<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 3, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from______________to_____________
Commission File Number: 0-23440
Norton McNaughton, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3747173
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
463 Seventh Avenue, New York, N.Y. 10018
(Address of principal executive offices)
(Zip code)
`
(212) 947-2960
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 Par Value, 7,405,120 shares as of June 12, 1997.
<PAGE> 2
INDEX TO FORM 10-Q
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
ITEM I.
Financial Statements:
Consolidated Balance Sheets at May 3, 1997 (Unaudited)
and November 2, 1996 3
Consolidated Statements of Operations for the thirteen weeks ended
May 3, 1997 and May 4, 1996 (Unaudited) and the
twenty-six weeks ended May 3, 1997 and May 4, 1996 (Unaudited) 4
Consolidated Statements of Stockholders' Equity for the twenty-six
weeks ended May 3, 1997 (Unaudited) 5
Consolidated Statements of Cash Flows for the twenty-six weeks
ended May 3, 1997 and May 4, 1996 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7-9
ITEM II.
Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-13
PART II. OTHER INFORMATION 14
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 3, November 2,
1997 1996
(Unaudited) (Note)
--------------- --------------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 220 $ 333
Due from factor, net 22,941 30,794
Inventory 22,216 17,939
Prepaid expenses and other current assets 6,619 2,979
-------- --------
Total current assets 51,996 52,045
Fixed assets, net of accumulated depreciation
of $1,912 and $1,542, respectively 5,099 5,077
Notes receivable from management stockholders 2,655 2,655
Other assets 1,169 1,332
-------- --------
Total assets $ 60,919 $ 61,109
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,843 $ 11,334
Accrued expenses and other current liabilities 4,659 654
-------- --------
Total current liabilities 16,502 11,988
Other long-term liabilities 945 835
-------- --------
Total liabilities 17,447 12,823
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value, authorized 20,000,000 shares, 8,056,120 and
8,052,718 shares issued, respectively, and 7,430,120 and
7,636,718 shares outstanding, respectively 81 80
Capital in excess of par 23,884 23,865
Retained earnings 24,911 28,419
Treasury stock, at cost, 626,000 and 416,000 shares, respectively (5,404) (4,078)
-------- --------
Total stockholders' equity 43,472 48,286
-------- --------
Total liabilities and stockholders' equity $ 60,919 $ 61,109
======== ========
</TABLE>
Note: The balance sheet at November 2, 1996 has been derived from the audited
financial statements as of that date.
See accompanying notes.
3
<PAGE> 4
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen weeks ended Twenty-six weeks ended
-------------------- ----------------------
May 3, May 4, May 3, May 4,
1997 1996 1997 1996
-------- -------- -------- --------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Net sales $ 52,873 $ 57,439 $ 94,469 $ 99,846
Cost of goods sold 43,914 47,389 76,211 79,986
-------- -------- -------- --------
Gross profit 8,959 10,050 18,258 19,860
Selling, general and administrative expenses 14,884 10,753 23,887 20,678
-------- -------- -------- --------
Loss from operations (5,925) (703) (5,629) (818)
Other expense (income):
Interest expense 453 594 716 997
Interest income (42) (40) (84) (79)
-------- -------- -------- --------
Loss before benefit for income taxes (6,336) (1,257) (6,261) (1,736)
Benefit for income taxes (2,785) (521) (2,753) (720)
-------- -------- -------- --------
Net loss $ (3,551) $ (736) $ (3,508) $ (1,016)
======== ======== ======== ========
PER SHARE DATA:
Net loss $ (0.47) $ (0.09) $ (0.46) $ (0.13)
======== ======== ======== ========
Weighted average number of common shares and
common stock equivalents outstanding 7,489 7,792 7,563 7,898
======== ======== ======== ========
</TABLE>
See accompanying notes.
4
<PAGE> 5
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE TWENTY-SIX WEEKS ENDED MAY 3, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Capital
Common Stock in Excess Retained Treasury
Shares Amount of Par Earnings Stock Total
------ ------ ------ -------- ----- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at November 2, 1996 8,053 $ 80 $ 23,865 $ 28,419 $ (4,078) $ 48,286
Net loss for the twenty-six weeks
ended May 3, 1997 -- -- -- (3,508) -- (3,508)
Treasury stock acquired, 210,000
shares, at cost -- -- -- -- (1,326) (1,326)
Issuance of 3,402 shares of common
stock through the Employee
Stock Purchase Plan 3 1 19 -- -- 20
-------- -------- -------- -------- -------- --------
Balance at May 3, 1997 8,056 $ 81 $ 23,884 $ 24,911 $ (5,404) $ 43,472
======== ======== ======== ======== ======== ========
</TABLE>
See accompanying notes.
5
<PAGE> 6
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
----------------------
MAY 3, MAY 4,
1997 1996
-------- --------
(In Thousands)
<S> <C> <C>
Net loss $ (3,508) $ (1,016)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization of fixed assets 460 308
Write-off of leasehold improvements 492 --
Amortization of intangibles 17 17
Changes in operating assets and liabilities:
Due from factor, net 12,296 19,719
Inventory (4,277) (1,375)
Prepaid expenses and other current assets (3,640) (1,854)
Other assets 146 (330)
Accounts payable 509 (5,557)
Accrued expenses and other current liabilities 4,005 (327)
Other long-term liabilities 110 98
-------- --------
Net cash provided by operating activities 6,610 9,683
-------- --------
INVESTING ACTIVITIES
Notes receivable from management stockholders -- 5
Purchase of fixed assets (974) (863)
-------- --------
Net cash used for investing activities (974) (858)
-------- --------
FINANCING ACTIVITIES
Net (repayments) advances under factoring agreement (4,443) (5,188)
Proceeds from issuance of common stock 20 24
Purchase of treasury stock (1,326) (3,752)
-------- --------
Net cash used for financing activities (5,749) (8,916)
-------- --------
Decrease in cash (113) (91)
Cash at beginning of period 333 444
-------- --------
Cash at end of period $ 220 $ 353
======== ========
SUPPLEMENTAL DISCLOSURES
Income taxes paid $ 279 $ 313
Interest paid $ 691 $ 1,008
</TABLE>
6
<PAGE> 7
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited consolidated financial statements of Norton
McNaughton, Inc. and Subsidiaries (the "Company") have been prepared in
accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes necessary
for a fair presentation of financial position, results of operations and cash
flows in conformity with generally accepted accounting principles. In the
opinion of management, all normal and recurring adjustments and accruals
considered necessary for a fair presentation of the Company's financial position
at May 3, 1997 and the results of operations and cash flows for the twenty-six
weeks ended May 3, 1997 and May 4, 1996 have been included. These statements
should be read in conjunction with the audited consolidated financial statements
and footnotes thereto included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission. Operating results for the thirteen
weeks and twenty-six weeks ended May 3, 1997 are not necessarily indicative of
the results that may be expected for the fiscal year ending November 1, 1997.
