Document:

EXHIBIT
10.20

 

AMENDED
AND RESTATED EMPLOYMENT AGREEMENT

 

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”)
is made as of the 28th day of April, 2005 by and between Dan W.
Matthias, a resident of Pennsylvania (the “Employee”), and Mothers Work, Inc.,
a corporation organized and existing under the laws of the State of Delaware
(the “Company”).

 

W I
T  N  E  S  S  E  T  H

 

WHEREAS, the Company and the Employee are parties to
an Employment Agreement, dated July 14, 1994 and an Amendment Agreement,
dated March 14, 2003, pursuant to which the Employee serves as the Chairman
of the Board and Chief Executive Officer of the Company (collectively, the “Existing
Employment Agreement”); and

 

WHEREAS, the Company has determined it is essential to
the business of the Company to provide for the continued employment of the
Employee and Rebecca C. Matthias and certain prohibitions against competition
following their termination of that employment under certain circumstances; and

 

WHEREAS, Section 17 of the Existing Employment
Agreement provides that the Company and the Employee may amend the Existing
Employment Agreement by mutual agreement in writing; and

 

WHEREAS, the Company and the Employee desire to amend
and restate the Existing Employment Agreement in its entirety.

 

NOW, THEREFORE, in consideration of the mutual
covenants and obligations contained herein, and intending to be legally bound,
the parties, subject to the terms and conditions set forth herein, agree as
follows:

 

1.                                       Employment
and Term.  The Company will continue
to employ Employee and Employee hereby accepts continued employment with the
Company, as the Chairman of the Board and Chief Executive Officer (his “Position”)
on the terms herein described for the period beginning on the date hereof and
continuing until terminated by either party (such period of Employee’s
employment is herein referred to as the “Term”).

 

2.                                       Duties.  During his employment by the Company, except
for vacations in accordance with Schedule A hereto, absences due to
temporary illness or as otherwise provided below in Section 3, Employee
shall use his best efforts to serve the Company faithfully and shall devote his
full time, attention, skill and efforts to the performance of the duties
required by or appropriate for his Position.  Employee agrees to assume such duties and
responsibilities as may be customarily incident to the Position, and as may be
reasonably assigned to Employee from time to time by the Board of Directors of
the Company (consistent with the Company’s Bylaws and with the level of
responsibility appropriate to the Position).

 

 

3.                                       Other
Business Activities.  During his
employment by the Company, Employee will not, directly or indirectly, engage in
any other business activities or pursuits whatsoever, except: (i) activities
in connection with any charitable or civic activities, (ii) personal
investments, (iii) service as an executor, trustee or in other similar
fiduciary capacity, or (iv) other activities specifically authorized by
the Compensation Committee of the Company’s Board of Directors; provided,
however, that any of the foregoing exceptions do not: (x) interfere with
Employee’s performance of responsibilities and obligations pursuant to this
Agreement, or (y) create a conflict of interest with Employee’s responsibilities
to the Company.  For avoidance of doubt,
incidental use of Company facilities (such as telephone or email systems) in
furtherance of activities authorized under this paragraph will not constitute
an interference with Employee’s obligations to the Company.

 

4.                                       Director.  During the term off his employment, the
Company shall nominate the Employee for election to the Company’s Board of
Directors and shall use its best efforts to elect Employee to such position.

 

5.                                       Compensation.  The Company shall pay Employee, and Employee
hereby agrees to accept, as compensation for all services rendered hereunder
and for Employee’s covenant not to compete as provided for in Section 8
hereof:

 

5.1.                              Base
Salary.  The Company shall pay
Employee an initial base salary at the annual rate of $491,727 (as the same may
hereafter be increased pursuant to the terms of this section, the “Base Salary”).  The Base Salary shall be inclusive of all
applicable income, social security and other taxes and charges which are
required by law to be withheld by the Company or which are requested to be
withheld by Employee, and which shall be withheld and paid in accordance with
the Company’s normal payroll practice for its similarly situated employees from
time to time in effect.  The Base Salary
shall be increased at the start of each fiscal year of the Company, as
determined by the Compensation Committee of the Company’s Board of Directors,
but in no event shall such increase be less than the corresponding increase in
the Revised Consumer Price Index for All Items for the 1994 Base Year (the “Index”),
as published by the U.S.  Department of
Labor, Bureau of Labor Statistics.  If
the Index is changed so that a base period other than 1994 is used, the Index
used herein shall be converted in accordance with the conversion factor
published by the Bureau of Labor Statistics. 
If the Index is not published, is discontinued or is otherwise revised
during the Term, such other index or calculation with which it is replaced
shall be used in order to obtain substantially the same result as would be
obtained if the Index had continued to be published in the same form and manner
as it was prior to it being replaced.

 

5.2.                              Cash
Bonus.  On such date as bonuses are
paid to other senior executives of the Company, the Company shall pay Employee
a bonus for each year throughout the Term (the “Cash Bonus”) equal to an amount
of between 0% and 100% of Employee’s Base Salary, with a target of 50%.  The actual bonus amount paid, if any, is
based upon the Company’s achievement in the applicable fiscal year of corporate
and/or individual performance goals approved by the Company’s Board of
Directors or its Compensation Committee.

 

5.3.                              Options.  Each year throughout the Term, the Company
shall issue to Employee, as additional compensation (the “Option Compensation”),
within thirty (30) days

 

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following the date on which the Company releases final earnings for the
preceding fiscal year (such date hereinafter referred to as the “Earnings
Release Date”), an option to purchase that number of shares of Common Stock of
the Company, $.01 par value per share (the “Common Stock”) equal to an amount
of between zero and 60,000 with a target of 45,000 (the actual number of shares
subject to the option granted, if any, will be based on the Company’s
achievement in the applicable fiscal year of corporate and/or individual
performance goals approved by the Company’s Board of Directors or its
Compensation Committee) (the “Options”), which amount shall be subject to
equitable adjustment whenever there shall occur a stock split, combination,
reclassification or other similar event involving the Common Stock.  Such Options shall be exercisable at the
closing price of the Common Stock as reported by NASDAQ on the date of grant
and shall vest immediately.

 

6.                                       Benefits
and Expenses.  In addition to those
benefits provided to similarly situated employees of the Company, Employee
shall be entitled to those employee benefits as set forth on Schedule A
hereto, such benefits to include, but not limited to: an automobile; vacation;
health, major medical and hospitalization insurance; disability insurance; life
insurance; expense reimbursement and participation in the Company’s 401(k) plan
(“Benefits”).

 

7.                                       Confidentiality.  Employee recognizes and acknowledges that the
Proprietary Information (as hereinafter defined) is a valuable, special and
unique asset of the Business of the Company. 
As a result, both during the Term and thereafter, Employee shall not,
without prior written consent of the Company, for any reason either directly or
indirectly divulge to any third-party or use for his own benefit, or for any
purpose other than the exclusive benefit of the Company, any confidential,
proprietary, business and technical information or trade secrets of the Company
or of any subsidiary or affiliate of the Company (“Proprietary Information”)
revealed, obtained or developed in the course of his employment with the
Company.  Failure by the Company to mark
any of the Proprietary Information as confidential or proprietary shall not
affect its status as Proprietary Information under the terms of this Agreement.

 

8.                                       Covenant
not to Compete.  Unless Employee’s
employment with the Company is terminated by Employee for Good Reason (pursuant
to Section 9.4) or upon a Change in Control (pursuant to Section 9.6),
the Employee shall not, during the Term and for a period ending two (2) years
after both Employee and Rebecca C. Matthias shall have terminated their employment
with the Company (the “Restricted Period”), do any of the following directly or
indirectly without the prior written consent of the Company:

 

8.1.                              engage
or participate in the Prohibited Business (as defined below) as determined at
the termination of Employee’s employment hereunder;

 

8.2.                              become
interested in (as owner, stockholder, lender, partner, co-venturer, director,
officer, employee, agent, consultant or otherwise) any person, firm,
corporation, association or other entity engaged in any Prohibited Business as
determined at the termination of Employee’s employment hereunder.  Notwithstanding the foregoing, Employee may
hold not more than one percent (1%) of the outstanding securities of any class
of any publicly-traded securities of a company that is engaged in activities
referenced in Section 8.1 hereof;

 

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8.3.                              solicit
or call on, either directly or indirectly, any supplier with whom the Company
shall have dealt at any time during the one (1) year period immediately
preceding the termination of Employee’s employment hereunder;

 

8.4.                              influence
or attempt to influence any supplier or potential supplier of the Company to
terminate or modify any written or oral agreement or course of dealing with the
Company; or

 

8.5.                              influence
or attempt to influence any person to either (i) terminate or modify his
employment, consulting, agency, distributorship or other arrangement with the
Company, or (ii) employ or retain, or arrange to have any other person or
entity employ or retain, any person who has been employed or retained by the
Company as an employee, consultant, agent or distributor of the Company at any
time during the one (1) year period immediately preceding the termination
of Employee’s employment hereunder.

 

The term “Prohibited Business” shall mean both (i) the
manufacturer, marketing and/or sale of maternity clothing, and (ii) any
other specialty apparel retail niche market in which the Company is conducting
or currently implementing plans to conduct its vertically integrated operating
strategy (it being agreed that the scope of any such niche market will be made
by reference to the relevant characteristics upon which such specific market is
defined (e.g. identifiable target customer base, price point, fashion
point-of-view, styling and retail distribution locations)).

 

9.                                       Termination.  Employee’s employment hereunder may be
terminated during the Term upon the occurrence of any one of the events
described in this Section 9.  Upon
termination, Employee shall be entitled only to such compensation and benefits
as described in the applicable subsection of this Section 9.

