<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. _____)(1)
Mothers Work, Inc.
(Name of Issuer)
Common Stock, par value $.01 per share
(Title of Class of Securities)
619903107
(Cusip Number)
Lita Chow
c/o Episode USA, Inc.
1040 6th Avenue
New York, New York 10018
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
July 10, 1996
(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule
13G to report the acquisition which is the subject of this
Schedule 13D, and is filing this schedule because of Rule 13d-
1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with the statement
[x]. (A fee is not required only if the reporting person: (1)
has a previous statement on file reporting beneficial ownership
of more than five percent of the class of securities described in
Item 1; and (2) has filed no amendment subsequent thereto
reporting beneficial ownership of five percent or less of such
class.) (See Rule 13d-7.)
Note: Six copies of this statement, including all exhibits,
should be filed with the commission. See Rule 13d-1(a) for other
parties to whom copies are to be sent.
- --------
(1) The remainder of this cover page shall be filled out for a
reporting persons's initial filing on this form with respect to the subject
class of securities, and for any subsequent amendment containing information
which would alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes.).
<PAGE>
SCHEDULE 13D
CUSIP No. 619903107 Page 2
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Episode USA, Inc. Employer I.D.# 11-2750441
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) / /
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
OO See Item 3
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) / /
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
State of Delaware
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 217,365 Shares
SHARES ---------------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 0
EACH ---------------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON 217,365 Shares
WITH ---------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
217,365 Shares
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* / /
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
6.1%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
SCHEDULE 13D
CUSIP No. 619903107 Page 3
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
SC Fang & Sons (Holdings) Limited
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) / /
- --------------------------------------------------------------------------------
3 SEC USE ONLY
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
OO See Item 3
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) or 2(e) / /
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Hong Kong
- --------------------------------------------------------------------------------
7 SOLE VOTING POWER
NUMBER OF 217,365 Shares
SHARES ---------------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 0
EACH ---------------------------------------------------------------
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON 217,365 Shares
WITH ---------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
0
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
217,365 Shares
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* / /
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
6.1%
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
CO
- --------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE>
Item 1. Security and Issuer.
This statement relates to shares of Common Stock (the
"Common Stock"), par value $.01 per share, of Mothers Work, Inc.
(the "Issuer"), a Delaware corporation. The principal executive
offices of the Issuer are located at 456 North 5th Street,
Philadelphia, Pennsylvania.
Item 2. Identity and Background.
(a) This statement is being filed by Episode USA, Inc.
("Episode"), a subsidiary of SC Fang & Sons (Holdings) Limited, a
Hong Kong company ("SC Fang"), and by SC Fang. The persons
listed on Schedule A and Schedule B annexed hereto are the
executive officers and directors of Episode and SC Fang,
respectively. Neither Episode and the persons listed in Schedule
A nor SC Fang and the persons listed in Schedule B constitute a
"group" within the meaning of Rule 13d-5(b)(1) under the
Securities Exchange Act of 1934.
(b) The principal business address of Episode is 1040 6th
Avenue, 19th floor, New York, New York 10018. The principal
business address of SC Fang is Wyler Centre, 2,200 Tai Lin Pai
Road, 7th floor, Kwai Chung, N.T., Hong Kong. Schedule A and
Schedule B set forth the business address and present principal
occupation or employment of each of the officers and directors of
Episode and SC Fang, respectively.
(c) Episode was engaged in the business of selling women's
clothing under various trademarks, including Episode, Excursion
and Episode Studio in retail stores operated under the name
Episode located primarily in enclosed regional shopping malls and
center city retail districts throughout the United States. On
January 26, 1996, Episode filed a voluntary petition for relief
with the United States Bankruptcy Court in the Southern District
of New York (the "Court") under Chapter 11 of Title 11 of the
United States Code. On May 30, 1996, Episode consummated that
certain Asset Purchase Agreement (the "Agreement") dated as of
April 25, 1996, as amended on May 30, 1996, by and among Episode,
the Issuer and T3 Acquisition, Inc. pursuant to which Episode
sold substantially all of its assets. Episode currently intends
to file a Chapter 11 plan with the Court.
SC Fang is principally engaged in holding and owning
investment securities.
(d) During the past five years, none of Episode, SC Fang or
the persons listed on Schedule A and Schedule B has been
convicted in a criminal proceeding, excluding traffic violations
or similar misdemeanors.
4
<PAGE>
(e) During the past five years, none of Episode, SC Fang or
the persons listed on Schedule A and Schedule B has been
a party to a civil proceeding of a judicial or administrative
body of competent jurisdiction as a result of which proceeding he
or she was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws or
finding any violations with respect to such laws.
(f) Schedule A and Schedule B set forth the citizenship of
each officer and director of Episode and SC Fang, respectively.
Item 3. Source and Amount of Funds or Other Consideration.
On May 30, 1996, Episode acquired 173,913 shares of
unregistered Common Stock of the Issuer in connection with the
Agreement. On July 10, 1996, pursuant to certain closing
adjustments made pursuant to the Agreement, Episode was issued an
additional 43,452 shares of unregistered Common Stock (together
with the other 173,913 shares of Common Stock issued to Episode,
the "Shares").
Under the terms of the Agreement, Episode sold substantially
all of its assets (including retail store leases, tangible
leasehold assets, inventory, licenses, security deposits and
intangible assets) to the Issuer in exchange for the Shares,
licensing fees and cash, which, in the aggregate, are valued at
approximately $11,500,000. SC Fang is deemed to beneficially own
the Shares by virtue of its ownership of approximately 98% of the
common stock of Episode.
The Court approved the terms of the Agreement on May 30,
1996.
Item 4. Purpose of Transaction.
The Shares were acquired pursuant to the Agreement. Neither
Episode, SC Fang or any of the persons listed on Schedule A and
Schedule B has any plans which relate to or would result in or
relate to any of the transactions described in subsections (a)
through (j) inclusive, of Item 4 of Schedule 13D.
Item 5. Interest in Securities of the Issuer.
(a) (i) As of July 10, 1996, Episode beneficially owns
217,365 shares of Common Stock, or approximately 6.1% of the
Common Stock based on 3,544,822 shares of Common Stock
outstanding as of such date.
(ii) As of July 10, 1996, SC Fang beneficially owns
217,365 shares of Common Stock, or approximately 6.1% of the
Common Stock based on 3,544,822 shares of Common Stock
outstanding as of such date.
5
<PAGE>
(b) Each of Episode and SC Fang, as a result of its
beneficial ownership of 98% of the common stock of Episode, has
the power to vote or dispose of the Shares.
(c) Not applicable.
(d) Pursuant to a Pledge and Irrevocable Proxy Security
Agreement (the "Pledge Agreement"), dated May 30, 1996, by and
between Episode and Marine Midland Bank ("Marine"), Episode has
agreed to pledge to Marine, and grant Marine a security interest
in, the Shares, in consideration of any extension of credit made
to Episode by Marine. Under the terms of the Pledge Agreement,
Episode has also authorized Marine (i) to receive any increase in
or profits on the Shares (including, without limitation, any
stock issued as a result of any stock split or dividend, any
capital distributions and the like), and to hold the same as part
of the collateral represented by the Shares and (ii) to receive
any payment or distribution on the Shares upon redemption by, or
dissolution and liquidation of, the Issuer; to surrender the
Shares or any part thereof in exchange therefor; and to hold the
net cash receipts from any such payment or distribution as part
of the collateral represented by the Shares.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or
Relationships with Respect to Securities of the
Issuer.
Pursuant to the terms of the Pledge Agreement, Episode has
irrevocably constituted and appointed Marine as Episode's proxy
with full power to vote the Shares at any meeting of Issuer's
stockholders or by written consent, in such manner as Marine
shall, in its sole discretion, deem appropriate, until the
termination of the Pledge Agreement pursuant to the terms
thereof; provided, however, that said proxy shall not be
exercisable by Marine, and Episode alone shall have the foregoing
powers until Marine has given to Episode written notice of
Marine's election to exercise said proxy and either (i) all or
any part of any indebtedness owed by Episode to Marine has been
declared by Marine to be, or has become, due, pursuant to the
terms of the Pledge Agreement, or (ii) demand for payment has
been made respecting any indebtedness owed by Episode to Marine
which is payable on demand. As of the date hereof, Marine has
not given Episode written notice of its' intent to exercise its
right of proxy.
Item 7. Material to be Filed as Exhibits.
Exhibit 1: Joint Filing Agreement
Exhibit 2: Asset Purchase Agreement, dated as of April
25, 1996, as amended on May 30, 1996, by and
6
<PAGE>
among Episode USA, Inc., the Issuer and T3
Acquisition, Inc.
Exhibit 3: Pledge and Irrevocable Proxy Security
Agreement, dated May 30, 1996, by and
between Episode USA, Inc. and Marine
Midland Bank.
Exhibit 4: Rider, dated May 30, 1996, to the Pledge and
Irrevocable Proxy Security Agreement, dated
May 30, 1996, by and between Episode USA,
Inc. and Marine Midland Bank.
7
<PAGE>
SIGNATURES
After reasonable inquiry and to the best of our knowledge
and belief, the undersigned certify that the information set
forth in this instrument is true, complete and correct.
Dated: July 17, 1996
EPISODE USA, INC. SC FANG & SONS (HOLDINGS)
LIMITED
By: /s/ Lita Chow By: /s/ Kenneth Fang
-------------------- -----------------------
Name: Lita Chow Name: Kenneth Fang
Title: President Title: Director
8
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Position with Present Principal
Name Citizenship Episode USA, Inc. Occupation
- ---- ----------- ----------------- -----------------
<S> <C> <C> <C>
Lita Chow U.S.A. President President,
1040 6th Avenue Episode USA, Inc.
19th Floor
New York, NY 10018
YS Chiang U.S.A. Secretary, Executive V.P.,
215 Daniel Street Treasurer Jeanne Pierre
Farmingdale, NY 11735 and Director
Christine Fang Republic of Director Director, Toppy
7/F., Wyler Centre II Ireland International Ltd.
200 Tai Lin Pai Road
Kwai Chung, N.T.
Hong Kong
Jeffrey Fang Republic of Director Chief Executive
7/F., Wyler Centre II Ireland Officer, Toppy
200 Tai Lin Pai Road International Ltd
Kwai Chung, N.T.
Hong Kong
Kenneth Fang Republic of Director Director, Fang
20-24 Kwai Wing Road Ireland Brothers Knitting
Kwai Chung, N.T. Ltd.
Hong Kong
</TABLE>
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Position with
S.C. Fang & Sons Present Principal
Name Citizenship (Holdings) Limited Occupation
- ---- ----------- ------------------ -----------------
<S> <C> <C> <C>
Kenneth Fang Republic of Director Director, Fang
20-24 Kwai Wing Road Ireland Brothers Knitting
Kwai Chung, N.T. Ltd.
Hong Kong
Laurence Fang Republic of Director Director, Doulton
6th Floor Ireland Ltd.
Block C&D
Victorious Factory Bldg.
35-36 Tseuk Luk Street
Sanpokong, Kowloon
Hong Kong
Vincent Fang Republic of Director Director,
45-51 Kwok Shui Road Ireland Fantastic Garments
Kwai Chung, N.T. Ltd.
Hong Kong
Jeffrey Fang Republic of Director Chief Executive
7/F., Wyler Centre II Ireland Officer, Toppy
200 Tai Lin Pai Road International Ltd.
Kwai Chung, N.T.
Hong Kong
</TABLE>
<PAGE>
EXHIBIT 1
JOINT FILING AGREEMENT
The undersigned hereby agree that the statements to the Schedule 13D
with respect to the shares of common stock, $.01 par value per share, of Mothers
Work, Inc., dated July 17, 1996, is, and any amendments to such Schedule 13D
signed by each of the undersigned shall be, filed on behalf of each of us
pursuant to and in accordance with the provisions of Rule 13d-1(f) under the
Securities Exchange Act of 1934.
Dated: July 17, 1996
EPISODE USA, INC. SC FANG & SONS (HOLDINGS)
LIMITED
By: /s/ Lita Chow By: /s/ Kenneth Fang
--------------------- ------------------------
Name: Lita Chow Name: Kenneth Fang
Title: President Title: Director
<PAGE>
ASSET PURCHASE AGREEMENT
Dated as of April 25, 1996
by and among
EPISODE USA, INC.,
MOTHERS WORK, INC.,
and
T3 ACQUISITION, INC.
