<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. )*
Danskin, Inc.
---------------------
(Name of Issuer)
Common Stock
---------------------------------
(Title of Class of Securities)
2363651020
-------------------
(CUSIP Number)
Mr. Andrew Astrachan With a copy to:
Danskin Investors, LLC Robert M. Friedman, Esq.
c/o Onyx Partners, Inc. Shereff, Friedman, Hoffman & Goodman, LLP
9595 Wilshire Blvd., Suite 700 919 Third Avenue
Beverly Hills, CA 90212 New York, New York 10022
(310) 724-5599 (212) 758-9500
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
September 22, 1997
----------------------------------------
(Date of Event which Requires Filing of
this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
statement because of Rule 13d-1(b) (3) or (4), check the following: [ ].
Note: One copy and an EDGAR version of this statement, including all exhibits,
should be filed with the Commission. See Rule 13d-1(a) for other parties to whom
copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
SCHEDULE 13D
CUSIP No. 2363651020 Page 2 of Pages
------------ ------ ------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Danskin Investors, LLC
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) |X|
(b) |_|
3 SEC USE ONLY
4 SOURCE OF FUNDS*
WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) |_|
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER OF 7 SOLE VOTING POWER
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON 10 SHARED DISPOSITIVE POWER
WITH
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
0
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* |_|
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.0%
14 TYPE OF REPORTING PERSON*
OO
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
CUSIP No. 2363651020 Page 3 of Pages
------------ ------ ------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Andrew J. Astrachan
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* a) |X|
b) |_|
3 SEC USE ONLY
4 SOURCE OF FUNDS*
N/A
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) |_|
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
NUMBER OF 7 SOLE VOTING POWER
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 5,446,214
EACH
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON
WITH 10 SHARED DISPOSITIVE POWER
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
5,446,214
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* |_|
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
56.3%
14 TYPE OF REPORTING PERSON*
IN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
CUSIP No. 2363651020 Page 4 of Pages
------------ ------ ------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
David A. Sachs
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) |X|
(b) |_|
3 SEC USE ONLY
4 SOURCE OF FUNDS*
N/A
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) |_|
6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
NUMBER OF 7 SOLE VOTING POWER
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 5,446,214
EACH
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON
WITH 10 SHARED DISPOSITIVE POWER
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING
PERSON
5,446,214
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES* |_|
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
56.3%
14 TYPE OF REPORTING PERSON*
IN
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
Item 1. Security and Issuer
Securities acquired: Common Stock, $.01 par value
("Common Stock")
Issuer: Danskin, Inc. (the "Issuer")
111 West 40th Street
New York, New York 10018
Item 2. Identity and Background
(a), (b), (c) and (f) This Schedule 13D is being filed jointly
by Danskin Investors, LLC, a Delaware limited liability company ("Investors"),
Andrew J. Astrachan ("Astrachan") and David A. Sachs ("Sachs"). Investors,
Astrachan and Sachs are hereinafter sometimes referred to as the "Reporting
Persons." Investors is a private investment fund. The business address of
Investors is c/o Onyx Partners, Inc., 9595 Wilshire Blvd., Suite 700, Beverly
Hills, CA 90212. The sole manager of Investors is Onyx Partners, Inc. ("Onyx"),
a Delaware corporation engaged in private investments. Astrachan, a United
States citizen with a business address c/o Onyx, is the President, a stockholder
and a director of Onyx. Sachs, a United States citizen with a business address
c/o Onyx, is a Vice President, a stockholder and a director of Onyx.
See Item 5 for information regarding ownership of Common
Stock.
(d) and (e). During the past five years, no Reporting Person
has been convicted in any criminal proceeding (excluding traffic violations or
similar misdemeanors) or been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to, federal or
state securities laws or finding any violation with respect to such laws.
Item 3. Source and Amount of Funds
Investors purchased the Securities (as defined below) from the
Issuer on September 22, 1997, in consideration of (a) the contribution to the
Issuer of $4,000,000 in cash, (b) the contribution to the Issuer of $11,000,000
principal amount of the term loan portion (the "Term Loan") of the Issuer's
credit facility with First Union National Bank of North Carolina and First Union
Commercial Corporation (collectively, the "Bank") which Investors had purchased
on such date from the Bank and (c) the cancellation of $10,256,000 principal
amount of the Term Loan (collectively, the "Purchase Price"). The Purchase Price
was obtained through capital contributions made to Investors by its members and
$544,129
Page 5
<PAGE>
paid by Oppenheimer Bond Fund for Growth to the Issuer in exchange for a portion
of the Securities. See Item 4 and Item 5.
Item 4. Purpose of the Transaction
Beneficial ownership of the shares of Common Stock reported
herein were acquired as part of a recapitalization of the Company on September
22, 1997 (the "Recapitalization"). Pursuant to the Recapitalization, Investors
purchased from the Issuer (i) a $15,000,000 aggregate principal amount
subordinated note (the "Note") of the Issuer and (ii) $500,000 in stated value
of Series C Cumulative Convertible Preferred Stock (the "Series C Stock") of the
Issuer (collectively, the "Securities") in consideration of the Purchase Price.
Holders of the Series C Stock have the right to elect four of nine directors to
the Issuer's Board of Directors. On the date of the closing of the
Recapitalization, Andrew J. Astrachan, Gabriel Brenner, Jim Jalil and Nina
McLemore were elected, as the designees of Investors, as directors of the Issuer
by the Issuer's incumbent Board of Directors to replace four members of the
Board of Directors who resigned. In connection with the closing of the
Recapitalization, the Issuer's Board of Directors approved amendments to both
its Certificate of Incorporation and its Bylaws to effectuate agreements reached
between the Issuer and Investors to, among other things, increase the number of
authorized shares of Common Stock to 100,000,000 and remove the provisions for a
classified Board of Directors (the "Certificate Amendments"). In addition, in
connection with the closing of the Recapitalization, the Issuer announced that
(a) its Board of Directors declared a stock dividend on the Common Stock equal
to one share of Common Stock for each 11.99 shares of Common Stock held of
record as of the close of business on September 22, 1997, (b) its Board of
Directors redeemed the Rights issued pursuant to the Rights Agreement dated as
of June 5, 1996 between the Issuer and the Bank, as Rights Agent, for $.01 per
right in cash to holders of Common Stock held of record as of the close of
business on September 22, 1997 and (c) it will offer its shareholders, including
Investors, the right to purchase, pro rata, 10,000,000 shares of Common Stock at
a per share price of $.30 (the "Rights Offering"). Investors has agreed with the
Issuer to standby to purchase any shares of Common Stock offered in the Rights
Offering and not purchased by other shareholders of the Issuer.
Upon the refinancing of the Issuer's revolving credit facility
with the Bank (the "Refinancing"), the Series C Stock and the Note, by their
terms, will be automatically exchanged for (i) $12,000,000 stated value of
Series D Cumulative Convertible Preferred Stock (the "Series D Stock") of the
Issuer, (ii) a warrant to purchase 10,000,000 shares of Common Stock at a per
share exercise price of $.30 (the "Warrant") and (iii) a $3,000,000 aggregate
principal amount subordinated note of the Issuer. The Series D Stock is
convertible, at the option of the holder and, in certain circumstances,
mandatorily, at a per share conversion price of $.30. Holders of the Series D
Stock have the right to elect a majority of the Issuer's Board of Directors. In
connection with the Refinancing, an additional director will be elected to the
Board of Directors of the Issuer as the fifth designee of Investors to replace
one member of the Board of Directors who will resign on such date.
Page 6
<PAGE>
Oppenheimer Bond Fund for Growth paid a portion of the
Purchase Price and is entitled to receive approximately 3.78% of each of the
Series D Stock and the Warrant.
The Reporting Persons may acquire or dispose of securities of
the Issuer, including shares of Common Stock, directly or indirectly, in
open-market or privately negotiated transactions, depending upon the evaluation
of the performance and prospects of the Issuer by the Reporting Persons, and
upon other developments and circumstances, including, but not limited to,
general economic and business conditions and stock market conditions.
Except for the foregoing or as described below, no Reporting
Person has any present plans or proposals which relate to or would result in any
of the actions or events described in paragraphs (a) through (j) of Item 4 of
Schedule 13D. However, the Reporting Persons retain their respective rights to
modify their plans with respect to the transactions described in this Item 4, to
acquire or dispose of securities of the Issuer and to formulate plans and
proposals which could result in the occurrence of any such events, subject to
applicable laws and regulations.
Item 5. Interest in Securities of the Issuer
(a) and (b) Astrachan and Sachs share voting power with each
other, through the proxies described in Item 6, of 5,446,214 shares of Common
Stock. Accordingly, Astrachan and Sachs may be deemed to have beneficial
ownership of 56.3% of the outstanding shares of Common Stock. Astrachan and
Sachs have no dispositive power with respect to such shares. Astrachan and Sachs
disclaim beneficial ownership of such shares.
The number of shares beneficially owned by the Reporting
Persons and the percentage of outstanding shares represented thereby, have been
computed in accordance with Rule 13d-3 under the Securities Exchange Act of
1934, as amended. The ownership of the Reporting Persons is based on 9,666,330
outstanding shares of Common Stock of the Issuer as of September 22, 1997, as
reported to the Reporting Persons by an officer of the Issuer.
(c) The only transactions in the Common Stock by the Reporting
Persons during the last 60 days were the transactions described in Item 4.
(d) The members of Investors have the right to receive the
proceeds from the sale of the securities of the Issuer owned by Investors. Upon
the closing of the Refinancing, the following members of Investors each will
have the right to receive (x) more than five percent of the outstanding shares
of Common Stock upon the dissolution of Investors or (y) proceeds relating to
the sale of more than five percent of the outstanding shares of Common Stock
upon the sale of such securities by Investors: (i) Alpine Associates, (ii)
Mayfirst Associates, Ltd., (iii) Regent Capital Partners, L.P., (iv) Regent
Capital Equity Partners, L.P., (v) Golden Horn (II) L.P., (vi) David Chu and
(vii) Onyx..
(e) Not Applicable.
Page 7
<PAGE>
Item 6. Contracts, Arrangements, Understanding or Relations with
Respect to Securities of the Issuer
SunAmerica Life Insurance Company has granted an irrevocable
proxy to Astrachan and Sachs to vote all shares of Common Stock held by it in
favor of the Certificate Amendments. In addition, Oppenheimer Bond Fund for
Growth has granted an irrevocable proxy to Astrachan and Sachs to vote all
shares of Common Stock held by it in favor of the Certificate Amendments and on
any additional proposal in accordance with the recommendation of the Issuer's
Board of Directors until such time as Investors possesses a majority of the
voting power of the Issuer.
The Securities Purchase Agreement dated as of September 22,
1997, a copy of which is attached hereto as Exhibit A and which is incorporated
herein by reference (the "Securities Purchase Agreement"), and the Certificate
of Designations of the Series C Stock, a copy of which is attached hereto as
Exhibit F and which is incorporated herein by reference, each provides that as
long as any Series C Stock is outstanding, Investors shall be entitled to elect
that number of the members of the Issuer's Board of Directors as shall equal one
less than a majority of such entire Board of Directors of the Issuer.
The Securities Purchase Agreement and the Certificate of
Designations of the Series D Stock, a copy of which is attached hereto as
Exhibit G and which is incorporated herein by reference, each provides that as
long as Investors owns 50% or more of the shares of Series D stock originally
issued pursuant to the Recapitalization, Investors shall be entitled to elect a
majority of the Board of Directors of the Issuer.
The Amended and Restated Limited Liability Company Operating
Agreement of Investors, a copy of which is attached hereto as Exhibit B and
which is incorporated herein by reference, provides, among other things, (a) for
certain allocations of profit to Onyx in excess of Onyx's capital contributions
to Investors; (b) that members representing a majority of the capital
contributions to Investors shall (i) select Investors' designees to the Issuer's
Board of Directors, (ii) make any decision as to how the securities of the
Issuer held by Investors are to be voted and (iii) make any decision as to
whether Investors should accept any offer to purchase the securities of the
Issuer held by Investors above certain target prices; and (c) that unanimous
approval of the members of Investors is required to accept an offer to purchase
the securities of the Issuer held by Investors below certain target prices.
The Registration Rights Agreement dated as of September 22,
1997, a copy of which is attached hereto as Exhibit I and which is incorporated
herein by reference, provides for the grant by the Issuer of certain demand and
piggy-back registration rights to Investors.
Item 7. Material to be Filed as Exhibits
Exhibit A. Securities Purchase Agreement dated as of
September 22, 1997 between the Issuer and
Investors.
Page 8
<PAGE>
Exhibit B. Amended and Restated Limited Liability Company Operating
Agreement of Investors.
Exhibit C. Proxy granted by Oppenheimer Bond Fund for Growth to
Andrew J. Astrachan and David A. Sachs.
Exhibit D. Proxy granted by SunAmerica Life Insurance Company to
Andrew J. Astrachan and David A. Sachs.
Exhibit E. Form of Warrant to be issued to Investors.
Exhibit F. Certificate of Designations of Series C Cumulative Convertible
Preferred Stock.
Exhibit G. Certificate of Designations of Series D Cumulative Convertible
Preferred Stock.
Exhibit H. Promissory Note of the Issuer in favor of Investors.
Exhibit I. Registration Rights Agreement between the Issuer and Investors.
Page 9
<PAGE>
Signature
- ---------
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
DANSKIN INVESTORS, LLC
By: Onyx Partners, Inc., its manager
By: /s/ Andrew J. Astrachan
-----------------------------
Name: Andrew J. Astrachan
Title: President
Dated: October 1, 1997
/s/ Andrew J. Astrachan
------------------------
Andrew J. Astrachan
/s/ David A. Sachs
------------------------
David A. Sachs
Page 10
<PAGE>
AGREEMENT OF JOINT FILING
In accordance with Rule 13d-1(f) under the Securities Exchange
Act of 1934, as amended, the undersigned hereby agree to the joint filing with
all other Reporting Persons (as such term is defined in the Schedule 13D
referred to below) of a statement on Schedule 13D or any amendments thereto,
with respect to the Common Stock, $.01 par value, of Danskin Inc., and that this
Agreement be included as an Exhibit to such filing.
This Agreement may be executed in any number of counterparts
each of which shall be deemed to be an original and all of which together shall
be deemed to constitute one and the same Agreement.
IN WITNESS WHEREOF, the undersigned hereby execute this
Agreement on the 1st day of October, 1997.
DANSKIN INVESTORS, LLC
By: Onyx Partners, Inc., its manager
By: /s/ Andrew J. Astrachan
------------------------------
Name: Andrew J. Astrachan
Title: President
Dated: October 1, 1997
/s/ Andrew J. Astrachan
-----------------------
Andrew J. Astrachan
/s/ David A. Sachs
------------------
David A. Sachs
Page 11
<PAGE>
Exhibit Index
-------------
Letter Description Page
------ ----------- ----
A Securities Purchase Agreement dated as of September
22, 1997 between the Issuer and Investors
B Amended and Restated Limited Liability Company
Operating Agreement of Investors
C Proxy granted by Oppenheimer Bond Fund for Growth
to Andrew J. Astrachan and David A. Sachs
D Proxy granted by SunAmerica Life Insurance Company
to Andrew J. Astrachan and David A. Sachs
E Form of Warrant to be issued to Investors
F Certificate of Designations of Series C Cumulative
Convertible Preferred Stock
G Certificate of Designations of Series D Cumu
ative
Convertible Preferred Stock
H Promissory Note of the Issuer in favor of Investors
I Registration Rights Agreement between the Issuer and
Investors
Page 12
<PAGE>
SECURITIES PURCHASE AGREEMENT
----------------------------------------------------------------
between
DANSKIN INVESTORS, LLC
a Delaware Limited Liability Company
and
DANSKIN, INC.
a Delaware Corporation
----------------------------------------------------------------
As of September 22, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I.
PURCHASE AND SALE OF SECURITIES.............................................1
Section 1.01 Authorization of Securities............................... 1
Section 1.02 Sale and Purchase of Securities........................... 2
Section 1.03 Purchase Price............................................ 2
Section 1.04 Transfer Taxes............................................ 2
Section 1.05 Closing Date.............................................. 2
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................2
Section 2.01 Organization and Qualification..............................3
Section 2.02 Authority...................................................3
Section 2.03 Consents and Approvals; No Violations.......................3
Section 2.04 Capitalization..............................................4
Section 2.05 Subsidiaries................................................5
Section 2.06 Articles of Incorporation and By-laws.......................5
Section 2.07 Compliance With Laws; Licenses..............................5
Section 2.08 Litigation; Investigations..................................5
Section 2.09 Taxes.......................................................6
Section 2.10 Employee Benefit Plans; ERISA...............................8
Section 2.11 Labor Relations............................................10
Section 2.12 Insurance Policies.........................................11
Section 2.13 Environmental Laws.........................................11
Section 2.14 Financial Statements and Books and Records.................13
Section 2.15 Absence of Liabilities.....................................14
Section 2.16 Absence of Specified Changes...............................14
Section 2.17 Real Property; Leases......................................16
Section 2.18 Equipment and Personal Property............................17
Section 2.19 Intangible Property........................................18
Section 2.20 Software...................................................18
Section 2.21 Contracts..................................................18
Section 2.22 Inventory..................................................20
Section 2.23 Title to Properties; Liens.................................20
Section 2.24 Condition of Assets........................................20
Section 2.25 Transactions with Affiliates...............................21
Section 2.26 Valid Transfer.............................................21
Section 2.27 Absence of Certain Practices...............................21
ii
<PAGE>
Section 2.28 Accounts Payable and Accrued Expenses......................21
Section 2.29 Accounts Receivable........................................21
Section 2.30 Solvency...................................................22
Section 2.31 Investment Company Act.....................................22
Section 2.32 Securities Exchange Act Reports............................22
Section 2.33 Securities Exemption.......................................23
Section 2.34 Customers and Suppliers....................................23
Section 2.35 Rights Plan................................................23
Section 2.36 Promotional Programs.......................................23
Section 2.37 Orders, Commitments and Returns............................24
Section 2.38 Warranty Claims............................................24
Section 2.39 Disclosure.................................................24
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE BUYER.................................24
Section 3.01 Organization...............................................24
Section 3.02 Authority..................................................24
Section 3.03 Consents and Approvals; No Violations......................25
Section 3.04 Own Account................................................25
Section 3.05 Limited Transferability....................................25
Section 3.06 Accredited Investor........................................25
Section 3.07 Furnishing the Company with Information....................25
ARTICLE IV.
CONDITIONS TO EACH PARTY'S OBLIGATIONS......................................26
Section 4.01 Governmental Authorizations; Consents......................26
Section 4.02 Absence of Litigation......................................26
Section 4.03 No Injunction..............................................26
Section 4.04 Opinion of Investment Banker...............................26
ARTICLE V.
CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATIONS.............................26
Section 5.01 Accuracy of Representations and Warranties.................26
Section 5.02 Performance by the Company.................................27
Section 5.03 Opinion of Counsel.........................................27
Section 5.04 Casualty Losses; Material Change...........................27
Section 5.05 Customer Consents..........................................27
Section 5.06 Securities.................................................27
Section 5.07 Deliveries.................................................27
Section 5.08 By-law Amendments..........................................27
iii
<PAGE>
Section 5.09 Lease......................................................28
Section 5.10 Employment Agreements......................................28
Section 5.11 License Modifications......................................28
Section 5.12 Modification of Preferred Stock............................29
Section 5.13 SunAmerica Waiver..........................................29
Section 5.14 Net Operating Losses.......................................29
Section 5.15 Board of Directors.........................................29
Section 5.16 FIRPTA Affidavit...........................................29
Section 5.17 Rights Plan................................................29
Section 5.18 Registration Rights Agreement..............................29
Section 5.19 Patent Collateral and Security Agreement...................29
Section 5.20 Trademark Security Agreement...............................30
Section 5.21 License Security Agreement.................................30
Section 5.22 Loan and Security Agreement................................30
Section 5.23 Guaranty...................................................30
ARTICLE VI.
CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS...........................30
Section 6.01 Accuracy of Representations and Warranties.................30
Section 6.02 Performance by the Buyer...................................30
Section 6.03 Deliveries.................................................30
ARTICLE VII.
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS....................................................31
ARTICLE VIII.
INDEMNIFICATION.............................................................31
Section 8.01 General Indemnity..........................................31
Section 8.02 Indemnification Procedure..................................32
ARTICLE IX.
COVENANTS/OBLIGATIONS AFTER THE CLOSING.....................................34
Section 9.01 Further Assurances.........................................34
Section 9.02 Maintenance of Office......................................34
Section 9.03 Corporate Existence; Status................................34
Section 9.04 Dividends..................................................34
Section 9.05 Application of Proceeds....................................34
iv
<PAGE>
Section 9.06 Observance of Statutes, Regulations and Orders.............35
Section 9.07 Taxes......................................................35
Section 9.08 Maintenance of Properties..................................35
Section 9.09 Books and Records..........................................35
Section 9.10 Maintenance of Insurance; Indemnification..................35
Section 9.11 Inspection.................................................35
Section 9.12 Furnish Reports............................................35
Section 9.13 Furnish Additional Information.............................36
Section 9.14 Rights Offering............................................36
Section 9.15 Transfer of Securities.....................................38
Section 9.16 Corporate Governance.......................................38
Section 9.17 Options....................................................39
Section 9.18 Exchange of Securities.....................................39
Section 9.19 Information Statement; Certificate of Incorporation........40
Section 9.20 Confidentiality............................................41
ARTICLE X.
MISCELLANEOUS...............................................................41
Section 10.01 Costs......................................................41
Section 10.02 Headings...................................................42
Section 10.03 Notices....................................................42
Section 10.04 Binding Effect.............................................43
Section 10.05 Governing Law; Forum; Process..............................43
Section 10.06 Entire Agreement...........................................43
Section 10.07 Counterparts...............................................44
Section 10.08 Severability...............................................44
Section 10.09 No Prejudice...............................................44
Section 10.10 Words in Singular and Plural Form..........................44
Section 10.11 Parties in Interest........................................44
Section 10.12 Amendment and Modification.................................44
Section 10.13 Waiver.....................................................44
Section 10.14 Knowledge of the Company...................................44
Section 10.15 Remedy for Breach..........................................44
EXHIBITS
A. Certificate of Designations of Investor Preferred Stock
B. Notes
C. Certificate of Designations of Convertible Preferred Stock
D. Warrant
E. Opinion of Company Counsel
v
<PAGE>
F. Registration Rights Agreement
G. Patent Collateral Assignment and Security Agreement
H. Trademark Security Agreement
I. License Security Agreement
J. Loan and Security Agreement
K. Mortgage and Deed of Trust Documents
L. Guaranty of Danpen, Inc.
M. Agreement with Donald Schupak
N. Fourth Amendment to Employment Agreement with Mary Ann Domuracki
O. Fifth Amendment to Employment Agreement with Beverly Eichel
P. Warrant Agreement granted to Donald Schupak
Q. Option Agreement granted to Mary Ann Domuracki
R. Option Agreement granted to Beverly Eichel
S. Option Agreement granted to Nina McLemore
vi
<PAGE>
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT, dated as of September 22, 1997 (this
"Agreement"), by and between Danskin Investors, LLC, a Delaware limited
liability company (the "Buyer"), and Danskin, Inc. a Delaware corporation (the
"Company").
R E C I T A L S
WHEREAS, upon the terms and subject to the conditions set forth in this
Agreement, the Buyer desires to purchase from the Company and the Company
desires to sell to the Buyer (i) Series C Convertible Preferred Stock of the
Company, $.01 par value per share ("Investor Preferred Stock") and (ii)
convertible subordinated notes (the "Notes" and collectively with the Investor
Preferred Stock, the "Securities), as more particularly described herein in
consideration for the payments from the Buyer, as set forth herein;
WHEREAS, the Buyer and the Company also desire to establish in this
Agreement certain terms and conditions concerning the corporate governance of
the Company.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements contained herein,
intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I.
PURCHASE AND SALE OF SECURITIES
Section 1.01 Authorization of Securities. Upon the terms and subject to
the conditions set forth herein, the Company has authorized the issuance and
sale of (i) Five Hundred Thousand Dollars ($500,000) in stated value of Investor
Preferred Stock which shall contain the terms and conditions and be in the form
of Exhibit A hereto, (ii) Fifteen Million Dollars ($15,000,000) aggregate
principal amount of Notes which shall contain the terms and conditions and be in
the form of Exhibit B hereto, (iii) upon conversion or exchange of the
Securities, Twelve Million Dollars ($12,000,000) in stated value of Series D
Cumulative Convertible Preferred Stock of the Company, $.01 par value per share
("Convertible Preferred Stock"), which shall contain the terms and conditions
and be in the form of Exhibit C hereto, (iv) upon conversion or exchange of the
Securities, a warrant to purchase 10,000,000 shares of common stock of the
Company, $.01 par value per share ("Common Stock"), at an exercise price per
share equal to $.30 (the "Warrant") which shall contain the terms and conditions
and be in the form of Exhibit D hereto, (v) subject to stockholder approval of
an increase in the authorized capital stock of the Company, upon conversion of
the Convertible Preferred Stock and exercise of the Warrant, up to 50,000,000
shares of Common Stock (such shares of Common Stock, Investor Preferred Stock,
Convertible Preferred Stock and the shares of Common Stock referred to in clause
(vi) below are
1
<PAGE>
sometimes referred to herein as the "Stock") and (vi) upon conversion or
exchange of the Securities, up to 10,000,000 shares of Common Stock to be
offered in the Rights Offering (as defined in Section 9.14).
Section 1.02 Sale and Purchase of Securities. Upon the terms and
subject to the conditions set forth herein, at the Closing (as defined in
Section 1.05), the Company shall sell, convey, transfer, assign and deliver to
the Buyer, and the Buyer shall purchase, acquire and accept from the Company,
free and clear of all liens, charges, encumbrances, security interests, pledges,
equities, assessments or restrictions of any nature whatsoever, (i) Five Hundred
Thousand Dollars ($500,000) in stated value of Investor Preferred Stock and (ii)
$15,000,000 aggregate principal amount of Notes.
Section 1.03 Purchase Price. The aggregate purchase price (the
"Purchase Price") for the Securities to be purchased pursuant to Section 1.02
shall be paid by the Buyer at the Closing by (i) cancelling in part and
contributing to the capital of the Company in part the outstanding principal
amount of the term loan portion (the "Loan Amount") of the Company's obligations
under the Amended and Restated Loan and Security Agreement between the Company
and First Union National Bank of North Carolina (the "Bank"), as agent, and the
lender's named therein, dated as of June 22, 1995, as amended to date (the "Loan
Agreement") and (ii) wire transfer of $4,000,000 (the "Cash Purchase Price") to
an account(s) designated in writing by the Company.
Section 1.04 Transfer Taxes. The Company shall pay on the Closing Date
all municipal, county, state and federal sales and transfer taxes incurred and
the costs of preparing or documenting the same, if any, in connection with the
transactions contemplated by this Agreement. The Company shall prepare, and each
party, as appropriate, shall in a timely manner sign and swear to any return,
certificate, questionnaire or affidavit as to matters within its knowledge
required in connection with the payment of any such tax.
Section 1.05 Closing Date. Subject to the fulfillment or waiver of the
conditions precedent set forth in Articles IV, V, and VI, the closing of the
transactions contemplated by Section 1.02 of this Agreement (the "Closing")
shall take place at the offices of Shereff, Friedman, Hoffman & Goodman, LLP,
919 Third Avenue, New York, New York 10022 on September 22, 1997, or such other
location, date and time as to which the parties may mutually agree (such date
and time of the Closing is referred to herein as the "Closing Date").
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer as of the date hereof
and the date of the Closing as follows:
2
<PAGE>
Section 2.01 Organization and Qualification. The Company and each of
its Subsidiaries (as defined in Rule 405 under the Securities Act of 1933, as
amended (each a "Subsidiary" and collectively, the "Subsidiaries")), is a
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its organization. The Company and each Subsidiary has all
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted. The Company and each Subsidiary is
duly qualified or licensed to do business and in good standing in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification or licensing necessary,
except where failure to be so duly qualified or licensed and in good standing
would not individually or in the aggregate have a Material Adverse Effect on the
Company or such Subsidiary. A true, correct and complete list of such
jurisdictions is set forth on Schedule 2.01. For purposes of this Agreement, a
"Material Adverse Effect" with respect to the Company and the Subsidiaries means
any event, circumstance or condition that, individually or when aggregated with
all other similar events, circumstances or conditions could reasonably be
expected to have, or has had, a material adverse effect on: (i) the business,
property, operations, condition (financial or otherwise), results of operations
or prospects of the Company or such Subsidiary, (ii) the Securities or (iii) the
ability of the Company to consummate the transactions contemplated hereunder.
Section 2.02 Authority. The Company has the requisite corporate power
and authority to execute and deliver this Agreement and each of the other
exhibits hereto, documents otherwise to be delivered at the Closing pursuant to
Section 5.07 hereof, the Seventh Amendment to the Loan Agreement, the
Subordination Agreement and the Assignment and Acceptance to be entered into
between the Buyer and the Bank and acknowledged by the Company and each other
agreement or instrument delivered at the Closing (the "Related Agreements") and
to consummate the transactions contemplated by this Agreement and the Related
Agreements. Except as set forth on Schedule 2.02, the execution, delivery and
performance of this Agreement and the Related Agreements, and the consummation
of the transactions contemplated hereby and thereby, have been duly authorized
by all necessary corporate action on the part of the Company, and no other
corporate proceedings on the part of the Company are necessary to authorize this
Agreement or the Related Agreements or to consummate the transactions
contemplated hereby or thereby, except that the approval of the holders of not
less than a majority of the outstanding shares of voting stock of the Company
are required to amend the Company's certificate of incorporation (the
"Certificate of Incorporation") as contemplated by Section 9.19 hereof. This
Agreement and the Related Agreements have been duly executed and delivered by
the Company and, assuming this Agreement and the Related Agreements constitute
valid and binding obligations of the Buyer, constitute valid and binding
obligations of the Company enforceable against the Company in accordance with
their respective terms.
Section 2.03 Consents and Approvals; No Violations. Except as set forth
on Schedule 2.03, neither the execution, delivery or performance of this
Agreement or the Related Agreements by the Company, nor the consummation by it
of the transactions contemplated hereby or thereby nor compliance by it with any
of the provisions hereof or thereof will (i)
3
<PAGE>
conflict with or result in any breach of any provision of the charter or by-laws
of the Company or any Subsidiary, (ii) require any filing with, or permit,
authorization, consent or approval of, any court, arbitral tribunal,
administrative agency or commission or other governmental or other regulatory
authority or agency (a "Governmental Entity"), except where the failure to
obtain any permit, authorization, consent or approval, or to make such filing or
notification would not have a Material Adverse Effect, (iii) result in a
violation or breach of, or constitute (with or without due notice or lapse of
time or both) a default (or give rise to any right of termination, amendment,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which the Company or any Subsidiary is a party
or by which any of their properties or assets may be bound, except where such
violation or breach would not have a Material Adverse Effect, (iv) result in any
payment being required or being accelerated on the part of the Company to any
person on account of severance arrangements or otherwise or (v) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to the
Company or any Subsidiary or any of their properties or assets.
Section 2.04 Capitalization. The authorized and outstanding capital
stock of the Company as of the date hereof is as set forth on Schedule 2.04(a)
hereto. All of the outstanding shares of the capital stock of the Company are
validly issued, fully paid and non-assessable and have been issued by the
Company in compliance with all applicable federal and state securities laws and
all applicable rules and regulations thereunder. The Securities to be issued
hereunder have been validly authorized, and when delivered and paid for pursuant
to this Agreement, will be validly issued and outstanding, and fully paid and
non-assessable. Except for the satisfaction of any stockholder approvals and the
clearance of the Information Statement (as defined in Section 3.07), the
Convertible Preferred Stock, the Warrant and the Common Stock to be issued upon
conversion or exchange of the Securities and the Convertible Preferred Stock or
exercise of the Warrant have been validly authorized, and when delivered and
paid for pursuant to this Agreement, will be validly issued and outstanding, and
fully paid and non-assessable. Except as set forth on Schedule 2.04(b), the
issuance and sale of the Securities and the Stock will not give rise to (x) any
preemptive rights or rights of first refusal or similar rights (other than the
rights of other shareholders of the Company to purchase in the Rights Offering)
or (y) any anti-dilution rights or similar rights on behalf of anyone in
existence either on the date hereof or on or prior to the Closing Date. Except
as set forth on Schedule 2.04(b), there are no outstanding (i) securities
convertible into or exchangeable for the Company's capital stock; (ii) options,
warrants or other rights to purchase or subscribe for capital stock of the
Company; or (iii) contracts, commitments, agreements, understandings or
arrangements of any kind relating to the issuance of any capital stock of the
Company, any such convertible or exchangeable securities or any such options,
warrants or rights. Except as set forth on Schedule 2.04(b), there is no
outstanding right, option or other agreement of any kind to purchase or
otherwise to receive from the Company any ownership interest in the Company or
the Subsidiaries, and there is no outstanding right or security of any kind
convertible into such ownership interest. Except as set forth on Schedule
2.04(b), there is no outstanding right, option or other agreement of any kind to
register under the Securities Act of 1933, as amended, any securities of the
Company.
4
<PAGE>
Section 2.05 Subsidiaries. Schedule 2.05 attached hereto lists the name
of each Subsidiary and sets forth the number and class of the authorized capital
stock of each Subsidiary and the number of shares of each Subsidiary which are
issued and outstanding, all of which shares (except as set forth on Schedule
2.05) are owned by the Company, free and clear of all liens, claims, charges or
encumbrances of every kind. Except as set forth on Schedule 2.05, the Company
does not presently own, of record or beneficially, or control, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity nor is
the Company, directly or indirectly, a participant in any joint venture,
partnership or other non-corporate entity.
Section 2.06 Articles of Incorporation and By-laws. Attached hereto on
Schedule 2.06 are true and complete copies of the Company's Certificate of
Incorporation and by-laws (the "By-laws") as in effect on the date hereof.
Section 2.07 Compliance With Laws; Licenses.
(a) The conduct of the business of the Company and each
Subsidiary is in material compliance with all federal, state, local or foreign
laws, rules, regulations or ordinances, or judgments, injunctions, writs,
decrees, orders or guidance documents and memos of any court or Governmental
Entity (collectively, the "Orders"), and all industry manufacturing and safety
standards, and the Company has not received any notice of any material violation
of any Order which remains outstanding except those listed on Schedule 2.07.
Neither the Company nor any Subsidiary is subject to any Order currently in
effect which could individually or in the aggregate have a Material Adverse
Effect.
(b) Except as set forth on Schedule 2.07, the Company
possesses all licenses, permits, consents, authorizations, registrations and
approvals of, with or from Governmental Entities which have jurisdiction over
it, and occupancy, fire, business and other permits from local officials
("Licenses"), and is in full compliance with the terms thereof except where any
violations, or the absence of such License, would not singly, or in the
aggregate, have a Material Adverse Effect. All of the Licenses are valid and in
full force and effect.
Section 2.08 Litigation; Investigations. Schedule 2.08 sets forth a
complete and accurate list of all suits, claims, proceedings, investigations,
audits or reviews which are pending or, to the best knowledge of the Company,
threatened against, probable of assertion against or affecting the Company or
any Subsidiary, any of their directors or any properties or assets used in the
conduct of the business of the Company (other than routine proceedings or
routine, uncontested claims for benefits under any Plans (as defined in Section
2.10)). Except as disclosed in Schedule 2.08 (i) no investigation, audit or
review by any Governmental Entity with respect to the Company or any Subsidiary
is pending or, to the best of the Company's knowledge, threatened, nor has any
Governmental Entity indicated to the Company an intention to conduct the same,
and (ii) there is no action, suit or proceeding pending or, to the best of the
Company's knowledge, threatened against or affecting the Company or any
Subsidiary at law or in equity
5
<PAGE>
where the relief claimed exceeds $10,000 above applicable insurance coverage, or
before any Governmental Entity. Except as set forth on Schedule 2.08, there is
no pending action or suit seeking in excess of $250,000 brought by the Company
or any Subsidiary against others.
Section 2.09 Taxes.
(a) The terms "Tax" and "Taxes" shall mean any and all taxes,
charges, fees, levies or other assessments, including, without limitation, all
net income, gross income, gross receipts, premium, sales, use, ad valorem,
transfer, franchise, profits, license, withholding, payroll, employment, excise,
estimated, severance, stamp, occupation, property or other taxes, fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties (including penalties for failure to file in accordance with
applicable information reporting requirements), and additions to tax by any
authority, whether federal, state, or local or domestic or foreign. The term
"Tax Return" shall mean any report, return, form, declaration or other document
or information required to be supplied to any authority in connection with
Taxes.
(b) All Tax Returns for all periods which end prior to or
which include the Closing Date that are or were required to be filed prior to
Closing by the Company have been or shall be filed on a timely basis in
accordance with the applicable laws of each Governmental Entity. The Company
shall timely file or cause to be filed all franchise, income or other Tax
Returns including Tax Returns relating to the transactions contemplated by the
Agreement that shall be required to be filed after the Closing Date. All such
Tax Returns that have been filed were, when filed, and continue to be, true,
correct and complete. All such franchise, income or other Tax Returns that will
be filed shall be true, correct and complete when filed.
(c) Schedule 2.09(c) hereto lists all United States federal,
state, local and foreign income Tax Returns that have been filed since January
1, 1991 by the Company that have been audited by any Governmental Entity. Except
as set forth on Schedule 2.09(c), any deficiencies proposed as a result of such
audits have been paid or finally settled. The Company is not aware of any fact
which would constitute substantial grounds for any further material tax
liability with respect to the years which have not been or are currently being
audited. There are no outstanding waivers or extensions of any statute of
limitations relating to the payment of Taxes or the assessment of any Taxes by
the Company to which the Company may be liable, and no Governmental Entity has
either formally or informally requested such a waiver or extension.
(d) Except as set forth on Schedule 2.09(d) hereto, the
Company has paid all of its Taxes that have become due and will make
arrangements for the timely payment of any Taxes that may become due, for all
periods which end prior to or which include the Closing Date, including all
Taxes reflected, or required to be reflected, on the Tax Returns referred to in
this Section 2.09, or in any assessment, proposed assessment or notice, either
formal or informal, received by the Company, except such Taxes, if any, as are
set forth on Schedule 2.09(d) hereto that are being contested in good faith and
as to which adequate reserves (determined in
6
<PAGE>
accordance with GAAP (as defined herein)) have been provided. All Taxes that the
Company is or was required by law to withhold or collect have been duly withheld
or collected and, to the extent required, have been paid to the appropriate
Governmental Entities. There are no liens with respect to Taxes on the capital
stock or any property or assets of the Company other than permitted liens for
certain Taxes not yet due (or taxes that are being contested in good faith by
appropriate proceedings and for which adequate reserves (determined in
accordance with GAAP) have been provided).