 

9.1.                              Termination
by Death.  In the event that Employee
dies during the Term, Employee’s employment hereunder shall be terminated
thereby and the Company shall pay to Employee’s executors, legal
representatives or administrators an amount equal to the accrued and unpaid
portion of his Base Salary, Benefits, Cash Bonus and Option Compensation (“Cash
Bonus” and “Option Compensation” collectively, the “Bonuses”) through the end
of the month in which he dies, in addition to the Severance Pay (as defined
herein).  All outstanding options shall
become immediately vested and exercisable. 
For purposes of this Agreement, accrued but unpaid Cash Bonuses and
Option Compensation means any Bonuses payable with respect to a year ending
prior to the date of termination, as well as a pro-rata portion of any Bonuses
that would have been paid for the year of termination, but for that
termination.  Except as otherwise
provided herein, the amount of such Bonuses will be determined and paid in the
same manner and as of the same date that Bonuses would otherwise have been
determined and paid for the applicable year, but for the termination (the “Customary
Payment Date”) and will be pro-rated, as applicable, based on the number of
full and partial months of the year transpired prior to the date of
termination.  However, notwithstanding
the foregoing and except as otherwise provided herein, accrued but unpaid
Option Compensation payable by virtue of a termination of employment will be
paid in the form of a cash lump sum (in lieu of an actual stock option
grant):  (i) in the case of Option
Compensation payable in respect of a completed fiscal year, on the Customary
Payment Date in an amount equal to the product of (A) the number

 

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of shares that would have been subject to the stock option that
otherwise would have been granted in respect of that Option Compensation, but for
the termination, multiplied by (B) the excess, if any, of (I) the Fair
Market Value (as defined in the Company’ Amended and Restated Stock Option
Plan) as of the date of termination over (II) the Fair Market Value on the
first trading day following the Earnings Release Date at the beginning of the
fiscal year for which the Option Compensation is being paid; and (ii) in
the case of Option Compensation payable in respect of the year of termination,
within fifteen (15) days following the date of termination in an amount equal
to the product of (A) forty-five thousand (45,000), pro-rated, based on
the number of full and partial months of the fiscal year transpired prior to
the date of termination, multiplied by (B) the excess, if any, of (I) the
Fair Market Value as of the date of termination over (II) the Fair Market Value
on the first trading day following the Earnings Release Date at the beginning
of the fiscal year for which the Option Compensation is being paid (or the
first trading day following the Earnings Release Date at the beginning of the
prior fiscal year if no Earnings Release Date has yet occurred in the fiscal
year of termination).  Except as
specifically set forth in this Section 9.1, the Company shall have no
liability or obligation hereunder to Employee’s executors, legal
representatives, administrators, heirs or assigns or any other person claiming
under or through him by reason of Employee’s death, except that Employee’s
executors, legal representatives or administrators will be entitled to receive
the payment prescribed under any death or disability benefits plan in which he
is a participant as an employee of the Company, and to exercise any rights
afforded under any compensation or benefit plan then in effect.

 

9.2.                              Termination
for Cause.

 

(a)                                  The
Company may terminate Employee’s employment hereunder at any time for “cause”
upon forty-five (45) days prior written notice to Employee.  For purposes of this Agreement, “cause” shall
mean: (i) any material breach by Employee of any of his material
obligations under Sections 7 or 8 of this Agreement or (ii) other conduct
of Employee involving any type of material disloyalty to the Company or willful
misconduct with respect to the Company, including without limitation fraud,
embezzlement, theft or proven dishonesty in the course of his employment or
conviction of a felony.

 

(b)                                 In
the event of a termination of Employee’s employment hereunder pursuant to Section 9.2(a),
Employee shall be entitled to receive all accrued but unpaid (as of the
effective date of such termination) Base Salary, Benefits and Bonuses.  All Base Salary, Benefits and Bonuses shall
cease at the time of such termination, subject to the terms of any benefit or
compensation plan then in force and applicable to Employee.  All outstanding options which remain unvested
shall be automatically canceled and declared null and void.  Except as specifically set forth in this Section 9.2,
the Company shall have no liability or obligation hereunder by reason of such
termination.

 

(c)                                  At
least thirty (30) days prior to the termination of Employee’s employment
hereunder pursuant to any clause of Section 9.2(a), the Board of Directors
of the Company shall hold a meeting at which Employee shall be given the
opportunity to be heard with respect to such termination and, to the extent
remediable, a reasonable opportunity to remedy the objectionable behavior.

 

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9.3.                              Termination
Without Cause.

 

(a)                                  The
Company may terminate Employee’s employment hereunder at any time, for any
reason, without cause, effective upon the date designated by the Company upon
ninety (90) days written notice to Employee.

 

(b)                                 In
the event of a termination of Employee’s employment hereunder pursuant to Section 9.3(a),
Employee shall be entitled to receive all accrued but unpaid (as of the
effective date of such termination) Base Salary, Benefits and Bonuses plus the
Severance Pay (as defined herein); provided, that the amount of any Option
Compensation will be determined in accordance with this Section 9.3(b).  Subject to Section 9.6, any accrued but
unpaid Option Compensation payable by virtue of a termination pursuant to this Section 9.3
or Section 9.4 will be paid in the form of a cash lump sum (in lieu of an
actual stock option grant) in an amount equal to the estimated fair value
(pro-rated, as applicable) of the stock option that otherwise would have been
granted in respect of that Option Compensation, but for the termination.  Such estimated fair value will be determined
by the Company’s independent auditor: (i) in the case of Option
Compensation payable in respect of a completed fiscal year, as of the
applicable Customary Payment Date using the Black-Scholes model and the
following assumptions: (A) option exercise price equal to the Fair Market
Value as of the Customary Payment Date, (B) remaining option duration
equal to eight years, (C) risk-free rate of return equal to the yield to
maturity as of the Customary Payment Date of non-callable ten year U.S.
Treasury Notes with a remaining term of eight years, (D) volatility equal
to the standard deviation of the daily change in the Fair Market Value for the
eight year period immediately preceding the Customary Payment Date, and (E) a
dividend yield equal to the sum of the dividends per share paid on Common Stock
in the twelve month period immediately preceding the Customary Payment Date,
divided by the Fair Market Value as of the Customary Payment Date; and (ii) in
the case of Option Compensation payable in respect of the year of termination,
as of the date of termination using the Black-Scholes model and the same
assumptions as those set forth above except that: (A) the option exercise
price is equal to the Fair Market Value as of the date of termination, and (B) the
number of shares subject to the option is forty-five thousand (45,000)
pro-rated, based on the number of full and partial months of the fiscal year
transpired prior to the date of termination. 
Except as specifically set forth herein, all Base Salary, Benefits and
Bonuses shall cease at the time of such termination, subject to the terms of
any benefit or compensation plan then in force and applicable to Employee.  All outstanding options shall become
immediately vested and exercisable.

 

(c)                                  For
the purposes of this Agreement, the term “Severance Pay” shall mean a lump sum
in cash to be paid by the Corporation to the Employee within fifteen (15) days
after the effective date of the event giving rise to such payment (the “Severance
Event”) in an amount equal to (i) the Employee’s Base Salary, computed
based on the Base Salary in effect on the date of the Severance Event, which
would have been payable for the thirty-six (36) month period commencing on such
termination, (ii) any compensation previously deferred by the Employee (together
with any accrued interest or earnings thereon) and any accrued vacation pay, in
each case to the extent not theretofore paid and (iii) the maximum amount
of Bonuses and Benefits that would have been payable or otherwise made
available for the thirty-six (36) month period commencing on such
termination.  For this purpose, the
maximum amount of the Option Compensation that would have been made available
to

 

6

 

Employee during the thirty-six (36) month period commencing on such
termination will be deemed to be the estimated fair value of an option to
purchase 180,000 shares of Common Stock, determined by the Company’s
independent auditor as of the date of termination using the Black-Scholes model
and the following assumptions: (A) option exercise price equal to the Fair
Market Value on the date of termination, (B) remaining option duration
equal to eight years, (C) risk-free rate of return equal to the yield to
maturity as of the date of termination of non-callable ten year U.S. Treasury
Notes with a remaining term of eight years, (D) volatility equal to the
standard deviation of the daily change in the Fair Market Value for the eight
year period immediately preceding the date of termination, and (E) a dividend
yield equal to the sum of the dividends per share paid on Common Stock in the
twelve month period immediately preceding the date of termination, divided by
the Fair Market Value as of the date of termination.

 

9.4.                              Termination
for Good Reason.

 

(a)                                  Employee
may terminate Employee’s employment hereunder for “Good Reason” effective upon
the date designated by Employee in a written notice of the termination of his
employment hereunder pursuant to this Section 9.4(a).  “Good Reason” means any of the following,
without Employee’s prior consent: (i) a material, adverse change in title,
authority or duties (including the assignment of duties materially inconsistent
with Employee’s Position); (ii) a reduction in Base Salary or Cash Bonus
opportunity (described in Section 5); or (iii) a requirement that
Employee relocate his current place of residence.  However, none of the foregoing events or
conditions will constitute Good Reason unless Employee provides the Company
with written objection to the event or condition within 90 days following the
occurrence thereof, the Company does not reverse or otherwise cure the event or
condition within 15 days of receiving that written objection, and Employee
resigns his employment within 30 days following the expiration of that cure
period.

 

(b)                                 In
the event of a termination of Employee’s employment hereunder pursuant to Section 9.4(a) hereof,
Employee shall be entitled to receive all accrued but unpaid (as of the
effective date of such termination) Base Salary, Benefits and Bonuses;
provided, however, that any accrued and unpaid Option Compensation to be paid
will be determined in accordance with Section 9.3(b).  In addition, Employee shall be entitled to
the Severance Pay defined in Section 9.3 (c) herein.  Except as specifically set forth in this Section 9.4(b),
all Base Salary, Benefits and Bonuses shall cease at the time of such
termination, subject to the terms of any benefit or compensation plan then in
force and applicable to Employee.  All
outstanding options shall become immediately vested and exercisable.

 

9.5.                              Termination
Without Good Reason.

 

(a)                                  Employee
may terminate Employee’s employment hereunder at any time, for any reason, with
or without Good Reason, effective upon the date designated by Employee upon
ninety (90) days written notice of the termination of his employment hereunder.

 

(b)                                 In
the event of a termination of Employee’s employment hereunder pursuant to Section 9.5(a) hereof,
Employee shall be entitled to receive all accrued but unpaid (as of the effective
date of such termination) Base Salary, Benefits and Bonuses.  Except

 

7

 

as specifically set forth in this Section 95(b), all Base Salary,
Benefits and Bonuses shall cease at the time of such termination, subject to
the terms of any benefit or compensation plan then in force and applicable to
Employee.  All outstanding options which
remain unvested shall be automatically canceled and declared null and void.  Except as specifically set forth in this Section 9.5,
neither the Company nor the Employee shall have any liability or obligation
hereunder by reason of such termination.

 

9.6.                              Change
in Control.

 

(a)                                  If
there is a Change in Control during the Term, Employee may elect at any time
after such event to terminate Employee’s employment hereunder upon fifteen (15)
days prior written notice.

