SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended September 30, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________________to ________________________
Commission file number 0-21196
Mothers Work, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 133045573
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
456 North Fifth Street, Philadelphia, PA 19123
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 873-2200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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NONE
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
On November 15, 1996, the aggregate market value of the Registrant's
Common Stock, $.01 par value, held by nonaffiliates of the Registrant was
approximately $28,988,315.
On November 15, 1996, 3,559,317 shares of the Registrant's Common Stock,
$.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement to be filed with the
Commission in connection with the Annual Meeting of Stockholders scheduled to be
held on January 16, 1997 are incorporated by reference into Part III of this
Form 10-K.
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PART I
ITEM 1. Business(1)
General
Mothers Work, Inc., a Delaware corporation ("Mothers Work(R)" or the
"Company"), which began operations in 1982, is the largest specialty retailer of
maternity clothing in the United States. On June 1, 1996 the Company expanded
into upscale bridge women's apparel through the acquisition of the 21 stores of
Episode USA Inc. ("Episode"). As of September 30, 1996, the Company operated 468
stores under the Maternite(R), Mimi Maternity(R), A Pea in the Pod(R) ("Pea"),
Motherhood Maternity(R) ("Motherhood(R)"), Maternity Works(R) and Episode(R)(2)
concepts offering a full range of career, casual and special occasion maternity
wear and upscale bridge women's apparel. The Company locates its stores
primarily in regional shopping malls and, to a lesser extent, in central
business districts within major metropolitan areas, and in factory-direct outlet
centers. The Company is vertically-integrated, performing design, manufacturing,
distribution and retail sales functions in-house.
The Company currently operates maternity wear retail stores under five
store concepts which, although having different merchandising and marketing
strategies, are all targeted to those women seeking to purchase moderate to
upscale maternity fashions. All of the Company's maternity store concepts sell
clothing that is designed to meet an expectant mother's entire lifestyle fashion
needs including her career requirements, as well as her casual and special
occasion needs. Maternite, the Company's original concept (formerly operated
under the name "Mothers Work"), markets traditional clothing. Mimi Maternity,
which was developed in 1990, is designed to meet the needs of fashion forward
women who are willing to spend more to make a fashion statement. Pea, which was
acquired in April 1995, markets the most upscale of the Company's fashions and
offers a premium or "bridge" merchandise selection manufactured by the Company,
including the Company's Mimi Maternity line of clothing, and certain designer
labels. Motherhood, the oldest national chain specialty retailer of maternity
clothing in the United States, was acquired in August 1995 in order for the
Company to enter the moderately-priced maternity clothing market. Maternity
Works, a chain of factory-direct outlet stores, serves the woman who seeks
upscale apparel during her pregnancy but cannot or will not purchase at full
retail prices.
The Company also operates in the non-maternity women's apparel market
through its Episode division, which was acquired in June 1996. Episode
markets bridge women's fashion apparel heavily focused on jackets, skirts, pants
and blouses. Episode was founded by the Fang
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(1) The terms "Mothers Work" and the "Company" as used in this Report
include each of the following subsidiaries of the Company: Mothers Work (R.E.),
Inc., Motherhood Maternity International, Inc., The Page Boy Company, Inc.
("Page Boy"), and Cave Springs, Inc. All references in this Report to stores or
Company-owned stores include leased departments.
(2) Episode, Excursion and Excursions are registered trademarks of Episode
USA, Inc.
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brothers of Hong Kong and their company Toppy International Limited ("Toppy"),
from whom the U.S. stores were acquired.
The Company's strategy is to:
o Respond quickly to customer fashion demand utilizing its Real Time
Retailing(R) business model which encompasses computerized point of
sale and merchandising systems, daily replenishment of inventory,
"quick-turn" manufacturing with some product being produced on a
two-week cycle domestically, and "quick-response" in-season design.
o Secure and maintain desirable retail locations within regional
shopping malls and factory-direct outlet centers.
o Capitalize on its retail, merchandising, manufacturing, design and
distribution strengths to diversify its product offering from
maternity apparel to regular sized women's apparel.
The Company is incorporated under the laws of the State of Delaware and
entered into the maternity apparel business in 1982. Its principal executive
offices and production facility are located at 456 North Fifth Street,
Philadelphia, Pennsylvania 19123 and its telephone number is (215) 873-2200.
The Maternity Apparel Market
The Company is unaware of any reliable data on the revenue size of the
maternity apparel market. The Company believes that the number of maternity
clothing wholesale vendors has decreased during the past decade as a result of
the decline in the number of large retailers and department store chains which
market maternity clothing. The Company's vertical integration eliminates the
need for the Company to rely on the availability of merchandise from outside
vendors, providing a competitive advantage for the Company. Management believes
that the market is elastic due in part to customers who shop the regular market
and choose loose-fitting or larger-sized clothing as a substitute for maternity
wear. The Company considers this component of the market to be a revenue
opportunity.
Bridge Fashion Market
The acquisition of Episode represents the Company's first entry into the
regular women's apparel market. Episode markets bridge women's fashion apparel
heavily focused on jackets, skirts, pants and blouses. The women's regular-sized
market segment is extremely competitive and the Company will compete for
customers with large specialty apparel retailers, better department stores,
national apparel chains, designer boutiques and individual apparel stores.
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The Company acquired Episode in June 1996 for $7.4 million, consisting of
217,365 shares of the Company's Common Stock and $2.4 million in cash (including
$400,000 in transaction expenses). See Note 2 of "Notes to Consolidated
Financial Statements." For the fiscal years ended January 29, 1994, January 28,
1995 and February 3, 1996, Episode had net sales of $38.9 million, $34.6 million
and $28.7 million, respectively.
Strategy
The key components of the Company's strategic objectives are described
below.
Real Time Retailing - Real Time Retailing is the Company's proprietary and
comprehensive capability to monitor better and respond more quickly to consumer
fashion demand, thereby reducing the fashion risk inherent in the apparel
business. Through the use of computerized point of sale and merchandising
systems, daily replenishment of inventory, "quick-turn" manufacturing and
"quick-response" design, all managed by an experienced group of executives, the
Company is able to provide its customers with the merchandise that they want
when they want it. The Company believes that this ability to react in real time
to changing consumer tastes and demand for product gives it a competitive
advantage over apparel retailers who source the majority of their product
overseas or with outside vendors which results in long lead times and an
inability to replenish merchandise quickly. The objective is to maximize the
sales potential of each store by matching the profile of the store's customers
with the proper merchandise. Real Time Retailing also assists the Company in
maximizing its in-store inventory turns and sales per square foot, reducing its
cost of goods sold and leading to higher gross profit margins.
Prime Locations and Broad Distribution - The Company's demonstrated
ability historically to generate high sales per square foot, the fact that its
stores project an image and design consistent with other quality retailers and
its multi-concept store offerings have enabled the Company to secure and
maintain desirable retail locations within regional shopping malls and
factory-direct outlet centers for its Maternite, Mimi Maternity, Pea, Motherhood
and Maternity Works stores. These factors have enabled the Company not only to
locate these stores at many of the most desirable shopping malls and
factory-direct outlet centers, but also to obtain desirable locations within
such malls and centers.
By operating several different store concepts, the Company is positioned
to satisfy demand for maternity clothing throughout the moderate-to-upscale
segments of the market. Mall operators require an appropriate mix of stores for
the mall's perceived consumer and market position. For regional malls that
require one maternity store, the Company provides several different concepts
within the moderate to the upscale segments of the market. Moreover, since there
is some overlap between store concepts (in terms of both stocked merchandise and
price points), the Company expects that customers will shop at more than one of
its store concepts. Accordingly, the Company is positioned to supply mall
operators which require two maternity stores. In the case of multi-mall
operators, the Company has the flexibility to supply packages of stores in
multiple malls utilizing several of its concepts. As a result of the
acquisitions of Pea and Motherhood, the Company will
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achieve broader distribution and be able to offer a wider spectrum of maternity
concepts to potential landlords.
As of September 30, 1996, the Company's operations included 27 leased
departments, 24 of which were added as a result of the acquisition of
Motherhood. Generally, start-up and operating costs for a leased department are
substantially less than for a stand-alone store. A significant part of the
Company's growth strategy for fiscal 1997 includes the opening of leased
departments.
Retail, Merchandising, Manufacturing, Design and Distribution Strengths -
The Company believes it can capitalize on its retail, merchandising,
manufacturing, design and distribution strengths to expand its product offering
from maternity apparel to regular sized women's apparel, through its acquisition
of Episode. Through its Episode division, the Company will be serving the
bridge-level customer with whom it has experience through its Pea store
concepts, and most every member of the Company's design, merchandising, store
operations and manufacturing departments has some level of experience in the
regular women's apparel market. The Company plans to manage the merchandising,
manufacturing and design operations of the Episode division with the same
techniques and skills it has used to operate its maternity business, including
fully-staffed merchandising and design departments, computer systems as well as
quick response design and manufacturing. The Company plans to apply its
marketing techniques and philosophies, to its regular sized women's apparel
business, which have allowed it to successfully operate its maternity business.
Expansion Strategy
Expansion of Apparel Business. Since the time of its initial public
offering in March 1993, the Company has increased its store base by
approximately 600% (from 67 stores to 468 stores) as of September 30, 1996.
These increases include stores acquired as a result of the Company's January
1994 acquisition of Page Boy (22 stores acquired) ("Page Boy Acquisition"), a
Dallas-based maternity clothing chain, its April 1995 acquisition of Pea (66
stores acquired) ("Pea Acquisition"), also a Dallas-based maternity clothing
chain and formerly the nation's second largest maternity retailer, its August
1995 acquisition of Motherhood (217 stores acquired) ("Motherhood Acquisition"),
a California-based maternity clothing chain, and its June 1996 acquisition of
Episode (21 stores acquired) ("Episode Acquisition").
Following the Pea Acquisition, the Company undertook an analysis of all of
its stores and entered into a store rationalization and consolidation program to
determine which acquired stores would be best operated under separate names and
which stores should be closed as redundant. After completion of the Company's
store rationalization program, the Company operates 39 stores under the Pea
name, which sells the most expensive clothing of any of the Company's maternity
concepts. The Motherhood Acquisition provides the Company's biggest opportunity
as it gives the Company more complete mall coverage at all price points ranging
from moderate to upscale and represents the Company's first significant presence
within leased departments. The Company believes that Motherhood has the
potential to double its current store base, subject to capital and marketplace
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availability. The Episode Acquisition gives the Company entry into the bridge
women's fashion apparel and an opportunity to grow outside the maternity
business.
The Company opened 44 stores in fiscal 1996 and 33 in fiscal 1995. At
September 30, 1996, the Company operated 39 Pea stores, 208 Motherhood stores,
25 Motherhood leased departments and 27 Episode stores. The Company plans to add
at least 50 maternity stores, primarily leased departments and approximately 6
Episode stores, in fiscal 1997.
A significant portion of the Company's growth has resulted from the
addition of new stores and acquisition of existing maternity stores and the
increased sales volume from such stores. The Company's ability to open new
stores on a timely basis will depend upon the Company's success in identifying
suitable store sites, obtaining leases for those sites on acceptable terms,
constructing or refurbishing the sites where necessary, and hiring and training
skilled store managers and personnel. There can be no assurance that suitable
sites will be available for new stores or that new stores will generate sales
volumes comparable to those of the Company's existing stores, and the costs
associated with opening such stores may adversely affect the Company's
profitability. Further, from time to time, the Company also evaluates store
closing opportunities.
The Company has identified and is continually re-evaluating real estate
opportunities including those which may be able to accommodate a Motherhood
store. In addition to its current stores, the Company has identified additional
malls or other locations in the United States that would be well suited for a
Motherhood store. The Company considers markets nationwide but favors
metropolitan area populations greater than 500,000. The Company has also
identified additional malls and outlet centers which do not meet the Company's
primary site selection criteria, but which may nevertheless be attractive
locations for one of the Company's stores if lease terms are able to be
negotiated to provide attractive store unit economics.
The Company believes it can further increase sales of the acquired Episode
stores through product line extensions, improved inventory management and
refined store operations. The Company plans to increase sales by augmenting the
Episode store base and merchandise selection. The Company will continue to serve
the existing Episode customer base with a full line of current production from
Toppy, which management believes will minimize risks associated with the bridge
business. In addition, the Company has introduced its own label, Daniel &
Rebecca(R), into the Episode stores. This label will include fashion forward
styles that carry an independent self-confident woman of the 90's from the
boardroom to the beach. This concept is referred to as lifestyle dressing and is
the foundation of the Daniel & Rebecca marketing position.
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Store Concepts
The Company operates its maternity stores under five concepts offering a
full range of career, casual and special occasion maternity wear: Pea, Mimi
Maternity, Maternite, Motherhood and Maternity Works. In addition, the Company
operates upscale bridge women's apparel specialty stores under the Episode name.
The Company recently completed the name change of its Mothers Work stores to
Maternite. The following table sets forth certain information regarding the
Company's store composition as of September 30, 1996, including each store
concept's target location, product description and selected price points:
Summary of Store Concepts
<TABLE>
<CAPTION>
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Store Description of Product Price Range for Average Store Typical Anchors and
Concept Typical Location Description Dresses/Blouses Size (Sq. Ft.) Comparable Retailers
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<S> <C> <C> <C> <C> <C>
Episode Upscale regional Young $200-500 3,500 Bergdorf Goodman,
malls & affluent Designer at 120-200 Neiman Marcus, Saks
residential Bridge Price Fifth Avenue, Gucci,
districts Point Ralph Lauren
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A Pea in the Upscale regional Bridge, high $200-$400 2,400 Bergdorf Goodman,
Pod malls & affluent fashion 120-180 Neiman Marcus, Saks
residential Fifth Avenue, Gucci,
districts Ralph Lauren
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Mimi Upscale regional Fashion- $158-$198 1,600 Neiman Marcus,
Maternity malls forward, 78-118 Bloomingdales,
contemporary Nordstrom's, Saks Fifth
Avenue, Barney's, Joan
and David, Bebe, Ann
Taylor
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Maternite Upper-moderate Updated $78-$128 1,200 Macy's, Dillard's, Banana
regional malls classic to 38-68 Republic, Eddie Bauer,
contemporary Ann Taylor, Limited
Express
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Motherhood Moderate regional Value- $38-$79 1,100 Sears, J.C. Penney's,
malls and oriented, 28-39 Mervyn's, Casual Corner,
department stores mostly casual Merry-Go-Round,
basics Lerners
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Maternity Factory direct Fashion at $39-$79 2,000 Neiman Marcus' Last
Works outlet malls and marked-down 29-49 Call, Nordstrom Rack,
centers prices Saks Fifth Avenue
Clearinghouse, and
outlets for Ann Taylor,
Polo, Donna Karan, Liz
Claiborne, J. Crew and
Brooks Brothers
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</TABLE>
Most malls require only one moderate to upscale maternity store; however,
major regional malls with several department stores may be able to accommodate
two. With Mimi Maternity and
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Pea as the Company's prestige offerings, Maternite as the traditional offering,
and Motherhood as the value oriented, mostly casual basics offering, the Company
has the potential to fill both positions at a given mall. As of September 30,
1996, the Company had two or more maternity stores in 48 major regional malls.
Store Operations
The Company's Senior Vice President - Stores is responsible for all store
operations. The Company's centralized operations allow store personnel to focus
on selling as well as the physical maintenance of merchandise and store
facilities. The Company employs skilled, motivated sales associates who are
trained to provide the detailed assistance and the reassurance needed by the
customer. A visual merchant coordinates with the merchandising department to
develop a space allocation plan and design store display windows and travels
among the Company's stores to enhance merchandise presentation.
Merchandising, Design and Store Inventory Planning
The Company's Vice President - Merchandising is responsible for and
directs the following departments:
Merchandising. Guided by Real Time Retailing, the Company's merchandising
department combines input from the designers, current trends seen generally in
women's clothing, outside vendor resources and store management input, with
TrendTrack computer analysis of customer preferences to provide a constant flow
of merchandise to the Company's stores. The Company strives to maintain an
appropriate balance between new merchandise and proven successful styles. These
fashions are generally marketed under the Company's Maternite, Mimi Maternity,
and Steena(R) labels.
TrendTrack includes a computerized open-to-buy system which projects
sales, purchases and inventory levels for each merchandise classification by
store format. This system permits the Company to plan its manufacturing and
outside purchasing weekly to control its inventory on a
classification-by-classification basis, thereby enhancing the Company's ability
to control inventory quantity and mix. By combining information from the
open-to-buy system and the TrendTrack item-tracking system, which measures
up-to-the-prior-day selling and inventory positions on every style, the
Company's merchandising department decides what items to make more of, what to
mark down or up in price, and what to close out.
All of the maternity concepts are on-line with TrendTrack and have
integrated merchandising operations.
Design. The Design department produces samples and patterns for the
Company's manufactured products under the guidance of the Merchandising
department. The design process
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is divided between six design rooms, one for each store concept. The Episode
design room is staffed by a separate team of merchandisers and designers having
experience with upscale bridge women's apparel.
The Company divides the year into six principal seasons and 12 monthly
deliveries. Although the seasons guide general product development, color
coordinated groups are planned for monthly deliveries for each line. The design
of a product begins with a review of European and New York trends and current
retail trends through fashion reporting service slides and fabric samples. The
designers review the Company's best selling items from prior seasons and
integrate current fashion ideas from the non-maternity retail market.
Store Inventory Planning. The Company constructs profiles of each store
using its inventory planning system to enhance store merchandise coordination
and stock balance, to maintain adequate depth of merchandise by style and to
manage close-out merchandise and end-of-season consolidation of merchandise.
Each season's designs and production for each store are distributed by
allocation based on prior selling history. Stores within each chain are grouped
as career oriented or casual, more or less fashion forward, and higher or lower
price point. These factors are all considered in establishing target inventories
for each store. Stores typically maintain most styles on a one garment per
color, per size, per style basis, and inventories are replenished daily.
Integral to the Company's inventory management program are its proprietary
methods guided by Real Time Retailing and managed by its TrendTrack information
system. The Company consolidates the inventory in its stores every week through
its warehouse to replenish high volume stores on needed items. Every week, a
computer program analyzes data provided by TrendTrack as to all slow selling and
close-out items in every store to rank the stores in order of selling rate by
item. The TrendTrack system will send the stores which are low sellers of an
item a message to send the item back to the Company's warehouse thereby creating
backstock for stores where the item is selling faster. The consolidation program
reduces markdowns and increases sales by getting product to the stores that sell
it fastest.
Upon completion of the Episode Acquisition, Episode was added onto the
Company's TrendTrack system for purposes of inventory control and planning.
Production and Distribution
The Company subcontracts its sewing to shops in the Philadelphia
metropolitan and surrounding area and works with approximately 25
subcontractors. In fiscal 1996 and 1995, four contractors supplied approximately
32% and 57%, respectively, of the Company's total production based on aggregate
cost. On an individual basis, the production supplied by each of these
subcontractors ranged from 6% to 9% in fiscal 1996 and from 11% to 17% in fiscal
1995. The Company does not believe that the loss of any sewing subcontractor
would have a material adverse effect on its business and believes its
relationships with its subcontractors are good. The Company
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obtains fabrics, trim and other supplies from a variety of sources and believes
that its sources of fabrics and other supplies are adequate for its needs.
In fiscal 1996 the Company expanded sourcing to include 807 (value added
duty) operations in the Dominican Republic, Costa Rica and Mexico. In the case
of 807 operations, the products are cut at the Company's headquarters, supplied
with trims and are then shipped out of the country for assembly. A portion of
all production is supplied by independent subcontractors located abroad,
principally in Mexico and the Far East. The Company continues to seek additional
subcontractors throughout the world for its sourcing needs. The Company monitors
production at each subcontractor's facility, in the United States and abroad, to
ensure quality control, compliance with its design specifications and timely
delivery of finished goods.
That portion of the Company's merchandise imported into the United States
is subject to United States duties. The Company's future import operations may
be adversely affected by political instability resulting in the disruption of
trade from exporting countries, the imposition of additional regulations
relating to, or duties, taxes and other charges on imports, significant
fluctuations in the value of the dollar against foreign currencies and
restrictions on the transfer of funds.
Finished garments from subcontractors and garments from other
manufacturers are received at the Company's central warehouse, inspected and
stored for picking. Each morning, the TrendTrack system prints replenishment
pick lists for each store. The shipments are scanned for comparison against the
bar-coded transaction number on the pick list and then shipped by common
carrier, typically UPS, Emery Air Freight or a similar service providing one- or
two-day delivery throughout the United States.
As part of the Episode Acquisition, the Company entered into a
Distribution Agreement with Toppy, pursuant to which Toppy agreed to sell to the
Company bridge women's apparel and accessories with one of the following
trademark names: Episode(R), Excursion(R) or Excursions(R) (the "Articles") and
other products manufactured by Toppy. Toppy also granted the Company the right
to manufacture Articles for sale in the United States, in consideration of the
payment of a royalty to Toppy equal to two percent of all sales of such Articles
manufactured by the Company. See Note 12 of "Notes to Consolidated Financial
Statements."
In August, 1995, the Company purchased a 186,000 square foot warehouse and
headquarters. In the second quarter of fiscal 1996, the Company completed the
process of occupying and extending the mezzanine to provide for an additional
132,000 square feet, of which 44,000 square feet is dedicated to office space
and the remaining square footage to distribution and manufacturing. With the
purchase of this building and the additional space, the Company consolidated its
operations.
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Management Information and Control Systems
All of the Company's stores have point-of-sale terminals that provide
information used in the Company's custom TrendTrack item and classification
tracking system. This system provides daily financial and merchandising
information integral to the Company's Real Time Retailing strategy. The
TrendTrack system has numerous features designed to integrate the Company's
retail operations with its design and manufacturing functions. These features
include custom merchandise profiles for each store, daily inventory
replenishment, item-tracking providing daily updated selling information for
every style, classification open-to-buy and inventory control, as well as daily
collection of credit card receipts.
The Company employs a comprehensive materials requirements planning system
to manage its production inventories, documentation, work orders and scheduling.
Terminals are located throughout the design, patterning and production areas.
This system provides a perpetual raw material inventory, actual job costing,
scheduling and bill of materials capabilities.
Advertising
The Company's advertising and promotion efforts focus on yellow pages and
national local print advertising. Pea and Mimi Maternity are advertised in
magazines such as "Vogue" and "Shape Fit Pregnancy." Motherhood is advertised in
magazines such as "Glamour," "Parent's Expecting," "Baby Talk" and "Parenting."
The Company is planning a major add campaign for Episode featuring the Daniel &
Rebecca line beginning in Spring 1997. The Company produces at least two
Maternite, two Mimi Maternity, and two Motherhood brochures annually, which are
distributed to obstetricians and customers. The customer mailing list, which by
nature is constantly changing, is regularly updated through the Company's
customer response cards, which are added to the computer database.
Competition
All aspects of the retail industry, including attracting customers,
securing merchandise and locating appropriate retail sites, are highly
competitive. The Company, with its Episode division, will compete for customers
with large specialty apparel retailers, better department stores, national
apparel chains, designer boutiques and individual apparel stores. In its
maternity apparel business, the Company faces competition from various
full-price maternity clothing chains, a number of off-price specialty retailers
and catalog retailers, as well as from local, regional and national department
stores and women's and, to some extent, men's clothing stores. Many of these
competitors are larger and have significantly greater financial resources than
the Company.
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Employees
At September 30, 1996, the Company had approximately 1,480 full-time and
approximately 1,093 part-time employees. None of the Company's employees is
covered by a collective bargaining agreement. The Company believes that its
relationship with its employees is good.
Executive Officers of the Company
The executive officers of the Company are:
Name Age Position
---- --- --------
Dan W. Matthias....... 53 Chairman of the Board and Chief
Executive Officer
Rebecca C. Matthias... 43 President, Chief Operating Officer
and Director
Thomas Frank.......... 40 Chief Financial Officer and
Vice President - Finance
Donald W. Ochs........ 55 Senior Vice President - Operations
Lynne M. Wieder....... 36 Senior Vice President - Stores
Dan W. Matthias joined the Company on a full-time basis in 1982 and has
served as Chairman of the Board since its inception. From 1983 to 1993 he served
as the Company's Executive Vice President, and since January 1993, Mr. Matthias
has been the Company's Chief Executive Officer. He had previously been involved
in the computer and electronics industry, serving as a director of Zilog, Inc.
and serving as the President of a division of a subsidiary of Exxon Corporation.
Rebecca C. Matthias founded the Company in 1982 and has served as a
director of the Company and its President since its inception. Since January
1993, Ms. Matthias has served as the Company's Chief Operating Officer. Prior to
1982, she was a construction engineer for the Gilbane Building Company. In 1992,
she was chosen as "Regional Entrepreneur of the Year" by Inc. magazine and
Merrill Lynch. Ms. Matthias also serves as a director of the Greater
Philadelphia Chamber of Commerce.
Thomas Frank joined the Company in 1988 and has served the Company as Vice
President - Finance since September 1989 and also as Chief Financial Officer
since September 1995. Mr. Frank was Sales Audit Manager of the Lane Bryant
Division of The Limited, Inc. from 1986 to 1988. Mr. Frank is a Certified Public
Accountant.
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Donald W. Ochs joined the Company in June 1995 as Senior Vice President -
Operations with over 30 years of experience in apparel manufacturing management,
operations and worldwide sourcing of women's specialty clothing. Mr. Ochs was
Senior Vice President - Corporate Worldwide Sourcing and Manufacturing at Leslie
Fay Companies from October 1993 until joining the Company. From 1989 to 1993,
Mr. Ochs was employed by Liz Claiborne, Inc. as Senior Vice President -
Manufacturing.
Lynne M. Wieder has been Vice President - Stores since January 1993 and
Senior Vice President - Stores since September 1995. Previously, she had been
Director of Stores since joining the Company in January 1991. Ms. Wieder was
employed by Gap, Inc. as the Director of Stores for its Hemisphere division from
August 1989 to February 1990. Ms. Wieder worked at Ann Taylor from February 1981
to July 1989 and served as Regional Supervisor of Stores in various regions of
the United States.
The Company's executive officers are elected annually by the Board of
Directors and serve at the discretion of the Board.
Other than the husband and wife relationship between Dan and Rebecca
Matthias, there are no family relationships among any of the other executive
officers of the Company.
Trademarks
The Company owns such rights to the trademarks and service marks as it
believes are necessary to conduct its business as currently operated. The
Company is the owner of the registered trademarks Mothers Work(R), Maternite(R),
Maternity Works(R), Steena(R) and Daniel and Rebecca(R), and the service mark
Mimi Maternity(R), Real Time Retailing(R) and the slogan What's Showing is Your
Style(R). The Company has applied to register the mark MW(TM) as a service mark.
With the acquisition of Pea, the Company became the owner of the registered
trademarks and service marks A Pea in the Pod(R) and Maternity Redefined(R).
Upon the completion of the Motherhood Acquisition, the Company became the owner
of the registered trademarks Motherhood(R), Essential Body Cream(R) and Lauren
Taylor(R). The Company owns a patent for an adjustable waistband for use in
skirts, which allows the garment to be loosened during the course of pregnancy
and, with the acquisition of Motherhood, the Company acquired a patent relating
to the Essential Body Cream product. The Company is not aware of any pending
claims of infringement or other challenges to the Company's rights to use its
marks in the United States as currently used by the Company. The loss of any
trademark would not have a material adverse effect upon the Company's business.
As part of the Episode Acquisition, the Company entered into a Trademark
License Agreement, expiring May 31, 2000, with Toppy. The Trademark License
Agreement gives the Company the exclusive license to use the trademark
Episode(R) as a name for the Company's retail stores selling bridge women's
apparel and accessories in the United States. The Trademark License Agreement
requires the Company to pay Toppy a royalty of 5% of net sales of products in
Episode
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<PAGE>
stores, with maximum royalties not to exceed $4.5 million. See Note 12 of "Notes
to Consolidated Financial Statements."
Item 2. Properties
During fiscal 1996, the Company completed the relocation of its principal
executive offices, manufacturing and distribution facilities to 456 North Fifth
Street, Philadelphia, Pennsylvania 19123. The new facility is within two miles
of its previous location. The facility, after completion of improvements,
consists of approximately 318,000 square feet of which approximately 44,000
square feet is dedicated to office space and the remaining square footage to
manufacturing and distribution. The total cost of the facility and improvements
was approximately $9.9 million. The Company has received $6,590,000 in
government-assisted financing for the new facility.
All of the Company's retail stores for each of its six store concepts are
leased pursuant to leases that extend for terms on average for seven to ten
years. Certain leases allow the Company to terminate its obligations in the
event the specified store does not achieve a specified sales volume. Certain
leases include clauses that provide for contingent payments based on sales
volumes and others contain clauses for escalations of base rent as well as
increases in operating costs, marketing costs and real estate taxes. The terms
of the Company's leases expire as follows:
Fiscal Year
Lease Term Expires Number of Stores
------------------ ----------------
1997 75 (includes 27 leased departments
on month to month leases)
1998 38
1999 31
2000 29
2001 41
2002 and later 254
Item 3. Legal Proceedings
On February 7, 1994, prior to the Pea Acquisition in April 1995, a class
action complaint was filed in the United States District Court in Northern
District of Texas by plaintiff Raizy Levitan on behalf of all persons (the
"Class"), other than the defendants named therein, who purchased common stock of
Pea (the "Pea Stock") within a defined time period in connection with the
September 23, 1993 initial public offering of Pea (the "Pea IPO"). The named
defendants include Pea, its directors, those of its officers who are signatories
to the Pea IPO registration statement (the "Pea Registration Statement"), and
certain Pea shareholders who sold shares in the Pea IPO. The plaintiffs allege
that the Pea Registration Statement was false and misleading and failed to
disclose material information concerning Pea such that the information contained
in the Pea Registration Statement was misleading
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<PAGE>
and thereby in violation of the Securities Act. The plaintiffs also allege that
the defendants are responsible as direct actors, as aiders, abettors,
co-conspirators, and as control persons. The plaintiffs are seeking an award of
damages, under a variety of theories, the largest of which would yield $9.7
million, the impression of a constructive trust upon the proceeds of the Pea IPO
(and any profits earned thereon), rescission for those members of the Class who
still hold Pea Stock or an award of damages for those members of the Class who
do not, reimbursement of litigation costs and expenses, and such other just and
proper relief. Subsequent to the filing of the complaint, certain claims have
been dismissed with respect to certain of the defendants other than the Company.
Discovery is currently taking place among the parties. While the probability and
the extent of liability that Mothers Work (R.E.), Inc. might incur as a result
of this litigation cannot be predicted with any degree of certainty at this
time, management of the Company intends to vigorously defend against it, and
believes the plaintiffs' damages claim is grossly inflated and that the ultimate
outcome will not have a material impact on the Company's financial position.
In November 1996, plaintiffs Raizy Levitan and Henry Rasmussen filed an
action in the District Court of Dallas County, Texas against A Pea in the Pod,
its former officers and directors, the shareholders who sold shares in Pea's
public offering and all the underwriters in the public offering. This complaint
contains essentially the same factual allegations as the action pending in the
United States District Court for the Northern District of Texas as described
above. The complaint contains claims under the Texas Securities Act, Article
581-33A (primary securities law violation against all defendants), Article
581-33F(1) (control person liability against Pea and the individual defendants),
and Article 581-33F(2) (aiding and abetting liability against all defendants).
In addition to compensatory damages, plaintiffs seek prejudgment and
post-judgment interest and attorneys' fees pursuant to state law. Plaintiffs
have agreed to stay this action until April 1997, when trial of the federal
court action is scheduled.
From time to time the Company is named as a defendant in legal actions
arising from its normal business activities. Although the amount of any
liability that could arise with respect to currently pending actions of this
nature cannot be accurately predicted, in the opinion of management, no
liability for any pending action will have a material adverse effect on the
financial position of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock is traded on the Nasdaq National Market under
the symbol "MWRK."
The following table sets forth, for the fiscal quarters indicated, the
high and low sales prices per share for the Company's common stock, as reported
on the Nasdaq National Market:
Fiscal 1995 High Low
----------- ---- ---
First Quarter $14 1/4 $ 7 3/4
Second Quarter 13 3/4 8
Third Quarter 14 3/4 12 1/2
Fourth Quarter 19 3/4 14 5/8
Fiscal 1996
-----------
First Quarter 17 12 1/4
Second Quarter 23 3/4 14 1/2
Third Quarter 27 3/4 20 1/2
Fourth Quarter 25 1/2 12 1/4
As of November 8, 1996, there were 222 holders of record and 1,300
estimated beneficial holders of the Company's common stock.
The Company currently intends to retain any future earnings to fund
operations and the continued development of its business and, therefore, does
not anticipate paying cash dividends on its common stock in the immediate
future. In addition, no dividends may be paid on the Company's common stock
until all cumulative and current dividends on the Company's preferred stock (the
"Preferred Stock") have been declared and paid in full. Any payment of future
dividends will be at the discretion of the Company's Board of Directors and will
be based upon certain restrictive financial covenants, earnings, capital
requirements and the operating and financial condition of the Company, among
other factors, at the time any such dividends are considered. See Note 8 of
"Notes to Consolidated Financial Statements" for further discussion on the
Preferred Stock dividends.
