-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SP7xQ+ljjMZQjTdgH7qUosch3ozB3m/rF5VLcr4PwOTnnYKW+VCcr89VVwYbmcEy tsBd7/BZgrgxtmP4D1jPDA== 0000889812-97-002096.txt : 19971002 0000889812-97-002096.hdr.sgml : 19971002 ACCESSION NUMBER: 0000889812-97-002096 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 19971001 SROS: NONE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: DANSKIN INC CENTRAL INDEX KEY: 0000889299 STANDARD INDUSTRIAL CLASSIFICATION: WOMEN'S, MISSES', AND JUNIORS OUTERWEAR [2330] IRS NUMBER: 621284179 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D SEC ACT: SEC FILE NUMBER: 005-44535 FILM NUMBER: 97689048 BUSINESS ADDRESS: STREET 1: 111 W 40TH ST CITY: NEW YORK STATE: NY ZIP: 10018 BUSINESS PHONE: 2127644630 MAIL ADDRESS: STREET 1: 111 W 40TH ST CITY: NEW YORK STATE: NY ZIP: 10018 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: DANSKIN INVESTORS LLC CENTRAL INDEX KEY: 0001046879 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 954652170 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: C/O ONYX PARTNERS INC STREET 2: 9595 WILSHIRE BLVD SUITE 700 CITY: BEVERLY HILLS STATE: CA ZIP: 90212 BUSINESS PHONE: 3107245599 MAIL ADDRESS: STREET 1: C/O ONYX PARTNERS STREET 2: 9595 WILSHIRE BLVD STE 700 CITY: BEVERLY HILLS STATE: CA ZIP: 90212 SC 13D 1 INITIAL FILING UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D Under the Securities Exchange Act of 1934 (Amendment No. )* Danskin, Inc. --------------------- (Name of Issuer) Common Stock --------------------------------- (Title of Class of Securities) 2363651020 ------------------- (CUSIP Number) Mr. Andrew Astrachan With a copy to: Danskin Investors, LLC Robert M. Friedman, Esq. c/o Onyx Partners, Inc. Shereff, Friedman, Hoffman & Goodman, LLP 9595 Wilshire Blvd., Suite 700 919 Third Avenue Beverly Hills, CA 90212 New York, New York 10022 (310) 724-5599 (212) 758-9500 - -------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) September 22, 1997 ---------------------------------------- (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this statement because of Rule 13d-1(b) (3) or (4), check the following: [ ]. Note: One copy and an EDGAR version of this statement, including all exhibits, should be filed with the Commission. See Rule 13d-1(a) for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). SCHEDULE 13D CUSIP No. 2363651020 Page 2 of Pages ------------ ------ ------ 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Danskin Investors, LLC 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) |X| (b) |_| 3 SEC USE ONLY 4 SOURCE OF FUNDS* WC 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |_| 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware NUMBER OF 7 SOLE VOTING POWER SHARES BENEFICIALLY 8 SHARED VOTING POWER OWNED BY EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON 10 SHARED DISPOSITIVE POWER WITH 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 0 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* |_| 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 0.0% 14 TYPE OF REPORTING PERSON* OO *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D CUSIP No. 2363651020 Page 3 of Pages ------------ ------ ------ 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Andrew J. Astrachan 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* a) |X| b) |_| 3 SEC USE ONLY 4 SOURCE OF FUNDS* N/A 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |_| 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States NUMBER OF 7 SOLE VOTING POWER SHARES BENEFICIALLY 8 SHARED VOTING POWER OWNED BY 5,446,214 EACH REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH 10 SHARED DISPOSITIVE POWER 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 5,446,214 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* |_| 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 56.3% 14 TYPE OF REPORTING PERSON* IN *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D CUSIP No. 2363651020 Page 4 of Pages ------------ ------ ------ 1 NAME OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON David A. Sachs 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) |X| (b) |_| 3 SEC USE ONLY 4 SOURCE OF FUNDS* N/A 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |_| 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States NUMBER OF 7 SOLE VOTING POWER SHARES BENEFICIALLY 8 SHARED VOTING POWER OWNED BY 5,446,214 EACH REPORTING 9 SOLE DISPOSITIVE POWER PERSON WITH 10 SHARED DISPOSITIVE POWER 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 5,446,214 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* |_| 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 56.3% 14 TYPE OF REPORTING PERSON* IN *SEE INSTRUCTIONS BEFORE FILLING OUT! INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7 (INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION. SCHEDULE 13D Item 1. Security and Issuer Securities acquired: Common Stock, $.01 par value ("Common Stock") Issuer: Danskin, Inc. (the "Issuer") 111 West 40th Street New York, New York 10018 Item 2. Identity and Background (a), (b), (c) and (f) This Schedule 13D is being filed jointly by Danskin Investors, LLC, a Delaware limited liability company ("Investors"), Andrew J. Astrachan ("Astrachan") and David A. Sachs ("Sachs"). Investors, Astrachan and Sachs are hereinafter sometimes referred to as the "Reporting Persons." Investors is a private investment fund. The business address of Investors is c/o Onyx Partners, Inc., 9595 Wilshire Blvd., Suite 700, Beverly Hills, CA 90212. The sole manager of Investors is Onyx Partners, Inc. ("Onyx"), a Delaware corporation engaged in private investments. Astrachan, a United States citizen with a business address c/o Onyx, is the President, a stockholder and a director of Onyx. Sachs, a United States citizen with a business address c/o Onyx, is a Vice President, a stockholder and a director of Onyx. See Item 5 for information regarding ownership of Common Stock. (d) and (e). During the past five years, no Reporting Person has been convicted in any criminal proceeding (excluding traffic violations or similar misdemeanors) or been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. Item 3. Source and Amount of Funds Investors purchased the Securities (as defined below) from the Issuer on September 22, 1997, in consideration of (a) the contribution to the Issuer of $4,000,000 in cash, (b) the contribution to the Issuer of $11,000,000 principal amount of the term loan portion (the "Term Loan") of the Issuer's credit facility with First Union National Bank of North Carolina and First Union Commercial Corporation (collectively, the "Bank") which Investors had purchased on such date from the Bank and (c) the cancellation of $10,256,000 principal amount of the Term Loan (collectively, the "Purchase Price"). The Purchase Price was obtained through capital contributions made to Investors by its members and $544,129 Page 5 paid by Oppenheimer Bond Fund for Growth to the Issuer in exchange for a portion of the Securities. See Item 4 and Item 5. Item 4. Purpose of the Transaction Beneficial ownership of the shares of Common Stock reported herein were acquired as part of a recapitalization of the Company on September 22, 1997 (the "Recapitalization"). Pursuant to the Recapitalization, Investors purchased from the Issuer (i) a $15,000,000 aggregate principal amount subordinated note (the "Note") of the Issuer and (ii) $500,000 in stated value of Series C Cumulative Convertible Preferred Stock (the "Series C Stock") of the Issuer (collectively, the "Securities") in consideration of the Purchase Price. Holders of the Series C Stock have the right to elect four of nine directors to the Issuer's Board of Directors. On the date of the closing of the Recapitalization, Andrew J. Astrachan, Gabriel Brenner, Jim Jalil and Nina McLemore were elected, as the designees of Investors, as directors of the Issuer by the Issuer's incumbent Board of Directors to replace four members of the Board of Directors who resigned. In connection with the closing of the Recapitalization, the Issuer's Board of Directors approved amendments to both its Certificate of Incorporation and its Bylaws to effectuate agreements reached between the Issuer and Investors to, among other things, increase the number of authorized shares of Common Stock to 100,000,000 and remove the provisions for a classified Board of Directors (the "Certificate Amendments"). In addition, in connection with the closing of the Recapitalization, the Issuer announced that (a) its Board of Directors declared a stock dividend on the Common Stock equal to one share of Common Stock for each 11.99 shares of Common Stock held of record as of the close of business on September 22, 1997, (b) its Board of Directors redeemed the Rights issued pursuant to the Rights Agreement dated as of June 5, 1996 between the Issuer and the Bank, as Rights Agent, for $.01 per right in cash to holders of Common Stock held of record as of the close of business on September 22, 1997 and (c) it will offer its shareholders, including Investors, the right to purchase, pro rata, 10,000,000 shares of Common Stock at a per share price of $.30 (the "Rights Offering"). Investors has agreed with the Issuer to standby to purchase any shares of Common Stock offered in the Rights Offering and not purchased by other shareholders of the Issuer. Upon the refinancing of the Issuer's revolving credit facility with the Bank (the "Refinancing"), the Series C Stock and the Note, by their terms, will be automatically exchanged for (i) $12,000,000 stated value of Series D Cumulative Convertible Preferred Stock (the "Series D Stock") of the Issuer, (ii) a warrant to purchase 10,000,000 shares of Common Stock at a per share exercise price of $.30 (the "Warrant") and (iii) a $3,000,000 aggregate principal amount subordinated note of the Issuer. The Series D Stock is convertible, at the option of the holder and, in certain circumstances, mandatorily, at a per share conversion price of $.30. Holders of the Series D Stock have the right to elect a majority of the Issuer's Board of Directors. In connection with the Refinancing, an additional director will be elected to the Board of Directors of the Issuer as the fifth designee of Investors to replace one member of the Board of Directors who will resign on such date. Page 6 Oppenheimer Bond Fund for Growth paid a portion of the Purchase Price and is entitled to receive approximately 3.78% of each of the Series D Stock and the Warrant. The Reporting Persons may acquire or dispose of securities of the Issuer, including shares of Common Stock, directly or indirectly, in open-market or privately negotiated transactions, depending upon the evaluation of the performance and prospects of the Issuer by the Reporting Persons, and upon other developments and circumstances, including, but not limited to, general economic and business conditions and stock market conditions. Except for the foregoing or as described below, no Reporting Person has any present plans or proposals which relate to or would result in any of the actions or events described in paragraphs (a) through (j) of Item 4 of Schedule 13D. However, the Reporting Persons retain their respective rights to modify their plans with respect to the transactions described in this Item 4, to acquire or dispose of securities of the Issuer and to formulate plans and proposals which could result in the occurrence of any such events, subject to applicable laws and regulations. Item 5. Interest in Securities of the Issuer (a) and (b) Astrachan and Sachs share voting power with each other, through the proxies described in Item 6, of 5,446,214 shares of Common Stock. Accordingly, Astrachan and Sachs may be deemed to have beneficial ownership of 56.3% of the outstanding shares of Common Stock. Astrachan and Sachs have no dispositive power with respect to such shares. Astrachan and Sachs disclaim beneficial ownership of such shares. The number of shares beneficially owned by the Reporting Persons and the percentage of outstanding shares represented thereby, have been computed in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended. The ownership of the Reporting Persons is based on 9,666,330 outstanding shares of Common Stock of the Issuer as of September 22, 1997, as reported to the Reporting Persons by an officer of the Issuer. (c) The only transactions in the Common Stock by the Reporting Persons during the last 60 days were the transactions described in Item 4. (d) The members of Investors have the right to receive the proceeds from the sale of the securities of the Issuer owned by Investors. Upon the closing of the Refinancing, the following members of Investors each will have the right to receive (x) more than five percent of the outstanding shares of Common Stock upon the dissolution of Investors or (y) proceeds relating to the sale of more than five percent of the outstanding shares of Common Stock upon the sale of such securities by Investors: (i) Alpine Associates, (ii) Mayfirst Associates, Ltd., (iii) Regent Capital Partners, L.P., (iv) Regent Capital Equity Partners, L.P., (v) Golden Horn (II) L.P., (vi) David Chu and (vii) Onyx.. (e) Not Applicable. Page 7 Item 6. Contracts, Arrangements, Understanding or Relations with Respect to Securities of the Issuer SunAmerica Life Insurance Company has granted an irrevocable proxy to Astrachan and Sachs to vote all shares of Common Stock held by it in favor of the Certificate Amendments. In addition, Oppenheimer Bond Fund for Growth has granted an irrevocable proxy to Astrachan and Sachs to vote all shares of Common Stock held by it in favor of the Certificate Amendments and on any additional proposal in accordance with the recommendation of the Issuer's Board of Directors until such time as Investors possesses a majority of the voting power of the Issuer. The Securities Purchase Agreement dated as of September 22, 1997, a copy of which is attached hereto as Exhibit A and which is incorporated herein by reference (the "Securities Purchase Agreement"), and the Certificate of Designations of the Series C Stock, a copy of which is attached hereto as Exhibit F and which is incorporated herein by reference, each provides that as long as any Series C Stock is outstanding, Investors shall be entitled to elect that number of the members of the Issuer's Board of Directors as shall equal one less than a majority of such entire Board of Directors of the Issuer. The Securities Purchase Agreement and the Certificate of Designations of the Series D Stock, a copy of which is attached hereto as Exhibit G and which is incorporated herein by reference, each provides that as long as Investors owns 50% or more of the shares of Series D stock originally issued pursuant to the Recapitalization, Investors shall be entitled to elect a majority of the Board of Directors of the Issuer. The Amended and Restated Limited Liability Company Operating Agreement of Investors, a copy of which is attached hereto as Exhibit B and which is incorporated herein by reference, provides, among other things, (a) for certain allocations of profit to Onyx in excess of Onyx's capital contributions to Investors; (b) that members representing a majority of the capital contributions to Investors shall (i) select Investors' designees to the Issuer's Board of Directors, (ii) make any decision as to how the securities of the Issuer held by Investors are to be voted and (iii) make any decision as to whether Investors should accept any offer to purchase the securities of the Issuer held by Investors above certain target prices; and (c) that unanimous approval of the members of Investors is required to accept an offer to purchase the securities of the Issuer held by Investors below certain target prices. The Registration Rights Agreement dated as of September 22, 1997, a copy of which is attached hereto as Exhibit I and which is incorporated herein by reference, provides for the grant by the Issuer of certain demand and piggy-back registration rights to Investors. Item 7. Material to be Filed as Exhibits Exhibit A. Securities Purchase Agreement dated as of September 22, 1997 between the Issuer and Investors. Page 8 Exhibit B. Amended and Restated Limited Liability Company Operating Agreement of Investors. Exhibit C. Proxy granted by Oppenheimer Bond Fund for Growth to Andrew J. Astrachan and David A. Sachs. Exhibit D. Proxy granted by SunAmerica Life Insurance Company to Andrew J. Astrachan and David A. Sachs. Exhibit E. Form of Warrant to be issued to Investors. Exhibit F. Certificate of Designations of Series C Cumulative Convertible Preferred Stock. Exhibit G. Certificate of Designations of Series D Cumulative Convertible Preferred Stock. Exhibit H. Promissory Note of the Issuer in favor of Investors. Exhibit I. Registration Rights Agreement between the Issuer and Investors. Page 9 Signature - --------- After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. DANSKIN INVESTORS, LLC By: Onyx Partners, Inc., its manager By: /s/ Andrew J. Astrachan ----------------------------- Name: Andrew J. Astrachan Title: President Dated: October 1, 1997 /s/ Andrew J. Astrachan ------------------------ Andrew J. Astrachan /s/ David A. Sachs ------------------------ David A. Sachs Page 10 AGREEMENT OF JOINT FILING In accordance with Rule 13d-1(f) under the Securities Exchange Act of 1934, as amended, the undersigned hereby agree to the joint filing with all other Reporting Persons (as such term is defined in the Schedule 13D referred to below) of a statement on Schedule 13D or any amendments thereto, with respect to the Common Stock, $.01 par value, of Danskin Inc., and that this Agreement be included as an Exhibit to such filing. This Agreement may be executed in any number of counterparts each of which shall be deemed to be an original and all of which together shall be deemed to constitute one and the same Agreement. IN WITNESS WHEREOF, the undersigned hereby execute this Agreement on the 1st day of October, 1997. DANSKIN INVESTORS, LLC By: Onyx Partners, Inc., its manager By: /s/ Andrew J. Astrachan ------------------------------ Name: Andrew J. Astrachan Title: President Dated: October 1, 1997 /s/ Andrew J. Astrachan ----------------------- Andrew J. Astrachan /s/ David A. Sachs ------------------ David A. Sachs Page 11 Exhibit Index ------------- Letter Description Page ------ ----------- ---- A Securities Purchase Agreement dated as of September 22, 1997 between the Issuer and Investors B Amended and Restated Limited Liability Company Operating Agreement of Investors C Proxy granted by Oppenheimer Bond Fund for Growth to Andrew J. Astrachan and David A. Sachs D Proxy granted by SunAmerica Life Insurance Company to Andrew J. Astrachan and David A. Sachs E Form of Warrant to be issued to Investors F Certificate of Designations of Series C Cumulative Convertible Preferred Stock G Certificate of Designations of Series D Cumu ative Convertible Preferred Stock H Promissory Note of the Issuer in favor of Investors I Registration Rights Agreement between the Issuer and Investors Page 12 EX-99.(A) 2 SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT ---------------------------------------------------------------- between DANSKIN INVESTORS, LLC a Delaware Limited Liability Company and DANSKIN, INC. a Delaware Corporation ---------------------------------------------------------------- As of September 22, 1997 TABLE OF CONTENTS Page ARTICLE I. PURCHASE AND SALE OF SECURITIES.............................................1 Section 1.01 Authorization of Securities............................... 1 Section 1.02 Sale and Purchase of Securities........................... 2 Section 1.03 Purchase Price............................................ 2 Section 1.04 Transfer Taxes............................................ 2 Section 1.05 Closing Date.............................................. 2 ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................................2 Section 2.01 Organization and Qualification..............................3 Section 2.02 Authority...................................................3 Section 2.03 Consents and Approvals; No Violations.......................3 Section 2.04 Capitalization..............................................4 Section 2.05 Subsidiaries................................................5 Section 2.06 Articles of Incorporation and By-laws.......................5 Section 2.07 Compliance With Laws; Licenses..............................5 Section 2.08 Litigation; Investigations..................................5 Section 2.09 Taxes.......................................................6 Section 2.10 Employee Benefit Plans; ERISA...............................8 Section 2.11 Labor Relations............................................10 Section 2.12 Insurance Policies.........................................11 Section 2.13 Environmental Laws.........................................11 Section 2.14 Financial Statements and Books and Records.................13 Section 2.15 Absence of Liabilities.....................................14 Section 2.16 Absence of Specified Changes...............................14 Section 2.17 Real Property; Leases......................................16 Section 2.18 Equipment and Personal Property............................17 Section 2.19 Intangible Property........................................18 Section 2.20 Software...................................................18 Section 2.21 Contracts..................................................18 Section 2.22 Inventory..................................................20 Section 2.23 Title to Properties; Liens.................................20 Section 2.24 Condition of Assets........................................20 Section 2.25 Transactions with Affiliates...............................21 Section 2.26 Valid Transfer.............................................21 Section 2.27 Absence of Certain Practices...............................21 ii Section 2.28 Accounts Payable and Accrued Expenses......................21 Section 2.29 Accounts Receivable........................................21 Section 2.30 Solvency...................................................22 Section 2.31 Investment Company Act.....................................22 Section 2.32 Securities Exchange Act Reports............................22 Section 2.33 Securities Exemption.......................................23 Section 2.34 Customers and Suppliers....................................23 Section 2.35 Rights Plan................................................23 Section 2.36 Promotional Programs.......................................23 Section 2.37 Orders, Commitments and Returns............................24 Section 2.38 Warranty Claims............................................24 Section 2.39 Disclosure.................................................24 ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE BUYER.................................24 Section 3.01 Organization...............................................24 Section 3.02 Authority..................................................24 Section 3.03 Consents and Approvals; No Violations......................25 Section 3.04 Own Account................................................25 Section 3.05 Limited Transferability....................................25 Section 3.06 Accredited Investor........................................25 Section 3.07 Furnishing the Company with Information....................25 ARTICLE IV. CONDITIONS TO EACH PARTY'S OBLIGATIONS......................................26 Section 4.01 Governmental Authorizations; Consents......................26 Section 4.02 Absence of Litigation......................................26 Section 4.03 No Injunction..............................................26 Section 4.04 Opinion of Investment Banker...............................26 ARTICLE V. CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATIONS.............................26 Section 5.01 Accuracy of Representations and Warranties.................26 Section 5.02 Performance by the Company.................................27 Section 5.03 Opinion of Counsel.........................................27 Section 5.04 Casualty Losses; Material Change...........................27 Section 5.05 Customer Consents..........................................27 Section 5.06 Securities.................................................27 Section 5.07 Deliveries.................................................27 Section 5.08 By-law Amendments..........................................27 iii Section 5.09 Lease......................................................28 Section 5.10 Employment Agreements......................................28 Section 5.11 License Modifications......................................28 Section 5.12 Modification of Preferred Stock............................29 Section 5.13 SunAmerica Waiver..........................................29 Section 5.14 Net Operating Losses.......................................29 Section 5.15 Board of Directors.........................................29 Section 5.16 FIRPTA Affidavit...........................................29 Section 5.17 Rights Plan................................................29 Section 5.18 Registration Rights Agreement..............................29 Section 5.19 Patent Collateral and Security Agreement...................29 Section 5.20 Trademark Security Agreement...............................30 Section 5.21 License Security Agreement.................................30 Section 5.22 Loan and Security Agreement................................30 Section 5.23 Guaranty...................................................30 ARTICLE VI. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS...........................30 Section 6.01 Accuracy of Representations and Warranties.................30 Section 6.02 Performance by the Buyer...................................30 Section 6.03 Deliveries.................................................30 ARTICLE VII. SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS....................................................31 ARTICLE VIII. INDEMNIFICATION.............................................................31 Section 8.01 General Indemnity..........................................31 Section 8.02 Indemnification Procedure..................................32 ARTICLE IX. COVENANTS/OBLIGATIONS AFTER THE CLOSING.....................................34 Section 9.01 Further Assurances.........................................34 Section 9.02 Maintenance of Office......................................34 Section 9.03 Corporate Existence; Status................................34 Section 9.04 Dividends..................................................34 Section 9.05 Application of Proceeds....................................34 iv Section 9.06 Observance of Statutes, Regulations and Orders.............35 Section 9.07 Taxes......................................................35 Section 9.08 Maintenance of Properties..................................35 Section 9.09 Books and Records..........................................35 Section 9.10 Maintenance of Insurance; Indemnification..................35 Section 9.11 Inspection.................................................35 Section 9.12 Furnish Reports............................................35 Section 9.13 Furnish Additional Information.............................36 Section 9.14 Rights Offering............................................36 Section 9.15 Transfer of Securities.....................................38 Section 9.16 Corporate Governance.......................................38 Section 9.17 Options....................................................39 Section 9.18 Exchange of Securities.....................................39 Section 9.19 Information Statement; Certificate of Incorporation........40 Section 9.20 Confidentiality............................................41 ARTICLE X. MISCELLANEOUS...............................................................41 Section 10.01 Costs......................................................41 Section 10.02 Headings...................................................42 Section 10.03 Notices....................................................42 Section 10.04 Binding Effect.............................................43 Section 10.05 Governing Law; Forum; Process..............................43 Section 10.06 Entire Agreement...........................................43 Section 10.07 Counterparts...............................................44 Section 10.08 Severability...............................................44 Section 10.09 No Prejudice...............................................44 Section 10.10 Words in Singular and Plural Form..........................44 Section 10.11 Parties in Interest........................................44 Section 10.12 Amendment and Modification.................................44 Section 10.13 Waiver.....................................................44 Section 10.14 Knowledge of the Company...................................44 Section 10.15 Remedy for Breach..........................................44 EXHIBITS A. Certificate of Designations of Investor Preferred Stock B. Notes C. Certificate of Designations of Convertible Preferred Stock D. Warrant E. Opinion of Company Counsel v F. Registration Rights Agreement G. Patent Collateral Assignment and Security Agreement H. Trademark Security Agreement I. License Security Agreement J. Loan and Security Agreement K. Mortgage and Deed of Trust Documents L. Guaranty of Danpen, Inc. M. Agreement with Donald Schupak N. Fourth Amendment to Employment Agreement with Mary Ann Domuracki O. Fifth Amendment to Employment Agreement with Beverly Eichel P. Warrant Agreement granted to Donald Schupak Q. Option Agreement granted to Mary Ann Domuracki R. Option Agreement granted to Beverly Eichel S. Option Agreement granted to Nina McLemore vi SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT, dated as of September 22, 1997 (this "Agreement"), by and between Danskin Investors, LLC, a Delaware limited liability company (the "Buyer"), and Danskin, Inc. a Delaware corporation (the "Company"). R E C I T A L S WHEREAS, upon the terms and subject to the conditions set forth in this Agreement, the Buyer desires to purchase from the Company and the Company desires to sell to the Buyer (i) Series C Convertible Preferred Stock of the Company, $.01 par value per share ("Investor Preferred Stock") and (ii) convertible subordinated notes (the "Notes" and collectively with the Investor Preferred Stock, the "Securities), as more particularly described herein in consideration for the payments from the Buyer, as set forth herein; WHEREAS, the Buyer and the Company also desire to establish in this Agreement certain terms and conditions concerning the corporate governance of the Company. NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements contained herein, intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I. PURCHASE AND SALE OF SECURITIES Section 1.01 Authorization of Securities. Upon the terms and subject to the conditions set forth herein, the Company has authorized the issuance and sale of (i) Five Hundred Thousand Dollars ($500,000) in stated value of Investor Preferred Stock which shall contain the terms and conditions and be in the form of Exhibit A hereto, (ii) Fifteen Million Dollars ($15,000,000) aggregate principal amount of Notes which shall contain the terms and conditions and be in the form of Exhibit B hereto, (iii) upon conversion or exchange of the Securities, Twelve Million Dollars ($12,000,000) in stated value of Series D Cumulative Convertible Preferred Stock of the Company, $.01 par value per share ("Convertible Preferred Stock"), which shall contain the terms and conditions and be in the form of Exhibit C hereto, (iv) upon conversion or exchange of the Securities, a warrant to purchase 10,000,000 shares of common stock of the Company, $.01 par value per share ("Common Stock"), at an exercise price per share equal to $.30 (the "Warrant") which shall contain the terms and conditions and be in the form of Exhibit D hereto, (v) subject to stockholder approval of an increase in the authorized capital stock of the Company, upon conversion of the Convertible Preferred Stock and exercise of the Warrant, up to 50,000,000 shares of Common Stock (such shares of Common Stock, Investor Preferred Stock, Convertible Preferred Stock and the shares of Common Stock referred to in clause (vi) below are 1 sometimes referred to herein as the "Stock") and (vi) upon conversion or exchange of the Securities, up to 10,000,000 shares of Common Stock to be offered in the Rights Offering (as defined in Section 9.14). Section 1.02 Sale and Purchase of Securities. Upon the terms and subject to the conditions set forth herein, at the Closing (as defined in Section 1.05), the Company shall sell, convey, transfer, assign and deliver to the Buyer, and the Buyer shall purchase, acquire and accept from the Company, free and clear of all liens, charges, encumbrances, security interests, pledges, equities, assessments or restrictions of any nature whatsoever, (i) Five Hundred Thousand Dollars ($500,000) in stated value of Investor Preferred Stock and (ii) $15,000,000 aggregate principal amount of Notes. Section 1.03 Purchase Price. The aggregate purchase price (the "Purchase Price") for the Securities to be purchased pursuant to Section 1.02 shall be paid by the Buyer at the Closing by (i) cancelling in part and contributing to the capital of the Company in part the outstanding principal amount of the term loan portion (the "Loan Amount") of the Company's obligations under the Amended and Restated Loan and Security Agreement between the Company and First Union National Bank of North Carolina (the "Bank"), as agent, and the lender's named therein, dated as of June 22, 1995, as amended to date (the "Loan Agreement") and (ii) wire transfer of $4,000,000 (the "Cash Purchase Price") to an account(s) designated in writing by the Company. Section 1.04 Transfer Taxes. The Company shall pay on the Closing Date all municipal, county, state and federal sales and transfer taxes incurred and the costs of preparing or documenting the same, if any, in connection with the transactions contemplated by this Agreement. The Company shall prepare, and each party, as appropriate, shall in a timely manner sign and swear to any return, certificate, questionnaire or affidavit as to matters within its knowledge required in connection with the payment of any such tax. Section 1.05 Closing Date. Subject to the fulfillment or waiver of the conditions precedent set forth in Articles IV, V, and VI, the closing of the transactions contemplated by Section 1.02 of this Agreement (the "Closing") shall take place at the offices of Shereff, Friedman, Hoffman & Goodman, LLP, 919 Third Avenue, New York, New York 10022 on September 22, 1997, or such other location, date and time as to which the parties may mutually agree (such date and time of the Closing is referred to herein as the "Closing Date"). ARTICLE II. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to the Buyer as of the date hereof and the date of the Closing as follows: 2 Section 2.01 Organization and Qualification. The Company and each of its Subsidiaries (as defined in Rule 405 under the Securities Act of 1933, as amended (each a "Subsidiary" and collectively, the "Subsidiaries")), is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization. The Company and each Subsidiary has all corporate power and authority to own, lease and operate its properties and to carry on its business as now being conducted. The Company and each Subsidiary is duly qualified or licensed to do business and in good standing in each jurisdiction in which the property owned, leased or operated by it or the nature of the business conducted by it makes such qualification or licensing necessary, except where failure to be so duly qualified or licensed and in good standing would not individually or in the aggregate have a Material Adverse Effect on the Company or such Subsidiary. A true, correct and complete list of such jurisdictions is set forth on Schedule 2.01. For purposes of this Agreement, a "Material Adverse Effect" with respect to the Company and the Subsidiaries means any event, circumstance or condition that, individually or when aggregated with all other similar events, circumstances or conditions could reasonably be expected to have, or has had, a material adverse effect on: (i) the business, property, operations, condition (financial or otherwise), results of operations or prospects of the Company or such Subsidiary, (ii) the Securities or (iii) the ability of the Company to consummate the transactions contemplated hereunder. Section 2.02 Authority. The Company has the requisite corporate power and authority to execute and deliver this Agreement and each of the other exhibits hereto, documents otherwise to be delivered at the Closing pursuant to Section 5.07 hereof, the Seventh Amendment to the Loan Agreement, the Subordination Agreement and the Assignment and Acceptance to be entered into between the Buyer and the Bank and acknowledged by the Company and each other agreement or instrument delivered at the Closing (the "Related Agreements") and to consummate the transactions contemplated by this Agreement and the Related Agreements. Except as set forth on Schedule 2.02, the execution, delivery and performance of this Agreement and the Related Agreements, and the consummation of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate action on the part of the Company, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or the Related Agreements or to consummate the transactions contemplated hereby or thereby, except that the approval of the holders of not less than a majority of the outstanding shares of voting stock of the Company are required to amend the Company's certificate of incorporation (the "Certificate of Incorporation") as contemplated by Section 9.19 hereof. This Agreement and the Related Agreements have been duly executed and delivered by the Company and, assuming this Agreement and the Related Agreements constitute valid and binding obligations of the Buyer, constitute valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms. Section 2.03 Consents and Approvals; No Violations. Except as set forth on Schedule 2.03, neither the execution, delivery or performance of this Agreement or the Related Agreements by the Company, nor the consummation by it of the transactions contemplated hereby or thereby nor compliance by it with any of the provisions hereof or thereof will (i) 3 conflict with or result in any breach of any provision of the charter or by-laws of the Company or any Subsidiary, (ii) require any filing with, or permit, authorization, consent or approval of, any court, arbitral tribunal, administrative agency or commission or other governmental or other regulatory authority or agency (a "Governmental Entity"), except where the failure to obtain any permit, authorization, consent or approval, or to make such filing or notification would not have a Material Adverse Effect, (iii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, amendment, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, lease, license, contract, agreement or other instrument or obligation to which the Company or any Subsidiary is a party or by which any of their properties or assets may be bound, except where such violation or breach would not have a Material Adverse Effect, (iv) result in any payment being required or being accelerated on the part of the Company to any person on account of severance arrangements or otherwise or (v) violate any order, writ, injunction, decree, statute, rule or regulation applicable to the Company or any Subsidiary or any of their properties or assets. Section 2.04 Capitalization. The authorized and outstanding capital stock of the Company as of the date hereof is as set forth on Schedule 2.04(a) hereto. All of the outstanding shares of the capital stock of the Company are validly issued, fully paid and non-assessable and have been issued by the Company in compliance with all applicable federal and state securities laws and all applicable rules and regulations thereunder. The Securities to be issued hereunder have been validly authorized, and when delivered and paid for pursuant to this Agreement, will be validly issued and outstanding, and fully paid and non-assessable. Except for the satisfaction of any stockholder approvals and the clearance of the Information Statement (as defined in Section 3.07), the Convertible Preferred Stock, the Warrant and the Common Stock to be issued upon conversion or exchange of the Securities and the Convertible Preferred Stock or exercise of the Warrant have been validly authorized, and when delivered and paid for pursuant to this Agreement, will be validly issued and outstanding, and fully paid and non-assessable. Except as set forth on Schedule 2.04(b), the issuance and sale of the Securities and the Stock will not give rise to (x) any preemptive rights or rights of first refusal or similar rights (other than the rights of other shareholders of the Company to purchase in the Rights Offering) or (y) any anti-dilution rights or similar rights on behalf of anyone in existence either on the date hereof or on or prior to the Closing Date. Except as set forth on Schedule 2.04(b), there are no outstanding (i) securities convertible into or exchangeable for the Company's capital stock; (ii) options, warrants or other rights to purchase or subscribe for capital stock of the Company; or (iii) contracts, commitments, agreements, understandings or arrangements of any kind relating to the issuance of any capital stock of the Company, any such convertible or exchangeable securities or any such options, warrants or rights. Except as set forth on Schedule 2.04(b), there is no outstanding right, option or other agreement of any kind to purchase or otherwise to receive from the Company any ownership interest in the Company or the Subsidiaries, and there is no outstanding right or security of any kind convertible into such ownership interest. Except as set forth on Schedule 2.04(b), there is no outstanding right, option or other agreement of any kind to register under the Securities Act of 1933, as amended, any securities of the Company. 