractional shares (or cash
in lieu thereof) shall be issued upon exercise of an Option and the number of
shares that may be purchased upon exercise shall be rounded to the nearest
number of whole shares.

          (f)    NON-TRANSFERABILITY.  No Option granted under the Plan or any
rights or interests therein may be sold, transferred, assigned, pledged or
otherwise encumbered or disposed of, except by will, or the laws of descent and
distribution or pursuant to a "qualified domestic relations order" ("QDRO") as
defined in the Code or Title I of the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations thereunder; PROVIDED, HOWEVER,
that the Board may, subject to such terms and conditions as the Board shall
specify, permit the transfer of an Option granted after August 15, 1996 to an
Optionee's family members or to one or more trusts established in whole or in
part for the benefit of one or more of such family members.  During the
Optionee's lifetime, all Options shall be exercisable only by the Optionee or,
if applicable, the "alternate payee" under a QDRO, or the family member or trust
to whom such Option has been transferred in accordance with the previous
sentence.

          (g)    TERMINATION BY REASON OF DEATH.  In the event of the death of
an Optionee, any Option held by such Optionee may thereafter be exercised, to
the extent exercisable on the date of death, by the legal representative of the
estate or legatee of the Optionee under the will of the Optionee for a period of
one year from the date of such death or until the expiration of the stated term
of such Option, whichever period is shorter, and to the extent not exercisable
on the date of death, such Option shall be forfeited.

          (h)    TERMINATION BY REASON OF DISABILITY.  In the event of the
Disability of an Optionee, any Option held by such Optionee may thereafter be
exercised by the Optionee, to the extent it was exercisable at the time of such
Disability, for a period of one year from the date of such Disability or until
the expiration of the stated term of such Option, whichever period is shorter,
and to the extent not exercisable on the date of Disability, such Option shall



                                        7

be forfeited; PROVIDED, HOWEVER, that if the Optionee dies within such one-year
period, any unexercised Option held by such Optionee shall thereafter be
exercisable to the extent it was exercisable at the time of death for a period
of one year from the date of such death or until the expiration of the stated
term of such Option, whichever period is shorter.

          (i)    OTHER TERMINATIONS.  If an Optionee ceases to be an Eligible
Director for any reason other than death or Disability, any Option held by such
Optionee may thereafter be exercised by the Optionee, to the extent it was
exercisable at the time of such termination, for a period of six months from the
date of such termination or the expiration of the stated term of such Option,
whichever period is shorter, and to the extent not exercisable on the date of
termination, such Option shall be forfeited; PROVIDED, HOWEVER, that if the
Optionee dies within such six-month period, any unexercised Option held by such
Optionee shall thereafter be exercisable, to the extent to which it was
exercisable at the time of death, for a period of one year from the date of such
death or until the expiration of the stated term of the Option, whichever period
is shorter.

8.   AMENDMENT AND TERMINATION.

          The Board may amend, alter, suspend or terminate the Plan in whole or
in part at any time and from time to time; PROVIDED, HOWEVER, that, until August
15, 1996, the provisions of the Plan respecting eligibility to participate may
not be amended more frequently than once, other than to comport with changes in
the Code, or the Employee Retirement Income Security Act of 1974, as amended,
and any rules or regulations thereunder; PROVIDED FURTHER that any amendment,
alteration, suspension or termination which, under the requirements of
applicable federal or state law or regulation or the rules of any stock exchange
or automated quotation system on which the Common Stock may then be listed or
quoted must be approved by the stockholders of the Company, shall not be
effective unless and until such stockholder approval has been obtained in
compliance with such law.  The Board may amend the terms of any Option
theretofore granted, prospectively or retroactively, but no such amendment shall
impair the rights of any Optionee without the Optionee's consent.
Notwithstanding any provision herein to the contrary, the Board shall have broad
authority to amend the Plan or any Option to take into account changes in
applicable tax laws, securities laws, accounting rules and other applicable
state and federal laws.

9.   CHANGES IN CAPITAL STRUCTURE.

          (a)    In the event of any change in the outstanding Common Stock by
reason of a stock dividend, recapitalization, reorganization, merger,
consolidation, stock split, combination or exchange of shares, (i) such
proportionate adjustments as may be necessary (in the form determined by the
Board in its sole discretion) to reflect such change shall be made to prevent
dilution or enlargement of the rights of Optionees under the Plan with respect
to the



                                        8

aggregate number of shares of Common Stock for which awards in respect thereof
may be granted under the Plan, the number of shares of Common Stock covered by
each outstanding Option, and the exercise price in respect thereof and (ii) the
Board may make such other adjustments, consistent with the foregoing, as it
deems appropriate in its sole discretion.

          (b)    In the event of a change in control of the Company, (i) all 
outstanding Options granted hereunder shall become fully exercisable as of 
the date of the Change in Control, whether or not then exercisable, and (ii) 
in the case of a change in control involving a merger of, and consolidation 
involving, the Company in which the Company is (A) not the surviving 
corporation (the "SURVIVING ENTITY") or (B) becomes a wholly owned subsidiary 
of the Surviving Entity or parent thereof, each outstanding Option granted 
hereunder and not exercised (a "PREDECESSOR OPTION") shall be converted into 
an option (a "SUBSTITUTE OPTION") to acquire common stock of the Surviving 
Entity or its parent, which Substitute Option shall have substantially the 
same terms and conditions as the Predecessor Option, with appropriate 
adjustments as to the number and kind of shares and exercise prices.  A 
"change in control" shall be deemed to have occurred when (A) any Person 
(other than (x) the Company, any Subsidiary of the Company, any employee 
benefit plan of the Company or of any Subsidiary of the Company, or any 
person or entity organized, appointed or established by the Company or any 
Subsidiary of the Company for or pursuant to the terms of any such plan or 
(y) Maurice Marciano, Paul Marciano or Armand Marciano, or any trust 
established in whole or in part for the benefit of one or more of them or 
their family members, or any other entity controlled by one or more of them), 
alone or together with its Affiliates and Associates (collectively, an 
"ACQUIRING  PERSON"), shall become the Beneficial Owner of twenty percent 
(20%) or more of the then outstanding shares of Common Stock or the Combined 
Voting Power of the Company (except pursuant to an offer for all outstanding 
shares of Common Stock at a price and upon such terms and conditions as a 
majority of the Continuing Directors determine to be in the best interests of 
the Company and its shareholders (other than an Acquiring Person on whose 
behalf the offer is being made)), (B) during any period of two consecutive 
years, individuals who at the beginning of such period constitute the Board, 
and any new director (other than a director who is a representative or 
nominee of an Acquiring Person) whose election by the Board or nomination for 
election by the Company's shareholders was approved by a vote of at least a 
majority of the directors then still in office who either were directors at 
the beginning of the period or whose election or nomination for election was 
previously so approved (collectively, the "CONTINUING DIRECTORS"), cease for 
any reason to constitute a majority of the Board, (C) the shareholders of the 
Company approve a merger or consolidation of the Company with any other 
corporation, other than a merger or consolidation which would result in the 
voting securities of the Company outstanding immediately prior thereto 
continuing to represent (either by remaining outstanding or by being 
converted into voting securities of the Surviving Entity or any parent of 
such Surviving Entity) at least 80% of the Combined Voting Power of the 
Company, such Surviving Entity or any parent of such Surviving Entity 
outstanding immediately after such merger or consolidation, or (D) the 
shareholders of the Company



                                        9

approve a plan of reorganization (other than a reorganization under the United
States Bankruptcy Code) or complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all or substantially all of the
Company's assets; PROVIDED, HOWEVER, that a change in control shall not be
deemed to have occurred in the event of (x) a sale or conveyance in which the
Company continues as a holding company of an entity or entities that conduct all
or substantially all of the business or businesses formerly conducted by the
Company or (y) any transaction undertaken for the purpose of incorporating the
Company under the laws of another jurisdiction, if such transaction does not
materially affect the beneficial ownership of the Company's capital stock.

10.  UNFUNDED STATUS OF THE PLAN.

          The Plan is intended to constitute an unfunded plan for incentive
compensation.  With respect to any payments not yet made to an Optionee by the
Company, nothing contained herein shall give any such Optionee any rights that
are greater than those of a general creditor of the Company.  In its sole
discretion, the Board may authorize the creation of trusts or other arrangements
to meet the obligations created under the Plan to deliver Common Stock or
payments in lieu thereof with respect to awards hereunder.

11.  GENERAL PROVISIONS.

          (a)    REPRESENTATIONS BY OPTIONEES.  The Board may require each
Optionee to represent to and agree with the Company in writing that the Optionee
is acquiring the shares of Common Stock without a view to distribution or other
disposition thereof.  The certificates for such shares may include any legend
that the Company deems appropriate to reflect any restrictions on transfer.

          (b)    NO RESTRICTIONS ON ADOPTION OF OTHER COMPENSATION ARRANGEMENTS.
Nothing contained in this Plan shall prevent the Board from adopting other or
additional compensation arrangements (subject to stockholder approval, if such
approval is required) and such arrangements may be either generally applicable
or applicable only in specific cases.

          (c)    NO RIGHT TO RE-ELECTION.  The adoption of the Plan shall not
interfere in any way with the right of the Company to terminate its relationship
with any of its directors at any time.

          (d)    TAX WITHHOLDING.  No later than the date as of which an amount
first becomes includable in the gross income of the Optionee for applicable
income tax purposes with respect to any award under the Plan, the Optionee shall
pay to the Company or make arrangements satisfactory to the Board regarding the
payment of any federal, state or local taxes of any kind required by law to be
withheld with respect to such amount.  Unless



                                       10

otherwise determined by the Board, in accordance with rules and procedures
established by the Board, the minimum required withholding obligations may be
settled with Common Stock, including Common Stock that is part of the award that
gives rise to the withholding requirement.  The obligation of the Company under
the Plan shall be conditional upon such payment or arrangements and the Company
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the Optionee.

          (e)    ISSUE AND TRANSFER TAXES.  The Board may agree to require the
Company to pay issuance or transfer taxes on shares issued pursuant to the
exercise of an Option under the Plan.

          (f)    APPLICABLE LAW.  The Plan shall be governed by and subject to
the laws of the State of Delaware and to all applicable laws and to the
approvals by any governmental or regulatory agency as may be required.

          (g)    SEVERABILITY.  If any provision of this Plan shall be held
illegal or invalid for any reason, such illegality or invalidity shall not
affect the remaining provisions of this Plan, but this Plan shall be construed
and enforced as if such illegal or invalid provision had never been included
herein.

          (h)    COMPLIANCE WITH RULE 16B-3.   The Plan is intended to comply
with Rule 16b-3 under the Exchange Act or its successors under the Exchange Act
and the Board shall interpret and administer the provisions of the Plan or any
Award Agreement in a manner consistent therewith.  To the extent any provision
of the Plan or Award Agreement or any action by the Board fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by the Board.  Moreover, in the event the Plan or an Award Agreement
does not include a provision required by Rule 16(b)(3) to be stated therein,
such provision (other than one relating to eligibility requirements, or the
price and amount of Awards) shall be deemed automatically to be incorporated by
reference into the Plan or such Award Agreement.

          (i)    EXPENSES.  All expenses and costs in connection with the
administration of the Plan or the issuance of Options hereunder shall be borne
by the Company.

          (j)    HEADINGS.  The headings of sections herein are included for
convenience of reference and shall not affect the meaning of any of the
provisions of the Plan.

          (k)    EFFECTIVE DATE.  The Plan shall be effective upon adoption of
the Plan by the Board, subject to shareholder approval (the "EFFECTIVE DATE").