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<PAGE>
Item 6. Selected Financial Data
The following selected consolidated financial data as of September 30,
1992, 1993, 1994, 1995 and 1996 and for the years then ended have been derived
from the Financial Statements of the Company which have been audited by Arthur
Andersen LLP, independent public accountants. The information set forth below
should be read in conjunction with the Financial Statements and notes thereto
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
Year Ended September 30
---------------------------------------------------------------
1992 1993 1994 1995 1996
---------- ----------- ---------- ----------- -----------
(In thousands, except per share and operating data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $ 19,118 $ 30,872 $ 58,979 $ 106,005 $ 199,180
Cost of goods sold 9,341 13,974 24,945 45,527 88,417
---------- ----------- ---------- ----------- -----------
Gross profit 9,777 16,898 34,034 60,478 110,763
Selling, general and administrative
expenses 8,520 14,996 30,597 53,835 95,395
Nonrecurring charges -- -- -- 5,427 --
---------- ----------- ---------- ----------- -----------
Operating income 1,257 1,902 3,437 1,216 15,368
Interest expense, net 518 285 347 4,484 12,636
---------- ----------- ---------- ----------- -----------
Income (loss) before income
taxes (benefit) and
extraordinary item 739 1,617 3,090 (3,268) 2,732
Income taxes (benefit) 238 580 1,244 (847) 1,828
---------- ----------- ---------- ----------- -----------
Income (loss) before
extraordinary item 501 1,037 1,846 (2,421) 904
Extraordinary item, net
of income tax benefit -- (126) -- (4,215) --
---------- ----------- ---------- ----------- -----------
Net income (loss) 501 911 1,846 (6,636) 904
Preferred dividends -- -- -- 163 978
---------- ----------- ---------- ----------- -----------
Net income (loss) applicable
to common stockholders $ 501 $ 911 $ 1,846 $ (6,799) $ (74)
========== =========== ========== =========== ===========
Net income (loss) per common share:(1)
Before extraordinary item $ .25 $ .44 $ .58 $ (.83) $ (.02)
Extraordinary item -- (.05) -- (1.35) --
---------- ----------- ---------- ----------- -----------
Net income (loss) per common share(1) $ .25 $ .39 $ .58 $ (2.18) $ (.02)
========== =========== ========== =========== ===========
Weighted average common shares
outstanding(1) 2,190,206 2,707,215 3,186,885 3,120,535 3,269,290
========== =========== ========== =========== ===========
</TABLE>
-16-
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30
-----------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Same-store sales increase (decrease)(2) 16.1% (1.2%) 2.8% (0.7%) 8.0%
Average net sales per gross
square foot(3) $ 390 $ 384 $ 379 $ 360 $ 333
Average net sales per store(3) $401,008 $ 423,998 $439,133 $ 442,113 $452,446
At end of period:
Company-owned stores 53 97 168 451 468
Franchised stores 3 2 1 -- --
Gross square footage 58,385 110,356 218,842 643,175 719,930
</TABLE>
<TABLE>
<CAPTION>
September 30
-----------------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $ 2,627 $ 7,591 $ 8,487 $ 31,611 $ 37,435
Total assets 12,406 24,469 40,827 148,562 164,613
Total long-term and short-term debt 4,277 642 10,470 95,373 103,998
Redeemable convertible preferred stock
and warrants 4,929 -- -- -- --
Stockholders' equity 317 17,856 19,810 25,537 35,107
</TABLE>
- ----------
(1) See Note 1 of "Notes to Consolidated Financial Statements."
(2) Based on stores opened at least 24 months in their current store format.
(3) Based on Company-owned stores in operation during the entire period.
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<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following tables set forth, for the periods indicated, the percentages
which the items in the Company's Statements of Operations bear to net sales and
the period-to-period percentage changes:
<TABLE>
<CAPTION>
% Period to Period
Increase (Decrease)
Percentage of Net Sales ----------------------------
Year Ended September 30 Fiscal 1995 Fiscal 1996
-------------------------------------- Compared to Compared to
1994 1995 1996 Fiscal 1994 Fiscal 1995
------- ------- ------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 79.7% 87.9%
Cost of goods sold 42.3 42.9 44.4 82.5 94.2
------ ------ ------
Gross profit 57.7 57.1 55.6 77.7 83.1
Selling, general and
administrative expenses 51.9 50.9 47.9 75.9 77.2
Nonrecurring charges -- 5.1 --
------ ------ ------
Operating income 5.8 1.1 7.7 (64.6) 1,163.7
Interest expense, net 0.6 4.2 6.3 1,191.1 181.8
------ ------ ------
Income (loss) before income
taxes (benefit) and
extraordinary item 5.2 (3.1) 1.4 (205.8) 183.6
Income taxes (benefit) 2.1 (0.8) 0.9 (168.1) 315.8
------ ------ ------
Income (loss) before
extraordinary item 3.1 (2.3) 0.5 (231.1) 137.3
Extraordinary item-debt
extinguishment costs,
net of income tax
benefit -- (4.0) --
------ ------ ------
Net income (loss) 3.1% (6.3%) 0.5% (459.5) 113.6
====== ====== ======
</TABLE>
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<PAGE>
The following table sets forth certain information representing growth in
the number of Company-owned stores for the periods indicated:
Year Ended September 30
---------------------------------
1994 1995 1996
---- ---- ----
STORES:
Beginning of period 97 168 451
Opened 54 33 44
Acquired 22 283 21
Closed (5) (33) (48)
--- --- ---
End of period 168 451 468
=== === ===
Year Ended September 30, 1996 and 1995
Net Sales. Net sales in fiscal 1996 increased by $93.2 million or 87.9%,
as compared to fiscal 1995. This increase was generated primarily by a $54.7
million increase in sales from stores acquired in the Motherhood Acquisition, a
$23.3 million increase in sales from stores acquired in the Pea Acquisition and
$6.6 million in sales from stores acquired in the Episode Acquisition. In
addition, stores opened or converted during fiscal 1996 accounted for an $8.7
million increase in sales, an 8.0% increase in same store sales, based on 117
stores. Further, an increase in sales for stores opened during fiscal 1995 were
offset by fiscal 1996 store closings. The Company had 468 Company-owned stores
(233 Motherhood stores, 78 Maternite stores, 51 Mimi Maternity stores, 40
Maternity Works outlet stores, 39 Pea stores and 27 Episode stores) at September
30, 1996 compared to 451 (214 Motherhood stores, 96 Maternite stores, 61 Mimi
Maternity stores, 43 Maternity Works outlet stores and 37 Pea stores) at
September 30, 1995.
Gross Profit. Gross profit as a percentage of net sales decreased to 55.6%
in fiscal 1996 as compared to 57.1% in fiscal 1995. This decrease was primarily
due to the full year impact of lower gross margin products sold by the
Motherhood division and lower gross margins generated by the Episode products,
which generally have a lower gross margin than the Company's maternity products.
The Company anticipates that its gross margins could decrease further due to the
integration of the operations of Episode into the Company's operations.
Selling, General & Administrative Expenses. Selling, general and
administrative expenses increased by $41.6 million or 77.2% in fiscal 1996 as
compared to fiscal 1995 and, as a percentage of net sales, decreased from 50.9%
to 47.9%. The decrease as a percentage of sales was primarily due to the
increase in sales and the economies of scale realized through the acquisitions.
The dollar increase in fiscal 1996 as compared to fiscal 1995 was primarily due
to increases in wages and benefits at the store level, and rent at the store
level, which accounted for $14.5 million and $12.0 million of the increase,
respectively. The increases in wages and benefits at the store level were a
result of the full year impact of the increased number of employees required to
staff a larger number of stores due to the acquisitions. In addition, higher
advertising, marketing and depreciation and amortization contributed to the
increase in selling general and administrative expenses. The
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<PAGE>
Company reduced selling, general and administrative expenses in fiscal 1996 by
$0.3 million due to a prior year over accrual for store closings.
Operating Income. Operating income in fiscal 1996 was $15.4 million or
7.7% of net sales compared to operating income of $1.2 million or 1.1% of net
sales in fiscal 1995. Fiscal 1995 included non-recurring charges of $5.4
million. Without these nonrecurring charges, operating income in fiscal 1995
would have been $6.6 million or 6.2% of net sales. The dollar increase of $8.7
million, excluding nonrecurring charges, is primarily a result of the increased
sales volume and the percentage of sales improvement is primarily due to the
increase in sales and gross margin exceeding the increase in selling, general
and administrative expenses necessary to support the acquisitions.
Interest Expense, Net. Net interest expense increased by $8.2 million in
fiscal 1996 compared with fiscal 1995. Net interest expense as a percentage of
sales increased from 4.2% to 6.3%. This increase was due to higher outstanding
borrowings resulting primarily from the Company's issuance of the 12 5/8% Senior
Unsecured Exchange Notes due 2005 (the "Notes") to fund the Motherhood
Acquisition and repay the debt incurred in the Pea Acquisition. See Note 7 of
"Notes to Consolidated Financial Statements" for further details on the Notes.
Income Taxes. The effective income tax rate was an expense of 66.9% for
fiscal 1996 as compared to a benefit of 25.9% for fiscal 1995. The increased
effective tax rate in fiscal 1996 was primarily due to a full year impact of the
non-deductible amortization of goodwill on the current year pre-tax income
compared to the prior year net loss. See Note 11 of "Notes to Consolidated
Financial Statements" for the reconciliation of the statutory federal income tax
rate to the Company's effective tax rates in fiscal 1996 and 1995.
Year Ended September 30, 1995 and 1994
Net sales. Net sales in fiscal 1995 increased by $47.0 million or 79.7%,
as compared to fiscal 1994. This increase was generated primarily by a $19.7
million increase in sales from stores acquired in the Pea Acquisition, a $9.1
million increase in sales from stores acquired in the Motherhood Acquisition, a
$7.4 million increase from stores opened during fiscal 1995 and an increase of
$11.7 million in net sales from stores opened or converted to a new concept
during fiscal 1994 that were open all of fiscal 1995. The increase was partially
offset by a decrease of $669,000 from stores closed after September 30, 1994 and
a decrease of approximately $255,000 in same store sales. The same store sales
decrease in fiscal 1995 of 0.7% was based on 80 stores. The Company had 451
Company-owned stores (214 Motherhood stores, 96 Maternite stores, 61 Mimi
Maternity stores, 43 Maternity Works outlet stores, and 37 Pea stores) at
September 30, 1995 compared to 168 (84 Maternite stores, 62 Mimi Maternity
stores and 22 Maternity Works outlets) at September 30, 1994.
Gross profit. Gross profit as a percentage of net sales decreased to 57.1%
in fiscal 1995, as compared to 57.7% in fiscal 1994. This decrease was primarily
due to factory overhead increasing at a faster rate than the increase in
manufacturing volume, as the Company increased capacity for
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<PAGE>
the integration of the Pea and Motherhood Acquisitions. Additionally, a portion
of the Motherhood inventory purchased in the Motherhood Acquisition and
liquidated during the fourth quarter of fiscal 1995 contributed to the decline
in the gross profit percentage.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased by $23.2 million or 75.9% in fiscal 1995 as
compared to fiscal 1994, and as a percentage of net sales, decreased from 51.9%
to 50.9%. The dollar increase during fiscal 1995 as compared to fiscal 1994 was
primarily due to increases in wages and benefits at the store level, and rent at
the store level, which accounted for $9.0 million and $7.6 million of the
increase, respectively. The increases in wages and benefits at the store level
were due to increases in the number of employees to staff a larger number of
stores. In addition, higher advertising, marketing, pre-opening costs,
depreciation and amortization contributed to the increase in selling, general
and administrative expenses.
Nonrecurring charges. Nonrecurring charges for fiscal 1995 include $0.9
million accrued for relocation costs associated with the Company's new corporate
headquarters and manufacturing and distribution facility and $4.5 million to
cover the costs of the anticipated closing of 38 Maternite stores as a result of
the Company's fiscal 1995 acquisition of Pea. These costs are primarily
comprised of the anticipated cost to buyout leases and the write-off of
leasehold improvements. As of September 30, 1995, no charges have been incurred
against the corporate relocation reserve and $1.9 million has been charged
against the reserve for the closure of 22 stores.
Operating income. Operating income in fiscal 1995 was $1.2 million or 1.1%
of net sales compared to operating income of $3.4 million or 5.8% of net sales
in fiscal 1994. The decrease in operating income was primarily due to the
nonrecurring charges of $5.4 million. Without taking into consideration these
nonrecurring charges, operating income would have been $6.6 million, an increase
of 94.1% from fiscal 1994. The increase in operating income, without the
nonrecurring charges, is primarily a result of the increased sales volume.
Interest expense, net. Net interest expense increased by $4.1 million in
fiscal 1995 compared with fiscal 1994. This increase was due to higher
outstanding borrowings resulting primarily from the Company's borrowings to fund
the Pea Acquisition and the issuance of the Notes to fund the Motherhood
Acquisition and repay the debt incurred in the Pea Acquisition. See Note 7 of
"Notes to Consolidated Financial Statements" for further details on the Notes.
Income taxes. The effective income tax rate was a benefit of 25.9% for
fiscal 1995 as compared to an expense of 40.3% in fiscal 1994. The lower
effective tax rate in fiscal 1995 was primarily due to the decrease in the
effective state tax rate and the impact of the non-deductible amortization of
goodwill. See Note 11 of "Notes to Consolidated Financial Statements" for the
reconciliation of the statutory federal income tax rate to the Company's
effective tax rates in fiscal 1995 and 1994.
Extraordinary item. In fiscal 1995, the Company incurred an extraordinary
charge of $6.4 million, before the related tax benefit of $2.2 million, in
connection with the early extinguishment
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<PAGE>
of the debt incurred to finance the Pea Acquisition with the proceeds from the
sale of the Notes. The charge was comprised of a prepayment penalty of $3.6
million, the write-off of deferred financing costs of $1.7 million and
unamortized original issue discount of $1.0 million on the debt and fees and
expenses of $0.1 million.
Liquidity and Capital Resources
The Company's primary cash needs have been for working capital, primarily
for increased inventories, renovations of a new Company headquarters,
manufacturing and distribution facility, repayment of debt and acquisitions.
Since the Company is vertically integrated, it must maintain inventories of
fabric and other raw materials which other retailers without manufacturing
capabilities do not maintain. Generally, 20% to 25% of the Company's inventories
consist of work-in process fabric and other raw materials. In fiscal 1996, the
Company's cash sources have primarily been bank debt and the sale of common
stock. At September 30, 1996 the Company had available cash and cash equivalents
of $1.3 million, compared to $9.1 million at September 30, 1995.
The cash used in operating activities decreased from $6.4 million in
fiscal 1995 to $5.4 million in fiscal 1996. The decrease in cash used in
operating activities of $1.0 million was primarily due to an increase in net
income, depreciation and amortization and deferred tax liabilities, and a
decrease in accounts receivable and in cash used to pay off accounts payable and
accrued expenses, partially offset by an increase in inventories and a decrease
in accrued store closings. The increase in depreciation and amortization is due
to the full year impact of the assets acquired and the goodwill related to the
Pea Acquisition and the Motherhood Acquisition. The increase in deferred tax
liabilities is due to the utilization of net operating loss carryforwards and
the decrease in accounts receivable is related to a refund of taxes from a net
operating loss carryback. The decrease in cash used to pay off accounts payable
and accrued expenses related to the timing of vendor payments and the decrease
in accrued store closings is due to the final payments related to planned store
closings. The increase in inventories is related to the growth in the number of
stores over the last two years.
Net cash used in investing activities decreased from $60.1 million in
fiscal 1995 to $17.3 million in fiscal 1996. The cash used in investing
activities in fiscal 1996 included $2.4 million used in connection with the
Episode Acquisition, $7.7 million used for capital expenditures for new store
facilities, and $5.7 million for furniture, equipment and improvements to the
Company headquarters, manufacturing and distribution facility purchased in
fiscal 1995. This compares with $48.0 million used in connection with the Pea
and Motherhood Acquisitions, $6.5 million used for capital expenditures for new
store facilities, and $4.4 million for the purchase and related improvements, of
a new Company headquarters, manufacturing and distribution facility.
Net cash provided by financing activities decreased from $75.4 million in
fiscal 1995 to $14.8 million in fiscal 1996. The $14.8 million provided by
financing activities resulted primarily from $8.6 million in short-term
borrowings under the line of credit agreement and cash overdrafts, $4.4 million
from the sale of common stock and $2.3 million of proceeds from the issuance of
long-term debt, partially offset by $0.4 million in repayments of long-term debt
and $0.3 million in debt
-22-
<PAGE>
issuance costs. This compares with $75.4 million provided by financing
activities in fiscal 1995 resulting primarily from $143.4 million of proceeds
from the issuance of long-term debt and $1.0 million from the issuance of
warrants, partially offset by $58.5 million in repayments of long-term debt,
$5.8 million in debt issuance costs and $4.7 million in payments as a result of
the early extinguishment of debt.
In April 1996, the Company received $2.0 million from the Pennsylvania
Industrial Development Authority ("PIDA"). The proceeds from this loan were used
to pay a portion of the improvements to the newly acquired headquarters. A
portion of the PIDA loan is secured by a bank letter of credit.
In connection with the financing of the Episode acquisition, to finance
the opening of additional stores and for general working capital purposes, the
Company consummated a private placement of an aggregate of 200,000 shares of its
common stock to a number of institutional investors. The purchase price for the
shares was $22.25 per share, and the net proceeds to the Company, after
deducting expenses, were approximately $4.4 million.
Concurrent with the Episode acquisition, and in order to provide the
Company with additional borrowing capacity under its working capital revolving
line of credit facility ("Working Capital Facility"), the Working Capital
Facility was increased from $15.0 million to $20.0 million. The Working Capital
Facility expires in August 1998 and provides for a revolving credit and letter
of credit facility and for an additional $4.0 million letter of credit to
collateralize an Industrial Revenue Bond. The Company had $6.6 million in
borrowings and $3.9 million in letters of credit issued under the Working
Capital Facility at September 30, 1996.
The Company's consolidated balance sheet at September 30, 1996 includes a
net deferred tax asset of $8.6 million. The Company believes it is more likely
than not that future taxable income will be at a sufficient level to utilize the
net operating loss carryforwards and the deductions that will be created upon
the reversal of existing temporary differences that comprise the deferred tax
asset. The Company's conclusion that it is "more likely than not" that the net
deferred tax asset will be realized is based on its history of earnings,
forecasted earnings for fiscal 1997 and the prospects of continued earnings
after 1997. However, there can be no assurance that the Company's actual
earnings for 1997 and thereafter will be as currently projected, and,
consequently, there can be no assurance that the Company's deferred tax asset
will be realized. The inability of the Company to realize the deferred tax asset
could have a material adverse effect on the Company's financial position and
results of operations. The Company will continue to periodically review the tax
criteria related to the recognition of the deferred tax asset.
The Company intends to focus on growing the Motherhood business. This
business represents the Company's biggest opportunity for growth and has the
potential to more than double its fiscal year end store base of 233 stores,
subject to capital and marketplace availability. In addition, the near term
strategy for the acquisition of Episode is to broaden the product line through
the addition of the Daniel & Rebecca label and to add approximately 6 more
stores in major metropolitan areas, subject to capital and marketplace
availability. The Company plans to apply its
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<PAGE>
proven Real Time Retailing(TM) concept to this chain. The Company's entry into
bridge fashion with the Episode acquisition could result in the incurrence of
additional indebtedness, which in turn could result in an increase in the degree
of financial leverage of the Company and a decrease in the Company's financial
flexibility.
The Company believes that its current cash and working capital positions,
available borrowing capacity and net cash expected to be generated from
operations will be sufficient to fund the Company's anticipated capital
expenditures, working capital requirements and semiannual interest payments on
the Notes through fiscal 1997. There are currently no restrictions on the
ability of the Company's direct subsidiaries to transfer funds to the Company in
the form of cash dividends, loans or advances other than restrictions imposed by
applicable law.
Seasonality
The Company's operations are slightly seasonal with the Company's net
sales historically being the lowest in the second fiscal quarter.
Inflation
The Company does not believe the relatively moderate levels of inflation
which have been experienced in the United States in recent years have had a
significant effect on its net sales or profitability. However, there can be no
assurance that the Company's business will not be affected by inflation in the
future.
Safe Harbor Statement Under the Private Securities Litigation
Reform Act of 1995
The Company cautions that any forward-looking statements (as such term is
defined in the Private Securities Litigation Reform Act of 1995) contained in
Item 1, Business and Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations, of this Report or made from time to time by
management of the Company involve risks and uncertainties, and are subject to
change based on various important factors. The following factors, among others,
in some cases have affected and in the future could affect the Company's
financial performance and actual results and could cause actual results for
fiscal 1997 and beyond to differ materially from those expressed or implied in
any such forward-looking statements: changes in consumer spending patterns, raw
material price increases, consumer preferences and overall economic conditions,
the impact of competition and pricing, changes in weather patterns, availability
of suitable store locations at appropriate terms, continued availability of
capital and financing, ability to develop merchandise and ability to hire and
train associates, changes in fertility and birth rates, political stability,
currency and exchange risks and changes in existing or potential duties, tariffs
or quotas, postal rate increases and charges, paper and printing costs, and
other factors affecting the Company's business beyond the Company's control.
-24-
<PAGE>
Item 8. Financial Statements and Supplementary Data
The Company's consolidated financial statements appear at pages F-1
through F-25, as set forth in Item 14.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning directors, appearing under the caption "Election of
Directors" in the Company's Proxy Statement (the "Proxy Statement") to be filed
with the Securities and Exchange Commission in connection with the Annual
Meeting of Stockholders scheduled to be held on January 16, 1997, and
information concerning executive officers, appearing under the caption "Item 1.
Business - Executive Officers of the Company" in Part I of this Form 10-K, are
incorporated herein by reference in response to this Item 10.
Item 11. Executive Compensation
The information contained in the section titled "Executive Compensation"
in the Proxy Statement, with respect to executive compensation, and the
information contained in the section entitled "Compensation of Directors" with
respect to director compensation, are incorporated herein by reference in
response to this Item 11.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information contained in the section titled "Security Ownership of
Certain Beneficial Owners and Management" in the Proxy Statement, with respect
to security ownership of certain beneficial owners and management, is
incorporated herein by reference in response to this Item 12.
-25-
<PAGE>
Item 13. Certain Relationships and Related Transactions
The information contained in the section titled "Certain Transactions" of
the Proxy Statement, with respect to certain relationships and related
transactions, is incorporated herein by reference in response to this Item 13.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements
The financial statements listed in the accompanying Index to
Consolidated Financial Statements are filed as part of this Form
10-K, commencing on page F-1.
(2) Schedules
None.
(3) Exhibits
Exhibit No. Description
----------- -----------
*3.1 Amended and Restated Certificate of Incorporation of the
Company (effective March 10, 1993) (Exhibit 3.3 to the
Company's Registration Statement on Form S-1, Registration
No. 33-57912, dated February 4, 1993 (the "1993 Registration
Statement")).
*3.2 By-Laws of the Company (Exhibit 3.5 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1993
(the "1993 Form 10-K")).
*4.1 Certificate of Designations for the Series A Cumulative
Convertible Preferred Stock of the Company (Exhibit 3.1 to
the Company's Quarterly Report on Form 10-Q for the Quarter
ended June 30, 1995 (the "June 1995 10-Q")).
*4.2 Indenture dated as of August 1, 1995 from the Company to
Society National Bank, as Trustee (Exhibit 4.1 to the June
1995 10-Q).
*4.3 Rights Agreement dated as of October 9, 1995 between the
Company and StockTrans, Inc. (Exhibit 4.1 to the Company's
Current Report on Form 8-K, dated October 5, 1995 ("October
1995 8-K")).
-26-
<PAGE>
Exhibit No. Description
----------- -----------
*4.4 Specimen certificate representing shares of the Company's
common stock with legend regarding Preferred Stock Purchase
Rights. (Exhibit 4.2 to the October 1995 8-K).
*10.1 Agreement of Lease dated September 22, 1986 between the
Company and Broad and Noble Associates, Inc., and amendments
thereto (Exhibit 10.1 to the 1993 Registration Statement).
*10.2 Registration Rights and Right of Co-Sale Agreement dated as
of May 4, 1992 among the Company, Dan W. Matthias, Rebecca
C. Matthias, Meridian Venture Partners, Penn Janney Fund,
Inc., Apex Investment Fund, L.P., Meridian Capital Corp.,
Butcher & Singer/Keystone Venture II, L.P., G-2 Family
Partnership, PIISC - Penn Venture Fund, John L. Plummer,
Gail G. Davis, Milton S. Stearns Jr., Trustee U/D/T dated
12/20/88, Stevan Simich, Growth Investors, George P. Keeley,
Robert E. Brown Jr., Bruce II. Hooper, John J. Serrell,
Charles G. Schiess, Terence Kavanagh and Michael B. Staebler
(Exhibit 10.8 to the 1993 Registration Statement).
*10.3 Voting Agreement dated as of March 12, 1993 among Rebecca C.
Matthias, Dan W. Matthias, Elam M. Hitchner III, Keystone
Venture II, L.P., G-2 Family Partnership, Penn Janney Fund,
Inc., Apex Investment Fund, L.P. and Meridian Venture
Partners (Exhibit 10.10 to the 1993 Registration Statement).
*10.4 Termination of Voting Agreement dated September 28, 1995
among Rebecca C. Matthias, Dan W. Matthias, Keystone Venture
II, L.P., Penn Janney Fund, Inc., G-2 Family Partnership,
Hitchner & Associates Profit Sharing Plan, Meridian Venture
Partners and Apex Investment Fund, L.P. (Exhibit 10.31 to
the 1995 Registration Statement).
*10.5 Stock Subscription Warrant of the Company (No. Penn-Janney:
1992-1) issued to Penn Janney Fund, Inc. dated January 24,
1992 (Exhibit 10.29 to the 1993 Registration Statement).
*10.6 1987 Stock Option Plan.
*10.7 1994 Director Stock Option Plan (Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the year ended
September 30, 1994 (the "1994 Form 10-K")).
-27-
<PAGE>
Exhibit No. Description
----------- -----------
*10.8 Non-Competition and Confidentiality Agreement dated January
28, 1993 between the Company and Lynne Wieder (Exhibit 10.39
to the 1993 Registration Statement).
*10.9 Employment Agreement dated as of July 14, 1994 between the
Company and Dan W. Matthias (Exhibit 10.25 to the Company's
Current Report on Form 8-K dated January 31, 1994 (the "1994
Form 8-K")).
*10.10 Employment Agreement dated as of July 14, 1994 between the
Company and Rebecca C. Matthias (Exhibit 10.26 to the 1994
Form 10-K).
*10.11 Employment Agreement dated as of June 19, 1995 between the
Company and Donald W. Ochs (Exhibit 10.3 to the June 1995
10-Q).
*10.12 Registration Rights Agreement dated as of August 1, 1995
among the Company and Morgan Stanley & Co. Incorporated,
Wheat, First Securities, Inc. and Janney Montgomery Scott
Inc. (Exhibit 10.2 to the June 1995 10-Q).
*10.13 Credit Agreement dated as of August 1, 1995 between the
Company, its subsidiaries and Meridian Bank (Exhibit 10.1 to
the June 1995 10-Q).
*10.14 Loan Agreement dated September 1, 1995 between Philadelphia
Authority For Industrial Development ("PAID") and the
Company (Exhibit 10.26 to the Company's Registration
Statement on Form S-1, Registration No. 33-97318, dated
October 26, 1995 (the "1995 Registration Statement")).
*10.15 Amendment to Credit Agreement dated September 1, 1995
between the Company, its subsidiaries and Meridian Bank
(Exhibit 10.28 to the 1995 Registration Statement).
*10.16 Indenture of Trust dated September 1, 1995 between PAID and
Society National Bank (Exhibit 10.29 to the 1995
Registration Statement).
*10.17 Variable/Fixed Rate Federally Taxable Economic Development
Bond (Mothers Work, Inc.), Series of 1995, in the aggregate
principal amount of $4,000,000 (Exhibit 10.30 to the 1995
Registration Statement).
-28-
<PAGE>
Exhibit No. Description
----------- -----------
*10.18 Agreement and Plan of Merger dated as of July 3, 1995 by and
among the Company, Motherhood Maternity Shops, Inc., The
Shansby Group, TSG International and Motherhood Acquisition
Corp. (Exhibit 2.1 to the June 1995 10-Q).
*10.19 Agreement and Plan of Merger dated as of March 5, 1995 by
and among the Company, A Pea in the Pod, Inc., and MW
Acquisition Corporation (Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the Quarter ended March
31, 1995).
*10.20 Second Amendment to Credit Agreement dated January 25, 1996
between the Company, its subsidiaries and Meridian Bank
(Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the Quarter ended March 31, 1996).
*10.21 Third Amendment to Credit Agreement dated May 31, 1996
between the Company, its subsidiaries and Meridian Bank
(Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the Quarter ended June 30, 1996).
*10.22 Asset Purchase Agreement dated April 25, 1996 among the
Company, T3 Acquisition, Inc. and Episode USA, Inc. (Exhibit
2.1 of the Company's Current Report on Form 8-K, dated June
17, 1996 (the "June 1996 8-K).
*10.23 Trademark License Agreement dated May 31, 1996 between the
Company and Episode USA, Inc. (Exhibit 10.1 to the June 1996
8-K).
*10.24 Distribution Agreement dated April 25, 1996 among Toppy
International Limited, T3 Acquisition, Inc. and the Company
(Exhibit 10.2 to the June 1996 8-K).
10.25 Fourth Amendment to Credit Agreement dated September 30,
1996 between the Company, its subsidiaries and Meridian
Bank.
10.26 Consulting Agreement dated September 11, 1996 between the
Company and Marvin Traub Associates, Inc.
10.27 Residential Lease dated June 28, 1996 between the Company
and Daniel and Rebecca Matthias.
10.28 First Amendment to Asset Purchase Agreement dated May 31,
1996 by and among the Company, T3 Acquisition, Inc. and
Episode USA, Inc.
-29-
<PAGE>
Exhibit No. Description
----------- -----------
10.29 Note dated February 14, 1996 from the Company to PIDC Local
Development Corporation.
10.30 Installment Sale Agreement dated April 4, 1996 by and
between PIDC Financing Corporation and the Company.
10.31 Open-End Mortgage dated April 4, 1996 between PIDC Financing
Corporation and the Pennsylvania Industrial Development
Authority ("PIDA").
10.32 Loan Agreement dated April 4, 1996 by and between PIDC
Financing Corporation and PIDA.
11 Statement Regarding Computation of Per Share Earnings.
21 Subsidiaries of the Company.
23 Consent of Arthur Andersen LLP.
27 Financial Data Schedule for the fiscal year ended September
30, 1996.
----------
* Incorporated by reference.
(b) Reports filed on Form 8-K during the last quarter of fiscal 1996:
The Company filed a Current Report on Form 8-K dated June 17, 1996, as
amended by a Form 8-K/A dated June 18, 1996 and Form 8-K/A dated August 14,
1996, relating to the acquisition of Episode and the sale of 200,000 shares of
common stock to a number of institutional investors. The Episode acquisition was
reported under Item 2 of Form 8-K. The audited financial statements of Episode
as of February 3, 1996 and for the three years ended February 3, 1996 were filed
with the Form 8-K/A dated August 14, 1996. In addition, the unaudited pro forma
condensed consolidated balance sheet of Mothers Work at March 31, 1996 and
unaudited pro forma condensed consolidated statements of operations of Mothers
Work for the year ended September 30, 1995 and the six months ended March 31,
1996 were filed with the August 14, 1996 Form 8-K/A.
-30-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Philadelphia, Commonwealth of Pennsylvania, on the 16th day of December,
1996.
By: /s/ Dan W. Matthias
----------------------------------------------
Dan W. Matthias, Chairman of the Board and
Chief Executive Officer, the principal
executive officer
By: /s/ Thomas Frank
----------------------------------------------
Thomas Frank, Chief Financial Officer, Vice
President-Finance and the principal financial
officer
-31-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on December 16, 1996, in the
capacities indicated:
/s/ Dan W. Matthias Chairman of the Board, Chief Executive
- -------------------------------------- Officer and Director, the principal
Dan W. Matthias executive officer
/s/ Rebecca C. Matthias President, Chief Operating Officer
- -------------------------------------- and Director
Rebecca C. Matthias
/s/ Thomas Frank Chief Financial Officer, Vice President
- -------------------------------------- - Finance and Chief Accounting
Thomas Frank Officer, the principal financial
officer and principal accounting
officer
/s/ Verna K. Gibson Director
- --------------------------------------
Verna K. Gibson
/s/ Joseph A. Goldblum Director
- --------------------------------------
Joseph A. Goldblum
/s/ Elam M. Hitchner, III Director
- --------------------------------------
Elam M. Hitchner, III
/s/ Walter F. Loeb Director
- --------------------------------------
Walter F. Loeb
/s/ Marsha R. Perelman Director
- --------------------------------------
Marsha R. Perelman
/s/ William L. Rulon-Miller Director
- --------------------------------------
William L. Rulon-Miller
<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Public Accountants............................ F-2
Consolidated Balance Sheets......................................... F-3
Consolidated Statements of Operations............................... F-4
Consolidated Statements of Stockholders' Equity..................... F-5
Consolidated Statements of Cash Flows............................... F-6 to F-7
Notes to Consolidated Financial Statements.......................... F-8 to F-24
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Mothers Work, Inc.:
We have audited the accompanying consolidated balance sheets of Mothers Work,
Inc. (a Delaware corporation) and subsidiaries as of September 30, 1995 and
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended September
30, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mothers Work, Inc. and
subsidiaries as of September 30, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1996, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Philadelphia, Pa.