4 Section 2.05 Subsidiaries. Schedule 2.05 attached hereto lists the name of each Subsidiary and sets forth the number and class of the authorized capital stock of each Subsidiary and the number of shares of each Subsidiary which are issued and outstanding, all of which shares (except as set forth on Schedule 2.05) are owned by the Company, free and clear of all liens, claims, charges or encumbrances of every kind. Except as set forth on Schedule 2.05, the Company does not presently own, of record or beneficially, or control, directly or indirectly, any capital stock, securities convertible into capital stock or any other equity interest in any corporation, association or business entity nor is the Company, directly or indirectly, a participant in any joint venture, partnership or other non-corporate entity. Section 2.06 Articles of Incorporation and By-laws. Attached hereto on Schedule 2.06 are true and complete copies of the Company's Certificate of Incorporation and by-laws (the "By-laws") as in effect on the date hereof. Section 2.07 Compliance With Laws; Licenses. (a) The conduct of the business of the Company and each Subsidiary is in material compliance with all federal, state, local or foreign laws, rules, regulations or ordinances, or judgments, injunctions, writs, decrees, orders or guidance documents and memos of any court or Governmental Entity (collectively, the "Orders"), and all industry manufacturing and safety standards, and the Company has not received any notice of any material violation of any Order which remains outstanding except those listed on Schedule 2.07. Neither the Company nor any Subsidiary is subject to any Order currently in effect which could individually or in the aggregate have a Material Adverse Effect. (b) Except as set forth on Schedule 2.07, the Company possesses all licenses, permits, consents, authorizations, registrations and approvals of, with or from Governmental Entities which have jurisdiction over it, and occupancy, fire, business and other permits from local officials ("Licenses"), and is in full compliance with the terms thereof except where any violations, or the absence of such License, would not singly, or in the aggregate, have a Material Adverse Effect. All of the Licenses are valid and in full force and effect. Section 2.08 Litigation; Investigations. Schedule 2.08 sets forth a complete and accurate list of all suits, claims, proceedings, investigations, audits or reviews which are pending or, to the best knowledge of the Company, threatened against, probable of assertion against or affecting the Company or any Subsidiary, any of their directors or any properties or assets used in the conduct of the business of the Company (other than routine proceedings or routine, uncontested claims for benefits under any Plans (as defined in Section 2.10)). Except as disclosed in Schedule 2.08 (i) no investigation, audit or review by any Governmental Entity with respect to the Company or any Subsidiary is pending or, to the best of the Company's knowledge, threatened, nor has any Governmental Entity indicated to the Company an intention to conduct the same, and (ii) there is no action, suit or proceeding pending or, to the best of the Company's knowledge, threatened against or affecting the Company or any Subsidiary at law or in equity 5 where the relief claimed exceeds $10,000 above applicable insurance coverage, or before any Governmental Entity. Except as set forth on Schedule 2.08, there is no pending action or suit seeking in excess of $250,000 brought by the Company or any Subsidiary against others. Section 2.09 Taxes. (a) The terms "Tax" and "Taxes" shall mean any and all taxes, charges, fees, levies or other assessments, including, without limitation, all net income, gross income, gross receipts, premium, sales, use, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, excise, estimated, severance, stamp, occupation, property or other taxes, fees, assessments or charges of any kind whatsoever, together with any interest and any penalties (including penalties for failure to file in accordance with applicable information reporting requirements), and additions to tax by any authority, whether federal, state, or local or domestic or foreign. The term "Tax Return" shall mean any report, return, form, declaration or other document or information required to be supplied to any authority in connection with Taxes. (b) All Tax Returns for all periods which end prior to or which include the Closing Date that are or were required to be filed prior to Closing by the Company have been or shall be filed on a timely basis in accordance with the applicable laws of each Governmental Entity. The Company shall timely file or cause to be filed all franchise, income or other Tax Returns including Tax Returns relating to the transactions contemplated by the Agreement that shall be required to be filed after the Closing Date. All such Tax Returns that have been filed were, when filed, and continue to be, true, correct and complete. All such franchise, income or other Tax Returns that will be filed shall be true, correct and complete when filed. (c) Schedule 2.09(c) hereto lists all United States federal, state, local and foreign income Tax Returns that have been filed since January 1, 1991 by the Company that have been audited by any Governmental Entity. Except as set forth on Schedule 2.09(c), any deficiencies proposed as a result of such audits have been paid or finally settled. The Company is not aware of any fact which would constitute substantial grounds for any further material tax liability with respect to the years which have not been or are currently being audited. There are no outstanding waivers or extensions of any statute of limitations relating to the payment of Taxes or the assessment of any Taxes by the Company to which the Company may be liable, and no Governmental Entity has either formally or informally requested such a waiver or extension. (d) Except as set forth on Schedule 2.09(d) hereto, the Company has paid all of its Taxes that have become due and will make arrangements for the timely payment of any Taxes that may become due, for all periods which end prior to or which include the Closing Date, including all Taxes reflected, or required to be reflected, on the Tax Returns referred to in this Section 2.09, or in any assessment, proposed assessment or notice, either formal or informal, received by the Company, except such Taxes, if any, as are set forth on Schedule 2.09(d) hereto that are being contested in good faith and as to which adequate reserves (determined in 6 accordance with GAAP (as defined herein)) have been provided. All Taxes that the Company is or was required by law to withhold or collect have been duly withheld or collected and, to the extent required, have been paid to the appropriate Governmental Entities. There are no liens with respect to Taxes on the capital stock or any property or assets of the Company other than permitted liens for certain Taxes not yet due (or taxes that are being contested in good faith by appropriate proceedings and for which adequate reserves (determined in accordance with GAAP) have been provided). (e) The Company has not agreed to make, nor is it required to make, any adjustments under Section 481(a) of the Code by reason of or change in accounting method or otherwise. (f) Except as set forth on Schedule 2.09(f), with respect to the Subsidiaries, the Company is not, and has never been (and was not required to have been) included in any consolidated, combined or unitary Tax Return with any other person. (g) Except as set forth on Schedule 2.09(g), the Company is not a party to any agreement or arrangement (whether or not written) providing for the payment (whether by indemnification or otherwise) of the Tax liability of (or the relinquishment of any Tax Refund to) any other person, and is not otherwise liable, by law, judgment or otherwise, for the Tax liability of any other person. (h) There are no outstanding requests for rulings with any Taxing or revenue authority that might affect the operations or Tax liability of the Company. (i) The Company was not a United States Real Property Holding Corporation within the meaning of Section 897 (c)(2) of the Code on any applicable determination date during the preceding 5-year period and will not constitute such a United States Real Property Holding Corporation on any applicable determination date during any 5-year period ending on any date on which the Buyer will acquire an interest in the Company pursuant to this Agreement and the Related Agreements. (j) Except as set forth on Schedule 2.09(j) hereto (i) no deficiency for any Taxes has been proposed, asserted or assessed against the Company that has not been resolved and properly paid in full, (ii) no waiver, extension or comparable consent given by the Company regarding the application of the statute of limitations with respect to any Taxes or Tax Returns is outstanding, nor is any request for any such waiver or consent pending, (iii) there is no Tax audit or other administrative proceeding or court proceeding with regard to any Taxes or Tax Returns pending, nor has there been any notice to the Company by any Taxing authority regarding any Tax audit or other proceeding which has not been completed, nor, to the best knowledge of the Company, is any such Tax audit or other proceeding threatened with regard to any Taxes or Tax Returns; (iv) no power of attorney authorizing any person to take any action on behalf of the 7 Company with respect to any Taxes is currently in force; and (v) there are no pending claims for refund of Taxes filed by the Company. (k) None of the assets of the Company are assets that the Buyer or the Company is or shall be required to treat as being owned by another person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect immediately before the enactment of the Tax Reform Act of 1986, or is "tax-exempt use property" within the meaning of Section 168(h)(1) of the Code. (l) The Company is not a party to any agreement, contract, arrangement or plan that has resulted or would result, separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of Section 280G of the Code. (m) The Company has not made an election under Section 341(f) of the Code. (n) For purpose of this Section 2.09, references to the Company shall also refer to the Subsidiaries. Section 2.10 Employee Benefit Plans; ERISA. (a) Attached hereto as Schedule 2.10 are complete and accurate copies of all employee benefit plans, all employee welfare benefit plans, all employee pension benefit plans, all multi-employer plans and all multi-employer welfare arrangements (as defined in Sections 3(3), (1), (2), (37) and (40), respectively, of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), which are currently maintained and/or sponsored by the Company (or any Subsidiary), or to which the Company (or any Subsidiary) currently contributes, or has an obligation to contribute in the future (including, without limitation, benefit plans or arrangements that are not subject to ERISA, such as employment agreements and any other agreements containing "golden parachute" provisions and deferred compensation agreements), together with copies of any trusts related thereto and a classification of employees covered thereby (collectively, the "Plans"). Schedule 2.10 sets forth all of the Plans that have been terminated within the past three years. (b) Except for the Plans, the Company (including any Subsidiary) does not maintain or sponsor, nor is it a contributing employer to, a pension, profit-sharing, deferred compensation, stock option, employee stock purchase or other employee benefit plan, employee welfare benefit plan, or any other arrangement with its employees whether or not subject to ERISA. All Plans are in substantial compliance with all applicable provisions of ERISA and the regulations issued thereunder, as well as with all other applicable laws, and, in all material respects, have been administered, operated and managed in substantial accordance with the governing documents. All Plans that are intended to qualify (the "Qualified Plans") under Section 401(a) of the Code are so qualified and have been determined by the IRS to be so qualified (or applications for determination letters have been timely submitted to the Internal 8 Revenue Service (the "IRS")), and copies of the current plan determination letters, most recent actual valuation reports, if any, most recent Form 5500, or, as applicable, Form 5500-C/R filed with respect to each such Qualified Plan or employee welfare benefit plan and most recent trustee or custodian report, are included as part of Schedule 2.10. To the extent that any Qualified Plans have not been amended to comply with applicable law, the remedial amendment period permitting retroactive amendment of such Qualified Plans has not expired and will not expire within 120 days after the Closing Date. All reports and other documents required to be filed with any Governmental Entity or distributed to plan participants or beneficiaries (including, but not limited to, annual reports, summary annual reports, actuarial reports, PBGC-1 forms, audits or Tax Returns) have been timely filed or distributed. Neither any Plan nor the Company (included any Subsidiary) has engaged in any transaction prohibited under the provisions of Section 4975 of the Code or Section 406 of ERISA. No Plan has incurred an accumulated funding deficiency (as defined in Section 412(a) of the Code and Section 302(l) of ERISA); and no event has occurred pursuant to which the Company (including any Subsidiary) could have any direct or indirect liability whatsoever (including being subject to any statutory lien to secure payment of any such liability), to the Pension Benefit Guaranty Corporation ("PBGC") under Title IV of ERISA or to the IRS for any excise tax or penalty with respect to any plan now or hereafter maintained or contributed to by the Company or any member of a "controlled group" (as defined in Section 4001(a)(14) of ERISA) that includes the Company; and the Company (including any Subsidiary) or any member of a "controlled group" (as defined above) that includes the Company does not currently have (or at the Closing Date will not have) any obligation whatsoever to contribute to any "multi-employer pension plan" (as defined in ERISA Section 4001(a)(14)), nor has any withdrawal liability whatsoever (whether or not yet assessed) arising under or capable of assertion under Title IV of ERISA (including, but not limited to, Sections 4201, 4202, 4203, 4204, or 4205 thereof) been incurred by any Plan. Further, except as set forth on Schedule 2.10,: (i) since January 1, 1992, there have been no terminations, partial terminations or discontinuance of contributions to any Qualified Plan without a determination by the IRS that such action does not adversely affect the tax-qualified status of such Qualified Plan; (ii) since January 1, 1992, no Plan which is subject to the provisions of Title IV of ERISA, has been terminated; (iii) since January 1, 1992, there have been no "reportable events" (as that phrase is defined in Section 4043 of ERISA) with respect to any Plan which were not properly reported; (iv) the valuation of assets of any Qualified Plan, as of the Closing Date, shall equal or exceed the actuarial present value of all accrued pension benefits under any such Qualified Plan in accordance with the assumptions contained in the Regulations of the PBGC governing the funding of terminated defined benefit plans; 9 (v) with respect to Plans which qualified as "group health plans" under Section 4980B of the Code and Section 607(1) of ERISA and related regulations (relating to the benefit continuation rights imposed by "COBRA"), the Company (including any Subsidiary) has complied (and on the Closing Date will have complied) in all material respects with all reporting, disclosure, notice, election and other benefit continuation requirements imposed thereunder as and when applicable to such plans, and the Company (including any Subsidiary) has not incurred (and will not incur) any direct or indirect liability and is not (and will not be) subject to any loss, assessment, excise tax penalty, loss of federal income tax deduction or other sanction, arising on account of or in respect to any direct or indirect failure by the Company (including any Subsidiary), at any time prior to the Closing Date to comply with any such federal or state benefit continuation requirement, which is capable of being assessed or is asserted before or after the Closing Date directly or indirectly against the Company (including any Subsidiary) with respect to such group health plans; (vi) the Company (including any Subsidiary) is not now nor has it been within the past five years a member of a "controlled group" as defined in ERISA Section 4001(a)(14) other than with respect to each other; (vii) there is no pending litigation, arbitration or disputed claim, settlement or adjudication proceeding, and, to the best of the Company's knowledge, there is no threatened litigation, arbitration or disputed claim, settlement or adjudication proceeding, or investigation with respect to any Plan, or with respect to any fiduciary, administrator or sponsor thereof (in their capacities as such), or any party in interest thereof; and (viii) the Company (including any Subsidiary) has not incurred liability under Sections 4062, 4063, 4064 and 4069 of ERISA. Section 2.11 Labor Relations. Except as set forth on Schedule 2.11: (i) the Company and each Subsidiary has paid and performed all material obligations with respect to its employees, independent sales representatives, consultants, agents, officers and directors, including without limitation all wages, salaries, commissions, bonuses, severance pay, vacation pay, benefits and other direct compensation for all services performed by such persons to the date hereof and all amounts required to be reimbursed to such persons; (ii) the Company and each Subsidiary is in compliance in all material respects with all federal, state, local and foreign laws and regulations respecting employment and employment practices, terms and conditions of employment and wages and hours; (iii) there is no pending, or to the Company's knowledge threatened, charge, complaint, allegation, application or other process against the Company or any Subsidiary before the National Labor Relations Board or any comparable state, local or foreign agency, governmental or administrative; (iv) there is no labor strike, dispute, slowdown or work stoppage or other job action pending, or to the Company's knowledge, threatened against or otherwise materially affecting or involving the Company or any Subsidiary; and (v) no 10 employees of the Company or any Subsidiary are covered by any collective bargaining agreements and to the best knowledge of the Company no effort is being made by any union to organize any of the Company's or the Subsidiaries' employees. Section 2.12 Insurance Policies. The Company and each Subsidiary maintain insurance covering all risks customarily insured against and in amounts reasonable and customary in light of the Company's and the Subsidiaries' assets, properties, business, operations, products and services as the same are presently owned or conducted. Each current policy is in full force and effect and all premiums are currently paid and no notice of cancellation or termination has been received with respect to any such policy. Such policies have been sufficient for compliance with all material requirements of law. Except as set forth on Schedule 2.12, there are no material claims, actions, suits or proceedings arising out of or based upon any of such policies of insurance and, to the knowledge of the Company, no basis for any such material claim, action, suit or proceeding exists. The Company has not been refused any insurance with respect to its assets and operations, nor has its coverage been limited by any insurance carrier to which it has applied for any such insurance or with which it has carried insurance during the last five (5) years. Section 2.13 Environmental Laws. (a) As used in this Section 2.13, the following terms shall have the following meanings: (A) "CERCLA" means the Comprehensive Environmental Response Compensation and Liability Act, as amended. (B) "CERCLIS" means the Comprehensive Environmental Response Compensation and Liability Information System. (C) "Environmental Laws" means all applicable federal, state, local and foreign laws, rules, regulations, codes, ordinances, orders, decrees, directives, treaties, protocols, permits, licenses and judgments relating to pollution, contamination or protection of the environment (including without limitation all applicable federal, state, local and foreign laws, rules, regulations, codes, ordinances, orders, decrees, directives, permits, licenses and judgments relating to Hazardous Materials). (D) "Hazardous Materials" means any dangerous, toxic or hazardous pollutant, contaminant, chemical, waste, material or substance as defined in or governed by any federal, state, local or foreign law, statute, code, ordinance, regulation, rule or other requirement relating to such substance or otherwise relating to the environment or human health or safety, including without limitation any chemical, waste, material, substance, pollutant or contaminant that might cause any injury to human health or safety or to the 11 environment or might subject the Company or any Subsidiary to any environmental costs or liability under any Environmental Law. (E) "Regulatory Actions" mean any claim, demand, action or proceeding with respect to the Company or any Subsidiary brought or instigated by any governmental authority in connection with any Environmental Law, including without limitation, civil, criminal and/or administrative proceedings, and whether or not seeking environmental costs. (F) "Release" means the spilling, leaking, disposing, discharging, emitting, depositing, ejecting, leaching, escaping or any other release or threatened release, however defined, whether intentional or unintentional, of any Hazardous Material in quantities or concentrations regulated under Environmental Laws. (G) "Third-Party Environmental Claims" means any third-party claim, action, demand or proceeding (other than a Regulatory Action) based on negligence, trespass, strict liability, nuisance, toxic tort, or any other cause of action or theory under common law or Environmental Law. (b) Attached hereto as Schedule 2.13 are all environmental site assessments, reports, documentation, information and other studies relating to the presence or possible presence of Hazardous Materials (as defined hereafter) on, at, in, under, about or from the Real Property (as defined in Section 2.17) or from the activities of the Company or any Subsidiary on, at, in, under, about or from the Real Property (collectively, the "Environmental Assessments"). (c) The Company and each Subsidiary at all times has been in compliance with all applicable Environmental Laws. Neither, the Company nor any Subsidiary has received any notice of any violation of Environmental Law relating to the Real Property or the operations of the Company or any Subsidiary. No Third-Party Environmental Claims and/or Regulatory Actions have been asserted or assessed against the Company or any Subsidiary relating to the Real Property or the operations of the Company or any Subsidiary, and to the knowledge of the Company after due inquiry, no Third-Party Environmental Claims and/or Regulatory Actions are pending or threatened against the Company or any Subsidiary relating to the Real Property or the operations of the Company or any Subsidiary or to properties owned by the Company to which the Company has shipped Hazardous Materials for treatment, storage or disposal. (d) The Company and each Subsidiary has obtained all permits, licenses, certificates of compliance, approvals and other authorizations relating to any Environmental Law (collectively referred to herein as "Authorizations") necessary for the operation of the Company and each Subsidiary. The Company and each Subsidiary is in compliance with the requirements of all Authorizations. 12 (e) The Real Property is not listed in the United States Environmental Protection Agency's (the "EPA") National Priorities List of Hazardous Waste Sites under CERCLA or any similar state list, schedule, log, inventory or record (however defined), of sites from which there has been a Release of Hazardous Materials. No part of the owned Real Property or to the knowledge of the Company, the leased Real Property was ever used, nor is it now being used, as a landfill, dump or other disposal, storage, transfer, handling, or treatment area for Hazardous Materials, or as a gasoline service station or a facility for selling, dispensing, storing, transferring, disposing or handling petroleum and/or petroleum products. (f) All transfer, transportation or disposal of Hazardous Materials by the Company or any Subsidiary to properties not owned, leased or operated by the Company or any Subsidiary has been in compliance with applicable Environmental Laws. Neither the Company nor any Subsidiary has transported or arranged for the transportation of any Hazardous Materials to any location which is (A) listed on the EPA's National Priorities List of Hazardous Waste Sites under CERCLA or any similar state list, schedule, log, inventory or record (however defined), of sites from which there has been a Release of Hazardous Materials; (B) listed for possible inclusion on the National Priorities List by the EPA in CERCLIS or any similar state or local list; or (C) the subject of any Regulatory Action or Third-Party Environmental Claim. (g) There has not been, and is not now occurring, any Release of any Hazardous Material on, in, under, about, or from the Real Property, including to the knowledge of the Company, a Release that has come to be located on or under the Real Property from another location. (h) Except as set forth on Schedule 2.13(h), no above ground or underground storage tanks or wells are located on, under or about the Real Property, or have been located on, under or about the Real Property and then subsequently been removed or filled. If any such storage tanks exist on, under or about the Real Property, such storage tanks have been duly registered with all appropriate governmental entities and are otherwise in compliance with all applicable Environmental Laws. (i) Except as set forth on Schedule 2.13(i), the Company has successfully taken all remedial measures, conducted all tests and analyses and instituted all policies recommended to the Company by HTS Environmental Group in their Phase I Environmental Assessments of the Company's facilities in Grenada, Mississippi and York, Pennsylvania dated as of January 14, 1992 and January 15, 1992, respectively, and, as a result of such action on the part of the Company, no condition or thing has come to the attention of the Company which would (or with the lapse of time will) individually or in the aggregate have a Material Adverse Effect. Section 2.14 Financial Statements and Books and Records. The Company has previously delivered to the Buyer a copy of the following consolidated financial statements: the balance sheet of the Company as at December 28, 1996 and June 30, 1997, and the related results 13 of operation and statement of cash flows for the periods then ended (the "Financial Statements"). Copies of the Financial Statements are annexed as Schedule 2.14 hereto. The Financial Statements are true and accurate, are in accordance with the books and records of the Company and present fairly in all material respects the financial position and related results of operations of the Company and the Subsidiaries as of the times and for the periods referred to herein, in accordance with U.S. generally accepted accounting principles consistently applied throughout the periods covered thereby ("GAAP"). All of the financial books and records of the Company have been made available to the Buyers. Section 2.15 Absence of Liabilities. Except as described on Schedule 2.15, the Company and each Subsidiary has no debt, liabilities or obligations of any nature, whether accrued, absolute, contingent or otherwise, whether due or to become due and whether or not the amount thereof is readily ascertainable, that are not reflected as a liability in the Financial Statements except for liabilities incurred by the Company or the Subsidiaries in the ordinary course of business consistent with past practices which are not otherwise prohibited by, in violation of or which will result in a breach of the representations, warranties and covenants of the Company contained in this Agreement. Section 2.16 Absence of Specified Changes. Except as disclosed on Schedule 2.16, in the Company's Current Report on Form 8-K dated May 19, 1997, in the Company's Annual Report on Form 10-K, in the Company's Quarterly Report on Form 10-Q for the period ended June 30, 1997, or as contemplated by the transactions to be consummated at the Closing, since December 28, 1996, there has not been with respect to the Company (including any Subsidiary) any: (a) action which would result in a material adverse change, whether direct or indirect, in the business, operations, condition (financial or otherwise), prospects, liabilities or assets of the Company and the Company does not know of any change that is threatened or pending which could have a Material Adverse Effect; (b) transaction not in the ordinary course of business, including without limitation any sale of all or substantially all of the assets of the Company or any merger of the Company and any other entity; (c) unfulfilled commitments requiring expenditures by the Company exceeding $250,000 (excluding commitments expressly described elsewhere in this Agreement or the Schedules hereto or which were undertaken in the ordinary course of business consistent with past practice); (d) material damage, destruction or loss, whether or not insured; (e) failure to maintain in full force and effect substantially the same level and types of insurance coverage as in effect on December 28, 1996 or destruction, damage to, or loss 14 of any asset of the Company (whether or not covered by insurance) that materially and adversely affects the business, operations, condition (financial or otherwise), prospects, liabilities or assets of the Company; (f) change in accounting principles, methods or practices, investment practices, claims, payment and processing practices or policies regarding intercompany transactions; (g) revaluation of any assets or material write down of the value of any inventory; (h) loan or payment to any stockholder or any declaration, setting aside, or payment of a dividend (whether in cash or in shares of capital stock) or other distribution in respect of its capital stock, or any direct or indirect redemption, purchase or other acquisition of any shares of its capital stock; (i) issuance or sale of any shares of capital stock or of any other equity security or any security convertible into or exchangeable or exercisable for equity securities (except pursuant to the exercise of outstanding derivative securities or otherwise pursuant to currently authorized and outstanding employee stock options) or the repricing of any such share of capital stock, other equity security or securities convertible into or exchangeable or exercisable for equity securities; (j) amendment to its Certificate of Incorporation or By-laws other than those disclosed on Schedule 2.06; (k) sale, assignment or transfer of any tangible or intangible asset, including any rights to intellectual property, in the aggregate in excess of $50,000, except in the ordinary course of business consistent with past practice; (l) (x) disposition of or lapse of any material patent, trademark, trade name, service mark or copyright or any application for the foregoing, (y) disposition of any material technology, software or know-how, or (z) disposition of any license, permit or authorization to use any of the foregoing or any other material right; (m) mortgage, pledge or other encumbrance, including liens and security interests, of any tangible or intangible asset; (n) discharge or satisfaction of any lien or encumbrance or payment or cancellation of any liability other than payment of current liabilities in the ordinary course of business consistent with past practice; 15 (o) cancellation of any debt owed to the Company or any Subsidiary or waiver or release of any material contract, right or claim, except for cancellations, waivers and releases in the ordinary course of business which do not exceed $ 250,000 in the aggregate; (p) indebtedness incurred for borrowed money or any commitment to borrow money, any capital expenditure or capital commitment requiring an expenditure of monies in the future, any incurrence of a contingent liability or any guaranty or commitment to guaranty the indebtedness of others entered into, by the Company, other than customary transactions in the ordinary course of business not in excess of $ 250,000 in the aggregate; (q) amendment, termination or revocation of, or a failure to perform obligations or the occurrence of any default under, any contract or agreement to which the Company, is, or as of December 28, 1996 was, a party or of any license, permit or franchise required for the continued operation of any business conducted by the Company on December 28, 1996; (r) increase or commitment to increase the salary or other compensation payable or to become payable to any of its officers, directors or employees, agents or independent contractors, or the payment of any bonus to the foregoing persons or enter into any employment agreement except as may be required under employment, collective bargaining or termination agreements in effect on the date hereof or, solely with respect to employees other than officers, executive officers and directors, in the ordinary course of business and consistent with past practice and applicable policies and procedures of the Company; or (s) agreement or understanding to take any of the actions described above in this Section 2.16. Section 2.17 Real Property; Leases. (a) Schedule 2.17(a) sets forth a correct and complete list of all real property owned by the Company or any Subsidiary and Schedule 2.17(b) sets forth a correct and complete list of each lease, sublease or other arrangement pursuant to which the Company or any Subsidiary leases or subleases real property (collectively, the owned and leased or subleased real property is herein referred to as "Real Property"). The Company and the Subsidiaries are the sole and exclusive legal and equitable owner of all right, title and interest in, and have good, marketable and insurable title in fee simple to, all of the Real Property set forth on Schedule 2.17 as being owned by the Company or such Subsidiary, free and clear of all liens, security interests, charges or encumbrances of any kind, except for liens the presence of which would not be likely to have a Material Adverse Effect. All Real Property is in condition and repair adequate for its current use, is suitable for the purposes for which it is presently being used and in the aggregate is adequate to meet all present requirements of the business of the Company and each of its Subsidiaries, as currently conducted. 16 (b) The Company has heretofore delivered or will deliver to the Buyer prior to Closing a complete and accurate copy of each lease and sublease included on Schedule 2.17(b). Unless otherwise noted on Schedule 2.17(b), the Company or a Subsidiary is the sole lessee or sublessee under each of the leases and subleases listed on Schedule 2.17(b) and each such lease and sublease is valid and in full force and effect and enforceable in accordance with its terms and has not been further supplemented, amended or modified. Unless otherwise noted on Schedule 2.17(b), there exists no event of default or event, occurrence, condition or act, including without limitation the execution and delivery of this Agreement and the consummation of the transactions contemplated hereunder, which constitutes or would constitute (with notice or lapse of time or both) a default in any respect under any of the leases or subleases on Schedule 2.17(b) that would cause, individually or in the aggregate, a Material Adverse Effect. To the best of the Company's knowledge, neither the Company nor any Subsidiary has received any notice of any event of default or any event, occurrence, condition or act, including without limitation the execution and delivery of this Agreement and the consummation of the transactions contemplated hereunder, which constitutes or would constitute (with notice or lapse of time or both) a default in any respect under any of the leases or subleases on Schedule 2.17(b). The leased premises are structurally sound with no material defects and are in good operating condition and repair and are adequate for the uses to which they are being put; and none of such leased premises are in need of maintenance or repairs except for ordinary, routine maintenance and repairs which are not material in nature or cost. The Real Property covered by any leasehold interests listed on Schedule 2.17(b), the buildings, fixtures and improvements on such, and the present use thereof, comply in all material respects with all restrictive covenants, deeds and other restrictions and all zoning laws, ordinances and regulations of Governmental Entities or other authorities having jurisdiction thereof, including provisions relating to permissible nonconforming uses, if any, and any such premises are not presently affected, nor to the best knowledge of the Company threatened, by any condemnation or eminent domain proceeding or any proceeding by a mortgagee. Section 2.18 Equipment and Personal Property. Except as described in Schedule 2.18, all equipment and tangible personal property used by the Company or any Subsidiary are either owned, free and clear of all liens and encumbrances, or are (i) used under capital leases reflected on the Financial Statements or (ii) used under operating leases. All such leases are valid and in full force and effect and enforceable in accordance with their terms and have not been further supplemented, amended or modified. Neither the Company nor any Subsidiary has received any notice of, and there exists no event of default, or event, occurrence, condition or act, including, without limitation, the execution and delivery of this Agreement and the consummation of the transactions contemplated herein, which constitutes or would constitute (with notice or lapse of time or both) a default in any respect under any such lease. All of the equipment and tangible personal property owned or leased by the Company and each Subsidiary is in good operating condition and repair, subject to normal wear and tear, none of such assets is in need of maintenance or repairs except for ordinary, routine maintenance and such assets are suitable for and operating according to their intended use in accordance with industry standards. 17 Section 2.19 Intangible Property. Schedule 2.19 sets forth a complete and accurate list of the Intangible Property. The Company and each Subsidiary owns or possesses, or has adequate and enforceable licenses or other rights to use and license for all purposes, all proprietary rights necessary for its business (as now conducted or as proposed to be conducted) without any conflict with or infringement of the rights of others including, without limitation, trade secrets, inventions, processes, formulae, technology, technological data, information and know-how. Except as set forth on Schedule 2.19, with respect to the Company and each Subsidiary (i) the Company or such Subsidiary has sole and exclusive good, valid and transferable title with respect to the Intangible Property identified thereon as owned by the Company, (ii) no royalties or other consideration is required in connection with the Company's or any Subsidiary's use and enjoyment of the Intangible Property, except as provided under the terms of any license agreement or other instrument pursuant to which the Company has obtained rights to use such Intangible Property identified on Schedule 2.19 as not owned by the Company and (iii) no material claim has been asserted by any person against the Company or any Subsidiary with respect to the ownership or use of any Intangible Property by the Company or any Subsidiary nor has the Company or any Subsidiary asserted any similar claim against any person, and to the best knowledge of the Company, there exists no valid basis for any such claim. Except as set forth on Schedule 2.19, the use of the Intangible Property does not violate or infringe, and has not violated or infringed, the rights of any person. Except as set forth on Schedule 2.19, neither the Company nor any Subsidiary is a licensor with respect to any Intangible Property. "Intangible Property" means all trade names, trademarks, service marks, patents and copyrights (including any registrations or pending applications for registration of any of the foregoing), and all licenses or other rights relating to any of the foregoing that are attributable to the conduct of, used in, or related to, the operations of the Company and each Subsidiary. Section 2.20 Software. All computer software, databases and programs utilized by the Company and each Subsidiary are owned by, or are licensed to the Company or a Subsidiary, without any restrictions thereon other than those generally applicable to software licenses pursuant to the licensor's general terms and conditions. Section 2.21 Contracts. (a) Schedule 2.21 sets forth an accurate, correct and complete list of the following contracts, agreements, arrangements or instruments (the "Contracts") in effect at any time from January 1, 1996 through the date hereof, to which the Company or any Subsidiary is or was a party, by which it is bound or pursuant to which the Company or any Subsidiary is or was an obligor or a beneficiary: (i) Any material contracts with respect to tangible property other than Real Property which are included on Schedule 2.17, all Contracts with affiliates (whether or not material) other than employment agreements providing for an annual salary and bonus of less than $100,000 or option agreements, material license agreements, 18 termination agreements, consulting or severance agreements, and agreements relating to labor or collective bargaining matters; (ii) Any Contract for capital expenditures or services by the Company or any Subsidiary which involves consideration payable by the Company or any Subsidiary in excess of $250,000 in any fiscal year; (iii) Any Contract evidencing any indebtedness for borrowed money in excess of $ 250,000 or obligation for the deferred purchase price of assets in excess of $250,000 (excluding normal trade payables) or guaranteeing any indebtedness, obligation nor liability in excess of $ 250,000; (iv) Any Contract wherein the Company or any Subsidiary has agreed to a non-competition provision; (v) Any joint venture, partnership, cooperative arrangement or any other Contract involving a sharing of profits; (vi) Any Contract with any Governmental Entity other than for services in the ordinary course of business; (vii) Manufacturers' representative, sales agency, dealer or advertising Contract which is not terminable on notice without cost or other liability to the Company or any Subsidiary; (viii) Contract for the conversion of any obligation, instrument or security, into debt or equity securities of the Company or any Subsidiary other than the Securities, the Stock or the Warrant; (ix) Settlement agreement of any material administrative or judicial proceeding within the past five years other than those the effect of which is reflected in the Financial Statements; (x) Any power of attorney, proxy or similar instrument granted by or to the Company or any Subsidiary other than in the ordinary course of business consistent with past practice; and (xi) Any other material Contract related to the business of the Company or any Subsidiary, as currently conducted or any other Contract not in the ordinary course of business of the Company consistent with past practice. Accurate, correct and complete copies of each such written Contract and written summaries of each such oral Contract have been delivered by the Company to the Buyer. 19 (b) Each Contract listed or referred to on Schedule 2.21 to which the Company or any Subsidiary is a party, by which it is bound or pursuant to which the Company or any Subsidiary is an obligor or a beneficiary is in full force and effect, except where the failure to be in full force and effect will not cause a Material Adverse Effect. The Company and each Subsidiary has complied with all commitments and obligations on its part to be performed or observed under each such Contract, except for such noncompliance which is not reasonably likely, individually or in the aggregate, to have a Material Adverse Effect. To the knowledge of the Company, each party to each such Contract other than the Company or any Subsidiary has complied, and is in continuous compliance, with all commitments and obligations on its part to be performed or observed thereunder, except for such noncompliance which is not reasonably likely, individually or in the aggregate, to have a Material Adverse Effect. The Company has not received any notice of a default under any such Contract and no event or condition has happened or presently exists which constitutes a default or, after notice or lapse of time or both, would constitute a default under any such Contract, except for such notices and defaults which are not reasonably likely, individually or in the aggregate (together with the items set forth in Schedule 2.21 annexed hereto), to have a Material Adverse Effect. (c) Except as set forth on Schedule 2.21, no consent of any other party to any of the Contracts is required in connection with the execution, delivery and performance of this Agreement by the Company. Section 2.22 Inventory. All inventory of the Company and each Subsidiary, whether reflected in the Financial Statements or otherwise and whether existing now or at the Closing, consists or will consist of a quality and quantity usable in the ordinary course of business, except for items of obsolete materials, prior season, slow moving, irregular or defective stock and materials of below-standard quality, all of which have been written off or down to fair market value as reflected in the Financial Statements. The inventory reflected in the Financial Statements were on the date thereof properly recorded thereon and reflected at such date proper reserves as determined in accordance with GAAP, consistently applied, and stated, on an aggregate basis, at the lower of cost (based on the first-in, first-out method) or market value. The current inventory of the Company and each Subsidiary are not, except in amounts which in the aggregate are not material, in excess of their reasonably anticipated requirements. The current inventory of the Company conforms to customary trade standards for marketable goods. Section 2.23 Title to Properties; Liens. The Company and each Subsidiary has good, valid and marketable title to all of its assets, free and clear of any lien, charge or other encumbrance, except for (a) the lien of the Bank pursuant to the Loan Agreement, (b) such liens or other encumbrances specifically set forth on Schedule 2.23 and (c) liens for current Taxes not yet due and payable. Section 2.24 Condition of Assets. The assets, including, without limitation, manufacturing plants, of the Company and each Subsidiary are in good working order and condition, subject to normal wear and tear, and have no defects which would materially interfere 20 with the business of the Company or any Subsidiary as presently conducted or to be conducted after the Closing Date. Section 2.25 Transactions with Affiliates. Except as set forth on Schedule 2.25 or as contemplated by the transactions to be consummated at the Closing, no officer, director or 5% stockholder of the Company or any Subsidiary (i) has borrowed money from, or loaned money to, the Company or any Subsidiary pursuant to which any amount remains outstanding, (ii) is a party to any contract with the Company or any Subsidiary,(iii) has asserted or threatened to assert any claim against the Company or any Subsidiary within the past 36 months or that has not been fully discharged or (iv) is engaged in any transaction with the Company or any Subsidiary. Section 2.26 Valid Transfer. At the Closing, the Company will convey to the Buyer good title to the Securities purchased free and clear of any liens, claims, charges, encumbrances, security interests, pledges, equities, assessments or restrictions of any nature whatsoever. Upon conversion or exchange, if any, of the Securities into Convertible Preferred Stock, the Warrant and Common Stock, the Company will convey to the holders of such securities good title to the Convertible Preferred Stock, the Warrant and Common Stock purchased thereby free and clear of any liens, claims, charges, encumbrances, security interests, pledges, equities, assessments or restrictions of any nature whatsoever. The form of certificates representing the Stock to be delivered to the Buyer shall conform to all applicable requirements of the State of Delaware. Section 2.27 Absence of Certain Practices. To the best knowledge of the Company, neither the Company, the Subsidiaries, nor any director, officer, agent, employee or other person acting on their behalf, has given or agreed to give any gift or similar benefit of more than nominal value to any customer, supplier, or governmental employee or official or any other person who is or may be in a position to help or hinder the Company or any Subsidiary or assist the Company or any Subsidiary in connection with any proposed transaction involving the Company or any Subsidiary, which gift or similar benefit, if not given in the past, would have materially and adversely affected the business or prospects of the Company or any Subsidiary. Section 2.28 Accounts Payable and Accrued Expenses. All accounts payable and accrued expenses reflected on the Financial Statements arose from bona fide transactions in the ordinary course of business. Section 2.29 Accounts Receivable. All accounts receivable reflected on the Financial Statements arose from bona fide transactions in the ordinary course of business and, to the best knowledge of the Company, there are no facts or circumstances which will cause such receivables not to be current and fully collectible in accordance with their terms, net of any reserves or allowances reflected on the Financial Statements for accounts receivable included in the Financial Statements. 21 Section 2.30 Solvency. After giving effect to the transactions contemplated by this Agreement and the other transactions related hereto, and the payment of fees and expenses in connection therewith, the Company in good faith after due inquiry believes that: (a) The present fair salable value of all of the assets (including goodwill), taken as a whole, of the Company will be greater than the total amount of liabilities, including contingent, subordinated, absolute, fixed, matured or unmatured and liquidated or unliquidated liabilities, of the Company. (b) The present fair salable value of all of the assets (including goodwill), taken as a whole, of the Company is sufficient to pay the probable liability of the Company on its existing debts as such debts become absolute and matured. The Company currently pays and expects it will be able to pay its debts and other liabilities, contingent obligations and other commitments as they mature or come due in the normal course of business. (c) The Company is not engaged in, and is not about to engage in, business or transactions for which it has unreasonably small capital. No transfer of property is being made and no obligation is being incurred in connection with the transactions contemplated by this Agreement or any other document contemplated herein with the intent to hinder, delay or defraud either present or future creditors of the Company. Section 2.31 Investment Company Act. The Company is not an investment company or a person directly or indirectly controlled by or acting on behalf of an investment company within the meaning of the Investment Company Act of 1940, as amended. Section 2.32 Securities Exchange Act Reports. True and complete copies of the following documents, have been separately delivered and identified by the Company to the Buyer: (i) The Company's Annual Reports on Form 10-K for the fiscal years ended December 30, 1995 and December 28, 1996; (ii) The Company's Quarterly Reports on Form 10-Q for the periods ended March 31, 1997 and June 30, 1997; (iii) The Company's definitive proxy statement relating to the Company's 1996 annual meeting of stockholders; and (iv) The Company's Current Report on Form 8-K dated May 19, 1997. 