(e) The Company has not agreed to make, nor is it required to
make, any adjustments under Section 481(a) of the Code by reason of or change in
accounting method or otherwise.
(f) Except as set forth on Schedule 2.09(f), with respect to
the Subsidiaries, the Company is not, and has never been (and was not required
to have been) included in any consolidated, combined or unitary Tax Return with
any other person.
(g) Except as set forth on Schedule 2.09(g), the Company is
not a party to any agreement or arrangement (whether or not written) providing
for the payment (whether by indemnification or otherwise) of the Tax liability
of (or the relinquishment of any Tax Refund to) any other person, and is not
otherwise liable, by law, judgment or otherwise, for the Tax liability of any
other person.
(h) There are no outstanding requests for rulings with any
Taxing or revenue authority that might affect the operations or Tax liability of
the Company.
(i) The Company was not a United States Real Property Holding
Corporation within the meaning of Section 897 (c)(2) of the Code on any
applicable determination date during the preceding 5-year period and will not
constitute such a United States Real Property Holding Corporation on any
applicable determination date during any 5-year period ending on any date on
which the Buyer will acquire an interest in the Company pursuant to this
Agreement and the Related Agreements.
(j) Except as set forth on Schedule 2.09(j) hereto (i) no
deficiency for any Taxes has been proposed, asserted or assessed against the
Company that has not been resolved and properly paid in full, (ii) no waiver,
extension or comparable consent given by the Company regarding the application
of the statute of limitations with respect to any Taxes or Tax Returns is
outstanding, nor is any request for any such waiver or consent pending, (iii)
there is no Tax audit or other administrative proceeding or court proceeding
with regard to any Taxes or Tax Returns pending, nor has there been any notice
to the Company by any Taxing authority regarding any Tax audit or other
proceeding which has not been completed, nor, to the best knowledge of the
Company, is any such Tax audit or other proceeding threatened with regard to any
Taxes or Tax Returns; (iv) no power of attorney authorizing any person to take
any action on behalf of the
7
<PAGE>
Company with respect to any Taxes is currently in force; and (v) there are no
pending claims for refund of Taxes filed by the Company.
(k) None of the assets of the Company are assets that the
Buyer or the Company is or shall be required to treat as being owned by another
person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue
Code of 1954, as amended and in effect immediately before the enactment of the
Tax Reform Act of 1986, or is "tax-exempt use property" within the meaning of
Section 168(h)(1) of the Code.
(l) The Company is not a party to any agreement, contract,
arrangement or plan that has resulted or would result, separately or in the
aggregate, in the payment of any "excess parachute payments" within the meaning
of Section 280G of the Code.
(m) The Company has not made an election under Section 341(f)
of the Code.
(n) For purpose of this Section 2.09, references to the
Company shall also refer to the Subsidiaries.
Section 2.10 Employee Benefit Plans; ERISA.
(a) Attached hereto as Schedule 2.10 are complete and accurate
copies of all employee benefit plans, all employee welfare benefit plans, all
employee pension benefit plans, all multi-employer plans and all multi-employer
welfare arrangements (as defined in Sections 3(3), (1), (2), (37) and (40),
respectively, of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), which are currently maintained and/or sponsored by the Company (or
any Subsidiary), or to which the Company (or any Subsidiary) currently
contributes, or has an obligation to contribute in the future (including,
without limitation, benefit plans or arrangements that are not subject to ERISA,
such as employment agreements and any other agreements containing "golden
parachute" provisions and deferred compensation agreements), together with
copies of any trusts related thereto and a classification of employees covered
thereby (collectively, the "Plans"). Schedule 2.10 sets forth all of the Plans
that have been terminated within the past three years.
(b) Except for the Plans, the Company (including any
Subsidiary) does not maintain or sponsor, nor is it a contributing employer to,
a pension, profit-sharing, deferred compensation, stock option, employee stock
purchase or other employee benefit plan, employee welfare benefit plan, or any
other arrangement with its employees whether or not subject to ERISA. All Plans
are in substantial compliance with all applicable provisions of ERISA and the
regulations issued thereunder, as well as with all other applicable laws, and,
in all material respects, have been administered, operated and managed in
substantial accordance with the governing documents. All Plans that are intended
to qualify (the "Qualified Plans") under Section 401(a) of the Code are so
qualified and have been determined by the IRS to be so qualified (or
applications for determination letters have been timely submitted to the
Internal
8
<PAGE>
Revenue Service (the "IRS")), and copies of the current plan determination
letters, most recent actual valuation reports, if any, most recent Form 5500,
or, as applicable, Form 5500-C/R filed with respect to each such Qualified Plan
or employee welfare benefit plan and most recent trustee or custodian report,
are included as part of Schedule 2.10. To the extent that any Qualified Plans
have not been amended to comply with applicable law, the remedial amendment
period permitting retroactive amendment of such Qualified Plans has not expired
and will not expire within 120 days after the Closing Date. All reports and
other documents required to be filed with any Governmental Entity or distributed
to plan participants or beneficiaries (including, but not limited to, annual
reports, summary annual reports, actuarial reports, PBGC-1 forms, audits or Tax
Returns) have been timely filed or distributed. Neither any Plan nor the Company
(included any Subsidiary) has engaged in any transaction prohibited under the
provisions of Section 4975 of the Code or Section 406 of ERISA. No Plan has
incurred an accumulated funding deficiency (as defined in Section 412(a) of the
Code and Section 302(l) of ERISA); and no event has occurred pursuant to which
the Company (including any Subsidiary) could have any direct or indirect
liability whatsoever (including being subject to any statutory lien to secure
payment of any such liability), to the Pension Benefit Guaranty Corporation
("PBGC") under Title IV of ERISA or to the IRS for any excise tax or penalty
with respect to any plan now or hereafter maintained or contributed to by the
Company or any member of a "controlled group" (as defined in Section 4001(a)(14)
of ERISA) that includes the Company; and the Company (including any Subsidiary)
or any member of a "controlled group" (as defined above) that includes the
Company does not currently have (or at the Closing Date will not have) any
obligation whatsoever to contribute to any "multi-employer pension plan" (as
defined in ERISA Section 4001(a)(14)), nor has any withdrawal liability
whatsoever (whether or not yet assessed) arising under or capable of assertion
under Title IV of ERISA (including, but not limited to, Sections 4201, 4202,
4203, 4204, or 4205 thereof) been incurred by any Plan. Further, except as set
forth on Schedule 2.10,:
(i) since January 1, 1992, there have been no
terminations, partial terminations or discontinuance of contributions
to any Qualified Plan without a determination by the IRS that such
action does not adversely affect the tax-qualified status of such
Qualified Plan;
(ii) since January 1, 1992, no Plan which is subject
to the provisions of Title IV of ERISA, has been terminated;
(iii) since January 1, 1992, there have been no
"reportable events" (as that phrase is defined in Section 4043 of
ERISA) with respect to any Plan which were not properly reported;
(iv) the valuation of assets of any Qualified Plan,
as of the Closing Date, shall equal or exceed the actuarial present
value of all accrued pension benefits under any such Qualified Plan in
accordance with the assumptions contained in the Regulations of the
PBGC governing the funding of terminated defined benefit plans;
9
<PAGE>
(v) with respect to Plans which qualified as "group
health plans" under Section 4980B of the Code and Section 607(1) of
ERISA and related regulations (relating to the benefit continuation
rights imposed by "COBRA"), the Company (including any Subsidiary) has
complied (and on the Closing Date will have complied) in all material
respects with all reporting, disclosure, notice, election and other
benefit continuation requirements imposed thereunder as and when
applicable to such plans, and the Company (including any Subsidiary)
has not incurred (and will not incur) any direct or indirect liability
and is not (and will not be) subject to any loss, assessment, excise
tax penalty, loss of federal income tax deduction or other sanction,
arising on account of or in respect to any direct or indirect failure
by the Company (including any Subsidiary), at any time prior to the
Closing Date to comply with any such federal or state benefit
continuation requirement, which is capable of being assessed or is
asserted before or after the Closing Date directly or indirectly
against the Company (including any Subsidiary) with respect to such
group health plans;
(vi) the Company (including any Subsidiary) is not
now nor has it been within the past five years a member of a
"controlled group" as defined in ERISA Section 4001(a)(14) other than
with respect to each other;
(vii) there is no pending litigation, arbitration or
disputed claim, settlement or adjudication proceeding, and, to the best
of the Company's knowledge, there is no threatened litigation,
arbitration or disputed claim, settlement or adjudication proceeding,
or investigation with respect to any Plan, or with respect to any
fiduciary, administrator or sponsor thereof (in their capacities as
such), or any party in interest thereof; and
(viii) the Company (including any Subsidiary) has not
incurred liability under Sections 4062, 4063, 4064 and 4069 of ERISA.
Section 2.11 Labor Relations. Except as set forth on Schedule 2.11: (i)
the Company and each Subsidiary has paid and performed all material obligations
with respect to its employees, independent sales representatives, consultants,
agents, officers and directors, including without limitation all wages,
salaries, commissions, bonuses, severance pay, vacation pay, benefits and other
direct compensation for all services performed by such persons to the date
hereof and all amounts required to be reimbursed to such persons; (ii) the
Company and each Subsidiary is in compliance in all material respects with all
federal, state, local and foreign laws and regulations respecting employment and
employment practices, terms and conditions of employment and wages and hours;
(iii) there is no pending, or to the Company's knowledge threatened, charge,
complaint, allegation, application or other process against the Company or any
Subsidiary before the National Labor Relations Board or any comparable state,
local or foreign agency, governmental or administrative; (iv) there is no labor
strike, dispute, slowdown or work stoppage or other job action pending, or to
the Company's knowledge, threatened against or otherwise materially affecting or
involving the Company or any Subsidiary; and (v) no
10
<PAGE>
employees of the Company or any Subsidiary are covered by any collective
bargaining agreements and to the best knowledge of the Company no effort is
being made by any union to organize any of the Company's or the Subsidiaries'
employees.
Section 2.12 Insurance Policies. The Company and each Subsidiary
maintain insurance covering all risks customarily insured against and in amounts
reasonable and customary in light of the Company's and the Subsidiaries' assets,
properties, business, operations, products and services as the same are
presently owned or conducted. Each current policy is in full force and effect
and all premiums are currently paid and no notice of cancellation or termination
has been received with respect to any such policy. Such policies have been
sufficient for compliance with all material requirements of law. Except as set
forth on Schedule 2.12, there are no material claims, actions, suits or
proceedings arising out of or based upon any of such policies of insurance and,
to the knowledge of the Company, no basis for any such material claim, action,
suit or proceeding exists. The Company has not been refused any insurance with
respect to its assets and operations, nor has its coverage been limited by any
insurance carrier to which it has applied for any such insurance or with which
it has carried insurance during the last five (5) years.
Section 2.13 Environmental Laws.
(a) As used in this Section 2.13, the following terms shall
have the following meanings:
(A) "CERCLA" means the Comprehensive Environmental Response
Compensation and Liability Act, as amended.
(B) "CERCLIS" means the Comprehensive Environmental Response
Compensation and Liability Information System.
(C) "Environmental Laws" means all applicable federal, state,
local and foreign laws, rules, regulations, codes, ordinances, orders,
decrees, directives, treaties, protocols, permits, licenses and
judgments relating to pollution, contamination or protection of the
environment (including without limitation all applicable federal,
state, local and foreign laws, rules, regulations, codes, ordinances,
orders, decrees, directives, permits, licenses and judgments relating
to Hazardous Materials).
(D) "Hazardous Materials" means any dangerous, toxic or
hazardous pollutant, contaminant, chemical, waste, material or
substance as defined in or governed by any federal, state, local or
foreign law, statute, code, ordinance, regulation, rule or other
requirement relating to such substance or otherwise relating to the
environment or human health or safety, including without limitation any
chemical, waste, material, substance, pollutant or contaminant that
might cause any injury to human health or safety or to the
11
<PAGE>
environment or might subject the Company or any Subsidiary to any
environmental costs or liability under any Environmental Law.
(E) "Regulatory Actions" mean any claim, demand, action or
proceeding with respect to the Company or any Subsidiary brought or
instigated by any governmental authority in connection with any
Environmental Law, including without limitation, civil, criminal and/or
administrative proceedings, and whether or not seeking environmental
costs.
(F) "Release" means the spilling, leaking, disposing,
discharging, emitting, depositing, ejecting, leaching, escaping or any
other release or threatened release, however defined, whether
intentional or unintentional, of any Hazardous Material in quantities
or concentrations regulated under Environmental Laws.
(G) "Third-Party Environmental Claims" means any third-party
claim, action, demand or proceeding (other than a Regulatory Action)
based on negligence, trespass, strict liability, nuisance, toxic tort,
or any other cause of action or theory under common law or
Environmental Law.
(b) Attached hereto as Schedule 2.13 are all environmental
site assessments, reports, documentation, information and other studies relating
to the presence or possible presence of Hazardous Materials (as defined
hereafter) on, at, in, under, about or from the Real Property (as defined in
Section 2.17) or from the activities of the Company or any Subsidiary on, at,
in, under, about or from the Real Property (collectively, the "Environmental
Assessments").
(c) The Company and each Subsidiary at all times has been in
compliance with all applicable Environmental Laws. Neither, the Company nor any
Subsidiary has received any notice of any violation of Environmental Law
relating to the Real Property or the operations of the Company or any
Subsidiary. No Third-Party Environmental Claims and/or Regulatory Actions have
been asserted or assessed against the Company or any Subsidiary relating to the
Real Property or the operations of the Company or any Subsidiary, and to the
knowledge of the Company after due inquiry, no Third-Party Environmental Claims
and/or Regulatory Actions are pending or threatened against the Company or any
Subsidiary relating to the Real Property or the operations of the Company or any
Subsidiary or to properties owned by the Company to which the Company has
shipped Hazardous Materials for treatment, storage or disposal.
(d) The Company and each Subsidiary has obtained all permits,
licenses, certificates of compliance, approvals and other authorizations
relating to any Environmental Law (collectively referred to herein as
"Authorizations") necessary for the operation of the Company and each
Subsidiary. The Company and each Subsidiary is in compliance with the
requirements of all Authorizations.
12
<PAGE>
(e) The Real Property is not listed in the United States
Environmental Protection Agency's (the "EPA") National Priorities List of
Hazardous Waste Sites under CERCLA or any similar state list, schedule, log,
inventory or record (however defined), of sites from which there has been a
Release of Hazardous Materials. No part of the owned Real Property or to the
knowledge of the Company, the leased Real Property was ever used, nor is it now
being used, as a landfill, dump or other disposal, storage, transfer, handling,
or treatment area for Hazardous Materials, or as a gasoline service station or a
facility for selling, dispensing, storing, transferring, disposing or handling
petroleum and/or petroleum products.
(f) All transfer, transportation or disposal of Hazardous
Materials by the Company or any Subsidiary to properties not owned, leased or
operated by the Company or any Subsidiary has been in compliance with applicable
Environmental Laws. Neither the Company nor any Subsidiary has transported or
arranged for the transportation of any Hazardous Materials to any location which
is (A) listed on the EPA's National Priorities List of Hazardous Waste Sites
under CERCLA or any similar state list, schedule, log, inventory or record
(however defined), of sites from which there has been a Release of Hazardous
Materials; (B) listed for possible inclusion on the National Priorities List by
the EPA in CERCLIS or any similar state or local list; or (C) the subject of any
Regulatory Action or Third-Party Environmental Claim.
(g) There has not been, and is not now occurring, any Release
of any Hazardous Material on, in, under, about, or from the Real Property,
including to the knowledge of the Company, a Release that has come to be located
on or under the Real Property from another location.
(h) Except as set forth on Schedule 2.13(h), no above ground
or underground storage tanks or wells are located on, under or about the Real
Property, or have been located on, under or about the Real Property and then
subsequently been removed or filled. If any such storage tanks exist on, under
or about the Real Property, such storage tanks have been duly registered with
all appropriate governmental entities and are otherwise in compliance with all
applicable Environmental Laws.
(i) Except as set forth on Schedule 2.13(i), the Company has
successfully taken all remedial measures, conducted all tests and analyses and
instituted all policies recommended to the Company by HTS Environmental Group in
their Phase I Environmental Assessments of the Company's facilities in Grenada,
Mississippi and York, Pennsylvania dated as of January 14, 1992 and January 15,
1992, respectively, and, as a result of such action on the part of the Company,
no condition or thing has come to the attention of the Company which would (or
with the lapse of time will) individually or in the aggregate have a Material
Adverse Effect.
Section 2.14 Financial Statements and Books and Records. The Company
has previously delivered to the Buyer a copy of the following consolidated
financial statements: the balance sheet of the Company as at December 28, 1996
and June 30, 1997, and the related results
13
<PAGE>
of operation and statement of cash flows for the periods then ended (the
"Financial Statements"). Copies of the Financial Statements are annexed as
Schedule 2.14 hereto. The Financial Statements are true and accurate, are in
accordance with the books and records of the Company and present fairly in all
material respects the financial position and related results of operations of
the Company and the Subsidiaries as of the times and for the periods referred to
herein, in accordance with U.S. generally accepted accounting principles
consistently applied throughout the periods covered thereby ("GAAP"). All of the
financial books and records of the Company have been made available to the
Buyers.
Section 2.15 Absence of Liabilities. Except as described on Schedule
2.15, the Company and each Subsidiary has no debt, liabilities or obligations of
any nature, whether accrued, absolute, contingent or otherwise, whether due or
to become due and whether or not the amount thereof is readily ascertainable,
that are not reflected as a liability in the Financial Statements except for
liabilities incurred by the Company or the Subsidiaries in the ordinary course
of business consistent with past practices which are not otherwise prohibited
by, in violation of or which will result in a breach of the representations,
warranties and covenants of the Company contained in this Agreement.
Section 2.16 Absence of Specified Changes. Except as disclosed on
Schedule 2.16, in the Company's Current Report on Form 8-K dated May 19, 1997,
in the Company's Annual Report on Form 10-K, in the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1997, or as contemplated by the
transactions to be consummated at the Closing, since December 28, 1996, there
has not been with respect to the Company (including any Subsidiary) any:
(a) action which would result in a material adverse change,
whether direct or indirect, in the business, operations, condition (financial or
otherwise), prospects, liabilities or assets of the Company and the Company does
not know of any change that is threatened or pending which could have a Material
Adverse Effect;
(b) transaction not in the ordinary course of business,
including without limitation any sale of all or substantially all of the assets
of the Company or any merger of the Company and any other entity;
(c) unfulfilled commitments requiring expenditures by the
Company exceeding $250,000 (excluding commitments expressly described elsewhere
in this Agreement or the Schedules hereto or which were undertaken in the
ordinary course of business consistent with past practice);
(d) material damage, destruction or loss, whether or not
insured;
(e) failure to maintain in full force and effect substantially
the same level and types of insurance coverage as in effect on December 28, 1996
or destruction, damage to, or loss
14
<PAGE>
of any asset of the Company (whether or not covered by insurance) that
materially and adversely affects the business, operations, condition (financial
or otherwise), prospects, liabilities or assets of the Company;
(f) change in accounting principles, methods or practices,
investment practices, claims, payment and processing practices or policies
regarding intercompany transactions;
(g) revaluation of any assets or material write down of the
value of any inventory;
(h) loan or payment to any stockholder or any declaration,
setting aside, or payment of a dividend (whether in cash or in shares of capital
stock) or other distribution in respect of its capital stock, or any direct or
indirect redemption, purchase or other acquisition of any shares of its capital
stock;
(i) issuance or sale of any shares of capital stock or of any
other equity security or any security convertible into or exchangeable or
exercisable for equity securities (except pursuant to the exercise of
outstanding derivative securities or otherwise pursuant to currently authorized
and outstanding employee stock options) or the repricing of any such share of
capital stock, other equity security or securities convertible into or
exchangeable or exercisable for equity securities;
(j) amendment to its Certificate of Incorporation or By-laws
other than those disclosed on Schedule 2.06;
(k) sale, assignment or transfer of any tangible or intangible
asset, including any rights to intellectual property, in the aggregate in excess
of $50,000, except in the ordinary course of business consistent with past
practice;
(l) (x) disposition of or lapse of any material patent,
trademark, trade name, service mark or copyright or any application for the
foregoing, (y) disposition of any material technology, software or know-how, or
(z) disposition of any license, permit or authorization to use any of the
foregoing or any other material right;
(m) mortgage, pledge or other encumbrance, including liens and
security interests, of any tangible or intangible asset;
(n) discharge or satisfaction of any lien or encumbrance or
payment or cancellation of any liability other than payment of current
liabilities in the ordinary course of business consistent with past practice;
15
<PAGE>
(o) cancellation of any debt owed to the Company or any
Subsidiary or waiver or release of any material contract, right or claim, except
for cancellations, waivers and releases in the ordinary course of business which
do not exceed $ 250,000 in the aggregate;
(p) indebtedness incurred for borrowed money or any commitment
to borrow money, any capital expenditure or capital commitment requiring an
expenditure of monies in the future, any incurrence of a contingent liability or
any guaranty or commitment to guaranty the indebtedness of others entered into,
by the Company, other than customary transactions in the ordinary course of
business not in excess of $ 250,000 in the aggregate;
(q) amendment, termination or revocation of, or a failure to
perform obligations or the occurrence of any default under, any contract or
agreement to which the Company, is, or as of December 28, 1996 was, a party or
of any license, permit or franchise required for the continued operation of any
business conducted by the Company on December 28, 1996;
(r) increase or commitment to increase the salary or other
compensation payable or to become payable to any of its officers, directors or
employees, agents or independent contractors, or the payment of any bonus to the
foregoing persons or enter into any employment agreement except as may be
required under employment, collective bargaining or termination agreements in
effect on the date hereof or, solely with respect to employees other than
officers, executive officers and directors, in the ordinary course of business
and consistent with past practice and applicable policies and procedures of the
Company; or
(s) agreement or understanding to take any of the actions
described above in this Section 2.16.
Section 2.17 Real Property; Leases.
(a) Schedule 2.17(a) sets forth a correct and complete list of
all real property owned by the Company or any Subsidiary and Schedule 2.17(b)
sets forth a correct and complete list of each lease, sublease or other
arrangement pursuant to which the Company or any Subsidiary leases or subleases
real property (collectively, the owned and leased or subleased real property is
herein referred to as "Real Property"). The Company and the Subsidiaries are the
sole and exclusive legal and equitable owner of all right, title and interest
in, and have good, marketable and insurable title in fee simple to, all of the
Real Property set forth on Schedule 2.17 as being owned by the Company or such
Subsidiary, free and clear of all liens, security interests, charges or
encumbrances of any kind, except for liens the presence of which would not be
likely to have a Material Adverse Effect. All Real Property is in condition and
repair adequate for its current use, is suitable for the purposes for which it
is presently being used and in the aggregate is adequate to meet all present
requirements of the business of the Company and each of its Subsidiaries, as
currently conducted.
16
<PAGE>
(b) The Company has heretofore delivered or will deliver to
the Buyer prior to Closing a complete and accurate copy of each lease and
sublease included on Schedule 2.17(b). Unless otherwise noted on Schedule
2.17(b), the Company or a Subsidiary is the sole lessee or sublessee under each
of the leases and subleases listed on Schedule 2.17(b) and each such lease and
sublease is valid and in full force and effect and enforceable in accordance
with its terms and has not been further supplemented, amended or modified.
Unless otherwise noted on Schedule 2.17(b), there exists no event of default or
event, occurrence, condition or act, including without limitation the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereunder, which constitutes or would constitute (with notice or
lapse of time or both) a default in any respect under any of the leases or
subleases on Schedule 2.17(b) that would cause, individually or in the
aggregate, a Material Adverse Effect. To the best of the Company's knowledge,
neither the Company nor any Subsidiary has received any notice of any event of
default or any event, occurrence, condition or act, including without limitation
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereunder, which constitutes or would constitute (with
notice or lapse of time or both) a default in any respect under any of the
leases or subleases on Schedule 2.17(b). The leased premises are structurally
sound with no material defects and are in good operating condition and repair
and are adequate for the uses to which they are being put; and none of such
leased premises are in need of maintenance or repairs except for ordinary,
routine maintenance and repairs which are not material in nature or cost. The
Real Property covered by any leasehold interests listed on Schedule 2.17(b), the
buildings, fixtures and improvements on such, and the present use thereof,
comply in all material respects with all restrictive covenants, deeds and other
restrictions and all zoning laws, ordinances and regulations of Governmental
Entities or other authorities having jurisdiction thereof, including provisions
relating to permissible nonconforming uses, if any, and any such premises are
not presently affected, nor to the best knowledge of the Company threatened, by
any condemnation or eminent domain proceeding or any proceeding by a mortgagee.
Section 2.18 Equipment and Personal Property. Except as described in
Schedule 2.18, all equipment and tangible personal property used by the Company
or any Subsidiary are either owned, free and clear of all liens and
encumbrances, or are (i) used under capital leases reflected on the Financial
Statements or (ii) used under operating leases. All such leases are valid and in
full force and effect and enforceable in accordance with their terms and have
not been further supplemented, amended or modified. Neither the Company nor any
Subsidiary has received any notice of, and there exists no event of default, or
event, occurrence, condition or act, including, without limitation, the
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein, which constitutes or would constitute (with
notice or lapse of time or both) a default in any respect under any such lease.
All of the equipment and tangible personal property owned or leased by the
Company and each Subsidiary is in good operating condition and repair, subject
to normal wear and tear, none of such assets is in need of maintenance or
repairs except for ordinary, routine maintenance and such assets are suitable
for and operating according to their intended use in accordance with industry
standards.
17
<PAGE>
Section 2.19 Intangible Property. Schedule 2.19 sets forth a complete
and accurate list of the Intangible Property. The Company and each Subsidiary
owns or possesses, or has adequate and enforceable licenses or other rights to
use and license for all purposes, all proprietary rights necessary for its
business (as now conducted or as proposed to be conducted) without any conflict
with or infringement of the rights of others including, without limitation,
trade secrets, inventions, processes, formulae, technology, technological data,
information and know-how. Except as set forth on Schedule 2.19, with respect to
the Company and each Subsidiary (i) the Company or such Subsidiary has sole and
exclusive good, valid and transferable title with respect to the Intangible
Property identified thereon as owned by the Company, (ii) no royalties or other
consideration is required in connection with the Company's or any Subsidiary's
use and enjoyment of the Intangible Property, except as provided under the terms
of any license agreement or other instrument pursuant to which the Company has
obtained rights to use such Intangible Property identified on Schedule 2.19 as
not owned by the Company and (iii) no material claim has been asserted by any
person against the Company or any Subsidiary with respect to the ownership or
use of any Intangible Property by the Company or any Subsidiary nor has the
Company or any Subsidiary asserted any similar claim against any person, and to
the best knowledge of the Company, there exists no valid basis for any such
claim. Except as set forth on Schedule 2.19, the use of the Intangible Property
does not violate or infringe, and has not violated or infringed, the rights of
any person. Except as set forth on Schedule 2.19, neither the Company nor any
Subsidiary is a licensor with respect to any Intangible Property. "Intangible
Property" means all trade names, trademarks, service marks, patents and
copyrights (including any registrations or pending applications for registration
of any of the foregoing), and all licenses or other rights relating to any of
the foregoing that are attributable to the conduct of, used in, or related to,
the operations of the Company and each Subsidiary.
Section 2.20 Software. All computer software, databases and programs
utilized by the Company and each Subsidiary are owned by, or are licensed to the
Company or a Subsidiary, without any restrictions thereon other than those
generally applicable to software licenses pursuant to the licensor's general
terms and conditions.
Section 2.21 Contracts.
(a) Schedule 2.21 sets forth an accurate, correct and complete
list of the following contracts, agreements, arrangements or instruments (the
"Contracts") in effect at any time from January 1, 1996 through the date hereof,
to which the Company or any Subsidiary is or was a party, by which it is bound
or pursuant to which the Company or any Subsidiary is or was an obligor or a
beneficiary:
(i) Any material contracts with respect to tangible
property other than Real Property which are included on Schedule 2.17,
all Contracts with affiliates (whether or not material) other than
employment agreements providing for an annual salary and bonus of less
than $100,000 or option agreements, material license agreements,
18
<PAGE>
termination agreements, consulting or severance agreements, and
agreements relating to labor or collective bargaining matters;
(ii) Any Contract for capital expenditures or
services by the Company or any Subsidiary which involves consideration
payable by the Company or any Subsidiary in excess of $250,000 in any
fiscal year;
(iii) Any Contract evidencing any indebtedness for
borrowed money in excess of $ 250,000 or obligation for the deferred
purchase price of assets in excess of $250,000 (excluding normal trade
payables) or guaranteeing any indebtedness, obligation nor liability in
excess of $ 250,000;
(iv) Any Contract wherein the Company or any
Subsidiary has agreed to a non-competition provision;
(v) Any joint venture, partnership, cooperative
arrangement or any other Contract involving a sharing of profits;
(vi) Any Contract with any Governmental Entity other
than for services in the ordinary course of business;
(vii) Manufacturers' representative, sales agency,
dealer or advertising Contract which is not terminable on notice
without cost or other liability to the Company or any Subsidiary;
(viii) Contract for the conversion of any obligation,
instrument or security, into debt or equity securities of the Company
or any Subsidiary other than the Securities, the Stock or the Warrant;
(ix) Settlement agreement of any material
administrative or judicial proceeding within the past five years other
than those the effect of which is reflected in the Financial
Statements;
(x) Any power of attorney, proxy or similar
instrument granted by or to the Company or any Subsidiary other than in
the ordinary course of business consistent with past practice; and
(xi) Any other material Contract related to the
business of the Company or any Subsidiary, as currently conducted or
any other Contract not in the ordinary course of business of the
Company consistent with past practice.
Accurate, correct and complete copies of each such written
Contract and written summaries of each such oral Contract have been delivered by
the Company to the Buyer.
19
<PAGE>
(b) Each Contract listed or referred to on Schedule 2.21 to
which the Company or any Subsidiary is a party, by which it is bound or pursuant
to which the Company or any Subsidiary is an obligor or a beneficiary is in full
force and effect, except where the failure to be in full force and effect will
not cause a Material Adverse Effect. The Company and each Subsidiary has
complied with all commitments and obligations on its part to be performed or
observed under each such Contract, except for such noncompliance which is not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect. To the knowledge of the Company, each party to each such Contract other
than the Company or any Subsidiary has complied, and is in continuous
compliance, with all commitments and obligations on its part to be performed or
observed thereunder, except for such noncompliance which is not reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect. The
Company has not received any notice of a default under any such Contract and no
event or condition has happened or presently exists which constitutes a default
or, after notice or lapse of time or both, would constitute a default under any
such Contract, except for such notices and defaults which are not reasonably
likely, individually or in the aggregate (together with the items set forth in
Schedule 2.21 annexed hereto), to have a Material Adverse Effect.
(c) Except as set forth on Schedule 2.21, no consent of any
other party to any of the Contracts is required in connection with the
execution, delivery and performance of this Agreement by the Company.
Section 2.22 Inventory. All inventory of the Company and each
Subsidiary, whether reflected in the Financial Statements or otherwise and
whether existing now or at the Closing, consists or will consist of a quality
and quantity usable in the ordinary course of business, except for items of
obsolete materials, prior season, slow moving, irregular or defective stock and
materials of below-standard quality, all of which have been written off or down
to fair market value as reflected in the Financial Statements. The inventory
reflected in the Financial Statements were on the date thereof properly recorded
thereon and reflected at such date proper reserves as determined in accordance
with GAAP, consistently applied, and stated, on an aggregate basis, at the lower
of cost (based on the first-in, first-out method) or market value. The current
inventory of the Company and each Subsidiary are not, except in amounts which in
the aggregate are not material, in excess of their reasonably anticipated
requirements. The current inventory of the Company conforms to customary trade
standards for marketable goods.
Section 2.23 Title to Properties; Liens. The Company and each
Subsidiary has good, valid and marketable title to all of its assets, free and
clear of any lien, charge or other encumbrance, except for (a) the lien of the
Bank pursuant to the Loan Agreement, (b) such liens or other encumbrances
specifically set forth on Schedule 2.23 and (c) liens for current Taxes not yet
due and payable.
Section 2.24 Condition of Assets. The assets, including, without
limitation, manufacturing plants, of the Company and each Subsidiary are in good
working order and condition, subject to normal wear and tear, and have no
defects which would materially interfere
20
<PAGE>
with the business of the Company or any Subsidiary as presently conducted or to
be conducted after the Closing Date.
Section 2.25 Transactions with Affiliates. Except as set forth on
Schedule 2.25 or as contemplated by the transactions to be consummated at the
Closing, no officer, director or 5% stockholder of the Company or any Subsidiary
(i) has borrowed money from, or loaned money to, the Company or any Subsidiary
pursuant to which any amount remains outstanding, (ii) is a party to any
contract with the Company or any Subsidiary,(iii) has asserted or threatened to
assert any claim against the Company or any Subsidiary within the past 36 months
or that has not been fully discharged or (iv) is engaged in any transaction with
the Company or any Subsidiary.
Section 2.26 Valid Transfer. At the Closing, the Company will convey to
the Buyer good title to the Securities purchased free and clear of any liens,
claims, charges, encumbrances, security interests, pledges, equities,
assessments or restrictions of any nature whatsoever. Upon conversion or
exchange, if any, of the Securities into Convertible Preferred Stock, the
Warrant and Common Stock, the Company will convey to the holders of such
securities good title to the Convertible Preferred Stock, the Warrant and Common
Stock purchased thereby free and clear of any liens, claims, charges,
encumbrances, security interests, pledges, equities, assessments or restrictions
of any nature whatsoever. The form of certificates representing the Stock to be
delivered to the Buyer shall conform to all applicable requirements of the State
of Delaware.
Section 2.27 Absence of Certain Practices. To the best knowledge of the
Company, neither the Company, the Subsidiaries, nor any director, officer,
agent, employee or other person acting on their behalf, has given or agreed to
give any gift or similar benefit of more than nominal value to any customer,
supplier, or governmental employee or official or any other person who is or may
be in a position to help or hinder the Company or any Subsidiary or assist the
Company or any Subsidiary in connection with any proposed transaction involving
the Company or any Subsidiary, which gift or similar benefit, if not given in
the past, would have materially and adversely affected the business or prospects
of the Company or any Subsidiary.
Section 2.28 Accounts Payable and Accrued Expenses. All accounts
payable and accrued expenses reflected on the Financial Statements arose from
bona fide transactions in the ordinary course of business.
Section 2.29 Accounts Receivable. All accounts receivable reflected on
the Financial Statements arose from bona fide transactions in the ordinary
course of business and, to the best knowledge of the Company, there are no facts
or circumstances which will cause such receivables not to be current and fully
collectible in accordance with their terms, net of any reserves or allowances
reflected on the Financial Statements for accounts receivable included in the
Financial Statements.
21
<PAGE>
Section 2.30 Solvency. After giving effect to the transactions
contemplated by this Agreement and the other transactions related hereto, and
the payment of fees and expenses in connection therewith, the Company in good
faith after due inquiry believes that:
(a) The present fair salable value of all of the assets
(including goodwill), taken as a whole, of the Company will be greater than the
total amount of liabilities, including contingent, subordinated, absolute,
fixed, matured or unmatured and liquidated or unliquidated liabilities, of the
Company.
(b) The present fair salable value of all of the assets
(including goodwill), taken as a whole, of the Company is sufficient to pay the
probable liability of the Company on its existing debts as such debts become
absolute and matured. The Company currently pays and expects it will be able to
pay its debts and other liabilities, contingent obligations and other
commitments as they mature or come due in the normal course of business.
(c) The Company is not engaged in, and is not about to engage
in, business or transactions for which it has unreasonably small capital.
No transfer of property is being made and no obligation is
being incurred in connection with the transactions contemplated by this
Agreement or any other document contemplated herein with the intent to hinder,
delay or defraud either present or future creditors of the Company.
Section 2.31 Investment Company Act. The Company is not an investment
company or a person directly or indirectly controlled by or acting on behalf of
an investment company within the meaning of the Investment Company Act of 1940,
as amended.
Section 2.32 Securities Exchange Act Reports. True and complete copies
of the following documents, have been separately delivered and identified by the
Company to the Buyer:
(i) The Company's Annual Reports on Form 10-K for the
fiscal years ended December 30, 1995 and December 28, 1996;
(ii) The Company's Quarterly Reports on Form 10-Q for
the periods ended March 31, 1997 and June 30, 1997;
(iii) The Company's definitive proxy statement
relating to the Company's 1996 annual meeting of stockholders; and
(iv) The Company's Current Report on Form 8-K dated
May 19, 1997.
22
<PAGE>
All reports, forms and statements required to be filed by the Company
during the period from January 1, 1995 to the date of this Agreement under
Securities Exchange Act of 1934, as amended (the "Exchange Act") have been duly
filed. The Company has heretofore made public disclosure of such additional
material information since the date of the Company's Annual Report on Form 10-K
for the fiscal year ended December 28, 1996 as it was required to disclose
pursuant to the requirements of applicable federal and state securities and
other laws and has furnished copies of such disclosure to the Buyer. The report
on Form 10-K for the fiscal year ended December 28, 1996 and all subsequent
reports on Form 10-Q and 8-K, annual reports to stockholders, proxy statements
and other public disclosures as of the dates thereof or the dates made, and such
other documents or information with respect to the Company and its Subsidiaries
required to be supplied to the Buyer pursuant to this Agreement or supplied to
the Buyer at its request by the Company or on its behalf, taken as a whole, were
or are true, correct and complete and did not or do not contain any statement
which is false or misleading with respect to a material fact, and did not or do
not omit to state a material fact necessary in order to make the statements
therein not false or misleading.
Section 2.33 Securities Exemption. Assuming the representations and
warranties of the Buyer are true, the offer and sale of the Securities pursuant
to this Agreement and the issuance of the Convertible Preferred Stock, the
Warrant and the Common Stock to the Buyer upon the conversion or exchange, if
any, of the Securities are exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act") and the Company has
not and will not take any actions which would cause the offers and sales
contemplated hereunder to be ineligible for such exemption or subject the same
to the registration or qualification requirements of any securities or blue sky
laws of any applicable jurisdiction. The offer of the Securities was made in
accordance with, and in full compliance with, all applicable federal and state
securities or blue sky laws.
Section 2.34 Customers and Suppliers. To the knowledge of the Company,
except as set forth on Schedule 2.34, none of the Company's ten largest
customers in terms of sales or ten largest suppliers in terms of purchases, in
each case with respect to the fiscal year ended December 28, 1996, has ceased
doing business with the Company and, to the knowledge of the Company, none of
such customers or suppliers intends to cease doing business with the Company or
to materially and adversely change its relationship with the Company.