 

(b)                                 For
purposes of this Agreement, a “Change in Control” shall have occurred if any of
the following events shall occur:

 

(i)                                     the
sale, transfer, assignment or other disposition (including by merger or
consolidation) by stockholders of the Company, in one transaction or a series
of related transactions, of more than thirty-five percent (35%) of the voting
power represented by the then outstanding stock of the Company to one or more
Persons, other than any such sales, transfers, assignments or other
dispositions by such stockholders to their respective Affiliates.  For the purposes of this Agreement, (1) ”Affiliate”
means, with respect to any stockholder of the Company, (x) any Person directly
or indirectly controlling, controlled by or under common control with such
stockholder or (y) any officer, director or general partner of such
stockholder; and (2) ”Person” means an individual, partnership,
corporation, joint venture, association, trust, unincorporated association,
other entity, association or group of associated persons acting in concert
(except that such term shall not include employees of the Company, Dan W.
Matthias and/or Rebecca C. Matthias);

 

(ii)                                  the
Corporation sells all or substantially all of its assets to any other Person in
any sale or series of related sales (other than a transaction to which only the
Company and one or more of its subsidiaries are parties); or

 

(iii)                               any
Person becomes a direct or indirect beneficial owner of shares of stock of the
Corporation representing an aggregate of 35% or more of the votes then entitled
to be cast at an election of directors of the Corporation (unless a voting
agreement remains in effect in respect of a greater than 51% of such shares).

 

(c)                                  In
the event of a termination of Employee’s employment hereunder pursuant to Section 9.6,
Employee shall be entitled to receive all accrued but unpaid (as of the
effective date of such termination) Base Salary, Benefits and Bonuses, and the
Severance Pay; provided, however, that if this Agreement is assumed by
any successor to all or substantially all of the Company’s assets and business,
such payments shall be the joint and several obligation of the Company and such
purchaser.  Also, in the event of
termination pursuant to this Section 9.6, all outstanding options shall
become immediately vested and exercisable. 
Except as specifically set forth in this Section 9.6, all Base
Salary, Benefits and

 

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Bonuses shall cease at the time of such termination, subject to the
terms of any benefit or compensation plans then in force and applicable to
Employee.

 

(d)                                 Notwithstanding
any other provision of this Agreement, if the Employee’s employment terminates
for any reason following a Change in Control, then, any accrued and unpaid
Option Compensation payable in connection with that termination will be paid in
the form of a cash lump sum (in lieu of an actual stock option grant): (i) in
the case of Option Compensation payable in respect of a completed fiscal year,
on the Customary Payment Date in an amount equal to the product of (A) the
number of shares that would have been subject to the stock option that
otherwise would have been granted in respect of that Option Compensation, but
for the termination, multiplied by (B) the excess, if any, of (I) the Fair
Market Value as of the date of the Change in Control over (II) the Fair Market
Value as of the first trading day following the Earnings Release Date at the
beginning of the fiscal year for which the Option Compensation is being paid;
and (ii) in the case of Option Compensation payable in respect of the year
of termination, within fifteen (15) days following the date of termination in
an amount equal to the product of (A) forty-five thousand (45,000),
pro-rated, based on the number of full and partial months of the fiscal year
transpired prior to the date of termination, multiplied by (B) the excess,
if any, of (I) the Fair Market Value as of the date of the Change in Control
over (II) the Fair Market Value as of the first trading day following the
Earnings Release Date at the beginning of the fiscal year for which the Option
Compensation is being paid (or the first trading day following the Earnings Release
Day at the beginning of the prior fiscal year if no Earnings Release Day has
yet occurred in the fiscal year of termination).

 

(e)                                  Parachute
Tax Gross-Up.

 

(i)                                     Subject
to Section 9.6(d)(ii) below, if the Total Payments would result in
the imposition of a Parachute Excise Tax on Employee, the Company will make an
additional payment to Employee in an amount such that, after the payment of all
federal and state income, employment and excise taxes on both the Total
Payments and the additional payment made pursuant to this Section 9.6(d)(i),
Employee will be in the same after-tax position as if no Parachute Excise Tax
had been imposed.

 

(ii)                                  Notwithstanding
any other provision of this Agreement, no additional payment will be made to
Employee pursuant to Section 9.6(d)(i) and the Total Payments will
instead be reduced or limited to the Capped Amount, if:

 

(A)                             Employee
resigns his employment pursuant to Section 9.6(a) above during the
six month period following a Change in Control and there is not otherwise Good
Reason for that resignation; or

 

(B)                               the
additional payment described above in Section 9.6(d)(i) would not
cause the Total After-Tax Payments to exceed the Capped Amount (after reduction
for all applicable taxes) by more than 20%.

 

(iii)                               The
determination of whether and to what extent reductions or payments under this Section 9.6(d) are
required will be made in good faith by the Company’s Board of Directors, after
consultation with the Company’s independent auditor.  In

 

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the event of any underpayment or overpayment to Employee (determined
after the application of this Section 9.6(d)), the amount of such
underpayment or overpayment will be immediately paid by the Company to Employee
or refunded by Employee to the Company, as the case may be, with interest at
the applicable federal rate specified in Section 7872(f)(2) of the
Code.

 

(iv)                              For
purposes of this Agreement:

 

(A)                             “Capped
Amount” means the largest amount payable to Employee without causing the application
of a Parachute Excise Tax.

 

(B)                               “Code”
means the Internal Revenue Code of 1986, as amended, and all rules and
regulations promulgated thereunder.

 

(C)                               “Parachute
Excise Tax” means the federal excise tax levied on certain “excess parachute
payments” under Section 4999 of the Code or any successor provision.

 

(D)                              “Total
After-Tax Payments” means the total value of all “parachute payments” (as that
term is defined in Section 280G(b)(2) of the Code) made to or for the
benefit of Employee (whether made under this Agreement or otherwise), after
reduction for all applicable taxes (including, without limitation, the
Parachute Excise Tax).

 

(E)                                “Total
Payments” means the total of all “parachute payments” (as that term is defined
in Section 280G(b)(2) of the Code, but determined without regard to Section 280G(b)(2)(A)(ii))
made to or for the benefit of Employee, whether made under this Agreement or
otherwise.

 

9.7.                              Termination
for Disability.

 

(a)                                  If
Employee is unable, after any reasonable accommodation required by law, to
perform Employee’s duties and responsibilities hereunder by reason of illness
injury or incapacity for more than six (6) consecutive months, during
which time the Company shall continue to compensate Employee hereunder (with
such compensation to be reduced by the amount of any disability payment or
similar payment received by Employee for this time period under any plan
sponsored by the Company or through workers’ compensation), Employee’s
employment hereunder may be terminated by Company.

 

(b)                                 In
the event of a termination of Employee’s employment hereunder pursuant to Section 9.7(a),
Employee will be entitled to receive all accrued and unpaid (as of the date of
such termination) Base Salary, Benefits and Bonuses.  In addition, all outstanding options shall
become immediately vested and exercisable. 
Finally, for a period of thirty (30) months following the date of such
termination:

 

(i)                                     the
Company will make monthly supplemental disability payments to Employee, each
equal to one-sixth (1/6) of the Employee’s Base Salary as of the date of
termination;

 

10

 

(ii)                                  the
Company will: (A) waive the applicable healthcare premium otherwise
payable for COBRA continuation coverage for the Employee (and, to the extent
covered immediately prior to the date of the Employee’s termination, his spouse
and dependents), plus (B) once COBRA continuation coverage expires (unless
such expiration is due to eligibility for other group health insurance or
Medicare), reimburse Employee, on an after-tax basis, for premiums paid for
health insurance coverage providing benefits substantially similar to those
then provided to active employees of the Company; and

 

(iii)                               the
Company will continue to provide the Benefits described in items 1, 3, 6, 7,
and 8 of Schedule A, attached hereto.

 

(c)                                  Amounts
payable under Section 9.7(a) or (b) will be reduced by any
disability or life insurance benefits payable with respect to the same period
under any Company funded disability or death benefit plan, policy or
arrangement or under the Social Security Act. 
To the extent any insurance benefit described in the preceding sentence
is exempt from federal income tax, then for purposes of this reduction, the
amount of that insurance benefit will be deemed to be 150% of the amount
actually received by Employee.  Amounts
payable under Section 9.7(b) will be reduced by all amounts earned by
Employee for the performance of personal services during the thirty (30) month
period therein described.

 

(d)                                 If
there occurs a Change in Control during the thirty (30) month period described
above in Section 9.7(b), then within fifteen (15) days following the
closing of that Change in Control, the Company will make a lump sum cash
payment to Employee equal to the estimated fair value of an option to purchase
180,000 shares of Common Stock, determined by the Company’s independent auditor
as of the date of the Change in Control using the Black-Scholes model and the
following assumptions: (i) option exercise price equal to the Fair Market
Value on the date of the Change in Control, (ii) remaining option duration
equal to eight years, (iii) risk-free rate of return equal to the yield to
maturity as of the date of the Change in Control of non-callable ten year U.S.
Treasury Notes with a remaining term of eight years, (iv) volatility equal
to the standard deviation of the daily change in the Fair Market Value for the
eight year period immediately preceding the date of the Change in Control, and (v) a
dividend yield equal to the sum of the dividends per share paid on Common Stock
in the twelve month period immediately preceding the date of Change in Control,
divided by the Fair Market Value as of the date of the Change in Control.

 

(e)                                  For
purposes of this Section 9.7, except as hereinafter provided, the
determination as to whether Employee is disabled shall be made by a licensed
physician selected by Employee and shall be based upon a full physical
examination and good faith opinion by such physician.  In the event that the Board of Directors
disagrees with such physician’s conclusion, the Board of Directors may require
that Employee submit to a full physical examination by another licensed
physician selected by Employee and approved by the Company.  If the two opinions shall be inconsistent, a
third opinion shall be obtained after full physical examination by a third
licensed physician selected by Employee and approved by the Company.  The majority of the three opinions shall be
conclusive.

 

11

 

(f)                                    Except
as specifically set forth in this Section 9.7, the Company shall have no
liability or obligation to Employee for compensation or benefits by reason of
termination pursuant to this Section 9.7.

 

10.                                 Outplacement
Service.  In the event the Employee’s
employment hereunder is terminated pursuant to Sections 9.3, 9.4 or 9.6, the
Company shall, (a) pay for full outplacement services for Employee, such
payment to be made to an agency selected by Employee, based upon the customary
fees charged by nationally rated firms engaged in such services, and (b) provide
to Employee, for a reasonable period of time following termination of
employment, office space and secretarial support to assist Employee in
searching for and obtaining a new position, the location of such office space
to be reasonably determined by Employee.