22 All reports, forms and statements required to be filed by the Company during the period from January 1, 1995 to the date of this Agreement under Securities Exchange Act of 1934, as amended (the "Exchange Act") have been duly filed. The Company has heretofore made public disclosure of such additional material information since the date of the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996 as it was required to disclose pursuant to the requirements of applicable federal and state securities and other laws and has furnished copies of such disclosure to the Buyer. The report on Form 10-K for the fiscal year ended December 28, 1996 and all subsequent reports on Form 10-Q and 8-K, annual reports to stockholders, proxy statements and other public disclosures as of the dates thereof or the dates made, and such other documents or information with respect to the Company and its Subsidiaries required to be supplied to the Buyer pursuant to this Agreement or supplied to the Buyer at its request by the Company or on its behalf, taken as a whole, were or are true, correct and complete and did not or do not contain any statement which is false or misleading with respect to a material fact, and did not or do not omit to state a material fact necessary in order to make the statements therein not false or misleading. Section 2.33 Securities Exemption. Assuming the representations and warranties of the Buyer are true, the offer and sale of the Securities pursuant to this Agreement and the issuance of the Convertible Preferred Stock, the Warrant and the Common Stock to the Buyer upon the conversion or exchange, if any, of the Securities are exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act") and the Company has not and will not take any actions which would cause the offers and sales contemplated hereunder to be ineligible for such exemption or subject the same to the registration or qualification requirements of any securities or blue sky laws of any applicable jurisdiction. The offer of the Securities was made in accordance with, and in full compliance with, all applicable federal and state securities or blue sky laws. Section 2.34 Customers and Suppliers. To the knowledge of the Company, except as set forth on Schedule 2.34, none of the Company's ten largest customers in terms of sales or ten largest suppliers in terms of purchases, in each case with respect to the fiscal year ended December 28, 1996, has ceased doing business with the Company and, to the knowledge of the Company, none of such customers or suppliers intends to cease doing business with the Company or to materially and adversely change its relationship with the Company. Section 2.35 Rights Plan. Neither the execution nor delivery of this Agreement or the Related Documents nor the consummation of the transactions contemplated hereby and thereby will result in the rights issued by the Company under the Rights Agreement, dated as of June 5, 1996 between the Company and First Union National Bank of North Carolina, N.A., as rights agent (the "Rights Plan"), becoming exercisable by the holders thereof or result in the creation or vesting of any rights in such holders under the Rights Plan. Section 2.36 Promotional Programs. Since January 1, 1995, the promotional programs of the Company and the Subsidiaries and the Subsidiaries have been and are being conducted in 23 the ordinary course of business consistent with past practice. Schedule 2.36 describes all material obligations, commitments, agreements and understandings, whether oral or written, with any person having relations with the Company relating to or involving advertising and promotional programs or plans whether directed to customers, trade parties or others. Section 2.37 Orders, Commitments and Returns. As of the date of this Agreement, the aggregate of all accepted and unfulfilled orders for the sale of merchandise entered into by the Company is approximately $17,769,585 as of September 19, 1997, and all contracts or commitments for the purchase of supplies by the Company and all orders were made in the ordinary course of business. As of the date of this Agreement, there are no claims against the Company to return in excess of an aggregate of $250,000 of merchandise by reason of alleged overshipments, defective merchandise or otherwise, and there is no merchandise in the hands of customers under an understanding that such merchandise would be returnable. Section 2.38 Warranty Claims. The schedule of warranty expenses of the Company for the two fiscal years ended December 31, 1996 as described on Schedule 2.38 is true, complete and correct. Section 2.39 Disclosure. No representation, warranty or statement made by the Company in (i) this Agreement, (ii) the Schedules attached hereto, or (iii) any other written materials furnished or to be furnished by the Company to the Buyer or its representatives, attorneys and accountants pursuant to this Agreement, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact required to be stated herein or therein or necessary to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE BUYER The Buyer represents and warrants to the Company as of the date hereof and the date of the Closing as follows: Section 3.01 Organization. The Buyer is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware. The Buyer has all requisite power and authority to own, lease and operate its properties and to carry on its business as being conducted. Section 3.02 Authority. The Buyer has the requisite power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, has been duly authorized by all necessary action on the part of the Buyer, 24 and no other proceedings on the part of the Buyer are necessary to authorize this Agreement or to consummate the transactions contemplated hereby. This Agreement has been duly executed and delivered by the Buyer and, assuming this Agreement constitutes a valid and binding obligation of the Company, constitutes a valid and binding obligation of the Buyer, enforceable against the Buyer in accordance with its terms. Section 3.03 Consents and Approvals; No Violations. Neither the execution, delivery or performance of this Agreement by the Buyer nor the consummation by the Buyer of the transactions contemplated hereby nor compliance by the Buyer with any of the provisions hereof will require any filing with, or permit, authorization, consent or approval of, any Governmental Entity (except where the failure to obtain such permits, authorizations, consents or approvals or to make such filings would not have a material adverse effect on the Buyer). Section 3.04 Own Account. The Buyer is acquiring the Securities, the Warrant and the Stock for its own account, for investment and not with a view to the distribution thereof within the meaning of the Securities Act; provided, that under the terms of organization of the Buyer, under certain circumstances, the Securities, the Warrant and the Stock will be distributed to the members of the Buyer. Section 3.05 Limited Transferability. The Buyer understands that (i) the Securities, the Warrant and the Stock have not been registered under the Securities Act, by reason of their issuance by the Company in transactions exempt from the registration requirements of the Securities Act and (ii) the Securities, the Warrant and the Stock must be held by the Buyer indefinitely unless a subsequent disposition thereof is registered under the Securities Act or is exempt from such registration requirement; provided, that under the terms of organization of the Buyer, under certain circumstances, the Securities, the Warrant and the Stock will be distributed to the members of the Buyer. Section 3.06 Accredited Investor. The Buyer, and each of the members of the Buyer, is an "accredited investor" as defined in Rule 501(a) promulgated under the Securities Act. Buyer has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the acquisition of the Securities, the Warrant and the Stock, and, having had access to, or having been furnished with, all such information as it has considered necessary, has concluded that it is able to bear those risks. Section 3.07 Furnishing the Company with Information. The Buyer, on its own behalf and on behalf of its members, will furnish to the Company such information as is required in accordance with the Securities Act for inclusion in a registration statement to be filed by the Company in connection with the Rights Offering and such information as is required in accordance with the Exchange Act, and the proxy rules promulgated thereunder for inclusion in an information statement to be distributed to stockholders regarding the amendments to the Certificate of Incorporation contemplated hereby and the other transactions contemplated hereby (the "Information Statement"). 25 ARTICLE IV. CONDITIONS TO EACH PARTY'S OBLIGATIONS The respective obligations of each party hereunder are subject to the satisfaction, at or before the Closing, of the conditions set out below. Section 4.01 Governmental Authorizations; Consents. The Company and the Buyer shall have obtained all Consents necessary for the consummation of the transactions contemplated hereby or that thereafter may be necessary to effectuate the transactions contemplated hereby. Section 4.02 Absence of Litigation. There shall not have been issued and be in effect any order of any court or tribunal of competent jurisdiction which (i) prohibits or makes illegal the purchase by the Buyer of the Securities, the Warrant or the Stock, (ii) would require the divestiture by the Buyer of all or a material portion of the Securities, the Warrant or the Stock or the assets of the Buyer as a result of the transactions contemplated hereby, or (iii) would impose limitations on the ability of the Buyer to effectively exercise full rights of ownership of the Securities, the Warrant or the Stock as a result of the transactions contemplated hereby. Section 4.03 No Injunction. On the Closing Date there shall be no effective injunction, writ, preliminary restraining order or any order of any nature issued by a court of competent jurisdiction directing that the transactions provided for herein or any of them not be consummated as so provided or imposing any conditions on the consummation of the transactions contemplated hereby. Section 4.04 Opinion of Investment Banker. The Company shall have received the opinion of Wasserstein, Perella & Co. that the Purchase Price is fair to the Company from a financial point of view. ARTICLE V. CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATIONS The obligation of the Buyer to purchase the Securities is subject to the satisfaction, at or before the Closing, of the conditions set out below. The benefits of these conditions are for the Buyer only and may be waived in writing by the Buyer at any time in its sole discretion. Section 5.01 Accuracy of Representations and Warranties. The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of Closing Date as though made at that time, and the Buyer shall have received a 26 certificate attesting thereto from the Company signed by a duly authorized officer of the Company. Section 5.02 Performance by the Company. The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement, including, without limitation, the deliveries required under this Article V and the Buyer shall have received a certificate attesting thereto from the Company signed by a duly authorized officer of the Company. Section 5.03 Opinion of Counsel. The Buyer shall have received from counsel to the Company an opinion of counsel, dated as of the Closing Date and addressed to the Buyer in the form annexed hereto as Exhibit E. Section 5.04 Casualty Losses; Material Change. Since December 28, 1996, neither the Company nor any Subsidiary shall have suffered (i) any material casualty loss, (ii) any material business interruption, (iii) any material labor difficulty or customer boycott or (iv) any material adverse change in its business, operations, prospects or financial condition. Section 5.05 Customer Consents. The consent of each customer of the Company or licensor/licensee of the Company listed on Schedule 5.05 shall have been obtained to the issuance and transfer of the ownership of the Securities, the Warrant and the Stock. Section 5.06 Securities. The Securities shall be free and clear of liens, charges or encumbrances. Section 5.07 Deliveries. At the Closing, the Company shall deliver to the Buyer: (i) duly executed certificates representing all of the Investor Preferred Stock being purchased hereby; (ii) duly executed Notes representing all of the Notes being purchased hereby; (iii) such other bills of sale, instruments of assignment and other documents as may be reasonably requested by the Buyer in order to effect or evidence the transactions contemplated hereunder; (iv) an opinion of counsel to the Company in the form attached hereto as Exhibit E; (v) a certificate of the chief executive officer of the Company certifying to the fulfillment of the conditions set forth in Sections 5.01 and 5.02; (vi) a copy of the resolutions of the Company's Board of Directors and of its stockholders, certified by its secretary, authorizing the execution, delivery and performance of this Agreement and the Related Agreements; (vii) good standing certificates for the Company and its Subsidiaries relating to their respective jurisdictions of incorporation and the jurisdictions listed on Schedule 2.01, a certified Certificate of Incorporation of the Company and the By-laws of the Company reflecting the amendments referred to in Section 5.08; (viii) copies of the consents referred to in Section 5.05, if any; and (ix) such other instruments and certificates as may be reasonably requested by the Buyer. Section 5.08 By-law Amendments. The Company shall have amended its By-laws to fix the number of the members of the Board of Directors at nine. 27 Section 5.09 Lease. The Company shall have entered into a modification of the lease relating to the Company's Showroom at 111 West 40th Street, New York, New York, in form and substance satisfactory to the Buyer. Section 5.10 Employment Agreements. (a) The Company shall have entered into an agreement with Edwin Dean, providing for his agreement to remain reasonably accessible to the Company and assist in a smooth transition, in form and substance satisfactory to the Buyer. (b) The Company shall have entered into a modification of the Company's employment agreement with Mary Ann Domuracki, providing for (i) the deferral by Ms. Domuracki of certain rights under the change-of-control provisions of such agreement and (ii) the continued employment of Ms. Domuracki by the Company, in form and substance satisfactory to the Buyer. (c) The Company shall have entered into a modification of the Company's employment agreement with Beverly Eichel, providing for (i) the deferral by Ms. Eichel of certain rights under the change-of-control provisions of such agreement and (ii) the continued employment of Ms. Eichel by the Company, in form and substance satisfactory to the Buyer. (d) The Company shall have entered into an agreement with Donald Schupak, providing for (i) the continued employment of Mr. Schupak by the Company, (ii) the termination of that certain Heads of Agreement dated March 27, 1997 between the Company and Mr. Schupak and (iii) the issuance on the Closing Date, to Mr. Schupak of a warrant to purchase 5,372,315 shares of Common Stock at $.30 per share. (e) The Company shall have entered into option agreements with each of Mary Ann Domuracki, Beverly Eichel and Nina McLemore in form and substance satisfactory to the Buyer. Section 5.11 License Modifications. (a) The Company shall have entered into a modification of the Company's license agreement with Givenchy Corporation ("Givenchy"), providing for (i) the waiver by Givenchy of its rights under the change-of-control provisions of such agreement and (ii) the continuation of such license agreement on the terms contained therein, in form and substance satisfactory to the Buyer. (b) The Company shall have entered into a modification of the Company's license agreement with Anne Klein & Company ("AKC"), providing for (i) the waiver by AKC of its rights under the change-of-control provisions of such agreement and (ii) the continuation of such license agreement on the terms contained therein, in form and substance satisfactory to the Buyer. 28 Section 5.12 Modification of Preferred Stock. The Company shall have authorized an agreement with the holder of the Company's 10% Cumulative Convertible Preferred Stock ("Preferred Stock"), providing for the modification and/or exchange or conversion of the Preferred Stock, in form and substance satisfactory to the Buyer. Section 5.13 SunAmerica Waiver. The Company shall have entered into an agreement with SunAmerica Life Insurance Company ("SunAmerica"), providing for the termination by SunAmerica of its right to designate members of the Board of Directors of the Company, in form and substance satisfactory to the Buyer. Section 5.14 Net Operating Losses. The Buyer shall be reasonably satisfied that, for federal income tax purposes, the net operating losses of the Company (which at June 29, 1997 were approximately $11.6 million) shall be available to shelter cancellation of indebtedness income, if any, arising from the discharge of the term loan portion of the Loan Agreement. Section 5.15 Board of Directors. Subject to the succeeding sentence, the Buyer shall have received, and the Company shall have accepted, resignations of such members of the Board of Directors of the Company as the Buyer shall have designated. The Company shall have taken all actions necessary to cause the Board of Directors of the Company to be comprised of nine persons as follows: four designees of the Buyer; three designees of the Board of Directors of the Company as comprised prior to the date of the Closing; Donald Schupak and Mary Ann Domuracki. The Company's Board of Directors shall recommend or approve all such designees to the Board prior to their appointment as directors. The Company shall have taken all actions necessary to cause the Board of Directors of the Company to establish the Credit Facility Committee (as defined in Section 9.17). Section 5.16 FIRPTA Affidavit. The Company shall have delivered an affidavit, dated the Closing Date, pursuant to Section 1445 of the Code (Foreign Investment in Real Property Tax Act of 1990 Affidavit). Section 5.17 Rights Plan. The Company shall have taken all action required under the Rights Plan to redeem the rights granted thereunder and shall have delivered to the Buyer evidence satisfactory to the Buyer of such action. Section 5.18 Registration Rights Agreement. At the Closing, the Company shall deliver to the Buyer the duly executed Registration Rights Agreement in the form attached hereto as Exhibit F. Section 5.19 Patent Collateral and Security Agreement. At the Closing, the Company shall deliver to the Buyer the duly executed Patent Collateral Assignment and Security Agreement in the form attached hereto as Exhibit G. 29 Section 5.20 Trademark Security Agreement. At the Closing, the Company shall deliver to the Buyer the duly executed Trademark Security Agreement in the form attached hereto as Exhibit H. Section 5.21 License Security Agreement. At the Closing, the Company shall deliver to the Buyer the duly executed License Agreement in the form attached hereto as Exhibit I. Section 5.22 Loan and Security Agreement. At the Closing, the Company shall deliver to the Buyer the duly executed Loan and Security Agreement in the form attached hereto as Exhibit J. Section 5.23 Guaranty. At the Closing, the Company shall deliver to the Buyer the duly executed Guaranty of Danpen, Inc. in the form attached hereto as Exhibit L. ARTICLE VI. CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS. The obligation of the Company to sell the Securities is subject to the satisfaction, at or before the Closing, of the conditions set out below. The benefits of these conditions are for the Company only and may be waived by the Company in writing at any time in its sole discretion. Section 6.01 Accuracy of Representations and Warranties. The representations and warranties of the Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Date, as though made at that time. Section 6.02 Performance by the Buyer. The Buyer shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement, including, without limitation, the deliveries required by Section 6.03 and the Company shall have received a certificate attesting thereto from a duly authorized officer of the Buyer. Section 6.03 Deliveries. At the Closing, the Buyer shall deliver to the Company: (i) documents evidencing the Loan Amount in transferable form satisfactory to the Company for cancellation in part and contribution to the Company's equity in part; (ii) the Cash Purchase Price; (iii) a certificate of the Buyer certifying as to the fulfillment of the conditions set forth in Section 6.01 and 6.02; (iv) evidence of the consent of the Bank to the consummation of the transactions contemplated hereby; (v) a good standing certificate for the Buyer issued by the Secretary of State of Delaware; and (vi) such other instruments and certificates as may be reasonably requested by the Company. 30 ARTICLE VII. SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS. Except as otherwise specifically provided for herein, the representations, warranties, covenants and agreements of the Buyer and the Company included or provided for herein, or in other instruments or agreements delivered or to be delivered at or prior to Closing in connection herewith, including the representations and warranties of all entities or persons made in the certificates to be delivered to the Buyers pursuant hereto (each, an "Ancillary Document"), and the obligation of the Buyer and the Company to indemnify on account of a breach or violation thereof shall survive for a period of eighteen (18) months following the Closing Date (or such longer period as set forth in the succeeding sentences). There shall be no limit on the survival of the indemnification obligations of the Company for breaches of the representations or warranties made by the Company as to the transfer of legal and valid title to the Securities, the Warrant and the Stock and as to Environmental Matters. The indemnification obligations of the Company for breaches of the representations or warranties made by the Company with respect to Taxes or Tax matters shall survive until the expiration of the applicable statute of limitations. Notwithstanding anything herein to the contrary, if, prior to the expiration of any indemnification period, either the Buyer or the Company shall have been notified of a claim for indemnity hereunder and such claim shall not have been finally resolved before the expiration of such period, any representation, warranty, covenant or agreement that is the basis for such claim shall continue to survive and shall remain a basis for indemnity as to such claim until such claim is finally resolved. All statements contained herein and in the Schedules, the Financial Statements and the certificates delivered pursuant to this Agreement shall be deemed representations and warranties for all purposes of this Agreement. The respective representations and warranties of the Company and the Buyer contained herein or in any other documents covered in the preceding sentence shall not be deemed waived or otherwise affected by any investigation made by any party hereto or any amendment or supplement to the schedules or exhibits hereto occurring after the signing of this Agreement. ARTICLE VIII. INDEMNIFICATION. Section 8.01 General Indemnity. Subject to the limitations and other provisions of Article VII and this Article VIII, the Company agrees to indemnify and hold harmless the Buyer, its Affiliates (as defined below), and the successors and assigns of each of them from, against and in respect of any and all Losses (as defined below) resulting from, incurred in connection with or arising out of (i) any breach of any 31 representation, warranty, covenant or agreement of the Company or any breach of the representations and warranties made in the certificates delivered to the Buyer pursuant hereto and any actual or threatened action or proceeding in connection with any such breach, (ii) any litigation to which the Buyer or any of its Affiliates is or becomes subject relating to the conduct of the business of the Company on or prior to the Closing Date, (iii) any liens, charges or encumbrances on the Securities, the Warrant or the Stock or (iv) any untrue statement or alleged untrue statement of any material fact contained in or omission or alleged omission to state in the Information Statement or in any of the Rights Offering Materials (as defined in Section 9.14) a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances in which they were made except insofar as the untrue statement, alleged untrue statement, omission or alleged omission is based upon information furnished in writing to the Company by the Buyer expressly for use in the Information Statement or in the Rights Offering Materials, as the case may be. The Buyer shall indemnify and hold harmless the Company, its Affiliates and their successors and assigns from, against and in respect of any and all Losses resulting from, incurred in connection with or arising out of (i) any breach of any representation, warranty, covenant or agreement of the Buyer and any actual or threatened action or proceeding in connection therewith and (ii) any untrue statement or alleged untrue statement of any material fact contained in or omission or alleged omission to state in any of the Rights Offering Materials a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances in which they were made if and only to the extent that such untrue statement, alleged untrue statement, omission or alleged omission is based upon information furnished to the Company in writing by the Buyer expressly for use in the Rights Offering Materials. The party or parties being indemnified are referred to herein as the "Indemnitee" and the indemnifying party is referred to herein as the "Indemnitor". The term "Affiliate" or "Affiliated" or any similar term shall mean a person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, a specified person. The term "Loss" or "Losses" or any similar term shall mean any and all liabilities (whether accrued, contingent or otherwise), damages, deficiencies, costs, claims, judgments, amounts paid in settlement, interest, penalties, assessments and out-of-pocket expenses (including reasonable attorneys' and auditors' fees and disbursements). Section 8.02 Indemnification Procedure. (a) Any party who receives notice of a potential claim that may, in the judgment of such party, result in a Loss shall use all reasonable efforts to provide the parties hereto notice thereof, provided that failure or delay or alleged delay in providing such notice shall not adversely affect such party's right to indemnification hereunder. In the event that any party shall incur or suffer any Losses in respect of which indemnification may be sought by such party hereunder, the Indemnitee shall assert a claim for indemnification by written notice (a "Notice") to the Indemnitor stating the nature and basis of such claim. In the case of Losses arising by reason of any third party claim, the Notice shall be given within 30 days of the filing or other written assertion of any such claim against the Indemnitee, but the failure of the 32 Indemnitee to give the Notice within such time period shall not relieve the Indemnitor of any liability that the Indemnitor may have to the Indemnitee. (b) In the case of third party claims for which indemnification is sought, the Indemnitor shall have the option (i) to conduct any proceedings or negotiations in connection therewith, (ii) to take all other steps to settle or defend any such claim (provided that the Indemnitor shall not settle any such claim without the consent of the Indemnitee which consent shall not be unreasonably withheld) and (iii) to employ counsel to contest any such claim or liability in the name of the Indemnitee or otherwise. In any event the Indemnitee shall be entitled to participate at its own expense and by its own counsel in any proceedings relating to any third party claim. The Indemnitor shall, within 20 days of receipt of the Notice, notify the Indemnitee of its intention to assume the defense of such claim. If (i) the Indemnitor shall decline to assume the defense of any such claim, (ii) the Indemnitor shall fail to notify the Indemnitee within 20 days after receipt of the Notice of the Indemnitor's election to defend such claim or (iii) the Indemnitee shall have reasonably concluded that there may be defenses available to it which are different from or in addition to those available to the Indemnitor (in which case the Indemnitor shall not have the right to direct the defense of such action on behalf of the Indemnitee), the Indemnitee shall defend against such claim and the Indemnitee may settle such claim without the consent of the Indemnitor, and Indemnitor may not challenge the reasonableness of any such settlement. The expenses of all proceedings, contests or lawsuits in respect of such claims shall be borne and paid by the Indemnitor and the Indemnitor shall pay the Indemnitee, in immediately available funds, the amount of any Losses, as such Losses are incurred. Regardless of which party shall assume the defense of the claim, the parties agree to cooperate fully with one another in connection therewith. In the event that any Losses incurred by the Indemnitee do not involve payment by the Indemnitee of a third party claim, then, the Indemnitor shall within 10 days after agreement on the amount of Losses or the occurrence of a final non-appealable determination of such amount, pay to the Indemnitee, in immediately available funds, the amount of such Losses. Anything in this Article VIII to the contrary notwithstanding, the Indemnitor shall not, without the Indemnitee's prior written consent, settle or compromise any claim or consent to entry of any judgment in respect thereof which imposes any future obligation on the Indemnitee or which does not include, as an unconditional term thereof, the giving by the claimant or plaintiff to the Indemnitee, a release from all liability in respect of such claim. (c) The remedies provided for in this Agreement shall not be exclusive of any other rights or remedies available to one party against the other, either at law or in equity. (d) No claim may be made against the Company for indemnification pursuant to this Article VIII with respect to any individual item of liability or damage, unless the aggregate of all such liabilities and damages of Buyer, its Affiliates, and their respective successors and assigns under this Article VIII shall exceed $500,000, and the Company shall not be required to pay or be liable for the first $500,000 in aggregate amount of any such liabilities and damages. Neither Buyer, its Affiliates nor any of their respective successors or assigns shall be indemnified pursuant to this Article VIII with respect to any individual item of liability or 33 damage if the aggregate of all liabilities and damages of Buyer, its Affiliates and their respective successors and assigns for which they have received indemnification hereunder shall have exceeded $3,000,000. For the purposes of this Article VIII, in computing such individual or aggregate amounts of claims, the amount of each claim shall be deemed to be an amount (i) net or any Tax benefit to the Buyer, (ii) net of any insurance proceeds and any indemnity, contribution or other similar payment payable by any third party with respect thereto, and (iii) net of any reserves provided for in the Financial Statements. ARTICLE IX. COVENANTS/OBLIGATIONS AFTER THE CLOSING. Section 9.01 Further Assurances. Subject to the terms and conditions hereof, the Company agrees that after the Closing Date it will execute and deliver such documents to the Buyer as the Buyer may reasonably request in order to more effectively vest in the Buyer good title to the Securities and to consummate the transactions contemplated hereby and the Buyer agrees that after the Closing Date it will execute and deliver such documents to the Company as the Company may reasonably request to evidence consummation of the transactions Contemplated hereunder. Section 9.02 Maintenance of Office. The Company shall maintain at its principal place of business, an office where the Notes, the Warrant and the Stock may be surrendered for transfer and where notices and demands to or upon the Company in respect of the Notes, the Warrant and the Stock may be served. Section 9.03 Corporate Existence; Status. The Company shall do or cause to be done, and shall cause each of its subsidiaries to do or cause to be done, all things necessary to preserve and keep in full force and effect its and their corporate existence in accordance with the rights, licenses and franchises of the Company and its subsidiaries. Section 9.04 Dividends. The Company shall not make, pay or declare, directly or indirectly, any dividends or other distributions with respect to its capital stock (other than dividends in the form of additional capital stock of the Company) or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, retirement or other acquisition of, any of its capital stock prior to the payment in full of the obligations with respect to the Notes, the Investor Preferred Stock and the Convertible Preferred Stock, except to the extent expressly permitted by the terms of the Notes, the Investor Preferred Stock or the Convertible Preferred Stock. Section 9.05 Application of Proceeds. The Company shall apply the proceeds under Article I hereof from the sale of the Securities for working capital and general corporate purposes; provided, however, the Company may apply $200,000 of the proceeds to pay the fee of 34 Wasserstein, Perella & Co. for the fairness opinion contemplated by Section 4.04 hereof, $150,000 of the proceeds to pay an amendment fee to the Bank and may apply proceeds to pay other fees due to the Bank on the date hereof and the fees and expenses of the Buyer pursuant to Section 10.01. Section 9.06 Observance of Statutes, Regulations and Orders. The Company shall, and shall cause each of its subsidiaries to remain at all times in compliance with all laws, statutes or other rules or regulations of any Governmental Entity or other regulatory authority. Section 9.07 Taxes. The Company shall pay, and shall cause each of its subsidiaries to pay, prior to delinquency, all such Taxes, assessments and governmental levies as are imposed upon the Company or its subsidiaries, except as contested in good faith and by appropriate proceedings and for which reserves or other appropriate provisions, if any, as shall be required by GAAP, shall have been made. Section 9.08 Maintenance of Properties. The Company shall, and shall cause each of its subsidiaries to, maintain, preserve, protect and keep the properties material to the operation of its business, and its subsidiaries, in good repair, working order and condition (ordinary wear and tear excepted), and make all necessary and proper repairs, renewals and replacements so that its business carried on in connection therewith may be properly conducted at all times consistent with past practices of the Company. Section 9.09 Books and Records. The Company shall, and shall cause each of its subsidiaries to keep books and records which accurately reflect all of its material business affairs and transactions. Section 9.10 Maintenance of Insurance; Indemnification. The Company shall maintain insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in a similar business and owning similar properties in the same general areas in which the Company operates. In addition, the Company shall enter into and maintain indemnification agreements with the members of the Company's Board of Directors, such agreements to indemnify such persons to the maximum extent provided by law. Section 9.11 Inspection. As often as may reasonably be requested, the Company will permit any authorized representative designated by Buyer to visit and inspect any of their respective properties, including its financial and accounting records, and to make copies and extracts therefrom, and to discuss the Company's affairs and finances with its officers and independent accountants, all upon reasonable prior notice and at reasonable times during normal business hours. Section 9.12 Furnish Reports. For so long as the Buyer owns any Notes or Stock, the Company shall maintain a system of accounting established and administered in accordance with 35 U.S. generally accepted accounting principles consistently applied, and shall furnish to Buyer (i) within ninety (90) days of its fiscal year end a copy of its audited financial statements, (ii) within forty-five (45) days of the end of each quarter a copy of its unaudited quarterly financial statements and (iii) within ten (10) days of the end of each month a copy of its unaudited monthly financial statements. Section 9.13 Furnish Additional Information. The Company will furnish the following additional information to the Buyer: (a) Promptly (but in any event within five days) after receipt thereof, any letters furnished to the Company by its independent public accountants which comment on the accounting practices of the Company; (b) Promptly (but in any event within five days) after the discovery of any material adverse event or circumstance affecting the Company, including but not limited to the filing of any material litigation against the Company or any subsidiary or the discovery that the Company is not, or with the passage of time will not be, in compliance with any provision of its certificate of incorporation or By-laws or with any provision of this Agreement or any other material agreement, a letter from the president or chief financial officer of the Company speci fying the nature and period of existence thereof and the actions the Company has taken or proposes to take with respect thereto; (c) Promptly (but in any event within five days) after transmission thereof, copies of any communication from the Company to its stockholders or the financial community at large, and any reports filed by the Company with any securities exchange, the National Association of Securities Dealers, Inc., the Commission, any state official or agency charged with securities regulation, any other governmental agency, domestic or foreign, and any material correspondence between the Company and any of the foregoing (including, without limitation, any correspondence from any of the foregoing); and (d) With reasonable promptness, such other information and data with respect to the Company and its subsidiaries as the Buyer may from time to time reasonably request. Section 9.14 Rights Offering. (a) Promptly after the conversion or exchange of the Securities into Convertible Preferred Stock, Common Stock and the Warrant in accordance with the terms of the Securities, the Company shall offer each of the holders of Common Stock and preferred stock of the Company (including the Buyer) the transferable right (the "Rights") to subscribe for Common Stock with respect to each share of Common Stock owned by such stockholders at a subscription price per share of Common Stock equal to $.30 (the "Rights Offering"). Subscriptions for fractional shares will not be accepted, but will be rounded down to the nearest whole number. 36 (b) Pursuant to the Rights Offering, each stockholder of the Company will receive one Right for each share of Common Stock held by such stockholder (on a fully diluted basis). The Buyer will commit to subscribe for its pro rata portion of shares of Common Stock offered pursuant to the Rights issued to it based on the number of shares of Common Stock owned by the Buyer at the time of the Rights Offering (on a fully diluted basis). If the stockholders of the Company (including the Buyer) subscribe for less than 10,000,000 shares of Common Stock (representing an aggregate subscription price of $3.0 million) (such number of shares less than 10,000,000 being referred to herein as the "Share Deficiency"), then the Buyer (or its designee) will subscribe for that number of additional shares of Common Stock as is equal to the Share Deficiency. It is acknowledged that the purchase price for any Common Stock subscribed for by the Buyer shall have been satisfied by conversion or exchange of the Securities into Convertible Preferred Stock, Common Stock and the Warrant and no further amount shall be due or owing from the Buyer on account of any such Common Stock subscribed for by the Buyer. The proceeds of any Common Stock subscribed for in the Rights Offering by stockholders of the Company other than the Buyer shall be promptly paid to the Buyer in reduction of any outstanding Notes. The Company will use all reasonable efforts to file a registration statement with respect to the Rights Offering with the Commission within five days of the Closing Date, and to have such registration statement declared effective by the Commission within 40 days of the Closing Date, and to consummate such Rights Offering promptly thereafter. The Registration Statement, the prospectus included therein, and the other materials used in connection with the Rights Offering are referred to herein as the "Rights Offering Materials." (c) In connection with the Rights Offering, the Company will (i) prepare and file and use its reasonable efforts to have declared effective a registration statement under the Securities Act related thereto (the "Registration Statement"); (ii) prepare and file with the Commission such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for the period of the offering and to comply with the provisions of the Securities Act (such amendments and supplements, together with the Registration Statement and prospectus, being referred to herein as the "Rights Offering Materials"); (iii) use all reasonable efforts to register or qualify all Rights, to the extent necessary, and the shares of Common Stock issuable upon the exercise of the Rights and to the Buyer as a result of a Share Deficiency under any applicable securities or blue sky laws; and (iv) to do any and all other things reasonably necessary or advisable to consummate the distribution of the Rights and the consummation of the Rights Offering in compliance with the Securities Act and all applicable state securities and blue sky laws; provided, however, that the Company shall not be required to (x) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for the Rights Offering, (y) subject itself to taxation in any such jurisdiction or (z) consent to general service of process in any such jurisdiction. (d) When the Rights Offering Materials shall first be mailed or distributed to stockholders (the "Mailing Date"), the information with respect to the Company and the 37 Subsidiaries set forth in the Rights Offering Materials or incorporated therein by reference (i) will comply in all material respects with the provisions of the federal securities laws; (ii) will comply in all material respects with all applicable provisions of Delaware law; and (iii) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading, and the consolidated financial statements contained therein will fairly present the consolidated financial condition of the Company and its consolidated subsidiaries (including the Subsidiaries). At all times subsequent to the Mailing Date up to and including the closing of the Rights Offering, the information with respect to the Company and the Subsidiaries set forth in the Rights Offering Materials (x) will comply in all material respects with the provisions of the federal securities laws and (y) will not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements contained therein not misleading, and the consolidated financial statements contained therein will fairly present the consolidated financial condition of the Company and its consolidated subsidiaries (including the Subsidiaries). Section 9.15 Transfer of Securities. The Buyer, subject to applicable federal and state securities laws, may transfer all or any portion of the Notes, the Warrant or the Stock. Section 9.16 Corporate Governance. (a) At the Closing, and for so long as any Investor Preferred Stock is outstanding, the Buyer shall have the right to designate that number of the Company's nominees for election to the Board which shall be equal to one director less than a majority of the total number of directors constituting the whole Board of Directors; provided, that such nominees are "Suitable Directors." At the Closing of the conversion or exchange of the Securities pursuant to Section 9.18 and for so long as the outstanding shares of Convertible Preferred Stock which have not been converted, redeemed or exchanged in accordance with their terms shall constitute fifty percent (50%) or more of the shares of Convertible Preferred Stock originally issued (beginning with the period commencing at the Closing Date, the "Covered Period"), the Buyer shall have the right to designate a majority of the Company's nominees for election to the Board; provided, that such nominees are "Suitable Directors". The nominees designated by the Buyer are herein referred to as the "Buyer Nominees." The Company's Board of Directors shall recommend or approve all such Buyer Nominees prior to their appointment as directors. In furtherance of the foregoing, the Company, acting through its Board and in accordance with its Certificate of Incorporation, By-laws and applicable law, shall recommend in the proxy statement for each annual or special meeting of stockholders at which directors shall be elected, and shall recommend at each such stockholders meeting, as part of the management or Board slate for election to the Board, the Buyer Nominees. All shares for which the Company's management or Board holds proxies (including undesignated proxies) shall be voted in favor of the election of such Buyer Nominees, except as may otherwise be provided by stockholders submitting such proxies. In the event that any Buyer Nominee shall cease to serve as a director for any reason, the Company shall cause (subject to the provisions of applicable law) the vacancy resulting 38 thereby to be filled as promptly as practicable by a Suitable Director selected by the Buyer. The Buyer shall cause the Buyer Nominees to provide the Company with such information as the Company may reasonably request for inclusion in the Company's proxy statement for each meeting at which their election is to be acted upon. "Suitable Directors" shall mean (x) persons of appropriate experience who possess the same level of general business experience as the present non-employee members of the Board, and (y) persons with respect to whom no disclosure would be required in compliance with the requirements of Item 401(f) of Regulation S-K promulgated under the Securities Act. The parties hereto agree that the determination of "appropriate experience," as such term is used in the preceding sentence, shall be made in good faith and subject to their fiduciary obligations by a majority of the Company's independent directors. If a nominee designated by the Buyer is determined not to be a Suitable Director, the directors who made such determination shall set forth, in reasonable detail, their reasons for such determination in a written statement to be delivered to the Buyer promptly after such determination. The Buyer and the Company will each use its best efforts to effectuate the provisions of this Section 9.16. (b) All deliberations and approvals regarding the refinancing or replacement of the revolving credit portion of the Company's Loan Agreement shall be made by the Credit Facility Committee (as defined below). For purposes of this Section 9.16, the term "Credit Facility Committee" shall mean a committee of the Board of Directors of the Company comprised of Mary Ann Domuracki and two Buyer Nominees selected for such committee by the Buyer. The Buyer may, in its sole discretion, waive the formation of the Credit Facility Committee and the requirements of this Section 9.16(c). Section 9.17 Options. From and after the Closing, so long as any Notes or shares of Stock are held by the Buyer, no options to purchase Common Stock shall be repriced or new options to purchase Common Stock issued without the approval of the Buyer Nominees. Section 9.18 Exchange of Securities. Upon the closing (the "Refinancing Closing") of the repayment of all amounts due and owing to the Bank by the Company under the revolving credit portion of the Company's Loan Agreement,$14,396,488.20 aggregate principal amount of the Notes and the Investor Preferred Stock shall be automatically converted into (i) shares of fully paid and non-assessable Convertible Preferred Stock equal to $12,000,000 in stated value, (ii) the fully paid and non-assessable Warrant and (iii) to the extent the authorized capital stock of the Company permits and the Registration Statement shall have been declared effective by the Commission, 7,988,294 shares of fully paid and non-assessable Common Stock in the Rights Offering, without further notice and without action on the part of the Buyer (or such lesser number of shares of Common Stock as are available for purchase by the Buyer (provided, that no shares shall be deemed available for purchase if the Registration Statement shall not have been declared effective by the Commission)); provided, however, that if the Refinancing Closing shall not have occurred on or prior to March 31, 1998, the Notes and the Investor Preferred Stock shall 39 no longer be convertible or exchangeable hereunder. The remaining $603,511.80 aggregate principal amount of the Notes (assuming authorized capital stock of the Company is available to permit the purchase of the full 7,988,294 shares of Common Stock and the Registration Statement shall have been declared effective by the Commission) shall be used to purchase Common Stock in the Rights Offering by paying the exercise price of Rights not exercised by stockholders of the Company other than the Buyer pursuant to the Rights Offering. The Company shall promptly remit to the Buyer all monies representing the exercise of the Rights by stockholders of the Company other than the Buyer pursuant to the Rights Offering and the remaining principal amount of the Notes shall be repaid dollar for dollar as the Buyer receives such monies from the Company. If the Refinancing Closing occurs prior to the time that the Company has 7,988,294 shares of Common Stock available for purchase by the Buyer and prior to the time the Registration Statement shall have been declared effective by the Commission, the Notes shall remain outstanding in a principal amount equal to $3,000,000. Any remaining balance of the Notes will be converted into Common Stock, upon the Company authorizing a sufficient amount of capital stock and the Registration Statement having been declared effective by the Commission, in an amount equal to the quotient obtained by dividing (aa) the balance of such Notes less the aggregate dollar amount to be paid by other stockholders in the exercise of their rights to purchase Common Stock in the Rights Offering by (bb) .30. The Company shall pay all issue taxes, if any, incurred in respect of the issue of the securities delivered on conversion or exchange of the Securities pursuant to this Section 9.18. Section 9.19 Information Statement; Certificate of Incorporation. (a) The Company, in compliance with applicable law, shall prepare and file with the Securities and Exchange Commission (the "Commission") no later than September 26, 1997, the Information Statement subject to prior consultation with the Buyer. The Company shall respond promptly to any comments made by the Commission with respect to the Information Statement and shall provide the Buyer with copies of all its correspondence with the Commission relating thereto, and the Company shall not file an amendment or any other document with the Commission unless the Buyer shall first have had adequate opportunity to review and comment on such document. The Company will amend, supplement or revise the Information Statement as may from time to time be necessary in order to insure that the Information Statement does not contain any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or omits to state any material fact necessary in order to make the statements therein not false or misleading. The Company shall cause the Information Statement to be mailed to the Company's stockholders at the earliest practicable date. (b) The Company shall, as soon as practicable, amend its Certificate of Incorporation to (x) eliminate the provisions for a classified Board of Directors and (y) increase its authorized capital stock. The amendment shall be duly authorized by the Company and its stockholders and shall be duly filed with the Secretary of State of Delaware. 