Section 2.35 Rights Plan. Neither the execution nor delivery of this
Agreement or the Related Documents nor the consummation of the transactions
contemplated hereby and thereby will result in the rights issued by the Company
under the Rights Agreement, dated as of June 5, 1996 between the Company and
First Union National Bank of North Carolina, N.A., as rights agent (the "Rights
Plan"), becoming exercisable by the holders thereof or result in the creation or
vesting of any rights in such holders under the Rights Plan.
Section 2.36 Promotional Programs. Since January 1, 1995, the
promotional programs of the Company and the Subsidiaries and the Subsidiaries
have been and are being conducted in
23
<PAGE>
the ordinary course of business consistent with past practice. Schedule 2.36
describes all material obligations, commitments, agreements and understandings,
whether oral or written, with any person having relations with the Company
relating to or involving advertising and promotional programs or plans whether
directed to customers, trade parties or others.
Section 2.37 Orders, Commitments and Returns. As of the date of this
Agreement, the aggregate of all accepted and unfulfilled orders for the sale of
merchandise entered into by the Company is approximately $17,769,585 as of
September 19, 1997, and all contracts or commitments for the purchase of
supplies by the Company and all orders were made in the ordinary course of
business. As of the date of this Agreement, there are no claims against the
Company to return in excess of an aggregate of $250,000 of merchandise by reason
of alleged overshipments, defective merchandise or otherwise, and there is no
merchandise in the hands of customers under an understanding that such
merchandise would be returnable.
Section 2.38 Warranty Claims. The schedule of warranty expenses of the
Company for the two fiscal years ended December 31, 1996 as described on
Schedule 2.38 is true, complete and correct.
Section 2.39 Disclosure. No representation, warranty or statement made
by the Company in (i) this Agreement, (ii) the Schedules attached hereto, or
(iii) any other written materials furnished or to be furnished by the Company to
the Buyer or its representatives, attorneys and accountants pursuant to this
Agreement, contains or will contain any untrue statement of a material fact, or
omits or will omit to state a material fact required to be stated herein or
therein or necessary to make the statements contained herein or therein, in
light of the circumstances under which they were made, not misleading.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Company as of the date hereof
and the date of the Closing as follows:
Section 3.01 Organization. The Buyer is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of Delaware. The Buyer has all requisite power and authority to own, lease
and operate its properties and to carry on its business as being conducted.
Section 3.02 Authority. The Buyer has the requisite power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement,
and the consummation of the transactions contemplated hereby, has been duly
authorized by all necessary action on the part of the Buyer,
24
<PAGE>
and no other proceedings on the part of the Buyer are necessary to authorize
this Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Buyer and, assuming this
Agreement constitutes a valid and binding obligation of the Company, constitutes
a valid and binding obligation of the Buyer, enforceable against the Buyer in
accordance with its terms.
Section 3.03 Consents and Approvals; No Violations. Neither the
execution, delivery or performance of this Agreement by the Buyer nor the
consummation by the Buyer of the transactions contemplated hereby nor compliance
by the Buyer with any of the provisions hereof will require any filing with, or
permit, authorization, consent or approval of, any Governmental Entity (except
where the failure to obtain such permits, authorizations, consents or approvals
or to make such filings would not have a material adverse effect on the Buyer).
Section 3.04 Own Account. The Buyer is acquiring the Securities, the
Warrant and the Stock for its own account, for investment and not with a view to
the distribution thereof within the meaning of the Securities Act; provided,
that under the terms of organization of the Buyer, under certain circumstances,
the Securities, the Warrant and the Stock will be distributed to the members of
the Buyer.
Section 3.05 Limited Transferability. The Buyer understands that (i)
the Securities, the Warrant and the Stock have not been registered under the
Securities Act, by reason of their issuance by the Company in transactions
exempt from the registration requirements of the Securities Act and (ii) the
Securities, the Warrant and the Stock must be held by the Buyer indefinitely
unless a subsequent disposition thereof is registered under the Securities Act
or is exempt from such registration requirement; provided, that under the terms
of organization of the Buyer, under certain circumstances, the Securities, the
Warrant and the Stock will be distributed to the members of the Buyer.
Section 3.06 Accredited Investor. The Buyer, and each of the members of
the Buyer, is an "accredited investor" as defined in Rule 501(a) promulgated
under the Securities Act. Buyer has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of
the acquisition of the Securities, the Warrant and the Stock, and, having had
access to, or having been furnished with, all such information as it has
considered necessary, has concluded that it is able to bear those risks.
Section 3.07 Furnishing the Company with Information. The Buyer, on its
own behalf and on behalf of its members, will furnish to the Company such
information as is required in accordance with the Securities Act for inclusion
in a registration statement to be filed by the Company in connection with the
Rights Offering and such information as is required in accordance with the
Exchange Act, and the proxy rules promulgated thereunder for inclusion in an
information statement to be distributed to stockholders regarding the amendments
to the Certificate of Incorporation contemplated hereby and the other
transactions contemplated hereby (the "Information Statement").
25
<PAGE>
ARTICLE IV.
CONDITIONS TO EACH PARTY'S OBLIGATIONS
The respective obligations of each party hereunder are subject to the
satisfaction, at or before the Closing, of the conditions set out below.
Section 4.01 Governmental Authorizations; Consents. The Company and the
Buyer shall have obtained all Consents necessary for the consummation of the
transactions contemplated hereby or that thereafter may be necessary to
effectuate the transactions contemplated hereby.
Section 4.02 Absence of Litigation. There shall not have been issued
and be in effect any order of any court or tribunal of competent jurisdiction
which (i) prohibits or makes illegal the purchase by the Buyer of the
Securities, the Warrant or the Stock, (ii) would require the divestiture by the
Buyer of all or a material portion of the Securities, the Warrant or the Stock
or the assets of the Buyer as a result of the transactions contemplated hereby,
or (iii) would impose limitations on the ability of the Buyer to effectively
exercise full rights of ownership of the Securities, the Warrant or the Stock as
a result of the transactions contemplated hereby.
Section 4.03 No Injunction. On the Closing Date there shall be no
effective injunction, writ, preliminary restraining order or any order of any
nature issued by a court of competent jurisdiction directing that the
transactions provided for herein or any of them not be consummated as so
provided or imposing any conditions on the consummation of the transactions
contemplated hereby.
Section 4.04 Opinion of Investment Banker. The Company shall have
received the opinion of Wasserstein, Perella & Co. that the Purchase Price is
fair to the Company from a financial point of view.
ARTICLE V.
CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATIONS
The obligation of the Buyer to purchase the Securities is subject to
the satisfaction, at or before the Closing, of the conditions set out below. The
benefits of these conditions are for the Buyer only and may be waived in writing
by the Buyer at any time in its sole discretion.
Section 5.01 Accuracy of Representations and Warranties. The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of Closing Date as though made
at that time, and the Buyer shall have received a
26
<PAGE>
certificate attesting thereto from the Company signed by a duly authorized
officer of the Company.
Section 5.02 Performance by the Company. The Company shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement, including, without
limitation, the deliveries required under this Article V and the Buyer shall
have received a certificate attesting thereto from the Company signed by a duly
authorized officer of the Company.
Section 5.03 Opinion of Counsel. The Buyer shall have received from
counsel to the Company an opinion of counsel, dated as of the Closing Date and
addressed to the Buyer in the form annexed hereto as Exhibit E.
Section 5.04 Casualty Losses; Material Change. Since December 28, 1996,
neither the Company nor any Subsidiary shall have suffered (i) any material
casualty loss, (ii) any material business interruption, (iii) any material labor
difficulty or customer boycott or (iv) any material adverse change in its
business, operations, prospects or financial condition.
Section 5.05 Customer Consents. The consent of each customer of the
Company or licensor/licensee of the Company listed on Schedule 5.05 shall have
been obtained to the issuance and transfer of the ownership of the Securities,
the Warrant and the Stock.
Section 5.06 Securities. The Securities shall be free and clear of
liens, charges or encumbrances.
Section 5.07 Deliveries. At the Closing, the Company shall deliver to
the Buyer: (i) duly executed certificates representing all of the Investor
Preferred Stock being purchased hereby; (ii) duly executed Notes representing
all of the Notes being purchased hereby; (iii) such other bills of sale,
instruments of assignment and other documents as may be reasonably requested by
the Buyer in order to effect or evidence the transactions contemplated
hereunder; (iv) an opinion of counsel to the Company in the form attached hereto
as Exhibit E; (v) a certificate of the chief executive officer of the Company
certifying to the fulfillment of the conditions set forth in Sections 5.01 and
5.02; (vi) a copy of the resolutions of the Company's Board of Directors and of
its stockholders, certified by its secretary, authorizing the execution,
delivery and performance of this Agreement and the Related Agreements; (vii)
good standing certificates for the Company and its Subsidiaries relating to
their respective jurisdictions of incorporation and the jurisdictions listed on
Schedule 2.01, a certified Certificate of Incorporation of the Company and the
By-laws of the Company reflecting the amendments referred to in Section 5.08;
(viii) copies of the consents referred to in Section 5.05, if any; and (ix) such
other instruments and certificates as may be reasonably requested by the Buyer.
Section 5.08 By-law Amendments. The Company shall have amended its
By-laws to fix the number of the members of the Board of Directors at nine.
27
<PAGE>
Section 5.09 Lease. The Company shall have entered into a modification
of the lease relating to the Company's Showroom at 111 West 40th Street, New
York, New York, in form and substance satisfactory to the Buyer.
Section 5.10 Employment Agreements.
(a) The Company shall have entered into an agreement with
Edwin Dean, providing for his agreement to remain reasonably accessible to the
Company and assist in a smooth transition, in form and substance satisfactory to
the Buyer.
(b) The Company shall have entered into a modification of the
Company's employment agreement with Mary Ann Domuracki, providing for (i) the
deferral by Ms. Domuracki of certain rights under the change-of-control
provisions of such agreement and (ii) the continued employment of Ms. Domuracki
by the Company, in form and substance satisfactory to the Buyer.
(c) The Company shall have entered into a modification of the
Company's employment agreement with Beverly Eichel, providing for (i) the
deferral by Ms. Eichel of certain rights under the change-of-control provisions
of such agreement and (ii) the continued employment of Ms. Eichel by the
Company, in form and substance satisfactory to the Buyer.
(d) The Company shall have entered into an agreement with
Donald Schupak, providing for (i) the continued employment of Mr. Schupak by the
Company, (ii) the termination of that certain Heads of Agreement dated March 27,
1997 between the Company and Mr. Schupak and (iii) the issuance on the Closing
Date, to Mr. Schupak of a warrant to purchase 5,372,315 shares of Common Stock
at $.30 per share.
(e) The Company shall have entered into option agreements with
each of Mary Ann Domuracki, Beverly Eichel and Nina McLemore in form and
substance satisfactory to the Buyer.
Section 5.11 License Modifications.
(a) The Company shall have entered into a modification of the
Company's license agreement with Givenchy Corporation ("Givenchy"), providing
for (i) the waiver by Givenchy of its rights under the change-of-control
provisions of such agreement and (ii) the continuation of such license agreement
on the terms contained therein, in form and substance satisfactory to the Buyer.
(b) The Company shall have entered into a modification of the
Company's license agreement with Anne Klein & Company ("AKC"), providing for (i)
the waiver by AKC of its rights under the change-of-control provisions of such
agreement and (ii) the continuation of such license agreement on the terms
contained therein, in form and substance satisfactory to the Buyer.
28
<PAGE>
Section 5.12 Modification of Preferred Stock. The Company shall have
authorized an agreement with the holder of the Company's 10% Cumulative
Convertible Preferred Stock ("Preferred Stock"), providing for the modification
and/or exchange or conversion of the Preferred Stock, in form and substance
satisfactory to the Buyer.
Section 5.13 SunAmerica Waiver. The Company shall have entered into an
agreement with SunAmerica Life Insurance Company ("SunAmerica"), providing for
the termination by SunAmerica of its right to designate members of the Board of
Directors of the Company, in form and substance satisfactory to the Buyer.
Section 5.14 Net Operating Losses. The Buyer shall be reasonably
satisfied that, for federal income tax purposes, the net operating losses of the
Company (which at June 29, 1997 were approximately $11.6 million) shall be
available to shelter cancellation of indebtedness income, if any, arising from
the discharge of the term loan portion of the Loan Agreement.
Section 5.15 Board of Directors. Subject to the succeeding sentence,
the Buyer shall have received, and the Company shall have accepted, resignations
of such members of the Board of Directors of the Company as the Buyer shall have
designated. The Company shall have taken all actions necessary to cause the
Board of Directors of the Company to be comprised of nine persons as follows:
four designees of the Buyer; three designees of the Board of Directors of the
Company as comprised prior to the date of the Closing; Donald Schupak and Mary
Ann Domuracki. The Company's Board of Directors shall recommend or approve all
such designees to the Board prior to their appointment as directors. The Company
shall have taken all actions necessary to cause the Board of Directors of the
Company to establish the Credit Facility Committee (as defined in Section 9.17).
Section 5.16 FIRPTA Affidavit. The Company shall have delivered an
affidavit, dated the Closing Date, pursuant to Section 1445 of the Code (Foreign
Investment in Real Property Tax Act of 1990 Affidavit).
Section 5.17 Rights Plan. The Company shall have taken all action
required under the Rights Plan to redeem the rights granted thereunder and shall
have delivered to the Buyer evidence satisfactory to the Buyer of such action.
Section 5.18 Registration Rights Agreement. At the Closing, the Company
shall deliver to the Buyer the duly executed Registration Rights Agreement in
the form attached hereto as Exhibit F.
Section 5.19 Patent Collateral and Security Agreement. At the Closing,
the Company shall deliver to the Buyer the duly executed Patent Collateral
Assignment and Security Agreement in the form attached hereto as Exhibit G.
29
<PAGE>
Section 5.20 Trademark Security Agreement. At the Closing, the Company
shall deliver to the Buyer the duly executed Trademark Security Agreement in the
form attached hereto as Exhibit H.
Section 5.21 License Security Agreement. At the Closing, the Company
shall deliver to the Buyer the duly executed License Agreement in the form
attached hereto as Exhibit I.
Section 5.22 Loan and Security Agreement. At the Closing, the Company
shall deliver to the Buyer the duly executed Loan and Security Agreement in the
form attached hereto as Exhibit J.
Section 5.23 Guaranty. At the Closing, the Company shall deliver to the
Buyer the duly executed Guaranty of Danpen, Inc. in the form attached hereto as
Exhibit L.
ARTICLE VI.
CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS.
The obligation of the Company to sell the Securities is subject to the
satisfaction, at or before the Closing, of the conditions set out below. The
benefits of these conditions are for the Company only and may be waived by the
Company in writing at any time in its sole discretion.
Section 6.01 Accuracy of Representations and Warranties. The
representations and warranties of the Buyer shall be true and correct in all
material respects as of the date when made and as of the Closing Date, as though
made at that time.
Section 6.02 Performance by the Buyer. The Buyer shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement, including, without limitation, the
deliveries required by Section 6.03 and the Company shall have received a
certificate attesting thereto from a duly authorized officer of the Buyer.
Section 6.03 Deliveries. At the Closing, the Buyer shall deliver to the
Company: (i) documents evidencing the Loan Amount in transferable form
satisfactory to the Company for cancellation in part and contribution to the
Company's equity in part; (ii) the Cash Purchase Price; (iii) a certificate of
the Buyer certifying as to the fulfillment of the conditions set forth in
Section 6.01 and 6.02; (iv) evidence of the consent of the Bank to the
consummation of the transactions contemplated hereby; (v) a good standing
certificate for the Buyer issued by the Secretary of State of Delaware; and (vi)
such other instruments and certificates as may be reasonably requested by the
Company.
30
<PAGE>
ARTICLE VII.
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS.
Except as otherwise specifically provided for herein, the
representations, warranties, covenants and agreements of the Buyer and the
Company included or provided for herein, or in other instruments or agreements
delivered or to be delivered at or prior to Closing in connection herewith,
including the representations and warranties of all entities or persons made in
the certificates to be delivered to the Buyers pursuant hereto (each, an
"Ancillary Document"), and the obligation of the Buyer and the Company to
indemnify on account of a breach or violation thereof shall survive for a period
of eighteen (18) months following the Closing Date (or such longer period as set
forth in the succeeding sentences). There shall be no limit on the survival of
the indemnification obligations of the Company for breaches of the
representations or warranties made by the Company as to the transfer of legal
and valid title to the Securities, the Warrant and the Stock and as to
Environmental Matters. The indemnification obligations of the Company for
breaches of the representations or warranties made by the Company with respect
to Taxes or Tax matters shall survive until the expiration of the applicable
statute of limitations. Notwithstanding anything herein to the contrary, if,
prior to the expiration of any indemnification period, either the Buyer or the
Company shall have been notified of a claim for indemnity hereunder and such
claim shall not have been finally resolved before the expiration of such period,
any representation, warranty, covenant or agreement that is the basis for such
claim shall continue to survive and shall remain a basis for indemnity as to
such claim until such claim is finally resolved. All statements contained herein
and in the Schedules, the Financial Statements and the certificates delivered
pursuant to this Agreement shall be deemed representations and warranties for
all purposes of this Agreement. The respective representations and warranties of
the Company and the Buyer contained herein or in any other documents covered in
the preceding sentence shall not be deemed waived or otherwise affected by any
investigation made by any party hereto or any amendment or supplement to the
schedules or exhibits hereto occurring after the signing of this Agreement.
ARTICLE VIII.
INDEMNIFICATION.
Section 8.01 General Indemnity.
Subject to the limitations and other provisions of Article VII and this
Article VIII, the Company agrees to indemnify and hold harmless the Buyer, its
Affiliates (as defined below), and the successors and assigns of each of them
from, against and in respect of any and all Losses (as defined below) resulting
from, incurred in connection with or arising out of (i) any breach of any
31
<PAGE>
representation, warranty, covenant or agreement of the Company or any breach of
the representations and warranties made in the certificates delivered to the
Buyer pursuant hereto and any actual or threatened action or proceeding in
connection with any such breach, (ii) any litigation to which the Buyer or any
of its Affiliates is or becomes subject relating to the conduct of the business
of the Company on or prior to the Closing Date, (iii) any liens, charges or
encumbrances on the Securities, the Warrant or the Stock or (iv) any untrue
statement or alleged untrue statement of any material fact contained in or
omission or alleged omission to state in the Information Statement or in any of
the Rights Offering Materials (as defined in Section 9.14) a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances in which they were made except insofar
as the untrue statement, alleged untrue statement, omission or alleged omission
is based upon information furnished in writing to the Company by the Buyer
expressly for use in the Information Statement or in the Rights Offering
Materials, as the case may be. The Buyer shall indemnify and hold harmless the
Company, its Affiliates and their successors and assigns from, against and in
respect of any and all Losses resulting from, incurred in connection with or
arising out of (i) any breach of any representation, warranty, covenant or
agreement of the Buyer and any actual or threatened action or proceeding in
connection therewith and (ii) any untrue statement or alleged untrue statement
of any material fact contained in or omission or alleged omission to state in
any of the Rights Offering Materials a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances in which they were made if and only to the extent that such
untrue statement, alleged untrue statement, omission or alleged omission is
based upon information furnished to the Company in writing by the Buyer
expressly for use in the Rights Offering Materials. The party or parties being
indemnified are referred to herein as the "Indemnitee" and the indemnifying
party is referred to herein as the "Indemnitor". The term "Affiliate" or
"Affiliated" or any similar term shall mean a person that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, a specified person. The term "Loss" or "Losses" or
any similar term shall mean any and all liabilities (whether accrued, contingent
or otherwise), damages, deficiencies, costs, claims, judgments, amounts paid in
settlement, interest, penalties, assessments and out-of-pocket expenses
(including reasonable attorneys' and auditors' fees and disbursements).
Section 8.02 Indemnification Procedure.
(a) Any party who receives notice of a potential claim that
may, in the judgment of such party, result in a Loss shall use all reasonable
efforts to provide the parties hereto notice thereof, provided that failure or
delay or alleged delay in providing such notice shall not adversely affect such
party's right to indemnification hereunder. In the event that any party shall
incur or suffer any Losses in respect of which indemnification may be sought by
such party hereunder, the Indemnitee shall assert a claim for indemnification by
written notice (a "Notice") to the Indemnitor stating the nature and basis of
such claim. In the case of Losses arising by reason of any third party claim,
the Notice shall be given within 30 days of the filing or other written
assertion of any such claim against the Indemnitee, but the failure of the
32
<PAGE>
Indemnitee to give the Notice within such time period shall not relieve the
Indemnitor of any liability that the Indemnitor may have to the Indemnitee.
(b) In the case of third party claims for which
indemnification is sought, the Indemnitor shall have the option (i) to conduct
any proceedings or negotiations in connection therewith, (ii) to take all other
steps to settle or defend any such claim (provided that the Indemnitor shall not
settle any such claim without the consent of the Indemnitee which consent shall
not be unreasonably withheld) and (iii) to employ counsel to contest any such
claim or liability in the name of the Indemnitee or otherwise. In any event the
Indemnitee shall be entitled to participate at its own expense and by its own
counsel in any proceedings relating to any third party claim. The Indemnitor
shall, within 20 days of receipt of the Notice, notify the Indemnitee of its
intention to assume the defense of such claim. If (i) the Indemnitor shall
decline to assume the defense of any such claim, (ii) the Indemnitor shall fail
to notify the Indemnitee within 20 days after receipt of the Notice of the
Indemnitor's election to defend such claim or (iii) the Indemnitee shall have
reasonably concluded that there may be defenses available to it which are
different from or in addition to those available to the Indemnitor (in which
case the Indemnitor shall not have the right to direct the defense of such
action on behalf of the Indemnitee), the Indemnitee shall defend against such
claim and the Indemnitee may settle such claim without the consent of the
Indemnitor, and Indemnitor may not challenge the reasonableness of any such
settlement. The expenses of all proceedings, contests or lawsuits in respect of
such claims shall be borne and paid by the Indemnitor and the Indemnitor shall
pay the Indemnitee, in immediately available funds, the amount of any Losses, as
such Losses are incurred. Regardless of which party shall assume the defense of
the claim, the parties agree to cooperate fully with one another in connection
therewith. In the event that any Losses incurred by the Indemnitee do not
involve payment by the Indemnitee of a third party claim, then, the Indemnitor
shall within 10 days after agreement on the amount of Losses or the occurrence
of a final non-appealable determination of such amount, pay to the Indemnitee,
in immediately available funds, the amount of such Losses. Anything in this
Article VIII to the contrary notwithstanding, the Indemnitor shall not, without
the Indemnitee's prior written consent, settle or compromise any claim or
consent to entry of any judgment in respect thereof which imposes any future
obligation on the Indemnitee or which does not include, as an unconditional term
thereof, the giving by the claimant or plaintiff to the Indemnitee, a release
from all liability in respect of such claim.
(c) The remedies provided for in this Agreement shall not be
exclusive of any other rights or remedies available to one party against the
other, either at law or in equity.
(d) No claim may be made against the Company for
indemnification pursuant to this Article VIII with respect to any individual
item of liability or damage, unless the aggregate of all such liabilities and
damages of Buyer, its Affiliates, and their respective successors and assigns
under this Article VIII shall exceed $500,000, and the Company shall not be
required to pay or be liable for the first $500,000 in aggregate amount of any
such liabilities and damages. Neither Buyer, its Affiliates nor any of their
respective successors or assigns shall be indemnified pursuant to this Article
VIII with respect to any individual item of liability or
33
<PAGE>
damage if the aggregate of all liabilities and damages of Buyer, its Affiliates
and their respective successors and assigns for which they have received
indemnification hereunder shall have exceeded $3,000,000. For the purposes of
this Article VIII, in computing such individual or aggregate amounts of claims,
the amount of each claim shall be deemed to be an amount (i) net or any Tax
benefit to the Buyer, (ii) net of any insurance proceeds and any indemnity,
contribution or other similar payment payable by any third party with respect
thereto, and (iii) net of any reserves provided for in the Financial Statements.
ARTICLE IX.
COVENANTS/OBLIGATIONS AFTER THE CLOSING.
Section 9.01 Further Assurances. Subject to the terms and conditions
hereof, the Company agrees that after the Closing Date it will execute and
deliver such documents to the Buyer as the Buyer may reasonably request in order
to more effectively vest in the Buyer good title to the Securities and to
consummate the transactions contemplated hereby and the Buyer agrees that after
the Closing Date it will execute and deliver such documents to the Company as
the Company may reasonably request to evidence consummation of the transactions
Contemplated hereunder.
Section 9.02 Maintenance of Office. The Company shall maintain at its
principal place of business, an office where the Notes, the Warrant and the
Stock may be surrendered for transfer and where notices and demands to or upon
the Company in respect of the Notes, the Warrant and the Stock may be served.
Section 9.03 Corporate Existence; Status. The Company shall do or cause
to be done, and shall cause each of its subsidiaries to do or cause to be done,
all things necessary to preserve and keep in full force and effect its and their
corporate existence in accordance with the rights, licenses and franchises of
the Company and its subsidiaries.
Section 9.04 Dividends. The Company shall not make, pay or declare,
directly or indirectly, any dividends or other distributions with respect to its
capital stock (other than dividends in the form of additional capital stock of
the Company) or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the purchase, redemption, retirement or
other acquisition of, any of its capital stock prior to the payment in full of
the obligations with respect to the Notes, the Investor Preferred Stock and the
Convertible Preferred Stock, except to the extent expressly permitted by the
terms of the Notes, the Investor Preferred Stock or the Convertible Preferred
Stock.
Section 9.05 Application of Proceeds. The Company shall apply the
proceeds under Article I hereof from the sale of the Securities for working
capital and general corporate purposes; provided, however, the Company may apply
$200,000 of the proceeds to pay the fee of
34
<PAGE>
Wasserstein, Perella & Co. for the fairness opinion contemplated by Section 4.04
hereof, $150,000 of the proceeds to pay an amendment fee to the Bank and may
apply proceeds to pay other fees due to the Bank on the date hereof and the fees
and expenses of the Buyer pursuant to Section 10.01.
Section 9.06 Observance of Statutes, Regulations and Orders. The
Company shall, and shall cause each of its subsidiaries to remain at all times
in compliance with all laws, statutes or other rules or regulations of any
Governmental Entity or other regulatory authority.
Section 9.07 Taxes. The Company shall pay, and shall cause each of its
subsidiaries to pay, prior to delinquency, all such Taxes, assessments and
governmental levies as are imposed upon the Company or its subsidiaries, except
as contested in good faith and by appropriate proceedings and for which reserves
or other appropriate provisions, if any, as shall be required by GAAP, shall
have been made.
Section 9.08 Maintenance of Properties. The Company shall, and shall
cause each of its subsidiaries to, maintain, preserve, protect and keep the
properties material to the operation of its business, and its subsidiaries, in
good repair, working order and condition (ordinary wear and tear excepted), and
make all necessary and proper repairs, renewals and replacements so that its
business carried on in connection therewith may be properly conducted at all
times consistent with past practices of the Company.
Section 9.09 Books and Records. The Company shall, and shall cause each
of its subsidiaries to keep books and records which accurately reflect all of
its material business affairs and transactions.
Section 9.10 Maintenance of Insurance; Indemnification. The Company
shall maintain insurance with responsible and reputable insurance companies or
associations in such amounts and covering such risks as is usually carried by
companies engaged in a similar business and owning similar properties in the
same general areas in which the Company operates. In addition, the Company shall
enter into and maintain indemnification agreements with the members of the
Company's Board of Directors, such agreements to indemnify such persons to the
maximum extent provided by law.
Section 9.11 Inspection. As often as may reasonably be requested, the
Company will permit any authorized representative designated by Buyer to visit
and inspect any of their respective properties, including its financial and
accounting records, and to make copies and extracts therefrom, and to discuss
the Company's affairs and finances with its officers and independent
accountants, all upon reasonable prior notice and at reasonable times during
normal business hours.
Section 9.12 Furnish Reports. For so long as the Buyer owns any Notes
or Stock, the Company shall maintain a system of accounting established and
administered in accordance with
35
<PAGE>
U.S. generally accepted accounting principles consistently applied, and shall
furnish to Buyer (i) within ninety (90) days of its fiscal year end a copy of
its audited financial statements, (ii) within forty-five (45) days of the end of
each quarter a copy of its unaudited quarterly financial statements and (iii)
within ten (10) days of the end of each month a copy of its unaudited monthly
financial statements.
Section 9.13 Furnish Additional Information. The Company will furnish
the following additional information to the Buyer:
(a) Promptly (but in any event within five days) after receipt
thereof, any letters furnished to the Company by its independent public
accountants which comment on the accounting practices of the Company;
(b) Promptly (but in any event within five days) after the
discovery of any material adverse event or circumstance affecting the Company,
including but not limited to the filing of any material litigation against the
Company or any subsidiary or the discovery that the Company is not, or with the
passage of time will not be, in compliance with any provision of its certificate
of incorporation or By-laws or with any provision of this Agreement or any other
material agreement, a letter from the president or chief financial officer of
the Company speci fying the nature and period of existence thereof and the
actions the Company has taken or proposes to take with respect thereto;
(c) Promptly (but in any event within five days) after
transmission thereof, copies of any communication from the Company to its
stockholders or the financial community at large, and any reports filed by the
Company with any securities exchange, the National Association of Securities
Dealers, Inc., the Commission, any state official or agency charged with
securities regulation, any other governmental agency, domestic or foreign, and
any material correspondence between the Company and any of the foregoing
(including, without limitation, any correspondence from any of the foregoing);
and
(d) With reasonable promptness, such other information and
data with respect to the Company and its subsidiaries as the Buyer may from time
to time reasonably request.
Section 9.14 Rights Offering.
(a) Promptly after the conversion or exchange of the
Securities into Convertible Preferred Stock, Common Stock and the Warrant in
accordance with the terms of the Securities, the Company shall offer each of the
holders of Common Stock and preferred stock of the Company (including the Buyer)
the transferable right (the "Rights") to subscribe for Common Stock with respect
to each share of Common Stock owned by such stockholders at a subscription price
per share of Common Stock equal to $.30 (the "Rights Offering"). Subscriptions
for fractional shares will not be accepted, but will be rounded down to the
nearest whole number.
36
<PAGE>
(b) Pursuant to the Rights Offering, each stockholder of the
Company will receive one Right for each share of Common Stock held by such
stockholder (on a fully diluted basis). The Buyer will commit to subscribe for
its pro rata portion of shares of Common Stock offered pursuant to the Rights
issued to it based on the number of shares of Common Stock owned by the Buyer at
the time of the Rights Offering (on a fully diluted basis). If the stockholders
of the Company (including the Buyer) subscribe for less than 10,000,000 shares
of Common Stock (representing an aggregate subscription price of $3.0 million)
(such number of shares less than 10,000,000 being referred to herein as the
"Share Deficiency"), then the Buyer (or its designee) will subscribe for that
number of additional shares of Common Stock as is equal to the Share Deficiency.
It is acknowledged that the purchase price for any Common Stock subscribed for
by the Buyer shall have been satisfied by conversion or exchange of the
Securities into Convertible Preferred Stock, Common Stock and the Warrant and no
further amount shall be due or owing from the Buyer on account of any such
Common Stock subscribed for by the Buyer. The proceeds of any Common Stock
subscribed for in the Rights Offering by stockholders of the Company other than
the Buyer shall be promptly paid to the Buyer in reduction of any outstanding
Notes. The Company will use all reasonable efforts to file a registration
statement with respect to the Rights Offering with the Commission within five
days of the Closing Date, and to have such registration statement declared
effective by the Commission within 40 days of the Closing Date, and to
consummate such Rights Offering promptly thereafter. The Registration Statement,
the prospectus included therein, and the other materials used in connection with
the Rights Offering are referred to herein as the "Rights Offering Materials."
(c) In connection with the Rights Offering, the Company will
(i) prepare and file and use its reasonable efforts to have declared effective a
registration statement under the Securities Act related thereto (the
"Registration Statement"); (ii) prepare and file with the Commission such
amendments and supplements to such Registration Statement and the prospectus
used in connection therewith as may be necessary to keep such Registration
Statement effective for the period of the offering and to comply with the
provisions of the Securities Act (such amendments and supplements, together with
the Registration Statement and prospectus, being referred to herein as the
"Rights Offering Materials"); (iii) use all reasonable efforts to register or
qualify all Rights, to the extent necessary, and the shares of Common Stock
issuable upon the exercise of the Rights and to the Buyer as a result of a Share
Deficiency under any applicable securities or blue sky laws; and (iv) to do any
and all other things reasonably necessary or advisable to consummate the
distribution of the Rights and the consummation of the Rights Offering in
compliance with the Securities Act and all applicable state securities and blue
sky laws; provided, however, that the Company shall not be required to (x)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for the Rights Offering, (y) subject itself
to taxation in any such jurisdiction or (z) consent to general service of
process in any such jurisdiction.
(d) When the Rights Offering Materials shall first be mailed
or distributed to stockholders (the "Mailing Date"), the information with
respect to the Company and the
37
<PAGE>
Subsidiaries set forth in the Rights Offering Materials or incorporated therein
by reference (i) will comply in all material respects with the provisions of the
federal securities laws; (ii) will comply in all material respects with all
applicable provisions of Delaware law; and (iii) will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading, and the consolidated financial statements contained therein will
fairly present the consolidated financial condition of the Company and its
consolidated subsidiaries (including the Subsidiaries). At all times subsequent
to the Mailing Date up to and including the closing of the Rights Offering, the
information with respect to the Company and the Subsidiaries set forth in the
Rights Offering Materials (x) will comply in all material respects with the
provisions of the federal securities laws and (y) will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading, and the consolidated financial statements contained therein will
fairly present the consolidated financial condition of the Company and its
consolidated subsidiaries (including the Subsidiaries).
Section 9.15 Transfer of Securities. The Buyer, subject to applicable
federal and state securities laws, may transfer all or any portion of the Notes,
the Warrant or the Stock.
Section 9.16 Corporate Governance.
(a) At the Closing, and for so long as any Investor Preferred
Stock is outstanding, the Buyer shall have the right to designate that number of
the Company's nominees for election to the Board which shall be equal to one
director less than a majority of the total number of directors constituting the
whole Board of Directors; provided, that such nominees are "Suitable Directors."
At the Closing of the conversion or exchange of the Securities pursuant to
Section 9.18 and for so long as the outstanding shares of Convertible Preferred
Stock which have not been converted, redeemed or exchanged in accordance with
their terms shall constitute fifty percent (50%) or more of the shares of
Convertible Preferred Stock originally issued (beginning with the period
commencing at the Closing Date, the "Covered Period"), the Buyer shall have the
right to designate a majority of the Company's nominees for election to the
Board; provided, that such nominees are "Suitable Directors". The nominees
designated by the Buyer are herein referred to as the "Buyer Nominees." The
Company's Board of Directors shall recommend or approve all such Buyer Nominees
prior to their appointment as directors. In furtherance of the foregoing, the
Company, acting through its Board and in accordance with its Certificate of
Incorporation, By-laws and applicable law, shall recommend in the proxy
statement for each annual or special meeting of stockholders at which directors
shall be elected, and shall recommend at each such stockholders meeting, as part
of the management or Board slate for election to the Board, the Buyer Nominees.
All shares for which the Company's management or Board holds proxies (including
undesignated proxies) shall be voted in favor of the election of such Buyer
Nominees, except as may otherwise be provided by stockholders submitting such
proxies. In the event that any Buyer Nominee shall cease to serve as a director
for any reason, the Company shall cause (subject to the provisions of applicable
law) the vacancy resulting
38
<PAGE>
thereby to be filled as promptly as practicable by a Suitable Director selected
by the Buyer. The Buyer shall cause the Buyer Nominees to provide the Company
with such information as the Company may reasonably request for inclusion in the
Company's proxy statement for each meeting at which their election is to be
acted upon. "Suitable Directors" shall mean (x) persons of appropriate
experience who possess the same level of general business experience as the
present non-employee members of the Board, and (y) persons with respect to whom
no disclosure would be required in compliance with the requirements of Item
401(f) of Regulation S-K promulgated under the Securities Act. The parties
hereto agree that the determination of "appropriate experience," as such term is
used in the preceding sentence, shall be made in good faith and subject to their
fiduciary obligations by a majority of the Company's independent directors. If a
nominee designated by the Buyer is determined not to be a Suitable Director, the
directors who made such determination shall set forth, in reasonable detail,
their reasons for such determination in a written statement to be delivered to
the Buyer promptly after such determination.
The Buyer and the Company will each use its best efforts to
effectuate the provisions of this Section 9.16.
(b) All deliberations and approvals regarding the refinancing or
replacement of the revolving credit portion of the Company's Loan Agreement
shall be made by the Credit Facility Committee (as defined below). For purposes
of this Section 9.16, the term "Credit Facility Committee" shall mean a
committee of the Board of Directors of the Company comprised of Mary Ann
Domuracki and two Buyer Nominees selected for such committee by the Buyer. The
Buyer may, in its sole discretion, waive the formation of the Credit Facility
Committee and the requirements of this Section 9.16(c).
Section 9.17 Options. From and after the Closing, so long as any Notes
or shares of Stock are held by the Buyer, no options to purchase Common Stock
shall be repriced or new options to purchase Common Stock issued without the
approval of the Buyer Nominees.
Section 9.18 Exchange of Securities. Upon the closing (the "Refinancing
Closing") of the repayment of all amounts due and owing to the Bank by the
Company under the revolving credit portion of the Company's Loan
Agreement,$14,396,488.20 aggregate principal amount of the Notes and the
Investor Preferred Stock shall be automatically converted into (i) shares of
fully paid and non-assessable Convertible Preferred Stock equal to $12,000,000
in stated value, (ii) the fully paid and non-assessable Warrant and (iii) to the
extent the authorized capital stock of the Company permits and the Registration
Statement shall have been declared effective by the Commission, 7,988,294 shares
of fully paid and non-assessable Common Stock in the Rights Offering, without
further notice and without action on the part of the Buyer (or such lesser
number of shares of Common Stock as are available for purchase by the Buyer
(provided, that no shares shall be deemed available for purchase if the
Registration Statement shall not have been declared effective by the
Commission)); provided, however, that if the Refinancing Closing shall not have
occurred on or prior to March 31, 1998, the Notes and the Investor Preferred
Stock shall
39
<PAGE>
no longer be convertible or exchangeable hereunder. The remaining $603,511.80
aggregate principal amount of the Notes (assuming authorized capital stock of
the Company is available to permit the purchase of the full 7,988,294 shares of
Common Stock and the Registration Statement shall have been declared effective
by the Commission) shall be used to purchase Common Stock in the Rights Offering
by paying the exercise price of Rights not exercised by stockholders of the
Company other than the Buyer pursuant to the Rights Offering. The Company shall
promptly remit to the Buyer all monies representing the exercise of the Rights
by stockholders of the Company other than the Buyer pursuant to the Rights
Offering and the remaining principal amount of the Notes shall be repaid dollar
for dollar as the Buyer receives such monies from the Company. If the
Refinancing Closing occurs prior to the time that the Company has 7,988,294
shares of Common Stock available for purchase by the Buyer and prior to the time
the Registration Statement shall have been declared effective by the Commission,
the Notes shall remain outstanding in a principal amount equal to $3,000,000.