 

11.                                 Other
Agreements.

 

11.1.                        Company
agrees that the Company may not relocate its principal executive offices to a
location outside of 15 miles of the current corporate headquarters in
Philadelphia, Pennsylvania without the consent of Employee.

 

11.2.                        In
the event of Termination of Employee’s employment hereunder pursuant to
Sections 9.3, 9.4 or 9.6, at Employee’s election given by written notice to the
Company within 30 days of such Termination (provided such period shall be
extended at the election of Employee to terminate one day after the Employee
could effect the transaction without incurring liability under section 16(b) of
the Securities Exchange Act of 1934), the Company shall be obligated to
repurchase all vested options of the Company owned by Employee at a price equal
to the closing price of the Common Stock on the date of such request less the
exercise price of such options (the “Aggregate Repurchase Price”).  Upon such election, the Company will pay in
immediately available funds, the Aggregate Repurchase Price to Employee and
Employee will relinquish all such options to the Company.

 

11.3.                        In
the event that Employee’s employment hereunder is terminated pursuant to Sections
9.3, 9.4, 9.6 or 9.7, Employee shall be entitled to one opportunity to request
the Company to register all of the Common Stock then owned by the Employee
which is not covered by an effective Registration Statement filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended (the “Unregistered Common Stock”), pursuant to the terms of the
Registration Rights and Right of Co-Sale Agreement dated May, 1992 between
certain stockholders of the Company (including the Employee) and the Company
(the “Registration Agreement”).  In the
event of such employment termination, Employee shall also have the unlimited
right to have his Unregistered Common Stock registered in any registration by
the Company of its Common Stock under the Securities Act of 1933, as amended
(other than pursuant to registrations on Form S-4 and Form S-8).

 

12.                                 Survival
of Provisions.  The provisions of
this Agreement set forth in Sections 7, 8, 11, 14 and 21 hereof shall survive
the termination of Employee’s employment hereunder.

 

12

 

13.                                 Successors
and Assigns.  This Agreement shall
inure to the benefit of and be binding upon the Company and Employee and their
respective successors, executors, administrators, heirs and/or permitted
assigns; provided, however, that neither Employee nor the Company may make any
assignments of this Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other parties hereto,
except that, without such consent, the Company may assign this Agreement to any
successor to all or substantially all of its assets and business by means of
liquidation, dissolution, merger, consolidation, transfer of assets, or
otherwise, provided that such successor assumes in writing all of the
obligations of the Company under this Agreement, subject, however, to Employee’s
rights to termination as provided in Section 9.6 hereof.

 

14.                                 Contractual
Indemnification, Advancement of Expenses. 
In addition to, and without derogation of, any right of indemnification,
defense or being held harmless to which Employee may be entitled pursuant to
law or otherwise, including, without limitation, such rights as he is, from
time to time, entitled to as a current or former director, officer and employee
of the Company pursuant to the Articles of Incorporation of the Company, the
Company agrees as follows:

 

Company shall indemnify and defend Employee and hold
Employee harmless to the maximum extent permitted by law against claims,
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys’ fees, incurred by Employee in connection with defense of, or as a
result of any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (any of the foregoing,
an “Action”) (or any appeal from any Action) in which Employee is made or is
threatened to be made a party by reason of the fact that Employee is or was a
director, officer or employee of Company, regardless of whether such Action is
one brought by or in the right of Company, to procure a judgment in Company’s
favor, or other than by or in the right of Company.

 

Expenses (including attorneys’ fees) incurred by
Employee in defending an Action shall be paid by Company in advance of the
final disposition of such Action to the maximum extent permitted by law
promptly following receipt by Company of evidence of Employee’s incurring any
such expenses.

 

In the event that in any Action, Employee concludes
that based on the opinion of counsel selected by him there exists in such
Action an actual or potential conflict between the interests or position of
Company or any other party to the Action which Company has undertaken to
defend, Employee shall be entitled, at Company’s expense, to engage separate
counsel of his own selection reasonably acceptable to Company to represent him
in such Action.

 

To the extent Company shall maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
Company against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not Company
would have the power to indemnify him against such liability, Company shall
include Employee as a named insured under such insurance with respect to any
period as to which Employee was a director, officer or employee of Company.

 

13

 

Employee agrees not to settle any Action against him
without the consent of Company, which consent may not be unreasonably withheld.

 

The indemnification and advancement of expenses
provided by this Section shall continue to Employee after the termination
of this Agreement and shall inure to the benefit of Employee’s heirs, executors
and administrators and shall be paid unless and until Employee’s conduct which
gave rise to the action shall have been adjudicated by a court to have been
willful and in bad faith.

 

15.                                 Employee
Benefits.  This Agreement shall not
be construed to be in lieu or to the exclusion of any other rights, benefits
and privileges to which Employee may be entitled as an employee of the Company
under any retirement, pension, profit-sharing, insurance, hospital or other
plans or benefits which may now be in effect or which may hereafter be adopted.

 

16.                                 Notice.  Any notice or communication required or
permitted under this Agreement shall be made in writing and sent by certified
or registered mail, return receipt requested, addressed as follows:

 

If to Employee:

 

Dan W.
Matthias

6238 Ross Road

Honeybrook, PA 19344

 

If to Company:

 

Mothers
Work, Inc.

456 North Fifth Street

Philadelphia, PA 19123

 

or to such other address as either party may from time
to time duly specify by notice given to the other party in the manner specified
above.

 

17.                                 Entire
Agreement; Amendments.  This
Agreement contains the entire agreement and understanding of the parties hereto
relating to the subject matter hereof (except for specific cross-references to
previously executed Agreements), and merges and supersedes all prior and
contemporaneous discussions, agreements and understandings of every nature
between the parties hereto relating to the employment of Employee with the
Company (including, without limitation, the Existing Employment
Agreement).  This Agreement may not be
changed or modified, except by an Agreement in writing signed by each of the
parties hereto.

 

18.                                 Waiver.  The waiver of the breach of any term or
provision of this Agreement shall not operate as or be construed to be a waiver
of any other or subsequent breach of this Agreement.

 

19.                                 Governing
Law.  This Agreement shall be
construed and enforced in accordance with the laws of the State of Delaware.

 

14

 

20.                                 Invalidity.  In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the validity of any other provision of this
Agreement, and such provision(s) shall be deemed modified to the extent
necessary to make it enforceable.

 

21.                                 Specific
Enforcement; Extension of Period.

 

21.1.                        Employee
acknowledges that the restrictions contained in Sections 7 and 8 hereof are
reasonable and necessary to protect the legitimate interests of the Company and
its affiliates and that the Company would not have entered into this Agreement
in the absence of such restrictions. 
Employee also acknowledges that any breach by him of Sections 7 or 8
hereof will cause continuing and irreparable injury to the Company for which
monetary damages would not be an adequate remedy.  The Employee shall not, in any action or
proceeding to enforce any of the provisions of this Agreement, assert the claim
or defense that an adequate remedy at law exists.  In the event of such breach by Employee, the
Company shall have the right to enforce the provisions of Sections 7 and 8 of
this Agreement by seeking injunctive or other relief in any court, and this
Agreement shall not in any way limit remedies of law or in equity otherwise
available to the Company.  If an action
at law or in equity is necessary to enforce or interpret the terms of this
Agreement, the prevailing party shall be entitled to recover, in addition to
any other relief, reasonable attorneys’ fees, costs and disbursements.  In the event that the provisions of Sections
7 or 8 hereof should ever be adjudicated to exceed the time, geographic, or
other limitations permitted by applicable law in any applicable jurisdiction,
then such provisions shall be deemed reformed in such jurisdiction to the
maximum time, geographic, or other limitations permitted by applicable law.

 

21.2.                        In
the event that Employee shall be in breach of any of the restrictions contained
in Section 8 hereof, then the Restricted Period shall be extended for a
period of time equal to the period of time that Employee is in breach of such
restriction.

 

21.3.                        The
parties agree that in any action brought under the Section 21, venue will,
be in the federal or state courts situate in the Eastern District of
Pennsylvania and the parties shall be subject to the personal jurisdiction of
such courts.

 

22.                                 Counterparts.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.

 

23.                                 Compliance
with Section 409A of the Code. 
Notwithstanding any other provision of this Agreement, no payment will
be made hereunder earlier than the date consistent with Section 409A of
the Code or related guidance.

 

15

 

IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed the day and year first written above.

 

 

	
  ATTEST:

  	
  MOTHERS WORK,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
      /s/  Rebecca
  C. Matthias

  	
   

  	
  By:

  	
      /s/ Edward
  M. Krell

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Executive Vice
  President –

  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Dan W.
  Matthias

  	
   

  
	
   

  	
  DAN W. MATTHIAS

  
								

 

16

 

SCHEDULE A

 

EMPLOYEE BENEFITS OF DAN
W. MATTHIAS

 

1.                                       Automobile
and insurance coverage for the use of that automobile, in each case
commensurate with that presently provided.

 

2.                                       Vacation:  5 Weeks

 

3.                                       Life
Insurance:  One million dollar
($1,000,000) death benefit.

 

4.                                       Health
and Life Insurance:  Such other
benefits as are received by similarly situated executives in comparable
companies, all as approved by the Company’s Board of Directors, to include
umbrella medical insurance in excess of applicable lifetime maximums under the
Company’s health insurance program for Employee, and an annual physical, gym or
wellness program up to $5,000.

 

5.                                       Home
Office Support:  To include computer,
fax, other equipment, plus telephone lines to support equipment, plus two voice
phone lines. (This does not include any rent, or other cash compensation.)

 

6.                                       Sample
Sewer:  For personal fitting of
clothes.

 

7.                                       Personal
Tax Services:  The Company will pay
on Employee’s behalf, or reimburse Employee for, the reasonable costs of tax
accounting and tax return preparation services rendered by Employee’s chosen
provider following delivery of proper documentation of those costs.

 

8.                                       Harvard
Club Membership.

 

9.                                       Business
Publications and Subscriptions:  Such
as The Wall Street Journal and Womens Wear Daily.

 

10.                                 Other:  Such other benefits as: (i) are provided
to other executives of the Company (excluding, however, those specific benefits
covered herein), and, in addition to the foregoing, (ii) those determined
by the Company’s Board of Directors.