40 Section 9.20 Confidentiality. Except to the extent necessary to develop, preserve and maintain the Company's business relationships and to perform the terms of this Agreement, no party (or its representatives, agents, counsel or accountants) hereto shall disclose to any third party any confidential or proprietary information about the business or operations of the other party hereto or their subsidiaries or the transactions contemplated hereby, except as may be required by applicable law. The parties hereto agree that the remedy at law for any breach of the requirements of this Section 9.20 will be inadequate and that any breach would cause such immediate and permanent damage as would be impossible to ascertain, and, therefore, the parties hereto agree and consent that in the event of any breach of this Section 9.20, in addition to any and all other legal and equitable remedies available for such breach, including a recovery of damages, the non-breaching party shall be entitled to obtain preliminary or permanent injunctive relief without the necessity of proving actual damage by reason of such breach and, to the extent permissible under applicable law, a temporary restraining order may be granted immediately on commencement of such action. The Buyer shall have the right to review and provide input on press releases of the Company relating to this Agreement and the transaction contemplated hereby. Notwithstanding the foregoing, the Buyer shall be entitled to (a) discuss this Agreement and the transactions contemplated hereby with stockholders of the Company and to solicit their approval of such transactions and (b) discuss this Agreement, the transactions contemplated hereby and the Company with the Buyer's members. 9.21 Modification of Preferred Stock. The Company shall promptly modify and/or exchange or convert the Preferred Stock, on terms satisfactory to the Buyer. ARTICLE X. MISCELLANEOUS. Section 10.01 Costs. The Buyer on the one hand and the Company on the other each represent to the other that it has not used a broker in connection with the transactions contemplated by this Agreement. The Company shall pay the costs and expenses incurred by the Company and all reasonable legal fees and expenses incurred by the Buyer in negotiating and preparing this Agreement and in closing and carrying out the transactions contemplated by this Agreement, including, without limitation, the fees and expenses incurred by the Buyer with respect to the Loan Amount and the fees and expenses of an advisor retained by the Buyer to provide advice to the Buyer in respect of the potential tax consequences to the Company of the contribution to the Company of the Loan Amount. In addition, the Company shall pay the out of pocket costs of the Buyer and Onyx Partners, Inc. ("Onyx") up to a maximum of $75,000 in the aggregate. The Company shall reimburse the Buyer (or Onyx, as appropriate) by bank check or wire transfer of immediately available funds for the expenses reflected in this Section 10.01. Such amounts shall be paid promptly by the Company upon presentation of documentation reasonably satisfactory to it evidencing such expenditures. The Company acknowledges that the agreements contained in this Section 10.01 are an integral part of the transactions contemplated 41 by this Agreement, and that, without these agreements, the Buyer would not enter into this Agreement; accordingly, if the Company fails to promptly pay the expenses hereunder when due, the Company shall in addition thereto pay to the Buyer all costs and expenses (including reasonable fees and disbursements of counsel) incurred in collecting such expenses due under this Section 10.01 together with interest on the amount of the expenses due under this Section 10.01 (or any unpaid portion thereof) from the date such payment is received by the Buyer at the rate of 15% per annum. Section 10.02 Headings. Subject headings are included for convenience only and shall not affect the interpretation of any provisions of this Agreement. Section 10.03 Notices. Any notice, demand, request, waiver, or other communication under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service if personally served or sent by telecopy, on the business day after notice is delivered to a courier or mailed by express mail if sent by courier delivery service or express mail for next day delivery and on the third day after mailing if mailed to the party to whom notice is to be given, by first class mail, registered, return receipt requested, postage prepaid and addressed as follows: If to the Company to: Chief Executive Officer Danskin, Inc. 111 West 40th Street New York, New York Fax: (212) 768-1638 Phone: (212) 764-4630 with a copy to: Samuel B. Fortenbaugh III, Esq. Morgan, Lewis & Bockius 101 Park Avenue New York, NY 10178 Fax: (212) 309-6273 Phone: (212) 309-6000 42 If to the Buyer, to: Andrew Astrachan Danskin Investors, LLC c/o Onyx Partners, Inc. 9595 Wilshire Blvd. Suite 700 Beverly Hills, CA 90212 Fax: (310) 246-9937 Phone: (310) 724-5599 with a copy to: Martin Nussbaum, Esq. Shereff, Friedman, Hoffman & Goodman, LLP 919 Third Avenue New York, New York 10022 Fax: (212) 758-9526 Phone: (212) 758-9500 Section 10.04 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the parties. Section 10.05 Governing Law; Forum; Process. This Agreement shall be construed in accordance with, and governed by, the laws of the State of New York as applied to contracts made and to be performed entirely in the State of New York without regard to principles of conflicts of law. Each of the parties hereto hereby irrevocably and unconditionally submits to the exclusive jurisdiction of any court of the State of New York or any federal court sitting in the State of New York for purposes of any suit, action or other proceeding arising out of this Agreement (and agrees not to commence any action, suit or proceedings relating hereto except in such courts). Each of the parties hereto agrees that service of any process, summons, notice or document by U.S. registered mail at its address set forth herein shall be effective service of process for any action, suit or proceeding brought against it in any such court. Each of the parties hereto hereby irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement, which is brought by or against it, in the courts of the State of New York or any federal court sitting in the State of New York and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. Section 10.06 Entire Agreement. This Agreement, including the Related Agreements, Schedules and Exhibits hereto, sets forth the entire understanding and agreement and supersedes any and all other understandings, negotiations or agreements between the Company and the 43 Buyer relating to the sale and purchase of the Securities, including, but not limited to, that certain letter of agreement, dated May 19, 1997, by and between the Company and Onyx on behalf of the Buyer. Section 10.07 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute a single agreement. Section 10.08 Severability. In the event that any one or more of the immaterial provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable, the same shall not affect any other provision of this Agreement, but this Agreement shall be construed in a manner which, as nearly as possible, reflects the original intent of the parties. Section 10.09 No Prejudice. The terms of this Agreement shall not be construed in favor of or against any party on account of its participation in the preparation hereof. Section 10.10 Words in Singular and Plural Form. Words used in the singular form in this Agreement shall be deemed to import the plural, and vice versa, as the sense may require. Section 10.11 Parties in Interest. Nothing expressed or implied in this Agreement is intended or shall be construed to confer upon or give to any person, firm or corporation other than the parties hereto any rights or remedies under or by reason of this Agreement or any transaction contemplated hereby. Section 10.12 Amendment and Modification. This Agreement may be amended or modified only by written agreement executed by all parties hereto. Section 10.13 Waiver. At any time prior to the Closing, the Buyer or the Company may (i) extend the time for the performance of any of the obligations or other acts of the other, (ii) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto, and (iii) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed by the party granting such waiver but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or future failure. Section 10.14 Knowledge of the Company. References herein to the Company's knowledge shall include the knowledge of Donald Schupak, Mary Ann Domuracki, Beverly Eichel and Edwin Dean. Section 10.15 Remedy for Breach. The Company hereby acknowledges that in the event of any breach or threatened breach by the Company of any of the provisions of this Agreement, 44 the Buyer would have no adequate remedy at law and could suffer substantial and irreparable damage. Accordingly, the Company hereby agrees that, in such event, the Buyer shall be entitled, without the necessity of proving damages or posting bond, and notwithstanding any election by the Buyer to claim damages, to obtain a temporary and/or permanent injunction (without proving a breach therefor) to restrain any such breach or threatened breach or to obtain specific performance of any such provisions, all without prejudice to any and all other remedies which the Buyer may have at law or in equity. 10.16 Assignment. The Buyer may assign a portion of its rights and benefits hereunder to the Oppenheimer Bond Fund for Growth. 45 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth above. DANSKIN, INC. a Delaware corporation By: ------------------------- Name: Title: DANSKIN INVESTORS, LLC a Delaware limited liability company By: Onyx Partners, Inc. its manager By: ------------------------- Name: Title: 46 EX-99.(B) 3 LIMITED LIABILITY COMPANY OPERATING AGREEMENT AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING AGREEMENT OF DANSKIN INVESTORS, LLC a Delaware Limited Liability Company dated as of September 17, 1997 AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING AGREEMENT OF DANSKIN INVESTORS, LLC a Delaware Limited Liability Company This Amended and Restated Limited Liability Company Operating Agreement (the "Agreement") of Danskin Investors, LLC (the "Company") dated as of September 17, 1997 is adopted and agreed to by the parties identified in Section 2.1(b) hereof and amends and restates the Limited Liability Company Operating Agreement of the Company dated May 28, 1997. ARTICLE I PURPOSE AND POWERS 1.1 Purpose. The Company has been organized to invest in the equity, debt, and/or rights to acquire such interests (collectively, the "Securities"), in Danskin, Inc., a Delaware corporation ("Danskin"), as described in the letter dated May 19, 1997, from Onyx Partners, Inc. to the Company, as modified by the summary of terms dated August 27, 1997, and the outline of proposed treatment of First Union National Bank of North Carolina's and First Union Commercial Corporation's revolving loan and term loan, copies of which are attached hereto (collectively, the "Investment Proposal Letter"), and to engage in any other lawful business activity related or incident thereto. 1.2 Powers. The Company shall have the power and authority to enter into, make and perform all contracts, agreements and undertakings, and to do any and all acts and things necessary, appropriate, incidental or convenient to the accomplishment of its purposes and for the protection and benefit of the Company. 1 ARTICLE II MEMBERS AND INTERESTS 2.1 Members; Voting Rights. (a) There shall be two classes of Members: the Class A Members and the Class B Members. Except as provided by Sections 3.5(c), 3.5(d), 4.5(b)(i)(A) and 6.2 hereof, on any matter requiring a vote, consent or approval of the Members, the Class A Members shall be the only persons to whom the matter is required to be submitted, and each shall have one vote when voting only with the Class A Members. Except as otherwise provided herein, or as required by applicable law, the vote, consent or approval of a majority of the Class A Members shall constitute the act of the Company. No Class B Member shall have a voice or vote in any matter, except as specifically provided herein. (b) The initial Members of the Company are Onyx Partners, Inc. ("Onyx"), which shall be a Class A Member, and each of the other persons who has delivered a duly executed subscription agreement to Onyx (which agreement has been accepted by Onyx) in substantially the form attached hereto as Exhibit A (the "Subscription Agreement") together with a duly executed signature page to this Agreement, who shall be Class B Members. Other persons may hereafter be admitted as transferees of Members in accordance herewith. Each Member shall execute a counterpart of this Agreement indicating his, her or its agreement to the terms and provisions hereof. (c) Schedule 1 attached hereto lists the name, address, telephone number, telefax number and Capital Commitments of each Member. The Company shall amend Schedule 1 to reflect the admission and withdrawal of members. 2.2 Membership Interests. Each Member's ownership interest in the Company is herein referred to generally as a "Membership Interest." The respective rights of each Member to share in the capital of the Company, either by way of distributions or on liquidation, will be determined by reference to the Capital Account (as defined herein) of such Member; and each Member's interest in the profits and losses of the Company shall be established as provided herein. Each Member shall have the rights and powers set forth in this Agreement. 2.3 Meetings. (a) The Members shall have a regular annual meeting each year beginning in 1998, on a date established by the Managers (as defined below) for the purpose of electing Managers and conducting such other business as may properly come before the meeting. Special meetings of the Members may be called by the Managers. 2 (b) Written notice stating the place, day and hour of each meeting of Members and the general purpose or purposes for which the meeting is called shall be given not less than seven (7) nor more than thirty (30) days before the date of the meeting to each Member. (c) A Member may waive any notice required by law or this Agreement, before or after the date and time of the meeting that is the subject of such notice. Except as provided in the next sentence, the waiver shall be in writing, signed by the Member entitled to the notice and delivered to the Managers for inclusion in the Company's minutes or records. A Member's attendance at or participation in a meeting waives any required notice to such Member of the meeting unless the Member, at the beginning of the meeting or promptly upon such Member's arrival, objects to the transaction of any business at such meeting on the ground that such meeting is not lawfully called or convened. A Member may participate in a meeting in person or by proxy. (d) Any vote, consent or approval of the Members may be accomplished by written consent in lieu of a meeting signed by Members constituting the required vote for the action so taken. (e) Members may participate in a regular or special meeting by, or conduct the meeting through, the use of any means of communication by which all Members participating may simultaneously hear each other during the meeting. Any Member who participates in a meeting in this manner is deemed to be present in person at the meeting, except where a Member participates in the meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. ARTICLE III MANAGEMENT OF THE COMPANY 3.1 Managers. Except as otherwise limited by this Agreement or applicable law, all powers of the Company shall be exercised by or under the authority of, and the business and affairs of the Company shall be managed under the direction of, the Company's Managers (the "Managers"). 3.2 Number, Term and Election. Unless otherwise agreed by a unanimous vote of the Members, there shall be one Manager of the Company. The initial Manager shall be Onyx. Each Manager shall hold office until his or her death, resignation or retirement or until his successor is elected and assumes office. A Manager need not be a Member of the Company. 3.3 Officers. The Managers may appoint such officers who shall have such power and authority as may be specified in a resolution of the Managers. Officers shall serve at the pleasure of the Managers. 3 3.4 Meetings. (a) An annual meeting of the Managers shall be held immediately following each annual meeting of Members for the purpose of appointing officers, if any, and carrying on such other business as may properly come before the meeting. (b) Special meetings of the Managers may be called by any Manager. (c) Notices of meetings of the Managers shall be given to each Manager not less than twenty-four (24) hours before the meeting. Any such notice shall set forth the time and place of the meeting. (d) A Manager may waive any notice required by law or this Agreement before or after the date and time stated in the notice and such waiver shall be equivalent to the giving of such notice. The waiver shall be in writing, signed by the Managers entitled to the notice and filed with the Company's minutes or records; provided that a Manager's attendance at or participation in a meeting waives any required notice to him, her or it of the meeting. (e) A quorum for the transaction of business at a meeting of the Managers shall consist of all of the Managers. (f) Any or all Managers may participate in a regular or special meeting by, or conduct the meeting through, the use of any means of communication by which all Managers participating may simultaneously hear each other during the meeting. A Manager participating in a meeting in this manner is deemed to be present in person at the meeting. (g) Any action of the Company that may be authorized by the Managers at a meeting may be authorized by written consent in lieu of meeting of the Managers signed by Managers constituting the required vote for the action so taken, and any such consent shall be filed with the Company's minutes or records. 3.5 Management Decisions. (a) Except to the extent that the Managers agree to delegate the authority with respect to specified matters, all decisions shall be made by a unanimous vote of the Managers. (b) Any disbursement of funds of the Company will require such signatures as may be determined by the Managers; provided, however, the Managers shall obtain, with respect to (x) any distributions of funds pursuant to Section 4.5, a confirmation of the calculation of such distributions from a nationally recognized public accounting firm prior to such distribution and (y) any other disbursement of funds, a confirmation of the calculation of such disbursements from a nationally recognized public accounting firm in connection with the preparation of the Company's annual financial statements. 4 (c) The following actions require the approval of Members (including Class B Members) representing a majority of the Capital Contributions: (i) any acquisition of tangible or intangible assets other than the Securities or other assets described in or consistent with the Investment Proposal Letter; (ii) any change in the business organization of the Company, however effected; (iii) the admission of any Class A Member; (iv) any decisions of the Company to obtain additional funding through borrowing; (v) selecting members of the board of directors of Danskin; (vi) any decision of the Company as to how the Securities are to be voted on any action to be taken by Danskin permitting the Securities to be voted thereon; and (vii) any decision as to whether the Company should accept an offer made to purchase the Securities from the Company at a price equal to or greater than the applicable Target Price (as defined in Section 4.5(b)(i) below). (d) Any decision as to whether the Company should accept an offer made to purchase the Securities from the Company at a price less than the applicable Target Price (as defined in Section 4.5(b)(i) below) will require the unanimous approval of all Members (including Class B Members). 3.6 Management Compensation. The Managers shall not receive compensation for their services to the Company. In all events, the Managers shall be entitled to reimbursement for all reasonable expenses incurred on the Company's behalf, including all reasonable expenses incurred in connection with consummating the Closing of the Investment under the Investment Proposal Letter (as such capitalized terms are defined in the Investment Proposal Letter). ARTICLE IV FINANCIAL INTERESTS OF MEMBERS 4.1 General. The Company has been organized with the intention that it qualify for taxation as a partnership for U.S. federal income tax purposes. The Members acknowledge that 5 the provisions of Subchapter K of the Internal Revenue Code of 1986, as amended (the "Code") and the Treasury Regulations (the "Regulations") promulgated thereunder will apply to the Company, and intend that the allocations of taxable income and loss, distributions to the Members and maintenance of capital accounts all conform to the requirements of the Code and the applicable Regulations. 4.2 Capital Contributions. (a) The Company has received Capital Commitments in an aggregate amount of $15,000,000 in order to finance the investments intended to be made by the Company in Danskin. Each Member shall make capital contributions to the Company in an amount equal to such Member's pro rata portion (based on the Capital Commitments of all Members) of $15,000,000 ("Capital Contributions") in order to finance the investments intended to be made by the Company in Danskin equity and debt. (b) In the event that any Member fails to make a required portion of its Capital Commitment available to the Company when called by the Managers, in addition to pursuing specific performance, the Company, in its sole discretion, may cause the Capital Contribution of such Member to be forfeited (in which event the amount of such Capital Contribution and such Member's Capital Account (as defined below) shall continue to form part of the capital of the Company and shall be reallocated to the non-defaulting Members in proportion to their respective Capital Commitments but without prejudice to their existing commitments) and such Members shall cease to be a Member for all purposes. 4.3 Capital Accounts. (a) The economic arrangement of the Members is reflected in the provisions of Section 4.5 hereof with respect to distributions; and allocations of net profits and net losses shall be made in a manner consistent with such provisions. The Capital Accounts (as hereinafter defined) shall be maintained in accordance with this Section 4.3. (b) The Company shall establish and maintain a separate capital account (a "Capital Account") on its books for each Member in accordance with the provisions of Treasury Regulations Section 1.704-1(b)(2)(iv). Accordingly, there shall be credited to each Member's Capital Account the amount of all Capital Contributions to the Company made by such Member and such Member's share of the Company's net profits, and there shall be charged against each Member's Capital Account, the amount of all distributions from the Company to such Member and such Member's share of the Company's net losses, all in accordance with the provisions of Section 4.4. In addition, such other adjustments to each Member's Capital Account shall be made as required under the provisions of Treasury Regulations Section 1.704-1(b)(2)(iv). 6 (c) The Capital Account of each Member at the beginning of any period shall be such Member's Capital Account at the beginning of the immediately preceding period, adjusted to give effect to the computations required pursuant to this Section 4.3. (d) The provisions of this Section 4.3 and Section 4.4 are for the purpose of determining the respective interest of the Members in the net profits and net losses of the Company, which shall be reflective of the provisions regarding distributions by the Company in Section 4.5. The financial statements of the Company, however, shall be prepared in accordance with generally accepted accounting principles. (e) No Member shall be entitled to receive interest on his, her or its Capital Contributions. (f) No Member shall be entitled to withdraw all or any part of his, her or its Capital Account except as otherwise provided herein. (g) Loans or advances by any Member to the Company shall not be considered Capital Contributions and shall not increase the Capital Account of the lending or advancing Member. (h) Except as provided in this Agreement, no Member shall be required under any circumstances to contribute or lend any additional money or property to the Company. 4.4 Allocations of Profits and Losses. (a) For each fiscal year or other period, net profits shall be allocated among the members in a manner which reflects the distributions provided in Section 4.5 hereof; and net losses in excess of net profits shall be allocated among the Members in proportion to their Capital Contributions. (b) No Member shall be allocated net losses in excess of the positive balance in such Member's Capital Account; however, in the event net losses exceed Company capital, allocations shall be made among the Members, if any, who bear such losses as provided in the Regulations. In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), Regulations Section 1.704-1(b)(2)(ii)(d)(5), or Regulations Section 1.704-1(b)(2)(ii)(d)(6), items of income and gain shall be specially allocated to each such Member in an amount and manner sufficient to eliminate, to the extent required by the Regulations, the deficit in his Capital Account as quickly as possible, provided that an allocation pursuant to this Section 4.4(b) shall be made if and only to the extent that such Member would have deficit in his Capital Account after all other allocations provided for in this Section 4.4 have been tentatively made as if this Section 4.4(b) were not in the Agreement. 7 (c) Items of income, gain, loss, deduction and credit that are recognized by the Company for tax purposes shall be allocated among the Members in such manner as equitably reflects amounts credited or debited to the Members' Capital Accounts pursuant hereto. In accordance with Code Section 704(c) and the Regulations thereunder, income, gain, loss and with respect to any property (other than cash) contributed to the capital of the Company shall, solely for tax purposes, be allocated among the Members so as to take account of any variation between the adjusted basis of such property to the Company for federal income tax purposes and its value on the date of contribution. To the extent profits or losses have been reflected in Capital Accounts prior to their recognition for tax purposes, allocations shall be made consistent with the principles of Code Section 704(c). In the event the value of any Company asset is adjusted pursuant to Regulations Section 1.704-1(b)(2)(iv)(f), subsequent allocations of income, gain, loss, and deduction with respect to such asset shall take into account any variation between the adjusted basis of such asset for federal income tax purposes and its value in the same manner as under Code Section 704(c) and the Regulations thereunder. 4.5 Distributions. (a) Subject to Sections 4.5(b), (c), (d) and (e) hereof, distributions (in cash or in kind) shall be made to or among the Members from time to time as the Managers determine in proportion to their Capital Contributions. (b) At such time that the fair market value of the common stock of Danskin (the "Common Stock") equals or exceeds the Target Price, defined below, and continues to equal or exceed the Target Price for five consecutive trading days (such fifth trading day being referred to as the "Repayment Date"), all assets of the Company not necessary for the payment of debts and liabilities of the Company, expenses of winding up the Company and for reserves as provided in and subject to the limitation in Section 6.4 for contingent or unforseen liabilities or obligations of the Company ("Assets Available For Repayment") shall be distributed 10% to the Class A Member and 90% to all Members in proportion to their Capital Contributions. (i) The "Target Price" shall mean: (A) On or prior to the first anniversary of the closing of the purchase of the Securities as set forth in the Investment Proposal Letter (the "Acquisition"), $.60 per share of Common Stock, provided, however, that the Repayment Date will not be considered to have occurred (and the assets of the Company, other than excess cash which the Managers determine to distribute, shall not be distributed) unless Members (including Class B Members) representing at least 85% of the Capital Contributions so consent; (B) After the first anniversary of the Acquisition and on or prior to the second anniversary of the Acquisition, $.60 per share of Common Stock; 8 (C) After the second anniversary of the Acquisition and on or prior to the third anniversary of the Acquisition, $.74 per share of Common Stock; (D) After the third anniversary of the Acquisition and on or prior to the fourth anniversary of the Acquisition, $.98 per share of Common Stock; (E) After the fourth anniversary of the Acquisition and on or prior to the fifth anniversary of the Acquisition, $1.31 per share of Common Stock; (c) If as of the fifth anniversary of the Acquisition, the Repayment Date has not occurred, the Assets Available For Repayment shall be distributed 1% to the Class A Member and 99% to all Members in accordance with their Capital Contributions. (d) Subject to Section 6.4, the reimbursement of expenses by Danskin pursuant to the Investment Proposal Letter shall be distributed to the party that has borne such expenses. 4.6 Valuation of Securities. Except as specifically provided in the case of a valuation of securities pursuant to Section 4.5 (b), for purposes of valuing securities in connection with the business of the Company, (i) securities listed on national securities exchanges shall be valued at (a) their last sales prices on the relevant date, or (b) if no sales occurred on such date, at the mean of the "bid" and "asked" prices on such date; (ii) securities not listed on a national securities exchange shall be valued at their last closing "bid" price on the date of the determination, and (iii) all other securities shall be valued by the Managers in good faith and in their sole and absolute discretion pursuant to this Section 4.6 which valuation shall be final and conclusive as to all of the Members; provided, however, in each such case, the Manager shall obtain a confirmation of the calculation of valuation from a nationally recognized public accounting firm. 4.7 Expenses. Each Member agrees to pay additional funds to the Company as required by the Managers in order to pay day-to-day operating and administrative expenses, such as legal and accounting fees; provided, however, the annual aggregate amount of such expenses and fees shall not exceed $10,000. ARTICLE V TRANSFERS AND THE ADMISSION OF ADDITIONAL MEMBERS 5.1 Transfers Generally. Membership Interests may be assigned, in whole or in part, (each such assignment, a "Transfer") only in accordance with this Article V. 5.2 Effect of Transfers. 9 (a) Except as provided in paragraph (b) below, any Transfer of a Membership Interest by a person (the "Transferor") shall be effective only to give the transferee (the "Transferee") the right to the share of allocations and distributions to which the Transferor would otherwise be entitled, and no Transferee of a Membership Interest shall be admitted as a Member, (ii) the Transferee shall have no right to vote on or consent to any matter submitted to the Members or otherwise participate in the management of the business and affairs of the Company, and (iii) subject to Section 5.3(c) below, the Transferor, if he, she or it retains a Membership Interest, shall retain such rights and shall have the power to exercise any rights of a Member, except the right to receive allocations and distributions to the extent those rights are assigned. (b) A Transferee of a Membership Interest shall, upon such Transfer, be admitted as a Member with all the rights and powers of his, her or its Transferor if, prior to such Transfer, all of the Managers consent to the admission of the Transferee as a Member. (c) Any expenses incurred by the Company in connection with or as a consequence of the Transfer of all or part of a Membership Interest shall be reimbursed to the Manager by the Transferor. (d) The Company, the Managers, each Member and any other person or persons having business with the Company, need deal only with holders of Membership Interests who are admitted as Members of the Company, and shall not be required to deal with any Transferee who has not been admitted as a Member. 5.3 Admission of Transferees as Members. The Managers may from time to time admit Transferees as Members to the Company on such terms and conditions as the Managers shall determine. Any such Members shall join in and agree to be bound by the terms of this Agreement. ARTICLE VI TERM AND TERMINATION OF THE COMPANY 6.1 Term of the Company. The term of the Company commenced upon the filing of the certificate of formation with the Secretary of State of Delaware on May 12, 1997 (the "Filing Date"). The Company shall terminate and be dissolved on the fifth anniversary of the Acquisition unless the Company is earlier dissolved and terminated as provided in this Agreement. 6.2 Events of Dissolution. The Company shall be dissolved upon the occurrence of any of the following events: 10 (a) The death, retirement, resignation, expulsion, bankruptcy (which shall mean being the subject of an order for relief under Title 11 of the United States Code), or dissolution of any Member-Manager or the occurrence of any other event which terminates the continued Membership of any Member-Manager unless, within ninety (90) days following the occurrence of any such event, the business of the Company is continued by the consent of a majority-in-interest of the remaining Members; (b) The sale of all or substantially all of the business and assets of the Company; (c) On the Repayment Date, as defined in Section 4.5(b) hereof; (d) As otherwise required by the Delaware Limited Liability Company Act. As used herein, consent of a majority-in-interest means consent of Members (including for this purpose Class A and Class B Members) representing a majority of the Capital Contributions and owning Capital Accounts representing a majority of Company capital. 6.3 Conclusion of Affairs. In the event of dissolution of the Company for any reason, the Managers, or if no Managers remain, the Members, by majority vote, shall appoint a person (the "Liquidator"), who may but need not be a Manager and/or Member, and the Liquidator shall proceed, as soon as reasonably practicable, to wind up the affairs of the Company. The Members (and their successors in interest) shall continue to share in allocations of income and loss and distributions during the period of winding up in the same manner as before the dissolution. The Liquidator shall have reasonable discretion to determine the time, manner and terms of any sale or sales of Company property pursuant to such winding up, having due regard to the activity and the condition of the Company and relevant market and financial and economic conditions, and consistent with his, her or its obligations to the Members. 6.4 Liquidating Distributions. After paying or providing for the payment of all debts and liabilities of the Company and all expenses of winding up, and subject to the right of the Liquidator to set up such reserves as it may deem reasonably necessary for any contingent or unforeseen liabilities or obligations of the Company (such reserves not to exceed $25,000), the proceeds of the liquidation, and any other remaining assets of the Company, shall be distributed to or for the benefit of the Members (and their successors in interest) in accordance with the provisions of Section 4.5 hereof. Upon liquidation of the Company, the Company shall distribute to each Member such Member's pro rata share of the Company's cash and Securities as provided in Section 4.5 of this Agreement as a liquidating distribution to the Members (and their successors in interest). 6.5 Termination. Within a reasonable time following the completion of the winding up of the Company, the Liquidator shall supply to each Member a statement which shall set forth the assets and the liabilities of the Company as of the date of complete winding up and each Member's portion of the distributions pursuant to this Agreement. Upon completion of the winding up of the Company and the distribution of all Company assets, the Company shall terminate, and the 11 Liquidator shall execute and file a certificate of cancellation of the Company with the Secretary of State of Delaware, and shall take all other action necessary to effectuate the dissolution and termination of the Company. Each Member remains obligated on a pro rata basis (based on the amount of distributions received from the Company) for subsequent liabilities of the Company after winding up and liquidation of the Company; provided, however, such obligations shall not exceed the amount of distributions received by such member from the Company. ARTICLE VII GENERAL AND ADMINISTRATIVE PROVISIONS 7.1 Principal Office. The principal office of the Company shall be at such location or locations as may be determined by the Managers from time to time. 7.2 Indemnification. To the fullest extent permitted by law, the Company shall indemnify and hold harmless, and may advance expenses to, any Member or Manager (collectively, the "Indemnitees"), from and against any and all claims and demands whatsoever arising out of the business and affairs of the Company; provided, however, that no indemnification may be made to or on behalf of any Indemnitee if a judgment or other final adjudication adverse to such Indemnitee establishes (a) that his, her or its acts were committed in bad faith or were the result of active and deliberate dishonesty and were material to the cause of action so adjudicated or (b) that he, she or it personally gained in fact a financial profit or other advantage to which he, she or it was not legally entitled. The provision of this section shall continue to afford protection to each Indemnitee regardless of whether such Indemnitee remains a Member, Manager, employee or agent of the Company. 7.3 Fiscal Year. The fiscal year of the Company shall end on the thirty-first of December. 7.4 Books and Records. At all times during the term of the Company, the Managers shall keep, or cause to be kept at the Company's principal office, the books and records of the Company. 7.5 Reports. As soon as practicable following the end of each fiscal year, the Company shall provide each Member a financial report of the results of operations, including audited or unaudited financial statements, as determined by the Managers. 7.6 Withholding. Except as may be required by a change in applicable law (including any judicial or administrative interpretation thereof), the Company will not withhold any U.S. federal taxes with respect to the distributive share of interest income (other than interest income which fails to qualify either as "portfolio interest" within the meaning of Code Section 871(h) or interest on deposits within the meaning of Code Section 871(i)(3)) and capital gain or distributions by the Company of securities or other property held by the Company (other than dispositions of, 12 and proceeds relating to, U.S. real property interests within the meaning of Code Section 897(c)) with respect to Members who are not U.S. persons within the meaning of Code Section 7701(a)(30), so long as such Member provides the Company with an effective Form W-8. 7.7 Notices. Any notice to be given under this Agreement may be given either personally or by mail, telephone, telegraph, teletype, telecopy or other form of wire or wireless communication, or by overnight courier. If mailed, notice shall be deemed to be effective three (3) days after deposited in registered or certified mail with postage thereon prepaid addressed if to a Member at its address as it appears on the signature page to this Agreement (or at such other address for any party as such party shall notify the other parties), and if to the Company at its principal office. If given in any other manner, such notice shall be deemed to be effective (i) when given personally, (ii) when given by telephone, teletype, telecopy or other form of wire or wireless communication (if followed by a copy delivered by registered or certified mail) or (iii) one (1) day after given to an overnight courier to be delivered. 