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All material balances and transactions have been
eliminated in consolidation.
The Company has adopted a 52-53 week accounting period. The Company's fiscal
year ends on October 31, if such date falls on a Saturday, or the first Saturday
following October 31.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes.
Actual results could differ from those estimates.
SFAS 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities"
During the quarter ended February 1, 1997, the Company adopted Statement 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. Statement 125 is required to be applied to transfers of assets
occurring after January 1, 1997. The effect of adopting the new standard for the
thirteen weeks and twenty-six weeks ended May 3, 1997 was immaterial.
2. INVENTORY
Inventory is stated at the lower of cost (first-in, first-out basis) or market.
Inventories consist of the following:
<TABLE>
<CAPTION>
May 3, November 2,
1997 1996
------- -------
(In Thousands)
<S> <C> <C>
Raw materials $ 6,794 $ 5,530
Work in process 5,410 3,337
Finished goods 10,012 9,072
------- -------
$22,216 $17,939
======= =======
</TABLE>
7
<PAGE> 8
NORTON MCNAUGHTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. EARNINGS PER SHARE
Earnings per share are based upon the weighted average number of shares of
common stock and the dilutive effect of the weighted average number of common
stock equivalents of the Company. Common stock equivalents are shares issuable
upon the exercise of stock options under the treasury stock method. Common stock
equivalents were excluded from the net loss per share calculation for the
thirteen weeks and twenty-six weeks ended May 3, 1997 and May 4, 1996 as the
effects were anti-dilutive.
4. STOCKHOLDERS' EQUITY
The Company's Board of Directors has authorized a stock repurchase program,
which would enable the Company to repurchase up to $7.5 million of the Company's
Common Stock. The Company expects that shares may be purchased from time to time
in the open market and in block transactions. In the second quarter of fiscal
1997, the Company purchased 210,000 shares at an aggregate cost of $1,325,625.
Through the end of the second quarter of fiscal 1997, the Company had purchased
626,000 shares at an aggregate cost of $5,403,700. In May 1997, the Company
purchased an additional 25,000 shares at an aggregate cost of $131,250.
5. NOTES RECEIVABLE FROM MANAGEMENT STOCKHOLDERS
In the event of any sale or transfer of shares of Common Stock by any of the
management stockholders, such person is required to apply a portion of the net
proceeds of the sale or transfer to the principal repayment of his loan from the
Company. No other principal payments are required under the loans except for the
payment at maturity. The loans mature on November 5, 2003 at which time full
payment is to be made by the management stockholders for the balance of their
respective loans. As of the end of the second quarter of fiscal 1997, all
necessary payments have been made under the terms of the loans by the management
stockholders.
As of May 3, 1997, the fair market value of the Company's Common Stock pledged
by the management stockholders as security for the loans was $4,460,163, and the
aggregate principal balance of all loans to management stockholders was
$2,654,680. The loan balance set forth above reflects the required principal
payments of $345,320 resulting from sales of Common Stock by management
stockholders.
6. PROFORMA EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement No. 128 on the
calculation of earnings per share for the thirteen and twenty-six weeks ended
May 3, 1997 is not expected to be material.
7. SHAREHOLDER RIGHTS PLAN
On January 19, 1996, the Company's Board of Directors adopted a Shareholder
Rights Plan in which shareholders of record on February 8, 1996 received a
dividend distribution of one common share purchase right for each outstanding
share of the Company's Common Stock held. Each right entitles the holder to
purchase from the Company Common Stock at an initial exercise price of $32.00.
The rights are not exercisable or transferable apart from the Common Stock until
the earlier to occur of (I) ten days following a public announcement that a
person or group of affiliated or associated persons have acquired beneficial
ownership of 20% or more of the outstanding Common Stock of the Company, or (ii)
ten business days following the commencement of, or announcement of, an
intention to make a tender offer or exchange offer, the consummation of which
would result in the beneficial ownership by a person or group of 20% or more of
such outstanding Common Stock.
8
<PAGE> 9
The rights are redeemable by the Company's Board of Directors at a price of
$0.01 per right at any time prior to the acquisition by a person or group of
beneficial ownership of 20% or more of the Company's Common Stock.
If a person or group acquires 20% or more of the Company's outstanding Common
Stock, each right will entitle the holder to purchase, at the right's exercise
price, a number of shares of the Company's Common Stock having a market value at
that time of twice the right's exercise price. If the Company is acquired in a
merger or other business combination transaction, each right will entitle its
holder to purchase, at the right's exercise price, a number of the acquiring
company's common shares having a market value at that time of twice the right's
exercise price.
8. OTHER EVENTS
Peter Boneparth was appointed as the President and Chief Operating Officer of
the Company. In connection therewith, the Company entered into an Employment
Agreement with Mr. Boneparth providing for a base salary of $500,000 per annum
and a signing bonus of $250,000. The Employment Agreement terminates on November
4, 2000.
As provided in the Employment Agreement, the Company granted options to Mr.
Boneparth to purchase an aggregate of 700,000 shares of Common Stock of the
Company at an exercise price of $5.50 per share, which was the fair market value
of the Common Stock on the date of grant. Such options vest over the term of the
Employment Agreement, with an acceleration of the vesting if certain target
stock prices are attained. The Employment Agreement provides for 100,000 options
to vest on April 30, 1997; an additional 250,000 options to vest on the earlier
to occur of (I) December 10, 1998 or (ii) the date on which the stock price
equals or exceeds $10.00 per share for twenty consecutive trading days; an
additional 250,000 options to vest on the earlier to occur of (I) December 10,
1999 or (ii) the date on which the stock price equals or exceeds $13.00 per
share for twenty consecutive trading days; and the remaining 100,000 options to
vest on the earlier to occur of (I) November 4, 2000 or (ii) the date on which
the stock price equals or exceeds $20.00 per share for twenty consecutive
trading days. The Employment Agreement also provides that commencing on November
1, 1997, in the event of a change in control involving the Company, all
outstanding options shall become vested and exercisable in full.
The Company entered into a Separation Agreement with Norton Sperling, the former
President of the Company, which provides for a separation payment of $2,500,000
and the termination of his Employment Agreement. Mr. Sperling will remain on the
Board of Directors in the capacity of Vice Chairman. As set forth in the
Separation Agreement, Mr. Sperling agreed that for a period of eighteen months,
he will not engage in any business venture which involves the manufacture,
merchandising, distribution or sale of apparel, except as permitted by the Board
of Directors. In addition, the Separation Agreement provides that commencing on
May 1, 1997 and terminating on April 30, 2007, Mr. Sperling will provide
consulting services to the Company, with fees to be determined on a
project-by-project basis.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
The Company continually investigates the synergies and complementary
aspects of additional product lines directed at its target customers. The
Company has monitored, and will continue to closely review, the success, in
terms of sales, profitability and customer acceptance, of its product lines. In
the event that one or more of its product lines does not meet the Company's
expectations, the Company will discontinue their production. The Kate McNaughton
suit division was discontinued in May 1996 due to its inability to achieve a
level of profitability within the Company's profitability targets.