 

A-1EXHIBIT 10.21

 

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

 

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”)
is made as of the 28th day of April, 2005 by and between Rebecca C.
Matthias, a resident of Pennsylvania (the “Employee”), and Mothers Work, Inc.,
a corporation organized and existing under the laws of the State of Delaware
(the “Company”).

 

W I
T  N  E  S  S  E  T  H

 

WHEREAS, the Company and the Employee are parties to
an Employment Agreement, dated July 14, 1994 and an Amendment Agreement,
dated March 14, 2003, pursuant to which the Employee serves as the
President and Chief Operating Officer of the Company (collectively, the “Existing
Employment Agreement”); and

 

WHEREAS, the Company has determined it is essential to
the business of the Company to provide for the continued employment of the
Employee and Dan W. Matthias and certain prohibitions against competition
following their termination of that employment under certain circumstances; and

 

WHEREAS, Section 17 of the Existing Employment Agreement
provides that the Company and the Employee may amend the Existing Employment
Agreement by mutual agreement in writing; and

 

WHEREAS, the Company and the Employee desire to amend
and restate the Existing Employment Agreement in its entirety.

 

NOW, THEREFORE, in consideration of the mutual
covenants and obligations contained herein, and intending to be legally bound,
the parties, subject to the terms and conditions set forth herein, agree as
follows:

 

1.                                       Employment
and Term.  The Company will continue
to employ Employee and Employee hereby accepts continued employment with the
Company, as President and Chief Operating Officer (her “Position”) on the terms
herein described for the period beginning on the date hereof and continuing
until terminated by either party (such period of Employee’s employment is
herein referred to as the “Term”).

 

2.                                       Duties.  During her employment by the Company, except
for vacations in accordance with Schedule A hereto, absences due to
temporary illness or as otherwise provided below in Section 3, Employee
shall use her best efforts to serve the Company faithfully and shall devote her
full time, attention, skill and efforts to the performance of the duties
required by or appropriate for her Position. 
Employee agrees to assume such duties and responsibilities as may be
customarily incident to the Position, and as may be reasonably assigned to
Employee from time to time by the Board of Directors of the Company (consistent
with the Company’s Bylaws and with the level of responsibility appropriate to
the Position).

 

 

3.                                       Other
Business Activities.  During her
employment by the Company, Employee will not, directly or indirectly, engage in
any other business activities or pursuits whatsoever, except: (i)
activities in connection with any charitable or civic activities, (ii) personal
investments, (iii) service as an executor, trustee or in other similar
fiduciary capacity, or (iv) other activities specifically authorized by the
Compensation Committee of the Company’s Board of Directors; provided, however,
that any of the foregoing exceptions do not: (x) interfere with Employee’s
performance of responsibilities and obligations pursuant to this Agreement, or
(y) create a conflict of interest with Employee’s responsibilities to the
Company.  For avoidance of doubt,
incidental use of Company facilities (such as telephone or email systems) in
furtherance of activities authorized under this paragraph will not constitute
an interference with Employee’s obligations to the Company.

 

4.                                       Director.  During the term off her employment, the
Company shall nominate the Employee for election to the Company’s Board of
Directors and shall use its best efforts to elect Employee to such position.

 

5.                                       Compensation.  The Company shall pay Employee, and Employee hereby
agrees to accept, as compensation for all services rendered hereunder and for
Employee’s covenant not to compete as provided for in Section 8 hereof:

 

5.1.                              Base
Salary.  The Company shall pay
Employee an initial base salary at the annual rate of $491,727 (as the same may
hereafter be increased pursuant to the terms of this section, the “Base Salary”).  The Base Salary shall be inclusive of all
applicable income, social security and other taxes and charges which are
required by law to be withheld by the Company or which are requested to be
withheld by Employee, and which shall be withheld and paid in accordance with
the Company’s normal payroll practice for its similarly situated employees from
time to time in effect.  The Base Salary
shall be increased at the start of each fiscal year of the Company, as
determined by the Compensation Committee of the Company’s Board of Directors,
but in no event shall such increase be less than the corresponding increase in
the Revised Consumer Price Index for All Items for the 1994 Base Year (the “Index”),
as published by the U.S.  Department of
Labor, Bureau of Labor Statistics.  If
the Index is changed so that a base period other than 1994 is used, the Index
used herein shall be converted in accordance with the conversion factor
published by the Bureau of Labor Statistics. 
If the Index is not published, is discontinued or is otherwise revised
during the Term, such other index or calculation with which it is replaced
shall be used in order to obtain substantially the same result as would be
obtained if the Index had continued to be published in the same form and manner
as it was prior to it being replaced.

 

5.2.                              Cash
Bonus.  On such date as bonuses are
paid to other senior executives of the Company, the Company shall pay Employee
a bonus for each year throughout the Term (the “Cash Bonus”) equal to an amount
of between 0% and 100% of Employee’s Base Salary, with a target of 50%.  The actual bonus amount paid, if any, is
based upon the Company’s achievement in the applicable fiscal year of corporate
and/or individual performance goals approved by the Company’s Board of
Directors or its Compensation Committee.

 

5.3.                              Options.  Each year throughout the Term, the Company
shall issue to Employee, as additional compensation (the “Option Compensation”),
within thirty (30) days

 

2

 

following the date on which the Company releases final earnings for the
preceding fiscal year (such date hereinafter referred to as the “Earnings Release
Date”), an option to purchase that number of shares of Common Stock of the
Company, $.01 par value per share (the “Common Stock”) equal to an amount of
between zero and 60,000 with a target of 45,000 (the actual number of shares
subject to the option granted, if any, will be based on the Company’s
achievement in the applicable fiscal year of corporate and/or individual
performance goals approved by the Company’s Board of Directors or its
Compensation Committee) (the “Options”), which amount shall be subject to
equitable adjustment whenever there shall occur a stock split, combination,
reclassification or other similar event involving the Common Stock.  Such Options shall be exercisable at the
closing price of the Common Stock as reported by NASDAQ on the date of grant
and shall vest immediately.

 

6.                                       Benefits
and Expenses.  In addition to those
benefits provided to similarly situated employees of the Company, Employee
shall be entitled to those employee benefits as set forth on Schedule A
hereto, such benefits to include, but not limited to: an automobile; vacation;
health, major medical and hospitalization insurance; disability insurance; life
insurance; expense reimbursement and participation in the Company’s 401(k) plan
(“Benefits”).

 

7.                                       Confidentiality.
 Employee recognizes and acknowledges
that the Proprietary Information (as hereinafter defined) is a valuable,
special and unique asset of the Business of the Company.  As a result, both during the Term and
thereafter, Employee shall not, without prior written consent of the Company,
for any reason either directly or indirectly divulge to any third-party or use
for her own benefit, or for any purpose other than the exclusive benefit of the
Company, any confidential, proprietary, business and technical information or
trade secrets of the Company or of any subsidiary or affiliate of the Company (“Proprietary
Information”) revealed, obtained or developed in the course of her employment
with the Company.  Failure by the Company
to mark any of the Proprietary Information as confidential or proprietary shall
not affect its status as Proprietary Information under the terms of this
Agreement.

 

8.                                       Covenant
not to Compete.  Unless Employee’s
employment with the Company is terminated by Employee for Good Reason (pursuant
to Section 9.4) or upon a Change in Control (pursuant to Section 9.6),
the Employee shall not, during the Term and for a period ending two (2) years
after both Employee and Dan W. Matthias shall have terminated their employment
with the Company (the “Restricted Period”), do any of the following directly or
indirectly without the prior written consent of the Company:

 

8.1.                              engage
or participate in the Prohibited Business (as defined below) as determined at
the termination of Employee’s employment hereunder;

 

8.2.                              become
interested in (as owner, stockholder, lender, partner, co-venturer, director,
officer, employee, agent, consultant or otherwise) any person, firm,
corporation, association or other entity engaged in any Prohibited Business as
determined at the termination of Employee’s employment hereunder.  Notwithstanding the foregoing, Employee may
hold not more than one percent (1%) of the outstanding securities of any class
of any publicly-traded securities of a company that is engaged in activities
referenced in Section 8.1 hereof;

 

3

 

8.3.                              solicit
or call on, either directly or indirectly, any supplier with whom the Company
shall have dealt at any time during the one (1) year period immediately
preceding the termination of Employee’s employment hereunder;

 

8.4.                              influence
or attempt to influence any supplier or potential supplier of the Company to
terminate or modify any written or oral agreement or course of dealing with the
Company; or

 

8.5.                              influence
or attempt to influence any person to either (i) terminate or modify her
employment, consulting, agency, distributorship or other arrangement with the
Company, or (ii) employ or retain, or arrange to have any other person or
entity employ or retain, any person who has been employed or retained by the
Company as an employee, consultant, agent or distributor of the Company at any
time during the one (1) year period immediately preceding the termination of
Employee’s employment hereunder.

 

The term “Prohibited Business” shall mean both (i) the
manufacturer, marketing and/or sale of maternity clothing, and (ii) any other
specialty apparel retail niche market in which the Company is conducting or
currently implementing plans to conduct its vertically integrated operating
strategy (it being agreed that the scope of any such niche market will be made
by reference to the relevant characteristics upon which such specific market is
defined (e.g. identifiable target customer base, price point, fashion
point-of-view, styling and retail distribution locations)).

 

9.                                       Termination.  Employee’s employment hereunder may be
terminated during the Term upon the occurrence of any one of the events
described in this Section 9.  Upon
termination, Employee shall be entitled only to such compensation and benefits
as described in the applicable subsection of this Section 9.