<PAGE>
TABLE OF CONTENTS
Page
1. TRANSFER OF ASSETS . . . . . . . . . . . . . . . . . . . 2
1.1. Purchase and Sale of Assets . . . . . . . . . . . 2
1.2. Excluded Assets . . . . . . . . . . . . . . . . . 3
1.3. Method of Conveyance . . . . . . . . . . . . . . . 3
1.4. Assumed Obligations . . . . . . . . . . . . . . . 3
2. PURCHASE PRICE; ESCROW; PURCHASE PRICE ALLOCATION . . . 4
2.1. Purchase Price . . . . . . . . . . . . . . . . . . 4
2.2. Allocation of Purchase Price . . . . . . . . . . . 5
2.3. Adjustments to the Inventory Adjustment Amount . . 5
3. PRORATIONS AND ADJUSTMENTS . . . . . . . . . . . . . . . 7
4. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . 7
4.1. Closing . . . . . . . . . . . . . . . . . . . . . 7
4.2. Closing Deliveries of Seller . . . . . . . . . . . 7
4.3. Closing Deliveries of Purchaser . . . . . . . . . 7
5. REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . 8
5.1. Status of Selling; Stock Ownership . . . . . . . . 8
5.2. Authority; Approval; Enforceability . . . . . . . 8
5.3. No Consents Required . . . . . . . . . . . . . . . 8
5.4. Financial and Other Information . . . . . . . . . 9
5.5. Environmental Matters . . . . . . . . . . . . . . 9
5.6. Employees . . . . . . . . . . . . . . . . . . . . 10
5.7. Title; No Liens . . . . . . . . . . . . . . . . . 10
5.8. Leases . . . . . . . . . . . . . . . . . . . . . . 10
5.9. Inventory . . . . . . . . . . . . . . . . . . . . 11
5.10. Absence of Certain Changes . . . . . . . . . . . 11
5.11. Insurance . . . . . . . . . . . . . . . . . . . . 11
5.12. [Reserved] . . . . . . . . . . . . . . . . . . . 12
5.13. Permits . . . . . . . . . . . . . . . . . . . . . 12
5.14. Intellectual Property . . . . . . . . . . . . . . 12
5.15. Securities Law Representations . . . . . . . . . 12
6. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND
MOTHERS WORK . . . . . . . . . . . . . . . . . . . 14
6.1. Corporate Status . . . . . . . . . . . . . . . . . 14
6.2. Authority . . . . . . . . . . . . . . . . . . . . 14
6.3. No Proceedings . . . . . . . . . . . . . . . . . . 14
6.4. No Conflict . . . . . . . . . . . . . . . . . . . 15
6.5. Parent Reports; Financial Statements . . . . . . . 15
6.6. Authorization of Shares and Additional Shares . . 16
7. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . 17
-i-
<PAGE>
Page
7.1. Non-Competition . . . . . . . . . . . . . . . . . 17
7.1.1. General . . . . . . . . . . . . . . . . . . 17
7.1.2. Nondisclosure . . . . . . . . . . . . . . . 17
7.1.3. Reasonableness of Restrictions . . . . . . 18
7.1.4. Enforceability . . . . . . . . . . . . . . 18
7.1.5. Injunction . . . . . . . . . . . . . . . . 18
7.2. Employees: Access to Employees . . . . . . . . . 18
7.3. Business Licenses . . . . . . . . . . . . . . . . 19
7.4. Assignment of Leases and Executory Contracts . . . 19
7.6. General Restrictions . . . . . . . . . . . . . . . 20
7.7. Purchaser's Access to Information and Assets . . . 21
7.8. Notice Regarding Changes . . . . . . . . . . . . . 21
7.9. Ensure Conditions Met . . . . . . . . . . . . . . 21
7.10. Casualty Loss . . . . . . . . . . . . . . . . . . 21
7.11. Notice of Motion and Sale Hearing . . . . . . . . 22
7.12. Publicity . . . . . . . . . . . . . . . . . . . . 22
7.13. Bankruptcy Court Approval . . . . . . . . . . . . 22
7.14. Name Changes . . . . . . . . . . . . . . . . . . 25
7.15. Post-Closing Indemnities . . . . . . . . . . . . 25
7.16. Indemnification Procedures and Limitations . . . 26
7.17. Transitional Cooperation . . . . . . . . . . . . 27
7.18. Further Assurances . . . . . . . . . . . . . . . 27
7.19. Audited Statements . . . . . . . . . . . . . . . 28
8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE . . 28
9. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE . 29
10. TERMINATION . . . . . . . . . . . . . . . . . . . . . . 30
11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . 30
11.1. Entire Agreement . . . . . . . . . . . . . . . . 30
11.2. Amendment . . . . . . . . . . . . . . . . . . . . 30
11.3. No Third Party Beneficiary . . . . . . . . . . . 30
11.4. Waivers and Remedies . . . . . . . . . . . . . . 31
11.5. Severability . . . . . . . . . . . . . . . . . . 31
11.6. Descriptive Headings . . . . . . . . . . . . . . 31
11.7. Counterparts . . . . . . . . . . . . . . . . . . 31
11.8. Notices . . . . . . . . . . . . . . . . . . . . . 31
11.9. Successors and Assigns . . . . . . . . . . . . . 32
11.10. Applicable Law; Jurisdiction . . . . . . . . . . 32
11.11. Brokers and Agents . . . . . . . . . . . . . . . 32
11.12. Expenses . . . . . . . . . . . . . . . . . . . . 33
11.13. Attorneys Fees . . . . . . . . . . . . . . . . . 33
11.14. Effect of Representations and Warranties . . . . 33
-ii-
<PAGE>
Index to Schedules
Schedule 1.1.1 - Stores
Schedule 1.1.2 - Tangible Assets from Excluded Leases
Schedule 1.2A - Excluded Leases/Closed Stores
Schedule 5.1 - Foreign Qualification
Schedule 5.5A - Financial Statements
Schedule 5.5B - Store Financial Information
Schedule 5.6 - Collective Bargaining Agreements
Schedule 5.8 - Leases
Schedule 5.10A - Adverse Changes
Schedule 5.10B - Occurrences Outside Ordinary Course
Schedule 5.11 - Insurance
Schedule 5.14 - Intellectual Property
Schedule 8.5 - License Agreement
Schedule 8.6 - Registration Rights
Schedule 8.7 - Guarantee
-iii-
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is
entered into on this 25th day of April, 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
("Purchaser").
R E C I T A L S
A. Seller is engaged in the business of selling women's
clothing under various trademarks, including Episode, Excursion
and Episode Studio in retail stores operated under the name
"Episode" located primarily in enclosed regional shopping malls
and center city retail districts throughout the United States
(the "Business).
B. Seller owns or has certain other rights in and to the
Assets (as such term is defined in Section 1.1 hereof) and uses
the Assets in the conduct of the Business.
C. Seller is debtor in possession in bankruptcy in the
Chapter 11 case currently before the United States Bankruptcy
Court for the Southern District of New York (the "Bankruptcy
Court"), Case No. 96-B-40371(JLG) (the "Chapter 11 Case").
D. Purchaser desires to purchase all of the Assets on the
terms and conditions hereinafter set forth.
E. Seller desires to sell, assign, convey, transfer and
deliver all of the Assets to Purchaser on the terms and subject
to the conditions hereinafter set forth.
F. Mothers Work is willing to guarantee payment and
performance of Purchaser's obligations under this Agreement.
AGREEMENT
In consideration of the premises and the mutual
agreements, covenants, representations, warranties and
understandings hereinafter set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be bound legally,
hereby agree as follows:
<PAGE>
1. TRANSFER OF ASSETS
1.1. Purchase and Sale of Assets. At the Closing (as
such term is defined in Section 4 hereof), Seller shall sell,
transfer, convey, assign and deliver to Purchaser, and Purchaser
shall purchase and accept delivery of, all of the following
tangible and intangible assets and properties of Seller owned by
Seller on the Closing Date (as hereinafter defined) (the
"Assets").
1.1.1. All of Seller's right, title and interest
as lessee in and to the 21 leases (the "Leases") for Episode
retail stores (the "Stores") which Leases and Stores are
identified on Schedule 1.1.1.
1.1.2. All of the Seller's right, title and
interest in and to (i) the machinery, signage, leasehold
improvements, fixtures, point of sale equipment and computer
hardware and software and all other tangible assets and
properties of Seller used in the operation of the Business at the
Stores but excluding Inventory and (ii) those assets previously
utilized at the locations covered by the Excluded Leases (as
hereinafter defined) which are identified on Schedule 1.1.2
(collectively, the "Tangible Leasehold Assets").
1.1.3. All of Seller's right, title and interest
in and to all inventories of women's clothing and accessories
held for sale to customers which are currently in the Stores or
which are subsequently received in the Stores by the Closing Date
and constitute new production of current (spring/summer) season
goods (the "Inventory").
1.1.4. All of Seller's right, title and interest
in and to all packaging materials and supplies, point of sale
supplies, brochures, printed materials and displays relating to
the Business wherever located (the "Supplies Inventory").
1.1.5. All of Seller's right, title and interest
in and to the security deposits relating to the Leases
(collectively the "Security Deposits").
1.1.6. All of the Seller's right, title and
interest in and to Seller's franchise, permits and licenses (to
the extent the issuer of such license or permit permits
assignment), telephone numbers, customer lists, supplier lists,
referral lists, advertising materials and data, blueprints, store
designs, methods and other similar know-how or rights used at the
store level in the operation of the Business at the Stores,
together with copies of all books, records, computer software,
files, papers and other data of Seller relating to store
-2-
<PAGE>
operations under the Leases or in respect of the Business
operated at the Stores (the "Intangible Assets").
Subject to obtaining the approval required by Section
7.13 hereof, all of the Assets transferred hereunder shall be
transferred free and clear of all liens, encumbrances, claims,
debts, commitments, product liability claims, warranty claims,
pension claims, tort or contractual claims and any asbestos or
any other environmental claims or obligations, whether absolute
or contingent, accrued or unaccrued, asserted or unasserted,
known or unknown (collectively, the "Claims"), each of which
shall remain the sole obligation of Seller.
1.2. Excluded Assets. Seller is not selling, and
Purchaser is not acquiring any assets of Seller other than the
Assets (the "Excluded Assets"), which Excluded Assets include,
without limitation, (i) the leases for the real properties set
forth on Schedule 1.2A (the "Excluded Leases"), (ii) the assets
at the locations covered by those Excluded Leases identified on
Schedule 1.2A as "Closed Stores" which are not Assets, (iii) cash
and cash equivalents of Seller, (iv) all of Seller's right, title
and interest in and to any and all tradenames and trademarks,
including, without limitation, the names "Episode" and
"Excursion"; (v) all assets located at the corporate
headquarters, including, without limitation, software, (vi)
accounts receivable, (vii) all deposits and prepaid expenses
other than the Security Deposits, and (viii) all inventories
which do not constitute Inventory.
1.3. Method of Conveyance. The sale, transfer,
conveyance, assignment and delivery by Seller of the Assets to
Purchaser hereunder shall be effected on the Closing Date by
deliveries by Seller of (i) all assignments and other instruments
of conveyance as Purchaser may reasonably request, in form
reasonably satisfactory to Purchaser and its counsel, and (ii)
all other documents and instruments required to be delivered by
Seller under the terms of this Agreement, all in such form
necessary to vest in Purchaser title to the Assets, free and
clear of any and all Claims.
1.4. Assumed Obligations.
1.4.1. Purchaser shall assume, satisfy and
discharge only the following liabilities, obligations, debts and
commitments of Seller (collectively the "Assumed Obligations"):
all of Seller's obligations accruing from and after the Closing
under the Leases and with respect to returns of pre-Closing
merchandise and Seller gift certificates.
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1.4.2. The parties hereto acknowledge and agree
that, other than the Assumed Obligations, Purchaser shall not
assume, satisfy, discharge or otherwise be responsible for any
liability, obligation, debt or commitment of Seller of any kind
or nature whatsoever, whether absolute or contingent, accrued or
unaccrued, asserted or unasserted, known or unknown, or otherwise
(collectively the "Excluded Liabilities"), including but not
limited to: (i) any liabilities, obligations, debts or
commitments of Seller arising out of or incurred with respect to
this Agreement and the transactions contemplated hereby
(including any and all sales, income or other taxes, whether
measured by income or otherwise); (ii) any liabilities or
obligations in respect of any action against the Seller pursuant
to Sections 547 and/or 548 of the Bankruptcy Code, (iii) subject
to the provisions of Section 7.2.4 below, any liability of Seller
to any employee, former employee arising or accruing in
connection between Seller and any such person, or arising out of
any employee benefit plan or program of any Selling Party,
including any liability of any Seller for severance or
termination arising out of or alleged to have arisen out of the
transactions contemplated by this Agreement, (iv) any other
liabilities or obligations which otherwise arise or are asserted
by reason of events, acts (or failures to act) or transactions
occurring, or the operation of the Business, prior to the
Closing, or (v) the Claims. The parties hereto further agree
that all of the Excluded Liabilities shall remain the sole,
exclusive obligation and responsibility of Seller and Seller
further agrees to discharge consistent with the provisions of the
Bankruptcy Code and subject to valid defenses and offsets, all
Excluded Liabilities. The Bankruptcy Court orders shall provide
that, except as expressly provided in this Section 1.4 any and
all liabilities with respect to the operation of the Business
prior to the Closing, including any Claims, shall, as between
Seller and Purchaser, be the sole obligation and responsibility
of Seller, and shall not be assumed by or otherwise affect, in
any respect, Purchaser or the Assets.
2. PURCHASE PRICE; ESCROW; PURCHASE PRICE ALLOCATION
2.1. Purchase Price. As full consideration for the
Assets to be sold, transferred, conveyed and delivered by Seller
to Purchaser pursuant to this Agreement, Purchaser agrees to pay
to Seller an aggregate purchase price (the "Purchase Price")
equal to: (i) 173,913 shares (the "Shares") of Mothers Work
common stock par value $.01 (as currently configured and subject
to adjustments for stock splits, stock dividends and similar
transactions) (the "Common Stock"), (ii) plus $2.0 million in
cash, (iii) plus the Security Deposit Amount (as hereinafter
defined) in cash, (iv) plus or minus, as the case may be, the
Inventory Adjustment Amount (as hereinafter defined). The
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Inventory Adjustment Amount: if positive, shall be payable in
additional shares of Mothers Work common stock valued at $23.00
per share and rounded to the nearest whole share (the "Additional
Shares") and if negative, shall be deducted from the Shares
utilizing a value of $23.00 per share (as currently configured
and subject to adjustments for stock splits, stock dividends and
similar transactions) and rounded to the nearest whole share.