7.8 Headings. The headings of the sections hereof are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof. 7.9 Gender; Number. Where the context so requires, the masculine gender shall be construed to include the female, a corporation, a trust or other entity, and the singular shall be construed to include the plural and the plural the singular. 7.10 Amendments. This Agreement may be modified or amended by unanimous written agreement of the Class A Members; provided, that, except as otherwise specifically provided herein, no amendment may modify the economic interest of a Member without such Member's consent. Notwithstanding the foregoing, the Managers may amend the Agreement as necessary to effect the admission of Transferees of Members. 7.11 Entire Agreement. This Agreement sets forth the entire understanding of the parties hereto. 7.12 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. 13 IN WITNESS WHEREOF, the undersigned has affixed its signature signifying its adoption of this Limited Liability Company Operating Agreement: ONYX PARTNERS, INC. By:________________________________ Name: Title: MAYFIRST ASSOCIATES LTD. By:________________________________ Name: Title: ALPINE ASSOCIATES By:________________________________ Name: Title: REGENT CAPITAL EQUITY PARTNERS, L.P. By:________________________________ Name: Title: --------------------------------- Gregg L. Engles 14 RONALD N. YURCAK FAMILY TRUST By:________________________________ Name: Title: CUCCI FAMILY TRUST By:________________________________ Name: Title: DIMSTON PARTNERSHIP By:________________________________ Name: Title: DAVID FEINMAN LIVING TRUST By:_________________________________ Name: Title: ISLAND CUTLERY ASSOCIATES LIMITED PARTNERSHIP By:________________________________ Name: Title: 15 --------------------------------- Craig Randelman --------------------------------- Dorothy Richards --------------------------------- Eric Rosenfeld --------------------------------- Michael Rothbard SGM PORTFOLIO L.L.C. By:________________________________ Name: Title: --------------------------------- Jordan L. Shapiro ARCHSTONE PARTNERS, L.P. By:________________________________ Name: Title: --------------------------------- Kenneth H. Sullivan 16 --------------------------------- Nina E. Mclemore --------------------------------- John Broude --------------------------------- Peter Evans --------------------------------- Lee Kling VERTEX INDUSTRIES, INC. By:________________________________ Name: Title: TEXAS CAPITAL INVESTORS G.P. By:________________________________ Name: Title: ASTER INDUSTRIES By:________________________________ Name: Title: 17 BRIGHTON BEACH INVESTMENT GROUP LIMITED PARTNERSHIP By:________________________________ Name: Title: GOLDEN HORN (II) L.P. By:________________________________ Name: Title: ----------------------------------- David Chu ANVIL INVESTMENT PARTNERS By:________________________________ Name: Title: ----------------------------------- Marc Cummins ----------------------------------- Greg McGowan ----------------------------------- Richard Bernstein 18 ----------------------------------- Bruce Raben ----------------------------------- Doug Morgan REGENT CAPITAL PARTNERS, L.P. By:________________________________ Name: Title: 19 EX-99.(C) 4 PROXY GRANTED BY OPPENHEIMER BOND FUND Danskin, Inc. PROXY THIS PROXY IS SOLICITED ON BEHALF OF DANSKIN INVESTORS, LLC WHEREAS, the undersigned (the "Stockholder") has offered to grant an irrevocable proxy to Danskin Investors, LLC (the "Investor") to vote all shares of voting stock of Danskin, Inc. (the "Corporation") held of record by the Stockholder in the manner set forth herein if the Investor will invest not less than Fifteen Million Dollars ($15,000,000) in the Corporation; and WHEREAS, the Stockholder will benefit from the investment by the Investor in the Corporation. NOW, THEREFORE, the undersigned hereby grants an irrevocable proxy to Andrew J. Astrachan and David A. Sachs, and each of them, as attorneys and proxies, each with full power to appoint his substitute, and hereby authorizes them to appear and vote as designated below, all shares of voting stock of the Corporation held of record by the undersigned Stockholder (the "Shares") at all meetings of the stockholders (whether annual or special) and on all written consents of stockholders of the Corporation held or circulated at any time following the date hereof to consider the proposals set forth below, and any adjournments or postponements thereof until the date upon which the Investor owns a majority of the voting stock of the Corporation. The undersigned Stockholder hereby directs this Proxy to be voted in favor of each of the following proposals: (a) Proposal to amend the Certificate of Incorporation of the Corporation in order to (i) increase the number of authorized shares of Common Stock as recommended by the Board of Directors of the Corporation, (ii) eliminate the classification of the Board of Directors of the Corporation, and (iii) provide that the number of directors on the Board of Directors of the Corporation shall not exceed nine (9); and (b) Proposal to ratify the appointment of Investor's designees to the Board of Directors of the Corporation pursuant to the terms of the Purchase Agreement; and (c) Any additional proposal in accordance with the recommendation of the Board of Directors of the Corporation. This proxy is given in connection with the closing of the transactions contemplated by the Securities Purchase Agreement of even date herewith (the "Purchase Agreement") between the Investor and the Corporation, and is given for the benefit of the Investor, to protect and secure the interests of the Investor in the securities of the Corporation issued to the Investor pursuant to the Purchase Agreement. This proxy revokes any other proxy granted by the undersigned Stockholder at any time with respect to the Shares. SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE STOCKHOLDER'S SPECIFICATIONS ABOVE. Date: -------------------------- OPPENHEIMER BOND FUND FOR GROWTH By: -------------------------- Name: Michael S. Rosen Title: Vice President EX-99.(D) 5 PROXY GRANTED BY SUNAMERICA LIFE INSURANCE COMPANY Danskin, Inc. PROXY THIS PROXY IS SOLICITED ON BEHALF OF DANSKIN INVESTORS, LLC The undersigned stockholder of Danskin, Inc. hereby grants an irrevocable proxy to Andrew J. Astrachan and David A. Sachs, and each of them, as attorneys and proxies, each with full power to appoint his substitute, and hereby authorizes them to appear and vote as designated below, all shares of voting stock of the Corporation held of record by the undersigned stockholder (the "Shares") at all meetings of the stockholders (whether annual or special) and on all written consents of stockholders of the Corporation held or circulated at any time following the date hereof to consider the proposals set forth below, and any adjournments or postponements thereof and all procedural matters relative thereto until the date upon which the Investor owns a majority of the voting stock of the Corporation. The undersigned Stockholder hereby directs this Proxy to be voted in favor of each of the following proposals: (a) Proposal to amend the Certificate of Incorporation of the Corporation in order to (i) increase the number of authorized shares of Common Stock as recommended by the Board of Directors of the Corporation, (ii) eliminate the classification of the Board of Directors of the Corporation, and (iii) provide that the number of directors on the Board of Directors of the Corporation shall not exceed nine (9); and (b) Proposal to ratify the appointment of Investor's designees to the Board of Directors of the Corporation pursuant to the terms of the Purchase Agreement. This proxy is coupled with an interest and is irrevocable. This proxy revokes any other proxy granted by the undersigned Stockholder at any time with respect to the Shares. SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE STOCKHOLDER'S SPECIFICATIONS ABOVE. Date: -------------------------- SUNAMERICA LIFE INSURANCE COMPANY By: -------------------------- Name: Title: EX-99.(E) 6 FORM OF WARRANT TO BE ISSUED TO INVESTORS NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. Void after 5:00 p.m. Eastern Standard Time, on [September 30], 2004. WARRANT TO PURCHASE COMMON STOCK OF DANSKIN, INC. FOR VALUE RECEIVED, DANSKIN, INC. (the "Company"), a Delaware corporation, hereby certifies that Danskin Investors, LLC, or its permitted assigns, is entitled to purchase from the Company, at any time or from time to time commencing [September 30], 1997, and prior to 5:00 P.M., Eastern Standard Time, on [September 30], 2004, a total of 9,632,199 fully paid and nonassessable shares of Common Stock, par value $.01 per share, of the Company for an aggregate purchase price of $2,889,659.70 (computed on the basis of $.30 per share). (Hereinafter, (i) said Common Stock, together with any other equity securities which may be issued by the Company with respect thereto or in substitution therefor, is referred to as the "Common Stock," (ii) the shares of the Common Stock purchasable hereunder are referred to as the "Warrant Shares," (iii) the aggregate purchase price payable hereunder for the Warrant Shares is referred to as the "Aggregate Warrant Price," (iv) the price payable hereunder for each of the Warrant Shares is referred to as the "Per Share Warrant Price," (v) this Warrant, and all warrants hereafter issued in exchange or substitution for this Warrant are referred to as the "Warrant" and (vi) the holder of this Warrant is referred to as the "Holder.") The number of Warrant Shares for which this Warrant is exercisable is subject to adjustment as hereinafter provided. In the event of any such adjustment, the Per Share Warrant Price shall be adjusted by multiplying the Per Share Warrant Price in effect immediately prior to such adjustment by a fraction the numerator of which is the aggregate number of Warrant Shares for which this Warrant may be exercised immediately prior to such adjustment and the denominator of which is the aggregate number of Warrant Shares for which this Warrant may be exercised immediately after such adjustment. 1. Exercise of Warrant. This Warrant may be exercised, in whole at any time or in part from time to time, commencing [September 30], 1997, and prior to 5:00 P.M., Eastern Standard Time, on -1- [September 30], 2004, by the Holder of this Warrant by the surrender of this Warrant (with the subscription form at the end hereof duly executed) at the address set forth in Subsection 9(a) hereof, together with proper payment of the Aggregate Warrant Price, or the proportionate part thereof if this Warrant is exercised in part. The Aggregate Warrant Price or Per Share Warrant Price may be paid: (a) in cash, (b) by surrender to the Company of shares of its Common Stock with a fair value, on the date of exercise that is equal to the Aggregate Warrant Price or Per Share Warrant Price, as the case may be, in respect of the number of Warrants exercised, (c) by surrender to the Company of Warrants (as provided below) or (d) by a combination of (a), (b) or (c) hereof. The Holder shall have the right to convert Warrants or any portion thereof (the "Conversion Right") into Warrant Shares as provided in this paragraph, but only if, at the time of such conversion, the Per Share Warrant Price shall be less than the current market price per share of Common Stock and the Warrants shall otherwise be exercisable under the provisions of this Warrant. Upon exercise of the Conversion Right with respect to a particular number of Warrants (the "Converted Warrants"), the Company shall deliver to the Holder (without payment by the Holder of any cash or other consideration) that number of Warrant Shares equal to the quotient obtained by dividing (a) the difference between (i) the product of the fair value per share of Common Stock as of the date the Conversion Right is exercised (the "Conversion Date") and the number of Warrant Shares into which the Converted Warrants could have been exercised hereunder and (ii) the aggregate Per Share Warrant Price that would have been payable upon such exercise of the Converted Warrants as of the Conversion Date, by (b) the fair value per share of Common Stock as of the Conversion Date. For purposes of this paragraph, the fair value per share of Common Stock shall mean the average Closing Price of the Company's Common Stock for the ten Trading Days immediately preceding the Conversion Date. As used in this Section 1, Trading Day means, in the event that the Common Stock is listed or admitted to trading on the New York Stock Exchange (or any successor to such exchange), a day on which the New York Stock Exchange (or such successor) is open for the transaction of business, or, if the Common Stock is not listed or admitted to trading on such exchange, a day on which the principal national securities exchange on which the Common Stock is listed is open for the transaction of business, or, if the Common Stock is not listed or admitted to trading on any national securities exchange, a day on which any New York Stock Exchange member firm is open for the transaction of business. As used in this Section 1, the Closing Price of the Company's Common Stock shall be the last reported sale price as shown on the Composite Tape of the New York Stock Exchange, or, in case no such reported sale price is quoted on such day, the average of the reported closing bid and asked prices on the New York Stock Exchange, or, if the Common Stock is not listed or admitted to trading on such exchange, the last reported sales price, or in case no such reported sales price is quoted on such day, the average of the reported closing bid and asked prices, on the principal national securities exchange (including, for purposes hereof, the National Association of Securities Dealers, Inc. National Market System) on which the Common Stock is listed or admitted to trading, or, if it is not listed or admitted to trading on any national securities exchange, the average of the -2- high closing bid price and the low closing asked price as reported on an inter-dealer quotation system. In the absence of any available public quotations for the Common Stock, the Board of Directors of the Company shall determine in good faith the fair value of the Common Stock, which determination shall be set forth in a certificate by the Secretary of the Company. Payment for Warrant Shares if made by cash shall be made by certified or official bank check payable to the order of the Company. If this Warrant is exercised in part, the Holder shall be entitled to receive a new Warrant covering the number of Warrant Shares in respect of which this Warrant has not been exercised and setting forth the proportionate part of the Aggregate Warrant Price applicable to such Warrant Shares. Upon such surrender of this Warrant, the Company will (a) issue a certificate or certificates in the name of the Holder for the shares of the Common Stock to which the Holder shall be entitled, and (b) deliver the proportionate part thereof if this Warrant is exercised in part, pursuant to the provisions of the Warrant. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. With respect to any fraction of a share called for upon any exercise hereof, the Company shall pay to the Holder an amount in cash equal to such fraction multiplied by the fair value of a share. 2. Reservation of Warrant Shares. The Company agrees that, prior to the expiration of this Warrant, the Company will at all times have authorized and in reserve, and will keep available, solely for issuance or delivery upon the exercise of this Warrant, the shares of the Common Stock as from time to time shall be receivable upon the exercise of this Warrant. 3. Anti-Dilution Provisions. The number and kind of securities issuable upon the exercise of this Warrant, the Per Share Warrant Price and the number of Warrant Shares for which this Warrant may be exercised shall be subject to adjustment from time to time in accordance with the following provisions: (a) Certain Definitions. For purposes of this Warrant: (1) The term "Additional Shares of Common Stock" shall mean all shares of Common Stock issued, or deemed to be issued by the Company pursuant to paragraph (g) of this Section 3, after the Original Issue Date except: (i) shares of Common Stock issuable upon conversion of, or distributions with respect to, the Series D Cumulative Convertible Preferred Stock ("Series D Stock") now or hereafter issued by the Company; (ii) up to 790,000 shares of Common Stock issuable upon the exercise of options issued to officers, directors and employees of the Company under stock option plans maintained from time to time by -3- the Company and approved by the Board of Directors (the "Employee Options"); and (iii) up to 3,291,797 shares of Common Stock issuable upon the exercise of options issued to Mary Ann Domuracki, Beverly Eichel and Nina McLemore (collectively, the "Management Options") in connection with the closing of that certain Securities Purchase Agreement dated as of September 22, 1997 between the Company and Danskin Investors, LLC (the "Purchase Agreement"); (iv) shares of Common Stock issuable upon exercise of this Warrant, the Warrant issued to Oppenheimer Bond Fund for Growth pursuant to the terms of the Purchase Agreement (the "BFG Warrant") and the Warrant issued to Donald Schupak pursuant to the terms of that certain Warrant Purchase Agreement dated as of September 22, 1997 between the Company and Donald Schupak (the "Schupak Warrant"); and (v) up to 10,000,000 shares of Common Stock issuable pursuant to the Rights Offering contemplated by the terms of the Purchase Agreement. (2) The term "Convertible Securities" shall mean any evidence of indebtedness, shares (other than the Promissory Note issued pursuant to the Purchase Agreement, Series D Stock, the Schupak Warrant, the BFG Warrant and this Warrant) or other securities convertible into or exchangeable for Common Stock. (3) The term "Options" shall mean rights, options or warrants (other than the Employee Options and the Management Options) to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities. (4) The term "Original Issue Date" shall mean the date of the initial issuance of this Warrant. (b) Reorganization, Reclassification. In the event of a reorganization, share exchange, or reclassification, other than a change in par value, or from par value to no par value, or from no par value to par value or a transaction described in subsection (c) or (d) below, this Warrant shall, after such reorganization, share exchange or reclassification (a "Reclassification Event"), be exercisable at the option of the holder into the kind and number of shares of stock or other securities or other property of the Company which the holder of this Warrant would have been entitled to receive if the holder had held the Warrant Shares issuable upon exercise of this -4- Warrant immediately prior to such reorganization, share exchange, or reclassification. (c) Consolidation, Merger. In the event of a merger or consolidation to which the Company is a party this Warrant shall, after such merger or consolidation, be exercisable at the option of the holder for the kind and number of shares of stock and/or other securities, cash or other property which the holder of this Warrant would have been entitled to receive if the holder had held the Warrant Shares issuable upon exercise of this Warrant immediately prior to such consolidation or merger. (d) Subdivision or Combination of Shares. In case outstanding shares of Common Stock shall be subdivided, the Per Share Warrant Price shall be proportionately reduced as of the effective date of such subdivision, or as of the date a record is taken of the holders of Common Stock for the purpose of so subdividing, whichever is earlier. In case outstanding shares of Common Stock shall be combined, the Per Share Warrant Price shall be proportionately increased as of the effective date of such combination, or as of the date a record is taken of the holders of Common Stock for the purpose of so combining, whichever is earlier. (e) Stock Dividends. In case shares of Common Stock are issued as a dividend or other distribution on the Common Stock (or such dividend is declared), then the Per Share Warrant Price shall be adjusted, as of the date a record is taken of the holders of Common Stock for the purpose of receiving such dividend or other distribution (or if no such record is taken, as at the earliest of the date of such declaration, payment or other distribution), to that price determined by multiplying the Per Share Warrant Price in effect immediately prior to such declaration, payment or other distribution by a fraction (i) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the declaration or payment of such dividend or other distribution, and (ii) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after the declaration or payment of such dividend or other distribution. In the event that the Company shall declare or pay any dividend on the Common Stock payable in any right to acquire Common Stock for no consideration, then the Company shall be deemed to have made a dividend payable in Common Stock in an amount of shares equal to the maximum number of shares issuable upon exercise of such rights to acquire Common Stock. (f) Issuance of Additional Shares of Common Stock. If the Company shall issue any Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to paragraph (g) below) after the Original Issue Date (other than as provided in the foregoing subsections (b) through (e)), for no consideration or for a consideration per share less than the Per Share Warrant Price in effect on the date of and immediately prior to such issue, then in such event, the -5- Per Share Warrant Price shall be reduced, concurrently with such issue, to a price equal to the quotient obtained by dividing: (1) an amount equal to (x) the total number of shares of Common Stock outstanding immediately prior to such issuance or sale multiplied by the Per Share Warrant Price in effect immediately prior to such issuance or sale, plus (y) the aggregate consideration received or deemed to be received by the Company upon such issuance or sale, by (2) the total number of shares of Common Stock outstanding immediately after such issuance or sale. For purposes of the formulas expressed in paragraph 3(e) and 3(f), all shares of Common Stock, including Warrant Shares, issuable upon the exercise of outstanding Options or this Warrant or issuable upon the conversion of the Series C Stock, the Series D Stock or outstanding Convertible Securities (including Convertible Securities issued upon the exercise of outstanding Options), shall be deemed outstanding shares of Common Stock both immediately before and after such issuance or sale. (g) Deemed Issue of Additional Shares of Common Stock. In the event the Company at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities then entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein designed to protect against dilution) of Common Stock issuable upon the exercise of such Options, or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue of Options or Convertible Securities or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that in any such case in which Additional Shares of Common Stock are deemed to be issued: (1) no further adjustments in the Per Share Warrant Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or the issue of Common Stock upon the conversion or exchange of such Convertible Securities; (2) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Company, or increase or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Per Share Warrant Price computed upon the original -6- issuance of such Options or Convertible Securities (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, upon any such increase or decrease becoming effective, shall be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities (provided, however, that no such adjustment of the Per Share Warrant Price shall affect Common Stock previously issued upon exercise of this Warrant in whole or in part); (3) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Per Share Warrant Price computed upon the original issue of such Options or Convertible Securities (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if: (i) in the case of Options or Convertible Securities, the only Additional Shares of Common Stock issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Company (x) for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Company upon exercise of the Options or (y) for the issue of all such Convertible Securities which were actually converted or exchanged plus the additional consideration, if any, actually received by the Company upon the conversion or exchange of the Convertible Securities; and (ii) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Company for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Company for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Company upon the issue of the Convertible Securities with respect to which such Options were actually exercised. -7- (4) No readjustment pursuant to clause (2) or (3) above shall have the effect of increasing the Per Share Warrant Price to an amount which exceeds the lower of (x) the Per Share Warrant Price on the original adjustment date or (y) the Per Share Warrant Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date. (5) In the case of any Options which expire by their terms not more than 30 days after the date of issue thereof, no adjustment of the Per Share Warrant Price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the same manner provided in clause (3) above. (h) Determination of Consideration. For purposes of this Section 3, the consideration received by the Company for the issue of any Additional Shares of Common Stock shall be computed as follows: (1) Cash and Property. Such consideration shall: (i) insofar as it consists of cash, be the aggregate amount of cash received by the Company; and (ii) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of the issue, as determined by the vote of a majority of the Company's Board of Directors or if the Board of Directors cannot reach such agreement, by a qualified independent public accounting firm, other than the accounting firm then engaged as the Company's independent auditors. (2) Options and Convertible Securities. The consideration per share received by the Company for Additional Shares of Common Stock deemed to have been issued pursuant to paragraph (g) above, relating to Options and Convertible Securities shall be determined by dividing: (i) the total amount, if any, received or receivable by the Company as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against dilution) payable to the Company upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the -8- exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by (ii) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against dilution) issuable upon the exercise of such Options or conversion or exchange of such Convertible Securities. (i) Adjustment of Aggregate Number of Warrant Shares Issuable. Upon each adjustment of the Per Share Warrant Price under the provisions of this Section 3, the aggregate number of Warrant Shares issuable upon exercise of this Warrant shall be adjusted to an amount determined by dividing (x) the Per Share Warrant Price in effect immediately prior to the event causing such adjustment by (y) such adjusted Per Share Warrant Price. (j) Other Provisions Applicable to Adjustment Under this Section. The following provisions will be applicable to the adjustments in Per Share Warrant Price and the aggregate number of Warrant Shares issuable upon exercise of this Warrant as provided in this Section 3: (1) Treasury Shares. The number of shares of Common Stock at any time outstanding shall not include any shares thereof then directly or indirectly owned or held by or for the account of the Company. (2) Other Action Affecting Common Stock. In case the Company shall take any action affecting the outstanding number of shares of Common Stock other than an action described in any of the foregoing subsections 3(b) to 3(g) hereof, inclusive, which would have an inequitable effect on the holder of this Warrant, the Per Share Warrant Price shall be adjusted in such manner and at such time as the Board of Directors of the Company on the advice of the Company's independent public accountants may in good faith determine to be equitable in the circumstances. (3) Minimum Adjustment. No adjustment of the Per Share Warrant Price shall be made if the amount of any such adjustment would be an amount less than one percent (1%) of the Per Share Warrant Price then in effect, but any such amount shall be carried forward and an adjustment in respect thereof shall be made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate an increase or decrease of one percent (1%) or more. -9- (4) Certain Adjustments. The Per Share Warrant Price shall not be adjusted upward except in the event of a combination of the outstanding shares of Common Stock into a smaller number of shares of Common Stock or in the event of a readjustment of the Per Share Warrant Price pursuant to Section 3(g)(2) or (3). (k) Notices of Adjustments. Whenever the aggregate number of Warrant Shares issuable upon exercise of this Warrant and Per Share Warrant Price is adjusted as herein provided, an officer of the Company shall compute the adjusted number of Warrant Shares and Per Share Warrant Price in accordance with the foregoing provisions and shall prepare a written certificate setting forth such adjusted number of Warrant Shares and Per Share Warrant Price and showing in detail the facts upon which such adjustment is based, and such written instrument shall promptly be delivered to the recordholder of this Warrant. 4. Fully Paid Stock; Taxes. The Company agrees that the shares of the Common Stock represented by each and every certificate for Warrant Shares delivered on the proper exercise of this Warrant shall, at the time of such delivery, be validly issued and outstanding, fully paid and nonassessable, and not subject to preemptive rights, and the Company will take all such actions as may be necessary to assure that the par value or stated value, if any, per share of the Common Stock is at all times equal to or less than the then Per Share Warrant Price. Subject to Section 6(c) hereof, the Company further covenants and agrees that it will pay, when due and payable, any and all Federal and state stamp, original issue or similar taxes that may be payable in respect of the issuance of any Warrant Shares or certificates therefor. The Holder covenants and agrees that it shall pay, when due and payable, any and all federal, state and local income or similar taxes that may be payable in respect of the issuance of any Warrant Shares or certificates therefor. 5. Repurchase of Warrant. (a) Holders Option to Put Warrant. Subject to the succeeding provisions of this Section 5, if at any time the Warrant Shares shall not be issuable because the Company has insufficient authorized capital stock, the Holder may, by notice to the Company (a "Put Notice"), elect to sell to the Company (and the Company hereby agrees to repurchase from the Holder(s)), at the repurchase price specified in Section 5(d) hereof (the "Repurchase Price"), such portion of the Warrant exercisable for that number of Warrant Shares as are specified in the Put Notice (the "Put Number"). For all purposes of this Section 5, each Warrant shall be treated as the number of Warrant Shares for which it is then exercisable. (b) Put Closing. The closing of the exercise of the put right shall take place at the offices of the Company at 10:00 a.m. local time on a date not more than seven (7) days after the date of the Put Notice, or at such other time and place as the Company and the Holder(s) may agree upon (the "Put Closing Date"). At the closing the -10- Holder(s) will deliver to the Company a Warrant or Warrants evidencing or exercisable for at least the Put Number of Warrant Shares (properly endorsed or accompanied by assignments, with signature(s) guaranteed or similar appropriate documentation of authority to transfer) against payment of the Repurchase Price to the Holder(s) in the manner specified in Section 5(c) hereof (together with Warrants of like tenor evidencing the right to purchase any Warrant Shares, in either case to the extent that the number of shares represented by the Warrants presented to the Company were in excess of the Put Number). (c) Payment. The Company shall pay the Repurchase Price to the Holder(s) out of funds legally available therefor at any closing under Section 5(b) hereof in cash or immediately available funds (the "Final Payment Date"). In the event that any portion of the Repurchase Price is not paid as provided in the preceding sentence as a result of any insufficiency of legally available funds or otherwise, such portion shall remain an obligation of the Company and shall become due and payable, in cash or immediately available funds, as soon as there are funds legally available therefor. (d) Repurchase Price for Warrant. (1) the Repurchase Price shall be equal to that number which is equal to the difference between (I) the product of (i) the Put Number of Warrant Shares, multiplied by (ii) the quotient obtained by dividing (A) the Market Value of the Company's Common Stock (as determined pursuant to Section 5(d)(2) hereof), calculated as of the date of the Put Notice given by the Holder under Section 5(a), by (B) the total number of shares of Common Stock outstanding on the date of such Put Notice on a fully diluted basis, and (II) the Product obtained by multiplying the Per Share Warrant Price by the Put Number of Warrant Shares; (2) The Market Value as of a given date shall be the product of (i) the Current Market Price (as hereinafter defined) on such date multiplied by (ii) the number of shares of Common Stock issued and outstanding on such date on a fully diluted basis. The term "Current Market Price", as of the date of any determination thereof, shall be deemed to be the average of the Closing Price per share for ten Trading Days commencing immediately before such date. 6. Transfer (a) Securities Laws. Neither this Warrant nor the Warrant Shares issuable upon the exercise hereof have been registered under the Securities Act of 1933, as amended (the "Securities Act"), or under any state securities laws and unless so -11- registered may not be transferred, sold, pledged, hypothecated or otherwise disposed of unless an exemption from such registration is available. In the event the Holder desires to transfer this Warrant or any of the Warrant Shares issued, the Holder must give the Company prior written notice of such proposed transfer including the name and address of the proposed transferee. Such transfer may be made only either (i) upon publication by the Securities and Exchange Commission (the "Commission") of a ruling, interpretation, opinion or "no action letter" based upon facts presented to said Commission, or (ii) upon receipt by the Company of an opinion of counsel acceptable to the Company to the effect that the proposed transfer will not violate the provisions of the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the rules and regulations promulgated under either such act, or to the effect that the Warrant or Warrant Shares to be sold or transferred have been registered under the Securities Act of 1933, as amended, and that there is in effect a current prospectus meeting the requirements of Subsection 10(a) of the Securities Act, which is being or will be delivered to the purchaser or transferee at or prior to the time of delivery of the certificates evidencing the Warrant or Warrant Shares to be sold or transferred. Notwithstanding anything else contained herein, Danskin Investors, LLC may distribute the Warrant or the Warrant Shares to its members. (b) Transfer. Upon surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with assignment documentation duly executed and funds sufficient to pay any transfer tax, and upon compliance with the foregoing provisions, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in such instrument of assignment, and this Warrant shall promptly be canceled. Any assignment, transfer, pledge, hypothecation or other disposition of this Warrant attempted contrary to the provisions of this Warrant, or any levy of execution, attachment or other process attempted upon the Warrant, shall be null and void and without effect. (c) Legend and Stop Transfer Orders. Unless the Warrant Shares have been registered under the Securities Act, upon exercise of any part of the Warrant and the issuance of any of the Warrant Shares, the Company shall instruct its transfer agent to enter stop transfer orders with respect to such shares, and all certificates representing Warrant Shares shall bear on the face thereof substantially the following legend, insofar as is consistent with Delaware law: "The shares of common stock represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be sold, offered for sale, assigned, transferred or otherwise disposed of unless registered pursuant to the provisions of that Act or an opinion of counsel to the Company is obtained stating that such disposition is in compliance with an available exemption from such registration." -12- 7. Loss, etc. of Warrant. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant, and of indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed, and upon surrender and cancellation of this Warrant if mutilated, the Company shall execute and deliver to the Holder a new Warrant of like date, tenor and denomination. 8. Warrant Holder Not Shareholder. Except as otherwise provided herein, this Warrant does not confer upon the Holder any right to vote or to consent to or receive notice as a shareholder of the Company, as such, in respect of any matters whatsoever, or any other rights or liabilities as a shareholder, prior to the exercise hereof. 9. Communication. No notice or other communication under this Warrant shall be effective unless the same is in writing and is mailed by first-class mail, postage prepaid, addressed to: (a) the Company at 111 West 40th Street, New York, NY 10018, attention: Chairman, or such other address as the Company has designated in writing to the Holder, or (b) the Holder at c/o Onyx Partners, Inc., 9595 Wilshire Blvd., Suite 700, Beverly Hills, CA 90212, attention: President, or such other address as the Holder has designated in writing to the Company. 10. Headings. The headings of this Warrant have been inserted as a matter of convenience and shall not affect the construction hereof. 11. Applicable Law. This Warrant shall be governed by and construed in accordance with the law of the State of New York without giving effect to the principles of conflict of laws thereof. -13- IN WITNESS WHEREOF, DANSKIN, INC., has caused this Warrant to be signed by a duly authorized officer as of this [30th day of September], 1997. DANSKIN, INC. By:___________________________________ Name: Title: -14- SUBSCRIPTION The undersigned, __________________________________________, pursuant to the provisions of the foregoing Warrant, hereby agrees to subscribe for the purchase of _________________________ shares of the Common Stock of DANSKIN, INC. covered by said Warrant, and makes payment therefor in full at the price per share provided by said Warrant. Dated __________________ Signature__________________________ Address____________________ -------------------- ASSIGNMENT FOR VALUE RECEIVED _________________________ hereby sells, assigns and transfers unto _________________________ the foregoing Warrant and all rights evidenced thereby, and does irrevocably constitute and appoint _________________________, attorney, to transfer said Warrant on the books of DANSKIN, INC. Dated __________________ Signature__________________________ Address____________________ -------------------- PARTIAL ASSIGNMENT FOR VALUE RECEIVED _________________________ hereby assigns and transfers unto _________________________ the right to purchase _________________________ shares of the Common Stock of DANSKIN, INC. by the foregoing Warrant, and a proportionate part of said Warrant and the rights evidenced hereby, and does irrevocably constitute and appoint _________________________, attorney, to transfer that part of said Warrant on the books of DANSKIN, INC. Dated __________________ Signature__________________________ Address____________________ -------------------- -15- EX-99.(F) 7 CERTIFICATE OF DESIGNATIONS OF SERIES C STOCK CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK OF DANSKIN, INC. DANSKIN, INC., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY THAT: A. Pursuant to authority conferred upon the Board of Directors by the Certificate of Incorporation of the Corporation (the "Certificate of Incorporation") and pursuant to the provisions of SECTION 151 of the Delaware General Corporation Law, the Board of Directors, pursuant to a meeting held September 18, 1997, adopted the following resolution providing for the designations, preferences and relative, participating, optional and other rights, and the qualifications, limitations and restrictions of the Series C Cumulative Convertible Preferred Stock. WHEREAS, the Certificate of Incorporation of the Corporation provides for two classes of shares known as common stock, $.01 par value per share (the "Common Stock"), and preferred stock, $.01 par value per share ("Preferred Stock"); and WHEREAS, the Board of Directors of the Corporation is authorized by the Certificate of Incorporation to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in such series and to fix the designations, preferences and rights of the shares of each such series and the qualifications, limitations and restrictions thereof. NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors deems it advisable to, and hereby does, designate a Series C Cumulative Convertible Preferred Stock and fixes and determines the rights, preferences, qualifications, limitations and restrictions relating to the Series C Cumulative Convertible Preferred Stock as follows: 1. Designation. The shares of such series of Preferred Stock shall be designated "Series C Cumulative Convertible Preferred Stock" (referred to herein as the "Series C Stock"). 2. Authorized Number. The number of shares constituting the Series C Stock shall be 100. 3. Ranking. The Corporation's Series C Stock shall rank, as to dividends and upon Liquidation (as defined in Section 5(a) hereof), senior and prior to the Corporation's Common Stock and to all other classes or series of stock issued by the Corporation, except as otherwise approved -1- by the affirmative vote or consent of the holders of shares of Series C Stock pursuant to Section 10(d) hereof. 4. Dividends. Commencing three (3) months after the issuance of the shares of the Series C Stock (the "Dividend Initiation Date"), dividends shall begin to accrue on such shares at an initial rate of 8% (i.e., 400.00) per share per annum. The holders of shares of Series C Stock shall be entitled to receive such dividends when and as declared by the Board of Directors of the Corporation, in cash, out of assets legally available for such purpose, semi-annually in arrears on the last day of June and December in each year following the Dividend Initiation Date. Dividends on the Series C Stock shall be cumulative so that if, for any dividend accrual period, cash dividends at the rate hereinabove specified are not declared and paid or set aside for payment, the amount of accrued but unpaid dividends shall accumulate with interest at the then applicable dividend rate per annum and shall be added to the dividends payable for subsequent dividend accrual periods and upon any redemption or conversion of shares of Series C Stock. If the shares of Series C Stock are issued on a date which does not coincide with a dividend payment date, then the initial dividend accrual period applicable to such shares shall be the period from the Dividend Initiation Date through whichever of June 30 or December 31 next occurs after the Dividend Initiation Date. If the date fixed for payment of a final liquidating distribution on any shares of Series C Stock, or the date on which any shares of Series C Stock are redeemed or converted into Common Stock does not coincide with a dividend payment date, then subject to the provisions hereof relating to such payment, redemption or conversion, the final dividend accrual period applicable to such shares shall be the period from whichever of July 1 or January 1 most recently precedes the date of such payment, conversion or redemption through the effective date of such payment, conversion or redemption. The rate at which dividends are paid shall be adjusted for any combinations or divisions or similar recapitalizations affecting the shares of Series C Stock. Without the written consent of the holders of at least 662/3% of the then outstanding Series C Stock, the Corporation shall not declare or pay any cash dividend on, or redeem or repurchase or make any other cash distribution in respect of any other equity securities of the Corporation unless at the time of such declaration, payment or distribution all dividends on the Series C Stock accrued for all past dividend accrual periods shall have been paid and the full dividends thereon for the current dividend period shall be paid or declared and set aside for payment. 5. Liquidation. (a) Liquidation Procedure. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the shares of Series C Stock shall be entitled, before any distribution or payment is made upon any Common Stock or any other class or series of stock ranking junior to the Series C Stock as to distribution of assets upon liquidation, to be paid an amount equal to the greater of (i) $5,000 per share (as adjusted for any combinations, divisions or similar recapitalizations affecting the shares of Series C Stock) (the "Series C Issue Price") plus all accrued and unpaid dividends to such date and (ii) the percentage of the assets of the Corporation equal to the percentage which the Common Stock of the Corporation issuable upon conversion of the Series C Stock -2- represents of all of the outstanding Common Stock (and the Common Stock issuable on conversion of the Series C Stock) of the Corporation at the time of the making of the Liquidation Payments plus all accrued and unpaid dividends to such date (the "Liquidation Payments"). If upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the assets to be distributed among the holders of Series C Stock shall be insufficient to permit payment in full to the holders of Series C Stock of the Liquidation Payments, then the entire assets of the Corporation shall be distributed ratably among such holders in proportion to the full respective distributive amounts to which they are entitled. (b) Remaining Assets. Upon any liquidation, dissolution or winding up of the Corporation, after the holders of Series C Stock shall have been paid in full the Liquidation Payments, the remaining assets of the Corporation may be distributed ratably per share in order of preference to the holders of Common Stock and any other class or series of stock ranking junior to the Series C Stock as to distribution of assets upon liquidation. (c) Notice of Liquidation. Written notice of a liquidation, dissolution or winding up, stating a payment date, the amount of the Liquidation Payments and the place where said Liquidation Payments shall be payable, shall be given by mail, postage prepaid, not less than 30 days prior to the payment date stated therein, to each holder of record of Series C Stock at his post office address as shown by the records of the Corporation. 