The Company contracts for the manufacture of all of its products. As a
result, the Company has modest amounts of property and equipment, as well as
modest annual depreciation expense and capital expenditures. In addition, the
Company generally ships its products in accordance with normal apparel industry
shipping cycles. The timing of shipping cycles or the delivery of finished goods
may result in shipments to customers occurring before or after a particular
fiscal quarter end, thereby affecting both fiscal quarter to quarter comparisons
and quarter to quarter results during a fiscal year.
As is the norm in the apparel industry, the Company grants its
customers sales allowances which affect the Company's gross profit margins. The
level of sales allowances granted varies from quarter to quarter and year to
year.
As a result of the Company's continued focus on improving
profitability, the Company has implemented certain measures to improve gross
profit margins and reduce overhead expenses. The Company intends to minimize the
production of merchandise that it does not anticipate can be sold at acceptable
profit levels to strengthen gross profit margins. Accordingly, the Company
anticipates that revenue levels in fiscal 1997 may decrease from those in fiscal
1996. With respect to the Company's effort to control costs, the Company
implemented certain cost savings measures at the end of the third quarter of
fiscal 1996, which resulted in a significant reduction of its workforce. The
benefits of this workforce reduction were savings of approximately $220,000 and
$440,000, respectively, for the thirteen weeks and twenty-six weeks ended May 3,
1997. These savings were offset in part by new hires and salary increases which
occurred in the first half of fiscal 1997. In addition, the Company eliminated
its in-store specialist program as of the end of fiscal 1996, which resulted in
savings of approximately $175,000 and $350,000, respectively, for the thirteen
weeks and twenty-six weeks ended May 3, 1997. Subsequent to fiscal 1997, the
Company expects that SG&A expenses will generally stabilize, with the exception
of increases in variable expenses resulting from any increase in the volume of
products shipped.
This Management's Discussion and Analysis contains forward-looking
information about the Company's anticipated operating results for fiscal 1997.
The Company's ability to achieve its projected results is dependent on many
factors which are outside of management's control. Some of the most significant
factors would be a further increase in price pressures and other competitive
factors and a softening of retailer or consumer acceptance of the Company's
products, any of which could result in a decrease in anticipated revenues and
gross profit margins, the unanticipated loss of a major customer, the
unanticipated loss of a major contractor or supplier and weather conditions
which could impact retail traffic. Accordingly, there can be no assurance that
the Company will achieve its anticipated operating results for fiscal 1997 and
beyond.
10
<PAGE> 11
Results of Operations
The following table is derived from the Company's Consolidated Statements of
Operations and sets forth, for the periods indicated, selected operating data as
a percentage of net sales:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------- ----------------------
May 3, May 4, May 3, May 4,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 83.1 82.5 80.7 80.1
----------- ----------- ----------- -----------
Gross profit 16.9 17.5 19.3 19.9
Selling, general and
administrative expenses 28.1 18.7 25.3 20.7
----------- ----------- ----------- -----------
Loss from operations (11.2) (1.2) (6.0) (0.8)
Interest expense 0.9 1.1 0.7 1.0
Interest income (0.1) (0.1) (0.1) (0.1)
----------- ----------- ----------- -----------
Loss before benefit for
income taxes (12.0) (2.2) (6.6) (1.7)
Benefit for income taxes (5.3) (0.9) (2.9) (0.7)
----------- ----------- ----------- -----------
Net loss (6.7)% (1.3)% (3.7)% (1.0)%
=========== =========== =========== ===========
</TABLE>
Quarter Ended May 3, 1997 Compared to Quarter Ended May 4, 1996
Net sales decreased 7.9% to $52.9 million in the second quarter of
fiscal 1997, from $57.4 million in the second quarter of fiscal 1996. The
decrease of $4.5 million was primarily attributable to a decrease in net sales
of $4.3 million, or 10.7%, in the Norton McNaughton product lines, a decrease in
net sales of $2.1 million, or 46.7%, in the Modiano product line, due to a
decision not to continuewith certain customers, and a decrease in net sales of
$1.4 million resulting from the discontinuation of the Kate McNaughton suit
division in May 1996. These decreases were offset in part by an increase in net
sales of $2.7 million in the Norton Studio product line and an increase in net
sales of $1.3 million in the D.P.S. product line.
The gross profit margin was 16.9% for the second quarter of fiscal 1997
as compared to 17.5% for the second quarter of fiscal 1996. The decrease
resulted primarily from pricing difficulties experienced with the production and
sale of certain lines and non-acceptance of certain merchandise which did not
meet the Company's quality requirements.
Selling, general and administrative expenses ("SG&A" expenses) were
$14.9 million in the second quarter of fiscal 1997, or 28.1% of net sales, as
compared to $10.8 million in the second quarter of fiscal 1996, or 18.7% of net
sales. SG&A expenses for the second quarter of fiscal 1997 included a special
charge of $5.7 million for severance payments resulting from management changes,
the termination of certain lease obligations and the establishment of reserves
for certain contingencies, including the anticipated closing of the Company's
retail stores. Excluding the special charge, SG&A expenses for the second
quarter of fiscal 1997 would have been $9.2 million, or 17.4% of net sales. The
decrease of $1.6 million excluding the special charge resulted primarily from
the implementation of certain cost saving measures at the end of the third and
fourth quarters of fiscal 1996. These included a significant reduction in the
Company's workforce due to a further centralization of its production functions
and the elimination of its in-store specialist program. The decrease was also
attributable to a decrease in variable distribution and freight expenses
resulting from a decrease in the volume of products shipped in the second
quarter of fiscal 1997.
Operating loss for the second quarter of fiscal 1997 was $5.9 million
as compared to an operating loss of $700,000 for the second quarter of fiscal
1996. Excluding the special charge of $5.7 million, the operating loss for the
second quarter of fiscal 1997 would have been $200,000. The decrease in
operating loss excluding the special charge resulted from the reduction in SG&A
expenses which was offset in part by a lower gross profit margin.
Interest expense decreased to approximately $450,000 in the second
quarter of fiscal 1997 from approximately $600,000 in the second quarter of
fiscal 1996. The decrease was primarily attributable to the lower inventories
being carried by the Company resulting from the Company's decision to increase
its production of goods overseas. This has required outlays for inventory to be
outstanding for shorter periods of time. The Company anticipates that it will
continue to produce more of its garments overseas. For the fiscal year ended
November 2, 1996, the Company produced approximately 57% of its garments
overseas. The Company anticipates that approximately 60% to 70% of its products
will be manufactured outside the United States in fiscal 1997.