Purchaser shall pay the Purchase Price to Seller as
follows: (i) on the Closing Date, Purchaser shall deliver a
share certificate evidencing the Shares registered in Seller's
name and shall pay the cash portion of the Purchase Price in
immediately available funds by wire transfer (to an account
specified by Seller to Purchaser in writing at least one business
day prior to Closing) and (ii) within five days after a final
determination of the Inventory Adjustment Amount, Purchaser shall
deliver a share certificate evidencing any Additional Shares
registered in Seller's name. For purposes of this Agreement, the
Security Deposit Amount shall equal the sum of all Security
Deposits held by landlords under the Leases which deposits are
transferred to Purchaser by Seller and for which Security
Deposits either Seller obtains a court order setting forth, or
such landlords acknowledge, Purchaser's entitlement thereto under
the applicable Leases, and the Inventory Adjustment Amount shall
mean the amount by which the value of the Inventory at Closing
(determined at the lower of fair market value or cost in a manner
consistent with generally accepted accounting principles as
historically applied by Seller) exceeds or is less than $4.1
million, as the case may be, such amount to be determined, and to
be subject to adjustment, as provided in Section 2.3 below.
2.2. Allocation of Purchase Price. The Purchase Price
shall be allocated among the Assets in accordance with Section
1060 of the Internal Revenue Code of 1986, as amended (the
"Code"), and the regulations promulgated thereunder. The
allocation of the Purchase Price shall be agreed upon by Seller
and Purchaser prior to the Closing. Seller and Purchaser agree
to file timely all returns required under Code Section 1060 and
the regulations promulgated thereunder based on the allocations
so agreed upon and further agree that they will not take any
position inconsistent therewith on any return or other document
of any kind or in the course of any audit, examination or other
proceeding by or before any federal, state, local or other taxing
authority (or other governmental agency), court or tribunal.
2.3. Adjustments to the Inventory Adjustment Amount.
2.3.1. On the Closing Date, the Controller of
Seller shall furnish to Purchaser a certificate setting forth her
estimate of the Inventory Adjustment Amount (the "Estimated
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Inventory Adjustment Amount.") In conjunction with Closing,
Seller and Purchaser shall engage a mutually acceptable service
organization to conduct a physical inventory of Seller, which
inventory may be observed by representatives of Purchaser, on a
mutually agreed upon basis. The cost of such physical inventory
shall be borne equally by Seller and Purchaser.
2.3.2. Within 20 days after the Closing Date,
Purchaser shall notify Seller of any proposed adjustments to the
Estimated Inventory Adjustment Amount that Purchaser may have.
All adjustments proposed by Purchaser shall be set forth in a
detailed statement (the "Contested Adjustment Statement").
Seller shall provide Purchaser and its representatives reasonable
access to the book and records of the Business prior to the
Closing Date for the purpose of verifying the Estimated Inventory
Adjustment Amount.
2.3.3. Purchaser and Seller shall use reasonable
efforts to resolve any dispute over the Inventory Adjustment
Amount, but if any such dispute is not resolved within 20 days of
Seller's receipt of the Contested Adjustment Statement, Purchaser
and Seller shall promptly retain a recognized independent
accounting firm acceptable to both Purchaser and Seller (the
"Independent Accountant") to resolve the dispute. Within 10 days
of retention of the Independent Accountant, Purchaser and Seller
shall each submit to the Independent Accountant their respective
positions with respect to the Inventory Adjustment Amount,
together with any necessary supporting documentation and shall
direct the Independent Accountant to render its decision as to
the Inventory Adjustment Amount within 20 days after receiving
such documentation. The decision of the Independent Accountant
as to the Inventory Adjustment Amount shall be final, binding and
non-appealable. The fees and expenses of the Independent
Accountant shall be paid one-half by Purchaser and one-half by
Seller.
2.3.4. Within five days after a final
determination of the Inventory Adjustment Amount (whether
determined by the Independent Accountant or by agreement of the
parties hereto), Purchaser or Seller, as applicable, shall adjust
the Purchase Price to reflect the actual Inventory Adjustment
Amount. Such adjustment shall be made by Purchaser's delivery of
the Additional Shares if the Inventory Adjustment Amount is
positive and by Seller's return of the appropriate number of the
Shares if the Inventory Adjustment Amount is negative. In the
latter circumstance, Seller shall surrender the share certificate
evidencing the Shares for cancellation in exchange for a new
share certificate evidencing the reduced number of Shares
registered in Seller's name.
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3. PRORATIONS AND ADJUSTMENTS
Expenses such as power and utility charges, property
assessments, rents, ad valorem or personal property taxes and all
other similar items of expense at the Stores and pursuant to the
Leases shall be prorated between Seller and Purchaser as of the
Closing Date. All prorations shall be made 30 days after the
Closing Date. In the event that Purchaser or Seller shall
receive bills after such date for expenses incurred prior to the
Closing Date that were not prorated in accordance with this
Section 3, then Purchaser or Seller, as the case may be, shall
promptly notify the other party as to the amount of the expense
subject to proration and the responsible party shall pay its
portion of such expense (or, in the event such expense has been
paid on behalf of the responsible party, reimburse the other
party for its portion of such expense).
4. CLOSING
4.1. Closing. The closing of the transactions
contemplated hereby (the "Closing") shall occur on the later of
May 31, 1996 or such other date which is one business day after
the order approving the sale of the Assets to Purchaser becomes
final and non-appealable and all the conditions to Closing as set
forth in Sections 8 and 9 have been satisfied or waived at the
offices of Pepper, Hamilton & Scheetz, Philadelphia, PA 19105,
at 10:00 a.m. or at such other time and/or place as the parties
mutually agree. The date upon which the Closing occurs is
referred to herein as the "Closing Date."
4.2. Closing Deliveries of Seller. At the Closing, in
addition to any document otherwise required to be delivered under
this Agreement, Seller shall deliver to Purchaser the following:
4.2.1. A certificate of an executive officer of
Seller certifying that the conditions to Closing set forth in
Subsections 9.1, 9.2 and 9.3 hereof have been fulfilled in their
entirety as of the Closing Date.
4.2.2. Certified copies of the resolutions of the
board of directors (or authorized committees thereof) and
shareholders, if applicable, of Seller authorizing the sale of
the Assets and the execution, delivery and performance of this
Agreement by Seller.
4.3. Closing Deliveries of Purchaser. At the Closing,
in addition to any document otherwise required to be delivered by
Purchaser under this Agreement, Purchaser shall deliver to Seller
the following:
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4.3.1. The payment of the portion of the Purchase
Price payable on the Closing Date as contemplated by Section 2.2;
4.3.2. A certificate of an executive officer of
Purchaser certifying that the conditions to Closing set forth in
Subsections 8.1, 8.2 and 8.3 of this Agreement have been
fulfilled in their entirety as of the Closing Date.
4.3.3. Certified copies of the resolutions of the
board of directors of Purchaser and Mothers Work authorizing the
purchase of the Assets and the execution, delivery and
performance by each of them of this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF SELLER
In order to induce Purchaser to enter into this
Agreement and to consummate the transactions contemplated hereby,
Seller hereby represents and warrants to Purchaser as follows:
For purposes of these representations and warranties, the term
Seller shall include any and all of the former subsidiaries of
Seller which were previously merged into Seller.
5.1. Status of Selling; Stock Ownership. Seller (i)
is a corporation duly organized and validly existing and (ii)
transacts business in the jurisdictions set forth on Schedule
5.1. Seller has the necessary corporate power and authority to
execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby.
5.2. Authority; Approval; Enforceability. The
execution, delivery and performance by Seller of this Agreement
and of each and every agreement, document and instrument of
conveyance contemplated hereby and the consummation of the
transactions contemplated hereby and thereby have been, or by the
Closing will be, duly and validly authorized by all necessary
corporate action by the Seller. This Agreement is, and when
executed and delivered all such other agreements, documents and
instruments contemplated by this Agreement will be valid and
binding upon Seller and enforceable against Seller in accordance
with their respective terms, subject to the approval of the
Bankruptcy Court. All persons who have executed this Agreement
on behalf of Seller and who will execute any other agreement,
document or instrument contemplated by this Agreement on behalf
of Seller have been duly authorized to do so by all necessary
corporate action by Seller.
5.3. No Consents Required. Except for approval by the
Bankruptcy Court, or as required under Section 7.13, no approval,
authorization, consent or other order or action of, or filing by
any Seller with any court, administrative agency, governmental
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authority or any other person is required for the execution and
delivery by Seller by this Agreement or consummation by Seller of
the transactions contemplated hereby.
5.4. Financial and Other Information. Seller has
delivered to Purchaser true and complete copies of the audited
consolidated financial statements of Seller as of and for the
years ended January 29, 1994 and January 28, 1995 (the "Financial
Statements"); and the Financial Statements are attached hereto as
Schedule 5.5 A. The Financial Statements were prepared in
accordance with generally accepted accounting principles and
present fairly the financial condition and results of operations
of Seller for the dates or periods indicated thereon. The
Financial Statements reflect all claims against and all debts and
liabilities of the Seller, whether fixed or contingent, known or
unknown, to the extent required by generally accepted accounting
principles. The store by store financial information for the
Stores attached hereto as Schedule 5.5B with respect to the
periods referenced in the Financial Statements previously
provided by Seller to the Purchaser is true and correct in all
material respects taken as a whole.
5.5. Environmental Matters. For the period of time
that the Seller has owned (directly or indirectly) the Business,
there has not been and there is not now (except insofar as the
existence of any of the following would not result in a material
adverse effect on the Business); (i) to the knowledge of Seller,
the unlawful presence of any Hazardous Materials (as hereinafter
defined) on any of the property owned, controlled or occupied by
Seller (the "Property"), (ii) any unlawful generation, recycling,
reuse, sale, storage, handling, transport, disposal, discharge,
injection, spilling, leaking, dumping, emitting, escaping,
emptying, seeping or placing by Seller of any Hazardous Materials
at, on or from the Property; (iii) any claims, liabilities,
investigations, litigation, administrative proceedings, whether
pending or, to the knowledge of Seller, threatened, judgments or
orders relating to any Hazardous Materials asserted or, to the
knowledge of Seller, threatened against Seller or relating to any
Property. Seller has been and currently is in compliance with
all applicable federal, state, local and other environmental
laws, including obtaining and maintaining all permits required
thereby except insofar as any such non-compliance would not
result in a material adverse effect on the Business. As used
herein, the term "Hazardous Materials" means any flammable
explosives, radioactive, corrosive, toxic or flammable materials,
friable asbestos, electrical transformers, batteries, and any
paints, solids, chemicals, petroleum products, or other man-made
materials or wastes with hazardous, carcinogenic or toxic
characteristics, including without limitation any substance
defined as or included in the definition of "hazardous
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substances", "hazardous wastes", "hazardous materials", "toxic
substances", "contaminants", or other pollutant under any
applicable federal, state or local laws now in effect or any
substance which, because of its quantity, concentration or
physical, chemical or infectious characteristics may
significantly contribute to an increase in mortality or serious
irreversible, or incapacitating reversible illness or pose a
substantial present or potential hazard to human health or the
environment when improperly treated, stored, transported,
disposed of or otherwise managed.
5.6. Employees. Except as set forth on Schedule 5.6,
Seller is not a party to any collective bargaining agreement or
other organized labor agreement relating to the Business and/or
Seller' employees. Seller is in compliance with all federal,
state, local and other laws respecting employment, wages and
hours with respect to its employees except to the extent
noncompliance therewith would not have a material adverse effect
on the Business. No employees of Seller employed at the Stores
are members of the labor union identified on Schedule 5.6.
5.7. Title; No Liens. Assuming approval hereof by the
Bankruptcy Court, at Closing, Seller will transfer and convey to
Purchaser, and Purchaser will acquire, good, valid and marketable
title to the Assets, free and clear of any and all claims, liens,
encumbrances, mortgages, security interests, pledges,
restrictions or other charges of any kind or nature whatsoever
(other than the terms of any contracts assumed), including the
Claims.
5.8. Leases. Schedule 5.8 contains a true, correct
and complete list of each of the Leases to be assumed by Seller
pursuant to Section 365(a) of the Bankruptcy Code and assigned to
Purchaser pursuant to Section 365(f) of the Bankruptcy Code on
the Closing Date, together with any and all amendments thereto,
have been delivered to Purchaser. Except as previously disclosed
to Purchaser in writing, there are no verbal understandings that
are not evidenced in writing in the Leases. Seller has not
received any notice of noncompliance with any applicable federal,
state, local or other law, rule, regulation or procedure relating
to the Leases. All Leases permit the Seller to use the premises
to operate the Business, and such use does not violate the terms
of the Leases. The information relating to the Leases attached
hereto as Exhibit 5.8 setting forth the name of the lessor, the
rent and other charges payable thereunder, including escalation
or percentage rent, advertising requirements and other lease
required expenses and the expiration date thereof including any
and all renewal options is true and correct in all material
respects taken as a whole.
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5.9. Inventory. Since January 27, 1996, all
acquisitions and sales by Seller of Inventory have been made in
the ordinary course of business and consistent with past
practices.
5.10. Absence of Certain Changes.
(a) Except as otherwise set forth in Schedule
5.10A attached hereto, since January 27, 1996, there has not
been:
(i) any change in circumstances (other than
general economic conditions) that had or might reasonably be
expected to have a material adverse effect on the Assets or the
Business operated at the Stores; or
(ii) any damage, destruction or loss (whether
or not covered by insurance) that had or might reasonably be
expected to have a material adverse effect on the Assets or the
Business operated at the Stores;
(b) Except as otherwise set forth on Schedule
5.10B, Seller has not done any of the following, except in the
ordinary course of business consistent with past practices:
(i) sold, transferred, leased, mortgaged,
encumbered or otherwise disposed of, or agreed to sell, transfer,
lease, mortgage, encumber or otherwise dispose of, any of its
assets located at the Stores;
(ii) maintained its books of account other
than in the usual, regular and ordinary manner in accordance with
generally accepted accounting principles on a basis consistent
with prior periods or made any change in any of its accounting
methods or practices that would be required to be disclosed under
generally accepted accounting principles;
(iii) made any increase in (a) the rate of
compensation payable or to become payable by any Seller to its
employees at the Stores, or (b) the payment of any bonus, payment
or arrangement made to, for or with respect to any employees of
Seller at the Stores.