November 15, 1996
F-2
<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30
--------------------------------
ASSETS 1995 1996
--------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 9,130,480 $ 1,262,435
Receivables-
Trade 2,318,614 2,141,102
Income taxes 2,808,109 --
Other 147,314 146,924
Inventories 38,421,186 57,209,499
Deferred income taxes 3,169,720 3,815,002
Prepaid expenses and other 1,807,117 1,791,070
--------------- ---------------
Total current assets 57,802,540 66,366,032
--------------- ---------------
PROPERTY, PLANT AND EQUIPMENT, net 37,240,939 45,451,114
--------------- ---------------
OTHER ASSETS:
Deferred income taxes 5,707,729 4,741,869
Goodwill, net of accumulated amortization of $1,241,961
and $3,403,751 40,842,586 40,989,708
Other intangible assets, net of accumulated amortization
of $791,174 and $1,244,180 1,441,843 1,310,900
Deferred financing costs, net of accumulated amortization
of $62,839 and $481,576 3,849,744 3,736,937
Other assets 1,676,794 2,016,178
--------------- ---------------
Total other assets 53,518,696 52,795,592
--------------- ---------------
$ 148,562,175 $ 164,612,738
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit $ -- $ 6,558,193
Current portion of long-term debt 770,133 758,911
Accounts payable 9,985,319 9,102,185
Accrued expenses 10,377,662 12,511,600
Accrued store closings 5,058,199 --
--------------- ---------------
Total current liabilities 26,191,313 28,930,889
--------------- ---------------
LONG-TERM DEBT 94,602,679 96,680,722
--------------- ---------------
DEFERRED RENT 2,068,448 2,754,197
--------------- ---------------
ACCRUED DIVIDENDS ON PREFERRED STOCK 162,916 1,140,416
--------------- ---------------
COMMITMENTS AND CONTINGENCIES (Note 12)
STOCKHOLDERS' EQUITY:
Series A Cumulative convertible preferred stock, $.01 par value, $280.4878
stated value, 2,000,000 shares authorized, 41,000
shares issued and outstanding (liquidation value of $11,500,000) 11,500,000 11,500,000
Series B Junior participating preferred stock, $0.01 par value,
10,000 shares authorized in 1996, none outstanding -- --
Common stock, $.01 par value, 10,000,000 shares authorized,
3,122,197 and 3,559,277 shares issued and outstanding 31,222 35,593
Additional paid-in capital 18,101,425 27,740,483
Accumulated deficit (4,095,828) (4,169,562)
--------------- ---------------
Total stockholders' equity 25,536,819 35,106,514
--------------- ---------------
$ 148,562,175 $ 164,612,738
=============== ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended September 30
-------------------------------------------------------
1994 1995 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
NET SALES $ 58,978,556 $ 106,005,028 $ 199,179,984
COST OF GOODS SOLD 24,944,560 45,527,498 88,416,648
--------------- --------------- ---------------
Gross profit 34,033,996 60,477,530 110,763,336
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 30,596,725 53,834,596 95,394,902
NONRECURRING CHARGES -- 5,426,779 --
--------------- --------------- ---------------
Operating income 3,437,271 1,216,155 15,368,434
INTEREST INCOME 19,146 21,278 228,255
INTEREST EXPENSE (366,456) (4,505,436) (12,864,351)
--------------- --------------- ---------------
Income (loss) before income taxes
(benefit) and extraordinary item 3,089,961 (3,268,003) 2,732,338
INCOME TAXES (BENEFIT) 1,244,110 (847,287) 1,828,572
--------------- --------------- ---------------
Income (loss) before extraordinary item 1,845,851 (2,420,716) 903,766
EXTRAORDINARY ITEM--EARLY
EXTINGUISHMENT OF DEBT, net of
income tax benefit of $2,171,435 -- (4,215,138) --
--------------- --------------- ---------------
NET INCOME (LOSS) 1,845,851 (6,635,854) 903,766
DIVIDENDS ON PREFERRED STOCK -- 162,916 977,500
--------------- --------------- ---------------
NET INCOME (LOSS) APPLICABLE TO
COMMON STOCKHOLDERS $ 1,845,851 $ (6,798,770) $ (73,734)
=============== =============== ===============
NET INCOME (LOSS) PER COMMON SHARE:
Before extraordinary item $ .58 $ (.83) $ (.02)
Extraordinary item -- (1.35) --
--------------- --------------- ---------------
NET INCOME (LOSS) PER COMMON SHARE $ .58 $ (2.18) $ (.02)
=============== =============== ===============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 3,186,885 3,120,535 3,269,290
--------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Series A Additional Retained
Preferred Common Paid-in Earnings Deferred
Stock Stock Capital (Deficit) Compensation Total
----------- ------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30, 1993 $ -- $30,891 $16,984,612 $ 857,091 $(16,770) $17,855,824
Exercise of common stock warrants -- 185 48,545 -- -- 48,730
Exercise of 12,141 stock options -- 122 55,150 -- -- 55,272
Amortization of deferred compensation -- -- -- -- 3,947 3,947
Net income -- -- -- 1,845,851 -- 1,845,851
----------- ------- ----------- ----------- -------- -----------
BALANCE, SEPTEMBER 30, 1994 -- 31,198 17,088,307 2,702,942 (12,823) 19,809,624
Issuance of preferred stock in
connection with acquisition 11,500,000 -- -- -- -- 11,500,000
Issuance of common stock warrants -- -- 1,000,000 -- -- 1,000,000
Exercise of 2,394 stock options -- 24 13,118 -- -- 13,142
Amortization of deferred compensation -- -- -- -- 12,823 12,823
Preferred stock dividends -- -- -- (162,916) -- (162,916)
Net loss -- -- -- (6,635,854) -- (6,635,854)
----------- ------- ----------- ----------- -------- -----------
BALANCE, SEPTEMBER 30, 1995 11,500,000 31,222 18,101,425 (4,095,828) -- 25,536,819
Exercise of 19,715 stock options -- 197 134,350 -- -- 134,547
Tax benefit from exercise of stock options -- -- 117,485 -- -- 117,485
Sales of 200,000 shares of common
stock, net of expenses -- 2,000 4,394,000 -- -- 4,396,000
Issuance of 217,365 shares of common
stock in connection with acquisition -- 2,174 4,993,223 -- -- 4,995,397
Preferred stock dividends -- -- -- (977,500) -- (977,500)
Net income -- -- -- 903,766 -- 903,766
----------- ------- ----------- ----------- -------- -----------
BALANCE, SEPTEMBER 30, 1996 $11,500,000 $35,593 $27,740,483 $(4,169,562) $ -- $35,106,514
=========== ======= =========== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30
-------------------------------------------------
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,845,851 $ (6,635,854) $ 903,766
Adjustments to reconcile net income (loss) to net cash
used in operating activities-
Extraordinary item, before income
tax benefit -- 6,386,573 --
Depreciation and amortization 2,760,452 5,814,529 10,161,531
Noncash portion of the nonrecurring
charges -- 2,107,773 --
Imputed interest on debt 13,651 21,202 103,284
Deferred tax liability (benefit) (179,221) (814,125) 1,444,151
Amortization of deferred financing costs -- 260,305 418,737
Provision for deferred rent 708,615 805,526 685,749
Changes in assets and liabilities, net of effects
from purchases of businesses-
Decrease (increase) in--
Receivables (221,937) (2,452,597) 2,986,011
Inventories (7,275,870) (6,470,888) (15,879,647)
Prepaid expenses and other (703,320) 1,440,952 64,014
Increase (decrease) in--
Accounts payable and accrued
expenses 2,585,796 (7,717,337) (4,283,509)
Accrued store closings -- 1,196,719 (2,975,657)
Accrued income taxes (244,554) (545,645) --
Other liabilities -- 162,916 977,500
-------------- -------------- --------------
Net cash used in
operating activities (710,537) (6,439,951) (5,394,070)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of businesses, net of cash acquired (915,406) (47,972,035) (2,442,865)
Purchases of property, plant and equipment (8,045,495) (10,943,951) (13,445,841)
Increase in intangible and other assets (909,903) (1,196,250) (1,412,008)
Sales of investments in marketable securities 1,258,496 -- --
-------------- -------------- --------------
Net cash used in
investing activities (8,612,308) (60,112,236) (17,300,714)
-------------- -------------- --------------
</TABLE>
--(continued)--
F-6
<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
--(continued)--
<TABLE>
<CAPTION>
Year Ended September 30
---------------------------------------------------------
1994 1995 1996
-------------- ---------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in line of credit and cash overdrafts,
net -- -- $ 8,638,586
Proceeds from issuance of long-term debt 9,863,800 143,418,430 2,340,000
Repayments of long-term debt (1,012,728) (58,536,641) (376,464)
Debt issuance costs -- (5,840,059) (305,930)
Payments upon early extinguishment of debt -- (4,656,562) --
Net proceeds from sales of common stock -- -- 4,396,000
Issuance of warrants -- 1,000,000 --
Proceeds from exercise of options and warrants 104,002 13,142 134,547
-------------- ---------------- ---------------
Net cash provided by
financing activities 8,955,074 75,398,310 14,826,739
-------------- ---------------- ---------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (367,771) 8,846,123 (7,868,045)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 652,128 284,357 9,130,480
-------------- ---------------- ---------------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 284,357 $ 9,130,480 $ 1,262,435
============== ================ ===============
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
MOTHERS WORK, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Business
Mothers Work, Inc. was incorporated in Delaware in 1980 and is a specialty
retailer and manufacturer of maternity clothing and upscale "bridge" women's
apparel operating in 468 retail store locations (including 27 leased
departments) throughout the United States.
Principles of Consolidation
The consolidated financial statements include the accounts of Mothers Work, Inc.
and its wholly owned subsidiaries, Cave Springs, Inc., Mothers Work (R.E.),
Inc., The Page Boy Company, Inc. and Motherhood Maternity International, Inc.
(collectively, the Company) as of September 30, 1996. All significant
intercompany transactions and accounts have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents for the purpose of
determining cash flows. At September 30, 1996, cash and cash equivalents include
cash on hand, cash in the bank and certificates of deposit. Cash overdrafts are
included in accounts payable.
Statement of Cash Flows Information
In fiscal 1994, 1995 and 1996, the Company paid $314,174, $2,833,214 and
$12,137,535 in interest, respectively. Income taxes paid in fiscal 1994 and 1995
were $1,667,885 and $340,949, respectively, and income taxes refunded in fiscal
1996 were $2,524,525. Capital lease obligations of $946,685 and $124,594 were
incurred on equipment leases entered into in fiscal 1994 and 1995, respectively.
The following table lists noncash assets that were acquired and liabilities that
were assumed as a result of the acquisitions discussed in Note 2:
F-8
<PAGE>
<TABLE>
<CAPTION>
Year Ended September 30
----------------------------------------
1994 1995 1996
----------- ------------ -----------
<S> <C> <C> <C>
Noncash Assets:
Accounts receivable $ 33,385 $ 2,156,704 $ --
Inventories 768,699 13,423,409 2,908,666
Prepaid expenses -- 1,811,739 --
Property and equipment 623,872 17,063,218 4,798,207
Goodwill 817,913 39,994,807 2,308,912
Other intangible assets -- 487,560 --
Deferred income taxes -- 7,467,707 1,006,088
Other assets 213,813 392,693 98,940
----------- ------------ -----------
Net noncash assets acquired 2,457,682 82,797,837 11,120,813
Less - Assumed Liabilities:
Accounts payable and accrued expenses (1,542,276) (19,000,333) (3,682,551)
Accrued store closings -- (4,325,469) --
Common stock issued to seller -- -- (4,995,397)
Preferred stock issued to seller -- (11,500,000) --
----------- ------------ -----------
Net cash used in investing activities $ 915,406 $ 47,972,035 $ 2,442,865
=========== ============ ===========
</TABLE>
The above amounts were recorded under the purchase method of accounting and were
based on all available information and management's best estimates. The
September 30, 1996 amounts include adjustments made to original estimates
related to the Pea and Motherhood acquisitions (see Note 2). To the extent that
the amounts related to the Episode acquisition require modification, they will
be adjusted in fiscal 1997.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories manufactured by the Company include the cost of materials, freight,
direct labor, manufacturing and distribution overhead.
Prepaid Expenses and Other
Included in prepaid expenses and other are preopening costs and deferred direct
response advertising and catalog costs. Costs incurred prior to the opening of a
new store are charged to expense over a three-month period after the store
commences operations. Advertising and catalog costs are deferred and amortized
over the period in which the related revenues are earned, not to exceed six
months. Advertising and catalog expenses were $1,570,663, $2,503,732 and
$4,448,821 in fiscal 1994, 1995 and 1996, respectively.
F-9
<PAGE>
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Additions or improvements
are capitalized, while repairs and maintenance are charged to expense.
Depreciation is provided over the estimated useful lives of the assets using the
straight-line method. The estimated useful lives are 40 years for the building,
five to ten years for furniture and equipment and the shorter of the estimated
useful life or lease term for leasehold improvements.
Intangible Assets
Goodwill, leasehold interests and other intangible assets are amortized over 20
years, the lease term and 5 to 10 years, respectively. Amortization of
intangible assets was $296,053, $1,094,733 and $2,614,796 in fiscal 1994, 1995
and 1996, respectively.
Deferred Financing Costs
Deferred financing costs relate to debt issued in fiscal 1995 and 1996 and are
amortized over the terms of the related debt using the effective interest
method. Amortization of deferred financing costs was $260,305 and $418,737 in
fiscal 1995 and 1996, respectively.
Deferred Rent
Rent expense on leases is recorded on a straight-line basis over the lease
period. The excess of rent expense over the actual cash paid has been recorded
as deferred rent.
Net Income (Loss) Per Common Share
Net income (loss) per common share is calculated utilizing the modified treasury
stock method because the Company's outstanding options and warrants exceed 20%
of the number of common shares outstanding at the end of the period. Presently,
per-share computations under the modified treasury stock method are the same as
the treasury stock method. All per-share amounts are based upon the weighted
average common shares and dilutive common share equivalents outstanding during
the period, except where antidilutive.
Primary and fully diluted net income (loss) per common share for fiscal 1995 and
1996 have been computed after deducting dividends accrued on the preferred stock
of $162,916 and $977,500, respectively. Fully diluted earnings (loss) per share
is not presented as it is not materially different than the primary calculation
for the periods presented. Fully diluted earnings per share excludes the effect
of the preferred stock conversion, as this would be antidilutive.
Reclassifications
Certain reclassifications were made to the prior years' financial statements to
conform to the current year presentation.
F-10
<PAGE>
Adoption of New Accounting Standards
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that full
recoverability is questionable. Management evaluates the recoverability of
goodwill and other long-lived assets and several factors are used in the
valuation including, but not limited to, management's future operating plans,
recent operating results and projected cash flows. The Company will adopt SFAS
No. 121 in the first quarter of fiscal 1997 and anticipates an asset writedown
of approximately $250,000.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which the Company is required to adopt in the first quarter of
fiscal 1997. SFAS No. 123 establishes accounting and disclosure requirements
using a fair-value-based method of accounting for stock-based employee
compensation plans. Under SFAS No. 123, the Company may either adopt the new
fair-value-based accounting method or continue the intrinsic-value-based method
under APB 25, "Accounting for Stock Issued to Employees," and provide pro forma
disclosures of net earnings and earnings per share as if the accounting
provisions of SFAS No. 123 had been adopted. The Company plans to adopt only the
disclosure requirements of SFAS No. 123; therefore, such adoption will have no
effect on the Company's consolidated operating results.
2. ACQUISITIONS:
In February 1994, the Company acquired The Page Boy Company, Inc. (Page Boy) for
$1,000,000 in cash. The purchase price was allocated to the fair value of the
net assets acquired, with $818,000 allocated to goodwill under the purchase
method of accounting.
On April 5, 1995, the Company acquired A Pea in the Pod, Inc. (Pea) for
$25,487,000, in cash, including transaction costs, and the assumption of
$2,459,000 in funded debt. The purchase price and the repayment of the funded
debt was financed with borrowings from a bank and an insurance company. The
purchase price was allocated to the fair value of the net assets acquired, with
$21,524,000 allocated to goodwill under the purchase method of accounting.
During fiscal 1996, the goodwill was adjusted to $22,530,000 to reflect
refinements of estimates for certain accrued expenses (see Note 12).
On August 1, 1995, the Company acquired Motherhood Maternity Shops, Inc.
(Motherhood) for $33,985,000, including transaction costs, and the assumption of
$20 million in funded debt and accrued interest. Approximately $22,485,000 was
paid in cash and $11.5 million was paid with newly issued preferred stock (see
Note 8). The purchase price was allocated to the fair value of the net assets
acquired, with $18,471,000 allocated to goodwill under the purchase method of
accounting. During fiscal 1996, the goodwill was adjusted to $19,774,000 to
reflect refinements of estimates for certain accrued expenses. The cash portion
of the purchase price and the repayment of the funded debt and accrued interest
were financed with the sale of Senior Unsecured Notes (see Note 7). Of the
41,000 shares of preferred stock issued to the owners of Motherhood, 21,392
shares, representing $6 million in value, were placed in escrow. Such shares,
plus accrued and unpaid
F-11
<PAGE>
dividends, are subject to set-off against any indemnification payments that may
become due. The preferred stock will be released from escrow, net of any claims,
over a three-year period ending August 1, 1998.
On June 1, 1996, the Company assumed leases, acquired associated assets and
inventory of 21 stores of Episode USA Inc. (Episode) for $7.4 million, including
transaction costs. Approximately $2.4 million was paid in cash and $5 million
was paid through the issuance of 217,365 shares of Mothers Work common stock.
The purchase price was allocated to the fair value of the assets acquired under
the purchase method of accounting. No goodwill was recorded in this transaction.
In connection with the acquisition, the Company entered into a licensing and
distribution agreement with the seller, Toppy International, Inc.
(Toppy) (see Note 12). Costs associated with these agreements will be expensed
as incurred.
If the Pea, Motherhood and Episode acquisitions would have occurred on October
1, 1994, unaudited pro forma net sales would have been approximately
$184,201,000, unaudited pro forma net loss before extraordinary item would have
been approximately $10,049,000, and unaudited pro forma net loss per share would
have been approximately $3.16 for the year ended September 30, 1995.
If the Episode acquisition would have occurred on October 1, 1995, unaudited pro
forma net sales would have been approximately $209,648,000, unaudited pro forma
net loss would have been approximately $2,407,000, and unaudited pro forma net
loss per share would have been approximately $0.68 for the year ended September
30, 1996.
3. INVENTORIES:
September 30
-------------------------
1995 1996
------------ -----------
Finished goods $ 30,442,820 $45,496,732
Work-in-process 2,254,568 2,107,453
Raw materials 5,723,798 9,605,314
------------ -----------
$ 38,421,186 $57,209,499
============ ===========
4. PROPERTY, PLANT AND EQUIPMENT:
September 30
--------------------------
1995 1996
----------- ------------
Land $ 1,400,000 $ 1,400,000
Building and improvements 3,877,533 8,488,598
Furniture and equipment 12,180,316 14,869,223
Leasehold improvements 27,920,972 33,889,168
----------- ------------
45,378,821 58,646,989
Accumulated depreciation and amortization (8,137,882) (13,195,875)
----------- ------------
$37,240,939 $ 45,451,114
=========== ============
In order to consolidate the Motherhood acquisition with existing operations, the
Company purchased a headquarters, manufacturing and distribution facility in
1995. The Motherhood operations were moved to the facility in August 1995, and
the remaining
F-12
<PAGE>
operations were moved through the second quarter of fiscal 1996. In fiscal 1995,
the Company accrued $900,000 for relocation expenses and the termination of the
lease on its former facility. This expense is included in nonrecurring charges
on the accompanying statement of operations for fiscal 1995. The remaining
accrual for relocation expenses of approximately $290,000 is considered adequate
to cover the costs, including the remaining lease payments, to vacate the
premises.
5. ACCRUED EXPENSES:
September 30
-------------------------
1995 1996
----------- -----------
Accrued salaries, wages and employee benefits $ 2,965,352 $ 3,587,135
Accrued interest 1,966,379 2,121,414
Accrued sales tax 909,798 1,166,897
Other 4,536,133 5,636,154
----------- -----------
$10,377,662 $12,511,600
=========== ===========
6. LINE OF CREDIT:
In August 1995, the Company entered into a three-year, $19 million working
capital and letter of credit facility, including a $4 million letter of credit
to collateralize an Industrial Revenue Bond (the Working Capital Facility). The
Working Capital Facility is secured by substantially all of the assets of the
Company, excluding raw materials inventory. On May 31, 1996, concurrent with the
Episode acquisition (see Note 2), and in order to provide the Company with
additional borrowing capacity, the revolving credit portion of the Working
Capital Facility was increased from $15 million to $20 million. The Working
Capital Facility expires in August 1998. The Company had $6.6 million in
borrowings and $3.9 million in additional letters of credit issued under the
Working Capital Facility at September 30, 1996, including $1 million to serve as
collateral on an outstanding mortgage note (see Note 7). All of the subsidiaries
of Mothers Work, Inc. are jointly and severally liable for obligations under the
Working Capital Facility.
The interest rate on borrowings under the Working Capital Facility can be
selected by the Company from one of the following two alternatives: (i) the
Alternate Base Rate (8.25% at September 30, 1996) plus 1.5%, or (ii) the
Adjusted LIBOR Rate (5.625% at September 30, 1996) plus 3%. The Alternate Base
Rate is defined as a fluctuating rate of interest equal to the greater of the
Bank's National Commercial Rate, or (b) the Federal Funds Effective Rate, as
defined, plus one-half of 1%. Adjusted LIBOR means the London Interbank Offered
Rate, adjusted at all times for statutory reserves. Overdue amounts under the
Working Capital Facility bear interest at 2% above the interest rate then in
effect. Interest on Alternate Base Rate loans is payable quarterly and interest
on Adjusted LIBOR Rate loans is payable at the end of the relevant interest
period (and quarterly in the case of interest periods in excess of three
months).
The Working Capital Facility includes various restrictive covenants prohibiting
Mothers Work, Inc. and its subsidiaries, with certain limited exceptions, from,
among other things, incurring additional indebtedness and making dividend,
redemption and certain other payments. The Working Capital Facility also
contains financial covenants including current
F-13
<PAGE>
ratio, net income, total senior funded debt to operating cash flow and interest
coverage, as defined, and various events of default.
Prior to August 1995, the Company had several different lines of credit. In
fiscal 1995 and 1996, the highest outstanding line of credit balances were
$11,930,683 and $9,241,193, the average outstanding balances were $5,835,722 and
$6,050,510, and the weighted average interest rates were 8.74% and 9.75%,
respectively.
7. LONG-TERM DEBT:
<TABLE>
<CAPTION>
September 30
------------------------
1995 1996
----------- -----------
<S> <C> <C>
12-5/8% Senior Unsecured Exchange Notes, due 2005 $90,115,599 $90,218,882
Industrial Revenue Bonds, interest is variable (5.55% at
September 30, 1996), principal due annually through
2025 (collateralized by a $4 million letter of credit). 4,000,000 3,915,000
Mortgage notes:
Interest at 3%, principal due monthly to 2011
(collateralized by a $1 million letter of credit and a
second mortgage on certain property and
equipment at the Company's headquarters). -- 1,964,621
Interest at 2%, principal due monthly to 2011
(collateralized by certain equipment at the
Company's headquarters). -- 291,382
Interest at 4.25%, principal due monthly to 2001
(collateralized by certain equipment at the
Company's headquarters). -- 263,689
Capital lease obligations 797,213 576,059
Other 460,000 210,000
----------- -----------
95,372,812 97,439,633
Less - Current portion (770,133) (758,911)
----------- -----------
$94,602,679 $96,680,722
=========== ===========
</TABLE>
F-14
<PAGE>
Long-term debt maturities as of September 30, 1996 are as follows:
1997 $ 758,911
1998 422,249
1999 376,009
2000 366,168
2001 277,869
2002 and thereafter 97,019,545
-----------
99,220,751
Less- Unamortized discount (1,781,118)
-----------
$97,439,633
===========
In connection with the Motherhood acquisition, the Company sold 12-5/8% Senior
Unsecured Notes due 2005 (the Notes) with a face amount of $92 million. The
Notes were issued at 97.934% of their face amount, resulting in an annual
effective interest rate of 13%. Interest on the Notes is payable semiannually in
cash on February 1 and August 1, commencing February 1, 1996. The Notes were
issued by Mothers Work, Inc. and are unconditionally guaranteed on a senior
basis by each subsidiary (see Note 13). The Notes are redeemable at the option
of the Company, in whole or in part, at any time on or after August 1, 2000, at
106.250% of their face amount, plus accrued interest, declining ratably to 100%
of their face amount on and after August 1, 2002, plus accrued interest. In
addition, at the option of the Company at any time prior to August 1, 1998, up
to 35% of the aggregate face amount of the Notes may be redeemed from the
proceeds of one or more public stock offerings (as defined) at 110% of their
face amount, plus accrued interest, provided that $58.5 million of Notes remain
outstanding immediately after such redemption. In November 1995, the Company
completed an exchange offer whereby the Notes were exchanged for 12-5/8% Senior
Unsecured Exchange Notes due 2005 which have been registered under the
Securities Act of 1933.
The proceeds from the sale of the Notes were used to acquire Motherhood and
repay the debt incurred in the Pea acquisition. The early extinguishment of the
Pea debt resulted in an extraordinary charge of $6,387,000 before the related
income tax benefit. The charge was comprised of a prepayment penalty of
$3,550,000, the write-off of deferred financing costs of $1,730,000 and
unamortized original issued discount of $976,000, and fees and expenses of
$131,000. In connection with the debt issued in the Pea acquisition, warrants
were issued to purchase 140,123 of the Company's common stock at $.01 per share.
The warrants were valued at $1 million and remain outstanding (see Note 10).
In connection with the purchase of the land and building for $4,458,000 (see
Note 4) and the related improvements to the building including fixtures and
equipment, the Company received $6,590,000 in government-assisted financing, of
which $2,340,000 was received during fiscal 1996. The financing is comprised of
$4 million of Industrial Revenue Bonds (the Bonds), a $2 million mortgage from
the Pennsylvania Industrial Development Authority and loans totaling $590,000
from the Philadelphia Industrial Development Corporation.
The Company has entered into several leases for equipment, which have been
accounted for as capital leases. The capitalized cost of $1,381,056 and
$1,164,214 is included in furniture
F-15
<PAGE>
and equipment at September 30, 1995 and 1996, respectively. The accumulated
amortization on capital leases is $553,482 and $633,333 at September 30, 1995
and 1996, respectively. The present value of the minimum lease payments is as
follows:
September 30
----------------------
1995 1996
---------- ---------
Total minimum lease payments $ 948,351 $ 657,579
Less - Amount representing interest (151,138) (81,520)
---------- ---------
Present value of minimum lease payments $ 797,213 $ 576,059
========== =========
8. COMMON AND PREFERRED STOCK:
Private Placement
On May 31, 1996, the Company completed a private placement of 200,000 shares of
its common stock to a number of institutional investors at $22.25 per share. The
Company used the proceeds to pay the cash portion of the purchase price for the
Episode assets (see Note 2), to finance the opening of additional stores and for
general working capital purposes.
Preferred Stock
In connection with the Motherhood acquisition, the Company issued 41,000 shares
of Series A Cumulative Convertible Preferred Stock (the Series A Preferred
Stock) with a stated value of $11.5 million. The Series A Preferred Stock has a
preference in liquidation equal to the stated value, plus accrued but unpaid
dividends. The Company may redeem (but is under no obligation to do so) the
Series A Preferred Stock at any time at a price equal to liquidation preference,
subject to certain limitations imposed by the Working Capital Facility and the
holders of the Notes.
The holders of the Series A Preferred Stock are entitled to receive annual cash
dividends, when declared by the Company's Board of Directors, equal to 8.5% of
the stated value ($977,500 per year). Dividends are cumulative to the extent not
paid and compound annually at 8.5%. No dividends may be paid on common stock or
any other shares of capital stock of the Company ranking junior to the Series A
Preferred Stock (other than dividends payable in shares of common stock), until
all cumulative and current dividends on Series A Preferred Stock have been
declared and paid in full. As of September 30, 1996, accrued dividends on the
Series A Preferred Stock were $1,140,416 and are classified as long-term
liabilities.
The Series A Preferred Stock is convertible into shares of common stock (i)
between August 1, 2000 and November 1, 2006, at an initial conversion rate
(subject to adjustments for stock splits, stock dividends, recapitalizations and
similar events) equal to ten shares of common stock for each share of Series A
Preferred Stock, or (ii) after November 1, 2006, at an initial conversion rate
determined by dividing the aggregate stated value of all shares of Series A
Preferred Stock to be converted by 90% of the then-market price of the common
stock, as defined. After a holder's exercise of the conversion right under (i)
above, the Company may only redeem the Series A Preferred Stock from the
proceeds of an equity offering. The
F-16
<PAGE>
limitation on this redemption right may only be modified with the consent of the
holders of a majority of the outstanding principal amount of the Notes. Upon any
conversion, the holder of the Series A Preferred Stock to be converted is
entitled to receive payment of all accrued and unpaid dividends in cash unless
the Company is prohibited by limitations contained in the Notes. In the case of
a conversion under (i) above, if dividends are not paid in cash, the Company
will issue a note with interest at the prime rate, payable beginning one year
after the date of conversion. The note will be subordinated to the Notes and
will be payable only to the extent permitted under the restrictions contained in
the Notes. If the note is not paid by August 1, 2003, then all principal and
accrued interest may be converted into that number of shares of common stock
determined by dividing the amount due by the then-market price, as defined. In
the case of a conversion under (ii) above, if accrued dividends are not paid in
cash, then such dividends are convertible into common stock on the same basis as
the shares of Series A Preferred Stock.
In connection with the Rights Agreement (see Note 9), the Company authorized
10,000 shares of Series B Junior Participating Preferred Stock (the Series B
Preferred Stock). The Series B Preferred Stock can be purchased in units equal
to one one-thousandth of a share (the Series B Units) under the terms of the
Rights Agreement (see Note 9). The holders of the Series B Units are entitled to
receive dividends when and if declared on Common Stock. Series B Units are
junior to the Common Stock and Series A Preferred Stock for both dividends and
liquidations. Each Series B Unit votes as one share of Common Stock.
9. RIGHTS AGREEMENT:
Under the Rights Agreement, the Company has one Right outstanding for each share
of Mothers Work common stock now or hereafter outstanding. Under certain limited
conditions as defined in the Rights Agreement, each Right entitles the
registered holder to purchase from the Company one Series B Unit at $85 per
share subject to adjustment. The rights expire on October 9, 2005 (the Final
Expiration Date).
The Rights are not exercisable until the Distribution Date (as defined in the
Rights Agreement) which will occur upon the earlier of (i) ten business days
following a public announcement that an Acquiring Person has acquired beneficial
ownership of 10% or more of Mothers Work's outstanding common stock, or (ii) ten
business days following the commencement of a tender offer or exchange offer
that would result in a person or group owning 10% or more of Mothers Work's
outstanding common stock.
The Rights have certain anti-takeover effects. The Rights will cause substantial
dilution to a person or group that attempts to acquire the Company without
conditioning the offer on the redemption of the Rights. The rights can be
mandatorily redeemed by action of a majority of the independent directors at any
time prior to the earlier of the Final Expiration Date and the Distribution Date
for $.01 per right.
Upon exercise and the occurrence of certain events as defined in the Rights
Agreement, each holder of a Right, except the Acquiring Person, will have the
right to receive Mothers Work common stock or common stock of the acquiring
company having a value equal to two times the exercise price of the Right.
F-17
<PAGE>
10. STOCK OPTION PLAN:
The Company has a stock option plan (the 1987 Stock Option Plan), which provides
for the grant of common stock options to eligible employees and others. Options
granted may be at the fair market value of the stock or at a price determined by
a committee of the Board. The stock options vest over varying periods up to five
years and are exercisable over a period determined by the committee, but not
longer than ten years.