                                  GUESS ?, INC.

                           ANNUAL INCENTIVE BONUS PLAN


Section 1.  PURPOSES

              The purposes of the Guess ?, Inc. Annual Incentive Bonus Plan (the
"Plan") are (i) to provide greater motivation for selected key employees of
Guess ?, Inc., a Delaware corporation (the "Company"), and its Subsidiaries (as
herein after defined) to attain and maintain the highest standards of
performance, (ii) to attract and retain executives of outstanding competence,
and (iii) to direct the energies of executives toward the achievement of
specific business goals established for the Company and its Subsidiaries.

Section 2.  ADMINISTRATION AND INTERPRETATION

              (a)  The Plan shall be administered by the Compensation Committee
(the "Committee") of the Board of Directors of the Company (the "Board"), which
shall consist of not less than two members of the Board.

              (b)  The Committee is authorized to interpret the Plan and may
from time to time adopt such rules and regulations for carrying out the Plan as
it may deem necessary or advisable.  Decisions of the Committee shall be final,
conclusive and binding upon all parties, including, without limitation, the
Company and the key employees who participate in the Plan.

Section 3.  PARTICIPATION

              (a)  Participation in the Plan during any year shall be limited to
those key employees ("Participants") of the Company and its Subsidiaries who, in
the opinion of the Committee, are in a position to have a significant impact on
the performance of the Company and who are selected by the Committee; PROVIDED
that participation by an employee of a Subsidiary shall be subject to approval
of the Plan by such Subsidiary's Board of Directors, which approval shall
constitute the Subsidiary's agreement to pay, at the direction of the Committee,
awards directly to its employees or to reimburse the Company for the cost of
such participation in accordance with rules adopted by the Committee.

              (b)  Unless otherwise determined by the Committee in its sole
discretion, or as provided in a Participant's employment agreement, if a
Participant ceases to be employed by the Company and/or its Subsidiaries prior
to the end of a year for any reason other than disability (as determined by the
Company), retirement at or after age 55, or death, his or her participation in
the Plan for such year will terminate forthwith and he or she will not be
entitled to any award for such year.  If, prior to the end of a year, a
Participant's employment ceases because of disability (as determined by the
Company), retirement at or after age 55, or



                                        2

death, or if the effective date of participation by a Participant for any year
shall be after January 1 of such year, the Participant shall be entitled to
receive only that proportion of the amount, if any, that he or she otherwise
would have received under the Plan for the full calendar year which the number
of calendar days of his or her participation in the Plan during such year bears
to the total number of calendar days in such year.

              (c)  The term "Subsidiary" shall mean any corporation at least 50%
of whose issued and outstanding voting stock is owned, directly or indirectly by
the Company.

Section 4.  DETERMINATION OF INCENTIVE AWARDS

              The Committee may authorize awards to eligible key employees
pursuant to either of the following methods:

              (a)  For each calendar year the Committee may establish one or
more specified percentages of base salary ("Target Percentages"), to be used to
calculate awards under the Plan if the Company's actual financial performance
(in terms of net earnings, operating earnings or income, earnings per share,
cash flow, absolute and/or relative return on equity or assets, pre-tax profits,
earnings growth, revenue growth, comparison to peer companies, any combination
of the foregoing and/or such other appropriate measures of performance,
including individual measures of performance, in such manner as the Committee
deems appropriate) for the year equals one or more performance goals specified
by the Committee.  The Committee also may establish a range of adjustments to
the Target Percentages, to be used if the Company's actual financial performance
differs from the performance goals in specified amounts.  Actual financial
performance shall be measured by reference to the Company's financial records
and the consolidated financial statements of the Company.  In determining
performance, the Committee in its discretion may direct the adjustments to the
performance goals or actual financial performance as reported be made to reflect
extraordinary organizational, operational or other changes that have occurred
during such year, such as (without limitation) acquisitions, dispositions,
expansions, contractions, material non-recurring items of income or loss or
events that might create unwarranted hardships or windfalls to Participants.
The Committee may also provide that the Chief Executive Officer shall have
discretion to increase or decrease the award otherwise payable to a Participant
(other than the Chief Executive Officer), based upon their individual
performance during the year.

              (b)  A discretionary bonus in an amount as the Committee in its
discretion may determine.



                                        3

Section 5.  AWARDS

              (a)  For each year, the Committee shall in its sole and absolute
discretion (i) determine the Participants who are to be eligible to receive
awards under the Plan for such year, (ii) notify such Participant in writing
concerning his or her selection for participation in the Plan for such year and
(iii) establish the specific performance goals to be used to calculate awards
under the Plan for such year.

              (b)  On or before March 10 of the year subsequent to any Plan
year, the Committee shall determine awards to Participants for such Plan year by
comparing actual financial performance to the performance goals and the range of
percentages adopted by the Committee for such year.  If the Committee has not
adopted specified goals for the Plan year, the Committee shall meet by March 10
of the year subsequent to the Plan year to determine if discretionary bonuses
shall be awarded to Participants.  Each award under the Plan shall be paid in
cash promptly after the amount of the award has been determined.

              (c)  No award under this Plan shall be considered as compensation
in calculating any insurance, profit-sharing, retirement, or other benefit for
which the recipient is eligible unless any such insurance, profit-sharing,
retirement or other benefit is granted under a plan which expressly provided
that incentive compensation shall be considered as compensation under such plan.

              (d)  There is no requirement that the maximum amount available for
awards in any year be awarded, nor that an award will be granted to any
particular Participant for any year.  Any portion of any amount available for
making awards for any year which shall not have been awarded, shall not carry
over or increase the maximum amount of awards payable in any subsequent year.

Section 6.  DEATH OF PARTICIPANT

              If a Participant dies before or after termination of employment,
any unpaid installments of an award shall be paid to his or her legal
representatives, either in the installments as originally provided or otherwise
as the Committee may determine in each individual case, or, where the Committee
has authorized the designation of beneficiaries, to such beneficiaries as may
have been designated by the Participant.

Section 7.  NON-ASSIGNABILITY AND CONTINGENT NATURE OF RIGHTS

              No Participant, no person claiming through him or her, nor any
other person shall have any right or interest in the Plan or its continuance, or
in the payment of any award under the Plan, unless and until all the provisions
of the Plan, the rules adopted thereunder,



                                        4

and restrictions and limitations on the award itself have been fully complied
with.  No rights under the Plan, contingent or otherwise, shall be transferable,
assignable or subject to any pledge or encumbrance of any nature.

Section 8.  SOURCE OF PAYMENTS

              The Company shall not have any obligation to establish any
separate fund or trust or other segregation of assets to provide for payments
under the Plan.  To the extent any person acquires any rights to receive
payments hereunder from the Company, such rights shall be no greater than those
of an unsecured creditor.

Section 9.  TAX WITHHOLDING

              The Company or a Subsidiary thereof, as appropriate, shall have
the right to deduct from all payments made under the Plan to a Participant or to
a Participant's beneficiary or beneficiaries any Federal, state or local taxes
required by law to be withheld with respect to such payments.

Section 10.  TERMINATION AND AMENDMENT

              The Board may at any time terminate or from time to time modify or
suspend, in whole or in part, and if suspended, may reinstate, any or all of the
provisions of the Plan in such respects as the Board may deem advisable,
PROVIDED that no such termination or modification shall impair any rights which
have accrued under the Plan.

Section 11.  NO RESTRICTION ON RIGHT TO EFFECT CHANGES

              The Plan shall not affect in any way the right or power of the
Company or its stockholders to make or authorize any sale of all or any portion
of the assets of the Company or any Subsidiary, any merger or consolidation of
the Company or any Subsidiary, a reorganization, dissolution or liquidation of
the Company or any Subsidiary, or any other event or series of events, whether
of a similar character or otherwise.

Section 12.  HEADINGS

              The headings of sections herein are included solely for
convenience of reference and shall not affect the meaning of any of the
provisions of the Plan.

Section 13.  GOVERNING LAW



                                        5

              This Plan shall be governed by and construed in accordance with
the laws of the State of California.

Section 14.  NO CONTRACT OF EMPLOYMENT OR RIGHT TO AWARDS

              Nothing contained herein shall be construed as a contract of
employment between the Company and any Participant, or as giving a right to any
person to be granted awards under the Plan or to continue in the employment of
the Company or any of its Subsidiaries, or as limiting the right of the Company
or any of its Subsidiaries to discharge any Participant at any time, with or
without cause.

Section 15.  EFFECTIVE DATE

              The Plan shall be effective as of the date of its adoption by the
Board of Directors.


                                                                  EXHIBIT 10.24

                              EMPLOYMENT AGREEMENT


          EMPLOYMENT AGREEMENT, made as of ____________, 1996, by and between
Guess ?, Inc., a Delaware corporation (herein referred to as the "COMPANY"), and
Maurice Marciano (herein referred to as the "EXECUTIVE").

                              W I T N E S S E T H:

          WHEREAS, the Company intends to make an underwritten initial public
offering of its common stock (the "PUBLIC OFFERING"); and

          WHEREAS, in connection with the Public Offering, the Company and
Executive deem it to be in their respective best interests to enter into an
agreement providing for the Company's employment of Executive pursuant to the
terms herein stated; 

          NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto hereby agree as follows:

          1.   EMPLOYMENT; POSITION AND DUTIES; EXCLUSIVE SERVICES.

          (a)  EMPLOYMENT.  The Company agrees to employ the Executive, and the
Executive agrees to be employed by the Company, for the Term provided in Section
2 below and upon the other terms and conditions hereinafter provided.  

          (b)  POSITION AND DUTIES.  During the Term, the Executive (i) agrees
to serve as the Chairman of the Board and Chief Executive Officer of the Company
and to perform such reasonable duties as may be delineated in the By-Laws of the
Company and as may be assigned to him from time to time by the Board of
Directors of the Company (the "BOARD"), including, without limitation, primary
responsibility for all design and finance functions of the Company,  (ii) shall
report, as Chief Executive Officer of the Company, only to the Board,
(iii) shall be given such authority as is appropriate to carry out the duties
described above, it being understood that, in his capacities as Chairman of the
Board and Chief Executive Officer of the Company, his duties will be consistent
in scope, prestige and authority with the duties of Chairman of the Board and
Chief Executive Officer of the Company as demonstrated by the Company's existing
practices as of the effective date of this Agreement, and (v) agrees to serve,
if elected, at no additional compensation (if the other officers or directors
(other than non-employee directors) of the Company also serve at no additional
compensation) in the position of officer or director of any subsidiary or
affiliate of the Company; PROVIDED, HOWEVER, that such position shall be of no
less status relative to such subsidiary or affiliate as the position that the
Executive holds pursuant to clause (i) of this Section 1(b) is relative to the
Company.

          (c)  EXCLUSIVE SERVICES.  During the Term, the Executive agrees to
devote substantially all of his business time, attention, skill and efforts
exclusively to the business and affairs of the Company and its subsidiaries and
affiliates, and shall perform and discharge the duties which may be assigned to
him from time to time by the Board.



                                      2

          (d)  RELOCATION.  The Company shall not relocate the Executive's
principal place of business outside of the Los Angeles metropolitan area without
the written consent of the Executive.

          2.   TERM OF AGREEMENT.  The term of employment under this Agreement
shall initially be the three-year period commencing on the date of the Public
Offering (the "EFFECTIVE DATE") and ending on the third anniversary of the
Effective Date, and shall be automatically extended without further action by
either party for a successive or successive one-year period or periods, unless
written notice of either party's intention to terminate this Agreement has been
given to the other party at least 90 days prior to the expiration of the Term
(including any one-year extension thereof).  As used in this Agreement, the
"TERM" shall mean the initial three-year term plus any extensions thereof as
provided in this Section 2.