5.11. Insurance. Schedule 5.11 attached hereto
contains a complete and correct list of all insurance policies
presently in effect that relate to the Business or the Assets,
all of which have been in full force and effect from and after
the date(s) set forth on Schedule 5.11. Within two weeks of the
execution of this Agreement, Seller will deliver to Purchaser a
list of all claims of $25,000 or more during the last three
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years, whether or not insured, in respect of casualty losses or
occurrences, property damage or liability for personal injury,
workmen's compensation or otherwise, whether made by Seller
against any insurer or made against Seller by any person or
entity (including any customer or employee) relating to the
Business at the Stores or Assets.
5.12. [Reserved].
5.13. Permits. Seller has all permits, licenses,
certificates, variances and approvals (collectively, "Permits")
necessary for Seller's to own, operate, use and/or maintain the
Assets and to conduct the Business at the Stores as presently
conducted, except where the failure to have such Permits would
not have a material adverse effect on the Business or Seller's
ability to operate the Business as currently conducted. Within
two weeks of the execution of this Agreement, Seller will deliver
to Purchaser a list setting forth all permits held or used by
Seller with respect to the conduct of the Business at the Stores.
All such Permits are in effect, no proceeding is pending, or, to
the knowledge of Seller, threatened to modify, suspend or revoke,
withdraw, terminate, or otherwise limit any such Permits, and no
administrative or governmental actions have been taken or, to the
knowledge of Seller, threatened in connection with the expiration
or renewal of such Permits which would materially adversely
affect the ability of Seller to own, operate, use or maintain any
of the Assets or to conduct the Business at the Stores as
presently conducted. No violations have occurred that remain
uncured, unwaived or otherwise unresolved, or are occurring in
respect of any such Permits, except to the extent that such
violations would not result in a material adverse effect on the
Business.
5.14. Intellectual Property. Schedule 5.14 sets forth
a list of all trade names, trademarks, service marks, patents and
any other intellectual property (or applications therefor) owned
or used by Seller in the conduct of the Business of the Stores
(the "Intellectual Property").
5.15. Securities Law Representations. Seller hereby
represents, warrants, acknowledges and/or agrees as follows:
5.15.1. Seller is acquiring the Shares and the
Additional Shares, if any (for purposes of this Section 5.15, the
term "Shares" shall include any Additional Shares) solely for its
own account for investment purposes and not with a view to
distribution of all or any part thereof. Seller has no present
arrangement, understanding or agreement for transferring or
disposing of all or any part of the Shares. Seller will not
sell, transfer or otherwise dispose of any of the Shares, in any
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manner, unless at the time of any such transfer: (a) a
Registration (as hereinafter defined) under the Securities Act of
1933 (the "Securities Act") and under the Applicable Laws (as
hereinafter defined) is in effect with respect to the Shares to
be sold, transferred or disposed of, and Seller complies with all
of the requirements of the Securities Act and the Applicable Laws
with respect to the proposed transaction; or (b) Seller has
obtained and has provided to Mothers Work an opinion from counsel
satisfactory to Mothers Work (as to both the counsel rendering
such opinion and the substance of the opinion) that the proposed
sale, transfer or disposition does not require Registration under
the Securities Act or the Applicable Laws. As used herein: the
term "Registration" means registration under the Securities Act
and, with respect to any of the Applicable Laws which do not
provide for registration, such compliance therewith which is
similar to registration which has then resulted in statutory or
administration authorization for the proposed transaction; and
the term "Applicable Laws" means any applicable state securities
laws and any other applicable law.
5.15.2. Seller understands that the Shares are
being offered and sold in reliance on specific exemptions from
the registration requirements of Federal and state law and that
Mothers Work and Purchaser are relying upon the truth and
accuracy of the representations, warranties, agreements,
acknowledgements and understandings set forth herein in order to
determine the applicability of such exemptions and the
suitability of the Seller to acquire the Shares.
5.15.3. Seller understands that the Seller must
hold the Shares indefinitely unless a subsequent Registration or
exemption therefrom is available and is obtained. No federal or
state agency has approved or disapproved the Shares for
investment or any other purpose.
5.15.4. Seller is an "accredited investor", as
such term is defined in Rule 501 of Regulation D under the
Securities Act.
5.15.5. The share certificate representing the
Shares issued to Seller pursuant hereto may bear the following
legend:
THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY
STATE SECURITIES LAWS. THE SECURITIES MAY
NOT BE PLEDGED, HYPOTHECATED, SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
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REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933 AND
APPLICABLE STATE SECURITIES LAWS OR A
SATISFACTORY OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT SUCH PLEDGE,
HYPOTHECATION, SALE OR TRANSFER IS EXEMPT
THEREFROM UNDER ANY SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS.
6. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND
MOTHERS WORK
In order to induce the Seller to enter into this
Agreement and to consummate the transactions contemplated hereby,
Purchaser and Mothers Work hereby jointly and severally represent
and warrant to Seller as follows:
6.1. Corporate Status. Each of Purchaser and Mothers
Work is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of
Purchaser and Mothers Work has all requisite corporate power and
authority to own, manage, lease and hold its properties and to
carry on its business as it is currently being conducted. Each
of Purchaser and Mothers Work has the necessary corporate power
and authority to execute, deliver and perform this Agreement and
to consummate the transactions contemplated hereby.
6.2. Authority. The execution, delivery and
performance by Purchaser and Mothers Work of this Agreement, and
of each and every agreement, document and instrument contemplated
hereby including without limitation the Guarantees and the
License Agreement (both as defined below), and the consummation
of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action by Purchaser
and Mothers Work and this Agreement constitutes, and such other
agreements, documents and instruments will constitute, the legal,
valid and binding agreement of Purchaser and Mothers Work and is
enforceable against Purchaser and Mothers Work in accordance with
its terms, except to the extent that enforcement thereof may be
limited by applicable, bankruptcy, reorganization, insolvency or
moratorium laws, or other laws or principles of equity affecting
the enforcement of creditors' rights. All persons who have
executed this Agreement on behalf of Purchaser or Mothers Work
and who will execute any other agreement, document or instrument
contemplated by this Agreement on behalf of Purchaser or Mothers
Work, have been duly authorized to do so by all necessary
corporate action.
6.3. No Proceedings. No suit, action or other
proceeding is pending or, to Purchaser's or Mothers Work's
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knowledge, threatened before any federal, state, local or other
governmental authority nor has any claim been made against
Purchaser or Mothers Work the successful assertion of which would
have a material adverse effect on Purchaser or Mothers Work.
6.4. No Conflict. Neither the execution and delivery
by Purchaser or Mothers Work of this Agreement or the other
agreements, documents and instruments contemplated hereby nor the
consummation by Purchaser or Mothers Work of the transactions
contemplated hereby or thereby, nor compliance by Purchaser or
Mothers Work with any of the provisions hereof or thereof, will
(i) conflict with or result in a breach of any provision of the
articles of incorporation, bylaws or any other organizational
document of Purchaser or Mothers Work, as the case may be, (ii)
breach, conflict with, constitute a default (with or without the
giving of notice or the lapse of time or both) with respect to,
or result in the cancellation, termination or acceleration of the
performance of any obligations or indebtedness under the terms
and conditions of any contract, agreement, commitment, indenture,
mortgage note, bond, license or other instrument or obligation to
which such Purchaser is now a party or by which Purchaser,
Mothers Work or any other properties or assets may be bound or
affected, (iii) violate any law or any rule or regulation of any
administrative agency or governmental body, or any judgment,
order, writ, injunction or decree of any court, administrative
agency or governmental body to which Purchaser or Mothers Work,
as the case may be, is or may be subject, or (iv) require any
Purchaser or Mothers Work, as the case may be, to obtain or make
any waiver, consent, approval or authorization of, or
registration, declaration, notice or filing with, any private
non-governmental third party or any federal, state, local or
other governmental authority. Except for approval by the
Bankruptcy Court or as required under Section 7.13, no approval,
authorization, consent or other order or action of, or filing by
Purchaser or Mothers Work with any court, administrative agency,
governmental authority or any other person is required for the
execution and delivery by Purchaser or Mothers Work of this
Agreement or consummation by Purchaser or Mothers Work of the
transactions contemplated hereby.
6.5. Parent Reports; Financial Statements. Mothers
Work has filed all required forms, reports and documents with the
Securities and Exchange Commission with respect to all periods
commencing on or after March 23, 1993 (collectively, the "Parent
Reports"), all of which, when filed, complied in all material
respect with all applicable requirements of the Securities Act
and the Securities and Exchange Act of 1934 and the rules and
regulations thereunder. As of their respective dates, the Parent
Reports did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
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necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading. Each of
the consolidated balance sheets included in or incorporated by
reference into the Parent Reports (including any related notes
and schedules) fairly presents the consolidated financial
position of the Parent as of its date, and each of the
consolidated statements of operations, of shareholders' equity
and of cash flows included in or incorporated by reference into
the Parent Reports (including any related notes and schedules)
fairly presents the results of operations, retained earnings and
cash flows, as the case may be, of Parent for the periods set
forth therein (subject, in the case of unaudited statements, to
normal year-end audit adjustments which will not, individually or
in the aggregate, have a material adverse effect), in each case
in accordance with generally accepted accounting principles
consistently applied during the periods involved, except as may
be noted therein.
6.6. Authorization of Shares and Additional Shares.
The issuance, sale and delivery of the Shares and the Additional
Shares have been duly authorized by all requisite corporate
action by Mothers Work. Upon the issuance, sale and delivery of
the Shares and Additional Shares, the Shares and the Additional
Shares will be validly issued and outstanding, fully paid and
nonassessable, not subject to preemptive or any other similar
rights of the Mothers Work or others and will be free and clear
of any and all liens and encumbrances.
At March 31, 1996, the authorized stock of Mothers Work
consisted of:
(a) 10,000,000 shares of Common Stock of which:
(i) 3,127,217 shares have been validly
authorized and issued and are fully paid and nonassessable;
(ii) 925,000 shares have been duly reserved
initially for issuance in connection with Mothers Work's stock
option plans and other convertible securities;
(iii) 140,123 shares have been duly reserved
initially for issuance in connection with a warrant held by
Alliance Capital.
(iv) 41,000 shares have been duly reserved
initially for issuance in connection with Mothers Work's
outstanding Series A Preferred Stock.
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No shares of capital stock of Mothers Work have been
issued subsequent to that date except pursuant to the exercise of
certain of the options identified in clause (ii) above.
(b) 2,000,000 shares of preferred stock of which:
(i) 41,000 share of Series A Preferred Stock
have been validly authorized and issued and are fully paid and
nonassessable.
7. COVENANTS.
Seller and Purchaser hereby covenant and agree as
follows:
7.1. Non-Competition.
7.1.1. General. In consideration of the payment
of the Purchase Price, and in order to induce the Purchaser to
enter into this Agreement and to consummate the transactions
contemplated hereby, Seller hereby covenants and agrees as
follows:
(a) Seller, without the prior written
consent of Purchaser, shall not for a period of three (3) years
from and after the Closing Date, employ or attempt to employ any
full-time employee of Seller or Purchaser located at any Store
until at least six months after the date such employee was not
employed by Seller or Purchaser or any of their affiliates.
(b) Other than with respect to operations at
the locations covered by the Excluded Leases, Seller shall not,
without the prior written consent of the Purchaser, for a period
ending on the termination of the Distribution Agreement (as
defined below), (A) acquire or own in any manner any interest in
any person, firm, partnership, corporation, association or other
entity which is engaged in the same business as the Business
anywhere in the United States (the "Territory"), or (B) be
employed by or serve as an agent, of, or as a consultant to, any
person, firm, partnership, corporation, association or other
entity regarding the same business as the Business.
7.1.2. Nondisclosure. Seller hereby agrees that
it shall not at any time, disclose, directly or indirectly, to
any person, firm, corporation, partnership, association or other
entity, any confidential information relating to the Business,
including the Leases or any information concerning its customers,
sources of leads and methods of obtaining new business or the
methods generally of doing and operating its business, except (i)
to its own employees, attorneys, accountants, financial advisers
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and other professionals and (ii) to the extent that such
information is a matter of public knowledge or is required or
reasonably necessary to be disclosed by law or by judicial or
administrative process or in connection with the Chapter 11 Case.
7.1.3. Reasonableness of Restrictions. In the
event that any provision relating to the time period of
geographic area of any restriction set forth in this Section 7.1
shall be declared by a court of competent jurisdiction to exceed
the maximum time period or area of restriction that the court
deems reasonable and enforceable, the time period or area of
restriction which the court finds to be reasonable and
enforceable shall be deemed to become, and thereafter shall be,
the maximum time period or geographic area of such restriction.
7.1.4. Enforceability. Any provisions of Section
7.1 which are prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the
remaining provisions hereof, but shall be enforced to the maximum
extent permitted by law, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
7.1.5. Injunction. It is recognized and hereby
acknowledged by the parties hereto that a breach by Seller of any
of the covenants contained in Section 7.1 of this Agreement will
cause irreparable harm and damage to Purchaser, the monetary
amount of which may be virtually impossible to ascertain. As a
result, Seller recognizes and hereby acknowledges that Purchaser
shall be entitled to an injunction enjoining and restraining any
violation of any or all of the covenants contained in Section 7.1
of this Agreement by Seller either directly or indirectly, and
that such right to injunction shall be cumulative and in addition
to whatever remedies at law or in equity that the Purchaser may
possess.
7.2. Employees: Access to Employees.
7.2.1. Seller shall not make any commitments to
any of its employees with respect to the continued employment of
such employees by Purchaser after the Closing Date.