In fiscal 1996, the 1987 Stock Option Plan was amended to provide for the grant
of up to 725,000 shares of common stock. In fiscal 1994, the Company granted
70,672 options at exercise prices ranging from $11 to $17.75 per share to
certain officers, including 30,000 options at an exercise price of $13 per share
to officers who are also Board members. In fiscal 1995, the Company granted
137,506 options at exercise prices ranging from $10.25 to $16.50 per share to
certain officers, including 81,810 options at an exercise price of $11.25 per
share to officers who are also Board members. In fiscal 1996, the Company
granted 90,000 options at an exercise price of $13.50 per share to certain
officers, including 60,000 options to officers who are also Board members.
Information with respect to the 1987 Stock Option Plan, as amended, is as
follows:
Aggregate Option Price
Shares Price Per Share
------- ----------- ----------------
Outstanding, September 30, 1993 72,459 $ 383,805 $ 1.67 - $ 11.00
Granted 147,281 1,926,116 11.00 - 19.50
Exercised (12,141) (55,272) 1.67 - 4.60
Canceled (31,550) (367,318) 4.19 - 16.50
------- -----------
Outstanding, September 30, 1994 176,049 1,887,331 1.67 - 19.50
Granted 272,059 3,117,390 10.25 - 18.75
Exercised (2,394) (13,142) 2.93 - 11.00
Canceled (69,667) (962,362) 2.93 - 17.38
------- -----------
Outstanding, September 30, 1995 376,047 4,029,217 1.67 - 19.50
Granted 210,000 2,889,800 13.50 - 22.75
Exercised (19,715) (134,547) 4.19 - 13.50
Canceled (85,090) (1,161,143) 10.25 - 22.75
------- -----------
Outstanding, September 30, 1996 481,242 $ 5,623,327 1.67 - 18.75
======= ===========
At September 30, 1996, there were 207,892 options available for grant under the
1987 Stock Option Plan. In addition, there were 222,319 exercisable options at
prices ranging from $1.67 to $13.50 per share. The aggregate exercise price of
these options was $2,454,925. At September 30, 1996, warrants are outstanding to
purchase 7,465 shares of common stock at an exercise price of $2.72 per share,
which expire on January 31, 1997, and 140,123 shares of common stock at an
exercise price of $0.01, which expire on April 5, 2002.
In fiscal 1994, the shareholders approved the Director Stock Option Plan
(Director Plan), which provides for the grant of 2,000 options to each director
on an annual basis. Options granted under the Director Plan are nonqualified,
have an exercise price equal to fair market value, a ten-year term and fully
vest on the grant date. A total of 200,000 shares of
F-18
<PAGE>
common stock were reserved for issuance under the Director Plan, with 16,000
options granted at an exercise price of $18.25 per share in fiscal 1994, 14,000
options granted at an exercise price of $9.50 per share in fiscal 1995 and
12,000 options granted at an exercise price of $14.50 per share in fiscal 1996.
11. INCOME TAXES:
Income taxes (benefit) are comprised of the following:
Year Ended September 30
----------------------------------
1994 1995 1996
---------- --------- ----------
Current provision (benefit) $1,423,331 $(893,214) $ 384,421
Deferred provision (benefit) (179,221) 45,927 1,444,151
---------- --------- ----------
$1,244,110 $(847,287) $1,828,572
========== ========= ==========
The extraordinary item generated an additional income tax benefit of $2,171,435
in fiscal 1995, of which $1,311,383 was a current tax benefit and $860,052 was a
deferred tax benefit.
The reconciliation of the statutory federal rate to the Company's effective
income tax rate on the income (loss) before extraordinary item is as follows:
Year Ended September 30
---------------------------------
1994 1995 1996
---- ----- ----
Statutory tax rate 34.0% (34.0)% 34.0%
State taxes, net of federal benefit 3.6 -- 3.7
Amortization of goodwill .9 8.0 27.3
Other 1.8 .1 1.9
---- ----- ----
40.3% (25.9)% 66.9%
==== ===== ====
F-19
<PAGE>
The deferred tax effects of temporary differences giving rise to the Company's
deferred income tax assets are as follows:
September 30
------------------------
1995 1996
---------- ----------
Deferred tax assets:
Net operating loss carryforwards $2,381,177 $2,765,391
Depreciation of property, plant and equipment 3,163,110 2,076,929
Deferred rent 653,175 826,557
Inventory reserves 339,389 995,124
Store closings accrual 1,760,377 --
Employee benefit accruals 278,417 381,941
Other accruals 878,558 1,262,806
Alternative minimum tax credit carryforward 99,778 528,509
Other 116,693 261,327
---------- ----------
9,670,674 9,098,584
Deferred tax liabilities:
Prepaid expenses (203,714) (175,665)
Other (589,511) (366,048)
---------- ----------
$8,877,449 $8,556,871
========== ==========
The Company has net operating loss carryforwards for tax purposes of
approximately $8,034,000 which expire in 2009 through 2011, of which $4,309,000
were acquired in the acquisitions of Pea and Motherhood. The Company also has
alternative minimum tax credits of approximately $529,000 which can be utilized
against regular income taxes in the future. While the acquired net operating
loss carryforwards are subject to certain annual limitations due to the change
in ownership, the Company does not expect the limitations to reduce its ability
to ultimately use such carryforwards. The entire tax benefit of the net
operating loss carryforwards has been recorded as a deferred income tax asset,
as it is more likely than not that it will be realized during the carryforward
period. The tax benefit of the acquired net operating loss carryforwards was
recorded under the purchase method of accounting, while the remainder of the
benefit was recorded as an income tax benefit in the accompanying statement of
operations.
No valuation allowance has been provided for the net deferred tax assets. Based
on the Company's historical levels of taxable income, as adjusted for the
nonrecurring charges in fiscal 1995, the nondeductibility of goodwill
amortization and the extraordinary items in fiscal 1993 and 1995, management
believes it is more likely than not that the Company will realize the benefit of
the net deferred tax assets existing at September 30, 1996. Furthermore,
management believes the existing net deductible temporary differences will
reverse during periods in which the Company generates net taxable income. There
can be no assurance, however, that the Company will generate taxable earnings or
any specific level of continuing earnings in the future.
F-20
<PAGE>
12. COMMITMENTS AND CONTINGENCIES:
The Company leases its retail facilities and certain equipment under various
noncancelable operating leases. Certain of these leases have renewal options.
Future minimum lease payments as of September 30, 1996 are as follows:
1997 $ 24,249,742
1998 23,183,982
1999 20,864,590
2000 19,225,615
2001 17,427,481
2002 and thereafter 36,467,467
------------
$141,418,877
============
Rent expense, including common area maintenance, was $10,236,212, $18,081,333
and $30,196,546 in fiscal 1994, 1995 and 1996, respectively.
In connection with the Episode acquisition, the Company entered into a licensing
agreement and distribution agreement to operate the Episode stores in their
current format and under their current name. The Company licensed the Episode
trademark and is required to pay through a royalty of 5% of sales, with the
royalty payment not to exceed $4.5 million. The distribution agreement provides
for Toppy to sell inventory to the Company with certain Toppy trademarks. The
distribution agreement also permits the Company to manufacture articles with
such trademarks in consideration of the payment by the Company to Toppy of a 2%
royalty on all sales of such manufactured articles by the Company. Additionally,
Mothers Work is required to have items purchased from Toppy represent 50% of the
inventory value at each Episode store.
From time to time, the Company is named as a defendant in legal actions arising
from its normal business activities. Although the amount of any liability that
could arise with respect to currently pending actions cannot be accurately
predicted, in the opinion of the Company, any such liability will not have a
material adverse effect on the financial position or operating results of the
Company.
In connection with the Pea acquisition, Mothers Work (R.E.), Inc. assumed Pea's
outstanding litigation and potential claims. On February 7, 1994, a civil
complaint was filed in a United States District Court against Pea and its
then-officers and Board of Directors, and its former preferred shareholders. The
complaint alleges omissions by the defendants in connection with Pea's initial
public offering and seeks rescission or damages of up to $9.7 million and
attorney's fees. The complaint has been certified as a class action for certain
claims and denied class action status for one claim. While the ultimate outcome
of this matter cannot be determined at this time, management and legal counsel
believe the Company's potential liability, if any, has been adequately reserved.
In November 1996, an action was filed in the District Court of Dallas County,
Texas containing similar claims and including the underwriters in the Pea
initial public offering.
In August 1995, Pea's founders, who were formerly members of its management and
who ceased employment prior to the acquisition, filed a lawsuit claiming damages
for wrongful termination, breach of employment agreement, mental anguish,
emotional distress and punitive damages. In April 1996, in order to avoid the
costs and uncertainties of further
F-21
<PAGE>
litigation, the Company settled this lawsuit. This settlement has been accounted
for in conjunction with the purchase method of accounting for the Pea
acquisition.
13. SUBSIDIARY GUARANTORS:
Pursuant to the terms of the indenture relating to the 12-5/8% Senior Unsecured
Exchange Notes due 2005, the direct subsidiaries of Mothers Work,
Inc.--consisting of Cave Springs, Inc., The Page Boy Company, Inc., Mothers Work
(R.E.), Inc. (d/b/a/ A Pea in the Pod, Inc.), and Motherhood Maternity Shops,
Inc. (collectively, the Guarantors)--have, jointly and severally,
unconditionally guaranteed the obligations of Mothers Work, Inc. with respect to
these notes. The operations of Motherhood Maternity Shops, Inc. were merged into
the operations of Mothers Work, Inc. as of September 30, 1996. The only
subsidiary of the Company that is not a Guarantor is Motherhood International,
Inc. (International). International is an indirect, wholly owned subsidiary of
the Company which is inconsequential to the assets and operations of the Company
and to the Guarantors in that it has no assets or operations and, accordingly,
does not contribute to the revenue or profits of the Company or any of the
Guarantors. There are no restrictions on the ability of any of the Guarantors to
transfer funds to Mothers Work, Inc. in the form of loans, advances or
dividends, except as provided by applicable law.
Accordingly, set forth below is certain summarized financial information (within
the meaning of Section 1-02[bb] of Regulation S-X) for the Guarantors, as of and
for the year ended September 30, 1996:
September 30, 1996
------------------
Current assets $ 5,601,825
Noncurrent assets 20,963,279
Current liabilities 3,059,322
Noncurrent liabilities 3,835,768
For the Year Ended
September 30, 1996
------------------
Net sales $51,284,307
Costs and expenses 40,273,798
Net income 7,158,349
The summarized financial information for the Guarantors has been prepared from
the books and records maintained by the Guarantors and the Company. The
summarized financial information may not necessarily be indicative of the
results of operations or financial position had the Guarantors operated as
independent entities. Certain intercompany sales included in the subsidiary
records are eliminated in consolidation. The Guarantors receive all inventory
from and transfer all cash to Mothers Work, Inc., who, in turn, pays all
expenditures on behalf of the Guarantors. An amount due to/due from parent will
exist at any time as a result of this activity. The summarized financial
information includes the allocation of material amounts of expenses such as
corporate services, administration and taxes on income. The allocations are
generally based on proportional amounts of sales or assets, and taxes on income
are allocated consistent with the asset and liability approach used for
consolidated financial statement purposes. Management believes these allocation
methods are reasonable. The financial information of
F-22
<PAGE>
Motherhood Maternity Shops, Inc. has been excluded from the table above due to
the merger on September 30, 1996.
14. NONRECURRING CHARGES:
Nonrecurring charges for the year ended September 30, 1995, include $900,000
accrued for the relocation to the acquired facility (see Note 4) and $4,527,000
for planned closings of Mothers Work stores. On March 31, 1995, the Company
implemented a one-year plan, due to excess capacity in certain markets, to close
38 Mothers Work stores and, in conjunction with the Pea acquisition, to close 15
Pea stores. Under the terms of the plan, stores were closed, leases terminated
and inventory shipped to other store locations. The Company actually closed 43
Mothers Work stores and 11 Pea stores at a cost that was $341,000 less than was
accrued, which was recorded as a reduction to selling, general and
administrative expenses in fiscal 1996. The net sales and store operating income
before corporate overhead allocations for the stores closed in fiscal 1996 that
are included in the accompanying statement of operations for the year ended
September 30, 1996, are $3,538,804 and $206,858, respectively.
15. EMPLOYMENT AND CONSULTING AGREEMENTS:
The Company has employment agreements with its Chief Executive Officer/Chairman
of the Board (CEO), its President/Chief Operating Officer (COO), its Senior Vice
President--Operations and its Head Pattern Maker. The CEO and COO have
agreements which expire on September 30, 1999. These agreements provide for base
compensation of $275,000 for fiscal 1997, increasing annually thereafter. On
October 1 of each year the term of each agreement automatically extends for
successive one year periods extending the expiration date into the third year
after the extension. Additionally, the CEO and COO are entitled to an annual
cash bonus and stock options based on performance, as defined.
The agreement with the Senior Vice President--Operations is through June 19,
1997, and provides for an initial base salary of $250,000 per year, incentive
bonuses based upon specified goals and a one-time grant of 20,000 stock options.
The agreement with the Head Pattern Maker is through July 17, 1997, and provides
for an initial base salary of $100,000 per year, an annual bonus and a one-time
grant of 3,000 stock options.
On October 1, 1996, the Company entered into a one-year agreement with an
individual. The agreement requires the individual to perform consulting and
advisory services for the Company in connection with the growth and strategic
development of the maternity and Episode businesses. The agreement provides for
payment of $200,000, payable in equal monthly installments, a grant of 16,667
fully vested stock options, and an obligation to serve as a Director of the
Company, if elected. The stock options are exercisable up to one year after the
individual ceases to be a Director of the Company.
F-23
<PAGE>
16. RELATED-PARTY ACTIVITY:
The Company paid legal fees of approximately $1.1 million and $680,000 in fiscal
1995 and 1996, respectively, to a firm whose partner is a Director of the
Company.
17. PROFIT-SHARING PLANS:
Effective January 1, 1993, the Company established a 401(k) savings plan for
full-time employees who have at least one year of service and are 21 years of
age. Employees can contribute up to 15% of their annual salary. The Company may
make contributions to the plan, which vest over a five-year period. No Company
contributions were made in fiscal 1994, 1995 or 1996.
In conjunction with the acquisition of Pea, the Company assumed responsibility
for Pea's 401(k) Employees' Savings Plan. Employees who have at least one year
of service may participate in the plan, and the Company may make contributions
to the plan that vest over a four-year period. No Company contributions were
made in fiscal 1995 or 1996. The Company terminated this plan in fiscal 1996 by
merging the plan into the Mothers Work 401(k) Savings Plan. In conjunction with
the acquisition of Motherhood, the Company assumed responsibility for the final
distribution and termination of the Motherhood Retirement Savings Plan. The
Company expects that final distributions of this plan will be made in fiscal
1997.
F-24
FOURTH AMENDMENT TO CREDIT AGREEMENT dated as of September 30, 1996 by and
among Mothers Work, Inc., a Delaware corporation ("MWI") on its own behalf and
as successor, by merger, to Motherhood Maternity Shops, Inc., a Delaware
corporation ("Motherhood"), Cave Springs, Inc., a Delaware corporation ("Cave"),
The Page Boy Company, Inc., a Delaware corporation ("Page Boy") and Mothers Work
(R.E.), Inc., a Pennsylvania corporation ("MW-RE") (each, a "Borrower", and
collectively, jointly and severally, the "Borrowers"), and CoreStates Bank,
N.A., successor to Meridian Bank ("Bank").
BACKGROUND
The Borrowers and the Bank are parties to a Credit Agreement dated as of
August 1, 1995, as first amended September 1, 1995 as second amended January 25,
1996, and as third amended May 31, 1996 (the "Credit Agreement") pursuant to
which the Bank established, in favor of the Borrowers, a credit facility in an
aggregate principal amount of $24,094,684.93 subject to the terms and conditions
set forth therein. Borrowers have requested the Bank to modify certain of the
financial covenants set forth in the Credit Agreement, and to consent to the
transfer, from MWI, Motherhood and MW-RE to Cave, of certain trademarks or
tradenames held by the transferors, which the Bank is willing to do, all on the
terms and conditions set forth herein. Capitalized terms used herein, and not
otherwise defined, shall have the meanings ascribed to them in the Credit
Agreement.
AGREEMENTS
The parties hereto, intending to be legally bound, hereby agree:
1. Section 7.07 of the Credit Agreement shall be amended by
deleting the language found therein in its entirety, and by
substituting therefor the following:
"SECTION 7.07. Total Senior Funded Debt to Operating Cash Flow
Ratio. Permit, at any time, the ratio of (x) Total Senior
Funded Debt of MWI and its Subsidiaries on a Consolidated
basis, to (y) Operating Cash Flow of MWI and its Subsidiaries
on a Consolidated basis for the four most recent consecutive
fiscal quarters ending on or immediately preceding such date
of determination to be greater than the respective amounts set
forth below for the periods indicated:
<PAGE>
Period Ratio
------ -----
During the Fiscal Quarter
ending Sept. 30, 1996 4.35:1.00
During the Fiscal Quarter
ending Dec. 31, 1996 4.00:1.00
During the Fiscal Quarter
ending March 31, 1997 4.00:1.00
During the Fiscal Quarter
ending June 30, 1997 3.75:1.00
During the Fiscal Quarter
ending Sept. 30, 1997 3.50:1.00
During the Fiscal Quarter
ending Dec. 31, 1997,
and thereafter; 3.30:1.00
provided, however, that for purposes of these calculations, any charges incurred
in fiscal year 1996 resulting from the application of FASB 121 (Accounting for
the Impairment of Long-Lived Assets, and Long-Lived Assets to be Disposed Of)
shall not be included for purposes of determining Net Income.
2. Section 7.08 of the Credit Agreement shall be amended by deleting the
language found therein in its entirety, and by substituting therefor the
following:
SECTION 7.08. Interest Coverage Ratio. Permit the Interest
Coverage Ratio of MWI and its Subsidiaries on a Consolidated
basis at the end of any fiscal quarter to be less than the
respective amounts set forth below for the periods indicated.
Period Ratio
------ -----
Fiscal Quarter ending Sept. 30, 1996 1.15:1.00
Fiscal Quarter ending Dec. 31, 1996, 1.25:1.00
Fiscal Quarter ending March 31, 1997 1.25:1.00
Fiscal Quarter ending June 30, 1997 1.45:1.00
Fiscal Quarter ending Sept. 30, 1997 1.65:1.00
and thereafter;
provided, however, that for purposes of these calculations, any charges incurred
in fiscal year 1996 resulting from the application of FASB 121 (Accounting for
the Impairment of Long-
<PAGE>
Lived Assets, and Long-Lived Assets to be Disposed Of) shall not be
included for purposes of determining EBIT.
3. The Bank acknowledges that, effective this date, Motherhood has merged
with and into MWI, and consents, in this instance, to such merger,
notwithstanding the fact that the ten day notice, required by Section 7.05 of
the Agreement, was not timely given.
4. The Bank hereby consents to the transfer, from MWI, Motherhood and MW-RE
to Cave, of the trademarks and tradenames set forth on Schedule 4 attached
hereto, subject to the Bank's security interest in such trademarks and
tradenames. Within fifteen days of the execution hereof, the Borrowers shall
execute and deliver to the Bank such documents or instruments, suitable for
filing, as the Bank shall deem necessary or appropriate to continue the secured
and perfected position of the Bank with respect to such trademarks and
tradenames.
5. As a condition to the execution and delivery of this Fourth Amendment to
Credit Agreement, the Borrowers shall deliver to the Bank, in form and content
satisfactory to the Bank and its counsel, the following documents, instruments
or payments:
a. A certified copy of resolutions adopted by the Board of Directors
of each of the Borrowers authorizing the execution, delivery and
performance of this Agreement, and all of the documents and instruments required
by the Bank for the implementation of this Agreement; and
b. Such financing statements, or amendments to financing statements as
the Bank shall require as a result of the merger of Motherhood with and
into MWI.
6. The Borrowers hereby:
(a) acknowledge and agree that all of their representations,
warranties and covenants contained in the Credit Agreement and/or in the Loan
Documents, as amended hereby, are true, accurate and correct on and as of the
date hereof as if made on and as of the date hereof, except as set forth on
Schedule 6(a) attached to this Fourth Amendment; provided, however, that with
respect to the dates set forth in certain representations, such dates shall be
updated as follows:
(i) in Section 4.05, the referenced date shall be September 30,
1995;
(ii) in Section 4.07(a), the referenced date for consolidated
balance sheet shall be September 30, 1995;
(iii) in Section 4.07(b), the referenced date shall be 1996; and
-3-
<PAGE>
(iv) in Section 4.07(c), the referenced 1995 Fiscal Year and 1996
Fiscal Year shall be changed to 1996 Fiscal Year and 1997 Fiscal Year,
respectively.
(b) acknowledge and agree that they have no defense, set-off,
counterclaim or challenge against the payment of any sums owing under the Credit
Agreement or the Loan Documents or the Obligations, or the enforcement of any of
the terms of the Credit Agreement or the Loan Documents, as amended hereby; and
(c) represent and warrant that no Event of Default, as defined in the
Credit Agreement, exists or will exist upon the delivery of notice, passage of
time or both.
7. The Borrowers will pay all of Bank's out-of-pocket costs and expenses
incurred in connection with the review, preparation, negotiation, documentation
and closing of this Fourth Amendment and the consummation of the transactions
contemplated herein, including, without limitation, fees, expenses and
disbursements of counsel retained by Bank and all fees related to filings,
recording of documents and searches, appraisal costs, whether or not the
transactions contemplated hereunder are consummated.
8. All other terms and conditions of the Credit Agreement and of the Loan
Documents, not inconsistent with the terms hereof, shall remain in full force
and effect and are hereby ratified and confirmed by the Borrowers.
IN WITNESS WHEREOF, the Borrowers and the Bank have caused this Fourth
Amendment to Credit Agreement to be executed by their respective authorized
officers as of the day and year first above written.
MOTHERS WORK, INC.
By: /s/ Thomas Frank
------------------------------
Name: Thomas Frank
Title: Vice President
CAVE SPRINGS, INC.
By: /s/ Thomas Frank
------------------------------
Name: Thomas Frank
Title: Vice President
(signatures continued on next page)
-4-
<PAGE>
(signatures continued from previous page)
THE PAGE BOY COMPANY, INC.
By: /s/ Thomas Frank
------------------------------
Name: Thomas Frank
Title: Vice President
MOTHERS WORK (R.E.), INC.
By: /s/ Thomas Frank
-------------------------------
Name: Thomas Frank
Title: Vice President
CORESTATES BANK, N.A.
By: /s/ Randal D. Southern
-------------------------------
Name: Randal D. Southern
Title: Vice President-Retailer
Group
-5-
<PAGE>
QUALIFICATIONS, EXCEPTIONS
TO REPRESENTATIONS
NONE
-6-
Marvin Traub Associates, Inc.
c/o Financo, Inc.
535 Madison Avenue - 3rd Floor
New York, New York 10022
September 11, 1996
Mothers Work, Inc.
456 North 5th Street
Philadelphia, PA 19123
Re: Consulting Agreement
Gentlemen:
This letter confirms the mutual understanding and agreement between Mothers
Work, Inc. (the "Company") and Marvin Traub Associates, Inc. ("MTA") with
respect to the Company's engagement of MTA to provide consulting and advisory
services upon the terms and conditions specified herein.
1. Engagement. The Company hereby retains MTA to perform, and MTA hereby
agrees to perform, consulting and advisory services for the Company during the
Term (as hereinafter defined) in connection with the growth and strategic
development of the Maternity and Episode businesses. MTA will consult with and
advise the management on merchandising, marketing and positioning of the various
brands in the Company including the new Daniel and Rebecca labels, on the
Company's efforts to increase its presence in leased departments in department
stores, and on analysis of entry into European and other foreign markets, as
well as such other projects as MTA and the Company shall mutually agree.
Such consulting and advisory services shall be performed at such times and
at such locations as shall be mutually satisfactory to MTA and the Company. MTA
is being engaged as an independent contractor and will not be an agent of the
Company, and, except as provided in Paragraph 5 hereof, the directors, officers
and employees of MTA shall act solely on behalf of MTA and shall not be
directors, officers, employees or agents of the Company.
The services to be performed by MTA hereunder shall be performed by
Marvin S. Traub.
2. Cash Compensation and Expenses. The Company shall pay to MTA
$200,000 per annum for its services during the Term payable in twelve (12) equal
monthly installments of $16,666.66. The Company will not withhold any wage or
employment taxes in
<PAGE>
Mothers Work, Inc.
Page 2
September 11, 1996
respect of such compensation, but will issue MTA information reports relating
thereto, as required by applicable law and regulations.
MTA also will be reimbursed by the Company for all reasonable business and
travel expenses incurred or paid by MTA during the Term in the course of MTA's
performance of services for the Company hereunder, promptly following submission
of customary documentation therefor. MTA will obtain the Company's prior
approval for any such expenses in excess of $1,000 individually or $5,000 in
aggregate in any month.
3. Stock Options. As further consideration for MTA's services hereunder
during the initial Term, the Company shall grant to MTA on October 1, 1996
options to acquire 16,667 shares of common stock of the Company (the "Initial
Options"). If the Term is extended, on each subsequent October 1st during the
Term, the Company shall grant to MTA options to acquire 16,666 additional shares
of common stock of the Company (the "Subsequent Options"). All such options
shall be granted at a per share exercise price equal to the closing price of the
shares as reported on the stock exchange or market on which the shares are
primarily traded on the day prior to the issuance of the options. The Subsequent
Options shall vest, and become exercisable, in eleven monthly installments of
1,389 shares and a twelfth monthly installment of 1,387 shares following the
date of grant unless the Term shall have been terminated for any reason other
than the death or disability of Marvin S. Traub. Unvested Subsequent Options
shall fully vest and become exercisable on the death or disability of Marvin S.
Traub. The Initial Options and all vested Subsequent Options shall be
exercisable at any time or from time to time from the date of grant until one
(1) year after Marvin S. Traub ceases to be a director of the Company.
4. Term. The term of MTA's consultancy hereunder shall commence on October
1, 1996 and shall continue for an initial term of one year through September 30,
1997. Notwithstanding the foregoing, the Term shall terminate on the death or
total disability of Marvin S. Traub. The parties shall agree on or before
June 30, 1997 whether or not to extend the Term.
5. Directorship. Marvin S. Traub agrees, if elected, to serve as a member
of the board of directors of the Company. On the termination of this Agreement,
Marvin S. Traub shall resign as a director of the Company, unless otherwise
agreed between Marvin S. Traub and the Company.
<PAGE>
Mothers Work, Inc.
Page 3
September 11, 1996
6. Registration of Option Shares. The Company will use its best efforts to
register on Form S-8 under the Securities Act of 1933 the issuance of the shares
issuable upon exercise of the Initial Options and, if applicable, the Subsequent
Options.
7. Confidential Information. During the Term, MTA shall, and shall cause
its directors, officers and employees to, keep secret and retain in strictest
confidence, and shall not use for its benefit or the benefit of others, nor
permit its directors, officers or employees to use for their benefit or the
benefit of others, any and all confidential information relating to the Company
disclosed to MTA in the course of its consultancy including, without limitation,
trade secrets, customer lists and other secret or confidential aspects of the
company's business, and MTA shall not disclose such information, nor permit its
directors, officers or employees to disclose such information to anyone outside
the Company or any of its affiliates, except in the performance by MTA of its
services hereunder or as required by law in connection with any judicial or
administrative proceeding or inquiry (provided prior written notice thereof is
given by MTA to the Company) or with the Company's prior written consent, unless
such information is known generally to the public or the trade through sources
other than MTA's (or its directors', officers' or employees') unauthorized
disclosure.
8. Entire Agreement. This agreement contains the entire agreement between
the parties hereto with respect to the subject matter hereof and supersedes all
other agreements and understandings with respect thereof, oral or otherwise.
9. Amendment. No amendment, modification or waiver of this agreement or any
of its provisions shall be binding unless made in writing and signed by both
parties hereto, except in the case of a waiver or consent, which shall be signed
by the party against which enforcement is sought.
10. Governing Law. This agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be performed entirely within such state.
<PAGE>
Mothers Work, Inc.
Page 4
September 11, 1996
If the foregoing accurately reflects the agreement between us, please
confirm your approval and acceptance thereof by signing the enclosed copy of
this letter and returning it to the undersigned.
Very truly yours,
MARVIN TRAUB ASSOCIATES, INC.
By: /s/ Marvin S. Traub
---------------------------
Name: Marvin S. Traub
Title: Chairman
AGREED AND ACCEPTED AS OF
THE DATE WRITTEN ABOVE:
MOTHERS WORK, INC.
By: /s/ Dan W. Matthias
----------------------
Name: Dan W. Matthias
Title: Chairman
RESIDENTIAL
LEASE
The Philadelphia Bar Association and the Greater Philadelphia Association
of REALTORS(R) approve this lease as an acceptable residential lease form.
1. PARTIES
This lease is made on June 28
1996, between the tenant Mother's Work, Inc.
- ---------------------------------------------
- ---------------------------------------------
and the landlord or agent:
Landlord: Dan and Rebecca Mattias
-----------------------------------
Agent:
-----------------------------------
Address: 224 W. Washington, Square
Phila., PA 19106
-----------------------------------
Phone: 215 625 4580
-----------------------------------
2. PROPERTY
The landlord agrees to rent to the tenant the following property:
700 Locust Street
- ---------------------------------------------
Apt. 1A
- ---------------------------------------------
3. CONDITIONS
a. The monthly rent is $1,300
b. The term of this lease is for
one month, from
7-1 1996 (the
- ------------------ -
beginning date), to 8-1
--------
1996 (the ending date).
-
c. The total rent for the lease term is _ _ _ _.
d. Rent is due in advance on the following day of the month: _1st_
If this lease begins on a different day, the rent for
the first month is $_ _ _ _ _ _.
e. If rent is more than _ _ _ days late the Tenant must
pay a late fee of $_ _ _ _ _ _.
f. The security deposit is $ _ _ _0_ _ _.
g. This lease will renew unless the landlord or the tenant gives_ _ _days
written notice before the ending date of this lease. The landlord or the
tenant must give 30 days written notice to end a month to month lease.
h. The length of each renewal term of this lease is
one month
----------------
i. If the landlord makes any changes, including a rent increase, when renewing
this lease, the landlord must send the changes to the tenant at least
_ _ _ days before the end of the lease.
j. The tenant may use the property only for_ _ _ _ _ _ _ _ _ _.
k. The maximum number of people who can live in
the property is _ _ _ _ _ _ _ _ _.
1. Rules are attached: Yes |_| No |_|
m. Before this lease begins, the landlord agrees to make the following
repairs. replacements or improvements: tenant accepts
as-is
----------------------------------------------------------------
----------------------------------------------------------------
n. Tenant will pay rent to:
|X| landlord |_| agent for landlord
at this at this address:
224 W. Washington Square
-----------------------------------
Phila., PA 19106
-----------------------------------
o. List of utilities or other charges the landlord or the tenant will pay:
Landlord Tenant
pays pays
---- ----
Heat |_| |_|
Electricity |_| |X|
Gas |_| |_|
0il |_| |_|
Hot Water |_| |_|
Water& Sewer |_| |_|
Lawn Care |_| |_|
Snow Removal |_| |_|
Other:
______________ |_| |_|
Other:
______________ |_| |_|
4. COPIES OF SIGNED LEASE
The tenant does not have to pay rent until the landlord gives the tenant a
copy of the lease signed by the landlord and all tenants.
5. INABILITY TO GIVE POSSESSION
If, for any reason not caused by the tenant, the landlord is unable to give
the tenant possession of the property on the beginning date of the lease,
the tenant can choose to:
a. End this lease. The landlord must then return any money the tenant has
paid.
or
b. Delay the beginning of the lease for up to one month until the
landlord can give possession. The tenant will not owe rent until the
landlord gives possession. If the tenant does not get possession, the
landlord must return any money the tenant has paid.
The landlord will nor have to pay damages to the tenant if the reason for
not giving possession is beyond the landlord's control.
6. DESTRUCTION OR DAMAGE
a. The tenant will notify the landlord promptly if the property is
destroyed or damaged. If the destruction or damage makes the property
partly or completely unlivable, the tenant can choose to:
1) Move out as soon as possible. Within 24 hours after the tenant moves
out, the tenant must make a reasonable effort to notify the landlord.
This lease will end as of the date or moving out.
or
2) Continue to occupy that part of the property still livable, if the law
allows occupancy. Until the landlord repairs the damage, the rent is
reduced by the percentage of the property that is unlivable. If the
law does not allow occupancy, this lease will end.
b. If the lease ends, the landlord will return any rent the tenant
already paid for the remaining time of the lease plus the security
deposit. Section 15 (Security Deposit) of this lease explains the
return of the security deposit.
c. The landlord and the tenant are each responsible for their own
negligence and the negligence of their guests, family or any others
they allow on the property. The landlord is not required to make
repairs caused by the tenant's negligent conduct or by the willful
misconduct of the tenant or a person on the property with the tenant's
permission.
