-----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, Q4cgZSdTtcrBo3y52hWtJbJJeDVRuRVFs1lknOWQq1GG3SyEEguvNqBKwqQE/aW/ ZFD0KAxQzRIIIvu7rusUSg== 0000950146-97-001509.txt : 19971008 0000950146-97-001509.hdr.sgml : 19971008 ACCESSION NUMBER: 0000950146-97-001509 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19970922 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19971007 SROS: NONE FILER: 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: 8-K SEC ACT: SEC FILE NUMBER: 000-20382 FILM NUMBER: 97691844 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 8-K 1 CURRENT REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 Danskin, Inc. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) September 22, 1997 - -------------------------------------------------------------------------------- Date of Report (Date of earliest event reported) Delaware 0-20382 62-1284179 - -------------------------------------------------------------------------------- (State or other juris- (Commission (I.R.S. Employer diction of incorporation) File Number) Identification No.) 111 West 40th Street, New York, New York 10018 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 212-764-4630 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Item 1. Change in Control of Registrant. -------------------------------- On September 22, 1997, Danskin, Inc. (the "Company") consented to the assignment of approximately $21.265 million face amount (the "Loan Amount") of the Company's term loan obligations owing to First Union National Bank ("First Union"), the Company's principal lender, to Danskin Investors, LLC (the "Investor"), a company newly formed by an investment group led by Onyx Partners, Inc. In accordance with the terms of the Securities Purchase Agreement, dated September 22, 1997, entered into by the Company and the Investor, the Investor, and certain other persons, contributed to the Company in the aggregate (a) the Loan Amount and (b) $4 million (together, the "Capital Contribution") in exchange for (i) $15 million aggregate principal amount of subordinated debt of the Company (the "Subordinated Debt") and (ii) $500,000 in stated value of Series C Cumulative Convertible Preferred Stock (the "Series C Stock", and together with the Subordinated Debt, the "Securities") of the Company. The Investor funded the Capital Contribution through capital contributions made to it by its members and $544,129 paid by Oppenheimer Bond Fund for Growth to the Company in exchange for a portion of the Securities. The Subordinated Debt bears interest, commencing on December 22, 1997, at the rate of 8% per annum. Holders of the Series C Stock have, among other rights, the right to elect four of nine directors to the Board of Directors of the Company. In connection with the closing of the Capital Contribution, the Board of Directors of the Company accepted the resignations of Patricia Patterson, John Burden and Edwin Dean as directors of the Company and elected Andrew Astrachan, Nina McLemore, Gabriel Brener and Jim Jalil as directors. In connection with the closing of the Capital Contribution, the Board of Directors approved amendments to both the Certificate of Incorporation and the By-laws of the Company to effectuate agreements reached between the Company and the Investor, including, among other things, increasing the number of authorized shares of its common stock to 100,000,000 and removing the provisions for a classified Board of Directors (the "Certificate Amendments"). As reported by the Investor on Schedule 13D, SunAmerica Life Insurance Company has granted an irrevocable proxy to Andrew Astrachan and David Sachs to vote all shares of the 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 Company's Board of Directors until such time as the Investor possesses a majority of the voting power of the Company. Accordingly, as reported by the Investor on Schedule 13D, Astrachan and Sachs share voting power with each other of 5,446,214 shares of Common Stock and may be deemed to have beneficial ownership of 56.3% of the outstanding shares of Common Stock. In addition, in connection with the closing of the Capital Contribution, the Company announced that (a) its Board of Directors declared a stock dividend on the common stock of the Company 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 Company and First Union 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 to its shareholders, including the Investor, the right to purchase, pro rata, 10 million shares of common stock of the Company at a per share price of $0.30 (the "Rights Offering"). The Investor will standby to purchase any shares of common stock offered in the Rights Offering and not purchased by other shareholders of the Company. Upon the refinancing of the Company's revolving credit facility with First Union (the "Refinancing"), the Series C Stock and the Subordinated Debt, by their terms, will be automatically exchanged for (a) $12 million stated value of Series D Cumulative Convertible Preferred Stock (the "Series D Stock") of the Company, (b) a seven year warrant to purchase 10 million shares of common stock of the Company at a per share price of $0.30, and (c) if the Refinancing shall occur prior to effectiveness of the Certificate Amendments and effectiveness of the registration statement filed with the Securities and Exchange Commission with respect to the Rights Offering, a $3 million aggregate principal amount subordinated note of the Company. The description of the terms of the Subordinated Debt, the Series C Stock, the Series D Stock and the Warrant set forth in this Item 1 is qualified in its entirety by reference to the form of Promissory Note, the Certificate of Designations for the Series C Stock, the Certificate of Designations for the Series D Stock and the form of Warrant which are attached to this Form 8-K as Exhibits. The Series D Stock, if issued, is convertible, at the option of the holder and, in certain circumstances, mandatorily, at a per share conversion price of $0.30. Holders of the Series D Stock would be entitled to designate five of nine directors to the Board of Directors of the Company. In connection with the Refinancing, an additional director would be elected to the Company's Board of Directors by the holders of the Series D Stock as the fifth designee of the Investor to replace one member of the Board of Directors who will resign on such date. The Series D Stock would have an 8% annual dividend rate, payment of which would be deferred through December 31,1999, and a seven year maturity. If for any fiscal year beginning with the fiscal year ended December 31, 1999, the Company meets certain agreed upon financial targets, all accrued dividends for such fiscal year would be forgiven and the Series D Stock would automatically convert into 40 million shares of common stock of the Company at a conversion price of $0.30 per share. In connection with the closing of the Capital Contribution, Oppenheimer Bond Fund for Growth ("BFG") exchanged the 10% Cumulative Preferred Stock of the Company held by it for 3,436,214 shares of common stock of the Company and certain other rights, including the right to participate in the purchase of the Securities on the same terms as the Investor. The 10% Cumulative Preferred Stock was cancelled and retired. On September 22, 1997, the Company accepted a commitment letter from Century Business Credit Corporation ("CBCC") which sets forth terms and conditions upon which CBCC is prepared to make loans to the Company, in an amount not to exceed $45 million, for, among other uses, the refinancing of the Company's existing revolving credit facility with First Union and ongoing working capital needs. There can, however, be no assurances that the Refinancing will occur. Item 7(c) Exhibits. --------- 99.1 Press Release dated September 23, 1997 4.2 Securities Purchase Agreement dated as of September 22, 1997 between the Issuer and Investors. 4.2.1 Form of Warrant to be issued to Investors. 4.2.2 Certificate of Designations of Series C Cumulative Convertible Preferred Stock. 4.2.3 Certificate of Designations of Series D Cumulative Convertible Preferred Stock. 