7.2.2. Purchaser's current intention is to offer
employment to Seller's employees located at the Stores subject to
Purchaser's due diligence review of such employees and relevant
Store operations and to interview certain of Seller's employees
located at Seller's headquarters for possible employment at
Purchaser's headquarters in Philadelphia, PA, it being
acknowledged and agreed that the making of any such offers of
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employment shall be in Purchaser's exclusive discretion and any
offers so made shall provide compensation and other terms
comparable to and compatible with Mothers Work's existing
employment arrangements. Prior to the Closing, Seller shall
permit Purchaser to contact and make arrangements with one or
more of Seller's employees for the purpose of pursuing employment
of such employee(s) by Purchaser after the Closing (so long as
such contact does not materially interfere with the conduct of
the Business by Seller) in the event that Purchaser determines,
in its sole and absolute discretion, that such employment is in
Purchaser's best interests. Seller shall not discourage any
employees of Seller from seeking or accepting offers of
employment from Purchaser.
7.2.3. Seller agrees to use its reasonable
efforts to keep available the services of Seller's full-time
employees employed at the Stores through the Closing Date.
7.2.4. Seller shall terminate all employees,
effective as of the Closing Date, and all severance payment
obligations required by law, or otherwise as a result of such
termination, and all liabilities and responsibilities for
fulfilling all federal and/or state COBRA and continuation of
coverage requirements with respect to Seller's employees
(including dependents), shall remain the responsibility of
Seller; provided, however, Purchaser agrees that it will credit
each employee of Seller who actually accept employment with
Purchaser with such accrued vacation and sick days as such
employee shall be entitled to at the Closing Date pursuant to
Seller's current vacation and sick day policy, a true and correct
copy of which policy has been previously provided to Purchaser.
7.3. Business Licenses. Seller shall assign to
Purchaser, to the extent issuer of such Permits allows
assignment, any and all necessary state, county, local and other
Permits for the operation of the Business of the Stores, and
shall cooperate with Purchaser and assist Purchaser in obtaining
any other Permits which are not assignable and are necessary for
Purchaser to operate the Business. Anything in this Agreement to
the contrary notwithstanding, this Agreement shall not constitute
an agreement to assign any Permit if any assignment thereof,
without the consent of a third party thereto, would constitute a
breach or violation thereof.
7.4. Assignment of Leases and Executory Contracts.
Prior to the Closing Date, Seller shall obtain all consents,
and/or a court order required for the effective and valid
assignment of the Leases to be assumed by Seller and assigned to
Purchaser hereunder. On or before the Closing Date, Seller shall
have paid or made provision for the payment of all amounts owed
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by Sellers as of the Closing Date under the terms of the Leases
and otherwise cured any and all defaults hereunder, and assumed
and assigned the Leases to Purchaser, all in accordance with
Section 365 of the Bankruptcy Code.
7.5. Conduct and Transactions Prior to the Closing.
From the date hereof until the Closing Date, Seller shall
(a) conduct the Business in the ordinary course, consistent with
past practices and according to the provisions of Chapter 11 of
the Bankruptcy Code and any court order, (b) use reasonable
efforts to keep available the services of present employees,
(c) maintain and operate the Assets in their current condition,
reasonable wear and tear excepted, (d) pay or cause to be paid in
a timely manner all costs and expenses (including but not limited
to insurance premiums) incurred in connection with the Business
subsequent to the commencement of the Chapter 11 Case, (e) use
its best efforts to keep all Leases in full force and effect
(provided that nothing herein shall require Seller to take
unreasonable actions or incur extraordinary expenses to satisfy
its obligations hereunder), (f) comply with all of the covenants
contained in the Leases and all other agreements, contracts and
commitments to which it is a party relating to the Business to
the extent they are required to do so under the Bankruptcy Code,
(g) use its best efforts to maintain in full force and effect
until the Closing Date insurance policies equivalent to those in
effect on the date hereof, and (h) comply in all material
respects with all applicable legal requirements applicable to
Seller, the Assets and/or the Business (whether statutory,
regulatory, judicial or administrative). Except as otherwise
contemplated in this Agreement, Seller will use reasonable
efforts to preserve the present relationships of Sellers with its
customers and suppliers and all other persons having significant
business relations with Seller.
7.6. General Restrictions. From the date hereof until
the Closing Date, except as otherwise expressly permitted in this
Agreement or in the ordinary course of business consistent with
past practices, Seller shall not, without the prior written
consent of Purchaser: (a) enter into, amend or terminate any
agreement relating to the Assets or the Business; (b) sell,
transfer, lease, mortgage, encumber or otherwise dispose of, any
Assets except in the ordinary course of business; (c) maintain
its books of account other than in the usual, regular and
ordinary manner in accordance with generally accepted accounting
principles and on a basis consistent with past practice or make
any change in any of its accounting methods or practices;
(d) engage in any one or more activities or transactions outside
the ordinary course of business; (e) make any increase in (i) the
rate of compensation payable or to become payable to its
employees, or (ii) the payment of any bonus, payment or
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arrangement made to, for or with any of its employees; or
(f) commit to do any of the foregoing.
7.7. Purchaser's Access to Information and Assets.
From the date hereof until the Closing Date, Seller shall permit
Purchaser and its authorized employees, agents, accountants,
legal counsel and other representative to have access to the
books, records, employees, counsel, accountants, engineers and
other representatives of Seller during regular business hours for
the purpose of conducting a reasonable investigation of the
Business, the Assets and the Seller's financial condition,
corporate status, operations and prospects. The Seller shall
make available to Purchaser, for examination and reproduction,
all documents and data of every kind and character relating to
the Business and the Assets in possession or control of, or
subject to reasonable access by, the Seller, including, without
limitation, all files, books and records, data and information
(whether stored in paper, magnetic or other storage media) and
all agreements, instruments, contracts, assignments,
certificates, orders, and amendments thereto during regular
business hours. Seller shall also allow Purchaser access to, and
the right to inspect, all of the Assets. Purchaser shall keep
all information provided hereunder confidential.
7.8. Notice Regarding Changes. Each of Seller and
Purchaser shall promptly inform the other in writing of any
change in facts and circumstances that could render any of the
representations and warranties made herein by the representing
party inaccurate or misleading if such representations and
warranties had been made upon the occurrence of the fact or
circumstance in question.
7.9. Ensure Conditions Met. Each party shall use its
reasonable efforts to cause the conditions to its and the other
party's obligations to close as set forth in Sections 8 and 9
hereof, to be satisfied on or before the Closing Date.
7.10. Casualty Loss. If, between the date of this
Agreement and the Closing, any of the Assets shall be destroyed
or damaged in whole or in part by fire, earthquake, flood, other
casualty or any other cause (the "Casualty"), then Purchaser
shall have the option to (i) acquire the Assets on an "as is"
basis and take an assignment from Seller of any insurance
proceeds payable to Seller in respect of the Casualty or (ii) in
the event that the Casualty equals or exceeds $500,000 in the
aggregate, terminate this Agreement and the transactions
contemplated hereby.
7.11. Notice of Motion and Sale Hearing. The Seller
shall give notice of the Motion, Sale Hearing and Sale Order in
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accordance with Federal Rules of Bankruptcy Procedure 6004, 6005
and 9006.
7.12. Publicity. Except for Bankruptcy Court filings
and solicitations of a higher and better offer (as contemplated
by Section 7.14(c) hereof), neither Seller nor Purchaser shall
issue or make, or cause to be issued or made, any public release
or announcement concerning this Agreement or the transactions
contemplated hereby, without the prior written approval of the
other party, except as required by law (in which case, so far as
possible, there shall be consultation between the parties prior
to such announcement).
7.13. Bankruptcy Court Approval.
7.13.1. This Agreement and the transactions
contemplated hereby, including, without limitation, (i) the sale
of the Assets, (ii) the assignment of the Leases to Purchaser,
and (iii) the quality of title conveyed to Purchaser, shall be
approved by a final, nonappealable Order of the Bankruptcy Court,
that has not been stayed or modified, and as to which the time to
appeal, stay or modify has expired, in a sale outside the
ordinary course under Bankruptcy Code Section 363.
7.13.2. On or before the fifth (5th) day after
execution of this Agreement, the Seller shall file with the
Bankruptcy Court and serve upon such parties as the Court may
direct, or which may be required under the Bankruptcy Code or by
applicable Bankruptcy rules and upon the parties which may be
required by Purchaser, a motion (the "Preliminary Motion") for a
preliminary order approving the procedures set forth in
subparagraph 7.13.4 (the "Preliminary Order"). Seller shall
request expedited consideration of the Preliminary Motion. On or
before five (5) days after receipt of the Preliminary Order, the
Seller shall file with the Bankruptcy Court and serve upon such
parties as the Court may direct, or which may be required under
the Bankruptcy Code or by applicable Bankruptcy rules and upon
parties which may be required by Purchaser, a motion ("Sale
Motion") for an Order approving the sale of the Assets and the
assumption and assignment of the Leases under Bankruptcy Code
Sections 363 and 365 pursuant to the terms of this Agreement, subject
to higher and better offers with the hearing thereon to be
scheduled as promptly as practicable and in any event not later
than June 14, 1996 (the "Sale Order"). The form and content of
the Preliminary Motion and Sale Motion and request for expedited
consideration of the Preliminary Motion are subject to the
approval of the Purchaser's counsel, which approval will not be
unreasonably withheld or delayed. Seller may incorporate the
Preliminary Motion and Sale Motion in a single motion. Purchaser
agrees to cooperate with Seller in such manner as Seller may
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reasonably request in attempting to obtain the Preliminary Order
and Sale Order.
7.13.3. The Preliminary Order shall provide the
following:
(a) Notice of the hearing on the Sale Motion
("Sale Motion Hearing") shall be given to all parties who have
expressed to Seller an interest in purchasing the Assets since
the filing of Seller's bankruptcy petition and Seller shall
publish notice of the Sale Motion in such manner as the
Bankruptcy Court may direct;
(b) that Seller shall provide a copy of this
Agreement to any interested party;
(c) that if any party expresses an interest
in making a competing offer to purchase the Assets ("Competing
Bid"), an auction for the sale of the Assets shall be held by the
Bankruptcy Court pursuant to Bankruptcy Code Section 363 ("Auction");
(d) In order to qualify as a Competing Bid
at the Auction, a competing offer must:
(1) be received by the Purchaser's
counsel and Seller's counsel at least three (3) business days
prior to the day on which the Sale Motion Hearing is to be held;
(2) disclose the identity of the
competing bidder;
(3) be on no more burdensome terms and
conditions to the Seller as are provided in this Agreement
except: that the competing bidder (the "Competing Bidder") will
not be entitled to a Break Up Fee (defined herein);
(4) provide for an aggregate
consideration of at least Five Hundred Thousand Dollars
($500,000.00) greater than the Purchase Price set forth in this
Agreement; and
(5) provide for the competing bidder to
deposit by wire transfer to the Escrow Agent on or prior to the
date on which the Purchase Motion Hearing is to be held, a Five
Hundred Thousand Dollar ($500,000.00) deposit to be held by
Escrow Agent;
(e) That the Auction shall be an open
absolute Auction with bid increments, after the increased amount
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of the Competing Bid, of not less than One Hundred Thousand
Dollars ($100,000.00); and
(f) If the Competing Bid (or any other bid
received at the Sale Motion Hearing from anyone other than
Purchaser) is approved by the Bankruptcy Court, then Seller shall
pay to Purchaser a sum equal to Five Hundred Thousand Dollars
($500,000.00) (the "Break Up Fee"). The Break Up Fee to the
Purchaser shall be paid from the Deposit received pursuant to
Section 7.13.3(5) above and shall be paid to Purchaser within
twenty-four (24) hours after the earlier to occur of:
(i) closing of the Competing Bid; or (ii) forfeiture of the
Competing Bidder's Deposit, provided that if Purchaser is the
next highest bidder, or ultimately purchases the Assets,
Purchaser shall not receive the Break Up Fee.
7.13.4. The form of the Sale Order submitted to
the Bankruptcy Court shall provide the following:
(a) that the Bankruptcy Court shall retain
jurisdiction to determine any Claims, disputes or causes of
action arising out of or relating to the Agreement, the
transactions contemplated hereby, the Claims and any objection(s)
to the sale of the Assets;
(b) that Seller is authorized to assume the
Leases pursuant to Section 365(a) of the Bankruptcy Code, and
assign such Leases to Purchaser pursuant to Section 365(f) of the
Bankruptcy Code;
(c) that Seller is authorized to sell,
assign and transfer the Assets pursuant to Sections 363(b), (f),
(h) and (m) and 365 of the Bankruptcy Code free and clear of any
liens, claims, encumbrances and interests in accordance with the
terms of this Agreement;
(d) that any defaults under the Leases that
are required to be cured by Section 365 of the Bankruptcy Code
will be cured by Seller in connection with the assumption of the
same;
(e) that the order confirming any plan of
reorganization or liquidation in the Chapter 11 Case shall
provide that the representations, warranties and indemnities of
the Seller shall not be discharged pursuant to Section 1141 of
the Bankruptcy Code or otherwise for a period following the
confirmation of such plan as set forth in Section 11.14 hereof;
and
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(f) that the Sale Order otherwise complies
with the terms of this Agreement in all material aspects and is
otherwise sufficient to permit the consummation of the
transactions contemplated by this Agreement;
(g) Seller is authorized to enter into the
License Agreement;
(h) that Seller and Seller's creditors shall
have no further liens, claims, encumbrances and interests against
the Purchaser or the Assets except for any claims, disputes or
causes of action that Seller may have against Purchaser arising
out of or relating to this Agreement or the transactions
contemplated hereby; and
(i) that Seller shall be prohibited from
distributing the Shares or Additional Shares unless such
distribution is made in strict compliance with Section 5.15 of
the Agreement. Moreover, in the event such Shares or Additional
Shares are distributed by Seller under a Plan, Buyer shall be
deemed to be a "successor to the debtor under the plan" as
defined under 11 U.S.C. section 1145(a)(1); and
(j) that Purchaser has acted in "good faith"
as defined by Bankruptcy Code Section 363(m) in connection with the
transactions authorized by the Sale order.