6. Conversion/Exchange. The holders of the Series C Stock shall have the following conversion/exchange rights: (a) Mandatory Exchange. Upon the closing (the "Closing") of the repayment of all amounts due and owing to First Union National Bank of North Carolina (the "Bank") by the Company under the revolving credit portion of the Corporation's Amended and Restated Loan and Security Agreement with the Bank, as agent, dated approximately as of June 22, 1995, as the same has further been amended, the Series C Stock (together with $14,396,488.20 aggregate principal amount of the Promissory Note held by the holder of the Series C Stock) shall be automatically exchanged for (i) shares of fully paid and non-assessable Series D Cumulative Convertible Preferred Stock of the Corporation in the form of Exhibit C to that certain Securities Purchase Agreement dated as of September 22, 1997 between the Corporation and Danskin Investors, LLC (the "Purchase Agreement") equal to Twelve Million Dollars ($12,000,000) in stated value, (ii) a fully paid and non-assessable common stock purchase warrant in the form of Exhibit D to the Purchase Agreement (the "Warrant") and (iii) to the extent the authorized capital stock of the Corporation permits and the Registration Statement (as defined in the -3- Purchase Agreement) shall have been declared effective by the Securities and Exchange Commission, 7,988,294 shares of fully paid and non-assessable common stock of the Corporation in the Rights Offering (as defined in the Purchase Agreement), without further notice and without action on the part of the holder (or such lesser number of shares of common stock as are available for purchase by the holder); provided, however, that if the Closing shall not have occurred on or prior to March 31, 1998, the Series C Stock shall no longer be exchangeable as provided herein. The Corporation shall pay all issue taxes, if any, incurred in respect of the issue of the securities delivered as provided herein in exchange of the Series C Stock pursuant to this Section 6(a). (b) Optional Conversion. Subject to the limitations set forth below and to subsection (a) above, at any time on or after April 1, 1998, each share of Series C Stock shall be convertible (subject to there being sufficient available authorized shares of Common Stock into which to convert), at the option of the holder of record thereof, into fully paid and nonassessable shares of Common Stock at the "conversion rate" (as defined in paragraph (c) below) then in effect upon surrender to the Corporation or its transfer agent of the certificate or certificates representing the Series C Stock to be converted, as provided below, or if the holder notifies the Corporation or its transfer agent that such certificate or certificates have been lost, stolen or destroyed, upon the execution and delivery of an agreement satisfactory to the Corporation to indemnify the Corporation from any losses incurred by it in connection therewith. (c) Basis For Optional Conversion; Converted Shares. The basis for any conversion under this Section 6 shall be the "conversion rate" in effect at the time of conversion, which for the purposes hereof shall mean the number of shares of Common Stock issuable for each share of Series C Stock surrendered for conversion under this Section 6. Initially, the conversion rate shall be 16,666.66:1, i.e., 16,666.66 shares of Common Stock for each share of Series C Stock being converted. Such conversion rate shall be subject to adjustment as provided in Section 8 below. As used herein, the term "conversion price" shall be an amount computed by dividing the Series C Issue Price by the conversion rate then in effect. Initially, the conversion price shall be $.30 per share of Common Stock. If a holder of Series C Stock shall surrender more than one share of Series C Stock for conversion at any one time, the number of such shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Series C Stock so surrendered. If any fractional interest in a share of Common Stock would be deliverable upon conversion of Series C Stock, the Corporation shall pay in lieu of such fractional share an amount in cash equal to the conversion price of such fractional share (computed to the nearest one hundredth of a share) in effect at the close of business on the date of conversion. Any shares of Series C Stock which have been converted shall be cancelled and all dividends on converted shares shall cease to accrue and the certificates representing shares of Series C Stock so converted shall represent the right to receive (i) such number of shares of Common Stock into which such shares of Series C Stock are convertible, plus (ii) cash payable for any fractional share plus (iii) all accrued but unpaid dividends relating to such shares, together with interest thereon, payable in cash, through the immediately preceding dividend payment date. At its option, the holder of the Series C Stock may elect to receive dividend payments in additional shares of Common Stock at the -4- conversion rate. Upon the conversion of shares of Series C Stock as provided in this Section 6, the Corporation shall promptly pay all then accrued but unpaid dividends to the holder of the Series C Stock being converted. The Board of Directors of the Corporation shall at all times so long as any shares of Series C Stock remain outstanding reserve a sufficient number of authorized but unissued shares of Common Stock to be issued in satisfaction of the conversion rights and privileges aforesaid. (d) Mechanics of Conversion. In the case of an optional conversion, before any holder of Series C Stock shall be entitled to convert the same into shares of Common Stock, it shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or its transfer agent for the Series C Stock, and shall give written notice to the Corporation of the election to convert the same and shall state therein the name or names in which the certificate of certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series C Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. A certificate or certificates will be issued for the remaining shares of Series C Stock in any case in which fewer than all of the shares of Series C Stock represented by a certificate are converted. (e) Issue Taxes. The Corporation shall pay all issue taxes, if any, incurred in respect of the issue of securities on conversion. If a holder of shares surrendered for conversion specifies that the securities to be issued on conversion are to be issued in a name or names other than the name or names in which such surrendered shares stand, the Corporation shall not be required to pay any transfer or other taxes incurred by reason of the issuance of such securities to the name of another, and if the appropriate transfer taxes shall not have been paid to the Corporation or the transfer agent for the Series C Stock at the time of surrender of the shares involved, the securities issued upon conversion thereof may be registered in the name or names in which the surrendered shares were registered, despite the instructions to the contrary. (f) Valid Issuance. All securities which may be issued in connection with the conversion provisions set forth herein will, upon issuance by the Corporation, be validly issued, fully paid and nonassessable, free from preemptive rights and free from all taxes, liens or charges with respect thereto created or imposed by the Corporation. 7. Adjustment of Conversion Price and Conversion Rate. The number and kind of securities issuable upon the optional conversion of the Series C Stock, the conversion price and the conversion rate shall be subject to adjustment from time to time in accordance with the following provisions: -5- (a) Certain Definitions. For purposes of this Certificate: (i) The term "Additional Shares of Common Stock" shall mean all shares of Common Stock issued, or deemed to be issued by the Corporation pursuant to paragraph (g) of this Section 7, after the Original Issue Date except: (A) shares of Common Stock issuable upon conversion of, or distributions with respect to, the Series C Stock now or hereafter issued by the Corporation; (B) up to 790,000 shares of Common Stock issuable upon the exercise of options issued to officers, directors and employees of the Corporation under stock option plans maintained from time to time by the Corporation and approved by the Board of Directors (the "Employee Options"); (C) up to 3,291,797 shares of Common Stock issuable upon the exercise of options issued to Mary Ann Domuracki, Beverly Eichel and Nina McLemore (collectively, the "Management Options") in connection with the closing of the Purchase Agreement; (D) shares of Common Stock issuable upon exercise of the Warrant and the Warrant issued to Donald Schupak pursuant to the terms of the Purchase Agreement (the "Schupak Warrant"); and (E) up to 10,000,000 shares of Common Stock issuable pursuant to the Rights Offering contemplated by the terms of the Purchase Agreement. (ii) The term "Common Stock" shall mean (i) the Common Stock, $.01 par value, and (ii) the stock of the Corporation of any class, or series within a class, whether now or hereafter authorized, which has the right to participate in the distribution of either earnings or assets of the Corporation without limit as to the amount or percentage. (iii) The term "Convertible Securities" shall mean any evidence of indebtedness, shares (other than the Promissory Note issued pursuant to the Purchase Agreement, Series C Stock, Series D Stock, the Schupak Warrant and the Warrant) or other securities convertible into or exchangeable for Common Stock. (iv) The term "Options" shall mean rights, options or warrants (other than the Employee Options and the Management Options) to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities. -6- (v) The term "Original Issue Date" shall mean the date of the initial issuance of the Series C Stock. (b) Reorganization, Reclassification. In the event of a reorganization, share exchange, or reclassification, other than a change in par value, or from par value to no par value, or from no par value to par value or a transaction described in subsection (c) or (d) below, each share of Series C Stock shall, after such reorganization, share exchange or reclassification (a "Reclassification Event"), be convertible at the option of the holder into the kind and number of shares of stock or other securities or other property of the Corporation which the holder of Series C Stock would have been entitled to receive if the holder had held the Common Stock issuable upon conversion of his Series C Stock immediately prior to such reorganization, share exchange, or reclassification. (c) Consolidation, Merger. In the event of a merger or consolidation to which the Corporation is a party each share of Series C Stock shall, after such merger or consolidation, be convertible at the option of the holder into the kind and number of shares of stock and/or other securities, cash or other property which the holder of such share of Series C Stock would have been entitled to receive if the holder had held the Common Stock issuable upon conversion of such share of Series C Stock immediately prior to such consolidation or merger. (d) Subdivision or Combination of Shares. In case outstanding shares of Common Stock shall be subdivided, the conversion price shall be proportionately reduced as of the effective date of such subdivision, or as of the date a record is taken of the holders of Common Stock for the purpose of so subdividing, whichever is earlier. In case outstanding shares of Common Stock shall be combined, the conversion price shall be proportionately increased as of the effective date of such combination, or as of the date a record is taken of the holders of Common Stock for the purpose of so combining, whichever is earlier. (e) Stock Dividends. In case shares of Common Stock are issued as a dividend or other distribution on the Common Stock (or such dividend is declared), then the conversion price shall be adjusted, as of the date a record is taken of the holders of Common Stock for the purpose of receiving such dividend or other distribution (or if no such record is taken, as at the earliest of the date of such declaration, payment or other distribution), to that price determined by multiplying the conversion price in effect immediately prior to such declaration, payment or other distribution by a fraction (i) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the declaration or payment of such dividend or other distribution, and (ii) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after the declaration or payment of such dividend or other distribution. In the event that the Corporation shall declare or pay any dividend on the Common Stock payable in any right to acquire Common Stock for no consideration, then the Corporation shall be deemed to have made a dividend -7- payable in Common Stock in an amount of shares equal to the maximum number of shares issuable upon exercise of such rights to acquire Common Stock. (f) Issuance of Additional Shares of Common Stock. If the Corporation shall issue any Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to paragraph (g) below) after the Original Issue Date (other than as provided in the foregoing subsections (b) through (e)), for no consideration or for a consideration per share less than the conversion price in effect on the date of and immediately prior to such issue, then in such event, the conversion price shall be reduced, concurrently with such issue, to a price equal to the quotient obtained by dividing: (A) an amount equal to (x) the total number of shares of Common Stock outstanding immediately prior to such issuance or sale multiplied by the conversion price in effect immediately prior to such issuance or sale, plus (y) the aggregate consideration received or deemed to be received by the Corporation upon such issuance or sale, by (B) the total number of shares of Common Stock outstanding immediately after such issuance or sale. For purposes of the formulas expressed in paragraph 7(e) and 7(f), all shares of Common Stock issuable upon the exercise of outstanding Options or issuable upon the conversion of the Series C Stock or outstanding Convertible Securities (including Convertible Securities issued upon the exercise of outstanding Options), shall be deemed outstanding shares of Common Stock both immediately before and after such issuance or sale. (g) Deemed Issue of Additional Shares of Common Stock. In the event the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities then entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein designed to protect against dilution) of Common Stock issuable upon the exercise of such Options, or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue of Options or Convertible Securities or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that in any such case in which Additional Shares of Common Stock are deemed to be issued: (i) no further adjustments in the conversion price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or the issue of Common Stock upon the conversion or exchange of such Convertible Securities; -8- (ii) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Corporation, or increase or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the conversion price computed upon the original issuance of such Options or Convertible Securities (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, upon any such increase or decrease becoming effective, shall be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities (provided, however, that no such adjustment of the conversion price shall affect Common Stock previously issued upon conversion of the Series C Stock); (iii) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the conversion price computed upon the original issue of such Options or Convertible Securities (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if: (A) in the case of Options or Convertible Securities, the only Additional Shares of Common Stock issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Corporation (x) for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon exercise of the Options or (y) for the issue of all such Convertible Securities which were actually converted or exchanged plus the additional consideration, if any, actually received by the Corporation upon the conversion or exchange of the Convertible Securities; and (B) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation upon the issue of the Convertible Securities with respect to which such Options were actually exercised. (iv) No readjustment pursuant to clause (ii) or (iii) above shall have the effect of increasing the conversion price to an amount which exceeds the lower of (x) -9- the conversion price on the original adjustment date or (y) the conversion price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date. (v) In the case of any Options which expire by their terms not more than 30 days after the date of issue thereof, no adjustment of the conversion price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the same manner provided in clause (iii) above. (h) Determination of Consideration. For purposes of this Section 7, the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: (i) Cash and Property. Such consideration shall: (A) insofar as it consists of cash, be the aggregate amount of cash received by the Corporation; and (B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of the issue, as determined by the vote of a majority of the Corporation's Board of Directors or if the Board of Directors cannot reach such agreement, by a qualified independent public accounting firm, other than the accounting firm then engaged as the Corporation's independent auditors. (ii) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to paragraph (g) above, relating to Options and Convertible Securities shall be determined by dividing: (A) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against dilution) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by (B) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against dilution) issuable upon the -10- exercise of such Options or conversion or exchange of such Convertible Securities. (i) Adjustment of Conversion Rate. Upon each adjustment of the conversion price under the provisions of this Section 7, the conversion rate shall be adjusted to an amount determined by dividing (x) the conversion price in effect immediately prior to the event causing such adjustment by (y) such adjusted conversion price. (j) Other Provisions Applicable to Adjustment Under this Section. The following provisions will be applicable to the adjustments in conversion price and conversion rate as provided in this Section 7: (i) Treasury Shares. The number of shares of Common Stock at any time outstanding shall not include any shares thereof then directly or indirectly owned or held by or for the account of the Corporation. (ii) Other Action Affecting Common Stock. In case the Corporation shall take any action affecting the outstanding number of shares of Common Stock other than an action described in any of the foregoing subsections 7(b) to 7(g) hereof, inclusive, which would have an inequitable effect on the holders of Series C Stock, the conversion price shall be adjusted in such manner and at such time as the Board of Directors of the Corporation on the advice of the Corporation's independent public accountants may in good faith determine to be equitable in the circumstances. (iii) Minimum Adjustment. No adjustment of the conversion price shall be made if the amount of any such adjustment would be an amount less than one percent (1%) of the conversion price then in effect, but any such amount shall be carried forward and an adjustment in respect thereof shall be made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate an increase or decrease of one percent (1%) or more. (iv) Certain Adjustments. The conversion price shall not be adjusted upward except in the event of a combination of the outstanding shares of Common Stock into a smaller number of shares of Common Stock or in the event of a readjustment of the conversion price pursuant to Section 7(g)(ii) or (iii). (k) Notices of Adjustments. Whenever the conversion rate and conversion price is adjusted as herein provided, an officer of the Corporation shall compute the adjusted conversion rate and conversion price in accordance with the foregoing provisions and shall prepare a written certificate setting forth such adjusted conversion rate and conversion price and showing in detail the facts upon which such adjustment is based, and such written instrument shall promptly be delivered to the recordholders of the Series C Stock. -11- 8. Redemption. (a) Redemption by the Corporation. The Corporation shall have no rights to redeem the Series C Stock or to cause the sale by the holders of such Series C Stock. (b) Redemption on Maturity. Upon the seventh (7th) anniversary of the Original Issue Date, any Series C Stock then outstanding shall be redeemed by the Corporation at the Redemption Price per share defined in paragraph (c) below, payable in cash on the date of redemption (such date being referred to herein as the "Redemption Date") without further notice and without action on the part of the holder. (c) Redemption Price. The Redemption Price per share of Series C Stock shall equal the sum of (x) 100% of the Series C Issue Price plus (y) all accrued and unpaid dividends on such share of Series C Stock to the Redemption Date. (d) Redemption Procedure. On or prior to the Redemption Date, the Corporation shall deposit the Redemption Price of all outstanding shares of Series C Stock to be redeemed with a bank or trust corporation having aggregate capital and surplus in excess of $100,000,000 as a trust fund for the benefit of the holders of the shares of Series C Stock, with irrevocable instructions and authority to the bank or trust corporation to pay the Redemption Price for such shares to their respective holders on or after the Redemption Date upon receipt of the certificate or certificates of the shares of Series C Stock to be redeemed. From and after the Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of shares of Series C Stock as holders of Series C Stock (except the right to receive the Redemption Price upon surrender of their certificate or certificates) shall cease as to those shares of Series C Stock redeemed, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever. If on the Redemption Date the funds of the Corporation legally available for redemption of shares of Series C Stock are insufficient to redeem the total number of shares of Series C Stock to be redeemed on such date, the Corporation will use those funds which are legally available therefor to redeem the maximum possible number of shares of Series C Stock ratably among the holders of such shares to be redeemed based upon their holdings of Series C Stock. Payments shall first be applied against accrued and unpaid dividends and thereafter against the remainder of the Redemption Price. The shares of Series C Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the Corporation are legally available for the redemption of shares of Series C Stock such funds will immediately be used to redeem the balance of the shares of Series C Stock to be redeemed. No dividends or other distributions shall be declared or paid on, nor shall the Corporation redeem, purchase or acquire any shares of, the Common Stock or any other class or series of stock of the Corporation unless the Redemption Price of all shares elected to be redeemed shall have been paid in full. Until the Redemption Price for a share of Series C Stock elected to be redeemed shall have been paid in full, such share of -12- Series C Stock shall remain outstanding for all purposes and entitle the holder thereof to all the rights and privileges provided herein, including, without limitation, that dividends and interest thereon shall continue to accrue and, if unpaid prior to the date such shares are redeemed, shall be included as part of the Redemption Price as provided in paragraph (c) above. 9. Notices of Record Dates and Effective Dates. In case: (a) the Corporation shall declare a dividend (or any other distribution) on the Common Stock payable otherwise than in shares of Common Stock; or (b) the Corporation shall authorize the granting to the holders of Common Stock of rights to subscribe for or purchase any shares of capital stock of any class or any other rights; or (c) of any reorganization, share exchange or reclassification of the capital stock of the Corporation (other than a subdivision or combination of outstanding shares of Common Stock), or of any consolidation or merger to which the Corporation is party or of the sale, lease or exchange of all or substantially all of the property of the Corporation; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Corporation; then the Corporation shall cause to be mailed to the recordholders of the Series C Stock at least 20 days prior to the applicable record date or effective date hereinafter specified, a notice stating (i) the date on which a record is to be taken for the purpose of such dividend, distribution or rights, or, if a record is not to be taken, the date as of which the holders of record of Common Stock to be entitled to such dividend, distribution or rights are to be determined or (ii) the date on which such reclassification, reorganization, share exchange, consolidation, merger, sale, lease, exchange, dissolution, liquidation or winding up is expected to become effective or be consummated, and the date as of which it is expected that holders of record of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, reorganization share exchange, consolidation, liquidation, merger, sale, lease, exchange, dissolution, liquidation or winding up. 10. Voting Rights. (a) General. In addition to the rights otherwise provided for herein or by law, holders of the Series C Stock shall be entitled to vote, together with the holders of the Common Stock and any other class or series of stock then entitled to vote, as one class on all matters submitted to a vote of stockholders of the Corporation, in the same manner and with the same effect as the holders of the Common Stock. In any such vote, and in any vote or action of the holders of the Series C Stock voting together as a separate class, each share of issued and outstanding Series C Stock shall entitle the holder thereof to one vote per share for each share of Common Stock (including fractional shares) which would be obtained upon conversion of all of the outstanding shares of the Series C Stock held by such holder, rounded up to the nearest one-tenth of a share. (b) Election of Board of Directors. (i) In addition to the rights specified in Section 10(a), the holders of a majority in voting power of the Series C Stock, voting together as a separate class or -13- in such other manner as the holders of the Series C Stock shall agree among themselves shall have the exclusive right to elect to the Board of Directors of the Corporation that number of directors which shall be equal to one director less than a majority of the total number of directors constituting the whole Board of Directors at any given time (the "Preferred Directors"). In any election of Preferred Directors pursuant to this Section 10(b), each share of issued and outstanding Series C Stock shall entitle the holder thereof to the number of votes per share that equals the number of shares of Common Stock (including fractional shares) into which each such share is then convertible, rounded up to the nearest one-tenth of a share. The voting rights of the holders of Series C Stock contained in this Section 10(b) may be exercised at a special meeting of the holders of Series C Stock called as provided in accordance with the By-laws of the Corporation, at any annual or special meeting of the stockholders of the Corporation, or by written consent of the holders of Series C Stock in lieu of a meeting. The Preferred Directors elected pursuant to this Section 10(b) shall serve from the date of their election and qualification until their successors have been duly elected and qualified. (ii) A vacancy in the directorships to be elected pursuant to Section 10(b)(i) (including any vacancy created on account of an increase in the number of directors on the Board of Directors) may be filled only by vote of the holders of Series C Stock at a meeting called in accordance with the By-laws of the Corporation or written consent in lieu of a meeting in accordance with Section 10(b)(i). (iii) No director elected by the holders of Series C Stock as a class, or elected by other directors to fill a vacancy resulting from the death, resignation or removal of a director elected by such class vote, may be removed from office by the vote or written consent of stockholders unless such vote or written consent includes that of the holders of a majority of the outstanding shares of Series C Stock. (c) Protective Provisions. In addition to any other vote or consent of stockholders provided by law or by the Corporation's Certificate of Incorporation, the Corporation shall not, without the approval by vote or written consent of the holders of not less than 662/3% of the then outstanding shares of Series C Stock: (i) amend, waive or repeal any provisions of, or add any provision to, (i) this Certificate of Designation or (ii) any provision of the Corporation's Certificate of Incorporation or any other certificate of designation filed with the Secretary of State of Delaware by the Corporation with respect to its preferred stock; (ii) amend, waive or repeal any provisions of, or add any provision to, the Corporation's By-Laws; -14- (iii) enter into any agreement, indenture or other instrument which contains any provisions restricting the Corporation's obligation to pay dividends on, make liquidation payments in respect of, or make redemptions of the Series C Stock in accordance herewith; or (iv) dissolve the Corporation. (d) Amendment of Series C Stock. Notwithstanding anything else contained herein, the affirmative vote or written consent of the holders of 75% of the outstanding shares of Series C Stock shall be necessary to amend, alter or repeal any of the provisions of the Certificate of Designation creating this Series C Stock which would alter or change (i) the dividend rate, (ii) redemption provisions, (iii) anti-dilution provisions, (iv) the place or currency of payments hereunder, (v) the right to institute suit for the enforcement of any payment hereunder, (vi) the conversion provisions,(vii) the voting rights, or (viii) provisions of this Section 10, so as to affect any of the foregoing adversely. 11. Shares to be Retired. All shares of the Series C Stock redeemed, converted, exchanged or purchased by the Corporation shall be retired and canceled and shall be restored to the status of authorized but unissued shares of Preferred Stock, without designation as to series and may thereafter be reissued. ***** -15- IN WITNESS WHEREOF, the undersigned has executed this Certificate this 22nd day of September, 1997. DANSKIN, INC. By: ____________________________ Name: Title: EX-99.(G) 8 CERTIFICATE OF DESIGNATIONS OF SERIES D STOCK CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES D CUMULATIVE CONVERTIBLE PREFERRED STOCK OF DANSKIN, INC. DANSKIN, INC., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY THAT: A. Pursuant to authority conferred upon the Board of Directors by the Certificate of Incorporation of the Corporation (the "Certificate of Incorporation") and pursuant to the provisions of SECTION 151 of the Delaware General Corporation Law, the Board of Directors, pursuant to a meeting held September 18, 1997, adopted the following resolution providing for the designations, preferences and relative, participating, optional and other rights, and the qualifications, limitations and restrictions of the Series D Cumulative Convertible Preferred Stock. WHEREAS, the Certificate of Incorporation of the Corporation provides for two classes of shares known as common stock, $.01 par value per share (the "Common Stock"), and preferred stock, $.01 par value per share ("Preferred Stock"); and WHEREAS, the Board of Directors of the Corporation is authorized by the Certificate of Incorporation to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in such series and to fix the designations, preferences and rights of the shares of each such series and the qualifications, limitations and restrictions thereof. NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors deems it advisable to, and hereby does, designate a Series D Cumulative Convertible Preferred Stock and fixes and determines the rights, preferences, qualifications, limitations and restrictions relating to the Series D Cumulative Convertible Preferred Stock as follows: 1. Designation. The shares of such series of Preferred Stock shall be designated "Series D Cumulative Convertible Preferred Stock" (referred to herein as the "Series D Stock"). 2. Authorized Number. The number of shares constituting the Series D Stock shall be 2,400. 3. Ranking. The Corporation's Series D Stock shall rank, as to dividends and upon Liquidation (as defined in Section 5(a) hereof), senior and prior to the Corporation's Common Stock and to all other classes or series of stock issued by the Corporation, except as otherwise approved by the affirmative vote or consent of the holders of shares of Series D Stock pursuant to Section 10(d) hereof. 4. Dividends. (a) Dividend Accrual and Payment. From and after the issuance of the Series D Stock (the "Original Issue Date"), dividends shall accrue on the shares of Series D Stock at the rate of 8% (i.e., $400) per share per annum. The holders of shares of Series D Stock shall be entitled to receive such dividends when and as declared by the Board of Directors of the Corporation, in cash, out of assets legally available for such purpose, semi-annually in arrears on the last day of March and September in each year following the Original Issue Date; provided, however, that dividends on the Series D Stock shall accrue but are not required to be paid during the period ending December 31, 1999. Dividends on the Series D Stock shall be cumulative so that if, for any dividend accrual period, cash dividends at the rate hereinabove specified are not declared and paid or set aside for payment, the amount of accrued but unpaid dividends shall accumulate with interest at the then applicable dividend rate per annum and shall be added to the dividends payable for subsequent dividend accrual periods and upon any redemption or conversion of shares of Series D Stock, subject to the dividend forgiveness provisions set forth in paragraph (b) below. If the shares of Series D Stock are issued on a date which does not coincide with a dividend payment date, then the initial dividend accrual period applicable to such shares shall be the period from the Original Issue Date through whichever of March 31 or September 30 next occurs after the Original Issue Date. If the date fixed for payment of a final liquidating distribution on any shares of Series D Stock, or the date on which any shares of Series D Stock are redeemed or converted into Common Stock does not coincide with a dividend payment date, then subject to the provisions hereof relating to such payment, redemption or conversion, the final dividend accrual period applicable to such shares shall be the period from whichever of April 1 or October 1 most recently precedes the date of such payment, conversion or redemption through the effective date of such payment, conversion or redemption. The rate at which dividends are paid shall be adjusted for any combinations or divisions or similar recapitalizations affecting the shares of Series D Stock. Without the written consent of the holders of at least 662/3% of the then outstanding Series D Stock, the Corporation shall not declare or pay any cash dividend on, or redeem or repurchase or make any other cash distribution in respect of any other equity securities of the Corporation unless at the time of such declaration, payment or distribution all dividends on the Series D Stock accrued for all past dividend accrual periods shall have been paid and the full dividends thereon for the current dividend period shall be paid or declared and set aside for payment. (b) Dividend Forgiveness. Notwithstanding the foregoing, in the event that the Corporation achieves the Financial Targets (as defined below) for any of the 1999, 2000, 2001 or 2002 fiscal years, then all dividends accrued but unpaid in respect of such fiscal year (or in the case of the fiscal year ending 1999, all preceding fiscal years), together with any interest thereon, shall be forgiven and the Corporation shall have no further obligations with -2- respect thereto. For the avoidance of doubt, if the Financial Targets are not achieved in any year, then dividends accrued for all preceding fiscal years shall be due and payable notwithstanding that the Financial Targets may have been met for a succeeding fiscal year. "Financial Targets" means, with respect to each of the 1999, 2000, 2001 and 2002 fiscal years of the Corporation, the Annual Gross Profit Target (the "Gross Profit Target") of the Danskin division of the Corporation ("Danskin Division") and the Annual Earnings before Interest and Taxes Target (the "EBIT Target") for the Corporation for such fiscal year as set forth in the charts below. The achievement by the Danskin Division of the Gross Profit Target and the Corporation's achievement of the EBIT Target shall be measured by reference to the corresponding line items on the certified financial statements of the Corporation (or of the Danskin Division if it has separate certified financial statements) for the relevant fiscal year. Annual Gross Profit Target of the Danskin Division: Target Fiscal Year (in millions of dollars) 1999............................................44.3 2000............................................51.7 2001............................................56.8 2002............................................62.0 Annual Earnings before Interest and Taxes Target of the Corporation: Target Fiscal Year (in millions of dollars) 1999.............................................5.7 2000............................................10.2 2001............................................15.0 2002............................................19.0 5. Liquidation. (a) Liquidation Procedure. Upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the shares of Series D Stock shall be entitled, before any distribution or payment is made upon any Common Stock or any other class or series of stock ranking junior to the Series D Stock as to distribution of assets upon liquidation, to be paid an amount equal to the greater of (i) $5,000 per share (as adjusted for any combinations, divisions or similar recapitalizations affecting the shares of Series D Stock) (the "Series D Issue Price") plus all accrued and unpaid dividends to such -3- date and (ii) the percentage of the assets of the Corporation equal to the percentage which the Common Stock of the Corporation issuable upon conversion of the Series D Stock represents of all of the outstanding Common Stock (and the Common Stock issuable on conversion of the Series D Stock) of the Corporation at the time of the making of the Liquidation Payments plus all accrued and unpaid dividends to such date (the "Liquidation Payments"). If upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the assets to be distributed among the holders of Series D Stock shall be insufficient to permit payment in full to the holders of Series D Stock of the Liquidation Payments, then the entire assets of the Corporation shall be distributed ratably among such holders in proportion to the full respective distributive amounts to which they are entitled. (b) Remaining Assets. Upon any liquidation, dissolution or winding up of the Corporation, after the holders of Series D Stock shall have been paid in full the Liquidation Payments, the remaining assets of the Corporation may be distributed ratably per share in order of preference to the holders of Common Stock and any other class or series of stock ranking junior to the Series D Stock as to distribution of assets upon liquidation. (c) Notice of Liquidation. Written notice of a liquidation, dissolution or winding up, stating a payment date, the amount of the Liquidation Payments and the place where said Liquidation Payments shall be payable, shall be given by mail, postage prepaid, not less than 30 days prior to the payment date stated therein, to each holder of record of Series D Stock at his post office address as shown by the records of the Corporation. 6. Conversion. The holders of the Series D Stock shall have the following conversion rights: (a) Mandatory Conversion. Subject to the Corporation having received the Stockholder Related Approvals (as defined below), upon the Corporation's delivery to the holders of the Series D Stock of annual financial statements of the Corporation prepared by the Corporation's independent certified public accountants in accordance with GAAP evidencing the achievement of the Financial Targets by the Corporation and the Danskin Division for the immediately prior fiscal year, any Series D Stock remaining outstanding shall be automatically converted into fully-paid and nonassessable shares of Common Stock at the "conversion rate" (as defined in paragraph (c) below) then in effect without further notice and without action on the part of the holder. (b) Optional Conversion. Subject to the limitations set forth below and to subsection (a) above, each share of Series D Stock shall be convertible at any time (subject to there being sufficient available authorized shares of Common Stock into which to convert), at the option of the holder of record thereof, into fully paid and nonassessable shares of Common Stock at the "conversion rate" (as defined in paragraph (c) below) then -4- in effect upon surrender to the Corporation or its transfer agent of the certificate or certificates representing the Series D Stock to be converted, as provided below, or if the holder notifies the Corporation or its transfer agent that such certificate or certificates have been lost, stolen or destroyed, upon the execution and delivery of an agreement satisfactory to the Corporation to indemnify the Corporation from any losses incurred by it in connection therewith. (c) Basis For Conversion; Converted Shares. The basis for any conversion under this Section 6 shall be the "conversion rate" in effect at the time of conversion, which for the purposes hereof shall mean the number of shares of Common Stock issuable for each share of Series D Stock surrendered for conversion under this Section 6. Initially, the conversion rate shall be 16,666.66:1, i.e., 16,666.66 shares of Common Stock for each share of Series D Stock being converted. Such conversion rate shall be subject to adjustment as provided in Section 8 below. As used herein, the term "conversion price" shall be an amount computed by dividing the Series D Issue Price by the conversion rate then in effect. Initially, the conversion price shall be $.30 per share of Common Stock. If a holder of Series D Stock shall surrender more than one share of Series D Stock for conversion at any one time, the number of such shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Series D Stock so surrendered. If any fractional interest in a share of Common Stock would be deliverable upon conversion of Series D Stock, the Corporation shall pay in lieu of such fractional share an amount in cash equal to the conversion price of such fractional share (computed to the nearest one hundredth of a share) in effect at the close of business on the date of conversion. Any shares of Series D Stock which have been converted shall be cancelled and all dividends on converted shares shall cease to accrue and the certificates representing shares of Series D Stock so converted shall represent the right to receive (i) such number of shares of Common Stock into which such shares of Series D Stock are convertible, plus (ii) cash payable for any fractional share, plus (iii) subject to the dividend forgiveness provisions set forth in Section 4(b) hereof, all accrued but unpaid dividends relating to such shares, together with interest thereon, payable in cash, through the immediately preceding dividend payment date. At its option, the holder of the Series D Stock may elect to receive dividend payments in additional shares of Common Stock at the conversion rate. Upon the conversion of shares of Series D Stock as provided in this Section 6, the Corporation shall promptly pay all then accrued but unpaid dividends to the holder of the Series D Stock being converted. The Board of Directors of the Corporation shall at all times so long as any shares of Series D Stock remain outstanding (and after the Stockholder Related Approvals have been obtained) reserve a sufficient number of authorized but unissued shares of Common Stock to be issued in satisfaction of the conversion rights and privileges aforesaid. The Corporation shall use its best efforts to promptly obtain the "Stockholder Related Approvals." "Stockholder Related Approvals" means all consents and approvals of the holders of the Corporation's capital stock and clearances of any information statement or proxy by the Securities and Exchange Commission which may be necessary to amend the Corporation's Certificate of Incorporation in order to (i) eliminate the provisions of the -5- Certificate of Incorporation providing for a classified Board of Directors and (ii) increase the Corporation's authorized Common Stock by an amount sufficient to permit the Corporation to issue the number of duly authorized, fully-paid and nonassessable shares of Common Stock which would be required upon the conversion of all of the authorized shares of Series D Stock in accordance with this certificate or otherwise approve the acquisition of such shares of Common Stock and any substantially contemporaneous offering of shares of the Corporation's Common Stock. (d) Mechanics of Conversion. In the case of an optional conversion, before any holder of Series D Stock shall be entitled to convert the same into shares of Common Stock, it shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or its transfer agent for the Series D Stock, and shall give written notice to the Corporation of the election to convert the same and shall state therein the name or names in which the certificate of certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series D Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. A certificate or certificates will be issued for the remaining shares of Series D Stock in any case in which fewer than all of the shares of Series D Stock represented by a certificate are converted. (e) Issue Taxes. The Corporation shall pay all issue taxes, if any, incurred in respect of the issue of shares of Common Stock on conversion. If a holder of shares surrendered for conversion specifies that the shares of Common Stock to be issued on conversion are to be issued in a name or names other than the name or names in which such surrendered shares stand, the Corporation shall not be required to pay any transfer or other taxes incurred by reason of the issuance of such shares of Common Stock to the name of another, and if the appropriate transfer taxes shall not have been paid to the Corporation or the transfer agent for the Series D Stock at the time of surrender of the shares involved, the shares of Common Stock issued upon conversion thereof may be registered in the name or names in which the surrendered shares were registered, despite the instructions to the contrary. (f) Valid Issuance. All shares of Common Stock which may be issued in connection with the conversion provisions set forth herein will, upon issuance by the Corporation, be validly issued, fully paid and nonassessable, free from preemptive rights and free from all taxes, liens or charges with respect thereto created or imposed by the Corporation. 