 

9.1.                              Termination
by Death.  In the event that Employee
dies during the Term, Employee’s employment hereunder shall be terminated
thereby and the Company shall pay to Employee’s executors, legal
representatives or administrators an amount equal to the accrued and unpaid
portion of her Base Salary, Benefits, Cash Bonus and Option Compensation (“Cash
Bonus” and “Option Compensation” collectively, the “Bonuses”) through the end
of the month in which she dies, in addition to the Severance Pay (as defined
herein).  All outstanding options shall
become immediately vested and exercisable. 
For purposes of this Agreement, accrued but unpaid Cash Bonuses and
Option Compensation means any Bonuses payable with respect to a year ending
prior to the date of termination, as well as a pro-rata portion of any Bonuses
that would have been paid for the year of termination, but for that
termination.  Except as otherwise
provided herein, the amount of such Bonuses will be determined and paid in the
same manner and as of the same date that Bonuses would otherwise have been
determined and paid for the applicable year, but for the termination (the “Customary
Payment Date”) and will be pro-rated, as applicable, based on the number of
full and partial months of the year transpired prior to the date of
termination.  However, notwithstanding
the foregoing and except as otherwise provided herein, accrued but unpaid
Option Compensation payable by virtue of a termination of employment will be
paid in the form of a cash lump sum (in lieu of an actual stock option grant):
(i) in the case of Option Compensation payable in respect of a completed fiscal
year, on the Customary Payment Date in an amount equal to the product of (A)
the number

 

4

 

of shares that would have been subject to the stock option that
otherwise would have been granted in respect of that Option Compensation, but
for the termination, multiplied by (B) the excess, if any, of (I) the Fair
Market Value (as defined in the Company’ Amended and Restated Stock Option
Plan) as of the date of termination over (II) the Fair Market Value on the
first trading day following the Earnings Release Date at the beginning of the
fiscal year for which the Option Compensation is being paid; and (ii) in the
case of Option Compensation payable in respect of the year of termination,
within fifteen (15) days following the date of termination in an amount equal
to the product of (A) forty-five thousand (45,000), pro-rated, based on the
number of full and partial months of the fiscal year transpired prior to the
date of termination, multiplied by (B) the excess, if any, of (I) the Fair
Market Value as of the date of termination over (II) the Fair Market Value on
the first trading day following the Earnings Release Date at the beginning of
the fiscal year for which the Option Compensation is being paid (or the first
trading day following the Earnings Release Date at the beginning of the prior
fiscal year if no Earnings Release Date has yet occurred in the fiscal year of
termination).  Except as specifically set
forth in this Section 9.1, the Company shall have no liability or
obligation hereunder to Employee’s executors, legal representatives,
administrators, heirs or assigns or any other person claiming under or through
her by reason of Employee’s death, except that Employee’s executors, legal
representatives or administrators will be entitled to receive the payment
prescribed under any death or disability benefits plan in which she is a
participant as an employee of the Company, and to exercise any rights afforded
under any compensation or benefit plan then in effect.

 

9.2.                              Termination
for Cause.

 

(a)                                  The
Company may terminate Employee’s employment hereunder at any time for “cause”
upon forty-five (45) days prior written notice to Employee.  For purposes of this Agreement, “cause” shall
mean: (i) any material breach by Employee of any of her material obligations
under Sections 7 or 8 of this Agreement or (ii) other conduct of Employee
involving any type of material disloyalty to the Company or willful misconduct
with respect to the Company, including without limitation fraud, embezzlement,
theft or proven dishonesty in the course of her employment or conviction of a
felony.

 

(b)                                 In
the event of a termination of Employee’s employment hereunder pursuant to Section 9.2(a),
Employee shall be entitled to receive all accrued but unpaid (as of the
effective date of such termination) Base Salary, Benefits and Bonuses.  All Base Salary, Benefits and Bonuses shall
cease at the time of such termination, subject to the terms of any benefit or
compensation plan then in force and applicable to Employee.  All outstanding options which remain unvested
shall be automatically canceled and declared null and void.  Except as specifically set forth in this Section 9.2,
the Company shall have no liability or obligation hereunder by reason of such
termination.

 

(c)                                  At
least thirty (30) days prior to the termination of Employee’s employment
hereunder pursuant to any clause of Section 9.2(a), the Board of Directors
of the Company shall hold a meeting at which Employee shall be given the
opportunity to be heard with respect to such termination and, to the extent
remediable, a reasonable opportunity to remedy the objectionable behavior.

 

5

 

9.3.                              Termination
Without Cause.

 

(a)                                  The
Company may terminate Employee’s employment hereunder at any time, for any
reason, without cause, effective upon the date designated by the Company upon
ninety (90) days written notice to Employee.

 

(b)                                 In
the event of a termination of Employee’s employment hereunder pursuant to Section 9.3(a),
Employee shall be entitled to receive all accrued but unpaid (as of the
effective date of such termination) Base Salary, Benefits and Bonuses plus the
Severance Pay (as defined herein); provided, that the amount of any
Option Compensation will be determined in accordance with this Section 9.3(b).  Subject to Section 9.6, any accrued but
unpaid Option Compensation payable by virtue of a termination pursuant to this Section 9.3
or Section 9.4 will be paid in the form of a cash lump sum (in lieu of an
actual stock option grant) in an amount equal to the estimated fair value
(pro-rated, as applicable) of the stock option that otherwise would have been
granted in respect of that Option Compensation, but for the termination.  Such estimated fair value will be determined
by the Company’s independent auditor: (i) in the case of Option Compensation
payable in respect of a completed fiscal year, as of the applicable Customary
Payment Date using the Black-Scholes model and the following assumptions: (A)
option exercise price equal to the Fair Market Value as of the Customary
Payment Date, (B) remaining option duration equal to eight years, (C) risk-free
rate of return equal to the yield to maturity as of the Customary Payment Date
of non-callable ten year U.S. Treasury Notes with a remaining term of eight
years, (D) volatility equal to the standard deviation of the daily change in
the Fair Market Value for the eight year period immediately preceding the
Customary Payment Date, and (E) a dividend yield equal to the sum of the
dividends per share paid on Common Stock in the twelve month period immediately
preceding the Customary Payment Date, divided by the Fair Market Value as of
the Customary Payment Date; and (ii) in the case of Option Compensation payable
in respect of the year of termination, as of the date of termination using the
Black-Scholes model and the same assumptions as those set forth above except
that: (A) the option exercise price is equal to the Fair Market Value as of the
date of termination, and (B) the number of shares subject to the option is forty-five
thousand (45,000) pro-rated, based on the number of full and partial months of
the fiscal year transpired prior to the date of termination.  Except as specifically set forth herein, all
Base Salary, Benefits and Bonuses shall cease at the time of such termination,
subject to the terms of any benefit or compensation plan then in force and
applicable to Employee.  All outstanding
options shall become immediately vested and exercisable.

 

(c)                                  For
the purposes of this Agreement, the term “Severance Pay” shall mean a lump sum
in cash to be paid by the Corporation to the Employee within fifteen (15) days
after the effective date of the event giving rise to such payment (the “Severance
Event”) in an amount equal to (i) the Employee’s Base Salary, computed based on
the Base Salary in effect on the date of the Severance Event, which would have
been payable for the thirty-six (36) month period commencing on such
termination, (ii) any compensation previously deferred by the Employee
(together with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid and (iii) the
maximum amount of Bonuses and Benefits that would have been payable or
otherwise made available for the thirty-six (36) month period commencing on
such termination.  For this purpose, the
maximum amount of the Option Compensation that would have been made available
to

 

6

 

Employee during the thirty-six (36) month period commencing on such
termination will be deemed to be the estimated fair value of an option to
purchase 180,000 shares of Common Stock, determined by the Company’s
independent auditor as of the date of termination using the Black-Scholes model
and the following assumptions: (A) option exercise price equal to the Fair
Market Value on the date of termination, (B) remaining option duration equal to
eight years, (C) risk-free rate of return equal to the yield to maturity as of
the date of termination of non-callable ten year U.S. Treasury Notes with a
remaining term of eight years, (D) volatility equal to the standard deviation
of the daily change in the Fair Market Value for the eight year period
immediately preceding the date of termination, and (E) a dividend yield equal
to the sum of the dividends per share paid on Common Stock in the twelve month
period immediately preceding the date of termination, divided by the Fair
Market Value as of the date of termination.

 

9.4.                              Termination
for Good Reason.

 

(a)                                  Employee
may terminate Employee’s employment hereunder for “Good Reason” effective upon
the date designated by Employee in a written notice of the termination of her
employment hereunder pursuant to this Section 9.4(a).  “Good Reason” means any of the following,
without Employee’s prior consent: (i) a material, adverse change in title,
authority or duties (including the assignment of duties materially inconsistent
with Employee’s Position); (ii) a reduction in Base Salary or Cash Bonus
opportunity (described in Section 5); or (iii) a requirement that Employee
relocate her current place of residence. 
However, none of the foregoing events or conditions will constitute Good
Reason unless Employee provides the Company with written objection to the event
or condition within 90 days following the occurrence thereof, the Company does
not reverse or otherwise cure the event or condition within 15 days of
receiving that written objection, and Employee resigns her employment within 30
days following the expiration of that cure period.

 

(b)                                 In
the event of a termination of Employee’s employment hereunder pursuant to Section 9.4(a)
hereof, Employee shall be entitled to receive all accrued but unpaid (as of the
effective date of such termination) Base Salary, Benefits and Bonuses; provided,
however, that any accrued and unpaid Option Compensation to be paid will be
determined in accordance with Section 9.3(b).  In addition, Employee shall be entitled to
the Severance Pay defined in Section 9.3 (c) herein.  Except as specifically set forth in this Section 9.4(b),
all Base Salary, Benefits and Bonuses shall cease at the time of such
termination, subject to the terms of any benefit or compensation plan then in
force and applicable to Employee.  All
outstanding options shall become immediately vested and exercisable.

 

9.5.                              Termination
Without Good Reason.

 

(a)                                  Employee
may terminate Employee’s employment hereunder at any time, for any reason, with
or without Good Reason, effective upon the date designated by Employee upon
ninety (90) days written notice of the termination of her employment hereunder.

 

(b)                                 In
the event of a termination of Employee’s employment hereunder pursuant to Section 9.5(a)
hereof, Employee shall be entitled to receive all accrued but unpaid (as of the
effective date of such termination) Base Salary, Benefits and Bonuses.  Except

 

7

 

as specifically set forth in this Section 95(b), all Base Salary,
Benefits and Bonuses shall cease at the time of such termination, subject to
the terms of any benefit or compensation plan then in force and applicable to
Employee.  All outstanding options which
remain unvested shall be automatically canceled and declared null and
void.  Except as specifically set forth
in this Section 9.5, neither the Company nor the Employee shall have any
liability or obligation hereunder by reason of such termination.

 

9.6.                              Change
in Control.

 

(a)                                  If
there is a Change in Control during the Term, Employee may elect at any time
after such event to terminate Employee’s employment hereunder upon fifteen (15)
days prior written notice.