Any remaining balance of the Notes will be converted into Common Stock, upon the
Company authorizing a sufficient amount of capital stock and the Registration
Statement having been declared effective by the Commission, in an amount equal
to the quotient obtained by dividing (aa) the balance of such Notes less the
aggregate dollar amount to be paid by other stockholders in the exercise of
their rights to purchase Common Stock in the Rights Offering by (bb) .30. The
Company shall pay all issue taxes, if any, incurred in respect of the issue of
the securities delivered on conversion or exchange of the Securities pursuant to
this Section 9.18.
Section 9.19 Information Statement; Certificate of Incorporation. (a)
The Company, in compliance with applicable law, shall prepare and file with the
Securities and Exchange Commission (the "Commission") no later than September
26, 1997, the Information Statement subject to prior consultation with the
Buyer. The Company shall respond promptly to any comments made by the Commission
with respect to the Information Statement and shall provide the Buyer with
copies of all its correspondence with the Commission relating thereto, and the
Company shall not file an amendment or any other document with the Commission
unless the Buyer shall first have had adequate opportunity to review and comment
on such document. The Company will amend, supplement or revise the Information
Statement as may from time to time be necessary in order to insure that the
Information Statement does not contain any statement which, at the time and in
the light of the circumstances under which it is made, is false or misleading
with respect to any material fact, or omits to state any material fact necessary
in order to make the statements therein not false or misleading. The Company
shall cause the Information Statement to be mailed to the Company's stockholders
at the earliest practicable date.
(b) The Company shall, as soon as practicable, amend its
Certificate of Incorporation to (x) eliminate the provisions for a classified
Board of Directors and (y) increase its authorized capital stock. The amendment
shall be duly authorized by the Company and its stockholders and shall be duly
filed with the Secretary of State of Delaware.
40
<PAGE>
Section 9.20 Confidentiality. Except to the extent necessary to
develop, preserve and maintain the Company's business relationships and to
perform the terms of this Agreement, no party (or its representatives, agents,
counsel or accountants) hereto shall disclose to any third party any
confidential or proprietary information about the business or operations of the
other party hereto or their subsidiaries or the transactions contemplated
hereby, except as may be required by applicable law. The parties hereto agree
that the remedy at law for any breach of the requirements of this Section 9.20
will be inadequate and that any breach would cause such immediate and permanent
damage as would be impossible to ascertain, and, therefore, the parties hereto
agree and consent that in the event of any breach of this Section 9.20, in
addition to any and all other legal and equitable remedies available for such
breach, including a recovery of damages, the non-breaching party shall be
entitled to obtain preliminary or permanent injunctive relief without the
necessity of proving actual damage by reason of such breach and, to the extent
permissible under applicable law, a temporary restraining order may be granted
immediately on commencement of such action. The Buyer shall have the right to
review and provide input on press releases of the Company relating to this
Agreement and the transaction contemplated hereby. Notwithstanding the
foregoing, the Buyer shall be entitled to (a) discuss this Agreement and the
transactions contemplated hereby with stockholders of the Company and to solicit
their approval of such transactions and (b) discuss this Agreement, the
transactions contemplated hereby and the Company with the Buyer's members.
9.21 Modification of Preferred Stock. The Company shall promptly modify
and/or exchange or convert the Preferred Stock, on terms satisfactory to the
Buyer.
ARTICLE X.
MISCELLANEOUS.
Section 10.01 Costs. The Buyer on the one hand and the Company on the
other each represent to the other that it has not used a broker in connection
with the transactions contemplated by this Agreement. The Company shall pay the
costs and expenses incurred by the Company and all reasonable legal fees and
expenses incurred by the Buyer in negotiating and preparing this Agreement and
in closing and carrying out the transactions contemplated by this Agreement,
including, without limitation, the fees and expenses incurred by the Buyer with
respect to the Loan Amount and the fees and expenses of an advisor retained by
the Buyer to provide advice to the Buyer in respect of the potential tax
consequences to the Company of the contribution to the Company of the Loan
Amount. In addition, the Company shall pay the out of pocket costs of the Buyer
and Onyx Partners, Inc. ("Onyx") up to a maximum of $75,000 in the aggregate.
The Company shall reimburse the Buyer (or Onyx, as appropriate) by bank check or
wire transfer of immediately available funds for the expenses reflected in this
Section 10.01. Such amounts shall be paid promptly by the Company upon
presentation of documentation reasonably satisfactory to it evidencing such
expenditures. The Company acknowledges that the agreements contained in this
Section 10.01 are an integral part of the transactions contemplated
41
<PAGE>
by this Agreement, and that, without these agreements, the Buyer would not enter
into this Agreement; accordingly, if the Company fails to promptly pay the
expenses hereunder when due, the Company shall in addition thereto pay to the
Buyer all costs and expenses (including reasonable fees and disbursements of
counsel) incurred in collecting such expenses due under this Section 10.01
together with interest on the amount of the expenses due under this Section
10.01 (or any unpaid portion thereof) from the date such payment is received by
the Buyer at the rate of 15% per annum.
Section 10.02 Headings. Subject headings are included for convenience
only and shall not affect the interpretation of any provisions of this
Agreement.
Section 10.03 Notices. Any notice, demand, request, waiver, or other
communication under this Agreement shall be in writing and shall be deemed to
have been duly given on the date of service if personally served or sent by
telecopy, on the business day after notice is delivered to a courier or mailed
by express mail if sent by courier delivery service or express mail for next day
delivery and on the third day after mailing if mailed to the party to whom
notice is to be given, by first class mail, registered, return receipt
requested, postage prepaid and addressed as follows:
If to the Company to:
Chief Executive Officer
Danskin, Inc.
111 West 40th Street
New York, New York
Fax: (212) 768-1638
Phone: (212) 764-4630
with a copy to:
Samuel B. Fortenbaugh III, Esq.
Morgan, Lewis & Bockius
101 Park Avenue
New York, NY 10178
Fax: (212) 309-6273
Phone: (212) 309-6000
42
<PAGE>
If to the Buyer, to:
Andrew Astrachan
Danskin Investors, LLC
c/o Onyx Partners, Inc.
9595 Wilshire Blvd.
Suite 700
Beverly Hills, CA 90212
Fax: (310) 246-9937
Phone: (310) 724-5599
with a copy to:
Martin Nussbaum, Esq.
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
Fax: (212) 758-9526
Phone: (212) 758-9500
Section 10.04 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the successors and assigns of the parties.
Section 10.05 Governing Law; Forum; Process. This Agreement shall be
construed in accordance with, and governed by, the laws of the State of New York
as applied to contracts made and to be performed entirely in the State of New
York without regard to principles of conflicts of law. Each of the parties
hereto hereby irrevocably and unconditionally submits to the exclusive
jurisdiction of any court of the State of New York or any federal court sitting
in the State of New York for purposes of any suit, action or other proceeding
arising out of this Agreement (and agrees not to commence any action, suit or
proceedings relating hereto except in such courts). Each of the parties hereto
agrees that service of any process, summons, notice or document by U.S.
registered mail at its address set forth herein shall be effective service of
process for any action, suit or proceeding brought against it in any such court.
Each of the parties hereto hereby irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding arising out
of this Agreement, which is brought by or against it, in the courts of the State
of New York or any federal court sitting in the State of New York and hereby
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
Section 10.06 Entire Agreement. This Agreement, including the Related
Agreements, Schedules and Exhibits hereto, sets forth the entire understanding
and agreement and supersedes any and all other understandings, negotiations or
agreements between the Company and the
43
<PAGE>
Buyer relating to the sale and purchase of the Securities, including, but not
limited to, that certain letter of agreement, dated May 19, 1997, by and between
the Company and Onyx on behalf of the Buyer.
Section 10.07 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, and all of which
together shall constitute a single agreement.
Section 10.08 Severability. In the event that any one or more of the
immaterial provisions contained in this Agreement shall for any reason be held
to be invalid, illegal or unenforceable, the same shall not affect any other
provision of this Agreement, but this Agreement shall be construed in a manner
which, as nearly as possible, reflects the original intent of the parties.
Section 10.09 No Prejudice. The terms of this Agreement shall not be
construed in favor of or against any party on account of its participation in
the preparation hereof.
Section 10.10 Words in Singular and Plural Form. Words used in the
singular form in this Agreement shall be deemed to import the plural, and vice
versa, as the sense may require.
Section 10.11 Parties in Interest. Nothing expressed or implied in this
Agreement is intended or shall be construed to confer upon or give to any
person, firm or corporation other than the parties hereto any rights or remedies
under or by reason of this Agreement or any transaction contemplated hereby.
Section 10.12 Amendment and Modification. This Agreement may be amended
or modified only by written agreement executed by all parties hereto.
Section 10.13 Waiver. At any time prior to the Closing, the Buyer or
the Company may (i) extend the time for the performance of any of the
obligations or other acts of the other, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto, and (iii) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed by the party granting such waiver but such waiver or failure to
insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or future failure.
Section 10.14 Knowledge of the Company. References herein to the
Company's knowledge shall include the knowledge of Donald Schupak, Mary Ann
Domuracki, Beverly Eichel and Edwin Dean.
Section 10.15 Remedy for Breach. The Company hereby acknowledges that
in the event of any breach or threatened breach by the Company of any of the
provisions of this Agreement,
44
<PAGE>
the Buyer would have no adequate remedy at law and could suffer substantial and
irreparable damage. Accordingly, the Company hereby agrees that, in such event,
the Buyer shall be entitled, without the necessity of proving damages or posting
bond, and notwithstanding any election by the Buyer to claim damages, to obtain
a temporary and/or permanent injunction (without proving a breach therefor) to
restrain any such breach or threatened breach or to obtain specific performance
of any such provisions, all without prejudice to any and all other remedies
which the Buyer may have at law or in equity.
10.16 Assignment. The Buyer may assign a portion of its rights and
benefits hereunder to the Oppenheimer Bond Fund for Growth.
45
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
DANSKIN, INC.
a Delaware corporation
By:
-------------------------
Name:
Title:
DANSKIN INVESTORS, LLC
a Delaware limited liability company
By: Onyx Partners, Inc.
its manager
By:
-------------------------
Name:
Title:
46
<PAGE>
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
DANSKIN INVESTORS, LLC
a Delaware Limited Liability Company
dated as of September 17, 1997
<PAGE>
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
DANSKIN INVESTORS, LLC
a Delaware Limited Liability Company
This Amended and Restated Limited Liability Company Operating
Agreement (the "Agreement") of Danskin Investors, LLC (the "Company") dated as
of September 17, 1997 is adopted and agreed to by the parties identified in
Section 2.1(b) hereof and amends and restates the Limited Liability Company
Operating Agreement of the Company dated May 28, 1997.
ARTICLE I
PURPOSE AND POWERS
1.1 Purpose. The Company has been organized to invest in the equity,
debt, and/or rights to acquire such interests (collectively, the "Securities"),
in Danskin, Inc., a Delaware corporation ("Danskin"), as described in the letter
dated May 19, 1997, from Onyx Partners, Inc. to the Company, as modified by the
summary of terms dated August 27, 1997, and the outline of proposed treatment of
First Union National Bank of North Carolina's and First Union Commercial
Corporation's revolving loan and term loan, copies of which are attached hereto
(collectively, the "Investment Proposal Letter"), and to engage in any other
lawful business activity related or incident thereto.
1.2 Powers. The Company shall have the power and authority to enter
into, make and perform all contracts, agreements and undertakings, and to do any
and all acts and things necessary, appropriate, incidental or convenient to the
accomplishment of its purposes and for the protection and benefit of the
Company.
1
<PAGE>
ARTICLE II
MEMBERS AND INTERESTS
2.1 Members; Voting Rights.
(a) There shall be two classes of Members: the Class A Members
and the Class B Members. Except as provided by Sections 3.5(c), 3.5(d),
4.5(b)(i)(A) and 6.2 hereof, on any matter requiring a vote, consent or approval
of the Members, the Class A Members shall be the only persons to whom the matter
is required to be submitted, and each shall have one vote when voting only with
the Class A Members. Except as otherwise provided herein, or as required by
applicable law, the vote, consent or approval of a majority of the Class A
Members shall constitute the act of the Company. No Class B Member shall have a
voice or vote in any matter, except as specifically provided herein.
(b) The initial Members of the Company are Onyx Partners, Inc.
("Onyx"), which shall be a Class A Member, and each of the other persons who has
delivered a duly executed subscription agreement to Onyx (which agreement has
been accepted by Onyx) in substantially the form attached hereto as Exhibit A
(the "Subscription Agreement") together with a duly executed signature page to
this Agreement, who shall be Class B Members. Other persons may hereafter be
admitted as transferees of Members in accordance herewith. Each Member shall
execute a counterpart of this Agreement indicating his, her or its agreement to
the terms and provisions hereof.
(c) Schedule 1 attached hereto lists the name, address,
telephone number, telefax number and Capital Commitments of each Member. The
Company shall amend Schedule 1 to reflect the admission and withdrawal of
members.
2.2 Membership Interests. Each Member's ownership interest in the
Company is herein referred to generally as a "Membership Interest." The
respective rights of each Member to share in the capital of the Company, either
by way of distributions or on liquidation, will be determined by reference to
the Capital Account (as defined herein) of such Member; and each Member's
interest in the profits and losses of the Company shall be established as
provided herein. Each Member shall have the rights and powers set forth in this
Agreement.
2.3 Meetings.
(a) The Members shall have a regular annual meeting each year
beginning in 1998, on a date established by the Managers (as defined below) for
the purpose of electing Managers and conducting such other business as may
properly come before the meeting. Special meetings of the Members may be called
by the Managers.
2
<PAGE>
(b) Written notice stating the place, day and hour of each
meeting of Members and the general purpose or purposes for which the meeting is
called shall be given not less than seven (7) nor more than thirty (30) days
before the date of the meeting to each Member.
(c) A Member may waive any notice required by law or this
Agreement, before or after the date and time of the meeting that is the subject
of such notice. Except as provided in the next sentence, the waiver shall be in
writing, signed by the Member entitled to the notice and delivered to the
Managers for inclusion in the Company's minutes or records. A Member's
attendance at or participation in a meeting waives any required notice to such
Member of the meeting unless the Member, at the beginning of the meeting or
promptly upon such Member's arrival, objects to the transaction of any business
at such meeting on the ground that such meeting is not lawfully called or
convened. A Member may participate in a meeting in person or by proxy.
(d) Any vote, consent or approval of the Members may be
accomplished by written consent in lieu of a meeting signed by Members
constituting the required vote for the action so taken.
(e) Members may participate in a regular or special meeting
by, or conduct the meeting through, the use of any means of communication by
which all Members participating may simultaneously hear each other during the
meeting. Any Member who participates in a meeting in this manner is deemed to be
present in person at the meeting, except where a Member participates in the
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
ARTICLE III
MANAGEMENT OF THE COMPANY
3.1 Managers. Except as otherwise limited by this Agreement or
applicable law, all powers of the Company shall be exercised by or under the
authority of, and the business and affairs of the Company shall be managed under
the direction of, the Company's Managers (the "Managers").
3.2 Number, Term and Election. Unless otherwise agreed by a unanimous
vote of the Members, there shall be one Manager of the Company. The initial
Manager shall be Onyx. Each Manager shall hold office until his or her death,
resignation or retirement or until his successor is elected and assumes office.
A Manager need not be a Member of the Company.
3.3 Officers. The Managers may appoint such officers who shall have
such power and authority as may be specified in a resolution of the Managers.
Officers shall serve at the pleasure of the Managers.
3
<PAGE>
3.4 Meetings.
(a) An annual meeting of the Managers shall be held
immediately following each annual meeting of Members for the purpose of
appointing officers, if any, and carrying on such other business as may properly
come before the meeting.
(b) Special meetings of the Managers may be called by any
Manager.
(c) Notices of meetings of the Managers shall be given to each
Manager not less than twenty-four (24) hours before the meeting. Any such notice
shall set forth the time and place of the meeting.
(d) A Manager may waive any notice required by law or this
Agreement before or after the date and time stated in the notice and such waiver
shall be equivalent to the giving of such notice. The waiver shall be in
writing, signed by the Managers entitled to the notice and filed with the
Company's minutes or records; provided that a Manager's attendance at or
participation in a meeting waives any required notice to him, her or it of the
meeting.
(e) A quorum for the transaction of business at a meeting of
the Managers shall consist of all of the Managers.
(f) Any or all Managers may participate in a regular or
special meeting by, or conduct the meeting through, the use of any means of
communication by which all Managers participating may simultaneously hear each
other during the meeting. A Manager participating in a meeting in this manner is
deemed to be present in person at the meeting.
(g) Any action of the Company that may be authorized by the
Managers at a meeting may be authorized by written consent in lieu of meeting of
the Managers signed by Managers constituting the required vote for the action so
taken, and any such consent shall be filed with the Company's minutes or
records.
3.5 Management Decisions.
(a) Except to the extent that the Managers agree to delegate
the authority with respect to specified matters, all decisions shall be made by
a unanimous vote of the Managers.
(b) Any disbursement of funds of the Company will require such
signatures as may be determined by the Managers; provided, however, the Managers
shall obtain, with respect to (x) any distributions of funds pursuant to Section
4.5, a confirmation of the calculation of such distributions from a nationally
recognized public accounting firm prior to such distribution and (y) any other
disbursement of funds, a confirmation of the calculation of such disbursements
from a nationally recognized public accounting firm in connection with the
preparation of the Company's annual financial statements.
4
<PAGE>
(c) The following actions require the approval of Members
(including Class B Members) representing a majority of the Capital
Contributions:
(i) any acquisition of tangible or intangible assets
other than the Securities or other assets described
in or consistent with the Investment Proposal Letter;
(ii) any change in the business organization of the
Company, however effected;
(iii) the admission of any Class A Member;
(iv) any decisions of the Company to obtain additional
funding through borrowing;
(v) selecting members of the board of directors of
Danskin;
(vi) any decision of the Company as to how the Securities
are to be voted on any action to be taken by Danskin
permitting the Securities to be voted thereon; and
(vii) any decision as to whether the Company should accept
an offer made to purchase the Securities from the
Company at a price equal to or greater than the
applicable Target Price (as defined in Section
4.5(b)(i) below).
(d) Any decision as to whether the Company should accept an
offer made to purchase the Securities from the Company at a price less than the
applicable Target Price (as defined in Section 4.5(b)(i) below) will require the
unanimous approval of all Members (including Class B Members).
3.6 Management Compensation. The Managers shall not receive
compensation for their services to the Company. In all events, the Managers
shall be entitled to reimbursement for all reasonable expenses incurred on the
Company's behalf, including all reasonable expenses incurred in connection with
consummating the Closing of the Investment under the Investment Proposal Letter
(as such capitalized terms are defined in the Investment Proposal Letter).
ARTICLE IV
FINANCIAL INTERESTS OF MEMBERS
4.1 General. The Company has been organized with the intention that it
qualify for taxation as a partnership for U.S. federal income tax purposes. The
Members acknowledge that
5
<PAGE>
the provisions of Subchapter K of the Internal Revenue Code of 1986, as amended
(the "Code") and the Treasury Regulations (the "Regulations") promulgated
thereunder will apply to the Company, and intend that the allocations of taxable
income and loss, distributions to the Members and maintenance of capital
accounts all conform to the requirements of the Code and the applicable
Regulations.
4.2 Capital Contributions.
(a) The Company has received Capital Commitments in an
aggregate amount of $15,000,000 in order to finance the investments intended to
be made by the Company in Danskin. Each Member shall make capital contributions
to the Company in an amount equal to such Member's pro rata portion (based on
the Capital Commitments of all Members) of $15,000,000 ("Capital Contributions")
in order to finance the investments intended to be made by the Company in
Danskin equity and debt.
(b) In the event that any Member fails to make a required
portion of its Capital Commitment available to the Company when called by the
Managers, in addition to pursuing specific performance, the Company, in its sole
discretion, may cause the Capital Contribution of such Member to be forfeited
(in which event the amount of such Capital Contribution and such Member's
Capital Account (as defined below) shall continue to form part of the capital of
the Company and shall be reallocated to the non-defaulting Members in proportion
to their respective Capital Commitments but without prejudice to their existing
commitments) and such Members shall cease to be a Member for all purposes.
4.3 Capital Accounts.
(a) The economic arrangement of the Members is reflected in
the provisions of Section 4.5 hereof with respect to distributions; and
allocations of net profits and net losses shall be made in a manner consistent
with such provisions. The Capital Accounts (as hereinafter defined) shall be
maintained in accordance with this Section 4.3.
(b) The Company shall establish and maintain a separate
capital account (a "Capital Account") on its books for each Member in accordance
with the provisions of Treasury Regulations Section 1.704-1(b)(2)(iv).
Accordingly, there shall be credited to each Member's Capital Account the amount
of all Capital Contributions to the Company made by such Member and such
Member's share of the Company's net profits, and there shall be charged against
each Member's Capital Account, the amount of all distributions from the Company
to such Member and such Member's share of the Company's net losses, all in
accordance with the provisions of Section 4.4. In addition, such other
adjustments to each Member's Capital Account shall be made as required under the
provisions of Treasury Regulations Section 1.704-1(b)(2)(iv).
6
<PAGE>
(c) The Capital Account of each Member at the beginning of any
period shall be such Member's Capital Account at the beginning of the
immediately preceding period, adjusted to give effect to the computations
required pursuant to this Section 4.3.
(d) The provisions of this Section 4.3 and Section 4.4 are for
the purpose of determining the respective interest of the Members in the net
profits and net losses of the Company, which shall be reflective of the
provisions regarding distributions by the Company in Section 4.5. The financial
statements of the Company, however, shall be prepared in accordance with
generally accepted accounting principles.
(e) No Member shall be entitled to receive interest on his,
her or its Capital Contributions.
(f) No Member shall be entitled to withdraw all or any part of
his, her or its Capital Account except as otherwise provided herein.
(g) Loans or advances by any Member to the Company shall not
be considered Capital Contributions and shall not increase the Capital Account
of the lending or advancing Member.
(h) Except as provided in this Agreement, no Member shall be
required under any circumstances to contribute or lend any additional money or
property to the Company.
4.4 Allocations of Profits and Losses.
(a) For each fiscal year or other period, net profits shall be
allocated among the members in a manner which reflects the distributions
provided in Section 4.5 hereof; and net losses in excess of net profits shall be
allocated among the Members in proportion to their Capital Contributions.
(b) No Member shall be allocated net losses in excess of the
positive balance in such Member's Capital Account; however, in the event net
losses exceed Company capital, allocations shall be made among the Members, if
any, who bear such losses as provided in the Regulations. In the event any
Member unexpectedly receives any adjustments, allocations, or distributions
described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), Regulations
Section 1.704-1(b)(2)(ii)(d)(5), or Regulations Section 1.704-1(b)(2)(ii)(d)(6),
items of income and gain shall be specially allocated to each such Member in an
amount and manner sufficient to eliminate, to the extent required by the
Regulations, the deficit in his Capital Account as quickly as possible, provided
that an allocation pursuant to this Section 4.4(b) shall be made if and only to
the extent that such Member would have deficit in his Capital Account after all
other allocations provided for in this Section 4.4 have been tentatively made as
if this Section 4.4(b) were not in the Agreement.
7
<PAGE>
(c) Items of income, gain, loss, deduction and credit that are
recognized by the Company for tax purposes shall be allocated among the Members
in such manner as equitably reflects amounts credited or debited to the Members'
Capital Accounts pursuant hereto. In accordance with Code Section 704(c) and the
Regulations thereunder, income, gain, loss and with respect to any property
(other than cash) contributed to the capital of the Company shall, solely for
tax purposes, be allocated among the Members so as to take account of any
variation between the adjusted basis of such property to the Company for federal
income tax purposes and its value on the date of contribution. To the extent
profits or losses have been reflected in Capital Accounts prior to their
recognition for tax purposes, allocations shall be made consistent with the
principles of Code Section 704(c). In the event the value of any Company asset
is adjusted pursuant to Regulations Section 1.704-1(b)(2)(iv)(f), subsequent
allocations of income, gain, loss, and deduction with respect to such asset
shall take into account any variation between the adjusted basis of such asset
for federal income tax purposes and its value in the same manner as under Code
Section 704(c) and the Regulations thereunder.
4.5 Distributions.
(a) Subject to Sections 4.5(b), (c), (d) and (e) hereof,
distributions (in cash or in kind) shall be made to or among the Members from
time to time as the Managers determine in proportion to their Capital
Contributions.
(b) At such time that the fair market value of the common
stock of Danskin (the "Common Stock") equals or exceeds the Target Price,
defined below, and continues to equal or exceed the Target Price for five
consecutive trading days (such fifth trading day being referred to as the
"Repayment Date"), all assets of the Company not necessary for the payment of
debts and liabilities of the Company, expenses of winding up the Company and for
reserves as provided in and subject to the limitation in Section 6.4 for
contingent or unforseen liabilities or obligations of the Company ("Assets
Available For Repayment") shall be distributed 10% to the Class A Member and 90%
to all Members in proportion to their Capital Contributions.
(i) The "Target Price" shall mean:
(A) On or prior to the first anniversary of the
closing of the purchase of the Securities as set forth in the Investment
Proposal Letter (the "Acquisition"), $.60 per share of Common Stock, provided,
however, that the Repayment Date will not be considered to have occurred (and
the assets of the Company, other than excess cash which the Managers determine
to distribute, shall not be distributed) unless Members (including Class B
Members) representing at least 85% of the Capital Contributions so consent;
(B) After the first anniversary of the Acquisition
and on or prior to the second anniversary of the Acquisition, $.60 per share of
Common Stock;
8
<PAGE>
(C) After the second anniversary of the Acquisition
and on or prior to the third anniversary of the Acquisition, $.74 per share of
Common Stock;
(D) After the third anniversary of the Acquisition
and on or prior to the fourth anniversary of the Acquisition, $.98 per share of
Common Stock;
(E) After the fourth anniversary of the Acquisition
and on or prior to the fifth anniversary of the Acquisition, $1.31 per share of
Common Stock;
(c) If as of the fifth anniversary of the Acquisition, the
Repayment Date has not occurred, the Assets Available For Repayment shall be
distributed 1% to the Class A Member and 99% to all Members in accordance with
their Capital Contributions.
(d) Subject to Section 6.4, the reimbursement of expenses by
Danskin pursuant to the Investment Proposal Letter shall be distributed to the
party that has borne such expenses.
4.6 Valuation of Securities. Except as specifically provided in the
case of a valuation of securities pursuant to Section 4.5 (b), for purposes of
valuing securities in connection with the business of the Company, (i)
securities listed on national securities exchanges shall be valued at (a) their
last sales prices on the relevant date, or (b) if no sales occurred on such
date, at the mean of the "bid" and "asked" prices on such date; (ii) securities
not listed on a national securities exchange shall be valued at their last
closing "bid" price on the date of the determination, and (iii) all other
securities shall be valued by the Managers in good faith and in their sole and
absolute discretion pursuant to this Section 4.6 which valuation shall be final
and conclusive as to all of the Members; provided, however, in each such case,
the Manager shall obtain a confirmation of the calculation of valuation from a
nationally recognized public accounting firm.
4.7 Expenses. Each Member agrees to pay additional funds to the Company
as required by the Managers in order to pay day-to-day operating and
administrative expenses, such as legal and accounting fees; provided, however,
the annual aggregate amount of such expenses and fees shall not exceed $10,000.
ARTICLE V
TRANSFERS AND THE ADMISSION OF ADDITIONAL MEMBERS
5.1 Transfers Generally. Membership Interests may be assigned, in whole
or in part, (each such assignment, a "Transfer") only in accordance with this
Article V.
5.2 Effect of Transfers.
9
<PAGE>
(a) Except as provided in paragraph (b) below, any Transfer of
a Membership Interest by a person (the "Transferor") shall be effective only to
give the transferee (the "Transferee") the right to the share of allocations and
distributions to which the Transferor would otherwise be entitled, and no
Transferee of a Membership Interest shall be admitted as a Member, (ii) the
Transferee shall have no right to vote on or consent to any matter submitted to
the Members or otherwise participate in the management of the business and
affairs of the Company, and (iii) subject to Section 5.3(c) below, the
Transferor, if he, she or it retains a Membership Interest, shall retain such
rights and shall have the power to exercise any rights of a Member, except the
right to receive allocations and distributions to the extent those rights are
assigned.
(b) A Transferee of a Membership Interest shall, upon such
Transfer, be admitted as a Member with all the rights and powers of his, her or
its Transferor if, prior to such Transfer, all of the Managers consent to the
admission of the Transferee as a Member.
(c) Any expenses incurred by the Company in connection with or
as a consequence of the Transfer of all or part of a Membership Interest shall
be reimbursed to the Manager by the Transferor.
(d) The Company, the Managers, each Member and any other
person or persons having business with the Company, need deal only with holders
of Membership Interests who are admitted as Members of the Company, and shall
not be required to deal with any Transferee who has not been admitted as a
Member.
5.3 Admission of Transferees as Members. The Managers may from time to
time admit Transferees as Members to the Company on such terms and conditions as
the Managers shall determine. Any such Members shall join in and agree to be
bound by the terms of this Agreement.
ARTICLE VI
TERM AND TERMINATION OF THE COMPANY
6.1 Term of the Company. The term of the Company commenced upon the
filing of the certificate of formation with the Secretary of State of Delaware
on May 12, 1997 (the "Filing Date"). The Company shall terminate and be
dissolved on the fifth anniversary of the Acquisition unless the Company is
earlier dissolved and terminated as provided in this Agreement.
6.2 Events of Dissolution. The Company shall be dissolved upon the
occurrence of any of the following events:
10
<PAGE>
(a) The death, retirement, resignation, expulsion, bankruptcy
(which shall mean being the subject of an order for relief under Title 11 of the
United States Code), or dissolution of any Member-Manager or the occurrence of
any other event which terminates the continued Membership of any Member-Manager
unless, within ninety (90) days following the occurrence of any such event, the
business of the Company is continued by the consent of a majority-in-interest of
the remaining Members;
(b) The sale of all or substantially all of the business and
assets of the Company;
(c) On the Repayment Date, as defined in Section 4.5(b)
hereof;
(d) As otherwise required by the Delaware Limited Liability
Company Act.
As used herein, consent of a majority-in-interest means consent of Members
(including for this purpose Class A and Class B Members) representing a majority
of the Capital Contributions and owning Capital Accounts representing a majority
of Company capital.
6.3 Conclusion of Affairs. In the event of dissolution of the Company
for any reason, the Managers, or if no Managers remain, the Members, by majority
vote, shall appoint a person (the "Liquidator"), who may but need not be a
Manager and/or Member, and the Liquidator shall proceed, as soon as reasonably
practicable, to wind up the affairs of the Company. The Members (and their
successors in interest) shall continue to share in allocations of income and
loss and distributions during the period of winding up in the same manner as
before the dissolution. The Liquidator shall have reasonable discretion to
determine the time, manner and terms of any sale or sales of Company property
pursuant to such winding up, having due regard to the activity and the condition
of the Company and relevant market and financial and economic conditions, and
consistent with his, her or its obligations to the Members.
6.4 Liquidating Distributions. After paying or providing for the
payment of all debts and liabilities of the Company and all expenses of winding
up, and subject to the right of the Liquidator to set up such reserves as it may
deem reasonably necessary for any contingent or unforeseen liabilities or
obligations of the Company (such reserves not to exceed $25,000), the proceeds
of the liquidation, and any other remaining assets of the Company, shall be
distributed to or for the benefit of the Members (and their successors in
interest) in accordance with the provisions of Section 4.5 hereof. Upon
liquidation of the Company, the Company shall distribute to each Member such
Member's pro rata share of the Company's cash and Securities as provided in
Section 4.5 of this Agreement as a liquidating distribution to the Members (and
their successors in interest).
6.5 Termination. Within a reasonable time following the completion of
the winding up of the Company, the Liquidator shall supply to each Member a
statement which shall set forth the assets and the liabilities of the Company as
of the date of complete winding up and each Member's portion of the
distributions pursuant to this Agreement. Upon completion of the winding up of
the Company and the distribution of all Company assets, the Company shall
terminate, and the
11
<PAGE>
Liquidator shall execute and file a certificate of cancellation of the Company
with the Secretary of State of Delaware, and shall take all other action
necessary to effectuate the dissolution and termination of the Company. Each
Member remains obligated on a pro rata basis (based on the amount of
distributions received from the Company) for subsequent liabilities of the
Company after winding up and liquidation of the Company; provided, however, such
obligations shall not exceed the amount of distributions received by such member
from the Company.
ARTICLE VII
GENERAL AND ADMINISTRATIVE PROVISIONS
7.1 Principal Office. The principal office of the Company shall be at
such location or locations as may be determined by the Managers from time to
time.
7.2 Indemnification. To the fullest extent permitted by law, the
Company shall indemnify and hold harmless, and may advance expenses to, any
Member or Manager (collectively, the "Indemnitees"), from and against any and
all claims and demands whatsoever arising out of the business and affairs of the
Company; provided, however, that no indemnification may be made to or on behalf
of any Indemnitee if a judgment or other final adjudication adverse to such
Indemnitee establishes (a) that his, her or its acts were committed in bad faith
or were the result of active and deliberate dishonesty and were material to the
cause of action so adjudicated or (b) that he, she or it personally gained in
fact a financial profit or other advantage to which he, she or it was not
legally entitled. The provision of this section shall continue to afford
protection to each Indemnitee regardless of whether such Indemnitee remains a
Member, Manager, employee or agent of the Company.
7.3 Fiscal Year. The fiscal year of the Company shall end on the
thirty-first of December.
7.4 Books and Records. At all times during the term of the Company, the
Managers shall keep, or cause to be kept at the Company's principal office, the
books and records of the Company.
7.5 Reports. As soon as practicable following the end of each fiscal
year, the Company shall provide each Member a financial report of the results of
operations, including audited or unaudited financial statements, as determined
by the Managers.
7.6 Withholding. Except as may be required by a change in applicable
law (including any judicial or administrative interpretation thereof), the
Company will not withhold any U.S. federal taxes with respect to the
distributive share of interest income (other than interest income which fails to
qualify either as "portfolio interest" within the meaning of Code Section 871(h)
or interest on deposits within the meaning of Code Section 871(i)(3)) and
capital gain or distributions by the Company of securities or other property
held by the Company (other than dispositions of,
12
<PAGE>
and proceeds relating to, U.S. real property interests within the meaning of
Code Section 897(c)) with respect to Members who are not U.S. persons within the
meaning of Code Section 7701(a)(30), so long as such Member provides the Company
with an effective Form W-8.
7.7 Notices. Any notice to be given under this Agreement may be given
either personally or by mail, telephone, telegraph, teletype, telecopy or other
form of wire or wireless communication, or by overnight courier. If mailed,
notice shall be deemed to be effective three (3) days after deposited in
registered or certified mail with postage thereon prepaid addressed if to a
Member at its address as it appears on the signature page to this Agreement (or
at such other address for any party as such party shall notify the other
parties), and if to the Company at its principal office. If given in any other
manner, such notice shall be deemed to be effective (i) when given personally,
(ii) when given by telephone, teletype, telecopy or other form of wire or
wireless communication (if followed by a copy delivered by registered or
certified mail) or (iii) one (1) day after given to an overnight courier to be
delivered.
7.8 Headings. The headings of the sections hereof are inserted for
convenience only and shall not control or affect the meaning or construction of
any of the provisions hereof.
7.9 Gender; Number. Where the context so requires, the masculine gender
shall be construed to include the female, a corporation, a trust or other
entity, and the singular shall be construed to include the plural and the plural
the singular.
7.10 Amendments. This Agreement may be modified or amended by unanimous
written agreement of the Class A Members; provided, that, except as otherwise
specifically provided herein, no amendment may modify the economic interest of a
Member without such Member's consent. Notwithstanding the foregoing, the
Managers may amend the Agreement as necessary to effect the admission of
Transferees of Members.
7.11 Entire Agreement. This Agreement sets forth the entire
understanding of the parties hereto.
7.12 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
13
<PAGE>
IN WITNESS WHEREOF, the undersigned has affixed its signature
signifying its adoption of this Limited Liability Company Operating Agreement:
ONYX PARTNERS, INC.
By:________________________________
Name:
Title:
MAYFIRST ASSOCIATES LTD.
By:________________________________
Name:
Title:
ALPINE ASSOCIATES
By:________________________________
Name:
Title:
REGENT CAPITAL EQUITY PARTNERS,
L.P.
By:________________________________
Name:
Title:
---------------------------------
Gregg L. Engles
14
<PAGE>
RONALD N. YURCAK FAMILY TRUST
By:________________________________
Name:
Title:
CUCCI FAMILY TRUST
By:________________________________
Name:
Title:
DIMSTON PARTNERSHIP
By:________________________________
Name:
Title:
DAVID FEINMAN LIVING TRUST
By:_________________________________
Name:
Title:
ISLAND CUTLERY ASSOCIATES LIMITED
PARTNERSHIP
By:________________________________
Name:
Title:
15
<PAGE>
---------------------------------
Craig Randelman
---------------------------------
Dorothy Richards
---------------------------------
Eric Rosenfeld
---------------------------------
Michael Rothbard
SGM PORTFOLIO L.L.C.
By:________________________________
Name:
Title:
---------------------------------
Jordan L. Shapiro
ARCHSTONE PARTNERS, L.P.
By:________________________________
Name:
Title:
---------------------------------
Kenneth H. Sullivan
16
<PAGE>
---------------------------------
Nina E. Mclemore
---------------------------------
John Broude
---------------------------------
Peter Evans
---------------------------------
Lee Kling
VERTEX INDUSTRIES, INC.
By:________________________________
Name:
Title:
TEXAS CAPITAL INVESTORS G.P.
By:________________________________
Name:
Title:
ASTER INDUSTRIES
By:________________________________
Name:
Title:
17
<PAGE>
BRIGHTON BEACH INVESTMENT GROUP
LIMITED PARTNERSHIP
By:________________________________
Name:
Title:
GOLDEN HORN (II) L.P.
By:________________________________
Name:
Title:
-----------------------------------
David Chu
ANVIL INVESTMENT PARTNERS
By:________________________________
Name:
Title:
-----------------------------------
Marc Cummins
-----------------------------------
Greg McGowan
-----------------------------------
Richard Bernstein
18
<PAGE>
-----------------------------------
Bruce Raben
-----------------------------------
Doug Morgan
REGENT CAPITAL PARTNERS, L.P.
By:________________________________
Name:
Title:
19
<PAGE>
Danskin, Inc.