4.2.4 Promissory Note of the Issuer in favor of Investors. Signature --------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DANSKIN, INC. (Registrant) Dated: October 7, 1997 By: /s/ Beverly Eichel ------------------- Name: Beverly Eichel Title: Executive Vice President Chief Financial Officer EX-99.1 2 News From DANSKIN, INC. - -------------------------------------------------------------------------------- DANSKIN RECAPITALIZES NEW YORK, N.Y., September 23, 1997--DANSKIN, INC. (DANS) today announced a comprehensive recapitalization of the Company intended to deleverage the Company's balance sheet and to enable the Company to capitalize upon the strong name recognition of and consumer response to the Danskin(R) brand. The Company announced that, on September 22, 1997, it consented to the assignment of approximately $21.265 million face amount (the "Loan Amount") of the Company's term loan obligations owing to First Union National Bank ("First Union"), the Company's principal lender, to Danskin Investors, LLC (the "Investor"), a company newly formed by an investment group led by Onyx Partners, Inc. The Company also announced that, in accordance with the terms of a Memorandum of Understanding reached with the Investor on August 28, 1997, the Investor and certain other persons contributed to the Company in the aggregate (a) the Loan Amount and (b) $4 million (together, the "Capital Contribution") in exchange for (i) $15 million aggregate principal amount of subordinated debt of the Company (the "Subordinated Debt") and (ii) $500,000 in stated value of cumulative convertible preferred stock of the Company (the "Preferred Stock") having, among other rights, the right to elect four of nine directors to the Board of Directors of the Company. Upon the occurrence of certain events, including a refinancing of the revolving credit facility with First Union and the successful completion of negotiations with certain of the Company's landlords, the Preferred Stock and $12 million of Subordinated Debt will be exchanged for (a) $12 million stated value of cumulative convertible preferred stock of the Company (the "New Preferred Stock") and (b) seven year warrants to purchase 10 million shares of common stock of the Company at a per share price of $0.30. The New Preferred Stock , if issued, will have an 8% annual dividend rate, payment of which will be deferred through December 31,1999, and a seven year maturity. The holder of the New Preferred Stock would be entitled to designate five of nine directors to the Board of Directors of the Company. If for any fiscal year beginning with the fiscal year ended December 31, 1999, the Company meets certain agreed upon financial targets, all accrued dividends for such fiscal year would be forgiven and the New Convertible Preferred Stock would automatically convert into 40 million shares of common stock of the Company at a conversion price of $0.30 per share. News From DANSKIN, INC. -2- In connection with the closing of the Capital Contribution (the "Closing"), Oppenheimer Bond Fund for Growth ("BFG") exchanged the 10% Cumulative Preferred Stock of the Company held by it for shares of common stock of the Company. The 10% Cumulative Preferred Stock was cancelled and retired. Also in connection with the Closing, the Board of Directors approved amendments to both the Certificate of Incorporation and the By-laws of the Company to effectuate agreements reached between the Company and the Investor, including, among other things, increasing the number of authorized shares of its common stock to 100,000,000 and removing the provisions for a classified Board of Directors. The Company also announced that, on September 22, 1997, the Company accepted a commitment letter from Century Business Credit Corporation ("CBCC") which sets forth terms and conditions upon which CBCC is prepared to make loans to the Company, in an amount not to exceed $45 million, for, among other uses, the refinancing of the Company's existing revolving credit facility with First Union and ongoing working capital needs. The Company also announced that it will offer to its shareholders, including the Investor, the right to purchase, pro rata, 10 million shares of common stock of the Company at a per share price of $0.30. The Investor will standby to purchase any shares of common stock offered in the rights offering not purchased by other shareholders of the Company. The Company also announced that the Board of Directors of the Company declared a stock dividend on the common stock of the Company 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. The Company also announced that the Board of Directors of the Company redeemed the Rights issued pursuant to the Rights Agreement dated as of June 5, 1996 between the Company and First Union 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. In connection with the closing of the Capital Contribution, the Board of Directors of the Company accepted the resignations of Patricia Patterson, John Burden and Edwin Dean as directors of the Company and elected Andrew Astrachan, Nina McLemore, Gabriel Brener and Jim Jalil as directors. "These transactions provide the foundation for the Company to focus its efforts on the growth of its Danskin(R) and licensed brands. All of the parties to the transactions worked diligently to provide a platform for our shareholders to realize value" stated Chairman of the Board, Donald Schupak. News From DANSKIN, INC. -3- Mary Ann Domuracki, Chief Executive Officer of the Company stated, "The recapitalization provides the Company with a strengthened balance sheet. Our strategy to enhance our Danskin(R) brand name, expand our product lines and increase our marketing programs can be executed. While the sheer hosiery market continues to be difficult, we expect our licensed designer brands, new programs and product additions of socks and tights to provide stability in legwear operations. The Investor group brings added strength to our Board of Directors and organization. I look forward to working with them toward enhancing the value of the Company for our shareholders." * * * * * If the rights offering is made, a registration statement with respect to such rights will be filed with the Securities and Exchange Commission. Such rights may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This news release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these rights in any State in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such State. Each offering will be made only by means of a prospectus. Danskin, Inc. markets and manufactures women's activewear and dancewear under the Danskin(R), and Dance France(R) trademarks and legwear under the Danskin(R), Anne Klein(R), Givenchy(R) and Round-the-Clock(R) trademarks. Danskin's Pennaco Hosiery Division is the largest manufacturer of private label hosiery sold in department stores and fine specialty stores nationwide. Contact: Beverly Eichel Executive Vice President Chief Financial Officer (212)930-9157 EX-4.2 3 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 "Bylaws") 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 accordance with GAAP (as defined herein)) have been provided. All Taxes that the Company is 6 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 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. 7 (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 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 8 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; (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 9 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 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. 10 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 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 11 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. (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 12 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 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 13 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 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; 14 (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; (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; 15 (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. (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 16 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. 