7. SALE OF PROPERTY
a. If the landlord sells or transfers the property, the landlord will
give written notice to the tenant stating:
1) The name of the new landlord;
2) The address and the telephone number of the new landlord and/or agent;
3) Where and to whom to pay rent; and
4) Whether the landlord has transferred the security deposit to the new
landlord. If the landlord does not transfer the security deposit, the
landlord must return it to the tenant. Section 15 (Security Deposit)
of this lease explains the return of the security deposit.
b. A landlord who provides the notice describing the new landlord as
required in Section 7.a. is not responsible under this lease for
events occurring after the sale of the property. If the landlord does
not provide the notice, the landlord is responsible for damages the
tenant suffers because of no notice or incorrect notice. The landlord
agrees to include in any sale or voluntary transfer of the property, a
written provision requiring the new landlord to accept all of the
obligations of the lease.
8. RULES
All rules are in writing and are attached to this lease. The rules must
agree with this lease. The tenant must follow the rules. The landlord cannot
change the rules unless the tenant agrees in writing.
9. LANDLORD'S ENTRY ONTO PROPERTY
a. The landlord can enter the property at reasonable times on 24 hours
notice to the tenant to:
1) Inspect the property.
2) Make repairs, alterations or improvements
3) Supply services.
4) Show the properly to prospective buyers, mortgage lenders, contractors
or insurers.
b. After the tenant or the landlord has given notice to end the lease,
the landlord may show the property to future tenants at reasonable
times. The landlord can only inspect the property with the tenant
present or after the landlord gives the tenant reasonable opportunity
to be present. The tenant can refuse entry to any future tenant unless
the future tenant enters with a representative of the landlord or has
written permission from the landlord.
c. In case of emergency, the landlord can enter the property at any time
without notice to the tenant. If the tenant is not present at the time
of entry, the landlord must notify the tenant within 24 hours of the
time, purpose and persons who entered the property.
10. TENANT PROMISES
The tenant and other people the tenant allows on the property promise to:
a. Obey all laws that apply to tenants.
b. Keep the property clean and safe.
c. Use all electrical, plumbing, sanitary, heating, ventilating, air
conditioning and other facilities and appliances in a safe and
reasonable way.
d. Promptly remove all trash, garbage and debris from the property as
required by the landlord and local law.
e. Not deliberately or negligently destroy, deface, damage, or remove any
part of the property or grounds.
f. Not unreasonably disturb the peace and quiet of the landlord, other
tenants or neighbors.
g. Promptly notify the landlord of conditions that need repair.
h. Make no major change to the property, such as painting, rebuilding,
removing or repairing without the landlord's consent. The tenant can
make necessary repairs if the landlord does not make the repairs after
reasonable notice from the tenant. Alterations become the property of
the landlord, unless the landlord gives written permission to remove
them.
i. Keep nothing in the property that is highly flammable, dangerous or
substantially increases the danger of fire or injury.
j. Allow the landlord to put up "sale", "rent" or "information" signs.
k. Move out of the property when the lease ends.
11. LANDLORD PROMISES
The landlord promises to:
a. Operate and keep the properly and common areas in the manner required
by law.
b. Keep the property in good repair and good working order. This includes
the roof, windows, doors, locks, floors, steps, porches, exterior and
interior walls, ceilings, foundations and all other structural parts
of the property. This also includes electrical, plumbing, sanitary,
drainage, heating, water heating and ventilating systems. If the
landlord provides air conditioning, elevator and security systems, they
are included.
c. Continue all services and utilities that the landlord has agreed to
provide under Section 3. (Conditions - o. Utilities) of this lease.
d. Exterminate to keep the property reasonably free from insects, rodents and
other pests. This does not apply to single family properties.
e. Pay all utility bills that are the landlord's responsibility under Section 3.
(Conditions - o. Utilities) in order to prevent interruption of service because
of nonpayment of bills
f. Provide emergency access to utilities serving the property.
g. If Section 3. (Conditions - o. Utilities) requires the landlord to provide
heat, the landlord will provide heat at a minimum temperature of 68 degrees from
October 1 to April 30. The landlord must also provide heat during the rest of
the year when the outside temperature falls below 60 degrees. This does not
apply when the failure to provide heat is beyond the landlord's control.
12. LANDLORD REMEDIES
a. Before the landlord can file a lawsuit in court to evict the tenant for
failure to pay rent or other charges required by this lease, the landlord must
give the tenant 10 days written notice to leave the property. This lease ends on
the eleventh day after the landlord gives notice, if the tenant does not pay.
The landlord may then file a lawsuit in court to evict the tenant.
b. Before the landlord can file a lawsuit to evict the tenant for failure to
comply with any provisions of the lease other than for nonpayment of rent or
charges, the landlord must give the tenant written notice. The notice must
describe the problem and give the tenant 5 days to correct the problem.
1) If the tenant does not correct the problem or if the problem happens again
during the lease term, the landlord can end the lease by giving the tenant a 10
day written notice.
2) This lease ends on the eleventh day after the landlord gives the second
notice. The landlord may then file a lawsuit in court to evict the tenant.
c. These are not the only remedies the landlord has if the tenant violates or
breaks this lease. Besides ending this lease and evicting the tenant, the
landlord can sue the tenant for unpaid rent, other damages, losses or injuries.
If the landlord gets a judgment for money against the tenant, the landlord can
use the court process to take your personal goods, furniture, motor vehicles and
money in banks.
In this Section the tenant gives up or waives a right to receive longer notice
to leave the property for reasons not related to payment of rent.
13. TENANT RIGHTS AND REMEDIES
a. Unless the landlord gets the proper court order, the landlord cannot:
1) Lock the tenant out of the property.
2) Stop or reduce utilities or other necessary services.
3) Remove the tenant's belongings from the property.
b. If the landlord does any of these things, the tenant can:
1) Go back into the property;
2) Restore the utilities or necessary services; and
3) End this lease and get back the security deposit. Section 15 (Security
Deposit) of this lease explains the return of the security deposit.
c. The tenant can also sue the landlord to get paid for losses and injuries and
to get back the tenant's belongings.
14. LANDLORD RETALIATION PROHIBITED
The landlord cannot increase the rent or decrease services or threaten to evict
the tenant because the tenant:
a. Complains to a government agency or the landlord of a violation of any
housing, health, safety or other code requirements at the property.
b. Joins or helps organize a tenant organization.
c. Uses any legal rights.
15. SECURITY DEPOSIT
a. The landlord cannot require the tenant to pay a security deposit that is more
than 2 months rent. After the first year, the landlord must reduce the security
deposit to no more than one month's rent. After 5 years, the landlord cannot
increase the security deposit even if the rent goes up.
b. If the security deposit is more than $100.00, the landlord must deposit it in
a bank escrow account. The landlord must notify the tenant in writing of the
name and address of the bank.
c. After the second year, the landlord must keep the security deposit in an
interest paying account. When the landlord uses an interest paying account, the
landlord can keep one percent per year of the deposit. The landlord must pay the
tenant all other interest once a year.
d. The tenant cannot use the security deposit to pay rent without the written
approval of the landlord.
e. The landlord can use the security deposit for unpaid rent and damages that
are the tenant's responsibility beyond normal wear and tear.
f. When the tenant moves out, the landlord will prepare a list of charges for
damages and any unpaid rent. The landlord can deduct these charges, if any, from
the security deposit and will return the balance with any interest due to the
tenant within 30 days. The tenant must give the landlord written notice of the
tenant's new address or make other arrangements with the landlord for the return
of the security deposit.
16. TAKING OF PRIVATE PROPERTY -- CONDEMNATION
The taking of private property for a public purpose is called condemnation. The
taking happens either by court order or by transferring ownership to the
condemning agency.
If all or part of the property is taken by this process, the landlord or the
tenant can end this lease after giving 30 days written notice. The tenant can
receive relocation benefits from the taking agency.
17. TENANT TRANSFER OF LEASE
The tenant cannot lease the property to any other person or let any other person
take over the tenant's rights and duties under this lease, unless the landlord
first gives written approval. The landlord will not unreasonably withhold
approval.
18. PRIORITY OF LEASE
If this property is sold at a mortgage foreclosure sale, the purchaser can end
this lease. In a foreclosure sale, all mortgages that now or in the future
affect the property have a priority over this lease. The tenant agrees to sign
all papers needed by the mortgage holder to give priority over this lease.
In this Section the tenant gives up or waives a right to have the lease continue
after some foreclosure sales.
19. DISPUTES
The landlord and tenant can agree to use an alternative dispute resolution
process, such as mediation or arbitration, to settle disagreements under this
lease.
20. ENTIRE AGREEMENT
This lease contains the complete agreement between the landlord and the tenant.
This lease creates legal duties on the landlord and tenant and anyone who
lawfully succeeds to their rights or takes their places. The landlord and tenant
can change this lease only by a written agreement signed by both of them.
21. TENANT GIVES UP (WAIVES) RIGHTS
By signing this lease, the tenant gives up or waives legal rights that are
explained in this section and in Sections 12 (Landlord Remedies) and 18
(Priority of Lease).
a. In Section 12 (Landlord Remedies), the tenant agrees that the landlord can
give the tenant 10 days notice to leave the property for reasons not related to
payment of rent. This means the tenant gives up the right to receive a longer
notice.
b. In Section 18 (Priority of Lease), the tenant agrees that a mortgage has a
priority over this lease. This means a person who becomes an owner of the
property through a mortgage foreclosure can end the tenant's lease.
22. LEAD-BASED PAINT
"EVERY LESSEE OF ANY INTEREST IN RESIDENTIAL PROPERTY ON WHICH A RESIDENTIAL
DWELLING WAS BUILT PRIOR TO 1978 IS NOTIFIED THAT SUCH PROPERTY MAY PRESENT
EXPOSURE TO LEAD FROM LEAD-BASED PAINT THAT MAY PLACE YOUNG CHILDREN AT RISK OF
DEVELOPING LEAD POISONING. LEAD POISONING IN YOUNG CHILDREN MAY PRODUCE
PERMANENT NEUROLOGICAL DAMAGE, INCLUDING LEARNING DISABILITIES, REDUCED
INTELLIGENCE QUOTIENT, BEHAVIOR PROBLEMS AND IMPAIRED MEMORY. LEAD POISONING
ALSO POSES A PARTICULAR RISK TO PREGNANT WOMEN, THE LESSOR OF ANY INTEREST IN
RESIDENTIAL REAL PROPERTY IS REQUIRED TO DISCLOSE TO THE LESSEE THE PRESENCE OR
ABSENCE OF ANY LEAD-BASED PAINT AND/OR LEAD-BASED PAINT HAZARDS. A COMPREHENSIVE
LEAD INSPECTION OR RISK ASSESSMENT FOR POSSIBLE PAINT AND/OR LEAD-BASED PAINT
HAZARDS IS RECOMMENDED PRIOR TO LEASE."
The paragraph above means within ten (10) days from the final signing of
this lease, the tenant can pay for a complete lead inspection and risk
assessment of the rental property by a certified lead inspector. If the
inspection reveals that lead-based paint or lead-based paint hazards are present
in the rental property, the tenant has:
a. Two (2) business days after receiving the report to end this lease
and
b. Get back all rents and security deposits paid to the landlord.
If the tenant does not end this lease within two (2) days after getting the
report, the tenant gives up the right to get an inspection or end this lease.
23. SPECIAL CONDITIONS (The Attorney General has not pre-approved any conditions
added by the landlord or tenant for compliance with the Pennsylvania Plain
Language Consumer Contract Act.)
/s/ Thomas Frank /s/ Rebecca Matthias
- ----------------------- -----------------------
TENANT LANDLORD or AGENT
- ----------------------- -----------------------
TENANT LANDLORD or AGENT
The Office of the Attorney General has approved this lease as complying with the
Pennsylvania Plain Language Consumer Contract Act. In the opinion of the Office
of Attorney General, a preapproved consumer contract meets the test of
readability under 73 P.S. Section 2205 of the Plain Language Consumer Contract
Act. Preapproval of a consumer contract by the Office of Attorney General only
means that simple, understandable and easily readable language is used. It is
not an approval of the contents or legality of the contract.
FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT
This First Amendment to Asset Purchase Agreement is dated as
of May 31, 1996 by and among EPISODE USA, INC., debtor and debtor in possession,
a Delaware corporation ("Seller"), MOTHERS WORK, INC., a Delaware corporation
("Mothers Work"), and T3 ACQUISITION, INC. a Delaware corporation and
wholly-owned subsidiary of Mothers Work ("T3").
BACKGROUND
Seller, Mothers Work and T3 are parties to an Asset Purchase
Agreement dated as of April 25, 1996 (the "Original Agreement") pursuant to
which, subject to Bankruptcy Court approval, Seller agreed to sell to T3, and T3
agreed to buy from Seller, certain assets of Seller related to the operation of
Seller's business of selling women's clothing under various trademarks,
including Episode, Excursion and Episode Studio, in retail stores operated under
the name "Episode". The parties now desire to amend the Original Agreement,
inter alia, to provide that Seller will sell the Assets to Mothers Work rather
than T3 and to include as part of the Inventory which will be sold by Seller to
Mothers Work certain inventory located in Seller's warehouse. Capitalized terms
used in this Amendment, and not otherwise defined, shall have the meanings
ascribed to them in the Original Agreement.
AGREEMENTS
The parties hereto, intending to be legally bound, hereby
agree as follows:
1. Mothers Work as Purchaser. The Original Agreement is hereby
amended so that Mothers Work, rather than and in substitution for T3, shall
purchase and accept delivery of the Assets from Seller pursuant to the terms of
the Original Agreement. In furtherance thereof, wherever the term "Purchaser" is
used in the Original Agreement other than in Section 6 thereof, such term shall
be deemed from and after the date hereof to reference Mothers Work and not T3.
Mothers Work expressly agrees to assume, be bound by and perform all of the
obligations of Purchaser under the Original Agreement.
2. Additional Inventory. The parties have agreed that certain
inventory which is currently located in Seller's warehouse or Seller's Orlando
Florida store (the "Additional
<PAGE>
Inventory") shall constitute Inventory and shall be sold by Seller to Mothers
Work and acquired by Mothers Work from Seller, which Inventory is more
particularly identified on Schedule 2 to this Amendment. Seller represents and
warrants that all Additional Inventory constitutes current (spring/summer)
season goods.
3. Coordinating Amendments. In conjunction with the
designation of Mothers Work as Purchaser, the following amendments to the
Original Agreement are hereby made:
(a) Schedule 8.5 is hereby amended in its entirety to read
as Schedule 3(a) hereto to effect the substitution of Mothers Work for T3 as
Licensee under said License Agreement.
(b) Section 8.7 relating to Mothers Work's Guarantees is
hereby deleted as not required in light of Mothers Work's direct assumption of
responsibility for performance and payment of all of the obligations to be
guaranteed by the Guarantees, and the Guarantees shall terminate and be null and
void effective with the execution of this Amendment.
4. Balance of Original Agreement. All other terms and
conditions of the Original Agreement not specifically amended by this Amendment
shall remain in full force and effect and are hereby ratified and confirmed by
the parties to the Original Agreement.
IN WITNESS WHEREOF, Seller, Mothers Work and T3 have caused
this First Amendment to Asset Purchase Agreement to be executed by their
respective authorized officers effective the day and year first above written.
EPISODE USA, INC.
BY: /s/ Lita Chow
----------------------------------
MOTHERS WORK, INC.
BY: /s/ Rebecca Matthias
-----------------------------------
T3 ACQUISITION, INC.
BY: /s/ Rebecca Matthias
------------------------------------
-2-
NOTE
Date: February 14, 1996
MOTHERS WORK, INC.
456 North Fifth Street
Philadelphia, Pennsylvania
to
PIDC LOCAL DEVELOPMENT CORPORATION
2600 Centre Square West
1500 Market Street
Philadelphia, Pennsylvania 19102
FOR VALUE RECEIVED, without defalcation, the undersigned, MOTHERS WORK,
INC., a Delaware Corporation, having its principal place of business in
Philadelphia County, Pennsylvania, (hereinafter called the "Maker"), does hereby
promise to pay to the order of PIDC LOCAL DEVELOPMENT CORPORATION (hereinafter
called "Holder"), at the office of said Holder in Philadelphia, Pennsylvania,
the sum of Five Hundred Ninety Thousand Dollars and No Cents ($590,000.00)
lawful money of the United States of America, together with interest on the
unpaid balance at the rates set forth below from the date hereof until fully
paid, said principal and interest to be payable as follows:
Interest only at the rate of four and one-quarter percent (4-1/4%) per
annum on that portion of the Two Hundred Ninety Thousand Dollars and No Cents
($290,000.00) amount of principal actually advanced by the Holder to the Maker
pursuant to Program "A" under the Commitment Letter issued by Holder to Maker
dated November 28, 1995 (hereinafter referred to as "Commitment Letter") and
interest only at the rate of two percent (2%) per annum on that portion of the
Three Hundred Thousand Dollars and No Cents ($300,000.00) amount of principal
actually advanced by the Holder to the Maker pursuant to Program "B" under the
aforesaid Commitment Letter. All of the aforesaid interest payments shall be
paid on the first day of the first full calendar month following the initial
disbursement hereunder and continuing until either March 1, 1996 or the first
day of the first month after all sums have been advanced under the Commitment
Letter, whichever shall first occur.
Thereafter, commencing on the first day of the second month after all
sums have been advanced under the Commitment Letter or the first day of April,
1996, whichever shall first occur, Maker shall pay to Holder the sum of
$290,000.00 due under Program "A" together with interest thereon at the rate of
4-1/4% per annum in sixty (60) consecutive equal monthly installments of Five
Thousand Three Hundred Seventy Three Dollars and Fifty Seven Cent. ($5,373.57)
each. The monthly installment shall be adjusted in the event the entire
$290,000.00 is not advanced under Program "A" of the Commitment Letter. Each
such installment shall first be applied on account of interest at the aforesaid
rate and the balance thereon shall be applied on account of principal. In the
event any such installment due under this paragraph is more than fifteen (15)
days late, Maker shall pay to Holder a late charge of three percent (3%) of such
installment.
In addition, commencing on the first day of the second month after all
sums have been advanced under the Commitment Letter or the first day of April,
1996, whichever shall first occur, Maker shall pay to Holder the sum of
$300,000.00 due under Program "B" together with interest thereon at the rate of
2% per annum in one hundred eighty (180) consecutive equal monthly installments
of One
<PAGE>
Thousand Nine Hundred Thirty Dollars and Fifty Three Cents ($1,930.53) each. The
monthly installment shall be adjusted in the event the entire $300,000.00 is not
advanced under Program "B" of the Commitment Letter. Each such installment shall
first be applied on account of interest at the aforesaid rate and the balance
thereon shall be applied on account of principal. In the event any such
installment due under this paragraph is more than fifteen (15) days late, Maker
shall pay to Holder a late charge of three percent (3%) of such installment.
Maker shall pay to the Philadelphia Industrial Development Corporation,
agent for Holder, for services rendered a monthly service charge of Seventy
Three Dollars and Four Cents ($73.04) commencing not later than April 1, 1996
and continuing for 60 months, and thereafter the monthly service charge shall be
reduced to Twenty Five Dollars and No Cents ($25.00) and shall continue
throughout the remaining term of this Note. In addition, in the event Maker
prepays all or part of the principal due hereunder, Maker shall pay to the
Philadelphia Industrial Development Corporation, agent for Holder, at the time
of such prepayment, an amount equal to 1/2 of 1% of the total amount prepaid.
On or before March 1, 2011, the balance of the principal together with
interest accrued and unpaid shall be paid by Maker to Holder.
All of the terms, covenants and conditions of the aforesaid Commitment
Letter are hereby incorporated by reference herein and any default by Maker
under said Commitment Letter shall be an event of default herein.
The said payments shall be applied on account of the interest,
principal or other sums payable hereunder in such priority as the Holder may
determine. In accordance with the provisions of the Commitment Letter, Maker
shall issue two separate checks each month to Holder.
The payment of this Note is secured by a Security Agreement of even
date herewith from Maker to Holder granting Holder a first priority
security interest in all of Maker's right title and interest in and to a certain
Electra Systems, Inc. High Ply Knife Cutter-Model #VT7000 together with all
increases, parts, fittings, accessories and attachments located at 456 North
Fifth Street, Philadelphia, Pennsylvania and the proceeds thereof.
Upon default hereunder, and after thirty (30) days written notice to
Maker and the failure of Maker to cure said default within the aforesaid time
period, the Maker does hereby empower any attorney of any Court of Record within
the United States or elsewhere to appear for Maker, with or without a
declaration filed, and confess judgment or judgments against said Maker in favor
of the Holder or any subsequent holder hereof, as of any term, for the entire
unpaid principal of this Note, and all arrearages of installment payments,
together with costs of suit, attorney's commission of five percent (5%) for
collection, and a release of all errors, on which judgment, execution or
executions may issue forthwith. The Maker hereby waives the right of inquisition
on all property levied upon to collect the indebtedness evidenced hereby and
does voluntarily condemn the same and authorizes the Prothonotary to enter such
condemnation, and waives and releases all laws, now in force or hereinafter
enacted, relating to exemption, appraisement or stay of execution.
If this Note is placed in an attorney's hands for collection, or
collected by a suit or through a bankruptcy, or probate, or any other court,
either before or after maturity, then in any of said events, there shall be paid
to the holder of this Note reasonable attorney's fees and all costs and other
expenses incurred by said holder in enforcing the terms of this Note.
<PAGE>
Failure to pay any part of principal or interest of this Note when due,
or failure to carry out any of the terms, covenants or conditions of said
Commitment Letter shall authorize the Holder to declare immediately due the
whole of the same and exercise any and all the rights and remedies provided by
the Uniform Commercial Code as well as other rights and remedies possessed by
the Holder.
The Maker and endorsers of this Note severally waive demand,
presentment, notice of dishonor, diligence in collection, notice of protest, and
agree to all extensions. and partial payments before or after maturity without
prejudice to the Holder.
IN WITNESS WHEREOF, Maker has executed this Note the day and year first
above written.
MOTHERS WORK, INC.
Attest: /s/ Elan M. Hitchner, III By: /s/ Thomas Frank CFO
------------------------- ------------------------
Assistant Secretary
INSTALLMENT SALE AGREEMENT
AGREEMENT made this 4th day of April 1996, by and between PIDC
FINANCING CORPORATION, a Pennsylvania Non-Profit Corporation, (hereinafter
called "Seller") and MOTHERS WORK, INC., a Delaware Corporation, (hereinafter
called "Buyer"):
WITNESSETH:
1. Sale and Premises Seller hereby agrees to sell to Buyer, who hereby
agrees to purchase certain property located at 456 N. 5th Street, Philadelphia,
Pennsylvania, and more fully described in Exhibit "A" attached hereto and hereby
made a part hereof, together with the buildings and other improvements erected
thereon, and together with all improvements, easements, tenements,
appurtenances, hereditaments, fixtures, furnishings, equipment, rights and
privileges contained in, belonging to or in any way pertaining or beneficial to
the said premises (all of which shall hereinafter be called the "Premises"),
whether or not attached or to be attached to the land, buildings or other
improvements and whether or not described or referred to in Exhibit "A", and
with all faults.
2. Nature and Cost of Project Buyer has agreed to purchase the
Premises described in Exhibit "A" for the sum of Four Million Four Hundred
Fifty Thousand Dollars and No Cents ($4,450,000.00) and to construct
Improvements at a cost of at least Two Million Eight Hundred Ninety Four
Thousand Dollars and No Cents ($2,894,000.00) and has incurred miscellaneous
fees and expenses in the amount of approximately Five Hundred Thirty Thousand
Dollars and No Cents ($530,000.00). Seller has obtained a commitment from
PENNSYLVANIA INDUSTRIAL DEVELOPMENT AUTHORITY ("PIDA"), pursuant to which PIDA
has agreed to advance to Seller the sum of Two Million Dollars and No Cents
($2,000,000.00) which loan will be secured by a Second Mortgage on the Premises.
Seller shall execute on the date hereof a Second Mortgage and Note in favor of
PIDA.
3. Loan Seller will execute and deliver to PIDA on the date hereof
Seller's Note in the principal sum of $2,000,000.00 secured by a Second Mortgage
("Mortgage") upon the Premises. The provisions of the
<PAGE>
Note and the Mortgage are hereby incorporated herein by reference. Buyer agrees
that its interest in the Premises and its rights hereunder will be subordinate
to the interests and rights of PIDA as Second Mortgagee, and acknowledges that
PIDA has agreed to advance the sum represented by the Note and Mortgage in
reliance upon the assignment to PIDA of Seller's rights under this Agreement as
collateral security for payment of the Note and Mortgage.
4. Purchase Price and Other Payments by Buyer Buyer will pay to
Seller, at the times and in the manner hereinafter set forth, as purchase
price for the Premises and interest on the unpaid portions thereof as follows:
a. Two Million Dollars and No Cents ($2,000,000.00) together with
interest on the unpaid portions thereof shall be repaid in one hundred eighty
(180) equal monthly installments including all accrued interest at the rate of
three percent (3%) per annum as charged under the Note from Seller to PIDA, and
each such installment shall be paid to Seller ten (10) days prior to the date
Seller is to pay PIDA and the amount of each installment shall be equal to the
amount required to be paid by Seller to PIDA, and each of which installments
shall first be applied to accrued interest at the aforesaid rate and the balance
on account of purchase price. Notwithstanding the foregoing, Buyer shall pay the
foregoing installments directly to PIDA, if requested by PIDA.
b. In addition to the amounts specified above, Buyer shall pay to
the Philadelphia Industrial Development Corporation, agent for Seller, for
services rendered a monthly service charge in the amount of One Hundred Thirty
Eight Dollars and Eleven Cents ($138.11) commencing upon the payment of purchase
price and interest under the Note from Seller to PIDA, and continuing throughout
the term of this Agreement. In the event the monthly payment of purchase price
under Paragraph 4(a) is reduced as the result of a prepayment of purchase price,
said monthly service charge shall be reduced to one percent (1%) of said new
monthly payment. In addition, in the event Buyer prepays all or part of the
purchase price under Paragraph 4(a) hereof, Buyer shall pay to
<PAGE>
the Philadelphia Industrial Development Corporation, agent for Seller, at the
time of such prepayment, an amount equal to 1/2 of 1% of the total amount
prepaid.
c. The installment payments of the purchase price shall be net to
Seller and all costs and expenses payable in connection with the ownership,
maintenance and occupancy of the Premises shall be paid or caused to be paid by
Buyer. It is the intention of the parties that notwithstanding any other
provision of this Agreement, Seller shall timely receive from Buyer funds equal
to those funds necessary for Seller to pay PIDA all of Seller's obligations
under the aforesaid Note and Mortgage, and Seller agrees that, promptly after
Seller receives any such amount, to pay such amount to PIDA on account of the
aforesaid Note and Mortgage to be applied in the manner prescribed by this
Agreement.
d. Buyer shall have the privilege of prepaying the purchase price at
the times and subject to the same conditions and premiums as is required for
prepayment of the respective Mortgages to which such prepayments will be applied
subject to the provisions of Paragraph 4b hereof.
5. Settlement Settlement for the Premises shall take place within
thirty (30) days after the date of final payment by Buyer of all amounts to be
paid by Buyer under the terms of this Agreement, provided that Buyer is not in
default hereunder. In the event Buyer refuses to take and record title to the
Premises within the aforesaid thirty (30) day period, Buyer shall pay to Seller,
or its agent, a service charge of One Hundred Dollars and No Cents ($100.00) per
month until such time as Buyer accepts and records title to the Premises. As a
condition of settlement, Buyer shall furnish to Seller reasonable security to
indemnify Seller against any claims which are not effectively covered by
liability insurance arising out of Seller's ownership of the Premises. At
settlement, Seller will convey to Buyer such title to the Premises as Seller
presently has, excepting however, any part of the Premises taken by eminent
domain during the term of this Agreement or any encumbrance or objection created
or permitted by Buyer or Seller with Buyer's consent.
<PAGE>
6. Possession Insofar as Seller is concerned, Buyer shall have
possession of the Premises upon execution of this Agreement. Buyer agrees that
Seller shall in no way and at no time be responsible for the condition of the
Premises.
7. Adjustments Buyer agrees to pay all charges and costs (excepting
only Seller's counsel fees) which are required and whenever required in
connection with the conveyance of the Premises from Seller to Buyer. Buyer
agrees that Seller shall not be responsible for any inaccuracies in any
settlement sheet in connection with the foregoing.
8. Zoning Seller makes no representations as to the zoning of the
Premises.
9. Municipal or State Improvements Buyer agrees to pay for any
Improvements to the Premises done or ordered to be done by any municipal or
state authorities and to comply at its own cost and expense with all notices
received from public authorities from and after the date hereof.
10. Taxes and Assessments Buyer agrees to pay or to cause to be paid,
as an addition to the purchase price, before they would become delinquent or as
required by the Mortgage, all real estate taxes, including City and School
Taxes, assessments, water rents, sewer rents and charges and other governmental
charges, general and special, which are assessed or imposed upon or chargeable
against the Premises at any time from after the date hereof and thereafter
throughout the term hereof. Buyer agrees that it will not use, as a basis for
contesting or adjudicating the taxes and assessments upon the Premises, the fact
that legal title is held by a body with governmental or quasi-governmental
status. The amount so paid by Buyer shall be paid directly to the City of
Philadelphia or to Seller, who shall turn said money over to the City of
Philadelphia as Seller shall elect in writing.
11. Property Insurance Buyer will keep the entire Premises insured
against loss or damage by fire, with extended coverage and against loss from
such other hazards as may be required by Seller or PIDA. Buyer shall take out
and maintain such boiler insurance and business interruption insurance as may be
required by Seller or PIDA.
<PAGE>
All such policies and any additional fire insurance carried by Buyer on
the Premises will contain the standard mortgagee clause and the originals
thereof will be deposited with PIDA with a copy to Seller.
12. Liability Insurance Buyer shall provide comprehensive general
liability insurance, covering at least the hazards of "Premises Operations",
"Elevators" (if applicable) and "Independent Contractors", in which Seller shall
be named as an insured with minimum limits of liability with respect to bodily
injury of Five Hundred Thousand Dollars and No Cents ($500,000.00) for each
person and One Million Dollars and No Cents ($1,000,000.00) for each occurrence
and One Hundred Thousand Dollars and No Cents ($100,000.00) with respect to
property damage for each occurrence.
In addition, Buyer shall provide whenever construction or major
alteration to the Premises is being performed, policies of contingent public
liability insurance protecting Seller and Buyer, in addition to providing
certificates of public liability insurance and workmen's compensation insurance,
insuring the contractor engaged by Buyer. The above mentioned contingent
liability policy shall be in the form of a comprehensive general liability
policy, if obtainable, and if not obtainable, shall be a public liability policy
covering at least the hazard of all phases of the construction being performed
by Buyer or its contractors, the hazard arising from the ownership and
possession of the Premises, and the hazard of any operations other than
construction being carried on by Buyer on any part of the Premises during the
construction period.
13. General Insurance Provisions
a. All insurance as to form, amount and insurance company shall be
satisfactory to Seller and PIDA.
b. All policies will require that no less than ten (10) days written
notice of cancellation or material change will be given to Seller and PIDA.
c. All cost of insurance shall be borne by Buyer.
d. Renewal policies marked "premium paid" by the agent or insuring
company shall be deposited at least twenty (20) days before the expiration of
the prior
<PAGE>
existing policies.
e. All insurance is required commencing from the date hereof and is
to be continued throughout the term of this Agreement, and Buyer will provide
evidence thereof satisfactory to Seller and PIDA.
f. All insurance shall name Seller and Buyer as insureds and shall
cover the entire Premises, including adjacent sidewalks, walkways and cartways.
14. Compliance with Laws Buyer agrees to comply with all laws,
ordinances and regulations affecting the Premises from and after the date
hereof.
15. Indemnification of Seller and Waiver of Claims Buyer covenants
and agrees to protect, exonerate, defend, indemnify and save Seller
harmless from and against any and all costs or liabilities which on or after the
date hereof may arise out of Seller's ownership of the Premises, and from and
against any and all loss, damage, cost, expense or liability based upon personal
injury, death, loss or damage to property suffered or incurred by any person,
firm or corporation (including the parties hereto) and arising out of or
attributable to the presence, condition, use, operation or maintenance of the
Premises, except when due to the willful misconduct of Seller. Seller shall give
prompt written notice to Buyer of any claim asserted against Seller (within a
reasonable time after such claim becomes known to Seller), provided such claim
appears likely to, if sustained, result in liability on Buyer hereunder.