 

(b)                                 For
purposes of this Agreement, a “Change in Control” shall have occurred if any of
the following events shall occur:

 

(i)                                     the
sale, transfer, assignment or other disposition (including by merger or consolidation)
by stockholders of the Company, in one transaction or a series of related
transactions, of more than thirty-five percent (35%) of the voting power
represented by the then outstanding stock of the Company to one or more
Persons, other than any such sales, transfers, assignments or other
dispositions by such stockholders to their respective Affiliates.  For the purposes of this Agreement, (1) “Affiliate”
means, with respect to any stockholder of the Company, (x) any Person directly
or indirectly controlling, controlled by or under common control with such
stockholder or (y) any officer, director or general partner of such
stockholder; and (2) “Person” means an individual, partnership, corporation,
joint venture, association, trust, unincorporated association, other entity,
association or group of associated persons acting in concert (except that such
term shall not include employees of the Company, Dan W. Matthias and/or Rebecca
C. Matthias);

 

(ii)                                  the
Corporation sells all or substantially all of its assets to any other Person in
any sale or series of related sales (other than a transaction to which only the
Company and one or more of its subsidiaries are parties); or

 

(iii)                               any Person becomes a
direct or indirect beneficial owner of shares of stock of the Corporation
representing an aggregate of 35% or more of the votes then entitled to be cast
at an election of directors of the Corporation (unless a voting agreement
remains in effect in respect of a greater than 51% of such shares).

 

(c)                                  In
the event of a termination of Employee’s employment hereunder pursuant to Section 9.6,
Employee shall be entitled to receive all accrued but unpaid (as of the
effective date of such termination) Base Salary, Benefits and Bonuses, and the
Severance Pay; provided, however, that if this Agreement is assumed by
any successor to all or substantially all of the Company’s assets and business,
such payments shall be the joint and several obligation of the Company and such
purchaser.  Also, in the event of
termination pursuant to this Section 9.6, all outstanding options shall
become immediately vested and exercisable. 
Except as specifically set forth in this Section 9.6, all Base
Salary, Benefits and

 

8

 

Bonuses shall cease at the time of such termination, subject to the
terms of any benefit or compensation plans then in force and applicable to
Employee.

 

(d)                                 Notwithstanding
any other provision of this Agreement, if the Employee’s employment terminates
for any reason following a Change in Control, then, any accrued and unpaid
Option Compensation payable in connection with that termination will be paid in
the form of a cash lump sum (in lieu of an actual stock option grant): (i) in
the case of Option Compensation payable in respect of a completed fiscal year,
on the Customary Payment Date in an amount equal to the product of (A) the
number of shares that would have been subject to the stock option that
otherwise would have been granted in respect of that Option Compensation, but
for the termination, multiplied by (B) the excess, if any, of (I) the Fair
Market Value as of the date of the Change in Control over (II) the Fair Market
Value as of the first trading day following the Earnings Release Date at the
beginning of the fiscal year for which the Option Compensation is being paid;
and (ii) in the case of Option Compensation payable in respect of the year of
termination, within fifteen (15) days following the date of termination in an
amount equal to the product of (A) forty-five thousand (45,000), pro-rated,
based on the number of full and partial months of the fiscal year transpired
prior to the date of termination, multiplied by (B) the excess, if any, of (I)
the Fair Market Value as of the date of the Change in Control over (II) the
Fair Market Value as of the first trading day following the Earnings Release
Date at the beginning of the fiscal year for which the Option Compensation is
being paid (or the first trading day following the Earnings Release Day at the
beginning of the prior fiscal year if no Earnings Release Day has yet occurred
in the fiscal year of termination).

 

(e)                                  Parachute
Tax Gross-Up.

 

(i)                                     Subject
to Section 9.6(d)(ii) below, if the Total Payments would result in the
imposition of a Parachute Excise Tax on Employee, the Company will make an
additional payment to Employee in an amount such that, after the payment of all
federal and state income, employment and excise taxes on both the Total
Payments and the additional payment made pursuant to this Section 9.6(d)(i),
Employee will be in the same after-tax position as if no Parachute Excise Tax
had been imposed.

 

(ii)                                  Notwithstanding
any other provision of this Agreement, no additional payment will be made to
Employee pursuant to Section 9.6(d)(i) and the Total Payments will instead
be reduced or limited to the Capped Amount, if:

 

(A)                             Employee
resigns her employment pursuant to Section 9.6(a) above during the six
month period following a Change in Control and there is not otherwise Good
Reason for that resignation; or

 

(B)                               the
additional payment described above in Section 9.6(d)(i) would not cause
the Total After-Tax Payments to exceed the Capped Amount (after reduction for
all applicable taxes) by more than 20%.

 

(iii)                               The determination of
whether and to what extent reductions or payments under this Section 9.6(d)
are required will be made in good faith by the Company’s Board of Directors,
after consultation with the Company’s independent auditor.  In

 

9

 

the event of any underpayment or overpayment to Employee (determined
after the application of this Section 9.6(d)), the amount of such
underpayment or overpayment will be immediately paid by the Company to Employee
or refunded by Employee to the Company, as the case may be, with interest at
the applicable federal rate specified in Section 7872(f)(2) of the Code.

 

(iv)                              For
purposes of this Agreement:

 

(A)                             “Capped
Amount” means the largest amount payable to Employee without causing the
application of a Parachute Excise Tax.

 

(B)                               “Code”
means the Internal Revenue Code of 1986, as amended, and all rules and
regulations promulgated thereunder.

 

(C)                               “Parachute
Excise Tax” means the federal excise tax levied on certain “excess parachute
payments” under Section 4999 of the Code or any successor provision.

 

(D)                              “Total
After-Tax Payments” means the total value of all “parachute payments” (as that
term is defined in Section 280G(b)(2) of the Code) made to or for the
benefit of Employee (whether made under this Agreement or otherwise), after
reduction for all applicable taxes (including, without limitation, the
Parachute Excise Tax).

 

(E)                                “Total
Payments” means the total of all “parachute payments” (as that term is defined
in Section 280G(b)(2) of the Code, but determined without regard to Section 280G(b)(2)(A)(ii))
made to or for the benefit of Employee, whether made under this Agreement or
otherwise.

 

9.7.                              Termination
for Disability.

 

(a)                                  If
Employee is unable, after any reasonable accommodation required by law, to
perform Employee’s duties and responsibilities hereunder by reason of illness
injury or incapacity for more than six (6) consecutive months, during which
time the Company shall continue to compensate Employee hereunder (with such
compensation to be reduced by the amount of any disability payment or similar
payment received by Employee for this time period under any plan sponsored by
the Company or through workers’ compensation), Employee’s employment hereunder
may be terminated by Company.

 

(b)                                 In
the event of a termination of Employee’s employment hereunder pursuant to Section 9.7(a),
Employee will be entitled to receive all accrued and unpaid (as of the date of
such termination) Base Salary, Benefits and Bonuses.  In addition, all outstanding options shall
become immediately vested and exercisable. 
Finally, for a period of thirty (30) months following the date of such
termination:

 

(i)                                     the
Company will make monthly supplemental disability payments to Employee, each
equal to one-sixth (1/6) of the Employee’s Base Salary as of the date of
termination;

 

10

 

(ii)                                  the
Company will: (A) waive the applicable healthcare premium otherwise payable for
COBRA continuation coverage for the Employee (and, to the extent covered
immediately prior to the date of the Employee’s termination, her spouse and
dependents), plus (B) once COBRA continuation coverage expires (unless such
expiration is due to eligibility for other group health insurance or Medicare),
reimburse Employee, on an after-tax basis, for premiums paid for health
insurance coverage providing benefits substantially similar to those then
provided to active employees of the Company; and

 

(iii)                               the Company will
continue to provide the Benefits described in items 1, 3, 6, 7, and 8 of Schedule A,
attached hereto.

 

(c)                                  Amounts
payable under Section 9.7(a) or (b) will be reduced by any disability or
life insurance benefits payable with respect to the same period under any
Company funded disability or death benefit plan, policy or arrangement or under
the Social Security Act.  To the extent
any insurance benefit described in the preceding sentence is exempt from
federal income tax, then for purposes of this reduction, the amount of that
insurance benefit will be deemed to be 150% of the amount actually received by
Employee.  Amounts payable under Section 9.7(b)
will be reduced by all amounts earned by Employee for the performance of
personal services during the thirty (30) month period therein described.

 

(d)                                 If
there occurs a Change in Control during the thirty (30) month period described
above in Section 9.7(b), then within fifteen (15) days following the
closing of that Change in Control, the Company will make a lump sum cash
payment to Employee equal to the estimated fair value of an option to purchase
180,000 shares of Common Stock, determined by the Company’s independent auditor
as of the date of the Change in Control using the Black-Scholes model and the
following assumptions: (i) option exercise price equal to the Fair Market Value
on the date of the Change in Control, (ii) remaining option duration equal to
eight years, (iii) risk-free rate of return equal to the yield to maturity as
of the date of the Change in Control of non-callable ten year U.S. Treasury
Notes with a remaining term of eight years, (iv) volatility equal to the
standard deviation of the daily change in the Fair Market Value for the eight
year period immediately preceding the date of the Change in Control, and (v) a
dividend yield equal to the sum of the dividends per share paid on Common Stock
in the twelve month period immediately preceding the date of Change in Control,
divided by the Fair Market Value as of the date of the Change in Control.

 

(e)                                  For
purposes of this Section 9.7, except as hereinafter provided, the determination
as to whether Employee is disabled shall be made by a licensed physician
selected by Employee and shall be based upon a full physical examination and
good faith opinion by such physician.  In
the event that the Board of Directors disagrees with such physician’s
conclusion, the Board of Directors may require that Employee submit to a full
physical examination by another licensed physician selected by Employee and
approved by the Company.  If the two
opinions shall be inconsistent, a third opinion shall be obtained after full
physical examination by a third licensed physician selected by Employee and
approved by the Company.  The majority of
the three opinions shall be conclusive.

 

11

 

(f)                                    Except
as specifically set forth in this Section 9.7, the Company shall have no
liability or obligation to Employee for compensation or benefits by reason of
termination pursuant to this Section 9.7.

 

10.                                 Outplacement
Service.  In the event the Employee’s
employment hereunder is terminated pursuant to Sections 9.3, 9.4 or 9.6, the
Company shall, (a) pay for full outplacement services for Employee, such
payment to be made to an agency selected by Employee, based upon the customary
fees charged by nationally rated firms engaged in such services, and (b)
provide to Employee, for a reasonable period of time following termination of
employment, office space and secretarial support to assist Employee in
searching for and obtaining a new position, the location of such office space
to be reasonably determined by Employee.

 

11.                                 Other
Agreements.

 

11.1.                        Company agrees that the Company
may not relocate its principal executive offices to a location outside of 15
miles of the current corporate headquarters in Philadelphia, Pennsylvania
without the consent of Employee.