11
<PAGE> 12
Twenty-six Weeks Ended May 3, 1997 Compared to Twenty-six Weeks Ended May 4,
1996
Net sales decreased 5.4% to $94.5 million in the first half of fiscal
1997, from $99.8 million in the first half of fiscal 1996. The decrease of $5.3
million was primarily attributable to a decrease in net sales of $4.4 million,
or 6.3%, in the Norton McNaughton product lines, a decrease in net sales of $2.8
million, or 35.0%, in the Modiano product line due to a decision not to continue
with certain customers, and a decrease in net sales of $3.5 million resulting
from the discontinuation of the Kate McNaughton suit division in May 1996. These
decreases were offset in part by an increase in net sales of $4.8 million in the
Norton Studio product line and an increase in net sales of $1.0 million in the
D.P.S. product line.
The gross profit margin was 19.3% for the first half of fiscal 1997 as
compared to 19.9% for the first half of fiscal 1996. The decrease resulted from
the planned reduction in the selling prices of goods in an effort to avoid the
later sale of merchandise at break-even or below cost and from pricing
difficulties experienced with the production and sale of certain lines.
SG&A expenses were $23.9 million in the first half of fiscal 1997, or
25.3% of net sales, as compared to $20.7 million in the first half of fiscal
1996, or 20.7% of net sales. SG&A expenses for the first half of fiscal 1997
includes a special charge of $5.7 million for severance payments resulting from
management changes, the termination of certain lease obligations and the
establishment of reserves for certain contingencies, including the anticipated
closing of the Company's retail stores. Excluding the special charge of $5.7
million, SG&A expenses for the first half of fiscal 1997 would have been $18.2
million, or 19.3% of net sales. The decrease of $2.5 million excluding the
special charge resulted primarily from the implementation of certain cost saving
measures at the end of the third and fourth quarters of fiscal 1996. These
included a significant reduction in the Company's workforce due to a further
centralization of its production functions and the elimination of its in-store
specialist program. The decrease was also attributable to a decrease in variable
distribution and freight expenses resulting from a decrease in volume of
products shipped in the first half of fiscal 1997.
Operating loss for the first half of fiscal 1997 was $5.6 million as
compared to an operating loss of $800,000 for the first half of fiscal 1996.
Excluding the special charge of $5.7 million, the Company would have had
operating income of $100,000. The decrease in operating loss excluding the
special charge resulted from the reduction in SG&A expenses, which was offset in
part by a lower gross profit margin.
Interest expense decreased to approximately $700,000 in the first half
of fiscal 1997 from approximately $1.0 million in the first half of fiscal 1996.
The decrease was primarily attributable to the lower inventories being carried
by the Company resulting from the Company's decision to increase its production
of goods overseas. This has required outlays for inventory to be outstanding for
shorter periods of time. The Company anticipates that it will continue to
produce more of its garments overseas. For the fiscal year ended November 2,
1996, the Company produced approximately 57% of its garments overseas. The
Company anticipates that approximately 60% to 70% of its products will be
manufactured outside the United States in fiscal 1997.
Liquidity and Capital Resources
The Company's liquidity requirements arise from the funding of the
Company's working capital needs, primarily inventory and accounts receivable.
The Company's primary sources of working capital are cash flow from operations
and advances under the Company's factoring agreement for its trade accounts
receivable (the "Factoring Agreement"). The Company's borrowing requirements for
working capital purposes are seasonal, with peak working capital needs generally
arising at the end of the third fiscal quarter and extending through the fourth
fiscal quarter. The Company had working capital of $35.5 million at May 3, 1997
as compared to $40.1 million at November 2, 1996. The decrease resulted
primarily from the net loss for the first half of fiscal 1997 and the Company's
expenditure of $1.3 million in connection with the open market purchases of its
Common Stock under its stock repurchase program.
The Company's Factoring Agreement provides for the sale of its trade
accounts receivable, generally without recourse, up to a maximum established by
the factor for each customer. The Company may borrow up to 90% of the net
balance due on eligible accounts receivable, up to $10.0 million of additional
advances and up to $20.0 million in letter of credit financing. From time to
time, the Company borrows additional amounts from the factor in excess of those
set forth in the preceding sentence. No such additional amounts were outstanding
at May 3, 1997. Interest on factor advances is payable monthly at 0.75% below
the NationsBank of Georgia, N.A. prime rate (the "Nations Prime Rate") for
amounts advanced which are less than the purchase price of eligible accounts
receivable, and 1.25% above the Nations Prime Rate for amounts advanced in
excess of the purchase price of eligible accounts receivable. At May 3, 1997,
outstanding advances under the Factoring Agreement were approximately $20.7
million. There were no outstanding advances under the $10.0 million additional
advance facility. Letters of credit outstanding amounted to approximately $ 20.0
million at May 3, 1997.
12
<PAGE> 13
The Company anticipates that it will incur an additional $500,000 to
$600,000 of capital expenditures in connection with the upgrade of its
management information systems in the remainder of fiscal 1997. The Company
expects to finance these capital expenditures from internally generated funds
and advances under the Factoring Agreement.
As previously announced, the Company's Board of Directors has
authorized a stock repurchase program, under which the Company may repurchase up
to $7.5 million of the Company's Common Stock. The Company expects that the
shares may be purchased from time to time in the open market and in block
transactions. In the second quarter of fiscal 1997, the Company purchased
210,000 shares at an aggregate cost of $1,325,625. As of the end of the second
quarter of fiscal 1997, the Company had purchased a total of 626,000 shares at
an aggregate cost of $5,403,700. In May 1997, the Company purchased an
additional 25,000 shares at an aggregate cost of $131,250.
Management believes that cash generated from operations and advances
under its Factoring Agreement will provide sufficient cash resources to finance
the Company's working capital and capital expenditure requirements for the
current and next fiscal year.
The moderate rate of inflation over the past few years has not had a
significant impact on the Company's sales or profitability. Inflation is not
expected to have a significant impact on the Company's business.
Seasonality
Historically, the Company has achieved its highest sales in the fourth
quarter and, to a lesser extent, the second quarter of each fiscal year. This
pattern results primarily from the timing of shipments for each season, although
the timing of shipments can vary from quarter to quarter and season to season.
Fall season merchandise is generally shipped between August and October, and
spring season merchandise is generally shipped between February and April.
13
<PAGE> 14
PART II. OTHER INFORMATION
Item 4. Submission of matters to vote of security holders.