However, Seller's failure to give such notice shall not relieve Buyer from its
obligation to protect, exonerate, defend, indemnify and save Seller harmless as
aforesaid, except to the extent that failure to give such notice results in
actual loss or damage to Buyer. Nevertheless, if such claim had been otherwise
made known to, or reasonably should have been known by Buyer, then Seller shall
be under no duty to advise Buyer of said claim. In any action or proceeding
brought against Seller by reason of any such claim, Buyer, upon notice from
Seller covenants and agrees to resist or defend such action or proceeding by
counsel satisfactory to Seller. However, Seller agrees to cooperate and assist
in the defense of any
<PAGE>
such action or proceeding, if reasonably requested to do so by Buyer, at Buyer's
expense. Buyer will not make any claim against Seller, nor shall Seller be
liable for any damage or injury to any property of Buyer or any other person
with respect to the Premises or to any part thereof due to any other person with
respect to the Premises or to any part thereof due to any cause whatsoever, nor
will Buyer resist Seller's claim to indemnification on the ground that the right
to such claim is not set forth herein with sufficient particularity.
16. Improvements, Maintenance, Repairs and Alterations Buyer agrees to
take good care of the Premises at its own expense from and after the date
hereof, to put and keep the Premises in good repair (structural or otherwise),
order and condition and pay all other costs and expenses arising out of the
occupancy of the Premises, including, but not limited, to all public utility
charges and utility connection charges.
Buyer will not undertake or permit any demolition or structural
alterations, or material additions or Improvements to the Premises which will
materially reduce the value of the Premises without the written consent of
Seller. All alterations and additions to the Premises undertaken by Buyer shall
become part of the Premises.
17. Consent Whenever the consent of the Seller is given pursuant to
the terms of this Agreement, such consent shall create no liability or
responsibility upon Seller, and whenever required, shall not be unreasonably
withheld.
Whenever this Agreement has been assigned by Seller, Buyer shall also
obtain the consent of the assignee in all cases where it is required to obtain
the consent of Seller. No Assignment of this Agreement shall be made by Seller
without the approval of Buyer excepting any assignment to PIDA, its successors
or assigns.
18. Damage and Condemnation Damage to or destruction of all or any
portion of the buildings or improvements on the Premises by fire or any other
cause or a taking of all or a portion of the Premises by condemnation shall not
terminate this Agreement or cause any abatement or reduction in the payments to
be made by Buyer or otherwise affect the respective obligations of Seller and
Buyer. The purchase price of
<PAGE>
the Premises will be reduced by the amount of any reduction in Seller's
indebtedness to PIDA under the Notes brought about by the application to such
indebtedness of insurance proceeds or amounts paid as a result of condemnation.
All proceeds from insurance or condemnation not required to be applied to the
mortgage indebtedness shall be paid to and be the property of Buyer.
19. Use and Lease Buyer covenants and agrees that the entire Premises
shall be used only for the purpose of industrial activities or activities
accessory thereto, and only for such purpose as is lawful under an Act known as
the Pennsylvania Industrial Development Authority Act, as amended. Buyer shall
not lease or sublease any part of the Premises without the prior written consent
of Seller and PIDA, and any lease or sublease without such consent shall be void
and of no effect.
20. Assignment of Leases Buyer hereby assigns to Seller, as security
for Buyer's obligations hereunder, any present or future leases entered into by
Buyer for any part of the Premises. Seller thereby in no way assumes or will
assume any of the obligations as lessor under any leases and such assignment
shall not release the Buyer from Buyer's obligations as lessor, under said
leases.
21. Quiet Enjoyment Seller covenants that Buyer, on performing the
covenants and conditions on its part to be performed, shall and may peaceably
and quietly have, hold and enjoy the Premises as purchaser in possession, free
from molestation, eviction or disturbance by Seller or by any other person or
persons lawfully claiming the same, by, through or under the Seller.
22. Assignment by Buyer Any assignment of this Agreement or sale or
lease of the Premises by Buyer without the prior written consent of the Seller
and PIDA shall be void and of no effect.
23. Inspection and Signs Buyer will at all times provide Seller and
any assignee with full and free access to the Premises and all plans,
drawings and records thereof for reasonable inspections. At any time when major
construction is taking place in connection with the Premises, or at any time
during the first six (6) months from the date hereof, Seller shall have the
right to place a sign or signs on the Premises, at locations which will not
interfere with the operation of
<PAGE>
any business at the Premises, and which sign or signs will advertise Seller's
participation in this transaction.
24. Event of Default by Buyer:
a. During the term of this Agreement, the following shall constitute
Events of Default by Buyer:
1. Failure by Buyer to make payments under this Agreement when
the same is due, or failure of Buyer to comply with any other obligations,
covenants or conditions imposed upon it by this Agreement at the time set forth
herein subject to the same applicable grace periods as set forth in the Note and
Mortgage.
2. If Buyer, shall make an assignment for the benefit of
creditors or is adjudicated bankrupt or shall file a bill of equity or otherwise
initiate proceedings for the appointment of a receiver of its assets, or shall
file a petition or otherwise initiate any proceedings in any court for a
composition with its creditors for relief in any manner from the payment of its
debts when due under any state or federal law; or any proceedings in bankruptcy
or for the appointment of a receiver shall be instituted by any creditor of
Buyer under any state or federal law and is not dismissed within sixty (60)
days.
3. An Event of Default under the Mortgage, Note, or any
collateral pledged to secure any of the above.
25. Seller's Remedies In the event of a default by Buyer:
a. Seller may perform for the account of Buyer any covenant or
obligation in the performance of which Buyer is in default, in which event,
Buyer shall immediately pay to Seller any amount paid by Seller together with
reasonable counsel fees as well as with interest at the rate of ten percent
(10%) per annum from the date of payment by Seller
b. Seller may declare all sums which Buyer is obligated to pay to
Seller pursuant to this Agreement, together with interest accrued thereon
immediately due and payable.
<PAGE>
c. Seller may terminate this Agreement and resell the Premises at a
private or public sale and Seller will apply the monies collected under such
resale, in such order of priority as Seller, in Seller's sole discretion may
elect and Buyer shall remain liable for any deficiency after the application of
the proceeds. If such proceeds are in excess of the amount required to satisfy
the total due from Buyer to Seller under the terms of this Agreement then such
excess shall be paid to Buyer.
d. Buyer hereby irrevocably authorizes and empowers any attorney of
any court of record of Pennsylvania or elsewhere to appear as attorney for Buyer
as well as for all persons claiming by, through or under Buyer, and to sign an
Agreement for entering in any competent court an amicable action in ejectment
against Buyer and all persons claiming by, through or under Buyer and therein
confess judgment for recovery by Seller of possession of the Premises for which
a true copy of this Agreement shall be his sufficient warrant, whereupon, if
Seller so desires a writ of possession may issue forthwith without any prior
writ or proceedings whatsoever, and provided that if for any reason after such
action shall have been commenced the same shall be determined and the possession
of the Premises remain in or be restored by Buyer, Seller shall have the right
on account of any subsequent Event of Default to bring one or more further
amicable action or actions in ejectment as hereinbefore set forth to recover
possession of the Premises and confess judgment for the recovery of possession
of the Premises as hereinabove provided.
e. After ten (10) days written notice, Seller may take possession of
the Premises by the summary procedure set forth in sub-section (d) above or
otherwise without terminating this Agreement and Seller may collect rentals and
enforce all other remedies of Buyer under any existing leases for any part of
the Premises, but without being deemed to have affirmed such leases, and Seller
may enter into new leases on such terms as Seller may deem fit for any portion
or portions of the Premises, and such leases shall not be terminated or affected
if Buyer cures the
<PAGE>
Event of Default. Rentals under said leases may be applied by Seller to any
repair or maintenance of the Premises as Seller may reasonably deem useful, and
the remaining balance shall be applied to Buyer's obligations hereunder in order
of priority to be determined by Seller. Any balance of rentals remaining
thereafter shall be promptly paid over to Buyer by Seller.
f. Buyer hereby irrevocably authorizes and empowers any attorney of
any court of record of Pennsylvania or elsewhere to appear for and confess
judgment against Buyer for all amounts for which Buyer may be or become liable
to Seller or its assignee under this Agreement, as evidenced by an affidavit
signed by an officer of Seller or of assignee setting forth the amounts then due
plus five percent (5%) thereof, as an attorney's fee, with costs of suit and
release of errors. Such authority shall not be exhausted by any one exercise
thereof but judgment may be confessed as aforesaid from time to time as often as
there is a default hereunder.
g. In any amicable action of ejectment brought hereon or any suit or
amicable action brought for the purchase price or other sums due hereunder,
Seller shall first cause to be filed in such suit, action or actions, an
affidavit made by it or someone acting for it, setting forth the facts necessary
to authorize the entry of judgment, of which facts such affidavit shall be prima
facie evidence and if a true copy of this Agreement (and of the truth of said
copy such affidavit shall be prima facie evidence) shall be filed in such suit,
action or actions, it shall not be necessary to file the original as a warrant
of attorney, any rule of court, custom or practice to the contrary
notwithstanding.
h. The Buyer hereby waives and releases all errors, defects and
imperfections whatsoever of a procedural nature in the entering of any judgment
or any process or proceedings arising out of this Agreement. Buyer also waives
the benefit of any laws which now or hereafter might authorize the stay of any
execution to be issued or any judgment recovered hereunder or the exemption of
any property from levy or sale thereunder.
<PAGE>
i. All interest of Buyer in the premiums or dividends upon any
insurance provided for herein, as well as any rebates on taxes or assessments
imposed on the Premises are hereby assigned to Seller.
26. Cumulative Rights No right or remedy herein conferred upon or
reserved to Seller is intended to be exclusive of any other right or remedy
herein or by law provided, but each shall be cumulative and in addition to every
other right or remedy herein given or now or hereafter existing at law or in
equity or by statute, and may be pursued singly, successively or together at the
sole discretion of Seller and may be exercised as often as the occasion therefor
shall occur.
27. Effect of Waiver or Forbearance No waiver by Seller of any breach
by Buyer of any of its obligations, agreements or covenants hereunder shall be a
waiver of any subsequent breach or of any obligation, agreement or covenant, nor
shall any forbearance by Seller to seek a remedy for any breach by Buyer be a
waiver by Seller of its rights and remedies with respect to that or any other
breach.
28. Default by Seller and Buyer's Remedies Notwithstanding any
provision or obligation to the contrary hereinbefore or hereinafter set forth,
the liability of Seller, except as to PIDA, shall be limited to its interest in
the Premises, the improvements thereon, the rents, issues and profits therefrom,
and the lien of any judgment shall be restricted thereto.
29. Notices All notices provided for in this Agreement shall be in
writing. Notices to Seller shall be sent by registered or certified mail.
Subject to change by notice from the party to be charged with such notice,
notices to Seller shall be addressed as follows:
PIDC FINANCING CORPORATION
c/o Philadelphia Industrial Development Corporation
2600 Centre Square West
1500 Market Street
Philadelphia, Pennsylvania 19102
and notices to Buyer shall be addressed as follows
MOTHERS WORK, INC.
456 N. 5th Street
Philadelphia, Pennsylvania
<PAGE>
30. Survival of Covenants, Conditions and Representations
Notwithstanding any presumption to the contrary, all covenants, conditions and
representations of Buyer contained in this Agreement which, by nature, impliedly
or expressly involve performance in any particular manner after the delivery of
the Seller's deed or which cannot be ascertained to have been performed until
after the said delivery shall survive said delivery.
31. Anti-Pollution Laws Buyer covenants and agrees that while the PIDA
Mortgage is outstanding and unpaid, Buyer will comply with all governmental
anti-pollution regulations and standards applicable to the Premises. Buyer
further covenants and agrees that it will provide in all leases of the Premises
or any part thereof that the lessee covenants and agrees to assume Buyer's
obligations under all covenants contained in this paragraph.
32. Nondiscrimination During the term of this contract, Seller/Buyer
agree as follows:
a. Seller/Buyer shall not discriminate against any employee,
applicant for employment, independent Seller/Buyer or any other person because
of race, color, religious creed, ancestry, national origin, age or sex.
Seller/Buyer shall take affirmative action to insure that applicants are
employed, and that employees or agents are treated during employment, without
regard to their race, color, religious creed, handicap, ancestry, national
origin, age or sex. Such affirmative action shall include, but is not limited
to: employment, upgrading, demotion or transfer, recruitment or recruitment
advertising; layoff or termination; rates of pay or other forms of compensation
and selection for training. Seller/Buyer shall post in conspicuous places,
available to employees, agents, applicants for employment and other persons, a
notice to be provided by the contracting agency setting forth the provisions of
this nondiscrimination clause.
b. Seller/Buyer shall in advertisments or requests for employment
placed by it or on its behalf, state that all qualified applicants will receive
consideration for employment without
<PAGE>
regard to race, color, religious creed, handicap, ancestry, national origin, age
or sex.
c. Seller/Buyer shall send each labor union or workers
representative with which it has a collective bargaining agreement or other
contract or understanding, a notice advising said labor union or workers
representative of its commitment to this nondiscrimination clause. Similar
notice shall be sent to every other source of recruitment regularly utilized by
Seller/Buyer.
d. It shall be no defense to a finding of noncompliance with this
nondiscrimination clause that Seller/Buyer had delegated some of its employment
practices to any union, training program or other source of recruitment which
prevents it from meeting its obligations. However, if the evidence indicates
that the Seller/Buyer was not on notice of the third-party discrimination or
made a good faith effort to correct it, such factor shall be considered in
mitigation in determining appropriate sanctions.
e. Where the practices of a union or of any training program or
other source of recruitment will result in the exclusion of minority group
persons, so that Seller/Buyer will be unable to meet its obligations under this
nondiscrimination clause, Seller/Buyer shall then employ and fill vacancies
through other nondiscriminatory employment procedures.
f. Seller/Buyer shall comply with all state and federal laws
prohibiting discrimination in hiring or employment opportunities. In the event
of Seller/Buyer's noncompliance with the nondiscrimination clause of this
contract or with any such laws, this contract may be terminated or suspended, in
whole or in part, and Seller/Buyer may be declared temporarily ineligible for
further Commonwealth contracts and other sanctions may be imposed and remedies
invoked.
g. Seller/Buyer shall furnish all necessary employment documents and
records to, and permit access to its books, records and accounts by the
contracting agency for purposes of investigation to ascertain compliance with
the provisions of this clause. If Seller/Buyer does not possess documents or
records
<PAGE>
reflecting the necessary information requested, it shall furnish such
information on reporting forms supplied by the contracting agency.
h. Seller/Buyer shall actively recruit minority subcontractors and
women subcontractors or subcontractors with substantial minority representation
among their employees.
i. Seller/Buyer shall include the provisions of this
nondiscrimination clause in every subcontract, so that such provisions will be
binding upon each subcontractor.
j. Seller/Buyer obligations under this clause are limited to the
Seller/Buyer's facilities within Pennsylvania or, where the contract is for
purchase of goods manufactured outside of Pennsylvania, the facilities at which
such goods are actually produced.
33. Seller/Buyer Integrity
a. Definitions.
1. Confidential Information means information that is not public
knowledge, or available to the public on request, disclosure of which would give
an unfair, unethical, or illegal advantage to another desiring to contract with
the Commonwealth.
2. Consent means written permission signed by a duly authorized
officer or employee of the Commonwealth, provided that where the material facts
have been disclosed, in writing, by prequalification, bid, proposal, or
contractual terms, the Commonwealth shall be deemed to have consented by virtue
of execution of this Agreement.
3. Seller/Buyer means the individual or entity that has entered
into this Agreement with the Commonwealth, including directors, officers,
partners, managers, key employees and owners of more than a 5% interest.
4. Financial Interest means:
(1) ownership of more than a 5% interest in any business; or
<PAGE>
(2) holding a position as an officer, director, trustee,
partner, employee or the like, or holding any position of management.
5. Gratuity means any payment of more than nominal monetary value
in the form of cash, travel, entertainment, gifts, meals, lodging, loans,
subscriptions, advances, deposits of money, services, employment or contracts of
any kind.
a. The Seller/Buyer shall maintain the highest standards of
integrity in the performance of this Agreement and shall take no action in
violation of state or federal laws, regulations, or other requirements that
govern contracting with the Commonwealth.
b. The Seller/Buyer shall not disclose to others any
confidential information gained by virtue of this Agreement.
c. The Seller/Buyer shall not, in connection with this or any
other agreement with the Commonwealth, directly or indirectly offer, confer, or
agree to confer any pecuniary benefit on anyone as consideration for the
decision, opinion, recommendation, vote, other exercise of discretion, or
violation of a known legal duty by any officer or employee of the Commonwealth.
d. The Seller/Buyer shall not, in connection with this or any
other agreement with the Commonwealth, directly or indirectly offer, give, or
agree or promise to give to anyone any gratuity for the benefit of or at the
direction or request of any officer or employee of the Commonwealth.
e. Except with the consent of the Commonwealth, neither the
Seller/Buyer nor anyone in privity with him shall accept or agree to accept
from, or give or agree to give to, any person, any gratuity from any person in
connection with the performance of work under this Agreement except as provided
therein.
f. Except with the consent of the Commonwealth, the
Seller/Buyer shall not have a financial interest in any other Seller/Buyer,
subcontractor, or supplier providing services, labor, or material on this
project.
g. The Seller/Buyer, upon being informed that any violation of
these provisions has occurred or may occur, shall immediately notify the
Commonwealth in writing.
<PAGE>
h. The Seller/Buyer, by execution of this Agreement and by the
submission of any bills or invoices for payment pursuant thereto, certifies and
represents that he has not violated any of these provisions.
i. The Seller/Buyer, upon the inquiry or request of the
Inspector General of the Commonwealth or any of that official's agents or
representatives, shall provide, or if appropriate, make promptly available for
inspection or copying, any information of any type or form deemed relevant by
the Inspector General to the Seller/Buyer's integrity or responsibility, as
those terms are defined by the Commonwealth's statutes, regulations, or
management directives. Such information may include, but shall not be limited
to, the Seller/Buyer's business or financial records, documents or files of any
type or form which refer to or concern this agreement. Such information shall be
retained by the Seller/Buyer for a period of three years beyond the termination
of the contract unless provided by law.
j. For violation of any of the above provisions, the
Commonwealth may terminate this and any other agreement with the Seller/Buyer,
claim liquidated damages in an amount equal to the value of anything received in
breach of these provisions, claim damages for all expenses incurred in obtaining
another Seller/Buyer to complete performance hereunder, and debar and suspend
the Seller/Buyer from doing business with the Commonwealth. These rights and
remedies are cumulative, and the use or nonuse of any one shall not preclude the
use of all or any other. These rights and remedies are in addition to those the
Commonwealth may have under law, statute, regulation or otherwise.
34. Seller/Buyer Responsibility
a. Seller/Buyer certifies that it is not currently under suspension
or debarment by the Commonwealth, any other state, or the federal government.
b. If Seller/Buyer enters into any subcontracts under this contract
with subcontractors who are currently suspended or debarred by the Commonwealth
or federal government or who become suspended or debarred by the Commonwealth or
federal government during the term of
<PAGE>
this contract or any extensions or renewals thereof, the Commonwealth shall have
the right to require the Seller/Buyer to terminate such subcontracts.
c. The Seller/Buyer agrees that it shall be responsible for
reimbursing the Commonwealth for all necessary and reasonable costs and expenses
incurred by the Office of the Inspector General relating to an investigation of
the Seller/Buyer's compliance with the terms of this or any other agreement
between the Seller/Buyer and the Commonwealth which results in the suspension or
debarment of the Seller/Buyer.
35. Americans with Disabilities Act
During the term of this contract, the Seller/Buyer agree as
follows:
a. Pursuant to federal regulations promulgated under the authority
of The Americans With Disabilities Act, 28 C.F.R. Section 35.101 et seq., the
Seller/Buyer understands and agrees that no individual with a disability shall,
on the basis of the disability, be excluded from participation in this contract
or from activities provided for under this contract. As a condition of accepting
and executing this contract, the Seller/Buyer agrees to comply with the "General
Prohibitions Against Discrimination", 28 C.F.R. Section 35.130, and all other
regulations promulgated under Title II of The Americans With Disabilities Act
which are applicable to the benefits, services, programs and activities provided
by the Commonwealth of Pennsylvania through contracts with outside contractors.
b. The Seller/Buyer shall be responsible for and agrees to indemnify
and hold harmless the Commonwealth of Pennsylvania from all losses, damages,
expenses, claims, demands, suits and actions brought by any party against the
Commonwealth of Pennsylvania as a result of the Seller/Buyer's failure to comply
with the provisions of Paragraph a above.
36. Descriptive Headings The descriptive headings of this Agreement
are inserted for convenience in reference only and do not constitute a part
of this Agreement.
<PAGE>
37. Recording A Memorandum of this Agreement shall be recorded in the
Office of the Department of Records in and for Philadelphia County,
Pennsylvania.
IN WITNESS HEREOF, Seller and Buyer, on behalf of themselves, their
executors, administrators, heirs, successors and assigns, have executed this
Agreement the day and year first above written.
PIDC FINANCING CORPORATION
Attest: /s/ Joseph A. Mee
-------------------
Assistant Secretary
By: /s/ Joseph J. Aylmer
-----------------------------
Senior Vice President
MOTHERS WORK, INC.
Attest: /s/ Elan M. Hitchner, III
-------------------------
Assistant Secretary
By: /s/ Thomas Frank
----------------------------
Vice President Finance
OPEN-END MORTGAGE
(This Mortgage secures future advances)
THIS INDENTURE made this 4th day of April, 1996, effective as of the 4th
day of April, 1996, between PIDC FINANCING CORPORATION, a nonprofit corporation
organized and existing under and by virtue of the laws of the Commonwealth of
Pennsylvania (the "Mortgagor"), and THE PENNSYLVANIA INDUSTRIAL DEVELOPMENT
AUTHORITY, a public body corporate and politic, organized and existing under and
by virtue of the laws of the Commonwealth of Pennsylvania, having its principal
place of business in Harrisburg, Pennsylvania ("PIDA").
WHEREAS, PIDA, under a Loan Agreement bearing even date herewith (the "Loan
Agreement"), incorporated herein by reference thereto and made a part hereof,
has agreed to lend the Mortgagor the principal sum of Two Million Dollars
($2,000,000) (the "Loan") upon terms and subject to conditions as set forth
therein;
WHEREAS, the Mortgagor under a Note bearing even date herewith (the
"Note"), incorporated herein by reference thereto and made a part hereof, is
obligated to pay unto PIDA on or before the first day of May, 2011, the
principal sum of Two Million Dollars ($2,000,000), together with interest
thereon, lawful money of the United States of America in the manner provided in
the Note and in the Loan Agreement, and to perform all of the provisions of the
Note and this Mortgage, as therein and herein set forth; and
WHEREAS, PlDA's agreement to make the Loan has been made subject to and in
reliance upon execution and delivery of the Loan Documents;
NOW, THEREFORE, THIS INDENTURE WITNESSETH, that the Mortgagor in
consideration of the principal indebtedness, and to secure the payment thereof
and all other sums due or to become due under the Loan Documents, including
without limitation the Note, the Loan Agreement, this Mortgage and the
Assumption Agreement (the "Indebtedness") and the performance of all other
provisions of the Loan Documents, intending to be legally bound by these
presents, does hereby grant, bargain, sell, convey, release, alien, confirm and
assign unto PIDA, its successors and assigns, all that certain parcel of land
fully and accurately described on Exhibit A, attached hereto and made a part
hereof.
TOGETHER with all and singular the buildings and improvements erected or to
be erected thereon, streets, alleys, passages, ways, waters, watercourses,
rights, liberties, privileges, hereditaments and appurtenances whatsoever,
thereunto belonging or in anywise appertaining, and the reversions and
remainders and rents, issues and profits thereof, including all income arising
therefrom and all insurance proceeds and proceeds of condemnation awards
(collectively, the "Premises").
<PAGE>
TO HAVE AND TO HOLD the Premises hereby granted or mentioned and intended
so to be unto PIDA, its successors and assigns, to and for the only proper use
and behoof of PIDA, its successors and assigns forever.
PROVIDED, HOWEVER, that if there shall be and is paid PIDA the Indebtedness
together with interest thereon and any other sums properly payable under the
terms of the Loan Documents, on the date and in the manner provided in the Loan
Documents, and all the other covenants and promises herein and therein contained
are kept by the particular parties subject thereto, then and from thenceforth
this Mortgage and the estate hereby created, granted, transferred and assigned
shall be void, but otherwise shall remain in full force and effect.
AND THE MORTGAGOR HEREBY FURTHER REPRESENTS, COVENANTS AND AGREES AS
FOLLOWS:
1. The Mortgagor has good, valid and marketable title to the Premises. The
Mortgagor has the right, full power and lawful authority to grant, bargain,
sell, convey, assign, transfer, mortgage, pledge, set over and confirm the same
to PIDA in the manner and form herein done. The Premises are free and clear of
all liens and encumbrances except those of record which have been previously
disclosed in writing to PIDA. This Mortgage is and shall be subordinate in lien
and in payment only to that certain mortgage in the principal sum of
$4,094,684.93 encumbering the Premises given to MERIDIAN BANK, dated September
28, 1995 which principal sum shall be reduced to the sum of $4,000,000 on the
same date hereof (the "Bank Mortgage"). The Mortgagor will warrant and defend
the rights and title of PIDA to all of the Premises against all claims, except
the Bank Mortgage.
2. The proceeds of the Note secured hereby shall be used solely for the
purpose of paying a part of the cost of establishing an industrial development
project (the "Project") to be purchased by MOTHERS WORK, INC. (the "Industrial
Occupant") pursuant to the Premises Agreement. The Mortgagor represents and
warrants that no default has occurred under the Premises Agreement on the part
of Mortgagor or on the part of Industrial Occupant of which Mortgagor has
knowledge.
3. The Mortgagor will perform promptly all the terms, covenants, and
conditions required under the Premises Agreement, and the Mortgagor will do or
cause to be done all things necessary to preserve unimpaired its rights
thereunder and will immediately notify PIDA in writing of any default under the
Agreement.
4. The Mortgagor will immediately do or cause to be done from time to time
all things necessary to maintain and preserve its corporate existence, rights,
franchises and privileges and will duly observe, conform, obey and comply with
or will cause due observation, conformance. obedience and compliance with all
requirements of any court or governmental authority relative to the Premises.
The Mortgagor shall duly and punctually pay, or cause to be paid, the
Indebtedness, and at the time and times and in the manner as provided in and by
the Loan Documents, and shall perform all other agreements and provisions hereof
and thereof, and pay when due all other obligations and debts hereby secured.
The Mortgagor shall duly and punctually pay, or cause to be paid, all
amounts secured by the Bank Mortgage and shall duly and punctually perform or
cause to be performed in accordance with the terms of the Bank Mortgage, the
Note secured thereby and any other obligations undertaken in connection
therewith.
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The Mortgagor will duly and promptly pay and discharge, as the same shall
become due and payable and before they become delinquent, all taxes, water and
sewer rents, assessments and other governmental charges, levied or assessed or
imposed upon or against the property mortgaged hereby or upon the rents, issues,
income and profits therefrom so as to prevent the same from becoming or being an
enforceable lien or claim against the property mortgaged hereby or the interest
of the Mortgagor having a priority over the lien of this Mortgage or the
obligations of Mortgagor to PIDA under the Note or the Loan Agreement. Upon
request, the Mortgagor will furnish, or will cause to be furnished to PIDA, not
less than fifteen (15) days prior to the date on which payment of the same would
become delinquent, receipts or other evidence satisfactory to PIDA of the
payment of all such taxes, rates, assessments and other governmental charges.
5. The Mortgagor shall keep all buildings and improvements now or hereafter
erected upon the Premises insured for the benefit of PIDA under an all-risk
hazard insurance policy covering physical loss or damage including fire and
extended coverage, collapse, liquid damage, flood (to the extent required
below), earthquake and comprehensive boiler/machinery, written on a replacement
cost basis in an amount not less than the full insurable value of the property
mortgaged hereby (excluding (on fire and extended coverage only) foundations and
other parts below the surface of the lowest floor), as determined, upon request
of PIDA, not more than once annually by an appraiser or rating bureau
satisfactory to PIDA. In addition, the aforesaid policy shall have attached
thereto, or the Mortgagor shall provide or cause to be provided by separate
policy, business interruption insurance, insuring all fixed charges of the
Industrial Occupant (or any other person or entity that may from time to time be
the Mortgagor's lessee or purchaser of the mortgaged premises), including the
amount necessary to repay this Mortgage, for a period of not less than one year,
such insurance to be acceptable to PIDA. During the period of construction of
the Project on the Premises, the Mortgagor shall maintain builder's risk
insurance in an amount satisfactory to PIDA and shall require its contractor to
maintain worker's compensation insurance. PIDA shall receive copies of all of
said policies. PIDA shall receive copies of all of said policies upon the
execution of this Mortgage and upon each renewal, expansion or modification
thereof, together with a current Acord 27 Evidence of Property Insurance
Certificate. Any modification of such insurance policy must be approved by PIDA
in writing prior to the effective date of such modification. PIDA may settle all
claims under all such policies except workers compensation and may demand,
receive and receipt for all moneys becoming payable thereunder. The proceeds
under any policy shall be paid by the insurer to Mortgagor and PIDA as their
respective interests may appear, and PIDA in its discretion may apply the amount
so collected toward the payment of the Indebtedness or toward the alteration,
reconstruction, repair or restoration of the damaged portion of the Premises or
any portion thereof. The Mortgagor shall prepay the premiums for all such
insurance for at least one (1) month in advance and thereafter deliver to PIDA
evidence of payment of all premiums due on such insurance together with
certificates of such insurance at least thirty (30) days before payment is due.
The Mortgagor shall also secure such certificates from public officials as are
available for the purpose or otherwise demonstrate to the satisfaction of PIDA
that the Premises is not located within an area identified by Federal Emergency
Management Agency as having "special flood hazards," as such term is used in the
National Flood Insurance Act of 1968, as amended and supplemented by The Flood
Disaster Protection Act of 1973, and in regulations, interpretations and rulings
thereunder or in a zoned flood
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plain or flood hazard area as determined by local findings, determinations,
ordinances, regulations or rulings, and if located therein, the Mortgagor shall
secure the amount of flood insurance required by PIDA in its discretion and
demonstrate payment of all premiums due therefor. All insurance policies
described in this Section 5 shall be written by insurance companies licensed to
do business within the Commonwealth of Pennsylvania and satisfactory to PIDA.
While this Mortgage is in effect, the Mortgagor shall also maintain worker's
compensation insurance (containing a stop gap endorsement) and public liability
on the Premises in amounts satisfactory to PIDA and shall deliver copies of such
policies to PIDA. Insurance carried in accordance with this Section 5 shall be
endorsed to provide
(a) With respect to all liability insurance policies, PIDA is included
as additional insured, with the understanding that any obligation imposed
upon Mortgagor (including without limitation, the liability to pay
premiums) shall be the sole obligation of Mortgagor and not that of PIDA.
(b) Property and business interruption insurance policies shall
include a standard lender's loss payable endorsement in favor of PIDA. All
coverage shall be written with a valid agreed amount endorsement and in a
sufficient amount to prevent any coinsurance penalty and PIDA as additional
named insured with the understanding that any obligation imposed upon
Mortgagor (including with limitation, the liability to pay premiums) shall
be the sole obligation of Mortgagor and not that of PIDA. In the event of
Default, PIDA and other lenders to Mortgagor shall be named as sole loss
payees as their interests shall appear.
(c) With respect to all insurance maintained pursuant to this Section
5, the interests of PIDA are not invalidated by any action or inaction of
Mortgagor or any other natural or artificial person and PIDA is insured
regardless of any breach or violation by Mortgagor or any other person of
any warranties, declarations or conditions contained in such policies.
(d) With respect to all insurance maintained pursuant to this Section
5, such policies shall be endorsed to provide that: (i) the insurers
thereunder waive all rights of subrogation against PIDA, any right of
set-off and counterclaim and any other right to deduction whether by
attachment or otherwise, (ii) such insurance is primary without right of
contribution of any other insurance carried by or on behalf of PIDA, (iii)
if such insurance is cancelled by the insurer for any reason whatsoever
(including without limitation, nonpayment or premium) or any substantial
change is made in the coverage that affects the interests of PIDA, such
cancellation or substantial change is not to be effective as to PIDA until
thirty (30) days after receipt by PIDA of notice sent to PIDA as specified
in the Loan Agreement.
(e) On each anniversary of the Closing Date, Mortgagor shall furnish
PIDA with approved certification of all required insurance. Such
certification shall be executed by each insurer or by an authorized
representative of each insurer where it is not practical for such insurer
to execute the certificate itself. Such certification shall identify
underwriters, the type of insurance, the insurance limits and the policy
terms, and shall specifically list the special provisions enumerated for
such insurance required by this Section 5. Upon request, Mortgagor shall
furnish PIDA with copies of all insurance policies, binders and cover notes
or other evidence of such insurance.
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(f) Concurrently with the furnishing of all certifications referred to
in paragraph (e) of this Section 5, Mortgagor shall furnish PIDA with an
opinion of each insurance broker stating that all premiums then due have
been paid and that, in the opinion of such broker, the insurance is then in
accordance with the provisions of this Section 5. Furthermore, Mortgagor
shall cause each insurer or such broker to advise PIDA promptly in writing
of any default in the payment of any premiums or any other act or omission
on the part of Mortgagor or any contractor of Mortgagor which might
invalidate or render unenforceable, in whole or part, any insurance
provided hereunder. PIDA, at its sole option, may obtain such insurance if
not provided by Mortgagor, and, in such event, Mortgagor shall reimburse
PIDA upon demand for the cost thereof, together with interest from the date
of payment of the premiums by PIDA to the date on which Borrower repays
such premiums, at the rate provided in Section 14 hereof.