          3.   SALARY AND ANNUAL BONUS.  The Executive's cash compensation for
all services to be rendered by him in any capacity hereunder shall consist of
base salary as provided in Section 3(a) and bonus compensation as provided in
Section 3(b).

          (a)  SALARY.  The Executive shall be paid a minimum base salary (the
"SALARY") at the rate of  $900,000 per annum.  The Salary shall be payable in
accordance with the customary payroll practices for executives of the Company. 
The amount of Executive's Salary will be reviewed not less often than annually
by the Compensation Committee of the Board (the "COMPENSATION COMMITTEE") and
may be increased, but not decreased below such amount, on the basis of such
review.

          (b)  ANNUAL BONUS.  

          (i)  GENERAL TERMS.  For each calendar year included in whole or in
part within the Term, the Executive shall be eligible to earn an annual cash
bonus (a "BONUS") based upon the achievement by the Company and its subsidiaries
of performance targets established by the Compensation Committee in accordance
with the terms of the Company's Annual Incentive Bonus Plan and any successor
plan thereto (collectively, the "BONUS PLAN").  The performance goals on the
basis of which the Executive's bonus shall be determined shall be no less
favorable to the Executive than the goals used to determine the bonus of any
other executive of the Company whose annual bonus is based in whole or in part
on corporate performance and who participates in the Bonus Plan, and the
Compensation Committee shall establish objective criteria to be used to
determine the extent to which such performance goals have been met.  The Bonus,
if any, payable to the Executive in respect of each calendar year will be paid
at the same time that bonuses are paid to other participants in the Bonus Plan.

          (ii) AMOUNT OF TARGET BONUS.  For each calendar year included in whole
or in part within the Term, there shall be a target Bonus (a "TARGET BONUS") for
the Executive


                                      3

equal to at least 100% of Executive's Salary, at the annual rate in effect at 
the beginning of such calendar year (pro rated, if less than an entire year). 
 
          (iii)     DETERMINATION OF THE BONUS AMOUNT.  The amount of the actual
Bonus for any calendar year to be paid to the Executive will be determined, in
the sole discretion of the Compensation Committee, based upon the performance of
the Company and its subsidiaries against the goals established by the
Compensation Committee pursuant to the Bonus Plan.

          4.   STOCK OPTIONS.   Commencing as of the Effective Date, Executive
shall be eligible for option grants under the Company's 1996 Equity Incentive
Plan and any successor plan thereto for the Company's executive officers, in
accordance with the terms and conditions thereof.  

     5.   PENSION AND WELFARE BENEFITS.  During the Term, the Executive will
participate in all pension and welfare plans, programs and benefits that are
applicable to executives of the Company.  The benefits provided to the Executive
during the Term, when taken as a whole, shall be no less favorable than the
benefits which, when taken as a whole, are provided to any other executive of
the Company; PROVIDED that Executive shall continue to receive life insurance
coverage in an amount equal to at least one (1) times his then Salary.   During
the Term, the Executive shall also be entitled to all additional perquisites
which the Company provides to its executives.  Subject to subsection 7(a)(i)
hereof, from and after the expiration of the Term or, if earlier, the date of
termination of Executive's employment hereunder, Executive shall be entitled,
during his lifetime, to full Company-paid health and life insurance for himself
and his immediate family, at a level no less favorable than that in effect from
time to time for the benefit of the Company's senior executive officers.

          6.   OTHER BENEFITS.

          (a)  TRAVEL AND BUSINESS-RELATED EXPENSES.  During the Term, the
Executive shall be reimbursed in accordance with the policies of the Company for
traveling and other  expenses incurred in the performance of the business of the
Company.

          (b)  AUTOMOBILE.  During the Term, the Executive shall be furnished
with an automobile either owned or leased by the Company or an automobile
allowance, at the discretion of the Company.  The Company shall pay or reimburse
the Executive for all reasonable expenses associated with the operation of such
automobile, including, without limitation, all reasonable maintenance and
insurance expenses.

          (c)  AIRCRAFT.  The Executive shall be provided with reasonable access
to any aircraft leased or owned by the Company.

          (d)  COUNTRY CLUB MEMBERSHIP.  During the Term, the Company shall pay
the Executive's reasonable membership expenses (including fees, dues and related
expenses) at such country club or clubs as approved by the Board.


                                      4

          (e)  CONSULTING AGREEMENT.  Commencing on the expiration of the Term
of this Agreement or, if earlier, the date of termination of Executive's
employment hereunder for any reason other than death or for Cause (as defined
below), and subject to the provisions of Sections 8 and 9 hereof, the Company
and Executive shall enter into a two (2) year consulting agreement pursuant to
which Executive shall render consulting services to the Company as Executive and
the Company shall agree, for which the Company shall pay Executive a consulting
fee at an annual rate equal to 50% of Executive's Salary, at the rate in effect
immediately prior to the commencement of the consulting period, payable in
accordance with the customary payroll practices for executives of the Company or
at such other time or times as Executive and the Company shall agree.  It is
expressly understood that Executive's reporting obligations pursuant to such
consulting agreement shall be limited to the Board, or such other person as
Executive and the Company shall agree.

          7.   TERMINATION OF EMPLOYMENT.

          (a)  TERMINATION FOR CAUSE, RESIGNATION WITHOUT GOOD REASON.

           (i) If the Executive's employment is terminated by the Company for
Cause (as defined below) or if the Executive resigns from his employment without
Good Reason (as defined below), prior to the expiration of the Term, the
Executive shall be entitled to receive:  (A) the Salary provided for in Section
3(a) as accrued through the date of such resignation or termination; (B) any
Bonus earned but not yet paid in respect of any calendar year preceding the year
in which such termination or resignation occurs; and (C) any unreimbursed
expenses.  The Executive shall not accrue or otherwise be eligible to receive
Salary payments or to participate in any plans, programs or benefits described
in Section 5 hereof with respect to periods after the date of such termination
or resignation, and shall not be eligible to receive any Bonus in respect of the
year of such termination or resignation or any calendar year following the year
in which such termination or resignation occurs.  Any Bonus in respect of a year
prior to the year in which such termination or resignation occurs shall be
payable at such time and in such manner as provided for in Section 3(b) hereof.

          (ii) Termination for "CAUSE" shall mean termination by action of the
Board because of:  (A) Executive's willful and continued failure (other than by
reason of the incapacity of Executive due to physical or mental illness)
substantially to perform his duties hereunder; (B) a felony conviction of the
Executive or the perpetration by the Executive of a serious dishonest act
against the Company or any of its affiliates or subsidiaries; (C) any willful
misconduct by the Executive that is materially injurious to the financial
condition or business reputation of the Company or any of its affiliates or
subsidiaries; or (D) chronic alcoholism or drug abuse which materially affects
Executive's performance hereunder, PROVIDED, HOWEVER, that no event or
circumstance shall be considered to constitute Cause within the meaning of this
clause (ii) unless the Executive has been given written notice of the events or
circumstances constituting Cause and has failed to effect a cure thereof within
60 calendar days following the receipt of such notice.


                                      5

          (iii)     Resignation for "GOOD REASON" shall mean the resignation of
the Executive because of (A) a material reduction in Executive's
responsibilities, duties, authority, status or titles as described in Section 1
above; or (B) failure by the Company to pay or provide Executive when due any
compensation, benefits or perquisites to which Executive is entitled pursuant to
this Agreement or any other plan, contract or arrangement in which Executive
participates or is entitled to participate; PROVIDED, HOWEVER, that no event or
circumstance shall be considered to constitute Good Reason within the meaning of
this clause (iii) unless the Company has been given written notice of the events
or circumstances constituting Good Reason and has failed to effect a cure
thereof within 60 calendar days following the receipt of such notice.

          (iv) The date of termination of employment by the Company pursuant to
this Section 7(a) shall be the date specified in a written notice of termination
from the Company to the Executive, which, in the case of a proposed termination
to which the 60-day cure period provided for in subsection (ii) above applies
shall be no less than 61 days after the delivery of such notice to the
Executive.  The date of a resignation by the Executive pursuant to this Section
7(a) shall be the date specified in the written notice of resignation from the
Executive to the Company, which, in the case of a proposed resignation to which
the 60-day cure period provided for in subsection (iii) above applies shall be
no less than 61 days after the delivery of such notice to the Company, or, if no
date is specified therein, 61 days after receipt by the Company of the written
notice of resignation from the Executive.

          (b)  TERMINATION WITHOUT CAUSE, RESIGNATION FOR GOOD REASON.
  
          (i)  If the Executive's employment is terminated by the Company
without Cause or if the Executive should resign for Good Reason, prior to the
expiration of the Term, he shall be entitled to receive:  (A) the Salary
provided for in Section 3(a) as accrued through the date of such resignation or
termination and continuing for the remainder of the then-effective Term (the
"CONTINUATION PERIOD"); (B) any Bonus earned but not yet paid in respect of any
calendar year preceding the year in which such termination or resignation
occurs; (C) any unreimbursed expenses and (D) a Bonus for the calendar year in
which such termination or resignation occurs equal to the Executive's Target
Bonus for such year and a Bonus for each subsequent year included in whole or in
part within the Continuation Period equal to the Target Bonus for the calendar
year in which such termination or resignation occurs, PROVIDED, HOWEVER, that
the amount of such Bonus payable in respect of any partial calendar year at the
conclusion of the Continuation Period shall be prorated and shall equal the
Executive's Bonus for such year multiplied by a fraction, the numerator of which
shall equal the number of days in such calendar year up to and including the
last day of the Continuation Period and the denominator of which shall equal the
lesser of 365 or the number of days in such final calendar year up to and
including the last day of the Term. 

          During the Continuation Period, (X) Salary payments to the Executive
shall be payable in accordance with the payroll practices of the Company, and
(Y) Bonus payments


                                      6


shall be made in respect of each calendar year at the same time that bonuses 
are paid to participants in the Bonus Plan.   
 
          The Executive shall also be entitled to continued participation in the
medical, dental and insurance plans and arrangements described in Section 5, on
the same terms and conditions as are in effect immediately prior to such
termination or resignation, until the earlier to occur of (i) the last day of
the Continuation Period and (ii) such time as Executive is entitled to
comparable benefits provided by a subsequent employer.  Anything herein to the
contrary notwithstanding, the Company shall have no obligation to continue to
maintain during the Continuation Period any plan or program solely as a result
of the provisions of this Agreement.  If, during the Continuation Period,
Executive is precluded from participating in a plan or program by its terms or
applicable law or if the Company for any reason ceases to maintain such plan or
program, the Company shall provide Executive with compensation or benefits the
aggregate value of which, in the reasonable judgement of the Company, is no less
than the aggregate value of the compensation or benefits that Executive would
have received under such plan or program had he been eligible to participate
therein or had such plan or program continued to be maintained by the Company.