The Company's annual meeting of stockholders was held on March 31, 1997. The
following directors were elected:
<TABLE>
<CAPTION>
WITHHOLDING
NAME FOR AUTHORITY
---- --- ---------
<S> <C> <C>
Sanford Greenberg 5,712,086 6,125
Norton Sperling 5,712,086 6,125
Amanda J. Bokman 5,712,086 6,125
David M. Blumberg 5,712,086 6,125
Peter Boneparth 5,712,086 6,125
Bradley P. Cost 5,712,086 6,125
Robert Mann 5,712,086 6,125
Jerald S. Politzer 5,712,086 6,125
</TABLE>
The appointment of Ernst and Young LLP as independent auditors for the fiscal
year ended November 1, 1997 was ratified with 5,706,511 shares voting in favor,
5,700 shares voting against and 6,000 shares abstaining.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibit 10 Separation Agreement between Jay Greenberg and Norton
McNaughton of Squire, Inc. dated May 2, 1997.
Exhibit 10.1 Cancellation Agreement between The Arsenal Company
LLC and Norton McNaughton of Squire, Inc. dated April
30, 1997.
Exhibit 27 Financial Data Schedule (For SEC use only).
b) There were no Current Reports on Form 8-K filed by the registrant
during the thirteen weeks ended May 3, 1997. One Current Report on Form
8-K was filed by the registrant subsequent to May 3, 1997 under Item 5,
"Other Events."
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTON MCNAUGHTON, INC.
(Registrant)
Date: June 17, 1997 By /s/Sanford Greenberg
---------------------
SANFORD GREENBERG
Chairman of the Board and
Chief Executive Officer
(Principal Executive and
Operating Officer)
Date: June 17, 1997 By /s/Amanda J. Bokman
--------------------
AMANDA J. BOKMAN
Vice President, Chief Financial Officer,
Secretary and Treasurer
(Principal Financial and Accounting Officer)
15
<PAGE> 16
EXHIBIT INDEX
Exhibit No. Description
10 Separation Agreement between Jay Greenberg and
Norton McNaughton of Squire, Inc. dated May 2, 1997
10.2 Cancellation Agreement between The Arsenal Company LLC
and Norton McNaughton of Squire, Inc. dated April 30, 1997
27 Financial Data Schedule
<PAGE> 1
Exhibit 10
SEPARATION AGREEMENT
AGREEMENT made as of the 1st day of May, 1997 by and between
NORTON MCNAUGHTON OF SQUIRE, INC., a New York corporation (the "Company"), and
JAY GREENBERG ("Greenberg).
W I T N E S S E T H:
WHEREAS, Greenberg and the Company are parties to a certain
Consulting Agreement dated January 19, 1996 with a termination date of October
31, 1997 (the "Consulting Agreement");
WHEREAS, the Board of Directors approved an extension to the
Consulting Agreement from October 31, 1997 to and including October 31, 1999;
and
WHEREAS, the parties have agreed to terminate the Consulting
Agreement effective as of April 30, 1997, upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth, the parties hereto, intending to be
legally bound, hereby agree as follows:
1. Termination of Consulting Agreement. The Consulting
Agreement shall terminate on April 30, 1997 (the "Termination Date"). The
Company shall pay Greenberg $550,000 (the "Separation Payment") which shall be
payable in one lump sum after seven days following the execution of this
Agreement. Greenberg acknowledges and agrees that the Separation Payment exceeds
any benefit to which Greenberg is otherwise entitled and shall constitute
consideration for the release set forth in Section 6.1 of this Agreement (the
"Release") and for the agreements set forth in Sections 7 and 8 of this
Agreement. Greenberg also acknowledges and agrees that he owes the Company
$50,000 in respect of a loan made by the Company to him on December 1, 1996,
together with accrued interest of $1,241.67 through the date hereof, and that
the Company shall deduct $51,241.67 from the Separation Payment in payment of
such loan.
2. Medical Insurance. For the period commencing on the
termination of the Consulting Agreement until the death of Greenberg, the
Company agrees, at its expense, to provide Greenberg and Greenberg's wife and
his children under age 20 or under age 24 if
<PAGE> 2
such children are full-time students with coverage under the medical plans of
the Company on the same terms and conditions (including the same Company-paid
portions) that coverage is generally available to employees of the Company. In
the event that the Company is unable to provide the coverage set forth in the
preceding sentence during any month as a result of (a) a change of law or
regulation which restricts the provision of coverage for persons who are not
employees the Company, (b) the failure by the Company's insurance carrier or
plan to provide coverage for persons who are not employees of the Company or (C)
a change in the cost of such coverage such that the cost to the Company to
provide such coverage for any monthly period exceeds the amount set forth on
Exhibit A hereto under the column labeled "Monthly Premium", the Company shall
not be obligated to provide such coverage under its medical plans and shall
reimburse Greenberg for any premiums paid by Greenberg for comparable medical
coverage. Such reimbursement shall not exceed the amount set forth on Exhibit A
hereto under the column labeled "Monthly Premium" for any monthly period.
3. Split Dollar Insurance. Notwithstanding Section 8 of the
Split Dollar Agreement (the "Split Dollar Agreement") dated as of March 8, 1994
by and among the Company, Greenberg and Sanford Greenberg, as trustee of a trust
established under a trust agreement between Jay Greenberg, as settlor, and
Sanford Greenberg, as trustees, the Company agrees to continue to pay premiums
on the Policy (as defined in the Split Dollar Agreement) until payment of the
twentieth annual Policy premium, subject to the other terms and provisions of
the Split Dollar Agreement.
4. Loan Forgiveness. In the event that, at any time prior to
November 1, 1999, the Company agrees to forgive certain loans made to each of
Sanford Greenberg, Howard Greenberg, Norton Sperling and Andrew Miller pursuant
to each of their respective Third Amended and Restated Non-Negotiable Limited
Recourse Promissory Notes dated March 27, 1995 and payable to the Company, the
Company shall forgive the loan (the "Loan") made to Greenberg pursuant to his
Third Amended and Restated Non-Negotiable Limited Recourse Promissory Note dated
March 27, 1995 (the "Note") and payable to the Company.
5. Registration Rights.
5.1 NOTICE TO GREENBERG. In the event that, at any time or
from time to time, Norton McNaughton, Inc., a Delaware corporation (the
"Parent"), proposes to register any shares of common stock (the "Common Stock"),
under the Securities Act of 1933 (the "Securities Act") other than pursuant to a
registration statement on Forms S-4 or S-8, or any successor to such Forms, for
the purpose of the sale or
<PAGE> 3
other transfer of such shares of Common Stock by either Sanford Greenberg or
Norton Sperling or both (the "Registration Shares"), the Parent shall deliver to
Greenberg at least twenty (20) days prior to the filing of the registration
statement with respect to the Registration Shares, a written notice (a
"Registration Notice") of its intention so to register the Registration Shares.