(g) Upon the occurrence and continuance of an Event of Default, all
proceeds payable from any property and casualty above which are payable to
Mortgagor shall be paid to PIDA and other lenders to Mortgagor, as their
interests shall appear without the consent of Mortgagor.
6. The Mortgagor shall keep the Premises and improvements thereon in good
condition and repair and shall not remove, demolish or materially alter in a
manner so as to reduce the value thereof the buildings or improvements on the
Premises nor commit or suffer waste with respect thereto. The Mortgagor shall
maintain the Premises in compliance with all applicable governmental
requirements. In the event of damage to the Premises caused by fire or other
casualty or condemnation, the Mortgagor shall restore the Premises to the
condition it was in prior to the occurrence of such damage, and shall further
comply with any additional requirements imposed by law, required by insurance,
or otherwise required, applicable to the Premises subsequent to such
restoration. The Mortgagor shall permit PlDA's agents at any reasonable time,
and from time to time, to enter upon the Premises and the buildings and
improvements constructed thereon for the purpose of inspecting and appraising
the same. While the Mortgage is outstanding and unpaid, neither the Mortgagor
nor its successors shall take or permit any action with respect to the property
mortgaged hereby which will in any manner impair PlDA's security under this
Mortgage, including but not limited to the creation of any additional debt
secured by the Premises, nor shall they, without the prior written approval of
PIDA, convey, transfer, encumber, hypothecate, lease or otherwise dispose of the
Premises.
7. The Mortgagor will, and hereby does, assign to PIDA as additional
security for the repayment of the Indebtedness, all its right, title and
interest in, to and under the Premises Agreement, together with all sums due
thereunder, and agrees that PIDA may collect and apply the same to the payment
of any sum required to be paid by the Mortgagor under the Note or this Mortgage,
provided, however, that by reason of such assignment the Mortgagor shall not be
relieved of, and PIDA does not assume, the Mortgagor's obligations under the
Agreement.
8. If PIDA retains the services of counsel in order to cure any default
under this Mortgage or any of the Loan Documents, reasonable attorneys' fees
shall be payable by the Mortgagor to PIDA and shall be secured hereby. The
Mortgagor shall also pay all costs in connection with the satisfaction of this
Mortgage of record.
9. An event of default hereunder (an "Event of Default") shall be any of
the following: (i) the occurrence of any Event of Default as defined in the Loan
Agreement, (ii) failure to pay any sum required to be paid under any of
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<PAGE>
the Loan Documents within thirty (30) days after the same becomes due and
payable, (iii) default in the due and punctual payment of the principal of or
interest on any loan or debt instrument secured by the Premises after the same
shall become due and payable and any applicable cure period shall have expired,
or (iv) default in the due and punctual observance or performance of any of the
covenants or agreements contained in any loan or debt instrument secured by the
Premises which default shall have created a right of acceleration pursuant to
such loan or debt instrument. Upon the occurrence of any such Event of Default,
other than an Event of Default declared solely as a result of a breach by the
Industrial Occupant of Section 4.03 of the Assumption Agreement, at the option
of PIDA: (a) the entire unpaid balance of the Indebtedness shall become due and
payable immediately, without further notice to the Mortgagor, and shall be
recoverable by PIDA immediately or at any time or times thereafter, without stay
of execution or other process; (b) PIDA may take immediate possession of the
Premises as provided hereunder; and (c) PIDA may immediately exercise any and
all other rights and remedies provided in this Mortgage and in the Note, or
which may be available to PIDA, and all such rights and remedies shall be
cumulative and concurrent and may be pursued singly, successively or together in
PlDA's sole discretion, and may be exercised from time to time and as often as
an occasion, or occasions, therefor shall occur until the Indebtedness hereby
secured is paid in full.
10. Subject to the rights of MERIDIAN BANK under the First Mortgage, if
PIDA shall take possession of the Premises as provided hereunder, PIDA may in
its sole discretion: (a) hold, manage, operate and lease the same to the
Mortgagor or any other person or persons, on such terms and for such periods of
time as PIDA may deem appropriate and the provisions of any lease made by PIDA
pursuant hereto shall be valid and binding upon the Mortgagor notwithstanding
the fact that PlDA's right of possession may terminate or this Mortgage may be
satisfied of record prior to the expiration of the term of such lease; (b) make
such alterations, additions, improvements, renovations, repairs and replacements
thereto as PIDA may deem proper; (c) remodel such improvements so as to make the
same available in whole or in part for other industrial purposes; and (d)
collect the rents, issues and profits arising from the Premises, past due and
thereafter becoming due, and apply the same, in such order of priority as PIDA
may determine, to the payment of all charges and commissions incidental to the
collection of rents and the management of the Premises and all other sums or
charges required to be paid by the Mortgagor hereunder. In addition to the
payment of such charges and commissions, PIDA shall be entitled to retain not
less than fifteen percent (15%) of such rents, issues and profits in payment
for the services of PIDA. All moneys advanced by PIDA for the purposes aforesaid
and not repaid out of the rents collected shall immediately and without demand
be repaid by the Mortgagor to PIDA, together with interest thereon at the rate
of fifteen percent (15%) per annum, and shall be added to the principal of the
Indebtedness and be secured by this Mortgage. The production of a receipt by
PIDA shall be conclusive proof of a payment or advance authorized hereby, and
the amount and validity thereof. The taking of possession and collection of
rents by PIDA as aforesaid shall not be construed to be an affirmation of any
lease of the Premises or any part thereof, and PIDA or any other purchaser at
any foreclosure sale may, if otherwise entitled to do so, exercise the right to
terminate any such lease as though such taking of possession and collection of
rents had not occurred.
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11. THE FOLLOWING PARAGRAPH SETS FORTH A WARRANT OF AUTHORITY FOR AN
ATTORNEY TO CONFESS JUDGMENT AGAINST THE MORTGAGOR. IN GRANTING THIS WARRANT OF
ATTORNEY TO CONFESS JUDGMENT AGAINST THE MORTGAGOR, THE MORTGAGOR HEREBY
KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, AND, ON THE ADVICE OF THE SEPARATE
COUNSEL OF THE MORTGAGOR, UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS THE
MORTGAGOR HAS OR MAY HAVE TO PRIOR NOTICE AND AN OPPORTUNITY FOR HEARING UNDER
THE RESPECTIVE CONSTITUTIONS AND LAWS OF THE UNITED STATES AND THE COMMONWEALTH
OF PENNSYLVANIA.
IN CASE OF ANY EVENT OF DEFAULT HEREUNDER, (OF WHICH AN AFFIDAVIT ON BEHALF
OF PIDA SHALL BE SUFFICIENT EVIDENCE), THEN, AND IN ANY SUCH EVENT, ANY ATTORNEY
OF ANY COURT OF RECORD OF PENNSYLVANIA OR ELSEWHERE IS HEREBY AUTHORIZED AND
EMPOWERED TO APPEAR FOR THE MORTGAGOR, AND ALL PERSONS CLAIMING UNDER OR THROUGH
THE MORTGAGOR, AND AS ATTORNEY FOR THE MORTGAGOR AND ALL PERSONS CLAIMING UNDER
OR THROUGH THE MORTGAGOR, TO SIGN AN AGREEMENT FOR ENTERING AN AMICABLE ACTION
OF EJECTMENT FOR POSSESSION OF THE PREMISES OR ANY PART THEREOF AND TO CONFESS
JUDGMENT THEREIN AGAINST THE MORTGAGOR, IN FAVOR OF PIDA, WHEREUPON A WRIT FOR
POSSESSION MAY IMMEDIATELY ISSUE FOR THE POSSESSION OF THE PREMISES. WITHOUT ANY
PRIOR COMPLAINT, WRIT OR PROCEEDING WHATSOEVER; AND FOR SO DOING THIS MORTGAGE.
OR A COPY HEREOF VERIFIED BY AFFIDAVIT, SHALL BE A SUFFICIENT WARRANT. THIS
POWER MAY BE EXERCISED AS OFTEN AS PIDA SHALL REQUIRE AND SHALL NOT BE EXHAUSTED
BY ONE OR MORE OR BY ANY IMPERFECT EXERCISE THEREOF.
IF MORTGAGOR WISHES TO CHALLENGE ANY JUDGMENT CONFESSED PURSUANT TO THIS
SECTION, IT SHALL DO SO ONLY BY FILING A PETITION TO OPEN THE JUDGMENT PURSUANT
TO PENNSYLVANIA RULES OF CIVIL PROCEDURE RULE 2959, AS IN EFFECT FROM TIME TO
TIME ("RULE 2959"), AND SHALL NOT OTHERWISE INTERFERE (BY FILING ANY CIVIL
ACTION, BILL IN EQUITY, OR OTHERWISE) WITH THE OPERATION OF THE JUDGMENT GRANTED
PURSUANT TO THIS SECTION. MORTGAGOR EXPRESSLY ACKNOWLEDGES THAT THE PROCEDURE
AVAILABLE TO IT THROUGH RULE 2959 WILL PROVIDE IT WITH A FULL AND FAIR
OPPORTUNITY TO BE HEARD AS TO ANY REASON WHY JUDGMENT SHOULD NOT BE ENTERED
AGAINST IT.
IF FOR ANY REASON AFTER SUCH ACTION HAS BEEN COMMENCED THE SAME SHALL BE
DISCONTINUED OR POSSESSION OF THE PREMISES SHALL REMAIN IN OR BE RESTORED TO THE
MORTGAGOR, PIDA SHALL HAVE THE RIGHT FOR THE SAME DEFAULT OR ANY SUBSEQUENT
DEFAULT TO BRING ONE OR MORE FURTHER AMICABLE ACTIONS AS ABOVE PROVIDED TO
RECOVER POSSESSION OF THE PREMISES. PIDA MAY BRING SUCH AMICABLE ACTION IN
EJECTMENT BEFORE OR AFTER JUDGMENT ON THIS MORTGAGE OR ON THE NOTE, OR AFTER A
SALE OF THE PREMISES BY THE SHERIFF. IF AFTER EXECUTION AND RETURN OF THE WRIT
OF POSSESSION, THE
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MORTGAGOR SHALL RE-ENTER INTO POSSESSION OF THE PREMISES, THE PROTHONOTARY,
UPON PRAECIPE AND AFFIDAVIT SETTING FORTH THE FACTS FILED WITHIN THREE YEARS
AFTER THE RETURN OF THE WRIT UPON WHICH EXECUTION WAS COMPLETED SHALL ISSUE A
NEW WRIT OF POSSESSION.
THE MORTGAGOR ACKNOWLEDGES THAT IT UNDERSTANDS THE MEANING AND EFFECT OF
THE CONFESSION CONTAINED IN THE FOREGOING PARAGRAPH. SPECIFICALLY, THE MORTGAGOR
UNDERSTANDS AMONG OTHER THINGS THAT (1) IT IS RELINQUISHING THE RIGHT TO HAVE
NOTICE EXCEPT AS PROVIDED HEREIN, AN OPPORTUNITY TO BE HEARD AND THE RIGHT TO
HAVE THE BURDEN OF PROOF OF DEFAULT REST ON PIDA PRIOR TO THE ENTRY OF JUDGMENT,
(2) THE ENTRY OF JUDGMENT MAY RESULT IN A LIEN ON ITS PROPERTY, (3) IT WILL BEAR
THE BURDEN AND EXPENSE OF ATTACKING THE JUDGMENT AND CHALLENGING EXECUTION ON
THE LIEN AND SALE OF THE PROPERTY COVERED THEREBY, AND (4) ENOUGH OF ITS
PROPERTY MAY BE TAKEN TO PAY THE PRINCIPAL AMOUNT, INTEREST, COSTS AND
ATTORNEY'S FEES.
12. The Mortgagor waives the right of inquisition on any property levied
upon under a judgment obtained in proceedings to collect the Indebtedness hereby
secured or in proceedings on this Mortgage, and further waives and releases any
and all benefits that may accrue to the Mortgagor by virtue of any law relating
to appraisements, stay of execution or exemption of the Premises from levy or
sale under execution, now or hereafter in force. A foreclosure sale shall
constitute a foreclosure sale of all equity whatsoever of the Mortgagor in the
Premises and PIDA shall, if it is the purchaser at the sale, hold the Premises
and any part thereof so purchased free of any equity of redemption by reason of
any circumstances whatsoever and not as collateral for any obligation.
13. No extension or indulgence granted to the Mortgagor, and no alteration,
change or modification of the Note consented or agreed to by PIDA, and no other
act or omission of PIDA, including the taking of additional security or the
release of any security, or the waiver by PIDA or failure by PIDA to enforce any
provision of any of the Loan Documents or to declare a default with respect
thereto, shall constitute a release of the lien and obligation of this Mortgage
or be interposed as a defense against the enforcement of this Mortgage, or
operate as a waiver of any subsequent defaults or otherwise affect the right of
PIDA to exercise all rights or remedies stipulated herein and in any of the Loan
Documents, except an act of PIDA which constitutes an express, effective,
written release and satisfaction of the Note.
14. In the event of any failure to pay or cause to be paid all amounts due
under any indebtedness secured by the Premises, or any taxes, water and sewer
rents, charges, claims, assessments, assessments for public improvements, liens
or encumbrances or to furnish and pay for the insurance required hereunder, or
to keep the Premises in good condition and repair, or to pay any other amount
required to be paid by any person under any of the Loan Documents, PIDA may, at
its option, pay any or all such items together with penalties and interest
thereon, and procure and pay for such insurance and repairs; and PIDA may at any
time and from time to time advance such additional sum or sums as PIDA in its
sole discretion may deem necessary to protect the security of this Mortgage. All
such sums so paid or advanced by PIDA shall immediately and without demand be
secured hereby and be repaid by the Mortgagor to PIDA,
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together with interest thereon at the rate of fifteen percent (15%) per
annum, and shall be added to the principal of the indebtedness and be secured by
this Mortgage. The production of a receipt by PIDA shall be conclusive proof of
a payment or advance authorized hereby, and the amount and validity thereof.
15. The Mortgagor covenants and agrees that it shall in the Premises
Agreement require of the Industrial Occupant and that it shall further require
of any subsequent buyer, lessee or occupant of the Premises, that the Premises
shall be used solely for purposes at all times eligible for financing by PIDA
under the provisions of the Pennsylvania Industrial Development Authority Act,
regulations, statements of policy, guidelines and interpretations of the PIDA
Board and staff, each as in effect from time to time, until the Indebtedness
shall have been paid in full.
16. All covenants, stipulations and agreements contained in this Mortgage
by or on behalf of the Mortgagor shall be binding upon its successors in title
or interest and its assigns, whether so expressed or not.
17. This Mortgage may be amended only with the written consent of the
Mortgagor, PIDA and the Industrial Occupant.
18. Notice to the Mortgagor under the Note or this Mortgage shall be deemed
sufficient if given in accordance with Section 10.14 of the Loan Agreement.
19. The provisions of this Mortgage are severable. In the event of the
unenforceability or invalidity of any one or more of the terms, covenants,
conditions or provisions of this Mortgage under federal, state or other
applicable law, such unenforceability or invalidity shall not render any other
of the terms, covenants, conditions or provisions hereof unenforceable or
invalid. In the event any waiver by Mortgagor hereunder is prohibited by law,
including but not limited to the waiver of exemption from execution, such waiver
shall be and be deemed to be deleted herefrom.
20. All capitalized terms not defined herein shall have the meanings
ascribed to them in the Loan Agreement.
21. This Mortgage is an open-end mortgage as defined at 42 PA C.S.A.
8143(f) and as such is entitled to all the benefits of 42 PA C.S.A. 8143 et
seq., P.L. 525, No. 126, Act 126 of 1990 (the "Act"). The parties to this
Mortgage intend that, in addition to any other debt or obligation secured
hereby, this Mortgage shall secure unpaid balances of loan advances made after
the Mortgage is left for recording, whether such advances are made pursuant to
an obligation of PIDA or otherwise. The maximum amount of unpaid loan
indebtedness (which shall consist of unpaid advances made either before or
after, or both before and after, this Mortgage is left for recording) and which
may be outstanding at any time shall be the face amount of the Note, plus
accrued and unpaid interest thereon and any additional obligations payable
hereunder or thereunder. In addition to the other obligations of the Mortgagor
secured hereby, this Mortgage secures unpaid balances of advances made, with
respect to the Premises, for the payment of taxes, assessments, maintenance
charges, insurance premiums or costs incurred for the protection of the Premises
or the lien created by this Mortgage and other expenses, including but not
limited to costs and attorney's fees incurred by PIDA by reason of default by
Mortgagor under this Mortgage or under any of the Loan Documents.
22. This is a purchase money mortgage.
23. This is a construction mortgage and secures an obligation incurred for
the construction of an obligation on land including the acquisition cost of
the land.
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IN WITNESS WHEREOF, the Mortgagor has executed this Mortgage on the day and
year first above written.
ATTEST: /s/ J. Joseph A. Mee
---------------------
Assistant Secretary
PIDC FINANCING CORPORATION
By: /s/ Joseph J. Aylmer
-----------------------
Senior Vice President
(CORPORATE SEAL)
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EXHIBIT "A"
THE PREMISES
ALL THAT CERTAIN lot or piece of ground with the buildings and improvements
thereon erected SITUATE in the Fifth Ward of the City of Philadelphia and
described in accordance with a Survey and Plan of Property made February 10,
1995, and revised July 17, 1995 by Lawrence J. Cleary, Surveyor and Regulator of
the Third Survey District:
BEGINNING at the point formed by the intersection of the Southerly side of
Spring Garden Street (120 feet wide) with the Westerly side of Fifth Street (70
feet wide); Thence extending South 13 degrees 37 minutes 25 seconds West, along
the said Westerly side of Fifth Street, the distance of 58.984 feet to a point
of curve; Thence extending Southwardly, along the said Westerly side of Fifth
Street, on the arc of a circle curving to the left, having a radius of 3855.419
feet, the distance of 176.224 feet to a point of tangency; Thence extending
South 11 degrees 00 minutes 17 seconds West, along the said Westerly side of
Fifth Street, the distance of 357.768 feet to a point on the Northerly side of a
certain right-of-way for Public Utility purposes (40 feet wide, lying within the
lines of former Noble Street, stricken and vacated from the City Plan by
Ordinance approved December 6, 1971); Thence extending South 11 degrees 00
minutes 17 seconds West, along the said Westerly side of Fifth Street, crossing
the Easterly end of said right-of-way, the distance of 40.501 feet to a point;
Thence extending South 11 degrees 00 minutes 17 seconds West, along the said
Westerly side of Fifth Street, the distance of 103.465 feet to a point of cure;
Thence extending Southwardly, along the said Westerly side of Fifth Street, on
the arc of a circle curving to the left, having a radius of 757.254 feet, the
distance of 94.102 feet to a point of tangency; Thence extending South 03
degrees 53 minutes 05 seconds West, along the said Westerly side of Fifth
Street, the distance of 44.770 feet to a point of the Northerly side of a
certain right-of-way for drainage purposed (10 feet wide, reserved by Ordinance
approved December 6, 1971); Thence extending 03 degrees 53 minutes 05 seconds
West, along the said Westerly side of Fifth Street crossing the Easterly end of
said right-of-way for drainage purposes, the distance of 10.199 feet to a point
on the Northerly side of Willow Street (30 feet wide); Thence extending South 82
degrees 33 minutes 12 seconds West, along the said Northerly side of Willow
Street, the distance of 180.741 feet to a point; Thence extending North 89
degrees 07 minutes 50 seconds West, along the said Northerly side of Willow
Street, the distance of 199.778 feet to a point on the Easterly side of Sixth
Street (70 feet wide); Thence extending North 09 degrees 57 minutes 50 seconds
East,
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EXHIBIT A (cont'd)
THE PREMISES
along the said Easterly side of Sixth Street, crossing the Westerly end of
said right-of-way for drainage purposed, the distance of 10.127 feet to a point;
Thence extending North 09 degrees 57 minutes 50 seconds East, along the said
Easterly side of Sixth Street, the distance of 292.452 feet to a point on the
Southerly side of said right-of-way for Public Utility purposes; Thence
extending North 09 degrees 57 minutes 50 seconds East, along the said Easterly
side of Sixth Street, crossing the Westerly end of said right-of-way for Public
Utility purposes, the distance of 40.000 feet to a point; Thence extending North
09 degrees 57 minutes 50 seconds East, along the said Easterly side of Sixth
Street, the distance of 626.504 feet to a point on the said Southerly side of
Spring Garden Street; Thence extending South 80 degrees 18 minutes 06 seconds
East, along the said Southerly side of Spring Garden Street, the distance of
379.881 feet to the said Westerly side of Fifth Street, the first mentioned
point and place of beginning.
BEING known as No. 456 North Fifth Street.
CONTAINING IN AREA 342,545.82 sq. feet (7.86377 Acres)
BEING the same premises which SmithKline Beecham Corporation by Deed dated
8/2/1995 and recorded 9/29/1995 in Philadelphia County in Deed Book VCS 978 page
573 granted and conveyed unto PIDC Financing Corporation, a Pennsylvania
Non-Proft Corporation, in fee.
Registry No./Parcel No.: 4 N 7 - 292
Brt No. 88-4-028600
Ward No.: 5th
NWA/04-03-96
PIDA #7846
LOAN AGREEMENT
THIS LOAN AGREEMENT is made this 4th day of April, 1996, BY AND BETWEEN
PIDC FINANCING CORPORATION, a nonprofit corporation organized and existing under
and by virtue of the laws of the Commonwealth of Pennsylvania, with an address
at 2600 Centre Square West, 1500 Market Street, Philadelphia, Pennsylvania 19102
(the "Borrower"), and THE PENNSYLVANIA INDUSTRIAL DEVELOPMENT AUTHORITY
("PIDA"), a public body corporate and politic, organized and existing under and
by virtue of the laws of the Commonwealth of Pennsylvania, having its principal
place of business at Room 480 Forum Building, Harrisburg, Pennsylvania 17120.
ARTICLE I
Background
Section 1.01. The Borrower, to facilitate the financial transactions
referred to herein, has acquired or is acquiring as of the date hereof legal
title to a tract of land in Philadelphia, Philadelphia County, Pennsylvania
(hereinafter called the "Premises") upon which the Borrower proposes to
establish an industrial development project as defined in the Pennsylvania
Industrial Development Authority Act, as amended, 73 P.S. section 301 et seq.
(the "Act") (the "Project") to be purchased or leased, occupied and controlled
by MOTHERS WORK, INC. (the "Industrial Occupant"), a corporation organized and
existing under the laws of the State of Delaware and qualified to do business in
Pennsylvania, pursuant to an Installment Sale Agreement, effective as of April
4, 1996, between the Borrower and the Industrial Occupant (the "Premises
Agreement").
Section 1.02. The Borrower has filed with PIDA an application for financing
for the Project (as amended through the date hereof, the "Application") and
accepted from PIDA a commitment letter dated March 13, 1995 (as amended, the
"Commitment") for a loan in a principal amount not to exceed $2,000,000 (the
"Loan") to be used exclusively to defray a portion not to exceed 40% (such
maximum percentage, the "Participation Percentage") of the "cost of establishing
an industrial development project" as defined in the Act (the "Cost").
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Section 1.03. PIDA is willing to make the Loan upon the terms and subject
to the conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto, in consideration of the mutual promises
herein contained, and intending to be legally bound hereby, covenant and agree
as follows:
ARTICLE II
The Loan
Section 2.01. The Loan. Subject to the conditions set forth herein, PIDA
agrees to make the Loan to the Borrower for the purpose of defraying a portion
of the Cost.
ARTICLE III
The Note
Section 3.01. The Note. The Loan shall be evidenced by a note (the "Note")
of even date herewith given by Borrower to PIDA in a principal amount equal to
the principal amount referred to in Section 1.02 hereof.
ARTICLE IV
Loan Security
Section 4.01. The Mortgage. Payment of the Note and satisfaction of all
obligations of the Borrower hereunder and under the Note and of the Industrial
Occupant under a Consent, Subordination and Assumption Agreement effective as of
even date herewith from the Industrial Occupant to PIDA (the "Assumption
Agreement") shall be secured by a mortgage (the "Mortgage") effective as of even
date herewith given by Borrower to PIDA. The Mortgage shall constitute not less
than a second lien upon the Premises, subordinate only to a $4,094,684.93
mortgage, dated September 28, 1995, on the Premises given to MERIDIAN BANK which
principal sum shall be reduced to the sum of $4,000,000 on the same date hereof
(the "First Mortgage").
Section 4.02. Additional Security. The following shall constitute
additional collateral security for the payment of the Note and satisfaction by
the Borrower of all of the Borrower's obligations hereunder and under the
Mortgage and/or the obligations of the Industrial Occupant under the Assumption
Agreement:
(a) the Assumption Agreement given by the Industrial Occupant to PIDA;
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(b) an Assignment by Borrower to PIDA of Borrower's rights under the
Premises Agreement which Assignment is subordinate to a prior Assignment to
MERIDIAN BANK (the "Assignment"), agreed to by the Industrial Occupant; and
(c) a bank letter of credit in the amount of $1,000,000.
This Agreement, the Note, the Mortgage, the Premises Agreement, the
Assignment, the Assumption Agreement, the opinions of counsel hereinafter
referred to, and all other agreements, instruments and documents to be delivered
hereunder shall collectively be termed the "Loan Documents."
ARTICLE V
Representations and Warranties of Borrower
To induce PIDA to enter into this Agreement and to make the Loan, the
Borrower represents and warrants that:
Section 5.01. Corporate Organization. The Borrower is a nonprofit
corporation, duly organized, validly existing and in good standing under the
laws of the Commonwealth of Pennsylvania.
Section 5.02. Power and Authority. The Borrower has all necessary corporate
power and authority to purchase, own, mortgage and sell its properties and to
carry on its business as now being conducted, and to carry out the transactions
contemplated by the Loan Documents.
Section 5.03. Certification as Industrial Development Agency. Borrower is
an industrial development agency as that term is defined in the Act certified as
such by PIDA. Borrower is not aware of any facts that would make its application
to PIDA for certification as an industrial development agency materially
incomplete, incorrect or misleading if filed as of the date hereof. Borrower has
filed with PIDA all reports and other information required by PIDA.
Section 5.04. Loan Documents Consistent with Law and Agreements. The
execution and delivery of this Agreement and of each of the Loan Documents to be
executed and delivered by Borrower, consummation of the transactions herein
contemplated, and compliance with the terms and provisions hereof and of the
Loan Documents which Borrower has executed and delivered or to which it is
otherwise subject do not (i) contravene any provision of law, statute, rule or
regulation to which Borrower is subject or any judgment, decree, franchise,
order or permit applicable to the Borrower or (ii) conflict with, or result in,
a breach of any of the terms, conditions or provisions of the
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Articles of Incorporation or Bylaws of the Borrower, or of any material
agreement, indenture or other instrument to which the Borrower is a party or by
which it is bound or to which it or its property is subject.
Section 5.05. Due Authorization. The execution, delivery and performance of
this Agreement, the performance of the transactions contemplated by the
provisions hereof, and the execution, issuance, delivery and performance of each
of the Loan Documents to be executed and delivered by Borrower hereunder have
each been duly authorized by all necessary corporate action on the part of the
Borrower.
Section 5.06. Execution and Delivery. This Agreement and each of the Loan
Documents being executed and delivered by Borrower concurrently herewith have
been duly and validly executed and delivered by the Borrower and constitute
valid and legally binding obligations of the Borrower, enforceable in accordance
with their respective terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency or other substantially similar laws of general
application relating to or affecting the enforcement of creditors' rights or by
general principles of equity.
Section 5.07. Litigation. There is no material litigation or governmental
proceeding pending or, to the knowledge of the Borrower, threatened against the
Borrower other than that which has been previously disclosed to PIDA in writing.
If such litigation or proceeding exists, it shall be set forth in an exhibit
which shall be attached hereto and made a part hereof.
Section 5.08. Taxes. The Borrower has filed all required federal, state and
local tax returns and has paid all taxes shown on such returns as they have
become due unless the obligation to file such return or pay such tax is the
subject of a pending administrative or judicial appeal or proceeding with
respect to which the Borrower has posted or caused to be posted a bond or other
security satisfactory to PIDA in an amount which is at least equal to the sum
which is the subject of the appeal or proceeding, together with all interest,
costs, and charges relating thereto.
Section 5.09. Infrastructure Improvements. Adequate street and public
infrastructure improvements, including without limitation water and sanitary and
surface sewers, in and about the Project (i) have been fully authorized or
approved by appropriate ordinance or other required municipal action and (ii)
have either (A) been completed, (B) are the subject of contracts being let by
the municipality involved, (C) are covered by a bond that the Borrower has
posted with the municipality in an amount deemed sufficient by the municipality
to secure the completion of such improvements; or (D) are otherwise available at
the Premises for the use and benefit, inter alia, of PIDA.
All of the representations and warranties of the Borrower set forth herein
are expressed as of the date hereof, unless a specific date prior to the date
hereof is given as the date as of which such representation or warranty is
expressed, and
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shall survive and continue until the Loan is paid in full and all of the
Borrower's obligations hereunder have been satisfied.
ARTICLE VI
Borrowing Procedures and Agreements
The following provisions shall be applicable with respect to all
disbursements of the Loan, whether made concurrently with Closing hereunder or
subsequent thereto:
Section 6.01. General Disbursement Procedures. Disbursement of the Loan
will be made in accordance with the Commitment. Disbursements shall be made only
to pay for work performed and materials incorporated into the Project and
comprising part of the Cost of the Project.
Requests for all disbursements under the Loan shall be submitted to PIDA in
writing, shall consist of such documentation and contain such information as may
be reasonably required by PIDA concerning the Project and the Cost (or the
portion thereof theretofore paid or invoiced) and shall be accompanied by such
other documentation as may be reasonably required by PIDA or its counsel. Such
requests shall be submitted in sufficient time prior to the date upon which the
Borrower requests that a disbursement under the Loan be made hereunder to enable
PIDA to process such request, but in any event not less than 30 days prior to
the proposed date of such disbursement.
Section 6.02. Subsequent Disbursements. In the event that the Project is
not completed and the entire Loan is not disbursed at the time of the initial
disbursement hereunder, subject to compliance by the parties subject thereto
with the terms and conditions of this Agreement and each of the other Loan
Documents, the Borrower shall be entitled after completion of construction of
the Project to borrow the undisbursed balance, if any, of the Loan, provided
that the total Cost of the Project multiplied by the Participation Percentage
exceeds the amount of the Loan.
Section 6.03. Conditions Precedent to All Disbursements. As a condition
precedent to each disbursement hereunder, whether made concurrently with Closing
or subsequent thereto, the Borrower shall, in addition to satisfying such other
requirements as PIDA may reasonably impose, provide PIDA with:
(a) evidence satisfactory to PIDA that, at the time of such
disbursement (unless with respect to items (i), (ii) and (iii), such items
are covered by an acceptable title insurance commitment delivered to PIDA
as of the date hereof, and applicable at the time of such disbursement),
(i) there are no mechanics' or materialmen's liens or claims filed against
the Premises, (ii) no financing statements have been filed under the
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Uniform Commercial Code as then in effect in the Commonwealth with respect
to fixtures or building systems (including, but not limited to, heating,
plumbing, electrical, air conditioning, sprinkler, fire alarm and elevator
systems) not directly employed in the industrial activities of the
Industrial Occupant, which would have priority over the lien in favor of
PIDA created by the Mortgage other than those specifically permitted by the
Mortgage or hereunder, (iii) there are no liens or encumbrances filed or
recorded with respect to the Premises which would have priority over the
lien in favor of PIDA created by the Mortgage other than those specifically
permitted by the Mortgage or hereunder, (iv) the Industrial Occupant has
filed all tax returns and reports required to be filed by it with the
Commonwealth through the date hereof and is current in the payment of all
monies due to the Commonwealth from it, whether as taxes or otherwise,
unless the obligation to file such return or pay such tax is the subject of
a pending administrative or judicial appeal or proceeding with respect to
which the Industrial Occupant has posted or caused to be posted a bond or
other security satisfactory to PIDA in an amount which is at least equal to
the sum which is the subject of the appeal or proceeding, together with all
interest, costs, and charges relating thereto and (v) the insurance
relating to the Project required by the Mortgage is in effect;
(b) a certificate of the Borrower executed by its President or Vice
President dated as of the disbursement date certifying that all
representations and warranties made herein with regard to the Borrower were
true and correct as of the date hereof and shall remain true and correct as
of the date of such certificate, unless some date other than the date
hereof is expressly set forth as of the date as of which such
representation and warranty is expressed, in which event such
representation and warranty was true and correct as of the effective date
thereof; and
(c) a certificate of the Industrial Occupant executed by an authorized
officer dated as of the disbursement date that: (i) all representations and
warranties made in the Assumption Agreement were true and correct as of the
date hereof and shall remain true and correct as of the date of such
certificate, unless some date other than the date hereof is expressly set
forth as of the date as of which such representation and warranty is
expressed, in which event such representation and warranty was true and
correct as of the effective date thereof and (ii) the Premises and the
Project are in compliance in all material respects with all environmental,
building, subdivision, zoning and all other ordinances and regulations
applicable to the Premises and the Project respectively, together with
copies of all subdivision, building, zoning, use and other permits required
for the Premises and the Project unless PIDA shall permit the omission of
such copies.