 

11.2.                        In the event of Termination of
Employee’s employment hereunder pursuant to Sections 9.3, 9.4 or 9.6, at
Employee’s election given by written notice to the Company within 30 days of
such Termination (provided such period shall be extended at the election of
Employee to terminate one day after the Employee could effect the transaction
without incurring liability under section 16(b) of the Securities Exchange
Act of 1934), the Company shall be obligated to repurchase all vested options
of the Company owned by Employee at a price equal to the closing price of the
Common Stock on the date of such request less the exercise price of such
options (the “Aggregate Repurchase Price”). 
Upon such election, the Company will pay in immediately available funds,
the Aggregate Repurchase Price to Employee and Employee will relinquish all
such options to the Company.

 

11.3.                        In the event that Employee’s
employment hereunder is terminated pursuant to Sections 9.3, 9.4, 9.6 or 9.7,
Employee shall be entitled to one opportunity to request the Company to
register all of the Common Stock then owned by the Employee which is not
covered by an effective Registration Statement filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended (the “Unregistered
Common Stock”), pursuant to the terms of the Registration Rights and Right of
Co-Sale Agreement dated May, 1992 between certain stockholders of the Company
(including the Employee) and the Company (the “Registration Agreement”).  In the event of such employment termination,
Employee shall also have the unlimited right to have her Unregistered Common
Stock registered in any registration by the Company of its Common Stock under
the Securities Act of 1933, as amended (other than pursuant to registrations on
Form S-4 and Form S-8).

 

12.                                 Survival
of Provisions.  The provisions of
this Agreement set forth in Sections 7, 8, 11, 14 and 21 hereof shall survive
the termination of Employee’s employment hereunder.

 

12

 

13.                                 Successors
and Assigns.  This Agreement shall
inure to the benefit of and be binding upon the Company and Employee and their
respective successors, executors, administrators, heirs and/or permitted assigns;
provided, however, that neither Employee nor the Company may make any
assignments of this Agreement or any interest herein, by operation of law or
otherwise, without the prior written consent of the other parties hereto,
except that, without such consent, the Company may assign this Agreement to any
successor to all or substantially all of its assets and business by means of
liquidation, dissolution, merger, consolidation, transfer of assets, or
otherwise, provided that such successor assumes in writing all of the
obligations of the Company under this Agreement, subject, however, to Employee’s
rights to termination as provided in Section 9.6 hereof.

 

14.                                 Contractual
Indemnification, Advancement of Expenses. 
In addition to, and without derogation of, any right of indemnification,
defense or being held harmless to which Employee may be entitled pursuant to
law or otherwise, including, without limitation, such rights as she is, from
time to time, entitled to as a current or former director, officer and employee
of the Company pursuant to the Articles of Incorporation of the Company, the
Company agrees as follows:

 

Company shall indemnify and defend Employee and hold
Employee harmless to the maximum extent permitted by law against claims,
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys’ fees, incurred by Employee in connection with defense of, or as a
result of any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (any of the foregoing,
an “Action”) (or any appeal from any Action) in which Employee is made or is
threatened to be made a party by reason of the fact that Employee is or was a
director, officer or employee of Company, regardless of whether such Action is
one brought by or in the right of Company, to procure a judgment in Company’s
favor, or other than by or in the right of Company.

 

Expenses (including attorneys’ fees) incurred by
Employee in defending an Action shall be paid by Company in advance of the
final disposition of such Action to the maximum extent permitted by law
promptly following receipt by Company of evidence of Employee’s incurring any
such expenses.

 

In the event that in any Action, Employee concludes
that based on the opinion of counsel selected by her there exists in such
Action an actual or potential conflict between the interests or position of
Company or any other party to the Action which Company has undertaken to
defend, Employee shall be entitled, at Company’s expense, to engage separate
counsel of her own selection reasonably acceptable to Company to represent her
in such Action.

 

To the extent Company shall maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of
Company against any liability asserted against her and incurred by her in any
such capacity, or arising out of her status as such, whether or not Company
would have the power to indemnify her against such liability, Company shall
include Employee as a named insured under such insurance with respect to any
period as to which Employee was a director, officer or employee of Company.

 

13

 

Employee agrees not to settle any Action against her
without the consent of Company, which consent may not be unreasonably withheld.

 

The indemnification and advancement of expenses
provided by this Section shall continue to Employee after the termination
of this Agreement and shall inure to the benefit of Employee’s heirs, executors
and administrators and shall be paid unless and until Employee’s conduct which
gave rise to the action shall have been adjudicated by a court to have been
willful and in bad faith.

 

15.                                 Employee
Benefits.  This Agreement shall not
be construed to be in lieu or to the exclusion of any other rights, benefits
and privileges to which Employee may be entitled as an employee of the Company
under any retirement, pension, profit-sharing, insurance, hospital or other
plans or benefits which may now be in effect or which may hereafter be adopted.

 

16.                                 Notice.  Any notice or communication required or
permitted under this Agreement shall be made in writing and sent by certified
or registered mail, return receipt requested, addressed as follows:

 

If to Employee:

 

Rebecca
C. Matthias

6238 Ross Road

Honeybrook, PA 19344

 

If to Company:

 

Mothers
Work, Inc.

456 North Fifth Street

Philadelphia, PA 19123

 

or to such other address as either party may from time
to time duly specify by notice given to the other party in the manner specified
above.

 

17.                                 Entire
Agreement; Amendments.  This
Agreement contains the entire agreement and understanding of the parties hereto
relating to the subject matter hereof (except for specific cross-references to
previously executed Agreements), and merges and supersedes all prior and
contemporaneous discussions, agreements and understandings of every nature
between the parties hereto relating to the employment of Employee with the
Company (including, without limitation, the Existing Employment Agreement).  This Agreement may not be changed or
modified, except by an Agreement in writing signed by each of the parties
hereto.

 

18.                                 Waiver.  The waiver of the breach of any term or
provision of this Agreement shall not operate as or be construed to be a waiver
of any other or subsequent breach of this Agreement.

 

19.                                 Governing
Law.  This Agreement shall be
construed and enforced in accordance with the laws of the State of Delaware.

 

14

 

20.                                 Invalidity.  In case any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the validity of any other provision of this
Agreement, and such provision(s) shall be deemed modified to the extent
necessary to make it enforceable.

 

21.                                 Specific
Enforcement; Extension of Period.

 

21.1.                        Employee acknowledges that the
restrictions contained in Sections 7 and 8 hereof are reasonable and necessary
to protect the legitimate interests of the Company and its affiliates and that
the Company would not have entered into this Agreement in the absence of such
restrictions.  Employee also acknowledges
that any breach by her of Sections 7 or 8 hereof will cause continuing and
irreparable injury to the Company for which monetary damages would not be an
adequate remedy.  The Employee shall not,
in any action or proceeding to enforce any of the provisions of this Agreement,
assert the claim or defense that an adequate remedy at law exists.  In the event of such breach by Employee, the
Company shall have the right to enforce the provisions of Sections 7 and 8 of
this Agreement by seeking injunctive or other relief in any court, and this
Agreement shall not in any way limit remedies of law or in equity otherwise
available to the Company.  If an action
at law or in equity is necessary to enforce or interpret the terms of this
Agreement, the prevailing party shall be entitled to recover, in addition to
any other relief, reasonable attorneys’ fees, costs and disbursements.  In the event that the provisions of Sections
7 or 8 hereof should ever be adjudicated to exceed the time, geographic, or
other limitations permitted by applicable law in any applicable jurisdiction,
then such provisions shall be deemed reformed in such jurisdiction to the
maximum time, geographic, or other limitations permitted by applicable law.

 

21.2.                        In the event that Employee
shall be in breach of any of the restrictions contained in Section 8
hereof, then the Restricted Period shall be extended for a period of time equal
to the period of time that Employee is in breach of such restriction.

 

21.3.                        The parties agree that in any
action brought under the Section 21, venue will, be in the federal or
state courts situate in the Eastern District of Pennsylvania and the parties
shall be subject to the personal jurisdiction of such courts.

 

22.                                 Counterparts.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall be deemed to be one and the same instrument.

 

23.                                 Compliance
with Section 409A of the Code. 
Notwithstanding any other provision of this Agreement, no payment will
be made hereunder earlier than the date consistent with Section 409A of
the Code or related guidance.

 

15

 

IN
WITNESS WHEREOF, the parties have caused this Agreement to be executed the day
and year first written above.

 

 

	
  ATTEST:

  	
  MOTHERS WORK,
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
      /s/  Dan
  W. Matthias

  	
   

  	
  By:

  	
      /s/
  Edward M. Krell

  	
   

  
	
   

  	
   

  	
  Title:

  	
  Executive Vice
  President –

  Chief Financial Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Rebecca C.
  Matthias

  	
   

  
	
   

  	
  REBECCA C.
  MATTHIAS

  
									

 

16

 

SCHEDULE A

 

EMPLOYEE
BENEFITS OF REBECCA C. MATTHIAS

 

1.                                       Automobile
and insurance coverage for the use of that automobile, in each case
commensurate with that presently provided.

 

2.                                       Vacation:  5 Weeks

 

3.                                       Life
Insurance:  One million dollar
($1,000,000) death benefit.

 

4.                                       Health
and Life Insurance:  Such other
benefits as are received by similarly situated executives in comparable
companies, all as approved by the Company’s Board of Directors, to include
umbrella medical insurance in excess of applicable lifetime maximums under the
Company’s health insurance program for Employee, and an annual physical, gym or
wellness program up to $5,000.

 

5.                                       Home
Office Support:  To include computer,
fax, other equipment, plus telephone lines to support equipment, plus two voice
phone lines. (This does not include any rent, or other cash compensation.)

 

6.                                       Sample
Sewer:  For personal fitting of
clothes.

 

7.                                       Personal
Tax Services:  The Company will pay
on Employee’s behalf, or reimburse Employee for, the reasonable costs of tax
accounting and tax return preparation services rendered by Employee’s chosen
provider following delivery of proper documentation of those costs.

 

8.                                       Business
Publications and Subscriptions:  Such
as The Wall Street Journal and Womens Wear Daily.

 

9.                                       Other:  Such other benefits as: (i) are provided to
other executives of the Company (excluding, however, those specific benefits
covered herein), and, in addition to the foregoing, (ii) those determined by
the Company’s Board of Directors.

 

A-1

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