5.2 NOTICE TO THE PARENT. In the event that a Registration
Notice shall have been so delivered, Greenberg, at his election, may deliver to
the Parent a written notice (a "Response") (I) specifying the number of shares
of Common Stock (together with the Registration Shares, the "Supplemental
Registration Shares") proposed to be sold or otherwise transferred by Greenberg,
(ii) describing the proposed manner of sale or other transfer thereof and (iii)
requesting the registration thereof under the Securities Act; provided, however,
that a Response shall be so delivered by Greenberg not more than fifteen (15)
days after the date of delivery to Greenberg of a Registration Notice.
5.3 REGISTRATION OF SECURITIES. From and after receipt of a
Response, the Parent shall use its reasonable best efforts to cause the
Supplemental Registration Shares specified in such Response to be registered
under the Securities Act and to effect and to comply with all such
qualifications, compliances and requirements as may be necessary to permit the
sale or other transfer of such Supplemental Registration Shares, in the manner
described in such Response, without limitation, qualifications under the
applicable Blue Sky or other state securities laws (provided that the Parent
shall not be required in connection therewith to qualify as a foreign
corporation or to execute general consent to service of process in any state);
provided, however, that if (I) in the case of an underwritten public offering of
securities, the managing underwriter shall advise the Parent in writing that the
inclusion of some or all of such Supplemental Registration Shares would, in such
managing underwriter's opinion, materially interfere with the proposed
distribution of any securities to be issued by the Parent in respect of which
registration was originally to be effected or would materially interfere with
the proposed distribution of all the Supplemental Registration Shares, then the
Parent may, upon written notice to Greenberg, allocate the Supplemental
Registration Shares to be included in the registration statement (if and to the
extent such allocation is certified by the managing underwriter as necessary to
eliminate such interference) pro rata among such holders on the basis of the
number of shares of Common Stock at the time owned by such holders or (ii) any
firm of counsel representing the Parent in connection with such registration
shall advise the Parent and Greenberg in writing that in its opinion one or more
of the steps
<PAGE> 4
contemplated hereby is not necessary to permit the sale of the Registration
Shares in a transaction constituting a public offering within the meaning of the
Securities Act, then the Parent shall not be required to take any action with
respect to such step or steps.
6. Release.
6.1 In consideration of the Separation Payment and the other
benefits set forth in Sections 2, 3, 4 and 5 of this Agreement, Greenberg for
himself and his heirs, administrators, successors and assigns releases the
Company, the Parent, any of their subsidiary and affiliate corporations and
entities, and its and their respective officers, directors and employees
(collectively, the "Releasees"), from all claims, actions, causes of action,
suits, debts, dues, sums of money, accounts, covenants, contracts,
controversies, agreements, promises, damages, judgments, executions and demands
whatsoever, in law or equity, including, without limitation, all claims related
to the Consulting Agreement and the termination thereof, and all claims and
rights under Title VII of the Civil Rights Act of 1964, the Age Discrimination
in Employment Act of 1967, the New York State Human Rights Law, the New York
City Human Rights Law, the Americans with Disabilities Act, the Civil Rights Act
of 1866 (42 U.S.C. Section 1981), the Civil Rights Act of 1991, the Equal Pay
Act, the Family and Medical Leave Act, the Fair Labor Standards Act and the
Employee Retirement Income Security Act of 1974, all as amended, including, but
not limited to, the right to the payment of wages, vacation, pension benefits or
any other employee benefits, or any other rights arising under federal, state or
local laws prohibiting discrimination and/or harassment on the basis of race,
color, creed, religion, sex, pregnancy, marital status, sexual orientation,
national origin, age, physical or mental handicap or disability,
alienage/citizenship status or any other basis prohibited by law, which
Greenberg ever had, now has or hereafter can, shall or may have against the
Company, the Parent, the Releasees or any of them arising out of the Consulting
Agreement, Greenberg's consultancy and/or employment with the Company and the
termination thereof from the beginning of the world to the date of this
Agreement, except for (I) any liability or claim arising out of this Agreement,
including the Release, and (ii) any liability or claim related to the Loan and
the Note (each, as defined in Section 4 of this Agreement) and to the Pledge
Agreement dated as of November 5, 1993, as amended (the "Pledge Agreement").
Greenberg agrees never directly or indirectly to commence or prosecute, or
assist in the filing, commencement or prosecution of any action, proceeding or
charge against the Company, the Parent or any of the Releasees with respect to
the matters hereby released.
<PAGE> 5
6.2 The Company has advised Greenberg to consult with an
attorney of his choosing prior to the signing of this Agreement, including the
Release, and Greenberg hereby represents to the Company that he has been offered
such an opportunity to consult with an attorney prior to this Agreement,
including the execution of this Agreement, including the Release. Greenberg
acknowledges that he was offered the opportunity to consider the waiver of
claims under the Age Discrimination in Employment Act of 1967 for a period of
twenty-one (21) days from the time that he received this Agreement, including
the Release, and was advised to review it with an attorney of his choice.
Greenberg is further advised that he has seven (7) days after he signs this
Agreement to revoke the waiver of any claims under the Age Discrimination in
Employment Act of 1967 by notifying the Company in writing. The release of any
claims under the Age Discrimination in Employment Act of 1967 will not become
effective or enforceable until the seven (7) day period has expired.
6.3 Greenberg expressly represents and warrants that he has
carefully read and fully understands that the Release is a general release of
all claims, including all claims under the Age Discrimination in Employment Act
of 1967, that he has had a full opportunity to review this Release with an
attorney and that he has executed this Release voluntarily, without duress,
coercion or undue influence and with such advice from his attorney as
appropriate.
6.4 The Company, the Parent and each of the Releasees release
and discharge Greenberg and his heirs, executors, administrators, assigns or
agents from any and all claims arising in connection with the Consulting
Agreement and the termination thereof, which the Company and/or the Releasees
ever had, now have or hereafter can, shall or may have against Greenberg for,
upon, or by reason of any matter, cause or thing whatsoever from the beginning
of the world to the date of this Agreement, except for (I) any liability or
claim arising out of this Agreement, including the Release, and (ii) any
liability or claim related to the Loan and the Note (each, as defined in Section
4 of this Agreement) and the Pledge Agreement (as defined in Section 6.1 of this
Agreement).
7. Confidential Information.
7.1 Greenberg shall at all times treat as confidential, not
disclose, publish or otherwise make available to the public or to any
individual, firm or corporation any confidential material (as hereinafter
defined). Greenberg agrees that all confidential material, together with all
notes and records of Greenberg relating thereto, and all copies or facsimiles
thereof in the possession of Greenberg, are the exclusive property of the
Company, and as of the
<PAGE> 6
Termination Date, Greenberg shall have returned such material to the Company.