7.14. Name Changes. Seller agrees that, if requested
by Purchaser, any plan of reorganization proposed by Seller that
contemplates the reorganization of Seller, shall require Seller
to deliver to Purchaser fully executed Amendments to the Articles
of Incorporation of Seller (the "Amended Articles"), in form and
substance satisfactory to Purchaser, which amendments shall
change Seller's names from Episode USA, Inc. to names dissimilar
to Episode USA, Inc.
7.15. Post-Closing Indemnities.
(a) Seller hereby agrees to indemnify Purchaser
and its affiliates against, and agrees to protect, save and hold
harmless Purchaser and its affiliates from, any and all damages,
liabilities, obligations, penalties, fines, judgments, claims,
deficiencies, losses, costs, expenses and assessments (including
without limitation income and other taxes, interest, penalties,
and attorneys' and accountants' fees and disbursements
("Damages")), resulting from:
(i) A breach of, or the failure to perform
or satisfy any of, the representations, warranties, covenants and
agreements made by Seller in this Agreement or in any document or
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certificate delivered by Seller at the Closing pursuant hereto;
and
(ii) The existence of any liabilities or
obligations of the Seller (whether accrued, absolute, contingent,
known or unknown, or otherwise, and whether or not of a nature
appropriate for inclusion in a balance sheet in accordance with
generally accepted accounting principles) relating to the
Business, other than the Assumed Obligations.
(b) Purchaser hereby agrees to indemnify each of
Seller and its affiliates against, and agrees to protect, save
and hold harmless Seller and its affiliates from, any and all
Damages, resulting from:
(i) A breach of, or the failure to perform
or satisfy any of, the representations, warranties, covenants and
agreements made by Purchaser in this Agreement or in any document
or certificate delivered by Purchaser at the Closing pursuant
hereto;
(ii) Any Assumed Obligation; and
(iii) The operation of the Business from and
after the Closing.
7.16. Indemnification Procedures and Limitations. For
purposes of this Section 7.16, a party making a claim for
indemnity is referred to as the "Indemnified Party" and the party
against whom such claim is asserted is referred to as the
"Indemnifying Party".
(a) If any claim or demand for which an
Indemnifying Party would be liable to an Indemnified Party is
asserted against or sought to be collected from such Indemnified
Party by a third party, including any taxing authority, said
Indemnified Party shall with reasonable promptness notify in
writing the Indemnifying Party of such claim or demand stating
with reasonable specificity the circumstances of the Indemnified
Party's claim for Indemnification; provided, however, that any
failure to give such notice will not waive any rights of the
Indemnified Party except to the extent the rights of the
Indemnifying Party are actually prejudiced as a result of such
failure.
(b) After receipt by the Indemnifying Party of
such notice, the Indemnifying Party shall, at its cost and
expense, defend, manage and conduct any proceedings, negotiations
or communications involving any claimant whose claim is the
subject of the Indemnified Party's notice to the Indemnifying
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Party as set forth above, and shall take all actions necessary,
and the posting of such bond or other security as may be required
by any government authority, so as to enable the claim to be
defended against or resolved without expense or other action by
the Indemnified Party. In the event that the Indemnifying Party
shall fail to initiate a defense of such claim within 20 days of
the date of the notice to the Indemnifying Party, then the
Indemnified Party, after 15 days written notice to the
Indemnifying Party, shall retain counsel and conduct the defense
of such claim as it may in its discretion deem proper, at the
cost and expense of the Indemnifying Party. Upon request of the
Indemnifying Party, the Indemnified Party shall:
(i) take such action as the Indemnifying
Party may reasonably request in connection with such action,
(ii) allow the Indemnifying Party to dispute
such action in the name of the Indemnified Party and to conduct a
defense to such action on behalf of the Indemnified Party, and
(iii) render to the Indemnifying Party all
such assistance as the Indemnifying Party may reasonably request
in connection with such dispute and defense; provided, the
Indemnifying Party shall pay any out-of-pocket costs the
Indemnified Party incurs in connection with taking over such
actions.
(c) Notwithstanding anything to the contrary
contained herein, no Indemnified Party shall be entitled to
indemnification under Section 7.15(a)(i) (as to Purchaser) or
Section 7.15(b)(i) (as to Seller) unless, and only to the extent
that, Damages as to such Indemnified Party thereunder exceed
$100,000. Neither Indemnifying Party's aggregate indemnification
obligation under this Section 7.15 shall exceed, in aggregate,
$4.5 million. Purchaser shall entitled to recover Damages
pursuant to Section 7.15(a) solely by right of set off against
Royalties payable under the License Agreement as more
particularly provided therein. After the Closing Date, the
indemnities provided herein shall be the sole and exclusive
monetary remedy of any of the Indemnified Parties for a breach of
the representations, warranties contained herein and covenants to
be performed prior to the Closing Date contained herein.
7.17. Transitional Cooperation. After the Closing
Date, Seller and Purchaser shall cooperate with one another to
ensure a smooth transition of the Business from Seller to
Purchaser.
7.18. Further Assurances. Following the Closing,
Seller and Purchaser shall execute and deliver such documents,
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and take such other action, as shall be reasonably requested by
any other party or parties hereto to carry out the transactions
contemplated by this Agreement.
7.19. Audited Statements. After the Closing, Seller
agrees to use its best efforts to deliver consolidated financial
statements of Seller for the year ended January 27, 1996 audited
by Seller's accountants, Deloitte & Touche ("Deloitte") and to
obtain Deloitte's consent to the inclusion of its reports on such
financial statements and the Financial Statements in any filings
required by Mothers Work under the Securities Act or the
Securities and Exchange Act of 1934. The cost of such audit
shall be borne equally by Seller and Purchaser.
8. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE.
Seller's obligation to consummate the transactions
contemplated by this Agreement shall be subject to the
fulfillment, at or prior to Closing, of each of the following
conditions precedent (any or all of which may be waived in
writing, in whole or in part, by Seller):
8.1. No preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or by any
federal or state governmental or regulatory body, or any statute,
rule, regulation or executive order promulgated or enacted by any
federal or state governmental authority after the date of this
Agreement, that prohibits the consummation of the transactions
contemplated by this Agreement, shall be in effect.
8.2. Purchaser shall have performed, in all material
respects, all of its obligations and complied with all of its
covenants required to be performed or to be complied with by it
under this Agreement on or prior to the Closing Date.
8.3. The representations and warranties of Purchaser
contained herein shall be true and correct in all material
respects at and as of the Closing Date as if made at and as of
such time except for those that relate expressly to a previous
date or changes permitted by this Agreement.
8.4. The Bankruptcy Court shall have entered the Sale
Order.
8.5. Seller and Purchaser shall have executed and
delivered a license agreement in the form attached hereto as
Schedule 8.5 providing for Seller's license to Purchaser of the
right to use the name "Episode," as its name for retail stores
for bridge women's apparel and accessories throughout the United
States in consideration for a royalty equal to five percent (5%)
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of Purchaser's sales of merchandise from Purchaser's Episode
Stores (including subsequently opened Stores) to a maximum
royalty of $4.5 million (the "License Agreement").
8.6. Mothers Work shall have entered into a
registration rights agreement with certain affiliates of Seller
granting such affiliates certain "piggy-back" registration rights
described on Schedule 8.6.
8.7. Mothers Work shall have executed and delivered
the guarantee agreement attached hereto as Schedule 8.7 (the
"Guarantees").
9. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE.
Purchaser's obligation to consummate the transactions
contemplated by this Agreement shall be subject to the
fulfillment, at or prior to Closing, of each of the following
conditions precedent (any or all of which may be waived in
writing, in whole or in part, by Purchaser):
9.1. No preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or by any
federal or state governmental or regulatory body, or any statute,
rule, regulation or executive order promulgated or enacted by any
federal or state governmental authority after the date of this
Agreement, that prohibits the consummation of the transactions
contemplated by this Agreement, or affects in any way Seller's
title to the Assets or Seller's ability to transfer the Assets to
Purchaser in accordance with the terms of this Agreement, shall
be in effect.
9.2. Seller shall have performed, in all material
respects, all of its obligations and complied with all of their
covenants and agreements, required to be performed or to be
complied with by them under this Agreement on or prior to the
Closing Date.
9.3. The representations and warranties of Seller
contained herein and in any schedule attached hereto shall be
true and correct in all material respects, at and as of the
Closing Date as if made at and as of such time except for those
that relate expressly to a previous date.
9.4. The Bankruptcy Court shall have entered the Sale
Order (which shall have become final and non-appealable,)
reasonably satisfactory in form and substance to Purchaser and
its counsel consistent with the provisions of Section 7.13.
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9.5. Seller shall have executed and delivered any and
all instruments reasonably necessary to vest in Purchaser good,
valid and marketable title to the Assets, including, but not
limited to, the Leases, free and clear of Claims.
9.6. Seller and Purchaser shall have executed and
delivered the License Agreement.
10. TERMINATION.
10.1. This Agreement may be terminated:
(a) By Purchaser or Seller if the Closing shall
not have occurred on or before June 28, 1996 (or such date after
June 28, 1996 as shall be mutually agreed upon, in writing, by
Purchaser and Seller (the "Termination Date");
(b) By Purchaser if this Agreement is not
approved by the Bankruptcy Court and the Sale Order is not final
and non-appealable by June 28, 1996;
(c) By Purchaser or Seller if the Bankruptcy
Court disapproves of this Agreement;
10.2. If this Agreement is terminated pursuant to
Section 10.1, all obligations of the parties hereunder shall
terminate, without liability, except for any liability of a party
for a breach of such party's obligations under this Agreement
prior to such termination.
11. MISCELLANEOUS
11.1. Entire Agreement. Upon the Closing, this
Agreement (including exhibits and schedules) and the License
Agreement shall constitute the entire agreement among the parties
hereto with respect to the subject matter hereof and thereof and
shall supersede all prior negotiations, agreements, arrangements
and understandings, both oral and written, between the parties
hereto with respect to such matter.
11.2. Amendment. This Agreement may not be amended or
modified in any respect, except by the mutual written agreement
of the parties hereto (and, if required, approval of the
Bankruptcy Court).
11.3. No Third Party Beneficiary. Nothing expressed
or implied in this Agreement is intended, or shall be construed,
to confer upon or give any person, firm, corporation,
partnership, association or other entity, including but not
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limited to any committee appointed in the Chapter 11 Case, other
than the parties hereto and their respective successors and
assigns, any rights or remedies under or by reason of this
Agreement (except as provided in Section 7.13).
11.4. Waivers and Remedies. The waiver by any of the
parties hereto of any other party's prompt and complete
performance, or breach or violation, of any provision of this
Agreement shall not operate nor be construed as a waiver of any
subsequent breach or violation, and the waiver by any of the
parties hereto of the right to exercise any right or remedy that
it may possess hereunder shall not operate nor be construed as a
bar to the exercise of such right to remedy by such party upon
the occurrence of any subsequent breach or violation.
11.5. Severability. The invalidity of any one or more
of the words, phrases, sentences, clauses, section or subsections
contained in this Agreement shall not affect the enforceability
of the remaining portion of this Agreement or any part hereof,
all of which are inserted conditionally on their being valid in
law, and, in the event that any one or more of the words,
phrases, sentences, clauses, sections or subsections contained in
this Agreement shall be declared invalid by a court of competent
jurisdiction, this Agreement shall be construed as if such
invalid word or words, phrase or phrases, sentence or sentences,
clause or clauses, section or sections, or subsection or
subsections had not been inserted.
11.6. Descriptive Headings. Descriptive headings
contained herein are for convenience only and shall not control
or affect the meaning or construction of any provision of this
Agreement.
11.7. Counterparts. This Agreement may be executed in
any numbers of counterparts and by the separate parties hereto in
separate counterparts, each of which together shall be deemed to
be one and the same instrument.
11.8. Notices. All notices, consents, requests,
instructions, approvals and other communications provided for
herein and all legal process in regard hereto shall be in writing
and shall be deemed to have been duly given, when delivered by
hand, on the date of first accepted delivery (as shown by the
records of the U.S. Postal Service), if deposited in the United
States mail, by registered or certified mail, return receipt
requested, postage prepaid, or one business day following
delivery to Federal Express priority service or another reputable
overnight courier service, as follows:
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<PAGE>
If to Seller: Episode USA, Inc.
1040 Avenue of the Americas, Inc.
New York, NY 10018
Attn: President
With copy to: Michael Rudolph, Esquire
L. Michael Rudolph, P.C.
100 Park Avenue, 16th Flr.
New York, NY 10017
If to Purchaser: Mothers Work, Inc.
456 N. 5th Street
Philadelphia, PA 19103
Attn: President
With a copy to: Elam M. Hitchner, Esquire
Pepper, Hamilton & Scheetz
3000 Two Logan Square
Philadelphia, PA 19103
or to such other address as any party hereto may from time to
time designate in writing delivered in a like manner.
11.9. Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto
and their respective successors and assigns; provided that this
Agreement may not be assigned by Seller or Purchaser without the
consent of the other party, which shall not be unreasonably
withheld, except that Seller's rights and obligations under this
Agreement may be assigned in the manner provided in a plan of
reorganization of Seller confirmed by the Bankruptcy Court. Any
assignment without the required consent shall be void.
11.10. Applicable Law; Jurisdiction. This Agreement
shall be governed by and shall be construed, interpreted and
enforced in accordance with, the laws of the State of New York.
The parties hereto agree that any action brought by Purchaser or
Seller in connection with any claims arising under or relating to
this Agreement or the transactions contemplated hereby shall be
brought in the Bankruptcy Court, which the parties agree shall
retain sole and exclusive jurisdiction over any such matter.