          (ii) Except as may be provided under the terms of any applicable
grants to the Executive, under any plan or arrangement in which the Executive
participates under Section 5 or except as may be otherwise required by
applicable law, including, without limitation, the provisions of Section
4980B(f) of the Internal Revenue Code of 1986, as amended (the "CODE"), the
Executive shall have no right under this Agreement or any other agreement to
receive any other compensation, or to participate in any other plan, arrangement
or benefit, with respect to future periods after such termination or resignation
of employment.  Except as otherwise provided in Section 9(d), in the event of a
termination or resignation pursuant to this Section 7(b), the Executive shall
have no duty of mitigation with respect to amounts payable to him pursuant to
this Section 7(b) or other benefits to which he is entitled pursuant hereto;
PROVIDED, HOWEVER, that, in the event the Executive breaches any of the
provisions of Sections 8 or 9 hereof, the amounts payable to the Executive
pursuant to this Section 7(b), or other benefits to which he is entitled
pursuant hereto, will be offset or reduced by any compensation, payments or
benefits he may receive from a subsequent employer.

          (iii)     The date of termination of employment by the Company
pursuant to this Section 7(b) shall be the date specified in the written notice
of termination from the Company to the Executive or, if no date is specified
therein, ten business days after receipt by the Executive of the written notice
of termination from the Company.  The date of a resignation by the Executive
pursuant to this Section 7(b) shall be the date specified in the written notice
of resignation from the Executive to the Company or, if no date is specified
therein, ten business days after receipt by the Company of the written notice of
resignation from the Executive.


                                      7

          (c)  DEATH OR PERMANENT DISABILITY.  If the Executive's employment
hereunder terminates by reason of Executive's death or Permanent Disability
prior to expiration of the Term, the Executive (or his beneficiary (or if no
such beneficiary is designated, his estate), conservator or guardian, as the
case may be) shall be entitled to receive: (i) the Salary provided for in
Section 3(a) as accrued through the date of the Executive's death or Permanent
Disability; (ii) any Bonus earned but not yet paid in respect of any calendar
year preceding the year in which the Executive's death or Permanent Disability
occurs; (iii) a Bonus for the calendar year in which the Executive's death or
Permanent Disability occurs equal to a pro rata portion of the Executive's
Target Bonus for such year, determined on the basis of the number of days in
such year through the date of Executive's death or Permanent Disability; and
(iv) any unreimbursed expenses.  Bonus payments provided for in this Section
7(c) shall be made at such time and in such manner as is provided in Section
3(b).  As used in this Section, the term "BENEFICIARY" includes both the
singular and the plural of such term, as may be appropriate.  For purposes of
this Agreement, "PERMANENT DISABILITY" shall be defined in the same manner as
such term or a similar term is defined in any long-term disability policy
maintained by the Company for the Executive and in effect on the date of the
Executive's termination of employment with the Company, PROVIDED that, in the
event that the Company does not maintain a long-term disability policy for the
Executive, Permanent Disability shall mean a physical or mental incapacity that
substantially prevents him from performing his duties hereunder for a period of
6 consecutive months and that can reasonably be expected to continue
indefinitely.  Any dispute as to whether or not Executive is disabled within the
meaning of the preceding sentence shall be resolved by a physician reasonably
satisfactory to Executive and the Company, and the determination of such
physician shall be final and binding upon both Executive and the Company.
          
          8.   ASSIGNMENT OF INTELLECTUAL PROPERTY RIGHTS.

           (a)  DEFINITION OF "INVENTIONS".  As used herein, the term
"INVENTIONS" shall mean all inventions, discoveries, improvements, trade
secrets, formulas, techniques, data, programs, systems, specifications,
documentations, algorithms, flow charts, logic diagrams, source codes,
processes, and other information, including works-in-progress, whether or not
subject to patent, trademark, copyright, trade secret, or mask work protection,
and whether or not reduced to practice, which are made, created, authored,
conceived, or reduced to practice by Executive, either alone or jointly with
others, during the period of employment with the Company (including, without
limitation, all periods of employment with the Company prior to the Effective
Date), whether or not performed on the Company's premises or property, which (A)
relate to the actual or anticipated business, activities, research, or
investigations of the Company or (B) result from or is suggested by work
performed by Executive for the Company (whether or not made or conceived during
normal working hours or on the premises of the Company), or (C) which result, to
any extent, from use of the Company's premises or property.


                                      8

          (b)  WORK FOR HIRE.  Executive expressly acknowledges that all
copyrightable aspects of the Inventions (as defined above) are to be considered
"works made for hire" within the meaning of the Copyright Act of 1976, as
amended (the "ACT"), and that the Company is to be the "author" within the
meaning of such Act for all purposes.  All such copyrightable works, as well as
all copies of such works in whatever medium, fixed or embodied, shall be owned
exclusively by the Company as of the date of creation, and Executive hereby
expressly disclaims any and all interest in any of such copyrightable works and
waives any right of DROIT MORALE or similar rights.

          (c)  ASSIGNMENT.  Executive acknowledges and agrees that all
Inventions constitute trade secrets of the Company and shall be the sole
property of the Company or any other entity designated by the Company.  In the
event that title to any or all of the Inventions, or any part or element
thereof, may not, by operation of law, vest in the Company, or such Inventions
may be found as a matter of law not to be "works made for hire" within the
meaning of the Act, Executive hereby conveys and irrevocably assigns to the
Company, without further consideration, all his right, title and interest,
throughout the universe and in perpetuity, in all Inventions and all copies of
them, in whatever medium, fixed or embodied, and in all written or computer
records, graphics, diagrams, notes, or reports relating thereto in Executive's
possession or under his control, including, with respect to any of the
foregoing, all rights of copyright, patent, trademark, trade secret, mask work,
and any and all other proprietary rights therein, the right to modify and create
derivative works, the right to invoke the benefit of any priority under any
international convention, and all rights to register and renew the same. 
Anything to the contrary notwithstanding, this subsection (c) shall not require
Executive to assign any Invention that would cause this Section 8, or any
portion thereof, to be void or unenforceable under Section 2870 of the
California Labor Code, and Executive acknowledges receipt of the notification
required by Section 2872 of the California Labor Code.

          (d)  PROPRIETARY NOTICES; NO FILINGS; WAIVER OF MORAL RIGHTS. 
Executive acknowledges that all Inventions shall, at the sole option of the 
Company, bear the Company's patent, copyright, trademark, trade secret and 
mask work notices.

          Executive agrees not to file any patent, copyright or trademark
applications relating to any Invention except with prior written consent of an
authorized representative of the Company (other than Executive).

          Executive hereby expressly disclaims any and all interest in any
Inventions and waives any right of DROIT MORALE or similar rights, such as
rights of integrity or the right to be attributed as the creator of the
Invention.

          (e)  FURTHER ASSURANCES.  Executive agrees to assist the Company, or
any party designated by the Company, promptly on the Company's request, whether
before or after the termination of employment, however such termination may
occur, in perfecting, registering, maintaining, and enforcing, in all
jurisdictions, the Company's rights in the


                                      9

Inventions by performing all acts and executing all documents and instruments 
deemed necessary or convenient by the Company, including, by way of 
illustration and not limitation:

          (i)  Executing assignments, applications, and other documents and
     instruments in connection with (A) obtaining patents, copyrights,
     trademarks, mask works, or other proprietary protections for the Inventions
     and (B) confirming the assignment to the Company of all right, title and
     interest in the Inventions or otherwise establishing the Company's
     exclusive ownership rights therein.

          (ii) Cooperating in the prosecution of patent, copyright, trademark
     and mask work applications, as well as in the enforcement of the Company's
     rights in the Inventions, including, but not limited to, testifying in
     court or before any patent, copyright, trademark or mask work registry
     office or any other administrative body.

          Executive will be reimbursed for all out-of-pocket costs reasonably
incurred in connection with the foregoing, if such assistance is requested by
the Company after the termination of Executive's employment.  In addition, to
the extent that, after the termination of employment for whatever reason,
Executive's technical expertise shall be required in connection with the
fulfillment of the aforementioned obligations, the Company will compensate
Executive at a reasonable rate for the time actually spent by Executive at the
Company's request rendering such assistance.

          (f)  POWER OF ATTORNEY.  Executive hereby irrevocably appoints the
Company to be his Attorney-in-Fact to execute any document and to take any
action in his name and on his behalf and to generally use his name for the
purpose of giving to the Company the full benefit of the assignment provisions
set forth above.

          (g)  DISCLOSURE OF INVENTIONS.  Executive will make full and prompt
disclosure to the Company of all Inventions subject to assignment to the
Company, and all information relating thereto in Executive's possession or under
his control as to possible applications and use thereof.

          9.   NO COMPETING EMPLOYMENT; NO INTERFERENCE; CONFIDENTIALITY;
               REMEDIES.

          (a)  NO COMPETING EMPLOYMENT.  For so long as the Executive is
employed by the Company or any of its affiliates and subsidiaries and continuing
for the two-year period commencing at the expiration of the Term hereof or the
earlier termination of Executive's employment for any reason other than death
(such period being referred to hereinafter as the "RESTRICTED PERIOD"), the
Executive shall not, unless he receives after the Effective Date the prior
written consent of the Board, directly or indirectly, whether as owner,
consultant, employee, partner, venturer, agent, through stock ownership,
investment of capital, lending of money or property, rendering of services, or
otherwise, compete with the Company or any of its affiliates or subsidiaries in
any business in which any of them is


                                      10


engaged during the Term hereunder or at the time of the termination of the 
Executive's employment hereunder, including without limitation the design, 
manufacture and/or distribution of men's or women's sportswear or accessories 
(such businesses are hereinafter referred to as the "BUSINESS"), or assist, 
become interested in or be connected with any corporation, firm, partnership, 
joint venture, sole proprietorship or other entity which so competes with the 
Business, except that the provisions of this Section 9(a) will not be deemed 
breached merely because Executive owns equity in (i) Charles David of 
California, (ii) California Sunshine Active Wear, Inc.; or (iii) Nantucket 
Industries, Inc. or because Executive "beneficially owns", either 
individually or as a member of a "group" (as such terms are used in Rule 
13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange 
Act")), not more than five percent (5%) of the voting securities of any one 
or more companies that file reports pursuant to the Exchange Act.  After the 
expiration of the Term hereof and during the two-year period referenced 
above, the restrictions imposed by this paragraph shall not apply to any 
business in which the Company or its affiliates and subsidiaries were not 
engaged at the time of termination of the Executive's employment hereunder or 
to any geographic area in which the Company or its affiliates and 
subsidiaries were not engaged in the Business at the time of termination.  

          (b)  NO INTERFERENCE.  During the Restricted Period, the Executive
shall not, for the purpose of competing with the Business, directly or
indirectly, whether for his own account or for the account of any other
individual, partnership, firm, corporation or other business organization or
entity (other than the Company), intentionally solicit, endeavor to entice away
from the Company or any of its affiliates or subsidiaries, or otherwise
intentionally interfere with the relationship of the Company or any of its
affiliates or subsidiaries with any person who is employed by or otherwise
engaged to perform services for the Company or any of its affiliates or
subsidiaries or influence, or seek to influence, any person or entity who is a
customer, client or supplier of the Company or any of its affiliates or
subsidiaries to divert their business to any person or entity that competes with
the Company or any of its affiliates or subsidiaries, nor shall the Executive
participate in the efforts of any individual, partnership, firm, corporation or
other business corporation or entity for which he provides services, by which he
is employed, or in which he invests, to do so, except that the provisions of
this Section 9(b) will not be deemed breached merely because Executive owns
equity in (i) Charles David of California, (ii) California Sunshine Active Wear,
Inc.; or (iii) Nantucket Industries, Inc. or because Executive "beneficially
owns", either individually or as a member of a "group" (as such terms are used
in Rule 13d-3 under the Exchange Act), not more than five percent (5%) of the
voting securities of any one or more companies that file reports pursuant to the
Exchange Act.  After the expiration of the Term hereof and during the two-year
period referenced in subsection 9(a), the restrictions imposed by this paragraph
shall not apply to any business in which the Company or its affiliates and
subsidiaries were not engaged at the time of termination of the Executive's
employment hereunder or to any geographic area in which the Company or its
affiliates and subsidiaries were not engaged in the Business at the time of
termination.  