7.2 For the purposes hereof, the term "confidential material"
shall mean all information acquired by Greenberg in the course of Greenberg's
services with the Company, the Parent or any of their subsidiaries (including,
without limitation, Norty's, Inc., a Delaware Corporation) (collectively, the
"Company Group") in any way concerning the products, projects, activities,
business or affairs of the Company or any member of the Company Group or the
customers of the Company or any member of the Company Group, including, without
limitation, all information concerning trade secrets and the preparation of raw
material for, manufacture of, and/or finishing processes utilized in the
production of, the products or projects of the Company or any member of the
Company Group and/or any improvements therein, all sales and financial
information concerning the Company or any member of the Company Group, all
customer and supplier lists, all information concerning projects in research and
development or marketing plans for any such products or projects, and all
information in any way concerning the products, projects, activities, business
or affairs of customers of the Company or any member of the Company Group which
is furnished to Greenberg by the Company or any of its employees (current or
former), agents or customers, as such; provided, however, that the term
"confidential material" shall not include information which (a) becomes
generally available to the public other than as a result of a disclosure by
Greenberg, (b) was available to Greenberg on a non-confidential basis prior to
his consultancy with the Company or (C) becomes available to Greenberg on a
non-confidential basis from a source other than the Company or any of its
agents, franchisees, creditors, suppliers, lessors, lessees or customers
provided that such source is not bound by a confidentiality agreement with the
Company or any of such agents or customers.
8. Non-Competition. Greenberg agrees, for the benefit of the
Company, that he will not for a period of three (3) years commencing on the
Termination Date, (a) engage, directly or indirectly, whether as principal,
agent, distributor, representative, consultant, employee, partner, stockholder,
limited partner or other investor (other than an investment of not more than (I)
five percent (5%) of the stock or equity of any corporation the capital stock of
which is publicly traded or (ii) five percent (5%) of the ownership interest of
any limited partnership or other entity) or otherwise, anywhere in the United
States, in any activity or business venture which is in competition with the
business then conducted by the Company or the Company Group, (b) solicit or
entice or endeavor to
<PAGE> 7
solicit or entice away from any member of the Company Group any person who was
an officer, employee or consultant of any member of the Company Group, either
for his own account or for any individual, firm or corporation, whether or not
such person would commit any breach of his contract of employment by reason of
leaving the service of a member of the Company Group, and Greenberg agrees not
to employ, directly or indirectly, any person who was an officer or employee of
any member of the Company Group or who by reason of such position at any time is
or may be likely to be in possession of any confidential information or trade
secrets relating to the businesses or products of any member of the Company
Group or (C) solicit or entice or endeavor to solicit or entice away from any
member of the Company Group any customer or prospective customer of any member
of the Company Group, either for his own account or for any individual, firm or
corporation.
9. Equitable Relief. In the event of a breach or threatened
breach by Greenberg of any of the provisions of Sections 7 or 8 of this
Agreement, Greenberg hereby consents and agrees that the Company shall be
entitled to pre-judgment injunctive relief or similar equitable relief
restraining Greenberg from committing or continuing any such breach or
threatened breach or granting specific performance of any act required to be
performed by Greenberg under any of such provisions, without the necessity of
showing any actual damage or that money damages would not afford an adequate
remedy and without the necessity of posting any bond or other security. The
parties hereto hereby consent to the jurisdiction of the Federal courts located
in the Southern District of New York and the state courts located in such
District for any proceedings under this Section 9. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies at law or
in equity which it may have.
10. Successors and Assigns. Greenberg may not assign this
Agreement or any part thereof without the prior written consent of a majority of
the Board of Directors of the Company; provided, however, that nothing herein
shall preclude one or more beneficiaries of Greenberg from receiving any
benefits set forth in Sections 4 and 5 of this Agreement following the
occurrence of his legal incompetency or his death and shall not preclude the
legal representative of his estate from receiving such benefits or from
assigning any right hereunder to the person or persons entitled thereto under
his will or, in the case of intestacy, to the person or persons entitled thereto
under the laws of the intestacy applicable to his estate. The term
"beneficiaries", as used in this Agreement, shall mean the legal representative
of Greenberg (in the event of his incompetency) or Greenberg's estate.
<PAGE> 8
11. Governing Law. This Agreement shall be deemed a contract
made under, and for all purposes shall be construed in accordance with, the laws
of the State of New York applicable to contracts to be performed entirely within
such State.
12. Entire Agreement. This Agreement contains all the
understandings and representations between the parties hereto pertaining to the
subject matter hereof and supersedes all undertakings and agreements, whether
oral or in writing, if there be any, previously entered into by them with
respect thereto.
13. Modification and Amendment; Waiver. The provisions of this
Agreement may be modified, amended or waived, but only upon the written consent
of the party against whom enforcement of such modification, amendment or waiver
is sought and then such modification, amendment or waiver shall be effective
only to the extent set forth in such writing. No delay or failure on the part of
any party hereto in exercising any right, power or remedy hereunder shall effect
or operate as a waiver thereof, nor shall any single or partial exercise thereof
or any abandonment or discontinuance of steps to enforce such right, power or
remedy preclude any further exercise thereof or of any other right, power or
remedy.
14. Notices. All notices, requests or instructions hereunder
shall be in writing and delivered personally, sent by telecopier or sent by
registered or certified mail, postage prepaid, return receipt requested, as
follows:
If to the Company:
Norton McNaughton of Squire, Inc.
463 Seventh Avenue
New York, New York 10018
Attention: Chief Executive Officer
Telecopy No.: (212) 563-2766
Telephone No.: (212) 947-2960
If to Greenberg:
Jay Greenberg
33 Amber Lane
Oyster Bay Cove, New York 11771
Telephone No.: (516) 624-9156
Any of the above addresses may be changed at any time by notice given as
provided above; provided, however, that any such notice of change of address
shall be effective only upon receipt. All notices,
<PAGE> 9
requests or instructions given in accordance herewith shall be deemed received
on the date of delivery, if hand delivered or telecopied, and two business days
after the date of mailing, if mailed.
15. Severability. Should any provision of this Agreement be
held by a court of competent jurisdiction to be enforceable only if modified,
such holding shall not affect the validity of the remainder of this Agreement,
the balance of which shall continue to be binding upon the parties hereto with
any such modification to become a part hereof and treated as though originally
set forth in this Agreement. The parties further agree that any such court is
expressly authorized to modify any such unenforceable provision of this
Agreement in lieu of severing such unenforceable provision from this Agreement
in its entirety, whether by rewriting the offending provision, deleting any or
all of the offending provision, adding additional language to this Agreement, or
by making such other modifications as it deems warranted to carry out the intent
and agreement of the parties as embodied herein to the maximum extent permitted
by law. The parties expressly agree that this Agreement as so modified by the
court shall be binding upon and enforceable against each of them. In any event,
should one or more of the provisions of this Agreement be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions hereof, and if such
provision or provisions are not modified as provided above, this Agreement shall
be construed as if such invalid, illegal or unenforceable provisions had never
been set forth herein.
16. Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
17. Expenses. Each of the parties hereto shall bear his or its
own costs and expenses, including attorneys' fees and disbursements, incurred in
connection with this Agreement and the transactions contemplated hereby.
18. Titles. Titles of the sections of this Agreement are
intended solely for convenience and no provision of this Agreement is to be
construed by reference to the title of any section.
19. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
<PAGE> 10
* * *
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first above written.
NORTON MCNAUGHTON OF SQUIRE, INC.
By:/s/ Sanford Greenberg
---------------------------------
Title: Chief Executive Officer
/s/ Jay Greenberg
---------------------------------
Jay Greenberg
<PAGE> 12
EXHIBIT A
MEDICAL INSURANCE PREMIUMS TO JAY GREENBERG
IF COMPANY IS UNABLE TO PROVIDE COVERAGE
<TABLE>
<CAPTION>
FISCAL PERIOD
-------------------------------
BEGINNING ENDED ANNUAL MONTHLY
MAY 1: APRIL 30: PREMIUM PREMIUM
--------- --------- ---------- ---------
<S> <C> <C> <C>
1997 1998 $6,500.00 $541.67
1998 1999 6,825.00 568.75
1999 2000 7,166.25 597.19
2000 2001 7,524.56 627.05
2001 2002 7,900.79 658.40
2002 2003 8,295.83 691.32
2003 2004 8,710.62 725.89
2004 2005 9,146.15 762.18
2005 2006 9,603.46 800.29
2006 2007 10,083.63 840.30
2007 2008 10,587.82 882.32
2008 2009 11,117.21 926.43
2009 2010 11,673.07 972.76
2010 2011 12,256.72 1,021.39
2011 2012 12,869.56 1,072.46
2012 2013 13,513.03 1,126.09
2013 2014 14,188.68 1,182.39
2014 2015 14,898.12 1,241.51
2015 2016 15,643.03 1,303.59
2016 2017 16,425.18 1,368.76
2017 2018 17,246.44 1,437.20
2018 2019 18,108.76 1,509.06
2019 2020 19,014.19 1,584.52
2020 2021 19,964.90 1,663.74
2021 2022 20,963.15 1,746.93
2022 2023 22,011.31 1,834.28
2023 2024 23,111.87 1,925.99
2024 2025 24,267.47 2,022.29
2025 2026 25,480.84 2,123.40
2026 2027 26,754.88 2,229.57
2027 2028 28,092.63 2,341.05
2028 2029 29,497.26 2,458.10
2029 2030 30,972.12 2,581.01
2030 2031 32,520.73 2,710.06
</TABLE>
<PAGE> 13
<TABLE>
<CAPTION>
FISCAL PERIOD
-------------------------------
BEGINNING ENDED ANNUAL MONTHLY
MAY 1: APRIL 30: PREMIUM PREMIUM
--------- --------- ---------- ---------
<S> <C> <C> <C>
2031 2032 34,146.76 2,845.56
2032 2033 35,854.10 2,987.84
2033 2034 37,646.80 3,137.23
2034 2035 39,529.15 3,294.10
2035 2036 41,505.60 3,458.80
2036 2037 43,580.88 3,631.74
2037 2038 45,759.93 3,813.33
2038 2039 48,047.92 4,003.99
2039 2040 50,450.32 4,204.19
2040 2041 52,972.84 4,414.40
2041 2042 55,621.48 4,635.12
2042 2043 58,402.55 4,866.88
2043 2044 61,322.68 5,110.22
2044 2045 64,388.81 5,365.73
2045 2046 67,608.25 5,634.02
2046 2047 70,988.67 5,915.72
2047 2048 74,538.10 6,211.51
2048 2049 78,265.00 6,522.08
2049 2050 82,178.25 6,848.19
2050 2051 86,287.17 7,190.60
</TABLE>
<PAGE> 1
Exhibit 10.2
CANCELLATION AGREEMENT
THIS AGREEMENT made this 30 day of APRIL, 1997 between THE
ARSENAL COMPANY LLC (formerly THE ARSENAL COMPANY) hereinafter referred to as
the Landlord, and NORTON MCNAUGHTON OF SQUIRE, INC. hereafter referred to as the
Tenant.
W I T N E S S E T H:
WHEREAS, the Landlord is the Owner of the building known as
463 SEVENTH AVENUE in the Borough of Manhattan, City and State of New York, in
which building the Tenant occupies premises designated as the entire rentable
area of the FIFTH (5TH) FLOOR pursuant to a lease dated February 1, 1995,
between the Landlord and the Tenant, for a term commencing FEBRUARY 1, 1995 and
ending JULY 31, 2008; and
WHEREAS, the parties hereto have mutually agreed to cancel and
terminate the said lease upon the terms and conditions hereinafter set forth,
and
NOW THEREFORE, the parties hereto agree as follows:
1. Upon the execution of the within Agreement, the said lease
is hereby canceled and terminated and the Tenant hereby surrenders possession of
the demised premises to the Landlord, broom-clean, in good order and condition.
2. In consideration of the within cancellation of the lease,
the Tenant agrees to pay to the Landlord the sum of $224,750., which sum shall
be payable upon the execution of this Agreement.
3. This Agreement shall not become effective unless and until
the same has been duly executed by both the Landlord and the Tenant and
delivered to the Tenant.
IN WITNESS WHEREOF, the parties hereto have hereunto set their
respective hands and seals the day and year first above written.
Witness for Landlord: THE ARSENAL COMPANY LLC
______________________ BY:________________________________
Witness for Tenant: NORTON MCNAUGHTON OF SQUIRE, INC.
______________________ BY:________________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-01-1997
<PERIOD-START> FEB-02-1997
<PERIOD-END> MAY-03-1997
<EXCHANGE-RATE> 1
<CASH> 220
<SECURITIES> 0
<RECEIVABLES> 22,941
<ALLOWANCES> 0
<INVENTORY> 22,216
<CURRENT-ASSETS> 51,996
<PP&E> 7,011
<DEPRECIATION> 1,912
<TOTAL-ASSETS> 60,919
<CURRENT-LIABILITIES> 16,502
<BONDS> 0
0
0
<COMMON> 81
<OTHER-SE> 43,391
<TOTAL-LIABILITY-AND-EQUITY> 60,919
<SALES> 94,469
<TOTAL-REVENUES> 94,469
<CGS> 76,211
<TOTAL-COSTS> 23,887
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 632
<INCOME-PRETAX> (6,261)
<INCOME-TAX> (2,753)
<INCOME-CONTINUING> (3,508)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,508)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