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF DANSKIN INVESTORS, LLC
WHEREAS, the undersigned (the "Stockholder") has offered to grant an
irrevocable proxy to Danskin Investors, LLC (the "Investor") to vote all shares
of voting stock of Danskin, Inc. (the "Corporation") held of record by the
Stockholder in the manner set forth herein if the Investor will invest not less
than Fifteen Million Dollars ($15,000,000) in the Corporation; and
WHEREAS, the Stockholder will benefit from the investment by the
Investor in the Corporation.
NOW, THEREFORE, the undersigned hereby grants an irrevocable proxy to
Andrew J. Astrachan and David A. Sachs, and each of them, as attorneys and
proxies, each with full power to appoint his substitute, and hereby authorizes
them to appear and vote as designated below, all shares of voting stock of the
Corporation held of record by the undersigned Stockholder (the "Shares") at all
meetings of the stockholders (whether annual or special) and on all written
consents of stockholders of the Corporation held or circulated at any time
following the date hereof to consider the proposals set forth below, and any
adjournments or postponements thereof until the date upon which the Investor
owns a majority of the voting stock of the Corporation.
The undersigned Stockholder hereby directs this Proxy to be voted in
favor of each of the following proposals:
(a) Proposal to amend the Certificate of Incorporation of the
Corporation in order to (i) increase the number of authorized
shares of Common Stock as recommended by the Board of
Directors of the Corporation, (ii) eliminate the
classification of the Board of Directors of the Corporation,
and (iii) provide that the number of directors on the Board of
Directors of the Corporation shall not exceed nine (9); and
(b) Proposal to ratify the appointment of Investor's designees to
the Board of Directors of the Corporation pursuant to the
terms of the Purchase Agreement; and
(c) Any additional proposal in accordance with the recommendation
of the Board of Directors of the Corporation.
This proxy is given in connection with the closing of the transactions
contemplated by the Securities Purchase Agreement of even date herewith (the
"Purchase Agreement") between the Investor and the Corporation, and is given for
the benefit of the Investor, to protect and secure the interests of the Investor
in the securities of the Corporation issued to the Investor pursuant to the
Purchase Agreement. This proxy revokes any other proxy granted by the
undersigned Stockholder at any time with respect to the Shares.
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
STOCKHOLDER'S SPECIFICATIONS ABOVE.
Date:
--------------------------
OPPENHEIMER BOND FUND
FOR GROWTH
By:
--------------------------
Name: Michael S. Rosen
Title: Vice President
<PAGE>
Danskin, Inc.
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF DANSKIN INVESTORS, LLC
The undersigned stockholder of Danskin, Inc. hereby grants an
irrevocable proxy to Andrew J. Astrachan and David A. Sachs, and each of them,
as attorneys and proxies, each with full power to appoint his substitute, and
hereby authorizes them to appear and vote as designated below, all shares of
voting stock of the Corporation held of record by the undersigned stockholder
(the "Shares") at all meetings of the stockholders (whether annual or special)
and on all written consents of stockholders of the Corporation held or
circulated at any time following the date hereof to consider the proposals set
forth below, and any adjournments or postponements thereof and all procedural
matters relative thereto until the date upon which the Investor owns a majority
of the voting stock of the Corporation.
The undersigned Stockholder hereby directs this Proxy to be voted in
favor of each of the following proposals:
(a) Proposal to amend the Certificate of Incorporation of the
Corporation in order to (i) increase the number of authorized
shares of Common Stock as recommended by the Board of
Directors of the Corporation, (ii) eliminate the
classification of the Board of Directors of the Corporation,
and (iii) provide that the number of directors on the Board of
Directors of the Corporation shall not exceed nine (9); and
(b) Proposal to ratify the appointment of Investor's designees to
the Board of Directors of the Corporation pursuant to the
terms of the Purchase Agreement.
This proxy is coupled with an interest and is irrevocable. This proxy
revokes any other proxy granted by the undersigned Stockholder at any time with
respect to the Shares.
SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
STOCKHOLDER'S SPECIFICATIONS ABOVE.
Date:
--------------------------
SUNAMERICA LIFE INSURANCE
COMPANY
By:
--------------------------
Name:
Title:
<PAGE>
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER
THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE
APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 p.m. Eastern Standard Time, on [September 30], 2004.
WARRANT TO PURCHASE COMMON STOCK
OF
DANSKIN, INC.
FOR VALUE RECEIVED, DANSKIN, INC. (the "Company"), a Delaware
corporation, hereby certifies that Danskin Investors, LLC, or its permitted
assigns, is entitled to purchase from the Company, at any time or from time to
time commencing [September 30], 1997, and prior to 5:00 P.M., Eastern Standard
Time, on [September 30], 2004, a total of 9,632,199 fully paid and nonassessable
shares of Common Stock, par value $.01 per share, of the Company for an
aggregate purchase price of $2,889,659.70 (computed on the basis of $.30 per
share). (Hereinafter, (i) said Common Stock, together with any other equity
securities which may be issued by the Company with respect thereto or in
substitution therefor, is referred to as the "Common Stock," (ii) the shares of
the Common Stock purchasable hereunder are referred to as the "Warrant Shares,"
(iii) the aggregate purchase price payable hereunder for the Warrant Shares is
referred to as the "Aggregate Warrant Price," (iv) the price payable hereunder
for each of the Warrant Shares is referred to as the "Per Share Warrant Price,"
(v) this Warrant, and all warrants hereafter issued in exchange or substitution
for this Warrant are referred to as the "Warrant" and (vi) the holder of this
Warrant is referred to as the "Holder.") The number of Warrant Shares for which
this Warrant is exercisable is subject to adjustment as hereinafter provided. In
the event of any such adjustment, the Per Share Warrant Price shall be adjusted
by multiplying the Per Share Warrant Price in effect immediately prior to such
adjustment by a fraction the numerator of which is the aggregate number of
Warrant Shares for which this Warrant may be exercised immediately prior to such
adjustment and the denominator of which is the aggregate number of Warrant
Shares for which this Warrant may be exercised immediately after such
adjustment.
1. Exercise of Warrant. This Warrant may be exercised, in whole at any time or
in part from time to time, commencing [September 30], 1997, and prior to 5:00
P.M., Eastern Standard Time, on
-1-
<PAGE>
[September 30], 2004, by the Holder of this Warrant by the surrender of this
Warrant (with the subscription form at the end hereof duly executed) at the
address set forth in Subsection 9(a) hereof, together with proper payment of the
Aggregate Warrant Price, or the proportionate part thereof if this Warrant is
exercised in part.
The Aggregate Warrant Price or Per Share Warrant Price may be paid: (a)
in cash, (b) by surrender to the Company of shares of its Common Stock with a
fair value, on the date of exercise that is equal to the Aggregate Warrant Price
or Per Share Warrant Price, as the case may be, in respect of the number of
Warrants exercised, (c) by surrender to the Company of Warrants (as provided
below) or (d) by a combination of (a), (b) or (c) hereof. The Holder shall have
the right to convert Warrants or any portion thereof (the "Conversion Right")
into Warrant Shares as provided in this paragraph, but only if, at the time of
such conversion, the Per Share Warrant Price shall be less than the current
market price per share of Common Stock and the Warrants shall otherwise be
exercisable under the provisions of this Warrant. Upon exercise of the
Conversion Right with respect to a particular number of Warrants (the "Converted
Warrants"), the Company shall deliver to the Holder (without payment by the
Holder of any cash or other consideration) that number of Warrant Shares equal
to the quotient obtained by dividing (a) the difference between (i) the product
of the fair value per share of Common Stock as of the date the Conversion Right
is exercised (the "Conversion Date") and the number of Warrant Shares into which
the Converted Warrants could have been exercised hereunder and (ii) the
aggregate Per Share Warrant Price that would have been payable upon such
exercise of the Converted Warrants as of the Conversion Date, by (b) the fair
value per share of Common Stock as of the Conversion Date. For purposes of this
paragraph, the fair value per share of Common Stock shall mean the average
Closing Price of the Company's Common Stock for the ten Trading Days immediately
preceding the Conversion Date.
As used in this Section 1, Trading Day means, in the event that the
Common Stock is listed or admitted to trading on the New York Stock Exchange (or
any successor to such exchange), a day on which the New York Stock Exchange (or
such successor) is open for the transaction of business, or, if the Common Stock
is not listed or admitted to trading on such exchange, a day on which the
principal national securities exchange on which the Common Stock is listed is
open for the transaction of business, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, a day on which any New
York Stock Exchange member firm is open for the transaction of business.
As used in this Section 1, the Closing Price of the Company's Common
Stock shall be the last reported sale price as shown on the Composite Tape of
the New York Stock Exchange, or, in case no such reported sale price is quoted
on such day, the average of the reported closing bid and asked prices on the New
York Stock Exchange, or, if the Common Stock is not listed or admitted to
trading on such exchange, the last reported sales price, or in case no such
reported sales price is quoted on such day, the average of the reported closing
bid and asked prices, on the principal national securities exchange (including,
for purposes hereof, the National Association of Securities Dealers, Inc.
National Market System) on which the Common Stock is listed or admitted to
trading, or, if it is not listed or admitted to trading on any national
securities exchange, the average of the
-2-
<PAGE>
high closing bid price and the low closing asked price as reported on an
inter-dealer quotation system. In the absence of any available public quotations
for the Common Stock, the Board of Directors of the Company shall determine in
good faith the fair value of the Common Stock, which determination shall be set
forth in a certificate by the Secretary of the Company.
Payment for Warrant Shares if made by cash shall be made by certified
or official bank check payable to the order of the Company. If this Warrant is
exercised in part, the Holder shall be entitled to receive a new Warrant
covering the number of Warrant Shares in respect of which this Warrant has not
been exercised and setting forth the proportionate part of the Aggregate Warrant
Price applicable to such Warrant Shares. Upon such surrender of this Warrant,
the Company will (a) issue a certificate or certificates in the name of the
Holder for the shares of the Common Stock to which the Holder shall be entitled,
and (b) deliver the proportionate part thereof if this Warrant is exercised in
part, pursuant to the provisions of the Warrant.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of this Warrant. With respect to any fraction of a
share called for upon any exercise hereof, the Company shall pay to the Holder
an amount in cash equal to such fraction multiplied by the fair value of a
share.
2. Reservation of Warrant Shares. The Company agrees that, prior to the
expiration of this Warrant, the Company will at all times have authorized and in
reserve, and will keep available, solely for issuance or delivery upon the
exercise of this Warrant, the shares of the Common Stock as from time to time
shall be receivable upon the exercise of this Warrant.
3. Anti-Dilution Provisions. The number and kind of securities issuable upon the
exercise of this Warrant, the Per Share Warrant Price and the number of Warrant
Shares for which this Warrant may be exercised shall be subject to adjustment
from time to time in accordance with the following provisions:
(a) Certain Definitions. For purposes of this Warrant:
(1) The term "Additional Shares of Common Stock" shall
mean all shares of Common Stock issued, or deemed to
be issued by the Company pursuant to paragraph (g) of
this Section 3, after the Original Issue Date except:
(i) shares of Common Stock issuable upon
conversion of, or distributions with respect
to, the Series D Cumulative Convertible
Preferred Stock ("Series D Stock") now or
hereafter issued by the Company;
(ii) up to 790,000 shares of Common Stock
issuable upon the exercise of options issued
to officers, directors and employees of the
Company under stock option plans maintained
from time to time by
-3-
<PAGE>
the Company and approved by the Board of
Directors (the "Employee Options"); and
(iii) up to 3,291,797 shares of Common Stock
issuable upon the exercise of options issued
to Mary Ann Domuracki, Beverly Eichel and
Nina McLemore (collectively, the "Management
Options") in connection with the closing of
that certain Securities Purchase Agreement
dated as of September 22, 1997 between the
Company and Danskin Investors, LLC (the
"Purchase Agreement");
(iv) shares of Common Stock issuable upon
exercise of this Warrant, the Warrant issued
to Oppenheimer Bond Fund for Growth pursuant
to the terms of the Purchase Agreement (the
"BFG Warrant") and the Warrant issued to
Donald Schupak pursuant to the terms of that
certain Warrant Purchase Agreement dated as
of September 22, 1997 between the Company
and Donald Schupak (the "Schupak Warrant");
and
(v) up to 10,000,000 shares of Common Stock
issuable pursuant to the Rights Offering
contemplated by the terms of the Purchase
Agreement.
(2) The term "Convertible Securities" shall mean any
evidence of indebtedness, shares (other than the
Promissory Note issued pursuant to the Purchase
Agreement, Series D Stock, the Schupak Warrant, the
BFG Warrant and this Warrant) or other securities
convertible into or exchangeable for Common Stock.
(3) The term "Options" shall mean rights, options or
warrants (other than the Employee Options and the
Management Options) to subscribe for, purchase or
otherwise acquire Common Stock or Convertible
Securities.
(4) The term "Original Issue Date" shall mean the date
of the initial issuance of this Warrant.
(b) Reorganization, Reclassification. In the event of a
reorganization, share exchange, or reclassification, other
than a change in par value, or from par value to no par value,
or from no par value to par value or a transaction described
in subsection (c) or (d) below, this Warrant shall, after such
reorganization, share exchange or reclassification (a
"Reclassification Event"), be exercisable at the option of the
holder into the kind and number of shares of stock or other
securities or other property of the Company which the holder
of this Warrant would have been entitled to receive if the
holder had held the Warrant Shares issuable upon exercise of
this
-4-
<PAGE>
Warrant immediately prior to such reorganization, share
exchange, or reclassification.
(c) Consolidation, Merger. In the event of a merger or
consolidation to which the Company is a party this Warrant
shall, after such merger or consolidation, be exercisable at
the option of the holder for the kind and number of shares of
stock and/or other securities, cash or other property which
the holder of this Warrant would have been entitled to receive
if the holder had held the Warrant Shares issuable upon
exercise of this Warrant immediately prior to such
consolidation or merger.
(d) Subdivision or Combination of Shares. In case
outstanding shares of Common Stock shall be subdivided, the
Per Share Warrant Price shall be proportionately reduced as of
the effective date of such subdivision, or as of the date a
record is taken of the holders of Common Stock for the purpose
of so subdividing, whichever is earlier. In case outstanding
shares of Common Stock shall be combined, the Per Share
Warrant Price shall be proportionately increased as of the
effective date of such combination, or as of the date a record
is taken of the holders of Common Stock for the purpose of so
combining, whichever is earlier.
(e) Stock Dividends. In case shares of Common Stock are
issued as a dividend or other distribution on the Common Stock
(or such dividend is declared), then the Per Share Warrant
Price shall be adjusted, as of the date a record is taken of
the holders of Common Stock for the purpose of receiving such
dividend or other distribution (or if no such record is taken,
as at the earliest of the date of such declaration, payment or
other distribution), to that price determined by multiplying
the Per Share Warrant Price in effect immediately prior to
such declaration, payment or other distribution by a fraction
(i) the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to the declaration
or payment of such dividend or other distribution, and (ii)
the denominator of which shall be the total number of shares
of Common Stock outstanding immediately after the declaration
or payment of such dividend or other distribution. In the
event that the Company shall declare or pay any dividend on
the Common Stock payable in any right to acquire Common Stock
for no consideration, then the Company shall be deemed to have
made a dividend payable in Common Stock in an amount of shares
equal to the maximum number of shares issuable upon exercise
of such rights to acquire Common Stock.
(f) Issuance of Additional Shares of Common Stock. If the
Company shall issue any Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be
issued pursuant to paragraph (g) below) after the Original
Issue Date (other than as provided in the foregoing
subsections (b) through (e)), for no consideration or for a
consideration per share less than the Per Share Warrant Price
in effect on the date of and immediately prior to such issue,
then in such event, the
-5-
<PAGE>
Per Share Warrant Price shall be reduced, concurrently with
such issue, to a price equal to the quotient obtained by
dividing:
(1) an amount equal to (x) the total number of shares
of Common Stock outstanding immediately prior to such
issuance or sale multiplied by the Per Share Warrant
Price in effect immediately prior to such issuance or
sale, plus (y) the aggregate consideration received
or deemed to be received by the Company upon such
issuance or sale, by
(2) the total number of shares of Common Stock
outstanding immediately after such issuance or sale.
For purposes of the formulas expressed in paragraph 3(e) and
3(f), all shares of Common Stock, including Warrant Shares, issuable upon the
exercise of outstanding Options or this Warrant or issuable upon the conversion
of the Series C Stock, the Series D Stock or outstanding Convertible Securities
(including Convertible Securities issued upon the exercise of outstanding
Options), shall be deemed outstanding shares of Common Stock both immediately
before and after such issuance or sale.
(g) Deemed Issue of Additional Shares of Common Stock. In
the event the Company at any time or from time to time after
the Original Issue Date shall issue any Options or Convertible
Securities or shall fix a record date for the determination of
holders of any class of securities then entitled to receive
any such Options or Convertible Securities, then the maximum
number of shares (as set forth in the instrument relating
thereto without regard to any provisions contained therein
designed to protect against dilution) of Common Stock issuable
upon the exercise of such Options, or, in the case of
Convertible Securities and Options therefor, the conversion or
exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of
such issue of Options or Convertible Securities or, in case
such a record date shall have been fixed, as of the close of
business on such record date, provided that in any such case
in which Additional Shares of Common Stock are deemed to be
issued:
(1) no further adjustments in the Per Share Warrant
Price shall be made upon the subsequent issue of
Convertible Securities or shares of Common Stock upon
the exercise of such Options or the issue of Common
Stock upon the conversion or exchange of such
Convertible Securities;
(2) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise,
for any increase or decrease in the consideration
payable to the Company, or increase or decrease in
the number of shares of Common Stock issuable, upon
the exercise, conversion or exchange thereof, the Per
Share Warrant Price computed upon the original
-6-
<PAGE>
issuance of such Options or Convertible Securities
(or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based
thereon, upon any such increase or decrease becoming
effective, shall be recomputed to reflect such
increase or decrease insofar as it affects such
Options or the rights of conversion or exchange under
such Convertible Securities (provided, however, that
no such adjustment of the Per Share Warrant Price
shall affect Common Stock previously issued upon
exercise of this Warrant in whole or in part);
(3) upon the expiration of any such Options or
any rights of conversion or exchange under such
Convertible Securities which shall not have been
exercised, the Per Share Warrant Price computed upon
the original issue of such Options or Convertible
Securities (or upon the occurrence of a record date
with respect thereto), and any subsequent adjustments
based thereon, shall, upon such expiration, be
recomputed as if:
(i) in the case of Options or
Convertible Securities, the only Additional
Shares of Common Stock issued were the
shares of Common Stock, if any, actually
issued upon the exercise of such Options or
the conversion or exchange of such
Convertible Securities and the consideration
received therefor was the consideration
actually received by the Company (x) for the
issue of all such Options, whether or not
exercised, plus the consideration actually
received by the Company upon exercise of the
Options or (y) for the issue of all such
Convertible Securities which were actually
converted or exchanged plus the additional
consideration, if any, actually received by
the Company upon the conversion or exchange
of the Convertible Securities; and
(ii) in the case of Options for
Convertible Securities, only the Convertible
Securities, if any, actually issued upon the
exercise thereof were issued at the time of
issue of such Options, and the consideration
received by the Company for the Additional
Shares of Common Stock deemed to have been
then issued was the consideration actually
received by the Company for the issue of all
such Options, whether or not exercised, plus
the consideration deemed to have been
received by the Company upon the issue of
the Convertible Securities with respect to
which such Options were actually exercised.
-7-
<PAGE>
(4) No readjustment pursuant to clause (2) or
(3) above shall have the effect of increasing the Per
Share Warrant Price to an amount which exceeds the
lower of (x) the Per Share Warrant Price on the
original adjustment date or (y) the Per Share Warrant
Price that would have resulted from any issuance of
Additional Shares of Common Stock between the
original adjustment date and such readjustment date.
(5) In the case of any Options which expire by
their terms not more than 30 days after the date of
issue thereof, no adjustment of the Per Share Warrant
Price shall be made until the expiration or exercise
of all such Options, whereupon such adjustment shall
be made in the same manner provided in clause (3)
above.
(h) Determination of Consideration. For purposes of this
Section 3, the consideration received by the Company for the
issue of any Additional Shares of Common Stock shall be
computed as follows:
(1) Cash and Property. Such consideration shall:
(i) insofar as it consists of cash, be the
aggregate amount of cash received by the
Company; and
(ii) insofar as it consists of property other
than cash, be computed at the fair value
thereof at the time of the issue, as
determined by the vote of a majority of the
Company's Board of Directors or if the Board
of Directors cannot reach such agreement, by
a qualified independent public accounting
firm, other than the accounting firm then
engaged as the Company's independent
auditors.
(2) Options and Convertible Securities. The
consideration per share received by the Company for
Additional Shares of Common Stock deemed to have been
issued pursuant to paragraph (g) above, relating to
Options and Convertible Securities shall be
determined by dividing:
(i) the total amount, if any, received
or receivable by the Company as
consideration for the issue of such Options
or Convertible Securities, plus the minimum
aggregate amount of additional consideration
(as set forth in the instruments relating
thereto, without regard to any provision
contained therein designed to protect
against dilution) payable to the Company
upon the exercise of such Options or the
conversion or exchange of such Convertible
Securities, or in the case of Options for
Convertible Securities, the
-8-
<PAGE>
exercise of such Options for Convertible
Securities and the conversion or exchange of
such Convertible Securities by
(ii) the maximum number of shares of Common
Stock (as set forth in the instruments
relating thereto, without regard to any
provision contained therein designed to
protect against dilution) issuable upon the
exercise of such Options or conversion or
exchange of such Convertible Securities.
(i) Adjustment of Aggregate Number of Warrant Shares Issuable.
Upon each adjustment of the Per Share Warrant Price under the
provisions of this Section 3, the aggregate number of Warrant
Shares issuable upon exercise of this Warrant shall be
adjusted to an amount determined by dividing (x) the Per Share
Warrant Price in effect immediately prior to the event causing
such adjustment by (y) such adjusted Per Share Warrant Price.
(j) Other Provisions Applicable to Adjustment Under this Section.
The following provisions will be applicable to the adjustments
in Per Share Warrant Price and the aggregate number of Warrant
Shares issuable upon exercise of this Warrant as provided in
this Section 3:
(1) Treasury Shares. The number of shares of
Common Stock at any time outstanding shall not
include any shares thereof then directly or
indirectly owned or held by or for the account of the
Company.
(2) Other Action Affecting Common Stock. In case
the Company shall take any action affecting the
outstanding number of shares of Common Stock other
than an action described in any of the foregoing
subsections 3(b) to 3(g) hereof, inclusive, which
would have an inequitable effect on the holder of
this Warrant, the Per Share Warrant Price shall be
adjusted in such manner and at such time as the Board
of Directors of the Company on the advice of the
Company's independent public accountants may in good
faith determine to be equitable in the circumstances.
(3) Minimum Adjustment. No adjustment of the Per
Share Warrant Price shall be made if the amount of
any such adjustment would be an amount less than one
percent (1%) of the Per Share Warrant Price then in
effect, but any such amount shall be carried forward
and an adjustment in respect thereof shall be made at
the time of and together with any subsequent
adjustment which, together with such amount and any
other amount or amounts so carried forward, shall
aggregate an increase or decrease of one percent (1%)
or more.
-9-
<PAGE>
(4) Certain Adjustments. The Per Share Warrant
Price shall not be adjusted upward except in the
event of a combination of the outstanding shares of
Common Stock into a smaller number of shares of
Common Stock or in the event of a readjustment of the
Per Share Warrant Price pursuant to Section 3(g)(2)
or (3).
(k) Notices of Adjustments. Whenever the aggregate number
of Warrant Shares issuable upon exercise of this Warrant and
Per Share Warrant Price is adjusted as herein provided, an
officer of the Company shall compute the adjusted number of
Warrant Shares and Per Share Warrant Price in accordance with
the foregoing provisions and shall prepare a written
certificate setting forth such adjusted number of Warrant
Shares and Per Share Warrant Price and showing in detail the
facts upon which such adjustment is based, and such written
instrument shall promptly be delivered to the recordholder of
this Warrant.
4. Fully Paid Stock; Taxes. The Company agrees that the shares of the Common
Stock represented by each and every certificate for Warrant Shares delivered on
the proper exercise of this Warrant shall, at the time of such delivery, be
validly issued and outstanding, fully paid and nonassessable, and not subject to
preemptive rights, and the Company will take all such actions as may be
necessary to assure that the par value or stated value, if any, per share of the
Common Stock is at all times equal to or less than the then Per Share Warrant
Price. Subject to Section 6(c) hereof, the Company further covenants and agrees
that it will pay, when due and payable, any and all Federal and state stamp,
original issue or similar taxes that may be payable in respect of the issuance
of any Warrant Shares or certificates therefor. The Holder covenants and agrees
that it shall pay, when due and payable, any and all federal, state and local
income or similar taxes that may be payable in respect of the issuance of any
Warrant Shares or certificates therefor.
5. Repurchase of Warrant.
(a) Holders Option to Put Warrant. Subject to the
succeeding provisions of this Section 5, if at any time the
Warrant Shares shall not be issuable because the Company has
insufficient authorized capital stock, the Holder may, by
notice to the Company (a "Put Notice"), elect to sell to the
Company (and the Company hereby agrees to repurchase from the
Holder(s)), at the repurchase price specified in Section 5(d)
hereof (the "Repurchase Price"), such portion of the Warrant
exercisable for that number of Warrant Shares as are specified
in the Put Notice (the "Put Number"). For all purposes of this
Section 5, each Warrant shall be treated as the number of
Warrant Shares for which it is then exercisable.
(b) Put Closing. The closing of the exercise of the put
right shall take place at the offices of the Company at 10:00
a.m. local time on a date not more than seven (7) days after
the date of the Put Notice, or at such other time and place as
the Company and the Holder(s) may agree upon (the "Put Closing
Date"). At the closing the
-10-
<PAGE>
Holder(s) will deliver to the Company a Warrant or Warrants
evidencing or exercisable for at least the Put Number of
Warrant Shares (properly endorsed or accompanied by
assignments, with signature(s) guaranteed or similar
appropriate documentation of authority to transfer) against
payment of the Repurchase Price to the Holder(s) in the manner
specified in Section 5(c) hereof (together with Warrants of
like tenor evidencing the right to purchase any Warrant
Shares, in either case to the extent that the number of shares
represented by the Warrants presented to the Company were in
excess of the Put Number).
(c) Payment. The Company shall pay the Repurchase Price
to the Holder(s) out of funds legally available therefor at
any closing under Section 5(b) hereof in cash or immediately
available funds (the "Final Payment Date"). In the event that
any portion of the Repurchase Price is not paid as provided in
the preceding sentence as a result of any insufficiency of
legally available funds or otherwise, such portion shall
remain an obligation of the Company and shall become due and
payable, in cash or immediately available funds, as soon as
there are funds legally available therefor.
(d) Repurchase Price for Warrant.
(1) the Repurchase Price shall be equal to that number
which is equal to the difference between (I) the
product of (i) the Put Number of Warrant Shares,
multiplied by (ii) the quotient obtained by dividing
(A) the Market Value of the Company's Common Stock
(as determined pursuant to Section 5(d)(2) hereof),
calculated as of the date of the Put Notice given by
the Holder under Section 5(a), by (B) the total
number of shares of Common Stock outstanding on the
date of such Put Notice on a fully diluted basis, and
(II) the Product obtained by multiplying the Per
Share Warrant Price by the Put Number of Warrant
Shares;
(2) The Market Value as of a given date shall be the
product of (i) the Current Market Price (as
hereinafter defined) on such date multiplied by (ii)
the number of shares of Common Stock issued and
outstanding on such date on a fully diluted basis.
The term "Current Market Price", as of the date of
any determination thereof, shall be deemed to be the
average of the Closing Price per share for ten
Trading Days commencing immediately before such date.
6. Transfer
(a) Securities Laws. Neither this Warrant nor the Warrant
Shares issuable upon the exercise hereof have been registered
under the Securities Act of 1933, as amended (the "Securities
Act"), or under any state securities laws and unless so
-11-
<PAGE>
registered may not be transferred, sold, pledged, hypothecated
or otherwise disposed of unless an exemption from such
registration is available. In the event the Holder desires to
transfer this Warrant or any of the Warrant Shares issued, the
Holder must give the Company prior written notice of such
proposed transfer including the name and address of the
proposed transferee. Such transfer may be made only either (i)
upon publication by the Securities and Exchange Commission
(the "Commission") of a ruling, interpretation, opinion or "no
action letter" based upon facts presented to said Commission,
or (ii) upon receipt by the Company of an opinion of counsel
acceptable to the Company to the effect that the proposed
transfer will not violate the provisions of the Securities
Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or the rules and regulations promulgated
under either such act, or to the effect that the Warrant or
Warrant Shares to be sold or transferred have been registered
under the Securities Act of 1933, as amended, and that there
is in effect a current prospectus meeting the requirements of
Subsection 10(a) of the Securities Act, which is being or will
be delivered to the purchaser or transferee at or prior to the
time of delivery of the certificates evidencing the Warrant or
Warrant Shares to be sold or transferred. Notwithstanding
anything else contained herein, Danskin Investors, LLC may
distribute the Warrant or the Warrant Shares to its members.
(b) Transfer. Upon surrender of this Warrant to the
Company or at the office of its stock transfer agent, if any,
with assignment documentation duly executed and funds
sufficient to pay any transfer tax, and upon compliance with
the foregoing provisions, the Company shall, without charge,
execute and deliver a new Warrant in the name of the assignee
named in such instrument of assignment, and this Warrant shall
promptly be canceled. Any assignment, transfer, pledge,
hypothecation or other disposition of this Warrant attempted
contrary to the provisions of this Warrant, or any levy of
execution, attachment or other process attempted upon the
Warrant, shall be null and void and without effect.
(c) Legend and Stop Transfer Orders. Unless the Warrant
Shares have been registered under the Securities Act, upon
exercise of any part of the Warrant and the issuance of any of
the Warrant Shares, the Company shall instruct its transfer
agent to enter stop transfer orders with respect to such
shares, and all certificates representing Warrant Shares shall
bear on the face thereof substantially the following legend,
insofar as is consistent with Delaware law:
"The shares of common stock represented by this
certificate have not been registered under the
Securities Act of 1933, as amended, and may not be
sold, offered for sale, assigned, transferred or
otherwise disposed of unless registered pursuant to
the provisions of that Act or an opinion of counsel
to the Company is obtained stating that such
disposition is in compliance with an available
exemption from such registration."
-12-
<PAGE>
7. Loss, etc. of Warrant. Upon receipt of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of this
Warrant, and of indemnity reasonably satisfactory to the Company, if
lost, stolen or destroyed, and upon surrender and cancellation of this
Warrant if mutilated, the Company shall execute and deliver to the
Holder a new Warrant of like date, tenor and denomination.
8. Warrant Holder Not Shareholder. Except as otherwise provided
herein, this Warrant does not confer upon the Holder any right to vote
or to consent to or receive notice as a shareholder of the Company, as
such, in respect of any matters whatsoever, or any other rights or
liabilities as a shareholder, prior to the exercise hereof.
9. Communication. No notice or other communication under this
Warrant shall be effective unless the same is in writing and is mailed
by first-class mail, postage prepaid, addressed to:
(a) the Company at 111 West 40th Street, New York, NY
10018, attention: Chairman, or such other address as the
Company has designated in writing to the Holder, or
(b) the Holder at c/o Onyx Partners, Inc., 9595 Wilshire
Blvd., Suite 700, Beverly Hills, CA 90212, attention:
President, or such other address as the Holder has designated
in writing to the Company.
10. Headings. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof.
11. Applicable Law. This Warrant shall be governed by and
construed in accordance with the law of the State of New York without
giving effect to the principles of conflict of laws thereof.
-13-
<PAGE>
IN WITNESS WHEREOF, DANSKIN, INC., has caused this Warrant to be signed
by a duly authorized officer as of this [30th day of September], 1997.
DANSKIN, INC.
By:___________________________________
Name:
Title:
-14-
<PAGE>
SUBSCRIPTION
The undersigned, __________________________________________, pursuant
to the provisions of the foregoing Warrant, hereby agrees to subscribe for the
purchase of _________________________ shares of the Common Stock of DANSKIN,
INC. covered by said Warrant, and makes payment therefor in full at the price
per share provided by said Warrant.
Dated __________________ Signature__________________________
Address____________________
--------------------
ASSIGNMENT
FOR VALUE RECEIVED _________________________ hereby sells, assigns and
transfers unto _________________________ the foregoing Warrant and all rights
evidenced thereby, and does irrevocably constitute and appoint
_________________________, attorney, to transfer said Warrant on the books of
DANSKIN, INC.
Dated __________________ Signature__________________________
Address____________________
--------------------
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _________________________ hereby assigns and
transfers unto _________________________ the right to purchase
_________________________ shares of the Common Stock of DANSKIN, INC. by the
foregoing Warrant, and a proportionate part of said Warrant and the rights
evidenced hereby, and does irrevocably constitute and appoint
_________________________, attorney, to transfer that part of said Warrant on
the books of DANSKIN, INC.
Dated __________________ Signature__________________________
Address____________________
--------------------
-15-
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES C CUMULATIVE CONVERTIBLE
PREFERRED STOCK OF DANSKIN, INC.
DANSKIN, INC., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY
CERTIFY THAT:
A. Pursuant to authority conferred upon the Board of Directors by
the Certificate of Incorporation of the Corporation (the "Certificate of
Incorporation") and pursuant to the provisions of SECTION 151 of the Delaware
General Corporation Law, the Board of Directors, pursuant to a meeting held
September 18, 1997, adopted the following resolution providing for the
designations, preferences and relative, participating, optional and other
rights, and the qualifications, limitations and restrictions of the Series C
Cumulative Convertible Preferred Stock.
WHEREAS, the Certificate of Incorporation of the Corporation
provides for two classes of shares known as common stock, $.01 par value per
share (the "Common Stock"), and preferred stock, $.01 par value per share
("Preferred Stock"); and
WHEREAS, the Board of Directors of the Corporation is
authorized by the Certificate of Incorporation to provide for the issuance of
the shares of Preferred Stock in series, and by filing a certificate pursuant to
the applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in such series and to fix the designations,
preferences and rights of the shares of each such series and the qualifications,
limitations and restrictions thereof.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors
deems it advisable to, and hereby does, designate a Series C Cumulative
Convertible Preferred Stock and fixes and determines the rights, preferences,
qualifications, limitations and restrictions relating to the Series C Cumulative
Convertible Preferred Stock as follows:
1. Designation. The shares of such series of Preferred Stock
shall be designated "Series C Cumulative Convertible Preferred Stock" (referred
to herein as the "Series C Stock").
2. Authorized Number. The number of shares constituting the
Series C Stock shall be 100.
3. Ranking. The Corporation's Series C Stock shall rank, as to
dividends and upon Liquidation (as defined in Section 5(a) hereof), senior and
prior to the Corporation's Common Stock and to all other classes or series of
stock issued by the Corporation, except as otherwise approved
-1-
<PAGE>
by the affirmative vote or consent of the holders of shares of Series C Stock
pursuant to Section 10(d) hereof.
4. Dividends. Commencing three (3) months after the issuance of
the shares of the Series C Stock (the "Dividend Initiation Date"), dividends
shall begin to accrue on such shares at an initial rate of 8% (i.e., 400.00) per
share per annum. The holders of shares of Series C Stock shall be entitled to
receive such dividends when and as declared by the Board of Directors of the
Corporation, in cash, out of assets legally available for such purpose,
semi-annually in arrears on the last day of June and December in each year
following the Dividend Initiation Date. Dividends on the Series C Stock shall be
cumulative so that if, for any dividend accrual period, cash dividends at the
rate hereinabove specified are not declared and paid or set aside for payment,
the amount of accrued but unpaid dividends shall accumulate with interest at the
then applicable dividend rate per annum and shall be added to the dividends
payable for subsequent dividend accrual periods and upon any redemption or
conversion of shares of Series C Stock. If the shares of Series C Stock are
issued on a date which does not coincide with a dividend payment date, then the
initial dividend accrual period applicable to such shares shall be the period
from the Dividend Initiation Date through whichever of June 30 or December 31
next occurs after the Dividend Initiation Date. If the date fixed for payment of
a final liquidating distribution on any shares of Series C Stock, or the date on
which any shares of Series C Stock are redeemed or converted into Common Stock
does not coincide with a dividend payment date, then subject to the provisions
hereof relating to such payment, redemption or conversion, the final dividend
accrual period applicable to such shares shall be the period from whichever of
July 1 or January 1 most recently precedes the date of such payment, conversion
or redemption through the effective date of such payment, conversion or
redemption. The rate at which dividends are paid shall be adjusted for any
combinations or divisions or similar recapitalizations affecting the shares of
Series C Stock. Without the written consent of the holders of at least 662/3% of
the then outstanding Series C Stock, the Corporation shall not declare or pay
any cash dividend on, or redeem or repurchase or make any other cash
distribution in respect of any other equity securities of the Corporation unless
at the time of such declaration, payment or distribution all dividends on the
Series C Stock accrued for all past dividend accrual periods shall have been
paid and the full dividends thereon for the current dividend period shall be
paid or declared and set aside for payment.
5. Liquidation.
(a) Liquidation Procedure. Upon any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, the
holders of the shares of Series C Stock shall be entitled, before any
distribution or payment is made upon any Common Stock or any other
class or series of stock ranking junior to the Series C Stock as to
distribution of assets upon liquidation, to be paid an amount equal to
the greater of (i) $5,000 per share (as adjusted for any combinations,
divisions or similar recapitalizations affecting the shares of Series C
Stock) (the "Series C Issue Price") plus all accrued and unpaid
dividends to such date and (ii) the percentage of the assets of the
Corporation equal to the percentage which the Common Stock of the
Corporation issuable upon conversion of the Series C Stock
-2-
<PAGE>
represents of all of the outstanding Common Stock (and the Common Stock
issuable on conversion of the Series C Stock) of the Corporation at the
time of the making of the Liquidation Payments plus all accrued and
unpaid dividends to such date (the "Liquidation Payments"). If upon any
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the assets to be distributed among the
holders of Series C Stock shall be insufficient to permit payment in
full to the holders of Series C Stock of the Liquidation Payments, then
the entire assets of the Corporation shall be distributed ratably among
such holders in proportion to the full respective distributive amounts
to which they are entitled.
(b) Remaining Assets. Upon any liquidation, dissolution or
winding up of the Corporation, after the holders of Series C Stock
shall have been paid in full the Liquidation Payments, the remaining
assets of the Corporation may be distributed ratably per share in order
of preference to the holders of Common Stock and any other class or
series of stock ranking junior to the Series C Stock as to distribution
of assets upon liquidation.
(c) Notice of Liquidation. Written notice of a liquidation,
dissolution or winding up, stating a payment date, the amount of the
Liquidation Payments and the place where said Liquidation Payments
shall be payable, shall be given by mail, postage prepaid, not less
than 30 days prior to the payment date stated therein, to each holder
of record of Series C Stock at his post office address as shown by the
records of the Corporation.