                                      11

          (c)  CONFIDENTIAL INFORMATION.  The Executive recognizes that the
services to be performed by him hereunder, and the services performed by him
during prior periods of employment with the Company, are special, unique and
extraordinary and that, by reason of such employment, he has acquired and will
continue to acquire confidential information and trade secrets concerning the
operations of the Company and its affiliates and subsidiaries.  Accordingly, the
Executive agrees that he will not, except with the prior written consent of the
Board or as may be required by law, directly or indirectly, disclose during the
Term or any time thereafter any secret or confidential information that he has
learned by reason of his association with the Company or any of its affiliates
or subsidiaries or use any such information to the detriment of the Company or
its affiliates or subsidiaries so long as such confidential information or trade
secrets have not been disclosed or are not otherwise in the public domain.  The
term "CONFIDENTIAL INFORMATION" means any information about the Company, its
subsidiaries and affiliates, and their respective clients and customers, not
previously disclosed to the public or to the trade by the Company's management,
including, without limitation, any products, data, formulae, facilities and
methods, trade secrets and other intellectual property, systems, records
(including computer records), procedures, manuals, confidential reports, product
price lists, client and customer lists, financial information (including the
revenues, costs or profits associated with any of the Company's products),
business plans, prospects or opportunities.

          (d)  REMEDIES; SURVIVAL OF AGREEMENT.  In the event that the Executive
materially breaches any of the covenants set forth in this Section 9 and fails
to cure such breach to the reasonable satisfaction of the Company within 10
business days after receipt of written notice thereof to the Executive, any
obligation of the Company to make any payment to the Executive pursuant to this
Agreement, including without limitation any payments pursuant to Section 7(b)
(other than payments of Salary or Bonus earned prior to the date of such breach
and unreimbursed expenses), shall be cancelled.  In addition, the Executive
acknowledges that a breach of any of the covenants contained in this Section 9
may result in material irreparable injury to the Company or its affiliates or
subsidiaries for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in the event
of such a breach or threat thereof, the Company shall be entitled, in addition
to any other rights or remedies it may have, to seek an injunction enjoining or
restraining the Executive from any violation or threatened violation of this
Section 9.  The Executive's agreement as set forth in this Section shall survive
the termination of the Executive's employment under this Agreement.        

          10.  SOURCE OF PAYMENTS.  All payments provided under this Agreement,
other than payments made pursuant to a benefit plan which may provide otherwise,
shall be paid in cash from the general funds of the Company, and no special or
separate fund shall be established, and no other segregation of assets made, to
assure payment.  The Executive shall have no right, title, or interest whatever
in or to any investments which the Company may make to aid the Company in
meeting its obligations hereunder.  Nothing contained in this Agreement, and no
action taken pursuant to its provisions, shall create or be construed to create
a trust of any kind, or a fiduciary relationship, between the Company and the


                                      12

Executive or any other person.  To the extent that any person acquires a 
right to receive payments from the Company hereunder, such right shall be no 
greater than the right of an unsecured creditor of the Company.

          11.  TAX WITHHOLDING.  Payments to the Executive of all compensation
contemplated under this Agreement shall be subject to all applicable legal
requirements with respect to the withholding of taxes.

          12.  NONASSIGNABILITY; BINDING AGREEMENT.  Neither this Agreement nor
any right, duty, obligation or interest hereunder shall be assignable or
delegable by the Executive without the Company's prior written consent;
PROVIDED, HOWEVER, that nothing in this Section shall preclude the Executive
from designating any of his beneficiaries to receive any benefits payable
hereunder upon his death or disability, or his executors, administrators, or
other legal representatives, from assigning any rights hereunder to the person
or persons entitled thereto.  This Agreement shall be binding upon, and inure to
the benefit of, the parties hereto, any successors to or assigns of the Company
and the Executive's heirs and the personal representatives of the Executive's
estate.  

          13.  AMENDMENT; WAIVER.  This Agreement may not be modified, amended
or waived in any manner except by an instrument in writing signed by the parties
hereto.  The waiver by either party of compliance with any provision of this
Agreement by the other party shall not operate or be construed as a waiver of
any provision of this Agreement, or of any subsequent breach by such party of a
provision of this Agreement.

          14.  NOTICES.   Any notice hereunder by either party to the other
shall be given in writing by personal delivery, telex, telecopy or certified
mail, return receipt requested, to the applicable address set forth below:

     (i)  To the Company: Guess ?, Inc.
                         1444 South Alameda Street
                         Los Angeles, California 90021
                         Attention: Glenn A. Weinman, Esq.
                         Telecopier: (213) 744-7840

     (ii) To the Executive:Mr. Maurice Marciano
                         Guess ?, Inc.
                         1444 South Alameda Street
                         Los Angeles, California 90021
                         Telecopier: (213) 744-7825

(or such other address as may from time to time be designated by notice by any
party hereto for such purpose).  Notice shall be deemed given, if by personal
delivery, on the date of such delivery or, if by telex or telecopy, on the
business day following receipt of answerback


                                     13

or telecopy confirmation or, if by certified mail, on the date shown on the 
applicable return receipt.

           15.  CALIFORNIA LAW.  This Agreement is to be governed by and 
interpreted in accordance with the laws of the State of California, without 
giving effect to the choice-of-law provisions thereof.  If, under such law, 
any portion of this Agreement is at any time deemed to be in conflict with 
any applicable statute, rule, regulation or ordinance, such portion shall be 
deemed to be modified or altered to conform thereto or, if that is not 
possible, to be omitted from this Agreement, and the invalidity of any such 
portion shall not affect the force, effect and validity of the remaining 
portion hereof.

          16.  ARBITRATION.  Any controversy or claim arising out of or 
relating to this Agreement, including, but not limited to, any claim relating 
to its validity, interpretation, enforceability or breach, or any other claim 
or controversy arising out of the employment relationship or the commencement 
or termination of that relationship, including, but not limited to, claims 
for breach of covenant, breach of implied covenant or intentional infliction 
of emotional distress, which are not settled by agreement between the 
parties, shall be settled by arbitration in Los Angeles, California before a 
board of three arbitrators, one to be selected by the Company, one by 
Executive and the other by the two persons so selected, all in accordance 
with the labor arbitration rules of the American Arbitration Association then 
in effect; PROVIDED, HOWEVER, that the Company shall nevertheless be entitled 
to seek relief under Section 9 in accordance with Section 9(d).  In 
consideration of the parties' agreement to submit to arbitration disputes 
with regard to this Agreement and with regard to any alleged contract or tort 
or other claim arising out of the employment relationship, and in 
consideration of the anticipated expedition and minimization of expense of 
this arbitration remedy, each party agrees that the arbitration provisions of 
this Agreement shall provide it with exclusive remedy, except as provided in 
the preceding sentence, and each party expressly waives any right it might 
have to seek redress in any other forum except as provided herein.  The 
parties further agree that the arbitrators acting hereunder shall be 
empowered to assess no remedy other than the payment of compensatory damages 
or an order (including temporary, preliminary and permanent injunctive 
relief) enforcing the provisions of Section 9.  Executive acknowledges that 
the Company would be irreparably injured by Executive's breach of his 
obligations under Section 9 and that monetary damages would be inadequate.  
Subject to the provisions of Section 17(b) hereof, the expenses of the third 
arbitrator and of a transcript of any arbitration proceeding shall be divided 
equally between the Company and Executive and each party shall bear the 
expense of the arbitrator selected by it and of any witnesses it calls.  Any 
decision and award or order of the majority of the arbitrators shall be 
binding upon the parties hereto and judgment thereon may be entered in any 
court having jurisdiction thereof.

          17.  INDEMNITY AND REIMBURSEMENT OF LEGAL EXPENSES.  

          (a)  INDEMNITY.  The Company will indemnify the Executive (and his
legal representatives or other successors) to the fullest extent permitted
(including payment of expenses in advance of final disposition of a proceeding)
by the laws of the State of 


                                     14

California, as in effect at the time of the subject act or omission, or by 
the Certificate of Incorporation and By-Laws of the Company, as in effect at 
such time, or by the terms of any indemnification agreement between the 
Company and the Executive, whichever affords greatest protection to the 
Executive, and the Executive shall be entitled to the protection of any 
insurance policies the Company may elect to maintain generally for the 
benefit of its directors and officers (and to the extent the Company 
maintains such an insurance policy or policies, the Executive shall be 
covered by such policy or policies, in accordance with its or their terms, to 
the maximum extent of the coverage available for any Company officer or 
director), against all costs, charges and expenses whatsoever incurred or 
sustained by him or his legal representatives at the time such costs, charges 
and expenses are incurred or sustained, in connection with any action, suit 
or proceeding to which he (or his legal representatives or other successors) 
may be made a party by reason of his being or having been a director, officer 
or employee of the Company or any subsidiary thereof, or his serving or 
having served any other enterprises as a director, officer or employee at the 
request of the Company.

          (b)  LEGAL FEES AND EXPENSES.  In the event of a dispute between the
Executive and the Company with respect to any of the Executive's rights under
this Agreement, the Company shall reimburse the Executive for any and all legal
fees and related expenses reasonably incurred by him in connection with
enforcing such rights if the Executive is successful in obtaining a money
judgment against the Company in a final arbitration proceeding.  In addition,
the Company shall reimburse Executive for all reasonable legal expenses in
connection with the negotiation and review of this Agreement and any amendments
thereto.
  
          18.  COUNTERPARTS.  This Agreement may be executed by either of the
parties hereto in counterparts, each of which shall be deemed  to be an
original, but all such counterparts shall together constitute one and the same
instrument.


                                     15


          IN WITNESS WHEREOF, the parties hereto have executed this Agreement
this __ day of _______, 1996, effective as of the Effective Date.

                         GUESS ?, INC.


                         By: _________________________________________________
                         Title: ______________________________________________




                         _____________________________________________________
                                              Maurice Marciano

                                                                   EXHIBIT 10.25

                              EMPLOYMENT AGREEMENT


          EMPLOYMENT AGREEMENT, made as of ____________, 1996, by and between 
Guess ?, Inc., a Delaware corporation (herein referred to as the "COMPANY"), 
and Paul Marciano (herein referred to as the "EXECUTIVE").

                              W I T N E S S E T H:

          WHEREAS, the Company intends to make an underwritten initial public 
offering of its common stock (the "PUBLIC OFFERING"); and

          WHEREAS, in connection with the Public Offering, the Company and 
Executive deem it to be in their respective best interests to enter into an 
agreement providing for the Company's employment of Executive pursuant to the 
terms herein stated; 

          NOW, THEREFORE, in consideration of the premises and the mutual 
covenants herein contained, the parties hereto hereby agree as follows:

          1.   EMPLOYMENT; POSITION AND DUTIES; EXCLUSIVE SERVICES.

          (a)  EMPLOYMENT.  The Company agrees to employ the Executive, and 
the Executive agrees to be employed by the Company, for the Term provided in 
Section 2 below and upon the other terms and conditions hereinafter provided. 
 