7. Adjustment of Conversion Price and Conversion Rate. The number and kind of securities issuable upon the conversion of the Series D Stock, the conversion price and the conversion rate shall be subject to adjustment from time to time in accordance with the following provisions: -6- (a) Certain Definitions. For purposes of this Certificate: (i) The term "Additional Shares of Common Stock" shall mean all shares of Common Stock issued, or deemed to be issued by the Corporation pursuant to paragraph (g) of this Section 7, after the Original Issue Date except: (A) shares of Common Stock issuable upon conversion of, or distributions with respect to, the Series D Stock now or hereafter issued by the Corporation; (B) up to 790,000 shares of Common Stock issuable upon the exercise of options issued to officers, directors and employees of the Corporation under stock option plans maintained from time to time by the Corporation and approved by the Board of Directors (the "Employee Options"); (C) up to 3,291,797 shares of Common Stock issuable upon the exercise of options issued to Mary Ann Domuracki, Beverly Eichel and Nina McLemore (collectively, the "Management Options") in connection with the closing of that certain Securities Purchase Agreement dated as of September 22, 1997 between the Corporation and Danskin Investors, LLC (the "Purchase Agreement"); (D) shares of Common Stock issuable upon exercise of that certain Warrant issued on the Original Issue Date pursuant to the Purchase Agreement (the "Warrant") and the Warrant issued to Donald Schupak pursuant to the terms of the Purchase Agreement (the "Schupak Warrant"); and (E) up to 10,000,000 shares of Common Stock issuable pursuant to the Rights Offering contemplated by the terms of the Purchase Agreement. (ii) The term "Common Stock" shall mean (i) the Common Stock, $.01 par value, and (ii) the stock of the Corporation of any class, or series within a class, whether now or hereafter authorized, which has the right to participate in the distribution of either earnings or assets of the Corporation without limit as to the amount or percentage. (iii) The term "Convertible Securities" shall mean any evidence of indebtedness, shares (other than the Promissory Note issued pursuant to the -7- Purchase Agreement, Series C Stock, Series D Stock, the Schupak Warrant and the Warrant) or other securities convertible into or exchangeable for Common Stock. (iv) The term "Options" shall mean rights, options or warrants (other than the Employee Options and the Management Options) to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities. (v) The term "Original Issue Date" shall mean the date of the initial issuance of the Series D Stock. (b) Reorganization, Reclassification. In the event of a reorganization, share exchange, or reclassification, other than a change in par value, or from par value to no par value, or from no par value to par value or a transaction described in subsection (c) or (d) below, each share of Series D Stock shall, after such reorganization, share exchange or reclassification (a "Reclassification Event"), be convertible at the option of the holder into the kind and number of shares of stock or other securities or other property of the Corporation which the holder of Series D Stock would have been entitled to receive if the holder had held the Common Stock issuable upon conversion of his Series D Stock immediately prior to such reorganization, share exchange, or reclassification. (c) Consolidation, Merger. In the event of a merger or consolidation to which the Corporation is a party each share of Series D Stock shall, after such merger or consolidation, be convertible at the option of the holder into the kind and number of shares of stock and/or other securities, cash or other property which the holder of such share of Series D Stock would have been entitled to receive if the holder had held the Common Stock issuable upon conversion of such share of Series D Stock immediately prior to such consolidation or merger. (d) Subdivision or Combination of Shares. In case outstanding shares of Common Stock shall be subdivided, the conversion price shall be proportionately reduced as of the effective date of such subdivision, or as of the date a record is taken of the holders of Common Stock for the purpose of so subdividing, whichever is earlier. In case outstanding shares of Common Stock shall be combined, the conversion price shall be proportionately increased as of the effective date of such combination, or as of the date a record is taken of the holders of Common Stock for the purpose of so combining, whichever is earlier. (e) Stock Dividends. In case shares of Common Stock are issued as a dividend or other distribution on the Common Stock (or such dividend is declared), then the conversion price shall be adjusted, as of the date a record is taken of the holders of Common Stock for the purpose of receiving such dividend or other distribution (or if no such record is taken, as at the earliest of the date of such declaration, payment or other distribution), to that price determined by multiplying the conversion price in effect immediately prior to -8- such declaration, payment or other distribution by a fraction (i) the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to the declaration or payment of such dividend or other distribution, and (ii) the denominator of which shall be the total number of shares of Common Stock outstanding immediately after the declaration or payment of such dividend or other distribution. In the event that the Corporation shall declare or pay any dividend on the Common Stock payable in any right to acquire Common Stock for no consideration, then the Corporation shall be deemed to have made a dividend payable in Common Stock in an amount of shares equal to the maximum number of shares issuable upon exercise of such rights to acquire Common Stock. (f) Issuance of Additional Shares of Common Stock. If the Corporation shall issue any Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to paragraph (g) below) after the Original Issue Date (other than as provided in the foregoing subsections (b) through (e)), for no consideration or for a consideration per share less than the conversion price in effect on the date of and immediately prior to such issue, then in such event, the conversion price shall be reduced, concurrently with such issue, to a price equal to the quotient obtained by dividing: (A) an amount equal to (x) the total number of shares of Common Stock outstanding immediately prior to such issuance or sale multiplied by the conversion price in effect immediately prior to such issuance or sale, plus (y) the aggregate consideration received or deemed to be received by the Corporation upon such issuance or sale, by (B) the total number of shares of Common Stock outstanding immediately after such issuance or sale. For purposes of the formulas expressed in paragraph 7(e) and 7(f), all shares of Common Stock issuable upon the exercise of outstanding Options or issuable upon the conversion of the Series D Stock or outstanding Convertible Securities (including Convertible Securities issued upon the exercise of outstanding Options), shall be deemed outstanding shares of Common Stock both immediately before and after such issuance or sale. (g) Deemed Issue of Additional Shares of Common Stock. In the event the Corporation at any time or from time to time after the Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities then entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein designed to protect against dilution) of Common Stock issuable upon the exercise of such Options, or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue of Options or Convertible Securities or, in case such a -9- record date shall have been fixed, as of the close of business on such record date, provided that in any such case in which Additional Shares of Common Stock are deemed to be issued: (i) no further adjustments in the conversion price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or the issue of Common Stock upon the conversion or exchange of such Convertible Securities; (ii) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Corporation, or increase or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the conversion price computed upon the original issuance of such Options or Convertible Securities (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, upon any such increase or decrease becoming effective, shall be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities (provided, however, that no such adjustment of the conversion price shall affect Common Stock previously issued upon conversion of the Series D Stock); (iii) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the conversion price computed upon the original issue of such Options or Convertible Securities (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if: (A) in the case of Options or Convertible Securities, the only Additional Shares of Common Stock issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Corporation (x) for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon exercise of the Options or (y) for the issue of all such Convertible Securities which were actually converted or exchanged plus the additional consideration, if any, actually received by the Corporation upon the conversion or exchange of the Convertible Securities; and (B) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received -10- by the Corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Corporation upon the issue of the Convertible Securities with respect to which such Options were actually exercised. (iv) No readjustment pursuant to clause (ii) or (iii) above shall have the effect of increasing the conversion price to an amount which exceeds the lower of (x) the conversion price on the original adjustment date or (y) the conversion price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date. (v) In the case of any Options which expire by their terms not more than 30 days after the date of issue thereof, no adjustment of the conversion price shall be made until the expiration or exercise of all such Options, whereupon such adjustment shall be made in the same manner provided in clause (iii) above. (h) Determination of Consideration. For purposes of this Section 7, the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: (i) Cash and Property. Such consideration shall: (A) insofar as it consists of cash, be the aggregate amount of cash received by the Corporation; and (B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of the issue, as determined by the vote of a majority of the Corporation's Board of Directors or if the Board of Directors cannot reach such agreement, by a qualified independent public accounting firm, other than the accounting firm then engaged as the Corporation's independent auditors. (ii) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to paragraph (g) above, relating to Options and Convertible Securities shall be determined by dividing: (A) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any -11- provision contained therein designed to protect against dilution) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by (B) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against dilution) issuable upon the exercise of such Options or conversion or exchange of such Convertible Securities. (i) Adjustment of Conversion Rate. Upon each adjustment of the conversion price under the provisions of this Section 7, the conversion rate shall be adjusted to an amount determined by dividing (x) the conversion price in effect immediately prior to the event causing such adjustment by (y) such adjusted conversion price. (j) Other Provisions Applicable to Adjustment Under this Section. The following provisions will be applicable to the adjustments in conversion price and conversion rate as provided in this Section 7: (i) Treasury Shares. The number of shares of Common Stock at any time outstanding shall not include any shares thereof then directly or indirectly owned or held by or for the account of the Corporation. (ii) Other Action Affecting Common Stock. In case the Corporation shall take any action affecting the outstanding number of shares of Common Stock other than an action described in any of the foregoing subsections 7(b) to 7(g) hereof, inclusive, which would have an inequitable effect on the holders of Series D Stock, the conversion price shall be adjusted in such manner and at such time as the Board of Directors of the Corporation on the advice of the Corporation's independent public accountants may in good faith determine to be equitable in the circumstances. (iii) Minimum Adjustment. No adjustment of the conversion price shall be made if the amount of any such adjustment would be an amount less than one percent (1%) of the conversion price then in effect, but any such amount shall be carried forward and an adjustment in respect thereof shall be made at the time of and together with any subsequent adjustment which, together with such amount and any other amount or amounts so carried forward, shall aggregate an increase or decrease of one percent (1%) or more. (iv) Certain Adjustments. The conversion price shall not be adjusted upward except in the event of a combination of the outstanding shares of Common -12- Stock into a smaller number of shares of Common Stock or in the event of a readjustment of the conversion price pursuant to Section 7(g)(ii) or (iii). (k) Notices of Adjustments. Whenever the conversion rate and conversion price is adjusted as herein provided, an officer of the Corporation shall compute the adjusted conversion rate and conversion price in accordance with the foregoing provisions and shall prepare a written certificate setting forth such adjusted conversion rate and conversion price and showing in detail the facts upon which such adjustment is based, and such written instrument shall promptly be delivered to the recordholders of the Series D Stock. 8. Redemption. (a) Redemption by the Corporation. The Corporation shall have no rights to redeem the Series D Stock or to cause the sale by the holders of such Series D Stock. (b) Redemption on Maturity. Upon the seventh (7th) anniversary of the Original Issue Date, any Series D Stock then outstanding shall be redeemed by the Corporation at the Redemption Price per share defined in paragraph (c) below, payable in cash on the date of redemption (such date being referred to herein as the "Redemption Date") without further notice and without action on the part of the holder. (c) Redemption Price. The Redemption Price per share of Series D Stock shall equal the sum of (x) 100% of the Series D Issue Price plus (y) all accrued and unpaid dividends on such share of Series D Stock to the Redemption Date. (d) Redemption Procedure. On or prior to the Redemption Date, the Corporation shall deposit the Redemption Price of all outstanding shares of Series D Stock to be redeemed with a bank or trust corporation having aggregate capital and surplus in excess of $100,000,000 as a trust fund for the benefit of the holders of the shares of Series D Stock, with irrevocable instructions and authority to the bank or trust corporation to pay the Redemption Price for such shares to their respective holders on or after the Redemption Date upon receipt of the certificate or certificates of the shares of Series D Stock to be redeemed. From and after the Redemption Date, unless there shall have been a default in payment of the Redemption Price, all rights of the holders of shares of Series D Stock as holders of Series D Stock (except the right to receive the Redemption Price upon surrender of their certificate or certificates) shall cease as to those shares of Series D Stock redeemed, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever. If on the Redemption Date the funds of the Corporation legally available for redemption of shares of Series D Stock are insufficient to redeem the total number of shares of Series D Stock to be redeemed on such date, the Corporation will use those funds which are legally available therefor to redeem the maximum possible number of shares of Series D Stock ratably among the holders of such shares to be redeemed based upon their holdings of Series D Stock. Payments shall first be -13- applied against accrued and unpaid dividends and thereafter against the remainder of the Redemption Price. The shares of Series D Stock not redeemed shall remain outstanding and entitled to all the rights and preferences provided herein. At any time thereafter when additional funds of the Corporation are legally available for the redemption of shares of Series D Stock such funds will immediately be used to redeem the balance of the shares of Series D Stock to be redeemed. No dividends or other distributions shall be declared or paid on, nor shall the Corporation redeem, purchase or acquire any shares of, the Common Stock or any other class or series of stock of the Corporation unless the Redemption Price of all shares elected to be redeemed shall have been paid in full. Until the Redemption Price for a share of Series D Stock elected to be redeemed shall have been paid in full, such share of Series D Stock shall remain outstanding for all purposes and entitle the holder thereof to all the rights and privileges provided herein, including, without limitation, that dividends and interest thereon shall continue to accrue and, if unpaid prior to the date such shares are redeemed, shall be included as part of the Redemption Price as provided in paragraph (c) above. 9. Notices of Record Dates and Effective Dates. In case: (a) the Corporation shall declare a dividend (or any other distribution) on the Common Stock payable otherwise than in shares of Common Stock; or (b) the Corporation shall authorize the granting to the holders of Common Stock of rights to subscribe for or purchase any shares of capital stock of any class or any other rights; or (c) of any reorganization, share exchange or reclassification of the capital stock of the Corporation (other than a subdivision or combination of outstanding shares of Common Stock), or of any consolidation or merger to which the Corporation is party or of the sale, lease or exchange of all or substantially all of the property of the Corporation; or (d) of the voluntary or involuntary dissolution, liquidation or winding up of the Corporation; then the Corporation shall cause to be mailed to the recordholders of the Series D Stock at least 20 days prior to the applicable record date or effective date hereinafter specified, a notice stating (i) the date on which a record is to be taken for the purpose of such dividend, distribution or rights, or, if a record is not to be taken, the date as of which the holders of record of Common Stock to be entitled to such dividend, distribution or rights are to be determined or (ii) the date on which such reclassification, reorganization, share exchange, consolidation, merger, sale, lease, exchange, dissolution, liquidation or winding up is expected to become effective or be consummated, and the date as of which it is expected that holders of record of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, reorganization share exchange, consolidation, liquidation, merger, sale, lease, exchange, dissolution, liquidation or winding up. 10. Voting Rights. (a) General. In addition to the rights otherwise provided for herein or by law, holders of the Series D Stock shall be entitled to vote, together with the holders of the Common Stock and any other class or series of stock then entitled to vote, as one class on all matters submitted to a vote of stockholders of the Corporation, in the same manner and -14- with the same effect as the holders of the Common Stock. In any such vote, and in any vote or action of the holders of the Series D Stock voting together as a separate class, each share of issued and outstanding Series D Stock shall entitle the holder thereof to one vote per share for each share of Common Stock (including fractional shares) which would be obtained upon conversion of all of the outstanding shares of the Series D Stock held by such holder, rounded up to the nearest one-tenth of a share. (b) Election of Board of Directors. (i) In addition to the rights specified in Section 10(a), and for so long as the outstanding shares of Series D Stock which have not been converted, redeemed or exchanged in accordance with the terms hereof shall constitute fifty percent (50%) or more of the shares of Series D Stock issued on the Original Issue Date, the holders of a majority in voting power of the Series D Stock, voting together as a separate class or in such other manner as the holders of the Series D Stock shall agree among themselves shall have the exclusive right to elect to the Board of Directors of the Corporation that number of directors which shall be equal to a majority of the total number of directors constituting the whole Board of Directors at any given time (the "Preferred Directors"). In any election of Preferred Directors pursuant to this Section 10(b), each share of issued and outstanding Series D Stock shall entitle the holder thereof to the number of votes per share that equals the number of shares of Common Stock (including fractional shares) into which each such share is then convertible, rounded up to the nearest one-tenth of a share. The voting rights of the holders of Series D Stock contained in this Section 10(b) may be exercised at a special meeting of the holders of Series D Stock called as provided in accordance with the By-laws of the Corporation, at any annual or special meeting of the stockholders of the Corporation, or by written consent of the holders of Series D Stock in lieu of a meeting. The Preferred Directors elected pursuant to this Section 10(b) shall serve from the date of their election and qualification until their successors have been duly elected and qualified. (ii) A vacancy in the directorships to be elected pursuant to Section 10(b)(i) (including any vacancy created on account of an increase in the number of directors on the Board of Directors) may be filled only by vote of the holders of Series D Stock at a meeting called in accordance with the By-laws of the Corporation or written consent in lieu of a meeting in accordance with Section 10(b)(i). (iii) No director elected by the holders of Series D Stock as a class, or elected by other directors to fill a vacancy resulting from the death, resignation or removal of a director elected by such class vote, may be removed from office by the vote or written consent of stockholders unless such vote or written consent includes that of the holders of a majority of the outstanding shares of Series D Stock. -15- (c) Protective Provisions. In addition to any other vote or consent of stockholders provided by law or by the Corporation's Certificate of Incorporation, the Corporation shall not, without the approval by vote or written consent of the holders of not less than 662/3% of the then outstanding shares of Series D Stock: (i) amend, waive or repeal any provisions of, or add any provision to, (i) this Certificate of Designation or (ii) any provision of the Corporation's Certificate of Incorporation or any other certificate of designation filed with the Secretary of State of Delaware by the Corporation with respect to its preferred stock; (ii) amend, waive or repeal any provisions of, or add any provision to, the Corporation's By-Laws; (iii) enter into any agreement, indenture or other instrument which contains any provisions restricting the Corporation's obligation to pay dividends on, make liquidation payments in respect of, or make redemptions of the Series D Stock in accordance herewith; or (iv) dissolve the Corporation. (d) Amendment of Series D Stock. Notwithstanding anything else contained herein, the affirmative vote or written consent of the holders of 75% of the outstanding shares of Series D Stock shall be necessary to amend, alter or repeal any of the provisions of the Certificate of Designation creating this Series D Stock which would alter or change (i) the dividend rate, (ii) redemption provisions, (iii) anti-dilution provisions, (iv) the place or currency of payments hereunder, (v) the right to institute suit for the enforcement of any payment hereunder, (vi) the conversion provisions,(vii) the voting rights, or (viii) provisions of this Section 10, so as to affect any of the foregoing adversely. 11. Shares to be Retired. All shares of the Series D Stock redeemed, converted, exchanged or purchased by the Corporation shall be retired and canceled and shall be restored to the status of authorized but unissued shares of Preferred Stock, without designation as to series and may thereafter be reissued. ***** -16- IN WITNESS WHEREOF, the undersigned has executed this Certificate this 22nd day of September, 1997. DANSKIN, INC. By: ____________________________ Name: Title: EX-99.H 9 PROMISSORY NOTE No. 1 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAW AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN REGISTERED OR QUALIFIED THEREUNDER OR AN EXEMPTION FROM SUCH REGISTRATION OR QUALIFICATION IS AVAILABLE. THE INDEBTEDNESS EVIDENCED BY THIS INSTRUMENT IS SUBORDINATED TO THE PRIOR PAYMENT IN FULL OF CERTAIN SENIOR DEBT (AS DEFINED IN THE SUBORDINATION AGREEMENT HEREINAFTER REFERRED TO) PURSUANT TO, AND TO THE EXTENT PROVIDED IN, THAT CERTAIN SUBORDINATION AGREEMENT DATED AS OF SEPTEMBER 22, 1997, AMONG FIRST UNION NATIONAL BANK OF NORTH CAROLINA, FIRST UNION COMMERCIAL CORPORATION, AS LENDERS (COLLECTIVELY, THE "LENDERS"), FIRST UNION NATIONAL BANK OF NORTH CAROLINA, AS AGENT (THE "AGENT"), DANSKIN, INC. AND DANSKIN INVESTORS, LLC. ANY HOLDER OF THIS INSTRUMENT SHALL BE DEEMED TO BE BOUND BY, AND SUBJECT TO, THE TERMS OF THE SUBORDINATION AGREEMENT. PROMISSORY NOTE $15,000,000 New York, New York September 22, 1997 FOR VALUE RECEIVED, DANSKIN, INC., a Delaware corporation (the "Company"), hereby promises to pay to Danskin Investors, LLC ("Payee"), 9595 Wilshire Blvd., Suite 700, Beverly Hills, CA 90212, the principal sum of Fifteen Million Dollars ($15,000,000), on the dates and in the amounts hereinafter set forth. This Promissory Note is issued by the Company with an initial aggregate principal amount of $15,000,000 pursuant to (a) the Securities Purchase Agreement, dated as of the date hereof, between the Company and the Payee (the "Purchase Agreement") and (b) the Loan and Security Agreement, dated as of the date hereof, between the Company and the Payee (the "Security Agreement"), and the Payee shall be entitled to all benefits thereof. The provisions of the Purchase Agreement and the Security Agreement are incorporated herein by reference. Capitalized terms used in this Promissory Note but not defined shall have the respective meanings ascribed to them in the Security Agreement. This Promissory Note is hereinafter referred to as this "Note." 1. Principal and Maturity Date. The principal amount of this Note shall be due and payable on March 31, 1998 (the "Maturity Date"), unless earlier exchanged for other securities of the Company as provided in Section 5 of this Note. 2. Interest. The outstanding principal amount of this Note shall bear interest beginning December 19, 1997, at the per annum rate as provided in Section 2 of the Security Agreement through the earlier of the date of repayment of this Note or exchange for other securities of the Company as provided in Section 5 of this Note. Interest shall be payable each month, in arrears, beginning on January 1, 1998, and on the first day of each calendar month thereafter and upon the date of repayment or exchange of this Note, if earlier. 3. Prepayment. This Note may not be prepaid, in whole or in part, without the prior written consent of the Payee as to such prepayment, which consent may be withheld in the discussion of Payee. All prepayments made on this Note shall be applied first to the payment of all fees under this Note, then unpaid interest accrued on this Note, and then to the outstanding and unpaid principal amount of this Note as of the date of prepayment. 4. General Payment Provisions. All payments or prepayments of principal and interest and other sums due pursuant to this Note shall be made by wire transfer to an account(s) designated in writing by the Payee. If the due date of any payment under this Note would otherwise fall on a day which is not a Business Day, such date will be extended to the immediately succeeding Business Day and interest shall be payable at the rate set forth herein for the period of the extension. The term "Business Day" shall mean any day on which commercial banks in the State of New York are not authorized or required to close. 5. Exchange of Securities. Upon the closing (the "Closing") of the repayment of all amounts due and owing to the Lenders by the Company under the revolving credit portion of the Company's Amended and Restated Loan and Security Agreement with the Lenders, dated as of June 22, 1995, as the same has further been amended, $14,396,488.20 aggregate principal amount of this Note (together with Five Hundred Thousand Dollars ($500,000) in stated value of Series C Cumulative Convertible Preferred Stock of the Company held by the Payee) shall be automatically exchanged for (i) shares of fully paid and non-assessable Series D Cumulative Convertible Preferred Stock of the Company in the form of Exhibit C to the Purchase Agreement equal to Twelve Million Dollars ($12,000,000) in stated value, (ii) a fully paid and non-assessable common stock purchase warrant in the form of Exhibit D to the Purchase Agreement and (iii) to the extent the authorized capital stock of the Company permits and the Registration Statement (as defined in the Purchase Agreement) shall have been declared effective by the Securities and Exchange Commission (the "Commission"), 7,988,294 shares of fully paid and non-assessable common stock of the Company in the Rights Offering at $.30 per share, without further notice and without action on the part of the Payee (or such lesser number of shares of common stock as are available for purchase by the Payee (provided, that no - 2 - shares shall be deemed available for purchase if the Registration Statement shall not have been declared effective by the Commission)); provided, however, that if for any reason the Closing shall not have occurred on or prior to March 31, 1998, the Notes shall no longer be exchangeable as provided herein. The remaining aggregate principal amount of this Note (assuming authorized capital stock of the Company is available to permit the purchase by the Payee for the full 7,988,294 shares of the Company's common stock and the Registration Statement shall have been declared effective by the Commission) shall be used to purchase Common Stock in the Rights Offering by paying the exercise price of Rights (as defined in the Purchase Agreement) not exercised by stockholders of the Company other than the Payee pursuant to the Rights Offering. The Company shall promptly remit to the Payee all monies representing the exercise of Rights by stockholders of the Company other than the Payee pursuant to the Rights Offering (as defined in the Purchase Agreement) and the remaining principal amount of this Note shall be repaid dollar for dollar as the Payee receives such monies from the Company. If the Closing occurs prior to the time that the Company has 7,988,294 shares of common stock available for purchase by the Payee and prior to the time the Registration Statement shall have been declared effective by the Commission, this Note shall remain outstanding in a principal amount equal to $3,000,000. Any remaining balance of this Note which remains outstanding after the Closing (subject to the amount which is available to purchase unexercised Rights) will be converted into Common Stock, upon the Company authorizing a sufficient amount of capital stock, in an amount equal to the quotient obtained by dividing (aa) the balance of this Note less the aggregate dollar amount to be paid by other stockholders, in the exercise of their Rights to purchase Common Stock in the Rights Offering by (bb) .30. The Company shall pay all issue taxes, if any, incurred in respect of the issue of the securities delivered on as provided herein exchange of this Note pursuant to this Section 5. 6. Security. This Note is secured by the Collateral as defined in, and provided under, the Security Agreement. 7. Subordination of Note. This Note is subject to the provisions of the Subordination Agreement, dated as of September 19, 1997, among the Agent, the Lender, the Company and the Payee. In the event of a conflict between the provisions of this Note and the provisions of the Subordination Agreement, the provisions of the Subordination Agreement shall control. 8. Events of Default/Maturity of Senior Debt. If the Senior Debt shall have become due at maturity or one or more of the following events (an "Event of Default") shall occur and be continuing: (a) the Company shall default in the payment when due of any principal of or interest under this Note and such default, in respect of the payment of interest, shall continue for ten (10) days; or - 3 - (b) any representation, warranty or certification made or deemed made by the Company in this Note, the Security Agreement or the Purchase Agreement shall prove to have been false or misleading as of the time made or furnished in any material respect; or (c) any default by the Company in the performance of any of its covenants or agreements in this Note, the Security Agreement or the Purchase Agreement, and such default shall continue unremedied for a period of 30 days after notice thereof to the Company by Payee; or (d) any indebtedness of the Company (i) for borrowed money in the aggregate in excess of $250,000 or (ii) constituting Senior Debt, shall become repayable prior to the due date for payment thereof by reason of default by the Company or shall not be repaid at maturity as extended by any applicable grace period therefor; or (e) an uninsured final judgment or judgments aggregating $250,000 or more shall have been entered by a court of competent jurisdiction against the Company and such judgment(s) shall remain unstayed or undischarged for three days or more; or (f) the Company shall admit in writing its inability to pay its debts as such debts generally become due; or (g) the Company shall (i) apply for or consent in writing to the appointment of, or the taking of possession by, a receiver, custodian, trustee or liquidator of itself or of all or a substantial part of its property, (ii) make a general assignment for the benefit of its creditors, (iii) commence a voluntary case under Title II of the United States Code (as now or hereafter in effect) (the "Bankruptcy Code"), (iv) file a petition seeking to take advantage of any other law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or readjustment of debts, (v) acquiesce in writing to any petition filed against it in an involuntary case under the Bankruptcy Code, or (vi) take any corporate action for the purpose of effecting any of the foregoing; or (h) a proceeding or case shall be commenced, without the application or consent of the Company in any court of competent jurisdiction, seeking (i) its liquidation, reorganization, dissolution or winding-up, or the composition or readjustment of its debts, (ii) the appointment of a trustee, receiver, custodian, liquidator or the like of such entity or of all or any substantial part of its assets, or (iii) similar relief in respect of such entity, under any law relating to bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment of debts, and such proceeding or case shall continue undismissed, or an order, judgment or decree approving or ordering any of the foregoing shall be entered and continue unstayed and in effect, for a period of at least 30 days; or an order for relief against any such entity shall be entered in an involuntary case under the Bankruptcy Code; - 4 - THEREUPON: if the Senior Debt (as defined in the Subordination Agreement) has been indefeasibly paid in full in cash as provided in the Subordination Agreement, the maturity thereof has been accelerated or the outstanding balance of the Senior Debt has come due at maturity or an Event of Default referred to in clause (d)(ii), (f), (g) or (h) above has occurred, (i) in the case of an Event of Default (other than an Event of Default referred to in clause (d)(ii), (f), (g) or (h) above), the Payee, by notice to the Company, may declare the principal amount then outstanding of, and the accrued interest on, this Note and all other amounts payable by the Company under this Note to be forthwith due and payable, whereupon such amount shall be immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Company; (ii) in the case of the occurrence of an Event of Default referred to in clause (d)(ii), (f), (g) or (h) above or the Senior Debt coming due at maturity, the principal amount then outstanding of, and the accrued interest on, this Note shall become automatically immediately due and payable without presentment, demand, protest or other formalities of any kind, all of which are hereby expressly waived by the Company, and in any case Payee may take such action as is permitted to enforce its rights hereunder; (iii) the Company shall pay all of the expenses of the Payee incurred for the collection of this Note and for the enforcement of its rights to obtain payment of this Note, including reasonable attorneys' fees and legal expenses; and (iv) the Payee may exercise from time to time any rights and remedies available to it by law, including those available under any agreement or other instrument relating to the amounts owed under this Note or any security therefor. No delay on the part of the Payee in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by the Payee of any right or remedy shall preclude other or further exercise thereof or the exercise of any other right or remedy. Notwithstanding Section 3 above, Payee may apply any funds received from the Company, in such manner and order of priority and against such payment obligations hereunder as Payee may determine. 9. Subrogation. Subject to the prior indefeasible payment in full in cash of the Senior Debt as provided in the Subordination Agreement, and until this Note is paid in full, the Payee shall be subrogated to the rights of the Senior Debt including the right to receive distributions applicable to the Senior Debt to the extent that distributions otherwise payable to the Payee have been applied to the Senior Debt. 10. Assignment. (a) Securities Laws. This Note has not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or under any state securities laws and unless so registered may not be transferred, sold, pledged, hypothecated or otherwise disposed of unless an exemption from such registration is available. In the event the Payee desires to transfer this Note, the Payee must give the Company prior written notice of such proposed transfer including the name and address of the proposed transferee. Such transfer may be made only either (i) upon publication by the Securities and Exchange Commission (the "Commission") of a ruling, interpretation, opinion or "no action letter" based upon facts presented to said Commission, or (ii) upon receipt by the Company of an opinion of counsel acceptable to the Company to the - 5 - effect that the proposed transfer will not violate the provisions of the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the rules and regulations promulgated under either such act, or to the effect that this Note has been registered under the Securities Act of 1933, as amended, and that there is in effect a current prospectus meeting the requirements of Subsection 10(a) of the Securities Act, which is being or will be delivered to the purchaser or transferee at or prior to the time of delivery of this Note to be sold or transferred. Notwithstanding anything else contained herein, Danskin Investors, LLC (x) may distribute this Note to its members at any time and (y) may not transfer, sell, pledge, hypothecate or otherwise dispose of this Note prior to March 31, 1998, except to its members or to The Oppenhiemer Bond Fund for Growth or any of their respective affiliates. (b) Transfer. Upon surrender of this Note to the Company with assignment documentation duly executed, and upon compliance with the foregoing provisions, the Company shall, without charge, execute and deliver a new Note in the name of the assignee named in such instrument of assignment, and this Note shall promptly be canceled. Any assignment, transfer, pledge, hypothecation or other disposition of this Note attempted contrary to the provisions of this Note, or any levy of execution, attachment or other process attempted upon the Note, shall be null and void and without effect. 11. Governing Law. This Note shall be construed in accordance with, and governed by, the laws of the State of New York as applied to contracts made and to be performed entirely in the State of New York without regard to principles of conflicts of law. Each of the parties hereto hereby irrevocably and unconditionally submits to the exclusive jurisdiction of any court of the State of New York or any federal court sitting in the State of New York for purposes of any suit, action or other proceeding arising out of this Note (and agrees not to commence any action, suit or proceedings relating hereto except in such courts). Each of the parties hereto agrees that service of any process, summons, notice or document by U.S. registered mail at its address set forth herein shall be effective service of process for any action, suit or proceeding brought against it in any such court. Each of the parties hereto hereby irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Note, which is brought by or against it, in the courts of the State of New York or any federal court sitting in the State of New York and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. 12. Adjustment of Interest Rate. No provision of this Note shall require the payment of interest to the extent that receipt of any such payment by the Company would be contrary to the provisions of law applicable to the Company limiting the maximum amount of interest that may be charged to or collected from the Company, and if any sum in excess of such maximum rate of interest is paid or charged, the excess will be deemed to have been a prepayment of principal of this Note when paid, without premium or penalty, and all payments made thereafter will be appropriately applied to interest and principal to give effect to such - 6 - maximum rate, and after such application any excess shall be immediately refunded to the Company. If the maximum rate of interest, if any, now permitted by law to be charged for this transaction is increased, then for so long as the increase is in effect, the applicable maximum rate permitted to be charged as referred to in the paragraph immediately preceding will be deemed to be such increased rate. If the maximum rate of interest, if any, now permitted by law to be charged for this transaction should be eliminated so that there would be no maximum rate, then interest on this Note shall thereafter be paid at the rate provided in this Note. 13. Waiver. The obligations of the Company under this Note are absolute and unconditional, and are not subject to any counterclaim, set-off, deduction or defense that the Company may have against the Payee. Time is of the essence of this Note. To the fullest extent permitted by applicable law, the Company, for itself and its legal representatives, successors and assigns, expressly waives presentment, demand, protest, notice of dishonor, notice of non-payment, notice of maturity, notice of protest, presentment for the purpose of accelerating maturity, diligence in collection, and the benefit of any exemption or insolvency laws. 14. Interpretation. Wherever possible each provision of this Note shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or remaining provisions of this Note. No delay or failure on the part of Payee in the exercise of any right or remedy hereunder shall operate as a waiver thereof, nor as an acquiescence in any default, nor shall any single or partial exercise by Payee of any right or remedy preclude any other right or remedy. Payee, at its option, may enforce its rights against any collateral securing this Note without enforcing its rights against the Company, any guarantor of the indebtedness evidenced hereby or any other property or indebtedness due or to become due to the Company. The Company agrees that, without releasing or impairing the Company's liability hereunder, Payee may at any time release, surrender, substitute or exchange any collateral securing this Note and may at any time release any party primarily or secondarily liable for the indebtedness evidenced by this Note. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law. DANSKIN, INC. By: ---------------------------------- Name: Title: ATTEST: By: ---------------------------------- Secretary - 7 - EX-99.