6. Conversion/Exchange.
The holders of the Series C Stock shall have the following
conversion/exchange rights:
(a) Mandatory Exchange. Upon the closing (the "Closing") of
the repayment of all amounts due and owing to First Union National Bank
of North Carolina (the "Bank") by the Company under the revolving
credit portion of the Corporation's Amended and Restated Loan and
Security Agreement with the Bank, as agent, dated approximately as of
June 22, 1995, as the same has further been amended, the Series C Stock
(together with $14,396,488.20 aggregate principal amount of the
Promissory Note held by the holder of the Series C Stock) shall be
automatically exchanged for (i) shares of fully paid and non-assessable
Series D Cumulative Convertible Preferred Stock of the Corporation in
the form of Exhibit C to that certain Securities Purchase Agreement
dated as of September 22, 1997 between the Corporation and Danskin
Investors, LLC (the "Purchase Agreement") equal to Twelve Million
Dollars ($12,000,000) in stated value, (ii) a fully paid and
non-assessable common stock purchase warrant in the form of Exhibit D
to the Purchase Agreement (the "Warrant") and (iii) to the extent the
authorized capital stock of the Corporation permits and the
Registration Statement (as defined in the
-3-
<PAGE>
Purchase Agreement) shall have been declared effective by the
Securities and Exchange Commission, 7,988,294 shares of fully paid and
non-assessable common stock of the Corporation in the Rights Offering
(as defined in the Purchase Agreement), without further notice and
without action on the part of the holder (or such lesser number of
shares of common stock as are available for purchase by the holder);
provided, however, that if the Closing shall not have occurred on or
prior to March 31, 1998, the Series C Stock shall no longer be
exchangeable as provided herein. The Corporation shall pay all issue
taxes, if any, incurred in respect of the issue of the securities
delivered as provided herein in exchange of the Series C Stock pursuant
to this Section 6(a).
(b) Optional Conversion. Subject to the limitations set forth
below and to subsection (a) above, at any time on or after April 1,
1998, each share of Series C Stock shall be convertible (subject to
there being sufficient available authorized shares of Common Stock into
which to convert), at the option of the holder of record thereof, into
fully paid and nonassessable shares of Common Stock at the "conversion
rate" (as defined in paragraph (c) below) then in effect upon surrender
to the Corporation or its transfer agent of the certificate or
certificates representing the Series C Stock to be converted, as
provided below, or if the holder notifies the Corporation or its
transfer agent that such certificate or certificates have been lost,
stolen or destroyed, upon the execution and delivery of an agreement
satisfactory to the Corporation to indemnify the Corporation from any
losses incurred by it in connection therewith.
(c) Basis For Optional Conversion; Converted Shares. The basis
for any conversion under this Section 6 shall be the "conversion rate"
in effect at the time of conversion, which for the purposes hereof
shall mean the number of shares of Common Stock issuable for each share
of Series C Stock surrendered for conversion under this Section 6.
Initially, the conversion rate shall be 16,666.66:1, i.e., 16,666.66
shares of Common Stock for each share of Series C Stock being
converted. Such conversion rate shall be subject to adjustment as
provided in Section 8 below. As used herein, the term "conversion
price" shall be an amount computed by dividing the Series C Issue Price
by the conversion rate then in effect. Initially, the conversion price
shall be $.30 per share of Common Stock. If a holder of Series C Stock
shall surrender more than one share of Series C Stock for conversion at
any one time, the number of such shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate
number of shares of Series C Stock so surrendered. If any fractional
interest in a share of Common Stock would be deliverable upon
conversion of Series C Stock, the Corporation shall pay in lieu of such
fractional share an amount in cash equal to the conversion price of
such fractional share (computed to the nearest one hundredth of a
share) in effect at the close of business on the date of conversion.
Any shares of Series C Stock which have been converted shall be
cancelled and all dividends on converted shares shall cease to accrue
and the certificates representing shares of Series C Stock so converted
shall represent the right to receive (i) such number of shares of
Common Stock into which such shares of Series C Stock are convertible,
plus (ii) cash payable for any fractional share plus (iii) all accrued
but unpaid dividends relating to such shares, together with interest
thereon, payable in cash, through the immediately preceding dividend
payment date. At its option, the holder of the Series C Stock may elect
to receive dividend payments in additional shares of Common Stock at
the
-4-
<PAGE>
conversion rate. Upon the conversion of shares of Series C Stock as
provided in this Section 6, the Corporation shall promptly pay all then
accrued but unpaid dividends to the holder of the Series C Stock being
converted. The Board of Directors of the Corporation shall at all times
so long as any shares of Series C Stock remain outstanding reserve a
sufficient number of authorized but unissued shares of Common Stock to
be issued in satisfaction of the conversion rights and privileges
aforesaid.
(d) Mechanics of Conversion. In the case of an optional
conversion, before any holder of Series C Stock shall be entitled to
convert the same into shares of Common Stock, it shall surrender the
certificate or certificates therefor, duly endorsed, at the office of
the Corporation or its transfer agent for the Series C Stock, and shall
give written notice to the Corporation of the election to convert the
same and shall state therein the name or names in which the certificate
of certificates for shares of Common Stock are to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver
at such office to such holder of Series C Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled as
aforesaid. A certificate or certificates will be issued for the
remaining shares of Series C Stock in any case in which fewer than all
of the shares of Series C Stock represented by a certificate are
converted.
(e) Issue Taxes. The Corporation shall pay all issue taxes, if
any, incurred in respect of the issue of securities on conversion. If a
holder of shares surrendered for conversion specifies that the
securities to be issued on conversion are to be issued in a name or
names other than the name or names in which such surrendered shares
stand, the Corporation shall not be required to pay any transfer or
other taxes incurred by reason of the issuance of such securities to
the name of another, and if the appropriate transfer taxes shall not
have been paid to the Corporation or the transfer agent for the Series
C Stock at the time of surrender of the shares involved, the securities
issued upon conversion thereof may be registered in the name or names
in which the surrendered shares were registered, despite the
instructions to the contrary.
(f) Valid Issuance. All securities which may be issued in
connection with the conversion provisions set forth herein will, upon
issuance by the Corporation, be validly issued, fully paid and
nonassessable, free from preemptive rights and free from all taxes,
liens or charges with respect thereto created or imposed by the
Corporation.
7. Adjustment of Conversion Price and Conversion Rate. The number
and kind of securities issuable upon the optional conversion of the
Series C Stock, the conversion price and the conversion rate shall be
subject to adjustment from time to time in accordance with the
following provisions:
-5-
<PAGE>
(a) Certain Definitions. For purposes of this
Certificate:
(i) The term "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued, or deemed to be
issued by the Corporation pursuant to paragraph (g) of this
Section 7, after the Original Issue Date except:
(A) shares of Common Stock issuable upon
conversion of, or distributions with respect to, the
Series C Stock now or hereafter issued by the
Corporation;
(B) up to 790,000 shares of Common Stock
issuable upon the exercise of options issued to
officers, directors and employees of the Corporation
under stock option plans maintained from time to time
by the Corporation and approved by the Board of
Directors (the "Employee Options");
(C) up to 3,291,797 shares of Common Stock
issuable upon the exercise of options issued to Mary
Ann Domuracki, Beverly Eichel and Nina McLemore
(collectively, the "Management Options") in
connection with the closing of the Purchase
Agreement;
(D) shares of Common Stock issuable upon
exercise of the Warrant and the Warrant issued to
Donald Schupak pursuant to the terms of the Purchase
Agreement (the "Schupak Warrant"); and
(E) up to 10,000,000 shares of Common Stock
issuable pursuant to the Rights Offering contemplated
by the terms of the Purchase Agreement.
(ii) The term "Common Stock" shall mean (i) the
Common Stock, $.01 par value, and (ii) the stock of the
Corporation of any class, or series within a class, whether
now or hereafter authorized, which has the right to
participate in the distribution of either earnings or assets
of the Corporation without limit as to the amount or
percentage.
(iii) The term "Convertible Securities" shall mean
any evidence of indebtedness, shares (other than the
Promissory Note issued pursuant to the Purchase Agreement,
Series C Stock, Series D Stock, the Schupak Warrant and the
Warrant) or other securities convertible into or exchangeable
for Common Stock.
(iv) The term "Options" shall mean rights, options or
warrants (other than the Employee Options and the Management
Options) to subscribe for, purchase or otherwise acquire
Common Stock or Convertible Securities.
-6-
<PAGE>
(v) The term "Original Issue Date" shall mean the
date of the initial issuance of the Series C Stock.
(b) Reorganization, Reclassification. In the event of a
reorganization, share exchange, or reclassification, other than a
change in par value, or from par value to no par value, or from no par
value to par value or a transaction described in subsection (c) or (d)
below, each share of Series C Stock shall, after such reorganization,
share exchange or reclassification (a "Reclassification Event"), be
convertible at the option of the holder into the kind and number of
shares of stock or other securities or other property of the
Corporation which the holder of Series C Stock would have been entitled
to receive if the holder had held the Common Stock issuable upon
conversion of his Series C Stock immediately prior to such
reorganization, share exchange, or reclassification.
(c) Consolidation, Merger. In the event of a merger or
consolidation to which the Corporation is a party each share of Series
C Stock shall, after such merger or consolidation, be convertible at
the option of the holder into the kind and number of shares of stock
and/or other securities, cash or other property which the holder of
such share of Series C Stock would have been entitled to receive if the
holder had held the Common Stock issuable upon conversion of such share
of Series C Stock immediately prior to such consolidation or merger.
(d) Subdivision or Combination of Shares. In case outstanding
shares of Common Stock shall be subdivided, the conversion price shall
be proportionately reduced as of the effective date of such
subdivision, or as of the date a record is taken of the holders of
Common Stock for the purpose of so subdividing, whichever is earlier.
In case outstanding shares of Common Stock shall be combined, the
conversion price shall be proportionately increased as of the effective
date of such combination, or as of the date a record is taken of the
holders of Common Stock for the purpose of so combining, whichever is
earlier.
(e) Stock Dividends. In case shares of Common Stock are issued
as a dividend or other distribution on the Common Stock (or such
dividend is declared), then the conversion price shall be adjusted, as
of the date a record is taken of the holders of Common Stock for the
purpose of receiving such dividend or other distribution (or if no such
record is taken, as at the earliest of the date of such declaration,
payment or other distribution), to that price determined by multiplying
the conversion price in effect immediately prior to such declaration,
payment or other distribution by a fraction (i) the numerator of which
shall be the number of shares of Common Stock outstanding immediately
prior to the declaration or payment of such dividend or other
distribution, and (ii) the denominator of which shall be the total
number of shares of Common Stock outstanding immediately after the
declaration or payment of such dividend or other distribution. In the
event that the Corporation shall declare or pay any dividend on the
Common Stock payable in any right to acquire Common Stock for no
consideration, then the Corporation shall be deemed to have made a
dividend
-7-
<PAGE>
payable in Common Stock in an amount of shares equal to the maximum
number of shares issuable upon exercise of such rights to acquire
Common Stock.
(f) Issuance of Additional Shares of Common Stock. If the
Corporation shall issue any Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued
pursuant to paragraph (g) below) after the Original Issue Date (other
than as provided in the foregoing subsections (b) through (e)), for no
consideration or for a consideration per share less than the conversion
price in effect on the date of and immediately prior to such issue,
then in such event, the conversion price shall be reduced, concurrently
with such issue, to a price equal to the quotient obtained by dividing:
(A) an amount equal to (x) the total number of shares
of Common Stock outstanding immediately prior to such issuance
or sale multiplied by the conversion price in effect
immediately prior to such issuance or sale, plus (y) the
aggregate consideration received or deemed to be received by
the Corporation upon such issuance or sale, by
(B) the total number of shares of Common Stock
outstanding immediately after such issuance or sale.
For purposes of the formulas expressed in paragraph 7(e) and
7(f), all shares of Common Stock issuable upon the exercise of outstanding
Options or issuable upon the conversion of the Series C Stock or outstanding
Convertible Securities (including Convertible Securities issued upon the
exercise of outstanding Options), shall be deemed outstanding shares of Common
Stock both immediately before and after such issuance or sale.
(g) Deemed Issue of Additional Shares of Common Stock. In the
event the Corporation at any time or from time to time after the
Original Issue Date shall issue any Options or Convertible Securities
or shall fix a record date for the determination of holders of any
class of securities then entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth
in the instrument relating thereto without regard to any provisions
contained therein designed to protect against dilution) of Common Stock
issuable upon the exercise of such Options, or, in the case of
Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares
of Common Stock issued as of the time of such issue of Options or
Convertible Securities or, in case such a record date shall have been
fixed, as of the close of business on such record date, provided that
in any such case in which Additional Shares of Common Stock are deemed
to be issued:
(i) no further adjustments in the conversion price
shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such
Options or the issue of Common Stock upon the conversion or
exchange of such Convertible Securities;
-8-
<PAGE>
(ii) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise,
for any increase or decrease in the consideration payable to
the Corporation, or increase or decrease in the number of
shares of Common Stock issuable, upon the exercise, conversion
or exchange thereof, the conversion price computed upon the
original issuance of such Options or Convertible Securities
(or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, upon
any such increase or decrease becoming effective, shall be
recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange
under such Convertible Securities (provided, however, that no
such adjustment of the conversion price shall affect Common
Stock previously issued upon conversion of the Series C
Stock);
(iii) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the conversion
price computed upon the original issue of such Options or
Convertible Securities (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments
based thereon, shall, upon such expiration, be recomputed as
if:
(A) in the case of Options or Convertible
Securities, the only Additional Shares of Common
Stock issued were the shares of Common Stock, if any,
actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible
Securities and the consideration received therefor
was the consideration actually received by the
Corporation (x) for the issue of all such Options,
whether or not exercised, plus the consideration
actually received by the Corporation upon exercise of
the Options or (y) for the issue of all such
Convertible Securities which were actually converted
or exchanged plus the additional consideration, if
any, actually received by the Corporation upon the
conversion or exchange of the Convertible Securities;
and
(B) in the case of Options for Convertible
Securities, only the Convertible Securities, if any,
actually issued upon the exercise thereof were issued
at the time of issue of such Options, and the
consideration received by the Corporation for the
Additional Shares of Common Stock deemed to have been
then issued was the consideration actually received
by the Corporation for the issue of all such Options,
whether or not exercised, plus the consideration
deemed to have been received by the Corporation upon
the issue of the Convertible Securities with respect
to which such Options were actually exercised.
(iv) No readjustment pursuant to clause (ii) or (iii)
above shall have the effect of increasing the conversion price
to an amount which exceeds the lower of (x)
-9-
<PAGE>
the conversion price on the original adjustment date or (y)
the conversion price that would have resulted from any
issuance of Additional Shares of Common Stock between the
original adjustment date and such readjustment date.
(v) In the case of any Options which expire by their
terms not more than 30 days after the date of issue thereof,
no adjustment of the conversion price shall be made until the
expiration or exercise of all such Options, whereupon such
adjustment shall be made in the same manner provided in clause
(iii) above.
(h) Determination of Consideration. For purposes of this
Section 7, the consideration received by the Corporation for the issue
of any Additional Shares of Common Stock shall be computed as follows:
(i) Cash and Property. Such consideration shall:
(A) insofar as it consists of cash, be the
aggregate amount of cash received by the Corporation;
and
(B) insofar as it consists of property other
than cash, be computed at the fair value thereof at
the time of the issue, as determined by the vote of a
majority of the Corporation's Board of Directors or
if the Board of Directors cannot reach such
agreement, by a qualified independent public
accounting firm, other than the accounting firm then
engaged as the Corporation's independent auditors.
(ii) Options and Convertible Securities. The
consideration per share received by the Corporation for
Additional Shares of Common Stock deemed to have been issued
pursuant to paragraph (g) above, relating to Options and
Convertible Securities shall be determined by dividing:
(A) the total amount, if any, received or
receivable by the Corporation as consideration for
the issue of such Options or Convertible Securities,
plus the minimum aggregate amount of additional
consideration (as set forth in the instruments
relating thereto, without regard to any provision
contained therein designed to protect against
dilution) payable to the Corporation upon the
exercise of such Options or the conversion or
exchange of such Convertible Securities, or in the
case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible
Securities by
(B) the maximum number of shares of Common
Stock (as set forth in the instruments relating
thereto, without regard to any provision contained
therein designed to protect against dilution)
issuable upon the
-10-
<PAGE>
exercise of such Options or conversion or exchange of
such Convertible Securities.
(i) Adjustment of Conversion Rate. Upon each adjustment
of the conversion price under the provisions of this Section 7, the
conversion rate shall be adjusted to an amount determined by dividing
(x) the conversion price in effect immediately prior to the event
causing such adjustment by (y) such adjusted conversion price.
(j) Other Provisions Applicable to Adjustment Under this
Section. The following provisions will be applicable to the adjustments
in conversion price and conversion rate as provided in this Section 7:
(i) Treasury Shares. The number of shares of Common
Stock at any time outstanding shall not include any shares
thereof then directly or indirectly owned or held by or for
the account of the Corporation.
(ii) Other Action Affecting Common Stock. In case the
Corporation shall take any action affecting the outstanding
number of shares of Common Stock other than an action
described in any of the foregoing subsections 7(b) to 7(g)
hereof, inclusive, which would have an inequitable effect on
the holders of Series C Stock, the conversion price shall be
adjusted in such manner and at such time as the Board of
Directors of the Corporation on the advice of the
Corporation's independent public accountants may in good faith
determine to be equitable in the circumstances.
(iii) Minimum Adjustment. No adjustment of the
conversion price shall be made if the amount of any such
adjustment would be an amount less than one percent (1%) of
the conversion price then in effect, but any such amount shall
be carried forward and an adjustment in respect thereof shall
be made at the time of and together with any subsequent
adjustment which, together with such amount and any other
amount or amounts so carried forward, shall aggregate an
increase or decrease of one percent (1%) or more.
(iv) Certain Adjustments. The conversion price shall
not be adjusted upward except in the event of a combination of
the outstanding shares of Common Stock into a smaller number
of shares of Common Stock or in the event of a readjustment of
the conversion price pursuant to Section 7(g)(ii) or (iii).
(k) Notices of Adjustments. Whenever the conversion rate and
conversion price is adjusted as herein provided, an officer of the
Corporation shall compute the adjusted conversion rate and conversion
price in accordance with the foregoing provisions and shall prepare a
written certificate setting forth such adjusted conversion rate and
conversion price and showing in detail the facts upon which such
adjustment is based, and such written instrument shall promptly be
delivered to the recordholders of the Series C Stock.
-11-
<PAGE>
8. Redemption.
(a) Redemption by the Corporation. The Corporation shall have
no rights to redeem the Series C Stock or to cause the sale by the
holders of such Series C Stock.
(b) Redemption on Maturity. Upon the seventh (7th) anniversary
of the Original Issue Date, any Series C Stock then outstanding shall
be redeemed by the Corporation at the Redemption Price per share
defined in paragraph (c) below, payable in cash on the date of
redemption (such date being referred to herein as the "Redemption
Date") without further notice and without action on the part of the
holder.
(c) Redemption Price. The Redemption Price per share of Series
C Stock shall equal the sum of (x) 100% of the Series C Issue Price
plus (y) all accrued and unpaid dividends on such share of Series C
Stock to the Redemption Date.
(d) Redemption Procedure. On or prior to the Redemption Date,
the Corporation shall deposit the Redemption Price of all outstanding
shares of Series C Stock to be redeemed with a bank or trust
corporation having aggregate capital and surplus in excess of
$100,000,000 as a trust fund for the benefit of the holders of the
shares of Series C Stock, with irrevocable instructions and authority
to the bank or trust corporation to pay the Redemption Price for such
shares to their respective holders on or after the Redemption Date upon
receipt of the certificate or certificates of the shares of Series C
Stock to be redeemed. From and after the Redemption Date, unless there
shall have been a default in payment of the Redemption Price, all
rights of the holders of shares of Series C Stock as holders of Series
C Stock (except the right to receive the Redemption Price upon
surrender of their certificate or certificates) shall cease as to those
shares of Series C Stock redeemed, and such shares shall not thereafter
be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever. If on the Redemption Date the
funds of the Corporation legally available for redemption of shares of
Series C Stock are insufficient to redeem the total number of shares of
Series C Stock to be redeemed on such date, the Corporation will use
those funds which are legally available therefor to redeem the maximum
possible number of shares of Series C Stock ratably among the holders
of such shares to be redeemed based upon their holdings of Series C
Stock. Payments shall first be applied against accrued and unpaid
dividends and thereafter against the remainder of the Redemption Price.
The shares of Series C Stock not redeemed shall remain outstanding and
entitled to all the rights and preferences provided herein. At any time
thereafter when additional funds of the Corporation are legally
available for the redemption of shares of Series C Stock such funds
will immediately be used to redeem the balance of the shares of Series
C Stock to be redeemed. No dividends or other distributions shall be
declared or paid on, nor shall the Corporation redeem, purchase or
acquire any shares of, the Common Stock or any other class or series of
stock of the Corporation unless the Redemption Price of all shares
elected to be redeemed shall have been paid in full. Until the
Redemption Price for a share of Series C Stock elected to be redeemed
shall have been paid in full, such share of
-12-
<PAGE>
Series C Stock shall remain outstanding for all purposes and entitle
the holder thereof to all the rights and privileges provided herein,
including, without limitation, that dividends and interest thereon
shall continue to accrue and, if unpaid prior to the date such shares
are redeemed, shall be included as part of the Redemption Price as
provided in paragraph (c) above.
9. Notices of Record Dates and Effective Dates. In case: (a) the
Corporation shall declare a dividend (or any other distribution) on the Common
Stock payable otherwise than in shares of Common Stock; or (b) the Corporation
shall authorize the granting to the holders of Common Stock of rights to
subscribe for or purchase any shares of capital stock of any class or any other
rights; or (c) of any reorganization, share exchange or reclassification of the
capital stock of the Corporation (other than a subdivision or combination of
outstanding shares of Common Stock), or of any consolidation or merger to which
the Corporation is party or of the sale, lease or exchange of all or
substantially all of the property of the Corporation; or (d) of the voluntary or
involuntary dissolution, liquidation or winding up of the Corporation; then the
Corporation shall cause to be mailed to the recordholders of the Series C Stock
at least 20 days prior to the applicable record date or effective date
hereinafter specified, a notice stating (i) the date on which a record is to be
taken for the purpose of such dividend, distribution or rights, or, if a record
is not to be taken, the date as of which the holders of record of Common Stock
to be entitled to such dividend, distribution or rights are to be determined or
(ii) the date on which such reclassification, reorganization, share exchange,
consolidation, merger, sale, lease, exchange, dissolution, liquidation or
winding up is expected to become effective or be consummated, and the date as of
which it is expected that holders of record of Common Stock shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon such reclassification, reorganization share exchange,
consolidation, liquidation, merger, sale, lease, exchange, dissolution,
liquidation or winding up.
10. Voting Rights.
(a) General. In addition to the rights otherwise provided for
herein or by law, holders of the Series C Stock shall be entitled to
vote, together with the holders of the Common Stock and any other class
or series of stock then entitled to vote, as one class on all matters
submitted to a vote of stockholders of the Corporation, in the same
manner and with the same effect as the holders of the Common Stock. In
any such vote, and in any vote or action of the holders of the Series C
Stock voting together as a separate class, each share of issued and
outstanding Series C Stock shall entitle the holder thereof to one vote
per share for each share of Common Stock (including fractional shares)
which would be obtained upon conversion of all of the outstanding
shares of the Series C Stock held by such holder, rounded up to the
nearest one-tenth of a share.
(b) Election of Board of Directors.
(i) In addition to the rights specified in Section
10(a), the holders of a majority in voting power of the Series
C Stock, voting together as a separate class or
-13-
<PAGE>
in such other manner as the holders of the Series C Stock
shall agree among themselves shall have the exclusive right to
elect to the Board of Directors of the Corporation that number
of directors which shall be equal to one director less than a
majority of the total number of directors constituting the
whole Board of Directors at any given time (the "Preferred
Directors"). In any election of Preferred Directors pursuant
to this Section 10(b), each share of issued and outstanding
Series C Stock shall entitle the holder thereof to the number
of votes per share that equals the number of shares of Common
Stock (including fractional shares) into which each such share
is then convertible, rounded up to the nearest one-tenth of a
share. The voting rights of the holders of Series C Stock
contained in this Section 10(b) may be exercised at a special
meeting of the holders of Series C Stock called as provided in
accordance with the By-laws of the Corporation, at any annual
or special meeting of the stockholders of the Corporation, or
by written consent of the holders of Series C Stock in lieu of
a meeting. The Preferred Directors elected pursuant to this
Section 10(b) shall serve from the date of their election and
qualification until their successors have been duly elected
and qualified.
(ii) A vacancy in the directorships to be elected
pursuant to Section 10(b)(i) (including any vacancy created on
account of an increase in the number of directors on the Board
of Directors) may be filled only by vote of the holders of
Series C Stock at a meeting called in accordance with the
By-laws of the Corporation or written consent in lieu of a
meeting in accordance with Section 10(b)(i).
(iii) No director elected by the holders of Series C
Stock as a class, or elected by other directors to fill a
vacancy resulting from the death, resignation or removal of a
director elected by such class vote, may be removed from
office by the vote or written consent of stockholders unless
such vote or written consent includes that of the holders of a
majority of the outstanding shares of Series C Stock.
(c) Protective Provisions. In addition to any other vote
or consent of stockholders provided by law or by the Corporation's
Certificate of Incorporation, the Corporation shall not, without the
approval by vote or written consent of the holders of not less than
662/3% of the then outstanding shares of Series C Stock:
(i) amend, waive or repeal any provisions of, or add
any provision to, (i) this Certificate of Designation or (ii)
any provision of the Corporation's Certificate of
Incorporation or any other certificate of designation filed
with the Secretary of State of Delaware by the Corporation
with respect to its preferred stock;
(ii) amend, waive or repeal any provisions of, or add
any provision to, the Corporation's By-Laws;
-14-
<PAGE>
(iii) enter into any agreement, indenture or other
instrument which contains any provisions restricting the
Corporation's obligation to pay dividends on, make liquidation
payments in respect of, or make redemptions of the Series C
Stock in accordance herewith; or
(iv) dissolve the Corporation.
(d) Amendment of Series C Stock. Notwithstanding anything else
contained herein, the affirmative vote or written consent of the
holders of 75% of the outstanding shares of Series C Stock shall be
necessary to amend, alter or repeal any of the provisions of the
Certificate of Designation creating this Series C Stock which would
alter or change (i) the dividend rate, (ii) redemption provisions,
(iii) anti-dilution provisions, (iv) the place or currency of payments
hereunder, (v) the right to institute suit for the enforcement of any
payment hereunder, (vi) the conversion provisions,(vii) the voting
rights, or (viii) provisions of this Section 10, so as to affect any of
the foregoing adversely.
11. Shares to be Retired. All shares of the Series C Stock redeemed,
converted, exchanged or purchased by the Corporation shall be retired and
canceled and shall be restored to the status of authorized but unissued shares
of Preferred Stock, without designation as to series and may thereafter be
reissued.
*****
-15-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
Certificate this 22nd day of September, 1997.
DANSKIN, INC.
By: ____________________________
Name:
Title:
<PAGE>
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES D CUMULATIVE CONVERTIBLE
PREFERRED STOCK OF DANSKIN, INC.
DANSKIN, INC., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY
CERTIFY THAT:
A. Pursuant to authority conferred upon the Board of Directors by the
Certificate of Incorporation of the Corporation (the "Certificate of
Incorporation") and pursuant to the provisions of SECTION 151 of the Delaware
General Corporation Law, the Board of Directors, pursuant to a meeting held
September 18, 1997, adopted the following resolution providing for the
designations, preferences and relative, participating, optional and other
rights, and the qualifications, limitations and restrictions of the Series D
Cumulative Convertible Preferred Stock.
WHEREAS, the Certificate of Incorporation of the Corporation
provides for two classes of shares known as common stock, $.01 par value per
share (the "Common Stock"), and preferred stock, $.01 par value per share
("Preferred Stock"); and
WHEREAS, the Board of Directors of the Corporation is
authorized by the Certificate of Incorporation to provide for the issuance of
the shares of Preferred Stock in series, and by filing a certificate pursuant to
the applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in such series and to fix the designations,
preferences and rights of the shares of each such series and the qualifications,
limitations and restrictions thereof.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors
deems it advisable to, and hereby does, designate a Series D Cumulative
Convertible Preferred Stock and fixes and determines the rights, preferences,
qualifications, limitations and restrictions relating to the Series D Cumulative
Convertible Preferred Stock as follows:
1. Designation. The shares of such series of Preferred Stock
shall be designated "Series D Cumulative Convertible Preferred Stock" (referred
to herein as the "Series D Stock").
2. Authorized Number. The number of shares constituting the
Series D Stock shall be 2,400.
3. Ranking. The Corporation's Series D Stock shall rank, as to
dividends and upon Liquidation (as defined in Section 5(a) hereof), senior and
prior to the Corporation's Common Stock and to all other classes or series of
stock issued by the Corporation, except as otherwise approved
<PAGE>
by the affirmative vote or consent of the holders of shares of Series D Stock
pursuant to Section 10(d) hereof.
4. Dividends.
(a) Dividend Accrual and Payment. From and after the issuance
of the Series D Stock (the "Original Issue Date"), dividends shall
accrue on the shares of Series D Stock at the rate of 8% (i.e., $400)
per share per annum. The holders of shares of Series D Stock shall be
entitled to receive such dividends when and as declared by the Board of
Directors of the Corporation, in cash, out of assets legally available
for such purpose, semi-annually in arrears on the last day of March and
September in each year following the Original Issue Date; provided,
however, that dividends on the Series D Stock shall accrue but are not
required to be paid during the period ending December 31, 1999.
Dividends on the Series D Stock shall be cumulative so that if, for any
dividend accrual period, cash dividends at the rate hereinabove
specified are not declared and paid or set aside for payment, the
amount of accrued but unpaid dividends shall accumulate with interest
at the then applicable dividend rate per annum and shall be added to
the dividends payable for subsequent dividend accrual periods and upon
any redemption or conversion of shares of Series D Stock, subject to
the dividend forgiveness provisions set forth in paragraph (b) below.
If the shares of Series D Stock are issued on a date which does not
coincide with a dividend payment date, then the initial dividend
accrual period applicable to such shares shall be the period from the
Original Issue Date through whichever of March 31 or September 30 next
occurs after the Original Issue Date. If the date fixed for payment of
a final liquidating distribution on any shares of Series D Stock, or
the date on which any shares of Series D Stock are redeemed or
converted into Common Stock does not coincide with a dividend payment
date, then subject to the provisions hereof relating to such payment,
redemption or conversion, the final dividend accrual period applicable
to such shares shall be the period from whichever of April 1 or October
1 most recently precedes the date of such payment, conversion or
redemption through the effective date of such payment, conversion or
redemption. The rate at which dividends are paid shall be adjusted for
any combinations or divisions or similar recapitalizations affecting
the shares of Series D Stock. Without the written consent of the
holders of at least 662/3% of the then outstanding Series D Stock, the
Corporation shall not declare or pay any cash dividend on, or redeem or
repurchase or make any other cash distribution in respect of any other
equity securities of the Corporation unless at the time of such
declaration, payment or distribution all dividends on the Series D
Stock accrued for all past dividend accrual periods shall have been
paid and the full dividends thereon for the current dividend period
shall be paid or declared and set aside for payment.
(b) Dividend Forgiveness. Notwithstanding the foregoing,
in the event that the Corporation achieves the Financial Targets (as
defined below) for any of the 1999, 2000, 2001 or 2002 fiscal years,
then all dividends accrued but unpaid in respect of such fiscal year
(or in the case of the fiscal year ending 1999, all preceding fiscal
years), together with any interest thereon, shall be forgiven and the
Corporation shall have no further obligations with
-2-
<PAGE>
respect thereto. For the avoidance of doubt, if the Financial Targets
are not achieved in any year, then dividends accrued for all preceding
fiscal years shall be due and payable notwithstanding that the
Financial Targets may have been met for a succeeding fiscal year.
"Financial Targets" means, with respect to each of the 1999, 2000, 2001
and 2002 fiscal years of the Corporation, the Annual Gross Profit
Target (the "Gross Profit Target") of the Danskin division of the
Corporation ("Danskin Division") and the Annual Earnings before
Interest and Taxes Target (the "EBIT Target") for the Corporation for
such fiscal year as set forth in the charts below. The achievement by
the Danskin Division of the Gross Profit Target and the Corporation's
achievement of the EBIT Target shall be measured by reference to the
corresponding line items on the certified financial statements of the
Corporation (or of the Danskin Division if it has separate certified
financial statements) for the relevant fiscal year.
Annual Gross Profit Target of the Danskin Division:
Target
Fiscal Year (in millions of dollars)
1999............................................44.3
2000............................................51.7
2001............................................56.8
2002............................................62.0
Annual Earnings before
Interest and Taxes Target of the Corporation:
Target
Fiscal Year (in millions of dollars)
1999.............................................5.7
2000............................................10.2
2001............................................15.0
2002............................................19.0
5. Liquidation.
(a) Liquidation Procedure. Upon any liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, the
holders of the shares of Series D Stock shall be entitled, before any
distribution or payment is made upon any Common Stock or any other
class or series of stock ranking junior to the Series D Stock as to
distribution of assets upon liquidation, to be paid an amount equal to
the greater of (i) $5,000 per share (as adjusted for any combinations,
divisions or similar recapitalizations affecting the shares of Series D
Stock) (the "Series D Issue Price") plus all accrued and unpaid
dividends to such
-3-
<PAGE>
date and (ii) the percentage of the assets of the Corporation equal to
the percentage which the Common Stock of the Corporation issuable upon
conversion of the Series D Stock represents of all of the outstanding
Common Stock (and the Common Stock issuable on conversion of the Series
D Stock) of the Corporation at the time of the making of the
Liquidation Payments plus all accrued and unpaid dividends to such date
(the "Liquidation Payments"). If upon any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the
assets to be distributed among the holders of Series D Stock shall be
insufficient to permit payment in full to the holders of Series D Stock
of the Liquidation Payments, then the entire assets of the Corporation
shall be distributed ratably among such holders in proportion to the
full respective distributive amounts to which they are entitled.
(b) Remaining Assets. Upon any liquidation, dissolution or
winding up of the Corporation, after the holders of Series D Stock
shall have been paid in full the Liquidation Payments, the remaining
assets of the Corporation may be distributed ratably per share in order
of preference to the holders of Common Stock and any other class or
series of stock ranking junior to the Series D Stock as to distribution
of assets upon liquidation.
(c) Notice of Liquidation. Written notice of a liquidation,
dissolution or winding up, stating a payment date, the amount of the
Liquidation Payments and the place where said Liquidation Payments
shall be payable, shall be given by mail, postage prepaid, not less
than 30 days prior to the payment date stated therein, to each holder
of record of Series D Stock at his post office address as shown by the
records of the Corporation.
6. Conversion.
The holders of the Series D Stock shall have the following
conversion rights:
(a) Mandatory Conversion. Subject to the Corporation having
received the Stockholder Related Approvals (as defined below), upon the
Corporation's delivery to the holders of the Series D Stock of annual
financial statements of the Corporation prepared by the Corporation's
independent certified public accountants in accordance with GAAP
evidencing the achievement of the Financial Targets by the Corporation
and the Danskin Division for the immediately prior fiscal year, any
Series D Stock remaining outstanding shall be automatically converted
into fully-paid and nonassessable shares of Common Stock at the
"conversion rate" (as defined in paragraph (c) below) then in effect
without further notice and without action on the part of the holder.
(b) Optional Conversion. Subject to the limitations set forth
below and to subsection (a) above, each share of Series D Stock shall
be convertible at any time (subject to there being sufficient available
authorized shares of Common Stock into which to convert), at the option
of the holder of record thereof, into fully paid and nonassessable
shares of Common Stock at the "conversion rate" (as defined in
paragraph (c) below) then
-4-
<PAGE>
in effect upon surrender to the Corporation or its transfer agent of
the certificate or certificates representing the Series D Stock to be
converted, as provided below, or if the holder notifies the Corporation
or its transfer agent that such certificate or certificates have been
lost, stolen or destroyed, upon the execution and delivery of an
agreement satisfactory to the Corporation to indemnify the Corporation
from any losses incurred by it in connection therewith.
(c) Basis For Conversion; Converted Shares. The basis for any
conversion under this Section 6 shall be the "conversion rate" in
effect at the time of conversion, which for the purposes hereof shall
mean the number of shares of Common Stock issuable for each share of
Series D Stock surrendered for conversion under this Section 6.
Initially, the conversion rate shall be 16,666.66:1, i.e., 16,666.66
shares of Common Stock for each share of Series D Stock being
converted. Such conversion rate shall be subject to adjustment as
provided in Section 8 below. As used herein, the term "conversion
price" shall be an amount computed by dividing the Series D Issue Price
by the conversion rate then in effect. Initially, the conversion price
shall be $.30 per share of Common Stock. If a holder of Series D Stock
shall surrender more than one share of Series D Stock for conversion at
any one time, the number of such shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate
number of shares of Series D Stock so surrendered. If any fractional
interest in a share of Common Stock would be deliverable upon
conversion of Series D Stock, the Corporation shall pay in lieu of such
fractional share an amount in cash equal to the conversion price of
such fractional share (computed to the nearest one hundredth of a
share) in effect at the close of business on the date of conversion.
Any shares of Series D Stock which have been converted shall be
cancelled and all dividends on converted shares shall cease to accrue
and the certificates representing shares of Series D Stock so converted
shall represent the right to receive (i) such number of shares of
Common Stock into which such shares of Series D Stock are convertible,
plus (ii) cash payable for any fractional share, plus (iii) subject to
the dividend forgiveness provisions set forth in Section 4(b) hereof,
all accrued but unpaid dividends relating to such shares, together with
interest thereon, payable in cash, through the immediately preceding
dividend payment date. At its option, the holder of the Series D Stock
may elect to receive dividend payments in additional shares of Common
Stock at the conversion rate. Upon the conversion of shares of Series D
Stock as provided in this Section 6, the Corporation shall promptly pay
all then accrued but unpaid dividends to the holder of the Series D
Stock being converted. The Board of Directors of the Corporation shall
at all times so long as any shares of Series D Stock remain outstanding
(and after the Stockholder Related Approvals have been obtained)
reserve a sufficient number of authorized but unissued shares of Common
Stock to be issued in satisfaction of the conversion rights and
privileges aforesaid. The Corporation shall use its best efforts to
promptly obtain the "Stockholder Related Approvals." "Stockholder
Related Approvals" means all consents and approvals of the holders of
the Corporation's capital stock and clearances of any information
statement or proxy by the Securities and Exchange Commission which may
be necessary to amend the Corporation's Certificate of Incorporation in
order to (i) eliminate the provisions of the
-5-
<PAGE>
Certificate of Incorporation providing for a classified Board of
Directors and (ii) increase the Corporation's authorized Common Stock
by an amount sufficient to permit the Corporation to issue the number
of duly authorized, fully-paid and nonassessable shares of Common Stock
which would be required upon the conversion of all of the authorized
shares of Series D Stock in accordance with this certificate or
otherwise approve the acquisition of such shares of Common Stock and
any substantially contemporaneous offering of shares of the
Corporation's Common Stock.