          (b)  POSITION AND DUTIES.  During the Term, the Executive (i) 
agrees to serve as the President and Chief Operating Officer of the Company 
and to perform such reasonable duties as may be delineated in the By-Laws of 
the Company and as may be assigned to him from time to time by the Board of 
Directors of the Company (the "BOARD"), including, without limitation, 
primary responsibility for all advertising, management information systems 
and legal functions of the Company,  (ii) shall report, as President and 
Chief Operating Officer of the Company, only to the Board or to the Chairman 
of the Board and to the Chief Executive Officer of the Company, (iii) shall 
be given such authority as is appropriate to carry out the duties described 
above, it being understood that, in his capacities as President and Chief 
Operating Officer of the Company, his duties will be consistent in scope, 
prestige and authority with the duties of President and Chief Operating 
Officer of the Company as demonstrated by the Company's existing practices as 
of the effective date of this Agreement, and (v) agrees to serve, if elected, 
at no additional compensation (if the other officers or directors (other than 
non-employee directors) of the Company also serve at no additional 
compensation) in the position of officer or director of any subsidiary or 
affiliate of the Company; PROVIDED, HOWEVER, that such position shall be of 
no less status relative to such subsidiary or affiliate as the position that 
the Executive holds pursuant to clause (i) of this Section 1(b) is relative 
to the Company.

          (c)  EXCLUSIVE SERVICES.  During the Term, the Executive agrees to 
devote substantially all of his business time, attention, skill and efforts 
exclusively to the business and affairs of the Company and its subsidiaries 
and affiliates, and shall perform and


                                     2

discharge the duties which may be assigned to him from time to time by the 
Board or the Chief Executive Officer.

          (d)  RELOCATION.  The Company shall not relocate the Executive's 
principal place of business outside of the Los Angeles metropolitan area 
without the written consent of the Executive.

          2.   TERM OF AGREEMENT.  The term of employment under this 
Agreement shall initially be the three-year period commencing on the date of 
the Public Offering (the "EFFECTIVE DATE") and ending on the third 
anniversary of the Effective Date, and shall be automatically extended 
without further action by either party for a successive or successive 
one-year period or periods, unless written notice of either party's intention 
to terminate this Agreement has been given to the other party at least 90 
days prior to the expiration of the Term (including any one-year extension 
thereof).  As used in this Agreement, the "TERM" shall mean the initial 
three-year term plus any extensions thereof as provided in this Section 2.

          3.   SALARY AND ANNUAL BONUS.  The Executive's cash compensation 
for all services to be rendered by him in any capacity hereunder shall 
consist of base salary as provided in Section 3(a) and bonus compensation as 
provided in Section 3(b).

          (a)  SALARY.  The Executive shall be paid a minimum base salary 
(the "SALARY") at the rate of  $900,000 per annum.  The Salary shall be 
payable in accordance with the customary payroll practices for executives of 
the Company. The amount of Executive's Salary will be reviewed not less often 
than annually by the Compensation Committee of the Board (the "COMPENSATION 
COMMITTEE") and may be increased, but not decreased below such amount, on the 
basis of such review.

          (b)  ANNUAL BONUS.  

          (i)  GENERAL TERMS.  For each calendar year included in whole or in 
part within the Term, the Executive shall be eligible to earn an annual cash 
bonus (a "BONUS") based upon the achievement by the Company and its 
subsidiaries of performance targets established by the Compensation Committee 
in accordance with the terms of the Company's Annual Incentive Bonus Plan and 
any successor plan thereto (collectively, the "BONUS PLAN").  The performance 
goals on the basis of which the Executive's bonus shall be determined shall 
be no less favorable to the Executive than the goals used to determine the 
bonus of any other executive of the Company whose annual bonus is based in 
whole or in part on corporate performance and who participates in the Bonus 
Plan, and the Compensation Committee shall establish objective criteria to be 
used to determine the extent to which such performance goals have been met.  
The Bonus, if any, payable to the Executive in respect of each calendar year 
will be paid at the same time that bonuses are paid to other participants in 
the Bonus Plan.


                                     3

          (ii) AMOUNT OF TARGET BONUS.  For each calendar year included in 
whole or in part within the Term, there shall be a target Bonus (a "TARGET 
BONUS") for the Executive equal to at least 100% of Executive's Salary, at 
the annual rate in effect at the beginning of such calendar year (pro rated, 
if less than an entire year). 
 
          (iii)     DETERMINATION OF THE BONUS AMOUNT.  The amount of the 
actual Bonus for any calendar year to be paid to the Executive will be 
determined, in the sole discretion of the Compensation Committee, based upon 
the performance of the Company and its subsidiaries against the goals 
established by the Compensation Committee pursuant to the Bonus Plan.         

          4.   STOCK OPTIONS.   Commencing as of the Effective Date, 
Executive shall be eligible for option grants under the Company's 1996 Equity 
Incentive Plan and any successor plan thereto for the Company's executive 
officers, in accordance with the terms and conditions thereof.  

          5.   PENSION AND WELFARE BENEFITS.  During the Term, the Executive 
will participate in all pension and welfare plans, programs and benefits that 
are applicable to executives of the Company.  The benefits provided to the 
Executive during the Term, when taken as a whole, shall be no less favorable 
than the benefits which, when taken as a whole, are provided to any other 
executive of the Company; PROVIDED that Executive shall continue to receive 
life insurance coverage in an amount equal to at least one (1) times his then 
Salary.   During the Term, the Executive shall also be entitled to all 
additional perquisites which the Company provides to its executives.  Subject 
to subsection 7(a)(i) hereof, from and after the expiration of the Term or, 
if earlier, the date of termination of Executive's employment hereunder, 
Executive shall be entitled, during his lifetime, to full Company-paid health 
and life insurance for himself and his immediate family, at a level no less 
favorable than that in effect from time to time for the benefit of the 
Company's senior executive officers.

          6.   OTHER BENEFITS.

          (a)  TRAVEL AND BUSINESS-RELATED EXPENSES.  During the Term, the 
Executive shall be reimbursed in accordance with the policies of the Company 
for traveling and other  expenses incurred in the performance of the business 
of the Company.

          (b)  AUTOMOBILE.  During the Term, the Executive shall be furnished 
with an automobile either owned or leased by the Company or an automobile 
allowance, at the discretion of the Company.  The Company shall pay or 
reimburse the Executive for all reasonable expenses associated with the 
operation of such automobile, including, without limitation, all reasonable 
maintenance and insurance expenses.

          (c)  AIRCRAFT.  The Executive shall be provided with reasonable 
access to any aircraft leased or owned by the Company.



                                     4

          (d)  COUNTRY CLUB MEMBERSHIP.  During the Term, the Company shall 
pay the Executive's reasonable membership expenses (including fees, dues and 
related expenses) at such country club or clubs as approved by the Board.

          (e)  CONSULTING AGREEMENT.  Commencing on the expiration of the 
Term of this Agreement or, if earlier, the date of termination of Executive's 
employment hereunder for any reason other than death or for Cause (as defined 
below), and subject to the provisions of Sections 8 and 9 hereof, the Company 
and Executive shall enter into a two (2) year consulting agreement pursuant 
to which Executive shall render consulting services to the Company as 
Executive and the Company shall agree, for which the Company shall pay 
Executive a consulting fee at an annual rate equal to 50% of Executive's 
Salary, at the rate in effect immediately prior to the commencement of the 
consulting period, payable in accordance with the customary payroll practices 
for executives of the Company or at such other time or times as Executive and 
the Company shall agree.  It is expressly understood that Executive's 
reporting obligations pursuant to such consulting agreement shall be limited 
to the Board and the Chief Executive Officer of the Company, or such other 
person as Executive and the Company shall agree.

          7.   TERMINATION OF EMPLOYMENT.

          (a)  TERMINATION FOR CAUSE, RESIGNATION WITHOUT GOOD REASON.

           (i) If the Executive's employment is terminated by the Company for 
Cause (as defined below) or if the Executive resigns from his employment 
without Good Reason (as defined below), prior to the expiration of the Term, 
the Executive shall be entitled to receive:  (A) the Salary provided for in 
Section 3(a) as accrued through the date of such resignation or termination; 
(B) any Bonus earned but not yet paid in respect of any calendar year 
preceding the year in which such termination or resignation occurs; and (C) 
any unreimbursed expenses.  The Executive shall not accrue or otherwise be 
eligible to receive Salary payments or to participate in any plans, programs 
or benefits described in Section 5 hereof with respect to periods after the 
date of such termination or resignation, and shall not be eligible to receive 
any Bonus in respect of the year of such termination or resignation or any 
calendar year following the year in which such termination or resignation 
occurs.  Any Bonus in respect of a year prior to the year in which such 
termination or resignation occurs shall be payable at such time and in such 
manner as provided for in Section 3(b) hereof.

          (ii) Termination for "CAUSE" shall mean termination by action of 
the Board because of:  (A) Executive's willful and continued failure (other 
than by reason of the incapacity of Executive due to physical or mental 
illness) substantially to perform his duties hereunder; (B) a felony 
conviction of the Executive or the perpetration by the Executive of a serious 
dishonest act against the Company or any of its affiliates or subsidiaries; 
(C) any willful misconduct by the Executive that is materially injurious to 
the financial condition or business reputation of the Company or any of its 
affiliates or subsidiaries; or (D) chronic alcoholism or drug abuse which 
materially affects Executive's performance hereunder, 


                                     5

PROVIDED, HOWEVER, that no event or circumstance shall be considered to 
constitute Cause within the meaning of this clause (ii) unless the Executive 
has been given written notice of the events or circumstances constituting 
Cause and has failed to effect a cure thereof within 60 calendar days 
following the receipt of such notice.

          (iii)     Resignation for "GOOD REASON" shall mean the resignation 
of the Executive because of (A) a material reduction in Executive's 
responsibilities, duties, authority, status or titles as described in Section 
1 above; or (B) failure by the Company to pay or provide Executive when due 
any compensation, benefits or perquisites to which Executive is entitled 
pursuant to this Agreement or any other plan, contract or arrangement in 
which Executive participates or is entitled to participate; PROVIDED, 
HOWEVER, that no event or circumstance shall be considered to constitute Good 
Reason within the meaning of this clause (iii) unless the Company has been 
given written notice of the events or circumstances constituting Good Reason 
and has failed to effect a cure thereof within 60 calendar days following the 
receipt of such notice.

          (iv) The date of termination of employment by the Company pursuant 
to this Section 7(a) shall be the date specified in a written notice of 
termination from the Company to the Executive, which, in the case of a 
proposed termination to which the 60-day cure period provided for in 
subsection (ii) above applies shall be no less than 61 days after the 
delivery of such notice to the Executive.  The date of a resignation by the 
Executive pursuant to this Section 7(a) shall be the date specified in the 
written notice of resignation from the Executive to the Company, which, in 
the case of a proposed resignation to which the 60-day cure period provided 
for in subsection (iii) above applies shall be no less than 61 days after the 
delivery of such notice to the Company, or, if no date is specified therein, 
61 days after receipt by the Company of the written notice of resignation 
from the Executive.

          (b)  TERMINATION WITHOUT CAUSE, RESIGNATION FOR GOOD REASON.
  
          (i)  If the Executive's employment is terminated by the Company 
without Cause or if the Executive should resign for Good Reason, prior to the 
expiration of the Term, he shall be entitled to receive:  (A) the Salary 
provided for in Section 3(a) as accrued through the date of such resignation 
or termination and continuing for the remainder of the then-effective Term 
(the "CONTINUATION PERIOD"); (B) any Bonus earned but not yet paid in respect 
of any calendar year preceding the year in which such termination or 
resignation occurs; (C) any unreimbursed expenses and (D) a Bonus for the 
calendar year in which such termination or resignation occurs equal to the 
Executive's Target Bonus for such year and a Bonus for each subsequent year 
included in whole or in part within the Continuation Period equal to the 
Target Bonus for the calendar year in which such termination or resignation 
occurs, PROVIDED, HOWEVER, that the amount of such Bonus payable in respect 
of any partial calendar year at the conclusion of the Continuation Period 
shall be prorated and shall equal the Executive's Bonus for such year 
multiplied by a fraction, the numerator of which shall equal the number of 
days in such calendar year up to and including the last day of the 


                                     6

Continuation Period and the denominator of which shall equal the lesser of 
365 or the number of days in such final calendar year up to and including the 
last day of the Term. 