(I) 10 REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT REGISTRATION RIGHTS AGREEMENT, dated as of September 22, 1997, (the "Agreement") by and between Danskin Investors, LLC, a Delaware limited liability company (the "Buyer") and Danskin, Inc., a Delaware corporation (the "Company"). WHEREAS, the Buyer and the Company have entered into a Securities Purchase Agreement (the "Securities Purchase Agreement") dated as of the date hereof pursuant to which the Buyer has agreed to purchase, subject to the terms and conditions contained therein, securities of the Company, which securities are exchangeable or exercisable for or convertible into shares of Common Stock of the Company; and WHEREAS, it is a condition precedent to the purchase of such securities that the Company provide for the registration of the Common Stock of the Company issuable on the exchange, exercise or conversion of the purchased securities. NOW, THEREFORE, in consideration on the foregoing premises and for other good and valuable consideration, the adequacy and receipt of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I. DEFINITIONS SECTION 1.1. Definitions. The following terms shall have the meanings ascribed to them below: "Commission" means the United States Securities and Exchange Commission, or any other federal agency at the time administering the Securities Act. "Common Stock" means the common stock, par value $.01 per share, of Danskin, Inc., as it may exist from time to time. "Convertible Preferred Stock" means the Company's Series D Cumulative Convertible Preferred Stock. "Demand Registration" means a Demand Registration as defined in Section 2.1. "Exchange Act" means the Securities Exchange Act of 1934 or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Holder" means any person who now holds or shall hereafter acquire and hold Registrable Securities. "Investor Preferred Stock" means the Company's Series C Convertible Preferred Stock. "Note" means the $15,000,000 promissory note of the Company issued to the Buyer pursuant to the Securities Purchase Agreement. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or other agency or political subdivision thereof. "Piggy-Back Registration" means a Piggy-Back Registration as defined in Section 2.2. "Prospectus" means the prospectus included in any Registration Statement (including without limitation, a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the securities covered by such Registration Statement, and all other amendments and supplements to the prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such prospectus. "Registrable Securities" means (a) the shares of Common Stock issued or issuable upon conversion of the Convertible Preferred Stock, (b) the shares of Common Stock issued or issuable upon conversion of the Investor Preferred Stock, (c) the shares of Common Stock issued to the Buyer pursuant to the Rights Offering, (d) the shares of Common Stock issued or issuable upon exercise of the Warrant and (e) the shares of Common Stock issued or issuable upon conversion of the Note, in each case until (i) a Registration Statement covering such shares of Common Stock has been declared effective by the Commission and such shares of Common Stock have been disposed of pursuant to such effective Registration Statement, or (ii) such shares of Common Stock are sold under circumstances in which all of the applicable conditions of Rule 144 (or any similar provisions then in force) under the Securities Act are met, or (iii) such shares of Common Stock have been otherwise transferred and the Company has delivered a new certificate or other evidence of ownership for such Common Stock not bearing a restrictive legend and not subject to any stop order and such Common Stock may be resold by the person receiving such certificate without complying with the registration requirements of the Securities Act. "Registration Statement" means any registration statement of the Company which covers any of the Registrable Securities pursuant to the provisions of this Agreement, including - 2 - the Prospectus, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all material incorporated by reference in such Registration Statement. "Rights Offering" means the offer by the Company to its stockholders of the right to subscribe for Common Stock with respect to each share of Common Stock owned by such stockholders as contemplated by the Securities Purchase Agreement. "Securities Act" means the Securities Act of 1933 or any similar Federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Holder" means a Holder who is selling Registrable Securities pursuant to a Registration Statement under the Securities Act. "Underwriter" means a securities dealer who purchases any Registrable Securities as principal in an underwritten offering and not as part of such dealer's market-making activities. "Warrant" means that certain common stock purchase warrant exercisable at $.30 per share of Common Stock issued to the Buyer pursuant to the Securities Purchase Agreement. ARTICLE II. REGISTRATION RIGHTS SECTION 2.1. Demand Registration. (a) Request for Registration. At any time and from time to time any Holder or Holders may make written requests (individually, a "Request") on the Company for the registration of the offer and sale of the Registrable Securities under the Securities Act (such registration being hereinafter referred to as a "Demand Registration"). The Company shall not effect Demand Registrations on Forms S-1 or S-2 (or any substitute form that may be adopted by the Commission) unless (i) the Request is made by Holders who, alone or together with other Holders making the Request, hold in the aggregate not less than 6.5% of the outstanding Registrable Securities (on a fully diluted basis) and (ii) the minimum offered amount of Registrable Securities shall be at least $1,000,000. Subject to the penultimate sentence of Section 2.1(b), the Company shall have no obligation to effect more than two Demand Registrations on Form S-1 or S-2 (or any substitute form that may be adopted by the Commission); provided, further, that the Company shall not be required to effect a Demand Registration on Form S-3 unless (i) the Request is made by Holders who, alone or together with other Holders making the Request, hold in the aggregate not less than 6.5% of the outstanding Registrable Securities (on a fully diluted basis) and (ii) the minimum offered amount of Registrable Securities thereunder shall be at least $500,000 and the Company shall not be required to effect more than two Demand Registrations on Form S-3 in any twelve month period. - 3 - Any Request will specify the number of Registrable Securities proposed to be sold and the intended method(s) of disposition thereof and shall also state the firm intent of the Holder to offer Registrable Securities for sale. The Company shall give written notice of such Request within 10 days after the receipt thereof to all other Holders. Within 20 days after receipt of such notice by any such Holder, such Holder may request in writing that all or any portion of its Registrable Securities be included in such Registration Statement and the Company shall include in the Registration Statement for such Demand Registration the Registrable Securities of all Holders that requested to be so included. Each such request by such other Holders shall specify the number of Registrable Securities proposed to be sold and the intended method(s) of disposition thereof and shall also state the firm intent of the Holder to offer Registrable Securities for sale. (b) Effective Registration. A registration will not be deemed to have been effected as a Demand Registration unless the Registration Statement relating thereto has been declared effective by the Commission and the Company has complied in all material respects with its obligations under this Agreement with respect thereto; provided that if, after the Registration Statement has become effective, the offering and/or sale of Registrable Securities pursuant to such Registration Statement is or becomes the subject of any stop order, injunction or other order or requirement of the Commission or any other governmental or administrative agency, or if any court prevents or otherwise limits the offer and/or sale of the Registrable Securities pursuant to the Registration Statement, other than in each case primarily as a result of acts or omissions of the Holder or any agent thereof, such registration will be deemed not to have been effected. If (i) a registration requested pursuant to this Section 2.1 is deemed not to have been effected or (ii) the Registration Statement relating to a Demand Registration requested pursuant to this Section 2.1 does not remain effective for a period of at least 120 days beyond the effective date thereof or, with respect to an underwritten offering of Registrable Securities, until 45 days after the commencement of the distribution by the Holders of the Registrable Securities included in such Registration Statement, then the Company shall continue to be obligated to effect such Registration pursuant to this Section 2.1. The Holders shall be permitted to withdraw all or any part of the Registrable Securities from a Registration Statement at any time prior to the effective date of such Demand Registration Statement; provided that in the event of such withdrawal, such Holders shall be responsible for the fees and expenses referred to in Section 3.2(viii) hereof incurred by such Holders with respect to such Demand Registration prior to such withdrawal. (c) Selection of Underwriter. If the Holders of a majority of the Registrable Securities participating in a Demand Registration so elect, the offering of such Registrable Securities pursuant to such Demand Registration shall be in the form of an underwritten offering. The Holders making such Demand Registration shall select one or more nationally recognized firms of investment bankers to act as the lead managing Underwriter or Underwriters in connection with such offering and shall select any additional investment bankers and managers to be used in connection with the offering; provided that such Underwriter or Underwriters are reasonably acceptable to the Company. - 4 - SECTION 2.2. Piggy-Back Registration. If at any time the Company proposes to file a Registration Statement under the Securities Act with respect to an offering by the Company for its own account or for the account of any of its respective security holders (other than (x) a Registration Statement on Form S-4 or S-8 (or any substitute form that may be adopted by the Commission), (y) a Registration Statement pursuant to a Demand Registration pursuant to Section 2.1 or (z) the Registration Statement relating to the Rights Offering), then the Company shall give written notice of such proposed filing to the Holders as soon as practicable (but in no event less than 30 days before the anticipated filing date), and such notice shall offer such Holders the opportunity to register such number of Registrable Securities as each such Holder may request (which request shall specify the Registrable Securities intended to be disposed of by such Holder and the intended method(s) of distribution thereof and shall also state the firm intent of the Holder to offer Registrable Securities for sale) (a "Piggy-Back Registration"). The Company shall use all reasonable efforts to cause the managing Underwriter or Underwriters of a proposed underwritten offering to permit the Registrable Securities requested to be included in a Piggy-Back Registration to be included on the same terms and conditions as any similar securities of the Company or any other security holder included therein and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method of distribution thereof. Any Holder shall have the right to withdraw its request for inclusion of its Registrable Securities in any Registration Statement pursuant to this Section 2.2 by giving written notice to the Company of its request to withdraw, provided that in the event of such withdrawal (other than pursuant to Section 2.3(c) hereof), such Holder shall be responsible for the fees and expenses referred to in Section 3.2(viii) hereof incurred by such Holder prior to such withdrawal relating to such Registration Statement. The Company may withdraw a Piggy-Back Registration at any time prior to the time it becomes effective. No registration effected under this Section 2.2, and no failure to effect a registration under this Section 2.2, shall relieve the Company of its obligation to effect a registration upon the request of Holders pursuant to Section 2.1, and no failure to effect a registration under this Section 2.2 and to complete the sale of Registrable Securities in connection therewith shall relieve the Company of any other obligation under this Agreement (including, without limitation, the Company's obligations under Sections 3.2 and 4.1). SECTION 2.3. Reduction of Offering. (a) Demand Registration. The Company may include in a Demand Registration pursuant to Section 2.1 securities of the same class as the Registrable Securities for the account of the Company and any other Persons who hold securities of the same class as the Registrable Securities on the same terms and conditions as the Registrable Securities to be included therein; provided, however, that (i) if the managing Underwriter or Underwriters of any underwritten offering described in Section 2.1 have informed the Company in writing that it is their opinion that the total number of Registrable Securities, and securities of the same class as the Registrable Securities which Holders, the Company and any other Persons desiring to participate in such registration intend to include in such offering is such as to materially and - 5 - adversely affect the success of such offering, then the number of shares to be offered for the account of the Company and for the account of all such other Persons (other than the Holders) participating in such registration shall be reduced or limited pro rata in proportion to the respective number of shares requested to be registered to the extent necessary to reduce the total number of shares requested to be included in such offering to the number of shares, if any, recommended by such managing Underwriter or Underwriters, and (ii) if the offering is not underwritten, no other Person, including the Company, shall be permitted to offer securities under any such Demand Registration unless the Holders of a majority of the Registrable Securities participating in the offering consent to the inclusion of such shares therein. (b) Piggy-Back Registration. (i) Notwithstanding anything contained herein, if the managing Underwriter or Underwriters of any underwritten offering described in Section 2.2 have informed, in writing, the Holders requesting inclusion in such offering that it is their opinion that the total number of shares which the Company, Holders and any other Persons holding securities of the same class as the Registrable Securities desiring to participate in such registration intend to include in such offering is such as to materially and adversely affect the success of such offering, then, the number of shares to be offered shall be reduced or limited in the following order of priority: first, the number of shares to be offered by all other holders of securities of the same class as the Registrable Securities other than the Holders or other holders who demanded such registration ("Demand Holders") to the extent necessary to reduce the total number of shares as recommended by such managing Underwriter or Underwriters; and second, if further reduction or limitation is required, the number of shares to be offered for the account of the Holders shall be reduced or limited on a pro rata basis in proportion to the relative number of Registrable Securities of the Holders participating in such registration. (ii) If the managing Underwriter or Underwriters of any underwritten offering described in Section 2.2 notify the Holders requesting inclusion in such offering that the kind of securities that the Holders, the Company and any other Persons desiring to participate in such registration intend to include in such offering is such as to materially and adversely affect the success of such offering, (x) the Registrable Securities to be included in such offering shall be reduced as described in clause (i) above or (y) if such reduction would, in the judgment of the managing Underwriter or Underwriters, be insufficient to substantially eliminate the adverse effect that inclusion of the Registrable Securities requested to be included would have on such offering, such Registrable Securities will be excluded from such offering. (c) If, as a result of the proration provisions of this Section 2.3, any Holder shall not be entitled to include all Registrable Securities in a Demand Registration or Piggy-Back Registration that such Holder has requested to be included, such Holder may elect to withdraw his request to include Registrable Securities in such registration. - 6 - ARTICLE III. REGISTRATION PROCEDURES SECTION 3.1. Filings; Information. Whenever the Company is required to effect or cause the registration of the offer and sale of Registrable Securities pursuant to Section 2.1 or 2.2 hereof, the Company will use its best efforts to effect the registration of the offer and the sale of such Registrable Securities in accordance with the intended method(s) of disposition thereof as quickly as practicable, and in connection with any such request: (a) The Company promptly will prepare and file with the Commission a Registration Statement with respect to the offer and sale of such securities and use its best efforts to cause such Registration Statement to become and remain effective until the completion of the distribution contemplated thereby; provided, however, the Company shall not be required to keep such Registration Statement effective for more than 120 days (or such shorter period which will terminate when all Registrable Securities covered by such Registration Statement have been sold, but not prior to the expiration of the applicable period referred to in Section 4(3) of the Securities Act and Rule 174 thereunder, if applicable). (b) The Company promptly will prepare and file with the Commission such amendments and post-effective amendments to the Registration Statement as may be necessary to keep such Registration Statement effective for as long as such registration is required to remain effective pursuant to the terms hereof; cause the Prospectus to be supplemented by any required Prospectus supplement, and, as so supplemented, to be filed pursuant to Rule 424 under the Securities Act; and comply with the provisions of the Securities Act applicable to it with respect to the disposition of all Registrable Securities covered by such Registration Statement during the applicable period in accordance with the intended methods of disposition by the Selling Holders set forth in such Registration Statement or supplement to the Prospectus. (c) The Company, at least ten (10) days prior to filing a Registration Statement or at least five (5) days prior to filing a Prospectus or any amendment or supplement to such Registration Statement or Prospectus, will furnish to (i) each Selling Holder, (ii) not more than one counsel representing all Selling Holders, to be selected by a majority-in-interest of such Selling Holders, and (iii) each Underwriter, if any, of the Registrable Securities covered by such Registration Statement copies of such Registration Statement as proposed to be filed, together with exhibits thereto, which documents will be subject to review and approval by each of the foregoing within five (5) days after delivery (except that such review and approval of any Prospectus or any amendment or supplement to such Registration Statement or Prospectus must be within three (3) days after delivery), and thereafter, furnish to such Selling Holders, counsel and Underwriters, if any, for their review and comment such number of copies of such Registration Statement, each amendment and supplement thereto (in each case including all exhibits thereto and documents incorporated by reference therein), the Prospectus included in such Registration Statement (including each preliminary Prospectus) and such other documents or information as such Selling Holders, counsel or Underwriters may reasonably request in order - 7 - to facilitate the disposition of the Registrable Securities; provided, however, that notwithstanding the foregoing, if the Company intends to file any Prospectus, Prospectus supplement or Prospectus sticker which does not make any material changes in the documents already filed (including, without limitation, any Prospectus under Rule 430A or 424(b)), then the counsel for the Selling Holders will be afforded such opportunity to review such documents prior to filing consistent with the time constraints involved in filing such document, but in any event no less than one day. (d) The Company promptly will notify each Selling Holder of (and in any event within 24 hours of the receipt of) any stop order issued or threatened by the Commission and take all reasonable actions required to prevent the entry of such stop order or to remove it at the earliest possible moment if entered. (e) On or prior to the date on which the Registration Statement is declared effective by the Commission, the Company will use all reasonable efforts to (i) register or qualify the Registrable Securities under such other securities or blue sky laws of such jurisdictions in the United States as any Selling Holder reasonably (in light of such Selling Holder's intended plan of distribution) requests, and (ii) file documents required to register such Registrable Securities with or approved by such other governmental agencies or authorities in the United States as may be necessary by virtue of the business and operations of the Company and do any and all other acts and things that may be reasonably necessary or advisable to enable such Selling Holder to consummate the disposition of the Registrable Securities owned by such Selling Holder; provided that the Company will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph (e), (B) subject itself to taxation in any such jurisdiction or (C) consent to general service of process in any such jurisdiction. (f) The Company will notify each Selling Holder, Selling Holders' counsel and any Underwriter promptly (and in any event within 24 hours) and (if requested by any such Person) confirm such notice in writing, (i) when a Prospectus or any Prospectus supplement or post-effective amendment has been filed and, with respect to a Registration Statement or any post-effective amendment, when the same has become effective, (ii) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to a Registration Statement or Prospectus or for additional information to be included in any Registration Statement or Prospectus or otherwise, (iii) of the issuance by the Commission of any stop order suspending the effectiveness of a Registration Statement or the initiation or threatening of any proceedings for that purpose, (iv) of the issuance by any state securities commission or other regulatory authority of any order suspending the qualification or exemption from qualification of any of the Registrable Securities under state securities or "blue sky" laws or the initiation of any proceedings for that purpose, and (v) of the happening of any event which makes any statement made in a Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated by reference therein untrue or which requires the making of any changes in such Registration Statement, Prospectus or documents so that they will - 8 - not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements in the Registration Statement and Prospectus not misleading in light of the circumstances in which they were made; and, as promptly as practicable thereafter, prepare and file with the Commission and furnish a supplement or amendment to such Prospectus so that, as thereafter deliverable to the Buyers of such Registrable Securities, such Prospectus will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (g) The Company will make generally available an earnings statement satisfying the provisions of Section 11(a) of the Securities Act no later than 90 days after the end of the 12-month period beginning with the first day of the Company's first fiscal quarter commencing after the effective date of a Registration Statement, which earnings statement shall cover said 12-month period, and which requirement will be deemed to be satisfied if the Company timely files complete and accurate information on Forms 10-Q, 10-K and 8-K under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and otherwise complies with Rule 158 under the Securities Act. (h) If requested by the managing Underwriter or Underwriters, Selling Holders' counsel, or any Selling Holder, the Company will, unless otherwise advised by counsel, promptly incorporate in a Prospectus supplement or post-effective amendment such information as the managing Underwriter or Underwriters requests, or Selling Holders' counsel requests, to be included therein, including, without limitation, with respect to the Registrable Securities being sold by such Selling Holder to such Underwriter or Underwriters, the purchase price being paid therefor by such Underwriter or Underwriters and with respect to any other terms of the underwritten offering of the Registrable Securities to be sold in such offering, and promptly make all required filings of such Prospectus supplement or post-effective amendment. (i) The Company will enter into customary agreements reasonably satisfactory to the Company (including, if applicable, an underwriting agreement in customary form and which is reasonably satisfactory to the Company) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities (the Selling Holders, at their option, may require that any or all of the representations, warranties and covenants of the Company to or for the benefit of such Underwriters also be made to and for the benefit of such Selling Holders). (j) The Company will make available to each Selling Holder (and will deliver to their counsel) and each Underwriter, if any, subject to restrictions imposed by the United States federal government or any agency or instrumentality thereof, copies of all correspondence between the Commission and the Company, its counsel or auditors and will also make available for inspection at reasonable times at the Company's offices by any Selling Holder of such Registrable Securities, any Underwriter participating in any disposition pursuant to such Registration Statement and any attorney, accountant or other professional retained by any such - 9 - Selling Holder or Underwriter (collectively, the "Inspectors"), all financial and other records, pertinent corporate documents and properties of the Company as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers and employees to supply all information reasonably requested by any Inspectors in connection with such registration statement. (k) In connection with an underwritten offering, the Company will participate, to the extent reasonably requested by the managing Underwriter or Underwriters for the offering or the Selling Holders, in customary efforts to sell the securities under the offering, including, without limitation, participating in "road shows"; provided that the Company shall not be obligated to participate in more than two such selling efforts in any 12-month period. (l) The Company, during the period when the Prospectus is required to be delivered under the Securities Act, promptly will file all documents required to be filed with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act. (m) The Company will use all reasonable efforts to obtain a cold comfort letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by cold comfort letters, as the Selling Holders may request. The Company may require each Selling Holder to promptly furnish in writing to the Company such information regarding the distribution of the Registrable Securities as the Company may from time to time reasonably request and such other information as may be legally required in connection with such registration including, without limitation, all such information as may be requested by the Commission or the National Association of Securities Dealers, Inc. The Company may exclude from such Registration Statement any Holder who fails to provide such information. Each Selling Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3.1(f) hereof, such Selling Holder will forthwith discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Selling Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 3.1(f) hereof, and, if so directed by the Company, such Selling Holder will deliver to the Company all copies, other than permanent file copies then in such Selling Holder's possession, of the most recent prospectus covering such Registrable Securities at the time of receipt of such notice. In the event the Company shall give such notice, the Company shall extend the period during which such Registration Statement shall be maintained effective (including the period referred to in Section 3.1(a) hereof) by the number of days during the period from and including the date of the giving of notice pursuant to Section 3.1(f) hereof to the date when the Company shall make available to the Selling Holders covered by such Registration Statement a Prospectus supplemented or amended to conform with the requirements of Section 3.1(f) hereof. - 10 - SECTION 3.2. Registration Expenses. The Company shall pay all expenses incident to the Company's performance of or compliance with this Agreement including, without limitation: (i) all registration and filing fees, (ii) the fees and expenses of compliance with securities or blue sky laws (including fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Securities), (iii) all printing, messenger and delivery expenses, (iv) the Company's internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), (v) the fees and expenses incurred in connection with the listing or quotation, as appropriate, of the Registrable Securities, (vi) the fees and disbursements of counsel for the Company and the fees and expenses for independent certified public accountants retained by the Company (including the expenses of any special audit or cold comfort letters), (vii) the fees and expenses of any special experts retained by the Company in connection with such registration, and (viii) the fees and expenses of one firm of counsel for the Selling Holders. The Company shall have no obligation to pay any underwriting fees, discounts or commissions attributable to the sale of Registrable Securities and any of the expenses incurred by Selling Holders which are not payable by the Company, such costs to be borne by the Selling Holder or Selling Holders. ARTICLE IV. INDEMNIFICATION AND CONTRIBUTION SECTION 4.1. Indemnification by the Company. The Company agrees to indemnify and hold harmless, to the fullest extent permitted by law, each Selling Holder, its partners, officers, directors, employees and agents, and each Person, if any, who controls such Selling Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, together with the partners, officers, directors, employees and agents of such controlling Person (collectively, the "Controlling Persons"), from and against any loss, claim, damage, liability, attorneys' fees, cost or expense and costs and expenses of investigating and defending any such claim (collectively, the "Damages") and any action in respect thereof to which such Selling Holder, its partners, officers, directors, employees and agents, and any such Controlling Person may become subject under the Securities Act or otherwise, insofar as such Damages (or proceedings in respect thereof) arise out of, or are based upon, any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement or Prospectus or any preliminary Prospectus, or arise out of, or are based upon, any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances in which they were made, except insofar as the same are based upon information furnished in writing to the Company by a Selling Holder expressly for use therein, and shall reimburse each Selling Holder, its partners, officers, directors, employees and agents, and each such Controlling Person for any legal and other expenses reasonably incurred by that Selling Holder, its partners, officers, directors, employees and agents, or any such Controlling Person in investigating or defending or preparing to defend against any such Damages or proceedings; provided, however, that the Company shall not be liable to any Holder or other indemnitee to the extent that any such Damages arise out of - 11 - or are based upon an untrue statement or omission made in any preliminary prospectus if (i) such Holder failed to send or deliver a copy of the final Prospectus with or prior to the delivery of written confirmation of the sale by such Holder to the Person asserting the claim from which such Damages arise, and (ii) the final prospectus would have corrected such untrue statement or such omission; and provided further, however, that the Company shall not be liable in any such case to the extent that any such Damages arise out of or are based upon an untrue statement or omission in any Prospectus if (x) such untrue statement or omission is corrected in an amendment or supplement to such Prospectus, (y) having previously been furnished by or on behalf of the Company with copies of such Prospectus as so amended or supplemented, and (z) after being notified by the Company pursuant to Section 3.1(f) hereof of the happening of any event which would make any statement in the Registration Statement or related Prospectus or any document incorporated or deemed to be incorporated by reference therein untrue or misleading, the Holder continues to offer for sale the Registrable Securities pursuant to the Registration Statement or Prospectus which is the subject of such notice, such Holder thereafter fails to deliver such Prospectus as so amended or supplemented prior to or concurrently with the sale of a Registrable Security to the Person asserting the claim from which such Damages arise; provided further, that the Company shall not be liable in any case to the extent that any such Damages arise out of or are based upon an untrue statement or omission in any Prospectus, even if an amended and corrected Prospectus is not furnished to the Holder, but only to the extent that the Holder, after being notified by the Company pursuant to Section 3.1(f) hereof, continues to use such Prospectus and in such case and to the extent of, and with respect to, Damages which arise after the Holder receives the Section 3.1(f) notice. The Company also agrees to indemnify any Underwriters of the Registrable Securities, their officers and directors and each Person who controls such Underwriters on substantially the same basis as that of the indemnification of the Selling Holders provided in this Section 4.1. SECTION 4.2. Indemnification by Selling Holders. Each Selling Holder agrees, severally but not jointly, to indemnify and hold harmless the Company, its officers, directors, employees and agents and each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, together with the partners, officers, directors, employees and agents of such controlling Person, to the same extent as the foregoing indemnity from the Company to such Selling Holder, but only with reference to information related to such Selling Holder, or its plan of distribution, furnished in writing by such Selling Holder expressly for use in any Registration Statement or Prospectus, or any amendment or supplement thereto, or any preliminary Prospectus. In case any action or proceeding shall be brought against the Company or its officers, directors, employees or agents or any such controlling Person or its officers, directors, employees or agents, in respect of which indemnity may be sought against such Selling Holder, such Selling Holder shall have the rights and duties given to the Company, and the Company or its officers, directors, employees or agents, or such controlling Person, or its officers, directors, employees or agents, shall have the rights and duties given to such Selling Holder, by the preceding paragraph. Each Selling Holder also agrees to indemnify and hold harmless any Underwriters of the Registrable Securities, their - 12 - officers and directors and each Person who controls such Underwriters on substantially the same basis as that of the indemnification of the Company provided in this Section 4.2. SECTION 4.3. Conduct of Indemnification Proceedings. Promptly after receipt by any person in respect of which indemnity may be sought pursuant to Section 4.1 or 4.2 (an "Indemnified Party") of notice of any claim or the commencement of any action, the Indemnified Party shall, if a claim in respect thereof is to be made against the Person against whom such indemnity may be sought (an "Indemnifying Party"), notify the Indemnifying Party in writing of the claim or the commencement of such action; provided that the failure to notify the Indemnifying Party shall not relieve it from any liability which it may have to an Indemnified Party otherwise than under Section 4.1 or 4.2 except to the extent of any actual prejudice resulting therefrom. If any such claim or action shall be brought against an Indemnified Party, and it shall notify the Indemnifying Party thereof, the Indemnifying Party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified Indemnifying Party, to assume the defense thereof with counsel reasonably satisfactory to the Indemnified Party. After notice from the Indemnifying Party to the Indemnified Party of its election to assume the defense of such claim or action, the Indemnifying Party shall not be liable to the Indemnified Party for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof other than reasonable costs of investigation; provided that the Indemnified Party shall have the right to employ separate counsel to represent the Indemnified Party and its controlling Persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Indemnified Party against the Indemnifying Party, but the fees and expenses of such counsel shall be for the account of such Indemnified Party unless (i) the Indemnifying Party and the Indemnified Party shall have mutually agreed to the retention of such counsel or (ii) in the opinion of counsel to such Indemnified Party, representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interest between them, it being understood, however, that the Indemnifying Party shall not, in connection with any one such claim or action or separate but substantially similar or related claims or actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (together with appropriate local counsel) at any time for all Indemnified Parties. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any claim or pending or threatened proceeding in respect of which the Indemnified Party is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Party from all liability arising out of such claim or proceeding. Whether or not the defense of any claim or action is assumed by the Indemnifying Party, such Indemnifying Party will not be subject to any liability for any settlement made without its consent, which consent will not be unreasonably withheld. SECTION 4.4. Contribution. If the indemnification provided for in this Article 4 is unavailable to the Indemnified Parties in respect of any Damages referred to herein, then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to - 13 - the amount paid or payable by such Indemnified Party as a result of such Damages in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Selling Holders on the other from the offering of the Registrable Securities, or if such allocation is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits but also the relative fault of the Company on the one hand and the Selling Holders on the other in connection with the statements or omissions which resulted in such Damages, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of each Selling Holder on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Selling Holders agree that it would not be just and equitable if contribution pursuant to this Section 4.4 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an Indemnified Party as a result of the Damages referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 4.4, no Selling Holder shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities of such Selling Holder were offered to the public exceeds the amount of any damages which such Selling Holder has otherwise paid by reason of such untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. Each Selling Holder's obligations to contribute pursuant to this Section 4.4 is several in the proportion that the proceeds of the offering received by such Selling Holder bears to the total proceeds of the offering received by all the Selling Holders and not joint. ARTICLE V. MISCELLANEOUS SECTION 5.1. Participation in Underwritten Registrations. No Person may participate in any underwritten registration hereunder unless such Person (a) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements, and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements and these registration rights. - 14 - SECTION 5.2. Rule 144. The Company agrees and will use its best efforts to file any reports required to be filed by it under the Securities Act and the Exchange Act and that it will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable Holders to sell Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rules may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the Commission. Upon the request of any Holder, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements. SECTION 5.3. Amendment and Modification. Any provision of this Agreement may be waived, provided that such waiver is set forth in a writing executed by the party against whom the enforcement of such waiver is sought. This Agreement may not be amended, modified or supplemented other than by a written instrument signed by Holders of a majority of the Registrable Securities; provided, however, that without the consent of all the Holders, no amendment or modification which materially and adversely affects the ability of such Holders to have the offer and sale of securities registered hereunder may be effected. No course of dealing between or among any Persons having any interest in this Agreement will be deemed effective to modify, amend or discharge any part of this Agreement or any rights or obligations of any Person under or by reason of this Agreement. SECTION 5.4. Successors and Assigns; Third Party Beneficiaries; Entire Agreement. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the parties hereto, each subsequent Holder and their respective successors and assigns and executors, administrators and heirs. Holders are intended third party beneficiaries of this Agreement and this Agreement may be enforced by such Holders. This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings of any and every nature among them. SECTION 5.5. Headings. Subject headings are included for convenience only and shall not affect the interpretation of any provisions of this Agreement. SECTION 5.6. Notices. Any notice, demand, request, waiver, or other communication under this Agreement shall be in writing and shall be deemed to have been duly given on the date of service if personally served or sent by telecopy, on the business day after notice is delivered to a courier or mailed by express mail if sent by courier delivery service or express mail for next day delivery and on the third day after mailing if mailed to the party to whom notice is to be given, by first class mail, registered, return receipt requested, postage prepaid and addressed as follows: - 15 - If to the Company to: Chief Executive Officer Danskin, Inc. 111 West 40th Street New York, New York Fax: (212) 768-1638 Phone: (212) 764-4630 with a copy to: Samuel B. Fortenbaugh III, Esq. Morgan, Lewis & Bockius 101 Park Avenue New York, NY 10178 Fax: (212) 309-6273 Phone: (212) 309-6000 If to the Buyer or the Holder, to the Holder at the most current address given by such Holder to the Company in writing, and to: Andrew Astrachan Danskin Investors, LLC c/o Onyx Partners, Inc. 9595 Wilshire Blvd. Suite 700 Beverly Hills, CA 90212 Fax: (310) 246-9937 Phone: (310) 724-5599 with a copy to: Martin Nussbaum, Esq. Shereff, Friedman, Hoffman & Goodman, LLP 919 Third Avenue New York, New York 10022 Fax: (212) 758-9526 Phone: (212) 758-9500 - 16 - SECTION 5.7. Governing Law; Forum; Process. This Agreement shall be construed in accordance with, and governed by, the laws of the State of New York as applied to contracts made and to be performed entirely in the State of New York without regard to principles of conflicts of law. Each of the parties hereto hereby irrevocably and unconditionally submits to the exclusive jurisdiction of any court of the State of New York or any federal court sitting in the State of New York for purposes of any suit, action or other proceeding arising out of this Agreement (and agrees not to commence any action, suit or proceedings relating hereto except in such courts). Each of the parties hereto agrees that service of any process, summons, notice or document by U.S. registered mail at its address set forth herein shall be effective service of process for any action, suit or proceeding brought against it in any such court. Each of the parties hereto hereby irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement, which is brought by or against it, in the courts of the State of New York or any federal court sitting in the State of New York and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. SECTION 5.8. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of which together shall constitute a single agreement. SECTION 5.9. Severability. In the event that any one or more of the immaterial provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable, the same shall not affect any other provision of this Agreement, but this Agreement shall be construed in a manner which, as nearly as possible, reflects the original intent of the parties. SECTION 5.10. No Prejudice. The terms of this Agreement shall not be construed in favor of or against any party on account of its participation in the preparation hereof. SECTION 5.11. Words in Singular and Plural Form. Words used in the singular form in this Agreement shall be deemed to import the plural, and vice versa, as the sense may require. - 17 - SECTION 5.12. Remedy for Breach. The Company hereby acknowledges that in the event of any breach or threatened breach by the Company of any of the provisions of this Agreement, the Holder would have no adequate remedy at law and could suffer substantial and irreparable damage. Accordingly, the Company hereby agrees that, in such event, the Holder shall be entitled, without the necessity of proving damages or posting bond, and notwithstanding any election by any Holder to claim damages, to obtain a temporary and/or permanent injunction, without proving a breach therefor, to restrain any such breach or threatened breach or to obtain specific performance of any such provisions, all without prejudice to any and all other remedies which any Holder may have at law or in equity. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. DANSKIN, INC. By: ------------------------ Name: Title: DANSKIN INVESTORS, LLC By: Onyx Partners, Inc., its manager By: ------------------------ Name: Title: - 18 - -----END PRIVACY-ENHANCED MESSAGE-----