Each party hereby waives trial by jury with respect to any such
proceeding.
11.11. Brokers and Agents. Seller and Purchaser
represents and warrants to the other that it has not employed or
dealt with any broker, agent or finder in respect of the
transactions provided for herein and agrees to indemnify and hold
the other party harmless from and against all fees, expenses,
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<PAGE>
commissions and costs due and owing to any broker, agent or
finder on account of indemnifying party and such person.
11.12. Expenses. Except as set forth herein, each of
the parties hereto agrees to pay all of the respective expenses
incurred by it in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby. Seller and
Purchaser shall bear equally the expense of, and shall pay, any
and all sales, use and other transfer taxes arising out of this
transaction.
11.13. Attorneys Fees. If any legal action is brought
for the enforcement of any of the provisions of this Agreement
(but not in connection with any third party claim), the
prevailing party or parties shall be entitled to recover from the
other party or parties, upon final judgment on the merits,
reasonable attorneys' fees (including attorneys' fees at trial,
during any appeal or during negotiations) incurred in bringing
such action. The prevailing party's rights under this Section
11.13 shall not merge into any judgment and shall survive until
all such fees and costs have been paid.
11.14. Effect of Representations and Warranties. The
representations and warranties of Seller shall survive the
Closing for a period of 12 months, and shall not be otherwise
discharged by the Chapter 11 Case; provided that with respect to
any claim relating to a breach of a representation of Section
5.7, a claim of fraud or the failure by Seller to satisfy an
obligation not assumed by the Purchaser hereunder, no such time
limitation shall be applicable. The representations and
warranties of the Purchaser shall survive the Closing for a
period of 24 months. Purchaser shall have no right to
indemnification under Section 7.15(a)(i) for any breach of
representation or warranty of Seller if, prior to Closing,
Purchaser had actual knowledge that such representation or
warranty was breached unless Purchaser informs Seller of such
breach prior to Closing.
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<PAGE>
IN WITNESS WHEREOF, Purchaser and the Selling Parties
have executed and delivered this Agreement on the date first
above written.
PURCHASER:
T3 ACQUISITION, INC.
By: /s/ Rebecca Matthias
GUARANTOR:
MOTHERS WORK, INC.
By: /s/ Rebecca Matthias
SELLER:
EPISODE USA, INC.
By: /s/ Jeffery Ferry
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<PAGE>
PLEDGE AND IRREVOCABLE PROXY
SECURITY AGREEMENT
(INCLUDING CONTROL STOCK)
Date May 30, 1996
------------
NAME NO. AND STREET
Episode USA, Inc. (Debtor and Debtor-in-Possession) 1040 Avenue of the Americas
CITY, VILLAGE OR TOWN COUNTY STATE
New York New York NY 10018 (Pledgor) and
LENDING OFFICE, DEPARTMENT OR DIVISION
MARINE MIDLAND BANK
NO. AND STREET CITY STATE
140 Broadway New York NY 10005-1180 (Secured Party)
agree as follows:
1. Security Interest.
In consideration of any extension of credit heretofore or hereafter made by
Secured Party to the Pledgor (Borrower), Pledgor hereby pledges, transfers and
assigns to Secured Party and grants to Secured Party a security interest
(Security Interest) in the following described personal property, in all
increases or profits received therefrom, in all substitutions therefor, and in
all Proceeds thereof in any form including, WITHOUT LIMITATION, all property
described in any schedule from time to time delivered by Pledgor to Secured
Party, (Collateral): any and all common stock in Mothers Work, Inc. issued to
the Pledgor pursuant to the Asset Purchase Agreement dated as of April 25, 1996
among the Pledgor, Mothers Work, Inc. and T3 Acquisition, Inc., as amended on
May 30, 1996 (the "Purchase Agreement") or otherwise.
2. Indebtedness Secured.
The Security Interest secures payment of any and all indebtedness
(Indebtedness) of Borrower to Secured Party, whether now existing or
hereafter incurred, of every kind and character, direct or indirect and
whether such Indebtedness is from time to time reduced and thereafter
increased, or entirely extinguished and thereafter reincurred, including,
without limitation: (a) Indebtedness not yet outstanding, but contracted for,
or with respect to which any other commitment by Secured Party exists;
(b) all interest provided in any instrument, document, or agreement
(including this Security Agreement) which accrues on any Indebtedness until
payment of such Indebtedness in full; (c) any moneys payable as hereinafter
provided; and (d) any debts owed or to be owed to others by Borrower which
Secured Party has obtained, or may obtain, by assignment or otherwise.
3. Representations and Warranties of Pledgor.
Pledgor represents and warrants and, so long as this Security Agreement
is in effect, shall be deemed continuously to represent and warrant that:
(a) each Instrument and Document of Title constituting Collateral is genuine and
in all respects what it purports to be; (b) Pledgor is the owner of the
Collateral free of all security interests or other encumbrances, except the
Security Interest; and (c) Pledgor is authorized to enter into this Security
Agreement.
4. Irrevocable Proxy.
Pledgor irrevocably constitutes and appoints Secured Party, whether or not
the Collateral has been transferred into the name of Secured Party or its
nominee, as Pledgor's proxy with full power, in the same manner, to the same
extent and with the same effect as if Pledgor were to do the same: (a) to
attend all meetings of stockholders of the issuer of the Collateral (Company)
held from the date hereof and to vote the Collateral at such meeting in such
manner as Secured Party shall, in its sole discretion, deem appropriate,
including, without limitation, in favor of the liquidation of the Company;
(b) to consent, in the sole discretion of Secured Party, to any and all action
by or with respect to the Company for which the consent of the stockholders of
the Company is or may be necessary or appropriate; and (c) without limitation,
to do all things which Pledgor can or could do as a stockholder of the Company,
giving to Secured Party full power of substitution and revocation; PROVIDED,
HOWEVER, that this proxy shall not be exercisable by Secured Party and Pledgor
alone shall have the foregoing powers (whether or not the Collateral has been
transferred into the name of Secured Party or its nominee) until Secured Party
has given to Pledgor written notice of Secured Party's election to exercise
this proxy and either (i) all or any part of any Indebtedness has been declared
by Secured Party to be, or has become, immediately due and payable as provided
in paragraph 9(b) hereof, or (ii) demand for payment has been made respecting
any Indebtedness which is payable on demand. This proxy shall terminate when
this Security Agreement is no longer in full force and effect as hereinafter
provided. Pledgor hereby revokes any proxy or proxies heretofore given by
Pledgor to any person or persons whatsoever and agrees not to give any other
proxies in derogation hereof until this Security Agreement is no longer in
full force and effect as hereinafter provided.
5. Covenants of Pledgor.
So long as this Security Agreement is in effect, Pledgor: (a) will defend
the Collateral against the claims and demands of all other parties; will keep
the Collateral free from all security interests or other encumbrances, except
the Security Interest; and will not sell, transfer, assign, deliver or otherwise
dispose of any Collateral or any interest therein without the prior written
consent of Secured Party; (b) will notify Secured Party promptly in writing of
any change in Pledgor's address, specified above; (c) in connection herewith,
will execute and deliver to Secured Party such financing statements, assignments
and other documents and do such other things relating to the Collateral and the
Security Interest as Secured Party may request, and pay all costs of title
searches and filing financing statements, assignments and other documents in all
public offices requested by Secured Party; (d) will pay all taxes, assessments
and other charges of every nature which may be imposed, levied or assessed
against the Collateral; and
<PAGE>
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(e) if Secured Party in its sole discretion at any time or from time to time
determines that the liquidation value of the Collateral has become
inadequate, will immediately on demand (i) deliver to Secured Party additional
collateral of a kind and value satisfactory to Secured Party, or (ii) make
payments of Indebtedness, sufficient to cause the relationship of the
liquidation value of the Collateral to Indebtedness (including Indebtedness for
which a commitment to lend exists) to become satisfactory to Secured Party.
6. Registered Holder of Collateral.
Pledgor authorizes Secured Party to transfer the Collateral or any part
thereof into its own name or that of its nominee so that Secured Party or its
nominee may appear on record as the sole owner thereof; provided that so long as
no event of default has occurred. Secured Party shall deliver promptly to
Pledgor all notices, statements or other communications received by it or its
nominee as such registered owner, and upon demand and receipt of payment of
necessary expenses thereof, shall give to Pledgor or its designee a proxy or
proxies to vote and take all action with respect to such securities. After the
occurrence of any event of default, Pledgor waives all rights to be advised of
or to receive any notices, statements or communications received by Secured
Party or its nominee as such record owner, and agrees that no proxy or proxies
given by Secured Party to Pledgor or its designee as aforesaid shall thereafter
be effective.
7. Income from and interest on Collateral.
(a) Until the occurrence of an event of default, Pledgor reserves the
right to receive all income from or interest on the Collateral, and if Secured
Party receives any such income or interest prior to such event of default,
Secured Party shall pay the same promptly to Pledgor.
(b) Upon the occurrence of an event of default, Pledgor will not demand
or receive any income from or interest on the Collateral, and if Pledgor
receives any such income or interest without any demand by it, same shall be
held by Pledgor in trust for Secured Party in the same medium in which received,
shall not be commingled with any assets of Pledgor and shall be delivered to
Secured Party in the form received, properly indorsed to permit collection, not
later than the next business day following the day of its receipt. Secured Party
may apply the net cash receipts from such income or interest to payment of any
of the Indebtedness, provided that Secured Party shall account for and pay over
to Pledgor any such income or interest remaining after payment in full of the
Indebtedness.
8. Increases, Profits, Payments or Distributions.
(a) Whether or not an event of default has occurred, Pledgor authorizes
Secured Party: (i) to receive any increases in or profits on the Collateral
(including, without limitation, any stock issued as a result of any stock split
or dividend, any capital distributions and the like), and to hold the same as
part of the Collateral; and (ii) to receive any payment or distribution on the
Collateral upon redemption by, or dissolution and liquidation of, the Company;
to surrender the Collateral or any part thereof in exchange therefor; and to
hold the net cash receipts from any such payment or distribution as part of the
Collateral.
(b) If Pledgor receives any such increase, profits, payments or
distributions, Pledgor will receive and deliver same promptly to Secured Party
on the same terms and conditions set forth in paragraph 7(b) hereof respecting
income and interest, to be held by Secured Party as part of the Collateral.
9. Events of Default.
(a) Any of the following events or conditions shall constitute an event
of default hereunder: (i) nonpayment when due, whether by acceleration or
otherwise, of principal of or interest on any Indebtedness, or default by
Pledgor in the performance of any obligation, term or condition of this Security
Agreement or any other agreement relating to the Indebtedness between Pledgor or
Borrower and Secured Party; (ii) death or judicial declaration of incompetency
of Borrower, if an individual; if Borrower is generally not paying Borrower's
debts as such debts become due; (vi) the occurrence of any event described in
paragraph 9(a)(ii), (iii), (iv) or (v) hereof with respect to any indorser,
guarantor or any other party liable for, or whose assets or any interest therein
secures, payment of any Indebtedness (Third Party), or the occurrence of any
such event with respect to any general partner of Borrower, if Borrower is a
partnership; (vii) if any certificate, statement, representation, warranty or
audit heretofore or hereafter furnished by or on behalf of Pledgor, Borrower or
any Third Party, pursuant to or in connection with this Security Agreement, or
otherwise (including, without limitation, representations and warranties
contained herein), or as an inducement to Secured Party to extend any credit to
or to enter into this or any other agreement with respect to any Indebtedness,
proves to have been false in any material respect at the time as of which the
facts therein set forth were stated or certified, or to have omitted any
substantial contingent or unliquidated liability or claim against Pledgor,
Borrower or any such Third Party; or, if upon the date of execution of this
Security Agreement, there shall have been any materially adverse change in any
of the facts disclosed by any such certificate, statement, representation,
warranty or audit, which change shall not have been disclosed in writing to
Secured Party at or prior to the time of such execution; (viii) the
reorganization, merger or consolidation of Borrower (or the making of any
agreement therefor) without the prior written consent of Secured Party; (ix)
nonpayment by Borrower of any taxes, assessments, or other charges of any nature
which may be imposed, levied or assessed against Borrower or any of Borrower's
assets, prior to the date of attachment of any penalties or liens with respect
thereto (other than liens attaching prior to payment becoming due, if payment is
made when due), provided, however, Borrower shall not be required to pay any
such tax, assessment or other charge so long as its validity is being contested
in good faith by appropriate proceedings diligently conducted or (x) occurrence
of any Event of Default as defined in the Loan and Security Agreement dated
as of January 31, 1996 between the Borrower and the Secured Party, as
amended (the "Loan Agreement")
(b) Secured Party, at its sole election, may declare all of any part of any
Indebtedness not payable on demand to be immediately due and payable without
demand or notice of any kind upon the happening of any event of default (other
than an event of default under either paragraph 9(a)(iii) or (iv) hereof), or if
Secured Party in good faith believes that the prospect of payment of all or any
part of the Indebtedness or performance of Pledgor's obligations under this
Security Agreement or any other agreement relating to the Indebtedness now or
hereafter in effect between Pledgor
<PAGE>
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or Borrower and Secured Party is impaired. All or any part of any Indebtedness
not payable on demand shall be immediately due and payable without demand or
notice of any kind upon the happening of one or more events of default under
paragraph 9(a)(iii) or (iv) hereof. The provisions of this paragraph are not
intended in any way to affect any rights of Secured Party with respect to any
indebtedness which may now or hereafter be payable on demand.
(c) Secured Party's rights and remedies with respect to the Collateral
shall be those of a Secured Party under the Uniform Commercial Code and under
any other applicable law, as the same may from time to time be in effect, in
addition to those rights granted herein and in any other agreement now or
hereafter in effect between Pledgor and Secured Party.