          During the Continuation Period, (X) Salary payments to the 
Executive shall be payable in accordance with the payroll practices of the 
Company, and (Y) Bonus payments shall be made in respect of each calendar 
year at the same time that bonuses are paid to participants in the Bonus 
Plan.   
 
          The Executive shall also be entitled to continued participation in 
the medical, dental and insurance plans and arrangements described in Section 
5, on the same terms and conditions as are in effect immediately prior to 
such termination or resignation, until the earlier to occur of (i) the last 
day of the Continuation Period and (ii) such time as Executive is entitled to 
comparable benefits provided by a subsequent employer.  Anything herein to 
the contrary notwithstanding, the Company shall have no obligation to 
continue to maintain during the Continuation Period any plan or program 
solely as a result of the provisions of this Agreement.  If, during the 
Continuation Period, Executive is precluded from participating in a plan or 
program by its terms or applicable law or if the Company for any reason 
ceases to maintain such plan or program, the Company shall provide Executive 
with compensation or benefits the aggregate value of which, in the reasonable 
judgement of the Company, is no less than the aggregate value of the 
compensation or benefits that Executive would have received under such plan 
or program had he been eligible to participate therein or had such plan or 
program continued to be maintained by the Company.

          (ii) Except as may be provided under the terms of any applicable 
grants to the Executive, under any plan or arrangement in which the Executive 
participates under Section 5 or except as may be otherwise required by 
applicable law, including, without limitation, the provisions of Section 
4980B(f) of the Internal Revenue Code of 1986, as amended (the "CODE"), the 
Executive shall have no right under this Agreement or any other agreement to 
receive any other compensation, or to participate in any other plan, 
arrangement or benefit, with respect to future periods after such termination 
or resignation of employment.  Except as otherwise provided in Section 9(d), 
in the event of a termination or resignation pursuant to this Section 7(b), 
the Executive shall have no duty of mitigation with respect to amounts 
payable to him pursuant to this Section 7(b) or other benefits to which he is 
entitled pursuant hereto; PROVIDED, HOWEVER, that, in the event the Executive 
breaches any of the provisions of Sections 8 or 9 hereof, the amounts payable 
to the Executive pursuant to this Section 7(b), or other benefits to which he 
is entitled pursuant hereto, will be offset or reduced by any compensation, 
payments or benefits he may receive from a subsequent employer.

          (iii)     The date of termination of employment by the Company 
pursuant to this Section 7(b) shall be the date specified in the written 
notice of termination from the Company to the Executive or, if no date is 
specified therein, ten business days after receipt by the Executive of the 
written notice of termination from the Company.  The date of a resignation by 
the Executive pursuant to this Section 7(b) shall be the date specified in 
the 


                                     7

written notice of resignation from the Executive to the Company or, if no 
date is specified therein, ten business days after receipt by the Company of 
the written notice of resignation from the Executive.

          (c)  DEATH OR PERMANENT DISABILITY.  If the Executive's employment 
hereunder terminates by reason of Executive's death or Permanent Disability 
prior to expiration of the Term, the Executive (or his beneficiary (or if no 
such beneficiary is designated, his estate), conservator or guardian, as the 
case may be) shall be entitled to receive: (i) the Salary provided for in 
Section 3(a) as accrued through the date of the Executive's death or 
Permanent Disability; (ii) any Bonus earned but not yet paid in respect of 
any calendar year preceding the year in which the Executive's death or 
Permanent Disability occurs; (iii) a Bonus for the calendar year in which the 
Executive's death or Permanent Disability occurs equal to a pro rata portion 
of the Executive's Target Bonus for such year, determined on the basis of the 
number of days in such year through the date of Executive's death or 
Permanent Disability; and (iv) any unreimbursed expenses.  Bonus payments 
provided for in this Section 7(c) shall be made at such time and in such 
manner as is provided in Section 3(b).  As used in this Section, the term 
"BENEFICIARY" includes both the singular and the plural of such term, as may 
be appropriate.  For purposes of this Agreement, "PERMANENT DISABILITY" shall 
be defined in the same manner as such term or a similar term is defined in 
any long-term disability policy maintained by the Company for the Executive 
and in effect on the date of the Executive's termination of employment with 
the Company, PROVIDED that, in the event that the Company does not maintain a 
long-term disability policy for the Executive, Permanent Disability shall 
mean a physical or mental incapacity that substantially prevents him from 
performing his duties hereunder for a period of 6 consecutive months and that 
can reasonably be expected to continue indefinitely.  Any dispute as to 
whether or not Executive is disabled within the meaning of the preceding 
sentence shall be resolved by a physician reasonably satisfactory to 
Executive and the Company, and the determination of such physician shall be 
final and binding upon both Executive and the Company.
          
          8.   ASSIGNMENT OF INTELLECTUAL PROPERTY RIGHTS.

           (a)  DEFINITION OF "INVENTIONS".  As used herein, the term 
"INVENTIONS" shall mean all inventions, discoveries, improvements, trade 
secrets, formulas, techniques, data, programs, systems, specifications, 
documentations, algorithms, flow charts, logic diagrams, source codes, 
processes, and other information, including works-in-progress, whether or not 
subject to patent, trademark, copyright, trade secret, or mask work 
protection, and whether or not reduced to practice, which are made, created, 
authored, conceived, or reduced to practice by Executive, either alone or 
jointly with others, during the period of employment with the Company 
(including, without limitation, all periods of employment with the Company 
prior to the Effective Date), whether or not performed on the Company's 
premises or property, which (A) relate to the actual or anticipated business, 
activities, research, or investigations of the Company or (B) result from or 
is suggested by work performed by Executive for the Company (whether or not 
made or conceived during normal working hours 


                                     8

or on the premises of the Company), or (C) which result, to any extent, from 
use of the Company's premises or property.

          (b)  WORK FOR HIRE.  Executive expressly acknowledges that all 
copyrightable aspects of the Inventions (as defined above) are to be 
considered "works made for hire" within the meaning of the Copyright Act of 
1976, as amended (the "ACT"), and that the Company is to be the "author" 
within the meaning of such Act for all purposes.  All such copyrightable 
works, as well as all copies of such works in whatever medium, fixed or 
embodied, shall be owned exclusively by the Company as of the date of 
creation, and Executive hereby expressly disclaims any and all interest in 
any of such copyrightable works and waives any right of DROIT MORALE or 
similar rights.

          (c)  ASSIGNMENT.  Executive acknowledges and agrees that all 
Inventions constitute trade secrets of the Company and shall be the sole 
property of the Company or any other entity designated by the Company.  In 
the event that title to any or all of the Inventions, or any part or element 
thereof, may not, by operation of law, vest in the Company, or such 
Inventions may be found as a matter of law not to be "works made for hire" 
within the meaning of the Act, Executive hereby conveys and irrevocably 
assigns to the Company, without further consideration, all his right, title 
and interest, throughout the universe and in perpetuity, in all Inventions 
and all copies of them, in whatever medium, fixed or embodied, and in all 
written or computer records, graphics, diagrams, notes, or reports relating 
thereto in Executive's possession or under his control, including, with 
respect to any of the foregoing, all rights of copyright, patent, trademark, 
trade secret, mask work, and any and all other proprietary rights therein, 
the right to modify and create derivative works, the right to invoke the 
benefit of any priority under any international convention, and all rights to 
register and renew the same. Anything to the contrary notwithstanding, this 
subsection (c) shall not require Executive to assign any Invention that would 
cause this Section 8, or any portion thereof, to be void or unenforceable 
under Section 2870 of the California Labor Code, and Executive acknowledges 
receipt of the notification required by Section 2872 of the California Labor 
Code.

          (d)  PROPRIETARY NOTICES; NO FILINGS; WAIVER OF MORAL RIGHTS. 
Executive acknowledges that all Inventions shall, at the sole option of the 
Company, bear the Company's patent, copyright, trademark, trade secret and 
mask work notices.

          Executive agrees not to file any patent, copyright or trademark 
applications relating to any Invention except with prior written consent of 
an authorized representative of the Company (other than Executive).

          Executive hereby expressly disclaims any and all interest in any 
Inventions and waives any right of DROIT MORALE or similar rights, such as 
rights of integrity or the right to be attributed as the creator of the 
Invention.


                                     9

          (e)  FURTHER ASSURANCES.  Executive agrees to assist the Company, 
or any party designated by the Company, promptly on the Company's request, 
whether before or after the termination of employment, however such 
termination may occur, in perfecting, registering, maintaining, and 
enforcing, in all jurisdictions, the Company's rights in the Inventions by 
performing all acts and executing all documents and instruments deemed 
necessary or convenient by the Company, including, by way of illustration and 
not limitation:

          (i)  Executing assignments, applications, and other documents and
     instruments in connection with (A) obtaining patents, copyrights,
     trademarks, mask works, or other proprietary protections for the Inventions
     and (B) confirming the assignment to the Company of all right, title and
     interest in the Inventions or otherwise establishing the Company's
     exclusive ownership rights therein.

          (ii) Cooperating in the prosecution of patent, copyright, trademark
     and mask work applications, as well as in the enforcement of the Company's
     rights in the Inventions, including, but not limited to, testifying in
     court or before any patent, copyright, trademark or mask work registry
     office or any other administrative body.

          Executive will be reimbursed for all out-of-pocket costs reasonably 
incurred in connection with the foregoing, if such assistance is requested by 
the Company after the termination of Executive's employment.  In addition, to 
the extent that, after the termination of employment for whatever reason, 
Executive's technical expertise shall be required in connection with the 
fulfillment of the aforementioned obligations, the Company will compensate 
Executive at a reasonable rate for the time actually spent by Executive at 
the Company's request rendering such assistance.

          (f)  POWER OF ATTORNEY.  Executive hereby irrevocably appoints the 
Company to be his Attorney-in-Fact to execute any document and to take any 
action in his name and on his behalf and to generally use his name for the 
purpose of giving to the Company the full benefit of the assignment 
provisions set forth above.

          (g)  DISCLOSURE OF INVENTIONS.  Executive will make full and prompt 
disclosure to the Company of all Inventions subject to assignment to the 
Company, and all information relating thereto in Executive's possession or 
under his control as to possible applications and use thereof.