(d) Mechanics of Conversion. In the case of an optional
conversion, before any holder of Series D Stock shall be entitled to
convert the same into shares of Common Stock, it shall surrender the
certificate or certificates therefor, duly endorsed, at the office of
the Corporation or its transfer agent for the Series D Stock, and shall
give written notice to the Corporation of the election to convert the
same and shall state therein the name or names in which the certificate
of certificates for shares of Common Stock are to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver
at such office to such holder of Series D Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled as
aforesaid. A certificate or certificates will be issued for the
remaining shares of Series D Stock in any case in which fewer than all
of the shares of Series D Stock represented by a certificate are
converted.
(e) Issue Taxes. The Corporation shall pay all issue taxes, if
any, incurred in respect of the issue of shares of Common Stock on
conversion. If a holder of shares surrendered for conversion specifies
that the shares of Common Stock to be issued on conversion are to be
issued in a name or names other than the name or names in which such
surrendered shares stand, the Corporation shall not be required to pay
any transfer or other taxes incurred by reason of the issuance of such
shares of Common Stock to the name of another, and if the appropriate
transfer taxes shall not have been paid to the Corporation or the
transfer agent for the Series D Stock at the time of surrender of the
shares involved, the shares of Common Stock issued upon conversion
thereof may be registered in the name or names in which the surrendered
shares were registered, despite the instructions to the contrary.
(f) Valid Issuance. All shares of Common Stock which may be
issued in connection with the conversion provisions set forth herein
will, upon issuance by the Corporation, be validly issued, fully paid
and nonassessable, free from preemptive rights and free from all taxes,
liens or charges with respect thereto created or imposed by the
Corporation.
7. Adjustment of Conversion Price and Conversion Rate. The number and
kind of securities issuable upon the conversion of the Series D Stock, the
conversion price and the conversion rate shall be subject to adjustment from
time to time in accordance with the following provisions:
-6-
<PAGE>
(a) Certain Definitions. For purposes of this
Certificate:
(i) The term "Additional Shares of Common Stock"
shall mean all shares of Common Stock issued, or deemed to be
issued by the Corporation pursuant to paragraph (g) of this
Section 7, after the Original Issue Date except:
(A) shares of Common Stock issuable upon
conversion of, or distributions with respect to, the
Series D Stock now or hereafter issued by the
Corporation;
(B) up to 790,000 shares of Common Stock
issuable upon the exercise of options issued to
officers, directors and employees of the Corporation
under stock option plans maintained from time to time
by the Corporation and approved by the Board of
Directors (the "Employee Options");
(C) up to 3,291,797 shares of Common Stock
issuable upon the exercise of options issued to Mary
Ann Domuracki, Beverly Eichel and Nina McLemore
(collectively, the "Management Options") in
connection with the closing of that certain
Securities Purchase Agreement dated as of September
22, 1997 between the Corporation and Danskin
Investors, LLC (the "Purchase Agreement");
(D) shares of Common Stock issuable upon
exercise of that certain Warrant issued on the
Original Issue Date pursuant to the Purchase
Agreement (the "Warrant") and the Warrant issued to
Donald Schupak pursuant to the terms of the Purchase
Agreement (the "Schupak Warrant"); and
(E) up to 10,000,000 shares of Common Stock
issuable pursuant to the Rights Offering contemplated
by the terms of the Purchase Agreement.
(ii) The term "Common Stock" shall mean (i) the
Common Stock, $.01 par value, and (ii) the stock of the
Corporation of any class, or series within a class, whether
now or hereafter authorized, which has the right to
participate in the distribution of either earnings or assets
of the Corporation without limit as to the amount or
percentage.
(iii) The term "Convertible Securities" shall mean
any evidence of indebtedness, shares (other than the
Promissory Note issued pursuant to the
-7-
<PAGE>
Purchase Agreement, Series C Stock, Series D Stock, the
Schupak Warrant and the Warrant) or other securities
convertible into or exchangeable for Common Stock.
(iv) The term "Options" shall mean rights, options or
warrants (other than the Employee Options and the Management
Options) to subscribe for, purchase or otherwise acquire
Common Stock or Convertible Securities.
(v) The term "Original Issue Date" shall mean the
date of the initial issuance of the Series D Stock.
(b) Reorganization, Reclassification. In the event of a
reorganization, share exchange, or reclassification, other than a
change in par value, or from par value to no par value, or from no par
value to par value or a transaction described in subsection (c) or (d)
below, each share of Series D Stock shall, after such reorganization,
share exchange or reclassification (a "Reclassification Event"), be
convertible at the option of the holder into the kind and number of
shares of stock or other securities or other property of the
Corporation which the holder of Series D Stock would have been entitled
to receive if the holder had held the Common Stock issuable upon
conversion of his Series D Stock immediately prior to such
reorganization, share exchange, or reclassification.
(c) Consolidation, Merger. In the event of a merger or
consolidation to which the Corporation is a party each share of Series
D Stock shall, after such merger or consolidation, be convertible at
the option of the holder into the kind and number of shares of stock
and/or other securities, cash or other property which the holder of
such share of Series D Stock would have been entitled to receive if the
holder had held the Common Stock issuable upon conversion of such share
of Series D Stock immediately prior to such consolidation or merger.
(d) Subdivision or Combination of Shares. In case outstanding
shares of Common Stock shall be subdivided, the conversion price shall
be proportionately reduced as of the effective date of such
subdivision, or as of the date a record is taken of the holders of
Common Stock for the purpose of so subdividing, whichever is earlier.
In case outstanding shares of Common Stock shall be combined, the
conversion price shall be proportionately increased as of the effective
date of such combination, or as of the date a record is taken of the
holders of Common Stock for the purpose of so combining, whichever is
earlier.
(e) Stock Dividends. In case shares of Common Stock are issued
as a dividend or other distribution on the Common Stock (or such
dividend is declared), then the conversion price shall be adjusted, as
of the date a record is taken of the holders of Common Stock for the
purpose of receiving such dividend or other distribution (or if no such
record is taken, as at the earliest of the date of such declaration,
payment or other distribution), to that price determined by multiplying
the conversion price in effect immediately prior to
-8-
<PAGE>
such declaration, payment or other distribution by a fraction (i) the
numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the declaration or payment of such
dividend or other distribution, and (ii) the denominator of which shall
be the total number of shares of Common Stock outstanding immediately
after the declaration or payment of such dividend or other
distribution. In the event that the Corporation shall declare or pay
any dividend on the Common Stock payable in any right to acquire Common
Stock for no consideration, then the Corporation shall be deemed to
have made a dividend payable in Common Stock in an amount of shares
equal to the maximum number of shares issuable upon exercise of such
rights to acquire Common Stock.
(f) Issuance of Additional Shares of Common Stock. If the
Corporation shall issue any Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued
pursuant to paragraph (g) below) after the Original Issue Date (other
than as provided in the foregoing subsections (b) through (e)), for no
consideration or for a consideration per share less than the conversion
price in effect on the date of and immediately prior to such issue,
then in such event, the conversion price shall be reduced, concurrently
with such issue, to a price equal to the quotient obtained by dividing:
(A) an amount equal to (x) the total number of shares
of Common Stock outstanding immediately prior to such issuance
or sale multiplied by the conversion price in effect
immediately prior to such issuance or sale, plus (y) the
aggregate consideration received or deemed to be received by
the Corporation upon such issuance or sale, by
(B) the total number of shares of Common Stock
outstanding immediately after such issuance or sale.
For purposes of the formulas expressed in paragraph 7(e) and
7(f), all shares of Common Stock issuable upon the exercise of outstanding
Options or issuable upon the conversion of the Series D Stock or outstanding
Convertible Securities (including Convertible Securities issued upon the
exercise of outstanding Options), shall be deemed outstanding shares of Common
Stock both immediately before and after such issuance or sale.
(g) Deemed Issue of Additional Shares of Common Stock. In the
event the Corporation at any time or from time to time after the Original Issue
Date shall issue any Options or Convertible Securities or shall fix a record
date for the determination of holders of any class of securities then entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares (as set forth in the instrument relating thereto without regard to any
provisions contained therein designed to protect against dilution) of Common
Stock issuable upon the exercise of such Options, or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue of Options or Convertible Securities or, in case such a
-9-
<PAGE>
record date shall have been fixed, as of the close of business on such record
date, provided that in any such case in which Additional Shares of Common Stock
are deemed to be issued:
(i) no further adjustments in the conversion price
shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such
Options or the issue of Common Stock upon the conversion or
exchange of such Convertible Securities;
(ii) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise,
for any increase or decrease in the consideration payable to
the Corporation, or increase or decrease in the number of
shares of Common Stock issuable, upon the exercise, conversion
or exchange thereof, the conversion price computed upon the
original issuance of such Options or Convertible Securities
(or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, upon
any such increase or decrease becoming effective, shall be
recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange
under such Convertible Securities (provided, however, that no
such adjustment of the conversion price shall affect Common
Stock previously issued upon conversion of the Series D
Stock);
(iii) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the conversion
price computed upon the original issue of such Options or
Convertible Securities (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments
based thereon, shall, upon such expiration, be recomputed as
if:
(A) in the case of Options or Convertible
Securities, the only Additional Shares of Common
Stock issued were the shares of Common Stock, if any,
actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible
Securities and the consideration received therefor
was the consideration actually received by
the Corporation (x) for the issue of all such
Options, whether or not exercised, plus the
consideration actually received by the Corporation
upon exercise of the Options or (y) for the issue of
all such Convertible Securities which were actually
converted or exchanged plus the additional
consideration, if any, actually received by the
Corporation upon the conversion or exchange of the
Convertible Securities; and
(B) in the case of Options for Convertible
Securities, only the Convertible Securities, if any,
actually issued upon the exercise thereof were issued
at the time of issue of such Options, and the
consideration received
-10-
<PAGE>
by the Corporation for the Additional Shares of
Common Stock deemed to have been then issued was the
consideration actually received by the Corporation
for the issue of all such Options, whether or not
exercised, plus the consideration deemed to have been
received by the Corporation upon the issue of the
Convertible Securities with respect to which such
Options were actually exercised.
(iv) No readjustment pursuant to clause (ii) or (iii)
above shall have the effect of increasing the conversion price
to an amount which exceeds the lower of (x) the conversion
price on the original adjustment date or (y) the conversion
price that would have resulted from any issuance of Additional
Shares of Common Stock between the original adjustment date
and such readjustment date.
(v) In the case of any Options which expire by their
terms not more than 30 days after the date of issue thereof,
no adjustment of the conversion price shall be made until the
expiration or exercise of all such Options, whereupon such
adjustment shall be made in the same manner provided in clause
(iii) above.
(h) Determination of Consideration. For purposes of this
Section 7, the consideration received by the Corporation for the issue
of any Additional Shares of Common Stock shall be computed as follows:
(i) Cash and Property. Such consideration shall:
(A) insofar as it consists of cash, be the
aggregate amount of cash received by the Corporation;
and
(B) insofar as it consists of property other
than cash, be computed at the fair value thereof at
the time of the issue, as determined by the vote of a
majority of the Corporation's Board of Directors or
if the Board of Directors cannot reach such
agreement, by a qualified independent public
accounting firm, other than the accounting firm then
engaged as the Corporation's independent auditors.
(ii) Options and Convertible Securities. The
consideration per share received by the Corporation
for Additional Shares of Common Stock deemed to have
been issued pursuant to paragraph (g) above, relating
to Options and Convertible Securities shall be
determined by dividing:
(A) the total amount, if any, received or
receivable by the Corporation as consideration for
the issue of such Options or Convertible Securities,
plus the minimum aggregate amount of additional
consideration (as set forth in the instruments
relating thereto, without regard to any
-11-
<PAGE>
provision contained therein designed to protect
against dilution) payable to the Corporation upon the
exercise of such Options or the conversion or
exchange of such Convertible Securities, or in the
case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible
Securities by
(B) the maximum number of shares of Common
Stock (as set forth in the instruments relating
thereto, without regard to any provision contained
therein designed to protect against dilution)
issuable upon the exercise of such Options or
conversion or exchange of such Convertible
Securities.
(i) Adjustment of Conversion Rate. Upon each adjustment
of the conversion price under the provisions of this Section 7, the
conversion rate shall be adjusted to an amount determined by dividing
(x) the conversion price in effect immediately prior to the event
causing such adjustment by (y) such adjusted conversion price.
(j) Other Provisions Applicable to Adjustment Under this
Section. The following provisions will be applicable to the adjustments
in conversion price and conversion rate as provided in this Section 7:
(i) Treasury Shares. The number of shares of Common
Stock at any time outstanding shall not include any shares
thereof then directly or indirectly owned or held by or for
the account of the Corporation.
(ii) Other Action Affecting Common Stock. In case the
Corporation shall take any action affecting the outstanding
number of shares of Common Stock other than an action
described in any of the foregoing subsections 7(b) to 7(g)
hereof, inclusive, which would have an inequitable effect on
the holders of Series D Stock, the conversion price shall be
adjusted in such manner and at such time as the Board of
Directors of the Corporation on the advice of the
Corporation's independent public accountants may in good faith
determine to be equitable in the circumstances.
(iii) Minimum Adjustment. No adjustment of the
conversion price shall be made if the amount of any such
adjustment would be an amount less than one percent (1%) of
the conversion price then in effect, but any such amount shall
be carried forward and an adjustment in respect thereof shall
be made at the time of and together with any subsequent
adjustment which, together with such amount and any other
amount or amounts so carried forward, shall aggregate an
increase or decrease of one percent (1%) or more.
(iv) Certain Adjustments. The conversion price shall
not be adjusted upward except in the event of a combination of
the outstanding shares of Common
-12-
<PAGE>
Stock into a smaller number of shares of Common Stock or in
the event of a readjustment of the conversion price pursuant
to Section 7(g)(ii) or (iii).
(k) Notices of Adjustments. Whenever the conversion rate and
conversion price is adjusted as herein provided, an officer of the
Corporation shall compute the adjusted conversion rate and conversion
price in accordance with the foregoing provisions and shall prepare a
written certificate setting forth such adjusted conversion rate and
conversion price and showing in detail the facts upon which such
adjustment is based, and such written instrument shall promptly be
delivered to the recordholders of the Series D Stock.
8. Redemption.
(a) Redemption by the Corporation. The Corporation shall have
no rights to redeem the Series D Stock or to cause the sale by the
holders of such Series D Stock.
(b) Redemption on Maturity. Upon the seventh (7th) anniversary
of the Original Issue Date, any Series D Stock then outstanding shall
be redeemed by the Corporation at the Redemption Price per share
defined in paragraph (c) below, payable in cash on the date of
redemption (such date being referred to herein as the "Redemption
Date") without further notice and without action on the part of the
holder.
(c) Redemption Price. The Redemption Price per share of Series
D Stock shall equal the sum of (x) 100% of the Series D Issue Price
plus (y) all accrued and unpaid dividends on such share of Series D
Stock to the Redemption Date.
(d) Redemption Procedure. On or prior to the Redemption Date,
the Corporation shall deposit the Redemption Price of all outstanding
shares of Series D Stock to be redeemed with a bank or trust
corporation having aggregate capital and surplus in excess of
$100,000,000 as a trust fund for the benefit of the holders of the
shares of Series D Stock, with irrevocable instructions and authority
to the bank or trust corporation to pay the Redemption Price for such
shares to their respective holders on or after the Redemption Date upon
receipt of the certificate or certificates of the shares of Series D
Stock to be redeemed. From and after the Redemption Date, unless there
shall have been a default in payment of the Redemption Price, all
rights of the holders of shares of Series D Stock as holders of Series
D Stock (except the right to receive the Redemption Price upon
surrender of their certificate or certificates) shall cease as to those
shares of Series D Stock redeemed, and such shares shall not thereafter
be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever. If on the Redemption Date the
funds of the Corporation legally available for redemption of shares of
Series D Stock are insufficient to redeem the total number of shares of
Series D Stock to be redeemed on such date, the Corporation will use
those funds which are legally available therefor to redeem the maximum
possible number of shares of Series D Stock ratably among the holders
of such shares to be redeemed based upon their holdings of Series D
Stock. Payments shall first be
-13-
<PAGE>
applied against accrued and unpaid dividends and thereafter against the
remainder of the Redemption Price. The shares of Series D Stock not
redeemed shall remain outstanding and entitled to all the rights and
preferences provided herein. At any time thereafter when additional
funds of the Corporation are legally available for the redemption of
shares of Series D Stock such funds will immediately be used to redeem
the balance of the shares of Series D Stock to be redeemed. No
dividends or other distributions shall be declared or paid on, nor
shall the Corporation redeem, purchase or acquire any shares of, the
Common Stock or any other class or series of stock of the Corporation
unless the Redemption Price of all shares elected to be redeemed shall
have been paid in full. Until the Redemption Price for a share of
Series D Stock elected to be redeemed shall have been paid in full,
such share of Series D Stock shall remain outstanding for all purposes
and entitle the holder thereof to all the rights and privileges
provided herein, including, without limitation, that dividends and
interest thereon shall continue to accrue and, if unpaid prior to the
date such shares are redeemed, shall be included as part of the
Redemption Price as provided in paragraph (c) above.
9. Notices of Record Dates and Effective Dates. In case: (a) the
Corporation shall declare a dividend (or any other distribution) on the Common
Stock payable otherwise than in shares of Common Stock; or (b) the Corporation
shall authorize the granting to the holders of Common Stock of rights to
subscribe for or purchase any shares of capital stock of any class or any other
rights; or (c) of any reorganization, share exchange or reclassification of the
capital stock of the Corporation (other than a subdivision or combination of
outstanding shares of Common Stock), or of any consolidation or merger to which
the Corporation is party or of the sale, lease or exchange of all or
substantially all of the property of the Corporation; or (d) of the voluntary or
involuntary dissolution, liquidation or winding up of the Corporation; then the
Corporation shall cause to be mailed to the recordholders of the Series D Stock
at least 20 days prior to the applicable record date or effective date
hereinafter specified, a notice stating (i) the date on which a record is to be
taken for the purpose of such dividend, distribution or rights, or, if a record
is not to be taken, the date as of which the holders of record of Common Stock
to be entitled to such dividend, distribution or rights are to be determined or
(ii) the date on which such reclassification, reorganization, share exchange,
consolidation, merger, sale, lease, exchange, dissolution, liquidation or
winding up is expected to become effective or be consummated, and the date as of
which it is expected that holders of record of Common Stock shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon such reclassification, reorganization share exchange,
consolidation, liquidation, merger, sale, lease, exchange, dissolution,
liquidation or winding up.
10. Voting Rights.
(a) General. In addition to the rights otherwise provided for
herein or by law, holders of the Series D Stock shall be entitled to
vote, together with the holders of the Common Stock and any other class
or series of stock then entitled to vote, as one class on all matters
submitted to a vote of stockholders of the Corporation, in the same
manner and
-14-
<PAGE>
with the same effect as the holders of the Common Stock. In any such
vote, and in any vote or action of the holders of the Series D Stock
voting together as a separate class, each share of issued and
outstanding Series D Stock shall entitle the holder thereof to one vote
per share for each share of Common Stock (including fractional shares)
which would be obtained upon conversion of all of the outstanding
shares of the Series D Stock held by such holder, rounded up to the
nearest one-tenth of a share.
(b) Election of Board of Directors.
(i) In addition to the rights specified in Section
10(a), and for so long as the outstanding shares of Series D
Stock which have not been converted, redeemed or exchanged in
accordance with the terms hereof shall constitute fifty
percent (50%) or more of the shares of Series D Stock issued
on the Original Issue Date, the holders of a majority in
voting power of the Series D Stock, voting together as a
separate class or in such other manner as the holders of the
Series D Stock shall agree among themselves shall have the
exclusive right to elect to the Board of Directors of the
Corporation that number of directors which shall be equal to a
majority of the total number of directors constituting the
whole Board of Directors at any given time (the "Preferred
Directors"). In any election of Preferred Directors pursuant
to this Section 10(b), each share of issued and outstanding
Series D Stock shall entitle the holder thereof to the number
of votes per share that equals the number of shares of Common
Stock (including fractional shares) into which each such share
is then convertible, rounded up to the nearest one-tenth of a
share. The voting rights of the holders of Series D Stock
contained in this Section 10(b) may be exercised at a special
meeting of the holders of Series D Stock called as provided in
accordance with the By-laws of the Corporation, at any annual
or special meeting of the stockholders of the Corporation, or
by written consent of the holders of Series D Stock in lieu of
a meeting. The Preferred Directors elected pursuant to this
Section 10(b) shall serve from the date of their election and
qualification until their successors have been duly elected
and qualified.
(ii) A vacancy in the directorships to be elected
pursuant to Section 10(b)(i) (including any vacancy created on
account of an increase in the number of directors on the Board
of Directors) may be filled only by vote of the holders of
Series D Stock at a meeting called in accordance with the
By-laws of the Corporation or written consent in lieu of a
meeting in accordance with Section 10(b)(i).
(iii) No director elected by the holders of Series D
Stock as a class, or elected by other directors to fill a
vacancy resulting from the death, resignation or removal of a
director elected by such class vote, may be removed from
office by the vote or written consent of stockholders unless
such vote or written consent includes that of the holders of a
majority of the outstanding shares of Series D Stock.
-15-
<PAGE>
(c) Protective Provisions. In addition to any other vote or
consent of stockholders provided by law or by the Corporation's
Certificate of Incorporation, the Corporation shall not, without the
approval by vote or written consent of the holders of not less than
662/3% of the then outstanding shares of Series D Stock:
(i) amend, waive or repeal any provisions of, or add
any provision to, (i) this Certificate of Designation or (ii)
any provision of the Corporation's Certificate of
Incorporation or any other certificate of designation filed
with the Secretary of State of Delaware by the Corporation
with respect to its preferred stock;
(ii) amend, waive or repeal any provisions of, or add
any provision to, the Corporation's By-Laws;
(iii) enter into any agreement, indenture or other
instrument which contains any provisions restricting the
Corporation's obligation to pay dividends on, make liquidation
payments in respect of, or make redemptions of the Series D
Stock in accordance herewith; or
(iv) dissolve the Corporation.
(d) Amendment of Series D Stock. Notwithstanding anything else
contained herein, the affirmative vote or written consent of the
holders of 75% of the outstanding shares of Series D Stock shall be
necessary to amend, alter or repeal any of the provisions of the
Certificate of Designation creating this Series D Stock which would
alter or change (i) the dividend rate, (ii) redemption provisions,
(iii) anti-dilution provisions, (iv) the place or currency of payments
hereunder, (v) the right to institute suit for the enforcement of any
payment hereunder, (vi) the conversion provisions,(vii) the voting
rights, or (viii) provisions of this Section 10, so as to affect any of
the foregoing adversely.
11. Shares to be Retired. All shares of the Series D Stock redeemed,
converted, exchanged or purchased by the Corporation shall be retired and
canceled and shall be restored to the status of authorized but unissued shares
of Preferred Stock, without designation as to series and may thereafter be
reissued.
*****
-16-
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
Certificate this 22nd day of September, 1997.
DANSKIN, INC.
By: ____________________________
Name:
Title:
<PAGE>
No. 1
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR QUALIFIED UNDER ANY STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED OR QUALIFIED THEREUNDER OR
AN EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION IS AVAILABLE.
THE INDEBTEDNESS EVIDENCED BY THIS INSTRUMENT IS SUBORDINATED TO THE PRIOR
PAYMENT IN FULL OF CERTAIN SENIOR DEBT (AS DEFINED IN THE SUBORDINATION
AGREEMENT HEREINAFTER REFERRED TO) PURSUANT TO, AND TO THE EXTENT PROVIDED IN,
THAT CERTAIN SUBORDINATION AGREEMENT DATED AS OF SEPTEMBER 22, 1997, AMONG FIRST
UNION NATIONAL BANK OF NORTH CAROLINA, FIRST UNION COMMERCIAL CORPORATION, AS
LENDERS (COLLECTIVELY, THE "LENDERS"), FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, AS AGENT (THE "AGENT"), DANSKIN, INC. AND DANSKIN INVESTORS, LLC. ANY
HOLDER OF THIS INSTRUMENT SHALL BE DEEMED TO BE BOUND BY, AND SUBJECT TO, THE
TERMS OF THE SUBORDINATION AGREEMENT.
PROMISSORY NOTE
$15,000,000 New York, New York
September 22, 1997
FOR VALUE RECEIVED, DANSKIN, INC., a Delaware corporation (the "Company"),
hereby promises to pay to Danskin Investors, LLC ("Payee"), 9595 Wilshire Blvd.,
Suite 700, Beverly Hills, CA 90212, the principal sum of Fifteen Million Dollars
($15,000,000), on the dates and in the amounts hereinafter set forth. This
Promissory Note is issued by the Company with an initial aggregate principal
amount of $15,000,000 pursuant to (a) the Securities Purchase Agreement, dated
as of the date hereof, between the Company and the Payee (the "Purchase
Agreement") and (b) the Loan and Security Agreement, dated as of the date
hereof, between the Company and the Payee (the "Security Agreement"), and the
Payee shall be entitled to all benefits thereof. The provisions of the Purchase
Agreement and the Security Agreement are incorporated herein by reference.
Capitalized terms used in this Promissory Note but not defined shall have the
respective meanings ascribed to them in the Security Agreement. This Promissory
Note is hereinafter referred to as this "Note."
<PAGE>
1. Principal and Maturity Date. The principal amount of
this Note shall be due and payable on March 31, 1998 (the "Maturity Date"),
unless earlier exchanged for other securities of the Company as provided in
Section 5 of this Note.
2. Interest. The outstanding principal amount of this Note
shall bear interest beginning December 19, 1997, at the per annum rate as
provided in Section 2 of the Security Agreement through the earlier of the date
of repayment of this Note or exchange for other securities of the Company as
provided in Section 5 of this Note. Interest shall be payable each month, in
arrears, beginning on January 1, 1998, and on the first day of each calendar
month thereafter and upon the date of repayment or exchange of this Note, if
earlier.
3. Prepayment. This Note may not be prepaid, in whole or in
part, without the prior written consent of the Payee as to such prepayment,
which consent may be withheld in the discussion of Payee. All prepayments made
on this Note shall be applied first to the payment of all fees under this Note,
then unpaid interest accrued on this Note, and then to the outstanding and
unpaid principal amount of this Note as of the date of prepayment.
4. General Payment Provisions. All payments or prepayments
of principal and interest and other sums due pursuant to this Note shall be made
by wire transfer to an account(s) designated in writing by the Payee.
If the due date of any payment under this Note would otherwise
fall on a day which is not a Business Day, such date will be extended to the
immediately succeeding Business Day and interest shall be payable at the rate
set forth herein for the period of the extension. The term "Business Day" shall
mean any day on which commercial banks in the State of New York are not
authorized or required to close.
5. Exchange of Securities. Upon the closing (the "Closing") of
the repayment of all amounts due and owing to the Lenders by the Company under
the revolving credit portion of the Company's Amended and Restated Loan and
Security Agreement with the Lenders, dated as of June 22, 1995, as the same has
further been amended, $14,396,488.20 aggregate principal amount of this Note
(together with Five Hundred Thousand Dollars ($500,000) in stated value of
Series C Cumulative Convertible Preferred Stock of the Company held by the
Payee) shall be automatically exchanged for (i) shares of fully paid and
non-assessable Series D Cumulative Convertible Preferred Stock of the Company in
the form of Exhibit C to the Purchase Agreement equal to Twelve Million Dollars
($12,000,000) in stated value, (ii) a fully paid and non-assessable common stock
purchase warrant in the form of Exhibit D to the Purchase Agreement and (iii) to
the extent the authorized capital stock of the Company permits and the
Registration Statement (as defined in the Purchase Agreement) shall have been
declared effective by the Securities and Exchange Commission (the "Commission"),
7,988,294 shares of fully paid and non-assessable common stock of the Company in
the Rights Offering at $.30 per share, without further notice and without action
on the part of the Payee (or such lesser number of shares of common stock as are
available for purchase by the Payee (provided, that no
- 2 -
<PAGE>
shares shall be deemed available for purchase if the Registration Statement
shall not have been declared effective by the Commission)); provided, however,
that if for any reason the Closing shall not have occurred on or prior to March
31, 1998, the Notes shall no longer be exchangeable as provided herein. The
remaining aggregate principal amount of this Note (assuming authorized capital
stock of the Company is available to permit the purchase by the Payee for the
full 7,988,294 shares of the Company's common stock and the Registration
Statement shall have been declared effective by the Commission) shall be used to
purchase Common Stock in the Rights Offering by paying the exercise price of
Rights (as defined in the Purchase Agreement) not exercised by stockholders of
the Company other than the Payee pursuant to the Rights Offering. The Company
shall promptly remit to the Payee all monies representing the exercise of Rights
by stockholders of the Company other than the Payee pursuant to the Rights
Offering (as defined in the Purchase Agreement) and the remaining principal
amount of this Note shall be repaid dollar for dollar as the Payee receives such
monies from the Company. If the Closing occurs prior to the time that the
Company has 7,988,294 shares of common stock available for purchase by the Payee
and prior to the time the Registration Statement shall have been declared
effective by the Commission, this Note shall remain outstanding in a principal
amount equal to $3,000,000. Any remaining balance of this Note which remains
outstanding after the Closing (subject to the amount which is available to
purchase unexercised Rights) will be converted into Common Stock, upon the
Company authorizing a sufficient amount of capital stock, in an amount equal to
the quotient obtained by dividing (aa) the balance of this Note less the
aggregate dollar amount to be paid by other stockholders, in the exercise of
their Rights to purchase Common Stock in the Rights Offering by (bb) .30. The
Company shall pay all issue taxes, if any, incurred in respect of the issue of
the securities delivered on as provided herein exchange of this Note pursuant to
this Section 5.
6. Security. This Note is secured by the Collateral as
defined in, and provided under, the Security Agreement.
7. Subordination of Note. This Note is subject to the
provisions of the Subordination Agreement, dated as of September 19, 1997, among
the Agent, the Lender, the Company and the Payee. In the event of a conflict
between the provisions of this Note and the provisions of the Subordination
Agreement, the provisions of the Subordination Agreement shall control.
8. Events of Default/Maturity of Senior Debt. If the
Senior Debt shall have become due at maturity or one or more of the following
events (an "Event of Default") shall occur and be continuing:
(a) the Company shall default in the payment when due of any
principal of or interest under this Note and such default, in respect of the
payment of interest, shall continue for ten (10) days; or
- 3 -
<PAGE>
(b) any representation, warranty or certification made or
deemed made by the Company in this Note, the Security Agreement or the Purchase
Agreement shall prove to have been false or misleading as of the time made or
furnished in any material respect; or
(c) any default by the Company in the performance of any of
its covenants or agreements in this Note, the Security Agreement or the Purchase
Agreement, and such default shall continue unremedied for a period of 30 days
after notice thereof to the Company by Payee; or
(d) any indebtedness of the Company (i) for borrowed money
in the aggregate in excess of $250,000 or (ii) constituting Senior Debt, shall
become repayable prior to the due date for payment thereof by reason of default
by the Company or shall not be repaid at maturity as extended by any applicable
grace period therefor; or
(e) an uninsured final judgment or judgments aggregating
$250,000 or more shall have been entered by a court of competent jurisdiction
against the Company and such judgment(s) shall remain unstayed or undischarged
for three days or more; or
(f) the Company shall admit in writing its inability to pay
its debts as such debts generally become due; or
(g) the Company shall (i) apply for or consent in writing to
the appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its property,
(ii) make a general assignment for the benefit of its creditors, (iii) commence
a voluntary case under Title II of the United States Code (as now or hereafter
in effect) (the "Bankruptcy Code"), (iv) file a petition seeking to take
advantage of any other law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or readjustment of debts, (v) acquiesce in writing to
any petition filed against it in an involuntary case under the Bankruptcy Code,
or (vi) take any corporate action for the purpose of effecting any of the
foregoing; or
(h) a proceeding or case shall be commenced, without the
application or consent of the Company in any court of competent jurisdiction,
seeking (i) its liquidation, reorganization, dissolution or winding-up, or the
composition or readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, liquidator or the like of such entity or of all or any
substantial part of its assets, or (iii) similar relief in respect of such
entity, under any law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or adjustment of debts, and such proceeding or case
shall continue undismissed, or an order, judgment or decree approving or
ordering any of the foregoing shall be entered and continue unstayed and in
effect, for a period of at least 30 days; or an order for relief against any
such entity shall be entered in an involuntary case under the Bankruptcy Code;
- 4 -
<PAGE>
THEREUPON: if the Senior Debt (as defined in the Subordination
Agreement) has been indefeasibly paid in full in cash as provided in the
Subordination Agreement, the maturity thereof has been accelerated or the
outstanding balance of the Senior Debt has come due at maturity or an Event of
Default referred to in clause (d)(ii), (f), (g) or (h) above has occurred, (i)
in the case of an Event of Default (other than an Event of Default referred to
in clause (d)(ii), (f), (g) or (h) above), the Payee, by notice to the Company,
may declare the principal amount then outstanding of, and the accrued interest
on, this Note and all other amounts payable by the Company under this Note to be
forthwith due and payable, whereupon such amount shall be immediately due and
payable without presentment, demand, protest or other formalities of any kind,
all of which are hereby expressly waived by the Company; (ii) in the case of the
occurrence of an Event of Default referred to in clause (d)(ii), (f), (g) or (h)
above or the Senior Debt coming due at maturity, the principal amount then
outstanding of, and the accrued interest on, this Note shall become
automatically immediately due and payable without presentment, demand, protest
or other formalities of any kind, all of which are hereby expressly waived by
the Company, and in any case Payee may take such action as is permitted to
enforce its rights hereunder; (iii) the Company shall pay all of the expenses of
the Payee incurred for the collection of this Note and for the enforcement of
its rights to obtain payment of this Note, including reasonable attorneys' fees
and legal expenses; and (iv) the Payee may exercise from time to time any rights
and remedies available to it by law, including those available under any
agreement or other instrument relating to the amounts owed under this Note or
any security therefor. No delay on the part of the Payee in the exercise of any
right or remedy shall operate as a waiver thereof, and no single or partial
exercise by the Payee of any right or remedy shall preclude other or further
exercise thereof or the exercise of any other right or remedy. Notwithstanding
Section 3 above, Payee may apply any funds received from the Company, in such
manner and order of priority and against such payment obligations hereunder as
Payee may determine.
9. Subrogation. Subject to the prior indefeasible payment in
full in cash of the Senior Debt as provided in the Subordination Agreement, and
until this Note is paid in full, the Payee shall be subrogated to the rights of
the Senior Debt including the right to receive distributions applicable to the
Senior Debt to the extent that distributions otherwise payable to the Payee have
been applied to the Senior Debt.
10. Assignment.
(a) Securities Laws. This Note has not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), or under any
state securities laws and unless so registered may not be transferred, sold,
pledged, hypothecated or otherwise disposed of unless an exemption from such
registration is available. In the event the Payee desires to transfer this Note,
the Payee must give the Company prior written notice of such proposed transfer
including the name and address of the proposed transferee. Such transfer may be
made only either (i) upon publication by the Securities and Exchange Commission
(the "Commission") of a ruling, interpretation, opinion or "no action letter"
based upon facts presented to said Commission, or (ii) upon receipt by the
Company of an opinion of counsel acceptable to the Company to the
- 5 -
<PAGE>
effect that the proposed transfer will not violate the provisions of the
Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or the rules and regulations promulgated under either such act, or to the
effect that this Note has been registered under the Securities Act of 1933, as
amended, and that there is in effect a current prospectus meeting the
requirements of Subsection 10(a) of the Securities Act, which is being or will
be delivered to the purchaser or transferee at or prior to the time of delivery
of this Note to be sold or transferred. Notwithstanding anything else contained
herein, Danskin Investors, LLC (x) may distribute this Note to its members at
any time and (y) may not transfer, sell, pledge, hypothecate or otherwise
dispose of this Note prior to March 31, 1998, except to its members or to The
Oppenhiemer Bond Fund for Growth or any of their respective affiliates.
(b) Transfer. Upon surrender of this Note to the Company with
assignment documentation duly executed, and upon compliance with the foregoing
provisions, the Company shall, without charge, execute and deliver a new Note in
the name of the assignee named in such instrument of assignment, and this Note
shall promptly be canceled. Any assignment, transfer, pledge, hypothecation or
other disposition of this Note attempted contrary to the provisions of this
Note, or any levy of execution, attachment or other process attempted upon the
Note, shall be null and void and without effect.
11. Governing Law. This Note shall be construed in accordance
with, and governed by, the laws of the State of New York as applied to contracts
made and to be performed entirely in the State of New York without regard to
principles of conflicts of law. Each of the parties hereto hereby irrevocably
and unconditionally submits to the exclusive jurisdiction of any court of the
State of New York or any federal court sitting in the State of New York for
purposes of any suit, action or other proceeding arising out of this Note (and
agrees not to commence any action, suit or proceedings relating hereto except in
such courts). Each of the parties hereto agrees that service of any process,
summons, notice or document by U.S. registered mail at its address set forth
herein shall be effective service of process for any action, suit or proceeding
brought against it in any such court. Each of the parties hereto hereby
irrevocably and unconditionally waives any objection to the laying of venue of
any action, suit or proceeding arising out of this Note, which is brought by or
against it, in the courts of the State of New York or any federal court sitting
in the State of New York and hereby further irrevocably and unconditionally
waives and agrees not to plead or claim in any such court that any such action,
suit or proceeding brought in any such court has been brought in an inconvenient
forum.
12. Adjustment of Interest Rate. No provision of this Note
shall require the payment of interest to the extent that receipt of any such
payment by the Company would be contrary to the provisions of law applicable to
the Company limiting the maximum amount of interest that may be charged to or
collected from the Company, and if any sum in excess of such maximum rate of
interest is paid or charged, the excess will be deemed to have been a prepayment
of principal of this Note when paid, without premium or penalty, and all
payments made thereafter will be appropriately applied to interest and principal
to give effect to such
- 6 -
<PAGE>
maximum rate, and after such application any excess shall be immediately
refunded to the Company.