(d) Without in any way requiring notice to be given in the following time
and manner, Pledgor agrees that any notice by Secured Party of sale, disposition
or other intended action hereunder or in connection herewith, whether required
by the Uniform Commercial Code or otherwise, shall constitute reasonable notice
to Pledgor if such notice is mailed by regular or certified mail, postage
prepaid, at least five (5) days prior to such action, to Pledgor's address
specified above or to any other address which Pledgor has specified in writing
to Secured Party as the address to which notices hereunder shall be given to
Pledgor.
(e) Pledgor agrees to pay on demand all costs and expenses incurred by
Secured Party in enforcing this Security Agreement, in realizing upon or
protecting any Collateral and in enforcing and collecting any Indebtedness or
any guaranty thereof, including, without Limitation, if Secured Party retains
counsel for advice, suit, appeal, insolvency or other proceedings under the
federal Bankruptcy Code or otherwise, or for any of the above purposes, the
actual attorneys' fees incurred by Secured Party. Payment of all moneys
hereunder is secured by the Collateral.
10. Miscellaneous.
(a) Pledgor authorizes Secured Party, without notice or demand and
without affecting Pledgor's obligations hereunder, whether or not Borrower and
Pledgor are the same, from time to time: (i) to renew, extend, increase,
accelerate or otherwise change the time for payment of, the terms of or the
interest on the indebtedness or any part thereof; (ii) to take from any party
and hold collateral (other than the Collateral) for the payment of the
indebtedness or any part thereof, and to exchange, enforce or release such
collateral or any part thereof; (iii) to accept and hold any indorsement or
guaranty of payment of the indebtedness or any part thereof and to release,
substitute or modify any such obligation of any such indorser or guarantor, or
any party who has given any security interest in any other collateral as
security for the payment of the indebtedness or any part thereof, or any other
party in any way obligated to pay the Indebtedness or any part thereof; (iv)
upon the occurrence of any event of default as hereinabove provided, to direct
the order or manner of the disposition of the Collateral and any and all other
collateral and the enforcement of any and all indorsements and guaranties
relating to the Indebtedness or any part thereof as Secured Party, in its sole
discretion, may determine; and (v) to determine, in its sole discretion, how,
when and what application of payments and credits, if any, shall be made on
the Indebtedness or any part thereof.
(b) Pledgor hereby appoints Secured Party as Pledgor's attorney-in-fact
(without requiring Secured Party) to perform all acts which Secured Party deems
appropriate to perfect and continue the Security Interest and to protect,
preserve and realize upon the Collateral. This power of attorney shall not be
affected by the subsequent disability or incompetence of Pledgor.
(c)(i) If any Borrower and Pledgor are the same, as further security for
payment of the Indebtedness, Pledgor hereby grants to Secured Party a Security
Interest in and lien on any and all property of Pledgor which is or may
hereafter be in the possession or control of Secured Party in any capacity or of
any third party acting on its behalf, including, without limitation, all deposit
and other accounts and all moneys owed or to be owed by Secured Party to
Pledgor; and with respect to all of such property, Secured Party shall have the
same rights hereunder as it has with respect to the Collateral. (ii) Without
limiting any other right of Secured Party, whenever Secured Party has the right
to declare any Indebtedness to be immediately due and payable (whether or not it
has so declared), Secured Party at its sole election, if any Borrower and
Pledgor are the same, may set off against the Indebtedness any and all moneys
then or thereafter owed to Pledgor by Secured Party in any capacity, whether or
not the indebtedness or the obligation to pay such moneys owed by Secured Party
is then due, and Secured Party shall be deemed to have exercised such right of
set off immediately at the time of such election even though any charge therefor
is made or entered on Secured Party's records subsequent thereto.
(d) Upon Pledgor's failure to perform any of its duties hereunder, Secured
Party may, but shall not be obligated to, perform any or all such duties,
including, without limitation, if any Borrower and Pledgor are the same, payment
of taxes, assessments, insurance and other charges and expenses as herein
provided, and Pledgor shall pay an amount equal to the cost thereof to
Secured Party on demand by Secured Party. Payment of all moneys hereunder shall
be secured by the Collateral.
(e) Unless any instrument, document, or agreement evidencing any
Indebtedness expressly provides a rate for the accrual of interest after such
Indebtedness becomes due, the rate at which interest on such Indebtedness shall
accrue after such Indebtedness becomes due, whether by reason of default or
otherwise and until such Indebtedness is paid in full, shall be the rate
provided in such instrument, document, or agreement which is in effect
immediately prior to such Indebtedness becoming due.
(f) No course of dealing between Pledgor and Secured Party and no delay or
omission by Secured Party in exercising any right or remedy hereunder or with
respect to any Indebtedness shall operate as a waiver thereof or of any other
right or remedy, and no single or partial exercise thereof shall preclude any
other or further exercise thereof or the exercise of any other right or remedy.
Secured Party may remedy any default by Pledgor hereunder or with respect to any
Indebtedness in any reasonable manner without waiving the default remedied and
without waiving any other prior or subsequent default by Pledgor. All rights and
remedies of Secured Party hereunder are cumulative.
(g) Secured Party shall have no obligation to take, and Pledgor shall have
sole responsibility for taking, any and all steps to preserve rights against any
and all prior parties to any Instrument constituting Collateral, whether or not
in Secured Party's possession. Secured Party shall not be responsible to Pledgor
for loss or damage resulting from Secured Party's failure to enforce or collect
any such Collateral or to collect any moneys due or to become due thereunder.
Pledgor waives protest of any instrument constituting Collateral at any time
held by Secured Party on which Pledgor is in any way liable and waives notice of
any other action taken by Secured Party.
(h) The rights and benefits of Secured Party hereunder shall, if Secured
Party so directs, inure to any party acquiring any interest in the Indebtedness
or any part thereof.
(i) Secured Party and Pledgor as used herein shall include the heirs,
executors or administrators, or successors or assigns, of those parties.
(j) If more than one Pledgor executes this Security Agreement, the term
"Pledgor" shall include each as well as all of them and their obligations,
warranties and representations hereunder shall be joint and several.
<PAGE>
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(k) No modification, rescission, waiver, release or amendment of any
provision of this Security Agreement shall be made except by a written agreement
subscribed by Pledgor and by a duly authorized officer of Secured Party.
(l) This Security Agreement and the transaction evidenced hereby shall
be construed under the laws of New York State, as the same may from time to time
be in effect.
(m) All terms, unless otherwise defined in this Security Agreement,
shall have the definitions set forth in the Uniform Commercial Code adopted in
New York State, as the same may from time to time be in effect.
(n) This Security Agreement is and is intended to be a continuing
Security Agreement and shall remain in full force and effect until the officer
in charge of the Lending Office, Department or Division of Secured Party
indicated above shall actually receive from Pledgor written notice of its
discontinuance; provided, however, this Security Agreement shall remain in full
force and effect thereafter until all of the Indebtedness outstanding, or
contracted or committed for (whether or not outstanding), before the receipt of
such notice by Secured Party, and any extensions or renewals thereof (whether
made before or after receipt of such notice), together with interest accruing
thereon after such notice, shall be finally and irrevocably paid in full. If,
after receipt of any payment of all or any part of the Indebtedness, Secured
Party is for any reason compelled to surrender such payment to any person or
entity, because such payment is determined to be void or voidable as a
preference, impermissible set off, or a diversion of trust funds, or for any
other reason, this Security Agreement shall continue in full force
notwithstanding any contract action which may have been taken by Secured Party
in reliance upon such payment, and any such contrary action so taken shall be
without prejudice to Secured Party's rights under this Security Agreement and
shall be deemed to have been conditioned upon such payment having become final
and irrevocable.*
SECURED PARTY: PLEDGOR:
MARINE MIDLAND BANK EPISODE USA, INC. (Debtor and Debtor-in-
Possession)
By /s/ Lita B. Chow
_____________________________________________
By /s/ John Northington Name: Lita B. Chow
______________________ _____________________________________________
Name: John Northington Title: President
Title: Vice President
* The attached "Rider to Pledge and Irrevocable Proxy Security Agreement
(Including Control Stock)" dated May 30, 1996 between Marine Midland Bank and
Episode USA, Inc. (debtor and debtor-in-possession) shall be an integral part of
this Security Agreement, and is hereby incorporated herein.
<PAGE>
RIDER TO PLEDGE AND
IRREVOCABLE PROXY SECURITY AGREEMENT
(INCLUDING CONTROL STOCK)
Dated May 30, 1996
between
MARINE MIDLAND BANK
and
EPISODE USA, INC.,
Debtor and Debtor-in-Possession
The terms of this Rider to Pledge and Irrevocable Proxy
Security Agreement (Including Control Stock) dated May 30, 1996
between Marine Midland Bank and Episode USA, Inc. (debtor and
debtor-in-possession) are an integral part of such agreement.
A. So long as this Security Agreement is in effect,
Pledgor will (1) immediately deliver, or cause to be immediately
delivered, to the Secured Party at the address set forth above
for the Secured Party (attention: Mr. William W. Smith, Jr.) or
at such other address or to the attention of such other person as
the Secured Party may specify in writing, any Collateral it may
receive and/or be issued including, without limitation, any
Additional Shares (as defined in the Purchase Agreement); and
(2) execute all such blank stock powers, endorsements and similar
documents or instruments as the Secured Party may request
regarding such Collateral.
B. In the event that the Pledgor is required to surrender
Shares (as defined in the Purchase Agreement) pursuant to Section
2.3.4 of the Purchase Agreement, the Secured Party will make the
certificate evidencing the Shares available to Mothers Work, Inc.
("Mothers") for the exclusive purpose of the exchange
contemplated by Section 2.3.4 of the Purchase Agreement upon the
following conditions:
(1) the Pledgor delivers to the address, and to the
attention of the person, specified in paragraph "A" above, a
request in writing for the temporary release of such
certificate at least five business (5) days prior to the
requested release of such certificate, which written request
shall include evidence of and supporting documentation for
the Inventory Adjustment Amount (as defined in the Purchase
Agreement);
(2) the Pledgor and/or Mothers shall execute all such
receipts, releases or similar documents regarding the Shares
as the Secured Party may reasonably request;
(3) the new share certificate evidencing the reduced
number of Shares registered in Pledgor's name (the "New
<PAGE>
Certificate") (which the Pledger and Mothers represent and
warrant to the Secured Party constitute Collateral) shall be
delivered by Mothers directly to the Secured Party at the
address, and to the attention of the person, specified in
paragraph "A" above within five (5) days of the original
certificate's release; and
(4) no Event of Default has occurred (as defined in
the Loan Agreement).
C. During any period of time that the Secured Party has
released any Collateral pursuant to paragraph "B" above or
otherwise, each of the Pledgor and Mothers:
(1) acknowledge that the Security Interest in all
Collateral will continue to exist and remain in the Secured
Party, subject to a reduction of Shares pursuant to an
exchange under Section 2.3.4 of the Purchase Agreement; and
(2) will hold any Collateral in trust for Secured
Party and subject to its order only for the purpose of (a)
performing the Share certificate exchange contemplated in
Section 2.3.4 of the Purchase Agreement, or (b) such other
purpose as the Secured Party may authorize in writing.
D. Delivery by the Secured Party, subject to and in
accordance with the terms hereof, of the certificate representing
the Shares shall fulfill the obligations of the Pledgor pursuant
to Section 2.3.4 of the Purchase Agreement regarding such
surrender, and Pledgor hereby irrevocably consents to such
delivery.
-2-
<PAGE>
E. The occurrence of any event described in paragraphs
9(a)(i) and (vii) of this Security Agreement with respect to
Mothers shall constitute an event of default hereunder.
SECURED PARTY PLEDGOR AND BORROWER
MARINE MIDLAND BANK EPISODE USA, INC. (debtor and
debtor-in-possession)
By /s/ John Northington By /s/ Lita B. Chow
----------------------- ----------------------------
Name: John Northington Name: Lita B. Chow
Title: V.P. Title: President
PARAGRAPHS B-E, INCLUSIVE,
CONSENTED AND AGREED TO BY
MOTHERS WORK, INC.:
MOTHERS WORK, INC.
By /s/ Rebecca Matthias
-----------------------
Name: Rebecca Matthias
Title: President
-3-
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On this 30th day of May, 1996, before me personally came Lita Chow,
to me known, who, being by me duly sworn, did depose and say that she
resides at 220 East 57th Street, New York, New York, that she is the
President of Episode USA, Inc., the corporation described in and which
executed the foregoing instrument; and that she signed her name thereto
by order of the Board of Directors of said corporation.
/s/ BARBARA SHEALY
---------------------
Notary Public
BARBARA SHEALY
Notary Public, State of New York
No. 01SH4998206
Qualified in Westchester County
Commission Expires June 22, 1996
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On this 30th day of May, 1996, before me personally came Rebecca
Matthias, to me known, who, being by me duly sworn, did depose and say
that she has an office at 456 No. 5th St., Philadelphia, Penn. 19123,
that she is President of Mothers Work, Inc., the corporation described
in and which executed the foregoing instrument; and that she signed her
name thereto by order of the Board of Directors of said corporation.
/s/ BARBARA SHEALY
---------------------
Notary Public
BARBARA SHEALY
Notary Public, State of New York
No. 01SH4998206
Qualified in Westchester County
Commission Expires June 22, 1996
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF NEW YORK )
On this 30th day of May, 1996, before me personally came John P.
Northington, to me known, who, being by me duly sworn, did depose and
say that he has an office at 140 Broadway, 20th Floor, New York, New
York, that he is a Vice President of Marine Midland Bank, the
corporation described in and which executed the foregoing instrument;
and that he signed his name thereto by order of the Board of Directors
of said corporation.
/s/ STACY E. O'BRIEN
---------------------
Notary Public
STACY E. O'BRIEN
NOTARY PUBLIC, State of New York
No. 31-4944765
Qualified in New York County
Commission Expires 11-28-96