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) 17 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, termination agreements, consulting or severance agreements, and agreements relating to labor or collective bargaining matters; 18 (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. (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 19 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 with the business of the Company or any Subsidiary as presently conducted or to be conducted after the Closing Date. 20 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. 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: 21 (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. 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 22 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 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. 23 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, 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. 24 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"). ARTICLE IV. CONDITIONS TO EACH PARTY'S OBLIGATIONS -------------------------------------- 25 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 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 26 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. 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. 27 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. 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 28 ("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. 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. 29 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 Indemnitee 32 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 damage if the 33 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. 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 40 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 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, 41 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 If to the Buyer, to: Andrew Astrachan Danskin Investors, LLC c/o Onyx Partners, Inc. 9595 Wilshire Blvd. Suite 700 42 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 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. 43 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, 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. 44 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-4.2.1 4 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 [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 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 -2- 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 the Company and approved by the Board of Directors (the "Employee Options"); and -3- (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 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 -4- 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 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 -5- (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 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 -6- 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. (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. -7- (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 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. -8- (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. (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 -9- 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 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). -10- (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 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, -11- 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." 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. -12- 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-4.2.2 5 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 ss. 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 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 represents of all of the outstanding Common Stock (and the Common Stock issuable on conversion of -2- 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 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, -3- 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 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 -4- 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: (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: -5- (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. (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 -6- 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 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 -7- 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; (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 -8- 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) 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. -9- (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 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. -10- (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. 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 -11- 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 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 -12- 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 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 -13- 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; (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 -14- 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-4.2.3 6 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 ss. 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 respect thereto. For the avoidance of doubt, if the Financial Targets are not achieved in any -2- 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 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 -3- 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 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 -4- 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 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 -5- 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 Purchase Agreement, Series C Stock, Series D Stock, the Schupak Warrant and the Warrant) or other securities convertible into or exchangeable for Common Stock. -7- (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 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 -8- 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 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 -9- 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 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. -10- (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 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 -11- 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 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. -12- 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 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 -13- 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 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 -14- (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. (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; -15- (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. ***** IN WITNESS WHEREOF, the undersigned has executed this Certificate this 22nd day of September, 1997. DANSKIN, INC. By: --------------------------------- Name: Title: -16- EX-4.2.4 7 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 22, 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 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 $603,511.80 aggregate principal amount of this Note -2- (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 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 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 22, 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 (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 -3- (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; 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), -4- (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 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 -5- 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 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 -6- 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- -----END PRIVACY-ENHANCED MESSAGE-----