If the maximum rate of interest, if any, now permitted by law
to be charged for this transaction is increased, then for so long as the
increase is in effect, the applicable maximum rate permitted to be charged as
referred to in the paragraph immediately preceding will be deemed to be such
increased rate. If the maximum rate of interest, if any, now permitted by law to
be charged for this transaction should be eliminated so that there would be no
maximum rate, then interest on this Note shall thereafter be paid at the rate
provided in this Note.
13. Waiver. The obligations of the Company under this Note
are absolute and unconditional, and are not subject to any counterclaim,
set-off, deduction or defense that the Company may have against the Payee. Time
is of the essence of this Note. To the fullest extent permitted by applicable
law, the Company, for itself and its legal representatives, successors and
assigns, expressly waives presentment, demand, protest, notice of dishonor,
notice of non-payment, notice of maturity, notice of protest, presentment for
the purpose of accelerating maturity, diligence in collection, and the benefit
of any exemption or insolvency laws.
14. Interpretation. Wherever possible each provision of this
Note shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Note shall be prohibited or invalid
under applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or remaining provisions of this Note. No delay or failure on the part of Payee
in the exercise of any right or remedy hereunder shall operate as a waiver
thereof, nor as an acquiescence in any default, nor shall any single or partial
exercise by Payee of any right or remedy preclude any other right or remedy.
Payee, at its option, may enforce its rights against any collateral securing
this Note without enforcing its rights against the Company, any guarantor of the
indebtedness evidenced hereby or any other property or indebtedness due or to
become due to the Company. The Company agrees that, without releasing or
impairing the Company's liability hereunder, Payee may at any time release,
surrender, substitute or exchange any collateral securing this Note and may at
any time release any party primarily or secondarily liable for the indebtedness
evidenced by this Note. The rights and remedies herein provided are cumulative
and not exclusive of any rights or remedies provided by law.
DANSKIN, INC.
By:
----------------------------------
Name:
Title:
ATTEST:
By:
----------------------------------
Secretary
- 7 -
<PAGE>
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of September 22, 1997,
(the "Agreement") by and between Danskin Investors, LLC, a Delaware limited
liability company (the "Buyer") and Danskin, Inc., a Delaware corporation (the
"Company").
WHEREAS, the Buyer and the Company have entered into a
Securities Purchase Agreement (the "Securities Purchase Agreement") dated as of
the date hereof pursuant to which the Buyer has agreed to purchase, subject to
the terms and conditions contained therein, securities of the Company, which
securities are exchangeable or exercisable for or convertible into shares of
Common Stock of the Company; and
WHEREAS, it is a condition precedent to the purchase of such
securities that the Company provide for the registration of the Common Stock of
the Company issuable on the exchange, exercise or conversion of the purchased
securities.
NOW, THEREFORE, in consideration on the foregoing premises and
for other good and valuable consideration, the adequacy and receipt of which are
hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.1. Definitions. The following terms shall have the
meanings ascribed to them below:
"Commission" means the United States Securities and Exchange
Commission, or any other federal agency at the time administering the Securities
Act.
"Common Stock" means the common stock, par value $.01 per
share, of Danskin, Inc., as it may exist from time to time.
"Convertible Preferred Stock" means the Company's Series D
Cumulative Convertible Preferred Stock.
"Demand Registration" means a Demand Registration as defined
in Section 2.1.
"Exchange Act" means the Securities Exchange Act of 1934 or
any similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
<PAGE>
"Holder" means any person who now holds or shall hereafter
acquire and hold Registrable Securities.
"Investor Preferred Stock" means the Company's Series C
Convertible Preferred Stock.
"Note" means the $15,000,000 promissory note of the Company
issued to the Buyer pursuant to the Securities Purchase Agreement.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or other agency or political subdivision thereof.
"Piggy-Back Registration" means a Piggy-Back Registration as
defined in Section 2.2.
"Prospectus" means the prospectus included in any Registration
Statement (including without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the securities covered by such Registration
Statement, and all other amendments and supplements to the prospectus, including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such prospectus.
"Registrable Securities" means (a) the shares of Common Stock
issued or issuable upon conversion of the Convertible Preferred Stock, (b) the
shares of Common Stock issued or issuable upon conversion of the Investor
Preferred Stock, (c) the shares of Common Stock issued to the Buyer pursuant to
the Rights Offering, (d) the shares of Common Stock issued or issuable upon
exercise of the Warrant and (e) the shares of Common Stock issued or issuable
upon conversion of the Note, in each case until (i) a Registration Statement
covering such shares of Common Stock has been declared effective by the
Commission and such shares of Common Stock have been disposed of pursuant to
such effective Registration Statement, or (ii) such shares of Common Stock are
sold under circumstances in which all of the applicable conditions of Rule 144
(or any similar provisions then in force) under the Securities Act are met, or
(iii) such shares of Common Stock have been otherwise transferred and the
Company has delivered a new certificate or other evidence of ownership for such
Common Stock not bearing a restrictive legend and not subject to any stop order
and such Common Stock may be resold by the person receiving such certificate
without complying with the registration requirements of the Securities Act.
"Registration Statement" means any registration statement of
the Company which covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including
- 2 -
<PAGE>
the Prospectus, amendments and supplements to such Registration Statement,
including post-effective amendments, all exhibits and all material incorporated
by reference in such Registration Statement.
"Rights Offering" means the offer by the Company to its
stockholders of the right to subscribe for Common Stock with respect to each
share of Common Stock owned by such stockholders as contemplated by the
Securities Purchase Agreement.
"Securities Act" means the Securities Act of 1933 or any
similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Holder" means a Holder who is selling Registrable
Securities pursuant to a Registration Statement under the Securities Act.
"Underwriter" means a securities dealer who purchases any
Registrable Securities as principal in an underwritten offering and not as part
of such dealer's market-making activities.
"Warrant" means that certain common stock purchase warrant
exercisable at $.30 per share of Common Stock issued to the Buyer pursuant to
the Securities Purchase Agreement.
ARTICLE II.
REGISTRATION RIGHTS
SECTION 2.1. Demand Registration.
(a) Request for Registration. At any time and from time to
time any Holder or Holders may make written requests (individually, a "Request")
on the Company for the registration of the offer and sale of the Registrable
Securities under the Securities Act (such registration being hereinafter
referred to as a "Demand Registration"). The Company shall not effect Demand
Registrations on Forms S-1 or S-2 (or any substitute form that may be adopted by
the Commission) unless (i) the Request is made by Holders who, alone or together
with other Holders making the Request, hold in the aggregate not less than 6.5%
of the outstanding Registrable Securities (on a fully diluted basis) and (ii)
the minimum offered amount of Registrable Securities shall be at least
$1,000,000. Subject to the penultimate sentence of Section 2.1(b), the Company
shall have no obligation to effect more than two Demand Registrations on Form
S-1 or S-2 (or any substitute form that may be adopted by the Commission);
provided, further, that the Company shall not be required to effect a Demand
Registration on Form S-3 unless (i) the Request is made by Holders who, alone or
together with other Holders making the Request, hold in the aggregate not less
than 6.5% of the outstanding Registrable Securities (on a fully diluted basis)
and (ii) the minimum offered amount of Registrable Securities thereunder shall
be at least $500,000 and the Company shall not be required to effect more than
two Demand Registrations on Form S-3 in any twelve month period.
- 3 -
<PAGE>
Any Request will specify the number of Registrable Securities proposed to be
sold and the intended method(s) of disposition thereof and shall also state the
firm intent of the Holder to offer Registrable Securities for sale. The Company
shall give written notice of such Request within 10 days after the receipt
thereof to all other Holders. Within 20 days after receipt of such notice by any
such Holder, such Holder may request in writing that all or any portion of its
Registrable Securities be included in such Registration Statement and the
Company shall include in the Registration Statement for such Demand Registration
the Registrable Securities of all Holders that requested to be so included. Each
such request by such other Holders shall specify the number of Registrable
Securities proposed to be sold and the intended method(s) of disposition thereof
and shall also state the firm intent of the Holder to offer Registrable
Securities for sale.
(b) Effective Registration. A registration will not be deemed
to have been effected as a Demand Registration unless the Registration Statement
relating thereto has been declared effective by the Commission and the Company
has complied in all material respects with its obligations under this Agreement
with respect thereto; provided that if, after the Registration Statement has
become effective, the offering and/or sale of Registrable Securities pursuant to
such Registration Statement is or becomes the subject of any stop order,
injunction or other order or requirement of the Commission or any other
governmental or administrative agency, or if any court prevents or otherwise
limits the offer and/or sale of the Registrable Securities pursuant to the
Registration Statement, other than in each case primarily as a result of acts or
omissions of the Holder or any agent thereof, such registration will be deemed
not to have been effected. If (i) a registration requested pursuant to this
Section 2.1 is deemed not to have been effected or (ii) the Registration
Statement relating to a Demand Registration requested pursuant to this Section
2.1 does not remain effective for a period of at least 120 days beyond the
effective date thereof or, with respect to an underwritten offering of
Registrable Securities, until 45 days after the commencement of the distribution
by the Holders of the Registrable Securities included in such Registration
Statement, then the Company shall continue to be obligated to effect such
Registration pursuant to this Section 2.1. The Holders shall be permitted to
withdraw all or any part of the Registrable Securities from a Registration
Statement at any time prior to the effective date of such Demand Registration
Statement; provided that in the event of such withdrawal, such Holders shall be
responsible for the fees and expenses referred to in Section 3.2(viii) hereof
incurred by such Holders with respect to such Demand Registration prior to such
withdrawal.
(c) Selection of Underwriter. If the Holders of a majority of
the Registrable Securities participating in a Demand Registration so elect, the
offering of such Registrable Securities pursuant to such Demand Registration
shall be in the form of an underwritten offering. The Holders making such Demand
Registration shall select one or more nationally recognized firms of investment
bankers to act as the lead managing Underwriter or Underwriters in connection
with such offering and shall select any additional investment bankers and
managers to be used in connection with the offering; provided that such
Underwriter or Underwriters are reasonably acceptable to the Company.
- 4 -
<PAGE>
SECTION 2.2. Piggy-Back Registration. If at any time the
Company proposes to file a Registration Statement under the Securities Act with
respect to an offering by the Company for its own account or for the account of
any of its respective security holders (other than (x) a Registration Statement
on Form S-4 or S-8 (or any substitute form that may be adopted by the
Commission), (y) a Registration Statement pursuant to a Demand Registration
pursuant to Section 2.1 or (z) the Registration Statement relating to the Rights
Offering), then the Company shall give written notice of such proposed filing to
the Holders as soon as practicable (but in no event less than 30 days before the
anticipated filing date), and such notice shall offer such Holders the
opportunity to register such number of Registrable Securities as each such
Holder may request (which request shall specify the Registrable Securities
intended to be disposed of by such Holder and the intended method(s) of
distribution thereof and shall also state the firm intent of the Holder to offer
Registrable Securities for sale) (a "Piggy-Back Registration"). The Company
shall use all reasonable efforts to cause the managing Underwriter or
Underwriters of a proposed underwritten offering to permit the Registrable
Securities requested to be included in a Piggy-Back Registration to be included
on the same terms and conditions as any similar securities of the Company or any
other security holder included therein and to permit the sale or other
disposition of such Registrable Securities in accordance with the intended
method of distribution thereof. Any Holder shall have the right to withdraw its
request for inclusion of its Registrable Securities in any Registration
Statement pursuant to this Section 2.2 by giving written notice to the Company
of its request to withdraw, provided that in the event of such withdrawal (other
than pursuant to Section 2.3(c) hereof), such Holder shall be responsible for
the fees and expenses referred to in Section 3.2(viii) hereof incurred by such
Holder prior to such withdrawal relating to such Registration Statement. The
Company may withdraw a Piggy-Back Registration at any time prior to the time it
becomes effective.
No registration effected under this Section 2.2, and no
failure to effect a registration under this Section 2.2, shall relieve the
Company of its obligation to effect a registration upon the request of Holders
pursuant to Section 2.1, and no failure to effect a registration under this
Section 2.2 and to complete the sale of Registrable Securities in connection
therewith shall relieve the Company of any other obligation under this Agreement
(including, without limitation, the Company's obligations under Sections 3.2 and
4.1).
SECTION 2.3. Reduction of Offering.
(a) Demand Registration. The Company may include in a Demand
Registration pursuant to Section 2.1 securities of the same class as the
Registrable Securities for the account of the Company and any other Persons who
hold securities of the same class as the Registrable Securities on the same
terms and conditions as the Registrable Securities to be included therein;
provided, however, that (i) if the managing Underwriter or Underwriters of any
underwritten offering described in Section 2.1 have informed the Company in
writing that it is their opinion that the total number of Registrable
Securities, and securities of the same class as the Registrable Securities which
Holders, the Company and any other Persons desiring to participate in such
registration intend to include in such offering is such as to materially and
- 5 -
<PAGE>
adversely affect the success of such offering, then the number of shares to be
offered for the account of the Company and for the account of all such other
Persons (other than the Holders) participating in such registration shall be
reduced or limited pro rata in proportion to the respective number of shares
requested to be registered to the extent necessary to reduce the total number of
shares requested to be included in such offering to the number of shares, if
any, recommended by such managing Underwriter or Underwriters, and (ii) if the
offering is not underwritten, no other Person, including the Company, shall be
permitted to offer securities under any such Demand Registration unless the
Holders of a majority of the Registrable Securities participating in the
offering consent to the inclusion of such shares therein.
(b) Piggy-Back Registration. (i) Notwithstanding anything
contained herein, if the managing Underwriter or Underwriters of any
underwritten offering described in Section 2.2 have informed, in writing, the
Holders requesting inclusion in such offering that it is their opinion that the
total number of shares which the Company, Holders and any other Persons holding
securities of the same class as the Registrable Securities desiring to
participate in such registration intend to include in such offering is such as
to materially and adversely affect the success of such offering, then, the
number of shares to be offered shall be reduced or limited in the following
order of priority: first, the number of shares to be offered by all other
holders of securities of the same class as the Registrable Securities other than
the Holders or other holders who demanded such registration ("Demand Holders")
to the extent necessary to reduce the total number of shares as recommended by
such managing Underwriter or Underwriters; and second, if further reduction or
limitation is required, the number of shares to be offered for the account of
the Holders shall be reduced or limited on a pro rata basis in proportion to the
relative number of Registrable Securities of the Holders participating in such
registration.
(ii) If the managing Underwriter or Underwriters of
any underwritten offering described in Section 2.2 notify the Holders requesting
inclusion in such offering that the kind of securities that the Holders, the
Company and any other Persons desiring to participate in such registration
intend to include in such offering is such as to materially and adversely affect
the success of such offering, (x) the Registrable Securities to be included in
such offering shall be reduced as described in clause (i) above or (y) if such
reduction would, in the judgment of the managing Underwriter or Underwriters, be
insufficient to substantially eliminate the adverse effect that inclusion of the
Registrable Securities requested to be included would have on such offering,
such Registrable Securities will be excluded from such offering.
(c) If, as a result of the proration provisions of this
Section 2.3, any Holder shall not be entitled to include all Registrable
Securities in a Demand Registration or Piggy-Back Registration that such Holder
has requested to be included, such Holder may elect to withdraw his request to
include Registrable Securities in such registration.
- 6 -
<PAGE>
ARTICLE III.
REGISTRATION PROCEDURES
SECTION 3.1. Filings; Information. Whenever the Company is
required to effect or cause the registration of the offer and sale of
Registrable Securities pursuant to Section 2.1 or 2.2 hereof, the Company will
use its best efforts to effect the registration of the offer and the sale of
such Registrable Securities in accordance with the intended method(s) of
disposition thereof as quickly as practicable, and in connection with any such
request:
(a) The Company promptly will prepare and file with the
Commission a Registration Statement with respect to the offer and sale of such
securities and use its best efforts to cause such Registration Statement to
become and remain effective until the completion of the distribution
contemplated thereby; provided, however, the Company shall not be required to
keep such Registration Statement effective for more than 120 days (or such
shorter period which will terminate when all Registrable Securities covered by
such Registration Statement have been sold, but not prior to the expiration of
the applicable period referred to in Section 4(3) of the Securities Act and Rule
174 thereunder, if applicable).
(b) The Company promptly will prepare and file with the
Commission such amendments and post-effective amendments to the Registration
Statement as may be necessary to keep such Registration Statement effective for
as long as such registration is required to remain effective pursuant to the
terms hereof; cause the Prospectus to be supplemented by any required Prospectus
supplement, and, as so supplemented, to be filed pursuant to Rule 424 under the
Securities Act; and comply with the provisions of the Securities Act applicable
to it with respect to the disposition of all Registrable Securities covered by
such Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Selling Holders set forth in such
Registration Statement or supplement to the Prospectus.
(c) The Company, at least ten (10) days prior to filing a
Registration Statement or at least five (5) days prior to filing a Prospectus or
any amendment or supplement to such Registration Statement or Prospectus, will
furnish to (i) each Selling Holder, (ii) not more than one counsel representing
all Selling Holders, to be selected by a majority-in-interest of such Selling
Holders, and (iii) each Underwriter, if any, of the Registrable Securities
covered by such Registration Statement copies of such Registration Statement as
proposed to be filed, together with exhibits thereto, which documents will be
subject to review and approval by each of the foregoing within five (5) days
after delivery (except that such review and approval of any Prospectus or any
amendment or supplement to such Registration Statement or Prospectus must be
within three (3) days after delivery), and thereafter, furnish to such Selling
Holders, counsel and Underwriters, if any, for their review and comment such
number of copies of such Registration Statement, each amendment and supplement
thereto (in each case including all exhibits thereto and documents incorporated
by reference therein), the Prospectus included in such Registration Statement
(including each preliminary Prospectus) and such other documents or information
as such Selling Holders, counsel or Underwriters may reasonably request in order
- 7 -
<PAGE>
to facilitate the disposition of the Registrable Securities; provided, however,
that notwithstanding the foregoing, if the Company intends to file any
Prospectus, Prospectus supplement or Prospectus sticker which does not make any
material changes in the documents already filed (including, without limitation,
any Prospectus under Rule 430A or 424(b)), then the counsel for the Selling
Holders will be afforded such opportunity to review such documents prior to
filing consistent with the time constraints involved in filing such document,
but in any event no less than one day.
(d) The Company promptly will notify each Selling Holder of
(and in any event within 24 hours of the receipt of) any stop order issued or
threatened by the Commission and take all reasonable actions required to prevent
the entry of such stop order or to remove it at the earliest possible moment if
entered.
(e) On or prior to the date on which the Registration
Statement is declared effective by the Commission, the Company will use all
reasonable efforts to (i) register or qualify the Registrable Securities under
such other securities or blue sky laws of such jurisdictions in the United
States as any Selling Holder reasonably (in light of such Selling Holder's
intended plan of distribution) requests, and (ii) file documents required to
register such Registrable Securities with or approved by such other governmental
agencies or authorities in the United States as may be necessary by virtue of
the business and operations of the Company and do any and all other acts and
things that may be reasonably necessary or advisable to enable such Selling
Holder to consummate the disposition of the Registrable Securities owned by such
Selling Holder; provided that the Company will not be required to (A) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this paragraph (e), (B) subject itself to taxation
in any such jurisdiction or (C) consent to general service of process in any
such jurisdiction.
(f) The Company will notify each Selling Holder, Selling
Holders' counsel and any Underwriter promptly (and in any event within 24 hours)
and (if requested by any such Person) confirm such notice in writing, (i) when a
Prospectus or any Prospectus supplement or post-effective amendment has been
filed and, with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the
Commission or any other federal or state governmental authority for amendments
or supplements to a Registration Statement or Prospectus or for additional
information to be included in any Registration Statement or Prospectus or
otherwise, (iii) of the issuance by the Commission of any stop order suspending
the effectiveness of a Registration Statement or the initiation or threatening
of any proceedings for that purpose, (iv) of the issuance by any state
securities commission or other regulatory authority of any order suspending the
qualification or exemption from qualification of any of the Registrable
Securities under state securities or "blue sky" laws or the initiation of any
proceedings for that purpose, and (v) of the happening of any event which makes
any statement made in a Registration Statement or related Prospectus or any
document incorporated or deemed to be incorporated by reference therein untrue
or which requires the making of any changes in such Registration Statement,
Prospectus or documents so that they will
- 8 -
<PAGE>
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
in the Registration Statement and Prospectus not misleading in light of the
circumstances in which they were made; and, as promptly as practicable
thereafter, prepare and file with the Commission and furnish a supplement or
amendment to such Prospectus so that, as thereafter deliverable to the Buyers of
such Registrable Securities, such Prospectus will not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
(g) The Company will make generally available an earnings
statement satisfying the provisions of Section 11(a) of the Securities Act no
later than 90 days after the end of the 12-month period beginning with the first
day of the Company's first fiscal quarter commencing after the effective date of
a Registration Statement, which earnings statement shall cover said 12-month
period, and which requirement will be deemed to be satisfied if the Company
timely files complete and accurate information on Forms 10-Q, 10-K and 8-K under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
otherwise complies with Rule 158 under the Securities Act.
(h) If requested by the managing Underwriter or Underwriters,
Selling Holders' counsel, or any Selling Holder, the Company will, unless
otherwise advised by counsel, promptly incorporate in a Prospectus supplement or
post-effective amendment such information as the managing Underwriter or
Underwriters requests, or Selling Holders' counsel requests, to be included
therein, including, without limitation, with respect to the Registrable
Securities being sold by such Selling Holder to such Underwriter or
Underwriters, the purchase price being paid therefor by such Underwriter or
Underwriters and with respect to any other terms of the underwritten offering of
the Registrable Securities to be sold in such offering, and promptly make all
required filings of such Prospectus supplement or post-effective amendment.
(i) The Company will enter into customary agreements
reasonably satisfactory to the Company (including, if applicable, an
underwriting agreement in customary form and which is reasonably satisfactory to
the Company) and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of such Registrable Securities (the
Selling Holders, at their option, may require that any or all of the
representations, warranties and covenants of the Company to or for the benefit
of such Underwriters also be made to and for the benefit of such Selling
Holders).
(j) The Company will make available to each Selling Holder
(and will deliver to their counsel) and each Underwriter, if any, subject to
restrictions imposed by the United States federal government or any agency or
instrumentality thereof, copies of all correspondence between the Commission and
the Company, its counsel or auditors and will also make available for inspection
at reasonable times at the Company's offices by any Selling Holder of such
Registrable Securities, any Underwriter participating in any disposition
pursuant to such Registration Statement and any attorney, accountant or other
professional retained by any such
- 9 -
<PAGE>
Selling Holder or Underwriter (collectively, the "Inspectors"), all financial
and other records, pertinent corporate documents and properties of the Company
as shall be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers and employees to supply all
information reasonably requested by any Inspectors in connection with such
registration statement.
(k) In connection with an underwritten offering, the Company
will participate, to the extent reasonably requested by the managing Underwriter
or Underwriters for the offering or the Selling Holders, in customary efforts to
sell the securities under the offering, including, without limitation,
participating in "road shows"; provided that the Company shall not be obligated
to participate in more than two such selling efforts in any 12-month period.
(l) The Company, during the period when the Prospectus is
required to be delivered under the Securities Act, promptly will file all
documents required to be filed with the Commission pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act.
(m) The Company will use all reasonable efforts to obtain a
cold comfort letter from the Company's independent public accountants in
customary form and covering such matters of the type customarily covered by cold
comfort letters, as the Selling Holders may request.
The Company may require each Selling Holder to promptly
furnish in writing to the Company such information regarding the distribution of
the Registrable Securities as the Company may from time to time reasonably
request and such other information as may be legally required in connection with
such registration including, without limitation, all such information as may be
requested by the Commission or the National Association of Securities Dealers,
Inc. The Company may exclude from such Registration Statement any Holder who
fails to provide such information.
Each Selling Holder agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
3.1(f) hereof, such Selling Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Selling Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3.1(f) hereof, and,
if so directed by the Company, such Selling Holder will deliver to the Company
all copies, other than permanent file copies then in such Selling Holder's
possession, of the most recent prospectus covering such Registrable Securities
at the time of receipt of such notice. In the event the Company shall give such
notice, the Company shall extend the period during which such Registration
Statement shall be maintained effective (including the period referred to in
Section 3.1(a) hereof) by the number of days during the period from and
including the date of the giving of notice pursuant to Section 3.1(f) hereof to
the date when the Company shall make available to the Selling Holders covered by
such Registration Statement a Prospectus supplemented or amended to conform with
the requirements of Section 3.1(f) hereof.
- 10 -
<PAGE>
SECTION 3.2. Registration Expenses. The Company shall pay all
expenses incident to the Company's performance of or compliance with this
Agreement including, without limitation: (i) all registration and filing fees,
(ii) the fees and expenses of compliance with securities or blue sky laws
(including fees and disbursements of counsel in connection with blue sky
qualifications of the Registrable Securities), (iii) all printing, messenger and
delivery expenses, (iv) the Company's internal expenses (including, without
limitation, all salaries and expenses of its officers and employees performing
legal or accounting duties), (v) the fees and expenses incurred in connection
with the listing or quotation, as appropriate, of the Registrable Securities,
(vi) the fees and disbursements of counsel for the Company and the fees and
expenses for independent certified public accountants retained by the Company
(including the expenses of any special audit or cold comfort letters), (vii) the
fees and expenses of any special experts retained by the Company in connection
with such registration, and (viii) the fees and expenses of one firm of counsel
for the Selling Holders. The Company shall have no obligation to pay any
underwriting fees, discounts or commissions attributable to the sale of
Registrable Securities and any of the expenses incurred by Selling Holders which
are not payable by the Company, such costs to be borne by the Selling Holder or
Selling Holders.
ARTICLE IV.
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.1. Indemnification by the Company. The Company
agrees to indemnify and hold harmless, to the fullest extent permitted by law,
each Selling Holder, its partners, officers, directors, employees and agents,
and each Person, if any, who controls such Selling Holder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, together
with the partners, officers, directors, employees and agents of such controlling
Person (collectively, the "Controlling Persons"), from and against any loss,
claim, damage, liability, attorneys' fees, cost or expense and costs and
expenses of investigating and defending any such claim (collectively, the
"Damages") and any action in respect thereof to which such Selling Holder, its
partners, officers, directors, employees and agents, and any such Controlling
Person may become subject under the Securities Act or otherwise, insofar as such
Damages (or proceedings in respect thereof) arise out of, or are based upon, any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus or any preliminary Prospectus, or arise out
of, or are based upon, any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they were made,
except insofar as the same are based upon information furnished in writing to
the Company by a Selling Holder expressly for use therein, and shall reimburse
each Selling Holder, its partners, officers, directors, employees and agents,
and each such Controlling Person for any legal and other expenses reasonably
incurred by that Selling Holder, its partners, officers, directors, employees
and agents, or any such Controlling Person in investigating or defending or
preparing to defend against any such Damages or proceedings; provided, however,
that the Company shall not be liable to any Holder or other indemnitee to the
extent that any such Damages arise out of
- 11 -
<PAGE>
or are based upon an untrue statement or omission made in any preliminary
prospectus if (i) such Holder failed to send or deliver a copy of the final
Prospectus with or prior to the delivery of written confirmation of the sale by
such Holder to the Person asserting the claim from which such Damages arise, and
(ii) the final prospectus would have corrected such untrue statement or such
omission; and provided further, however, that the Company shall not be liable in
any such case to the extent that any such Damages arise out of or are based upon
an untrue statement or omission in any Prospectus if (x) such untrue statement
or omission is corrected in an amendment or supplement to such Prospectus, (y)
having previously been furnished by or on behalf of the Company with copies of
such Prospectus as so amended or supplemented, and (z) after being notified by
the Company pursuant to Section 3.1(f) hereof of the happening of any event
which would make any statement in the Registration Statement or related
Prospectus or any document incorporated or deemed to be incorporated by
reference therein untrue or misleading, the Holder continues to offer for sale
the Registrable Securities pursuant to the Registration Statement or Prospectus
which is the subject of such notice, such Holder thereafter fails to deliver
such Prospectus as so amended or supplemented prior to or concurrently with the
sale of a Registrable Security to the Person asserting the claim from which such
Damages arise; provided further, that the Company shall not be liable in any
case to the extent that any such Damages arise out of or are based upon an
untrue statement or omission in any Prospectus, even if an amended and corrected
Prospectus is not furnished to the Holder, but only to the extent that the
Holder, after being notified by the Company pursuant to Section 3.1(f) hereof,
continues to use such Prospectus and in such case and to the extent of, and with
respect to, Damages which arise after the Holder receives the Section 3.1(f)
notice. The Company also agrees to indemnify any Underwriters of the Registrable
Securities, their officers and directors and each Person who controls such
Underwriters on substantially the same basis as that of the indemnification of
the Selling Holders provided in this Section 4.1.
SECTION 4.2. Indemnification by Selling Holders. Each Selling
Holder agrees, severally but not jointly, to indemnify and hold harmless the
Company, its officers, directors, employees and agents and each Person, if any,
who controls the Company within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act, together with the partners, officers,
directors, employees and agents of such controlling Person, to the same extent
as the foregoing indemnity from the Company to such Selling Holder, but only
with reference to information related to such Selling Holder, or its plan of
distribution, furnished in writing by such Selling Holder expressly for use in
any Registration Statement or Prospectus, or any amendment or supplement
thereto, or any preliminary Prospectus. In case any action or proceeding shall
be brought against the Company or its officers, directors, employees or agents
or any such controlling Person or its officers, directors, employees or agents,
in respect of which indemnity may be sought against such Selling Holder, such
Selling Holder shall have the rights and duties given to the Company, and the
Company or its officers, directors, employees or agents, or such controlling
Person, or its officers, directors, employees or agents, shall have the rights
and duties given to such Selling Holder, by the preceding paragraph. Each
Selling Holder also agrees to indemnify and hold harmless any Underwriters of
the Registrable Securities, their
- 12 -
<PAGE>
officers and directors and each Person who controls such Underwriters on
substantially the same basis as that of the indemnification of the Company
provided in this Section 4.2.
SECTION 4.3. Conduct of Indemnification Proceedings. Promptly
after receipt by any person in respect of which indemnity may be sought pursuant
to Section 4.1 or 4.2 (an "Indemnified Party") of notice of any claim or the
commencement of any action, the Indemnified Party shall, if a claim in respect
thereof is to be made against the Person against whom such indemnity may be
sought (an "Indemnifying Party"), notify the Indemnifying Party in writing of
the claim or the commencement of such action; provided that the failure to
notify the Indemnifying Party shall not relieve it from any liability which it
may have to an Indemnified Party otherwise than under Section 4.1 or 4.2 except
to the extent of any actual prejudice resulting therefrom. If any such claim or
action shall be brought against an Indemnified Party, and it shall notify the
Indemnifying Party thereof, the Indemnifying Party shall be entitled to
participate therein, and, to the extent that it wishes, jointly with any other
similarly notified Indemnifying Party, to assume the defense thereof with
counsel reasonably satisfactory to the Indemnified Party. After notice from the
Indemnifying Party to the Indemnified Party of its election to assume the
defense of such claim or action, the Indemnifying Party shall not be liable to
the Indemnified Party for any legal or other expenses subsequently incurred by
the Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation; provided that the Indemnified Party shall
have the right to employ separate counsel to represent the Indemnified Party and
its controlling Persons who may be subject to liability arising out of any claim
in respect of which indemnity may be sought by the Indemnified Party against the
Indemnifying Party, but the fees and expenses of such counsel shall be for the
account of such Indemnified Party unless (i) the Indemnifying Party and the
Indemnified Party shall have mutually agreed to the retention of such counsel or
(ii) in the opinion of counsel to such Indemnified Party, representation of both
parties by the same counsel would be inappropriate due to actual or potential
conflicts of interest between them, it being understood, however, that the
Indemnifying Party shall not, in connection with any one such claim or action or
separate but substantially similar or related claims or actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys
(together with appropriate local counsel) at any time for all Indemnified
Parties. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any claim or pending or threatened
proceeding in respect of which the Indemnified Party is or could have been a
party and indemnity could have been sought hereunder by such Indemnified Party,
unless such settlement includes an unconditional release of such Indemnified
Party from all liability arising out of such claim or proceeding. Whether or not
the defense of any claim or action is assumed by the Indemnifying Party, such
Indemnifying Party will not be subject to any liability for any settlement made
without its consent, which consent will not be unreasonably withheld.
SECTION 4.4. Contribution. If the indemnification provided for
in this Article 4 is unavailable to the Indemnified Parties in respect of any
Damages referred to herein, then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to
- 13 -
<PAGE>
the amount paid or payable by such Indemnified Party as a result of such Damages
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Selling Holders on the other from the
offering of the Registrable Securities, or if such allocation is not permitted
by applicable law, in such proportion as is appropriate to reflect not only the
relative benefits but also the relative fault of the Company on the one hand and
the Selling Holders on the other in connection with the statements or omissions
which resulted in such Damages, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and of each
Selling Holder on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Selling Holders agree that it would not be
just and equitable if contribution pursuant to this Section 4.4 were determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Party as a result of the
Damages referred to in the immediately preceding paragraph shall be deemed to
include, subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 4.4, no Selling Holder shall be required to contribute any amount in
excess of the amount by which the total price at which the Registrable
Securities of such Selling Holder were offered to the public exceeds the amount
of any damages which such Selling Holder has otherwise paid by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation. Each Selling Holder's
obligations to contribute pursuant to this Section 4.4 is several in the
proportion that the proceeds of the offering received by such Selling Holder
bears to the total proceeds of the offering received by all the Selling Holders
and not joint.
ARTICLE V.
MISCELLANEOUS
SECTION 5.1. Participation in Underwritten Registrations. No
Person may participate in any underwritten registration hereunder unless such
Person (a) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements, and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and these
registration rights.
- 14 -
<PAGE>
SECTION 5.2. Rule 144. The Company agrees and will use its
best efforts to file any reports required to be filed by it under the Securities
Act and the Exchange Act and that it will take such further action as any Holder
may reasonably request, all to the extent required from time to time to enable
Holders to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rules may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the Commission. Upon the request
of any Holder, the Company will deliver to such Holder a written statement as to
whether it has complied with such requirements.
SECTION 5.3. Amendment and Modification. Any provision of this
Agreement may be waived, provided that such waiver is set forth in a writing
executed by the party against whom the enforcement of such waiver is sought.
This Agreement may not be amended, modified or supplemented other than by a
written instrument signed by Holders of a majority of the Registrable
Securities; provided, however, that without the consent of all the Holders, no
amendment or modification which materially and adversely affects the ability of
such Holders to have the offer and sale of securities registered hereunder may
be effected. No course of dealing between or among any Persons having any
interest in this Agreement will be deemed effective to modify, amend or
discharge any part of this Agreement or any rights or obligations of any Person
under or by reason of this Agreement.
SECTION 5.4. Successors and Assigns; Third Party
Beneficiaries; Entire Agreement. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto, each
subsequent Holder and their respective successors and assigns and executors,
administrators and heirs. Holders are intended third party beneficiaries of this
Agreement and this Agreement may be enforced by such Holders. This Agreement
sets forth the entire agreement and understanding between the parties as to the
subject matter hereof and merges and supersedes all prior discussions,
agreements and understandings of any and every nature among them.
SECTION 5.5. Headings. Subject headings are included for
convenience only and shall not affect the interpretation of any provisions of
this Agreement.
SECTION 5.6. Notices. Any notice, demand, request, waiver, or
other communication under this Agreement shall be in writing and shall be deemed
to have been duly given on the date of service if personally served or sent by
telecopy, on the business day after notice is delivered to a courier or mailed
by express mail if sent by courier delivery service or express mail for next day
delivery and on the third day after mailing if mailed to the party to whom
notice is to be given, by first class mail, registered, return receipt
requested, postage prepaid and addressed as follows:
- 15 -
<PAGE>
If to the Company to:
Chief Executive Officer
Danskin, Inc.
111 West 40th Street
New York, New York
Fax: (212) 768-1638
Phone: (212) 764-4630
with a copy to:
Samuel B. Fortenbaugh III, Esq.
Morgan, Lewis & Bockius
101 Park Avenue
New York, NY 10178
Fax: (212) 309-6273
Phone: (212) 309-6000
If to the Buyer or the Holder, to the Holder at the most
current address given by such Holder to the Company in
writing, and to:
Andrew Astrachan
Danskin Investors, LLC
c/o Onyx Partners, Inc.
9595 Wilshire Blvd.
Suite 700
Beverly Hills, CA 90212
Fax: (310) 246-9937
Phone: (310) 724-5599
with a copy to:
Martin Nussbaum, Esq.
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
Fax: (212) 758-9526
Phone: (212) 758-9500
- 16 -
<PAGE>
SECTION 5.7. Governing Law; Forum; Process. This Agreement shall be
construed in accordance with, and governed by, the laws of the State of New York
as applied to contracts made and to be performed entirely in the State of New
York without regard to principles of conflicts of law. Each of the parties
hereto hereby irrevocably and unconditionally submits to the exclusive
jurisdiction of any court of the State of New York or any federal court sitting
in the State of New York for purposes of any suit, action or other proceeding
arising out of this Agreement (and agrees not to commence any action, suit or
proceedings relating hereto except in such courts). Each of the parties hereto
agrees that service of any process, summons, notice or document by U.S.
registered mail at its address set forth herein shall be effective service of
process for any action, suit or proceeding brought against it in any such court.
Each of the parties hereto hereby irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding arising out
of this Agreement, which is brought by or against it, in the courts of the State
of New York or any federal court sitting in the State of New York and hereby
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
SECTION 5.8. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, and all of which
together shall constitute a single agreement.
SECTION 5.9. Severability. In the event that any one or more of the
immaterial provisions contained in this Agreement shall for any reason be held
to be invalid, illegal or unenforceable, the same shall not affect any other
provision of this Agreement, but this Agreement shall be construed in a manner
which, as nearly as possible, reflects the original intent of the parties.
SECTION 5.10. No Prejudice. The terms of this Agreement shall not be
construed in favor of or against any party on account of its participation in
the preparation hereof.
SECTION 5.11. Words in Singular and Plural Form. Words used in the
singular form in this Agreement shall be deemed to import the plural, and vice
versa, as the sense may require.
- 17 -
<PAGE>
SECTION 5.12. Remedy for Breach. The Company hereby acknowledges that
in the event of any breach or threatened breach by the Company of any of the
provisions of this Agreement, the Holder would have no adequate remedy at law
and could suffer substantial and irreparable damage. Accordingly, the Company
hereby agrees that, in such event, the Holder shall be entitled, without the
necessity of proving damages or posting bond, and notwithstanding any election
by any Holder to claim damages, to obtain a temporary and/or permanent
injunction, without proving a breach therefor, to restrain any such breach or
threatened breach or to obtain specific performance of any such provisions, all
without prejudice to any and all other remedies which any Holder may have at law
or in equity.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
DANSKIN, INC.
By:
------------------------
Name:
Title:
DANSKIN INVESTORS, LLC
By: Onyx Partners, Inc.,
its manager
By:
------------------------
Name:
Title:
- 18 -