Section 6.04. Suspension of Disbursements. In the event any material
environmental, building, subdivision, use, zoning or other permits relating to
the Premises or the construction or operation of the Project are revoked,
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rescinded, suspended or materially adversely affected by any preliminary or
final injunction or decision by any court or other body issuing such permit or
otherwise having jurisdiction, PIDA may refuse to make further advances under
this Agreement until the matter is resolved to PIDA's reasonable satisfaction,
whether or not PIDA has declared an Event of Default hereunder or such
revocation, rescission, suspension, or material adverse effect would comprise an
Event of Default hereunder.
ARTICLE VII
Covenants of the Borrower
Until the Loan has been entirely repaid and all of its obligations to PIDA
in connection therewith and herewith have been satisfied, the Borrower hereby
covenants that:
Section 7.01. Use of Proceeds. The Borrower shall use the proceeds of the
Loan solely for the purpose of defraying the Cost.
Section 7.02. Preservation of Existence. The Borrower shall preserve its
corporate existence, rights, privileges and franchises, and maintain its good
standing as a nonprofit corporation under the laws of the Commonwealth of
Pennsylvania and its certification by PIDA as an industrial development agency.
Section 7.03. Compliance with Law. The Borrower shall comply with all laws,
regulations and orders of any court or governmental body having jurisdiction
over the Project. To the extent Borrower is required to do so by applicable law
or by agreement with the Industrial Occupant, Borrower shall obtain all
environmental, zoning, subdivision, building and other permits required for
completion of the Project. To the extent that such permits are (i) required for
the Project but (ii) pursuant to agreement with the Industrial Occupant and in
accordance with applicable law are being obtained by Industrial Occupant or some
other person other than Borrower, Borrower shall in its agreements with the
Industrial Occupant require the Industrial Occupant to obtain such permits and
Borrower shall thereafter exercise reasonable diligence to determine whether
such permits are being timely and appropriately obtained, and shall promptly
advise PIDA if Borrower believes such permits are not being so obtained. As and
when requested by PIDA, Borrower shall deliver to PIDA copies of all permits
required for completion of the Project.
Section 7.04. Provision of Information. The Borrower shall, not less
frequently than annually and at such other times as PIDA may reasonably request,
provide financial information and other information in form reasonably
satisfactory to PIDA, including at least (i) financial statements of the
Borrower for its most recent fiscal year, including its balance sheet and income
statement, duly certified by an authorized officer of the Borrower and (ii) a
certificate of
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an authorized officer of the Borrower stating (A) that it has complied
with all terms and conditions of each of the Loan Documents to which the
Borrower is subject, including, without limitation, the requirements of the
Mortgage with respect to insurance on the Premises and (B) that it has complied
with its bylaws with respect to the holding of regular and annual meetings and
the election of officers.
Section 7.05. Compliance with Loan Documents. The Borrower shall comply
with all of the terms and conditions of this Agreement and each of the Loan
Documents to be executed and delivered by Borrower.
Section 7.06. Notice of Defaults. The Borrower shall give immediate notice
to PIDA of the occurrence of (i) any breach or Event of Default on the part of
Borrower, (ii) any breach or Event of Default on the part of Industrial Occupant
of which Borrower becomes aware, under this Agreement or under any Loan
Document, or (iii) any material breach or Event of Default by any other person
of which Borrower becomes aware, under any other material agreement relating to
the Project.
Section 7.07. Enforcement of Terms Against Industrial Occupant. The
Borrower shall specifically enforce, as and to the extent PIDA shall request,
all material provisions of all agreements between the Borrower and the
Industrial Occupant relating to the Project and shall not waive any material
breach of, or material default under, any of such agreements of which Borrower
becomes aware, without the prior written consent of PIDA.
Section 7.08. Mergers, etc. Without the prior written consent of PIDA, the
Borrower shall not merge or consolidate with any other corporation or other
entity, unless Borrower is the surviving corporation, nor divide into two or
more corporations, nor convey, transfer or dispose of all or any material part
of its assets.
Section 7.09. Debt Secured by Premises. Without the prior written consent
of PIDA, the Borrower shall not take any action to cause or permit any mortgage,
lien or encumbrance to be placed against the Premises or any interest therein,
including without limitation the equitable interest of the Industrial Occupant
therein, except such mortgages, liens and encumbrances as may be expressly
permitted by the Mortgage. Borrower shall, in its agreements with the Industrial
Occupant, prohibit the Industrial Occupant from causing or permitting any
mortgage, lien or encumbrance to be placed against the Premises or any interest
therein, including without limitation the equitable interest of the Industrial
Occupant therein.
Section 7.10. Extensions and Prepayments of Premises Debt. Without the
prior written consent of PIDA, the Borrower shall not request, consent to, or
enter into any agreement providing for, the extension of the time of payment of
the First Mortgage. Borrower shall in its agreements with the Industrial
Occupant prohibit the Industrial Occupant
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from requesting, consenting to or entering into any agreement providing for
the extension of the time of payment of the First Mortgage without the prior
written consent of PIDA and the Borrower. The Borrower may prepay the First
Mortgage in whole or in part at any time provided that (i) such prepayment does
not materially adversely affect the financial condition of the Borrower or the
Industrial Occupant, (ii) prior written notice of such prepayment is given to
PIDA and (iii) there is no default or event which with the passage of time or
giving of notice would constitute a default under the Mortgage. The Borrower
shall not, without the prior written consent of PIDA, prepay any indebtedness
secured by a lien on the Premises which is subordinate to the Mortgage. Borrower
shall in its agreements with the Industrial Occupant prohibit the Industrial
Occupant from requesting, consenting to or entering into any agreement providing
for, the prepayment of any indebtedness secured by a lien on the Premises or any
interest therein which is subordinate to the Mortgage without the prior written
consent of PIDA and the Borrower.
Section 7.11. Nondiscrimination. The Borrower hereby accepts and agrees to
be bound by the nondiscrimination provisions set forth in Exhibit 7.11 attached
hereto. The Borrower shall cause comparable provisions to be included in the
Premises Agreement and all other Project contracts to which Borrower is a party
and shall, in the agreements to which Borrower is a party with the Industrial
Occupant and all other persons relating to the Project (including, without
limitation, contractors and professionals), require the insertion of comparable
provisions in all Project contracts to which the Industrial Occupant or such
other persons are party.
Section 7.12. Compliance with Governmental Requirements. Borrower shall
require, in all Project contracts to which Borrower is a party, (i) that the
Project be in compliance with all applicable governmental regulations, including
without limitation all anti-pollution regulations and standards, and (ii) that
comparable provisions be included in all other Project contracts to which
persons, who are parties to Project contracts with the Borrower, are themselves
a party.
Section 7.13. Recording and Other Costs. The Borrower shall pay all the
costs of recording and any other costs that PIDA may incur in connection with
closing the Loan, to the extent such costs are not paid by Industrial Occupant.
Section 7.14. Inspection. The Borrower shall in its agreements with the
Industrial Occupant require the Industrial Occupant to provide proper facilities
at all times for inspection of the Project before and after completion thereof
by PIDA and PlDA's authorized representatives (including, without limitation,
any independent consulting engineer (such engineer, the "PIDA Engineer") or
environmental consultant retained by PIDA), and afford full and free access to
the Project to such persons as may from time to time be designated by PIDA.
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Section 7.15. Documentation. The Borrower shall provide, or, by agreement
with the Industrial Occupant, require the Industrial Occupant to provide, all
documentation requested by the PIDA Engineer for preparation of the final
engineering report, including, but not limited to, such things as a breakdown of
the final costs with invoices, proofs of payment, and a final affidavit
of costs.
Section 7.16. Completion of Project. The Borrower shall by agreement with
the Industrial Occupant or otherwise require that the Project be constructed on
the Premises, in strict accordance with all plans and specifications delivered
to PIDA; that all fixtures, equipment and other property constituting a part of
the Premises be timely acquired and installed; and that construction proceed
diligently, continuously and expeditiously, employing sufficient workmen and
supplying sufficient materials to fully finish and complete the same, inside and
outside, with the appurtenant areas, paving, grading and curbing, sewers,
laterals, water and all public utility connections and all necessary street,
footway and other improvements, free and clear and discharged of all liens and
municipal claims and the possibility of liens therefor.
Section 7.17. Removal of Work Deemed Unsound. The Borrower shall, by its
own action or by agreement with the Industrial Occupant, take down and remove
from, or require the taking down and removal from, the Premises, within
seventy-two (72) hours after receiving notice from PIDA, all portions of the
Project and related materials, whether worked or unworked, which, after
inspection by the PIDA Engineer, are determined by the PIDA Engineer to be
materially not in compliance with the PIDA Engineering Guidelines supplied to
the Borrower in connection with the Project, and make good, at no cost to PIDA,
all work and materials damaged thereby.
ARTICLE VIII
Payments
Section 8.01. Repayment of Excess Loan Amounts. If, upon final
determination by the PIDA Engineer of the Cost of the Project, excluding Costs
attributable to any portion of the Project determined by the PIDA Engineer to be
materially not in compliance with the PIDA Engineering Guidelines supplied to
the Borrower in connection with the Project (which determination shall be
conclusive), the amount of the Loan previously disbursed to the Borrower exceeds
the Cost (as so determined) multiplied by the Participation Percentage, the
entire amount of such excess shall be repaid to PIDA by or on behalf of the
Borrower within thirty (30) days of notice thereof to the Borrower and the
Industrial Occupant.
Section 8.02. Payments of Premises Rentals. Whether or not PIDA consents to
such lease or sublease, if any portion of the Premises is leased or subleased to
any party not substantially related to the Industrial Occupant, Borrower
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shall pay or cause to be paid to PIDA, as a prepayment on the Loan, on the
first anniversary of the commencement of the lease or sublease and annually
thereafter, fifty percent (50%) of (i) the gross annual rentals or subrentals
less only (ii) the proportionate amount of taxes, insurance and utilities
allocable to the portion of the Premises so leased or subleased. If PIDA shall
not have consented in advance to such lease or sublease, acceptance by PIDA of
such prepayment shall be without prejudice to any right PIDA may have to declare
an Event of Default hereunder.
ARTICLE IX
Events of Default
Section 9.01. Events of Default. The following shall each constitute an
event of default hereunder (an "Event of Default"):
(a) there shall not have been paid when due any amount payable by any
person under any of the Loan Documents (including, without limitation, any
installment of principal or interest under the Note or any prepayment under
Article VIII hereof), and such failure shall continue for a period of
thirty (30) days;
(b) any representation, warranty or statement made by any person
herein or in the Application or in any of the Loan Documents or in any
certificate or financial or other statement furnished pursuant to the
provisions of any of the Loan Documents or the Application (except for any
representation, warranty or statement expressly made effective as of a date
prior to the date when made or furnished), shall have been false or
misleading in any material respect as of the time made or furnished or as
of the date hereof, whichever is later; any representation, warranty or
statement expressly made effective as of a date prior to the date when made
or furnished shall have been false or misleading in any material respect as
of the effective date thereof;
(c) the Borrower or the Industrial Occupant shall (i) become
insolvent, (ii) admit its inability to pay its debts as they come due,
(iii) make an assignment to the benefit of its creditors, (iv) be
adjudicated bankrupt or insolvent, (v) voluntarily initiate proceedings
under any bankruptcy or reorganization law either now or hereafter in
effect, (vi) become the subject of any involuntary proceedings under any
bankruptcy or reorganization law either now or hereafter in effect that
shall not have been dismissed within ninety (90) days of the initiation
thereof, or (vii) seek to take advantage of any moratorium law either now
or hereafter in effect;
(d) a receiver, liquidator or trustee shall be appointed for either
the Borrower or the Industrial Occupant and shall not have been dismissed
within ninety (90) days;
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(e) the Premises or any interest therein are sold, leased, sub-leased,
mortgaged, liened, encumbered, or otherwise conveyed without the prior
written consent of PIDA, which consent will not unreasonably be withheld,
provided that (i) the beneficial owner and occupant of the Premises remain
substantially related to each other, (ii) the Project remains in
substantial use for a PIDA-Eligible purpose (as defined in the Assumption
Agreement), (iii) the beneficial owner and occupant remain financially
responsible, and (iv) the security for the Loan is not impaired;
(f) any building, subdivision, use, zoning, environmental or other
permit material to the construction of the Project or the use thereof as
contemplated in the Application shall be effectively revoked, rescinded,
suspended or materially adversely affected or the use of the Project as
contemplated in the Application shall have been effectively enjoined or
prohibited;
(g) there shall have occurred and be continuing, after giving effect
to any applicable notice and cure periods, an Event of Default as defined
in any of the Loan Documents by any party subject thereto; or
(h) a material failure to comply by any party subject thereto with any
covenant of this Agreement or any of the Loan Documents, including, but not
limited to, the failure to provide job information, insurance information,
and annual financial statements required by PIDA under those instruments,
shall occur and be continuing after written notice of such failure has been
given to such party, with a copy to Borrower, for thirty (30) days or, if
such failure shall not be capable of being cured within thirty (30) days,
and curative action shall have been initiated within such 30 day period and
pursued diligently thereafter, for such time period after notice of such
failure has been given to such party, with a copy to Borrower, as shall, in
the good faith judgment of PIDA, which shall be conclusive, be required for
such cure.
Section 9.02. Remedies Upon Event of Default. Immediately and without
further notice to any person (including, without limitation, the Borrower or the
Industrial Occupant), upon the occurrence of an Event of Default hereunder other
than (i) an Event of Default arising solely from a breach by the Industrial
Occupant of Section 4.03 "Operations and Number of Jobs" of the Assumption
Agreement, pertaining to job creation or retention, or (ii) an Event of Default
arising solely from the internal operations of the Borrower over which the
Industrial Occupant has no control, during which the Industrial Occupant has
paid all amounts required to be paid by them and performed all acts required to
be performed by them under each of the Loan Documents, PIDA may exercise any one
or more of the following remedies:
12
<PAGE>
(a) declare the Note and all liabilities of the Borrower thereunder to
be immediately due and payable, and the same shall thereupon become and be
due and payable;
(b) raise the rate of interest on the Loan as provided in the Note;
(c) foreclose on the Mortgage;
(d) bring an action (which may be by confession of judgment to the
extent permitted by the particular instrument) against the Borrower under
the Note and/or the Mortgage, against the Industrial Occupant under the
Assumption Agreement and/or the Premises Agreement, as assigned to PIDA by
the Assignment;
(e) bring an action of ejectment to recover possession of the
Premises; and/or
(f) exercise any other remedy available to it under any of the Loan
Documents or applicable law.
Except as expressly required by the particular Loan Document pursuant to
which such remedies are exercised or by applicable law, PIDA may exercise any of
the foregoing remedies without presentment, demand, protest or notice of any
kind to any person (including, without limitation, the Borrower or the
Industrial Occupant), all of which are hereby expressly and knowingly waived.
Subject solely to the limitation that PIDA is limited to one recovery for
the aggregate amounts due and owing under the Loan Documents, PlDA's remedies
under the Loan Documents are cumulative and concurrent and may, in PlDA's sole
discretion, be exercised, deferred, compromised, settled or discontinued without
affecting any other remedy available to PIDA under any of the Loan Documents or
under applicable law.
Notwithstanding anything to the contrary herein contained, so long as the
Industrial Occupant shall keep and perform all the provisions, covenants and
conditions to be assumed or performed by the Industrial Occupant respectively
under the Loan Documents, including the payment of all amounts due thereunder
and performance of all obligations set forth therein, PIDA shall not terminate,
impair or otherwise adversely affect the rights of the Industrial Occupant
thereunder. It is further agreed that PIDA shall use its best efforts to supply
the Industrial Occupant with a copy of each notice required to be supplied to
Borrower hereunder, but failure to so supply copies of such notices shall not
adversely affect any right of PIDA hereunder.
13
<PAGE>
Section 9.03. Remedies for Event of Default Arising From Internal
Operations of Borrower. Upon the occurrence of an Event of Default arising
solely from the internal operations of the Borrower over which the Industrial
Occupant has no control, during which the Industrial Occupant and any Guarantor
have paid all amounts required to be paid by them and performed all acts
required to be performed by them under each of the Loan Documents, PIDA may
(i) suspend or revoke the certification of the Borrower as an Industrial
Development Agency under the Act, or (ii) initiate or participate or intervene
in any action or legal proceeding (including, without limitation, any action or
proceeding under the U.S. Bankruptcy Code) to (A) compel compliance with the
terms of the Loan Documents, (B) to appoint a trustee or receiver for Borrower
or to dissolve, reorganize or liquidate Borrower, or (C) otherwise to protect
the interests of PIDA and/or the Industrial Occupant.
Section 9.04. Remedies for Event of Default Arising From Failure to Create
or Preserve Jobs. Upon the occurrence of an Event of Default arising solely from
a breach by the Industrial Occupant of Section 4.03 "Operations and Number of
Jobs" of the Assumption Agreement, PIDA may, in compliance with such regulations
and statements of policy, if any, as are then in effect, raise the rate of
interest on the Loan as permitted under the Note.
ARTICLE X
Miscellaneous
Section 10.01. Obligations Unconditional. The obligations to PIDA under
this Agreement and each of the Loan Documents shall be absolute and
unconditional without defense or set-off by reason of any default by the
contractors under the contracts relating to the Project or by PIDA under this
Agreement, any of the Loan Documents, or under any other agreement between the
Borrower or the Industrial Occupant and PIDA, or for any other reason, including
without limitation failure to complete the Project, any acts or circumstances
that may constitute failure of consideration, destruction of or damage to the
Project, commercial frustration of purpose, or failure of PIDA to perform and
observe any agreement, whether express or implied, or any duty, liability or
obligation arising out of or connected with this Agreement, it being the
intention of the parties that the payments required under each of the Loan
Documents will be paid in full when due without any delay or diminution
whatsoever. Payments and additional sums required to be paid to PIDA under any
of the Loan Documents shall be received by PIDA as net sums and the Borrower
agrees to pay or cause to be paid all charges against or which might diminish
such net sums. The provisions of this Section shall not impair the ability of
the Borrower or any other persons to bring an independent action against PIDA
with respect to any cause of action such person may have against PIDA.
Section 10.02. Provisions Complementary. The provisions of this Agreement
shall be in addition to those of any other Loan Document. All of such provisions
shall be construed as complementary to each other. Nothing
14
<PAGE>
contained herein shall prevent PIDA from enforcing any and all of such
provisions in accordance with their respective terms.
Section 10.03. Rights and Remedies. The terms of all Loan Documents shall
be liberally construed in favor of PIDA to effectuate the purposes hereof. No
delay or failure on the part of PIDA in exercising any right, power or privilege
under any of the Loan Documents shall affect such right, power or privilege; nor
shall any single or partial exercise thereof or any abandonment, waiver, or
discontinuance of steps to enforce such a right, power or privilege preclude any
other or further exercise thereof, or the exercise of any other right, power or
privilege. The rights and remedies of PIDA under any of the Loan Documents are
cumulative and concurrent and not exclusive of any rights or remedies which PIDA
might otherwise have. PIDA shall have the right at all times to enforce the
provisions of each of the Loan Documents and all related documentation in strict
accordance with the terms hereof and thereof, notwithstanding any conduct or
custom on the part of PIDA in refraining from so doing at any time or times. The
failure of PIDA at any time or times to enforce PIDA's rights under such
provisions, strictly in accordance with the same, shall not be construed as
having created a custom in any way or manner contrary to specific provisions of
such Loan Documents or any such documentation, or as having in any way or manner
modified or waived the same.
Section 10.04. Writing Required. Any permit, consent or approval of any
kind or character on the part of PIDA under any of the Loan Documents, and any
waiver of any provision or condition thereof, must be in writing and executed by
PIDA and shall be effective only to the extent specifically set forth in such
writing.
Section 10.05. Duration of Covenants. All covenants and agreements of the
Borrower or the Industrial Occupant in any of the Loan Documents, or otherwise
made in writing in connection herewith, shall survive and continue until the
Loan is entirely paid and all of the Borrower's obligations hereunder have been
entirely satisfied, unless a longer term is expressly provided for, in which
event such longer term shall apply.
Section 10.06. Pennsylvania Law to Govern. Each of the Loan Documents shall
be deemed to be contracts made under the laws of the Commonwealth of
Pennsylvania and, for all purposes, shall be construed in accordance with the
laws of such Commonwealth.
Section 10.07. Counterparts. Each of the Loan Documents may be executed in
as many counterparts as may be deemed necessary and convenient and each of
which, when so executed, shall be deemed an original, but all such counterparts
shall constitute but one and the same instrument. All signatures need not appear
on the same copy of any Loan Document.
15
<PAGE>
Section 10.08. PIDA Project Inspections Solely for PlDA's Benefit. It is
understood and agreed that PIDA, its agents, servants, invitees and employees,
may inspect the plans and specifications for the Project and enter the Premises
and conduct such tests, surveys, examinations and inspections (collectively,
"Project Inspections") as it shall, from time to time, deem appropriate. The
Borrower hereby acknowledges and agrees (i) that such Project Inspections are
solely for the protection and benefit of PIDA; (ii) that PIDA, its agents,
servants, invitees and employees including, without limitation, the PIDA
Engineer carry no responsibility whatsoever for the design or construction of
the Project, its quality or the compliance or lack of compliance with the plans
and specifications, (iii) that any engineering report issued by the PIDA
Engineer as to the quantity and quality of work is for the benefit of PIDA only
and (iv) that the engineering certifications by the PIDA Engineer are not
certifications of compliance by the contractor with the building specifications
or of the quality of the work, nor are they intended as construction
supervision.
Section 10.09. Setoff. The Borrower agrees that the Commonwealth of
Pennsylvania may set off the amount of any state tax liability or other debt of
the Borrower or its respective subsidiaries that is owed to the Commonwealth and
not being contested on appeal against any payments due the Borrower under this
or any other contract with the Commonwealth.
Section 10.10. Borrower Responsibility. Included in and made a part of this
Agreement is Exhibit 10.10, a clause pertaining to Borrower Responsibility.
Section 10.11. Borrower Integrity. The Borrower represents, warrants and
covenants that it currently has no interest and shall not acquire any interest,
direct or indirect, which would conflict in any manner or degree with the
performance of its obligations hereunder. Included in and made a part of this
Agreement is Exhibit 10.11, a clause pertaining to Borrower Integrity.
Section 10.12. Americans with Disabilities Act. Included in and made a part
of this Agreement is Exhibit 10.12, a clause pertaining to compliance with the
Americans with Disabilities Act.
Section 10.13. Successors and Assigns. This Agreement and each of the Loan
Documents shall inure to the benefit of, and shall be binding upon, the
respective successors and assigns of PIDA and the Borrower. Although PIDA has no
present intention to convey, pledge or otherwise assign its rights under the
Loan Documents, it may nevertheless do so in whole or in part without notice to
any person (including, without limitation, the Borrower and the Industrial
Occupant). The Borrower has no right to assign any of its rights or obligations
hereunder or under any of the Loan Documents without the prior written consent
of PIDA, and any such assignment without the prior written consent of PIDA shall
be void.
16
<PAGE>
The Borrower and PIDA intend that no person (other than Industrial
Occupant) shall have any claim or interest under this Agreement or right of
action hereunder.
Section 10.14. Notices. Notices required hereunder, or any correspondence
concerning this Agreement shall be directed to the following addresses and shall
be deemed properly given (a) if delivered by hand, (b) if sent by certified
mail, return receipt requested, postage prepaid, or by recognized overnight
courier service (including, without limitation, Federal Express or United Parcel
Service overnight service), charges prepaid; or (c) if sent by facsimile, with a
copy sent by first class U.S. Mail, postage prepaid.
To PIDA:
PENNSYLVANIA INDUSTRIAL DEVELOPMENT AUTHORITY
c/o Department of Commerce
480 Forum Building
Harrisburg, Pennsylvania 17120
FAX: (717) 234-4560
Attention: Executive Director
To Borrower:
PIDC FINANCING CORPORATION
2600 Centre Square West
1500 Market Street
Philadelphia, Pennsylvania 19102
Attention: President and Chief Executive Officer
Notices and communications hereunder shall be deemed sufficiently given
when dispatched pursuant to the foregoing provisions. Notices and communications
delivered by hand shall be effective upon receipt; notices and communications
sent by fax, with a copy by first class U.S. Mail, shall be effective upon
dispatch; notices and communications sent by recognized overnight courier
service shall be effective on the business day following dispatch; and notices
sent by certified mail shall be effective on the third business day following
dispatch. The parties hereto may, by a notice given hereunder, designate any
further or different addresses to which any subsequent notice or communication
hereunder shall be sent.
Section 10.15. Severability. If any provision hereof or of the Loan
Documents is found by a court of competent jurisdiction to be prohibited or
unenforceable in any jurisdiction, it shall be ineffective as to such
jurisdiction only to the extent of such prohibition or unenforceability, and
such prohibition or unenforceability shall not invalidate the balance of such
provision as to such jurisdiction to the extent it is not prohibited or
unenforceable, nor invalidate such provision in any other jurisdiction, nor
invalidate the other provisions of the Loan Documents, all of which shall be
liberally construed in favor of PIDA in order to effect the provisions of this
Agreement. Notwithstanding anything
17
<PAGE>
to the contrary herein contained, the total liability of the Borrower for
payment of interest pursuant hereto shall not exceed the maximum amount, if any,
of such interest permitted by applicable law to be contracted for, charged or
received, and if any payments by the Borrower to PIDA include interest in excess
of such a maximum amount, PIDA shall apply such excess to the reduction of the
unpaid principal amount due pursuant hereto, or if none is due, such excess
shall be refunded to the Borrower; provided that, to the extent permitted by
applicable law, in the event the interest is not collected, is applied to
principal or is refunded pursuant to this sentence and interest thereafter
payable pursuant hereto shall be less than such maximum amount, then such
interest thereafter so payable shall be increased up to such maximum amount to
the extent necessary to recover the amount of interest, if any, theretofore
uncollected, applied to principal or refunded pursuant to this sentence. Any
such application or refund shall not cure or waive any Event of Default. In
determining whether or not any interest payable under the Loan Documents exceeds
the highest rate permitted by law, any nonprincipal payment (except payments
specifically stated to be "interest") shall be deemed, to the extent permitted
by applicable law, to be an expense, fee, premium or penalty rather than
interest.
Section 10.16. Consent to Jurisdiction. The Borrower hereby irrevocably (a)
agrees that any suit, action or other legal proceeding arising out of or
relating to this Agreement or the Loan Documents may be brought in any federal
or state court located in or whose district includes Harrisburg, Pennsylvania or
the county wherein the Project is located and consents to the jurisdiction of
such court in any such suit, action or proceeding, and (b) waives any objection
which it may have to the laying of venue of any such suit, action or proceeding
in any such court and any claim that any such suit, action or proceeding has
been brought in an inconvenient forum. The Borrower hereby irrevocably consents
to the service of any and all process in any such suit, action or proceeding by
mailing of copies of such process to the Borrower at its address provided under
or pursuant to Section 10.14. The Borrower agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
All mailings under this section shall be by certified or registered mail, return
receipt requested. Nothing in this section shall affect the right of PIDA to
serve legal process in any other manner permitted by law or affect the right of
PIDA to bring any suit, action or proceeding against the Borrower or Borrower's
property in the courts of any other jurisdiction.
Section 10.17. Defined Terms. In each of the Loan Documents, unless
otherwise indicated, (i) defined terms may be used in the singular or the plural
and the use of any gender includes all genders, (ii) the words, "hereof',
"herein", "hereto", "hereby" and "hereunder" refer to the particular Loan
Document in which they occur in such document's entirety, (iii) the term, the
"Loan Documents", and the words, "thereof", "therein", "thereto", "thereby" and
"thereunder" refer to all the Loan Documents, taken together as a whole,
(iv) all references to particular Articles, Sections or Paragraphs are
references to the particular Article, Section or Paragraph of the particular
Loan Document in which such references occur.
18
<PAGE>
Section 10.18. Incorporation by Reference. All exhibits to this Agreement
and the terms of all Loan Documents shall be incorporated herein by reference as
though expressly set forth herein.
Section 10.19. Descriptive Headings. Descriptive headings of the several
Articles and Sections of each of the Loan Documents are intended for convenience
only and shall not control or affect the meaning or construction of any of the
provisions hereof.
Section 10.20. Further Assurances. The Borrower, from time to time, shall
execute such further instruments as PIDA may reasonably request to further
confirm and assure the interests and rights created or intended to be created in
favor of PIDA hereunder or under the Loan Documents.
Section 10.21. Complete Agreement. The Loan Documents constitute the entire
agreement between PIDA and the Borrower with respect to the Project and the
Loan. The Loan Documents supersede and replace all prior agreements related to
the subject matter thereof including, without limitation, the Commitment, except
to the extent such prior agreements are expressly incorporated by reference or
otherwise referred to. This Agreement, the Premises Agreement, the Assignment,
and the Assumption Agreement may be modified or amended only by a written
instrument duly executed by PIDA, the Borrower, and the Industrial Occupant.
Each of the remaining Loan Documents may be modified only by a written
instrument duly executed by PIDA and the remaining parties to the particular
Loan Document.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
ATTEST: /s/ Pascula M. Hunter THE PENNSYLVANIA INDUSTRIAL
--------------------- DEVELOPMENT AUTHORITY
Assistant Secretary
By: /s/ Marguerite Harris
-----------------------------
(CORPORATE SEAL) Administrator
ATTEST: /s/ Joseph A. Mee PIDC FINANCING CORPORATION
---------------------
Assistant Secretary By: /s/ Joseph J. Aylmer
-----------------------------
Senior Vice President
(CORPORATE SEAL)
19
EXHIBIT 11
MOTHERS WORK, INC. AND SUBSIDIARIES
COMPUTATION OF PRIMARY EARNINGS (LOSS) PER COMMON SHARE
Year Ended September 30
-----------------------
1994 1995 1996
---------- ----------- -----------
================================================================================
Average shares outstanding 3,108,886 3,120,535 3,269,290
- --------------------------------------------------------------------------------
Net effect of dilutive stock options
and warrants 77,999 -- --
---------- ----------- -----------
3,186,885 3,120,535 3,269,290
========== =========== ===========
- --------------------------------------------------------------------------------
Net income (loss) $1,845,851 $(6,635,854) $ 903,766
- --------------------------------------------------------------------------------
Preferred stock dividends -- (162,916) (977,500)
---------- ----------- -----------
- --------------------------------------------------------------------------------
Net income (loss) applicable to $1,845,851 $(6,798,770) $ (73,734)
common stockholders ========== =========== ===========
- --------------------------------------------------------------------------------
Per common share amount:
- --------------------------------------------------------------------------------
Before extraordinary item $ .58 $ (.83) $ (.02)
- --------------------------------------------------------------------------------
Extraordinary item -- (1.35) --
---------- ----------- -----------
$ .58 (2.18) $ (.02)
========== =========== ===========
================================================================================
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Name Under
Name of Jurisdiction of Which Subsidiary
Subsidiary Incorporation Does Business
- ---------- ------------- -------------
Cave Springs, Inc. Delaware Cave Springs
Mothers Work (R.E.), Inc. Pennsylvania A Pea in the Pod
Motherhood Maternity Shops, Inc. Delaware Motherhood
The Page Boy Company, Inc. Delaware Maternite
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statements File Nos. 33-64580, 333-2404, 333-3480 and 333-12321.
Arthur Andersen LLP
Philadelphia, PA
December 16, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
Company's 1996 10-K and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 1,262,435
<SECURITIES> 0
<RECEIVABLES> 2,288,026
<ALLOWANCES> 0
<INVENTORY> 57,209,499
<CURRENT-ASSETS> 66,366,032
<PP&E> 58,646,989
<DEPRECIATION> (13,195,875)
<TOTAL-ASSETS> 164,612,738
<CURRENT-LIABILITIES> 28,930,889
<BONDS> 96,680,722
0
11,500,000
<COMMON> 35,593
<OTHER-SE> 23,570,921
<TOTAL-LIABILITY-AND-EQUITY> 164,612,738
<SALES> 199,179,984
<TOTAL-REVENUES> 199,179,984
<CGS> 88,416,648
<TOTAL-COSTS> 88,416,648
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,864,351
<INCOME-PRETAX> 2,732,338
<INCOME-TAX> 1,828,572
<INCOME-CONTINUING> 903,766
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 903,766
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
</TABLE>