          9.   NO COMPETING EMPLOYMENT; NO INTERFERENCE; CONFIDENTIALITY;     
               REMEDIES.

          (a)  NO COMPETING EMPLOYMENT.  For so long as the Executive is 
employed by the Company or any of its affiliates and subsidiaries and 
continuing for the two-year period commencing at the expiration of the Term 
hereof or the earlier termination of Executive's employment for any reason 
other than death (such period being referred to hereinafter as the 
"RESTRICTED PERIOD"), the Executive shall not, unless he receives after the 


                                    10

Effective Date the prior written consent of the Board, directly or 
indirectly, whether as owner, consultant, employee, partner, venturer, agent, 
through stock ownership, investment of capital, lending of money or property, 
rendering of services, or otherwise, compete with the Company or any of its 
affiliates or subsidiaries in any business in which any of them is engaged 
during the Term hereunder or at the time of the termination of the 
Executive's employment hereunder, including without limitation the design, 
manufacture and/or distribution of men's or women's sportswear or accessories 
(such businesses are hereinafter referred to as the "BUSINESS"), or assist, 
become interested in or be connected with any corporation, firm, partnership, 
joint venture, sole proprietorship or other entity which so competes with the 
Business, except that the provisions of this Section 9(a) will not be deemed 
breached merely because Executive owns equity in (i) Charles David of 
California, (ii) California Sunshine Active Wear, Inc.; or (iii) Nantucket 
Industries, Inc. or because Executive "beneficially owns", either 
individually or as a member of a "group" (as such terms are used in Rule 
13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange 
Act")), not more than five percent (5%) of the voting securities of any one 
or more companies that file reports pursuant to the Exchange Act.  After the 
expiration of the Term hereof and during the two-year period referenced 
above, the restrictions imposed by this paragraph shall not apply to any 
business in which the Company or its affiliates and subsidiaries were not 
engaged at the time of termination of the Executive's employment hereunder or 
to any geographic area in which the Company or its affiliates and 
subsidiaries were not engaged in the Business at the time of termination.  

          (b)  NO INTERFERENCE.  During the Restricted Period, the Executive 
shall not, for the purpose of competing with the Business, directly or 
indirectly, whether for his own account or for the account of any other 
individual, partnership, firm, corporation or other business organization or 
entity (other than the Company), intentionally solicit, endeavor to entice 
away from the Company or any of its affiliates or subsidiaries, or otherwise 
intentionally interfere with the relationship of the Company or any of its 
affiliates or subsidiaries with any person who is employed by or otherwise 
engaged to perform services for the Company or any of its affiliates or 
subsidiaries or influence, or seek to influence, any person or entity who is 
a customer, client or supplier of the Company or any of its affiliates or 
subsidiaries to divert their business to any person or entity that competes 
with the Company or any of its affiliates or subsidiaries, nor shall the 
Executive participate in the efforts of any individual, partnership, firm, 
corporation or other business corporation or entity for which he provides 
services, by which he is employed, or in which he invests, to do so, except 
that the provisions of this Section 9(b) will not be deemed breached merely 
because Executive owns equity in (i) Charles David of California, (ii) 
California Sunshine Active Wear, Inc.; or (iii) Nantucket Industries, Inc. or 
because Executive "beneficially owns", either individually or as a member of 
a "group" (as such terms are used in Rule 13d-3 under the Exchange Act), not 
more than five percent (5%) of the voting securities of any one or more 
companies that file reports pursuant to the Exchange Act.  After the 
expiration of the Term hereof and during the two-year period referenced in 
subsection 9(a), the restrictions imposed by this paragraph shall not apply 
to any business in which the Company or its affiliates and subsidiaries were 
not engaged at the time of termination of the 


                                    11

Executive's employment hereunder or to any geographic area in which the 
Company or its affiliates and subsidiaries were not engaged in the Business 
at the time of termination. 

          (c)  CONFIDENTIAL INFORMATION.  The Executive recognizes that the 
services to be performed by him hereunder, and the services performed by him 
during prior periods of employment with the Company, are special, unique and 
extraordinary and that, by reason of such employment, he has acquired and 
will continue to acquire confidential information and trade secrets 
concerning the operations of the Company and its affiliates and subsidiaries. 
Accordingly, the Executive agrees that he will not, except with the prior 
written consent of the Board or as may be required by law, directly or 
indirectly, disclose during the Term or any time thereafter any secret or 
confidential information that he has learned by reason of his association 
with the Company or any of its affiliates or subsidiaries or use any such 
information to the detriment of the Company or its affiliates or subsidiaries 
so long as such confidential information or trade secrets have not been 
disclosed or are not otherwise in the public domain.  The term "CONFIDENTIAL 
INFORMATION" means any information about the Company, its subsidiaries and 
affiliates, and their respective clients and customers, not previously 
disclosed to the public or to the trade by the Company's management, 
including, without limitation, any products, data, formulae, facilities and 
methods, trade secrets and other intellectual property, systems, records 
(including computer records), procedures, manuals, confidential reports, 
product price lists, client and customer lists, financial information 
(including the revenues, costs or profits associated with any of the 
Company's products), business plans, prospects or opportunities.

          (d)  REMEDIES; SURVIVAL OF AGREEMENT.  In the event that the 
Executive materially breaches any of the covenants set forth in this Section 
9 and fails to cure such breach to the reasonable satisfaction of the Company 
within 10 business days after receipt of written notice thereof to the 
Executive, any obligation of the Company to make any payment to the Executive 
pursuant to this Agreement, including without limitation any payments 
pursuant to Section 7(b) (other than payments of Salary or Bonus earned prior 
to the date of such breach and unreimbursed expenses), shall be cancelled.  
In addition, the Executive acknowledges that a breach of any of the covenants 
contained in this Section 9 may result in material irreparable injury to the 
Company or its affiliates or subsidiaries for which there is no adequate 
remedy at law, that it will not be possible to measure damages for such 
injuries precisely and that, in the event of such a breach or threat thereof, 
the Company shall be entitled, in addition to any other rights or remedies it 
may have, to seek an injunction enjoining or restraining the Executive from 
any violation or threatened violation of this Section 9.  The Executive's 
agreement as set forth in this Section shall survive the termination of the 
Executive's employment under this Agreement.        

          10.  SOURCE OF PAYMENTS.  All payments provided under this 
Agreement, other than payments made pursuant to a benefit plan which may 
provide otherwise, shall be paid in cash from the general funds of the 
Company, and no special or separate fund shall be established, and no other 
segregation of assets made, to assure payment.  The Executive shall have no 
right, title, or interest whatever in or to any investments which the Company 
may


                                    12

make to aid the Company in meeting its obligations hereunder.  Nothing 
contained in this Agreement, and no action taken pursuant to its provisions, 
shall create or be construed to create a trust of any kind, or a fiduciary 
relationship, between the Company and the Executive or any other person.  To 
the extent that any person acquires a right to receive payments from the 
Company hereunder, such right shall be no greater than the right of an 
unsecured creditor of the Company.

          11.  TAX WITHHOLDING.  Payments to the Executive of all 
compensation contemplated under this Agreement shall be subject to all 
applicable legal requirements with respect to the withholding of taxes.

          12.  NONASSIGNABILITY; BINDING AGREEMENT.  Neither this Agreement 
nor any right, duty, obligation or interest hereunder shall be assignable or 
delegable by the Executive without the Company's prior written consent; 
PROVIDED, HOWEVER, that nothing in this Section shall preclude the Executive 
from designating any of his beneficiaries to receive any benefits payable 
hereunder upon his death or disability, or his executors, administrators, or 
other legal representatives, from assigning any rights hereunder to the 
person or persons entitled thereto.  This Agreement shall be binding upon, 
and inure to the benefit of, the parties hereto, any successors to or assigns 
of the Company and the Executive's heirs and the personal representatives of 
the Executive's estate.  

          13.  AMENDMENT; WAIVER.  This Agreement may not be modified, 
amended or waived in any manner except by an instrument in writing signed by 
the parties hereto.  The waiver by either party of compliance with any 
provision of this Agreement by the other party shall not operate or be 
construed as a waiver of any provision of this Agreement, or of any 
subsequent breach by such party of a provision of this Agreement.

          14.  NOTICES.   Any notice hereunder by either party to the other 
shall be given in writing by personal delivery, telex, telecopy or certified 
mail, return receipt requested, to the applicable address set forth below:

     (i)  To the Company:    Guess ?, Inc.
                             1444 South Alameda Street
                             Los Angeles, California 90021
                             Attention: Glenn A. Weinman, Esq.
                             Telecopier: (213) 744-7840

     (ii) To the Executive:  Mr. Paul Marciano
                             Guess ?, Inc.
                             1444 South Alameda Street
                             Los Angeles, California 90021
                             Telecopier: (213) 744-7825


                                    13

(or such other address as may from time to time be designated by notice by 
any party hereto for such purpose).  Notice shall be deemed given, if by 
personal delivery, on the date of such delivery or, if by telex or telecopy, 
on the business day following receipt of answerback or telecopy confirmation 
or, if by certified mail, on the date shown on the applicable return receipt. 

          15.  CALIFORNIA LAW.  This Agreement is to be governed by and 
interpreted in accordance with the laws of the State of California, without 
giving effect to the choice-of-law provisions thereof.  If, under such law, 
any portion of this Agreement is at any time deemed to be in conflict with 
any applicable statute, rule, regulation or ordinance, such portion shall be 
deemed to be modified or altered to conform thereto or, if that is not 
possible, to be omitted from this Agreement, and the invalidity of any such 
portion shall not affect the force, effect and validity of the remaining 
portion hereof.

          16.  ARBITRATION.  Any controversy or claim arising out of or 
relating to this Agreement, including, but not limited to, any claim relating 
to its validity, interpretation, enforceability or breach, or any other claim 
or controversy arising out of the employment relationship or the commencement 
or termination of that relationship, including, but not limited to, claims 
for breach of covenant, breach of implied covenant or intentional infliction 
of emotional distress, which are not settled by agreement between the 
parties, shall be settled by arbitration in Los Angeles, California before a 
board of three arbitrators, one to be selected by the Company, one by 
Executive and the other by the two persons so selected, all in accordance 
with the labor arbitration rules of the American Arbitration Association then 
in effect; PROVIDED, HOWEVER, that the Company shall nevertheless be entitled 
to seek relief under Section 9 in accordance with Section 9(d).  In 
consideration of the parties' agreement to submit to arbitration disputes 
with regard to this Agreement and with regard to any alleged contract or tort 
or other claim arising out of the employment relationship, and in 
consideration of the anticipated expedition and minimization of expense of 
this arbitration remedy, each party agrees that the arbitration provisions of 
this Agreement shall provide it with exclusive remedy, except as provided in 
the preceding sentence, and each party expressly waives any right it might 
have to seek redress in any other forum except as provided herein.  The 
parties further agree that the arbitrators acting hereunder shall be 
empowered to assess no remedy other than the payment of compensatory damages 
or an order (including temporary, preliminary and permanent injunctive 
relief) enforcing the provisions of Section 9.  Executive acknowledges that 
the Company would be irreparably injured by Executive's breach of his 
obligations under Section 9 and that monetary damages would be inadequate.  
Subject to the provisions of Section 17(b) hereof, the expenses of the third 
arbitrator and of a transcript of any arbitration proceeding shall be divided 
equally between the Company and Executive and each party shall bear the 
expense of the arbitrator selected by it and of any witnesses it calls.  Any 
decision and award or order of the majority of the arbitrators shall be 
binding upon the parties hereto and judgment thereon may be entered in any 
court having jurisdiction thereof.


                                    14

          17.  INDEMNITY AND REIMBURSEMENT OF LEGAL EXPENSES.  

          (a)  INDEMNITY.  The Company will indemnify the Executive (and his 
legal representatives or other successors) to the fullest extent permitted 
(including payment of expenses in advance of final disposition of a 
proceeding) by the laws of the State of California, as in effect at the time 
of the subject act or omission, or by the Certificate of Incorporation and 
By-Laws of the Company, as in effect at such time, or by the terms of any 
indemnification agreement between the Company and the Executive, whichever 
affords greatest protection to the Executive, and the Executive shall be 
entitled to the protection of any insurance policies the Company may elect to 
maintain generally for the benefit of its directors and officers (and to the 
extent the Company maintains suc