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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report(Date of earliest event reported) September 30, 1997
NORTON MCNAUGHTON, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-23440 13-3747173
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation or organization) Number) Identification No.)
463 Seventh Avenue
New York, N.Y. 10018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 947-2960
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On September 30, 1997, Norton McNaughton, Inc. (the "Company") completed
the acquisition of substantially all the assets and the assumption of
substantially all the liabilities of Miss Erika, Inc. ("Miss Erika"), a
privately-held manufacturer of women's moderate apparel. The Company will,
through a wholly owned subsidiary, continue Miss Erika's business.
The terms of the negotiated transaction provided for the payment of
approximately $24 million in cash, with additional consideration payable at the
Company's option in cash or Company common stock based on the profitability of
Miss Erika in fiscal years 1998 and 1999.
In connection with the acquisition, the Company entered into a $140
million secured term loan and revolving credit facility with NationsBanc
Commercial Corporation and The CIT Group/Commercial Services, Inc. The proceeds
will be used to finance the acquisition and for ongoing working capital
requirements of the combined entity. Pursuant to the new financing arrangement,
the Company will continue to factor its accounts receivable, as well as the
accounts receivable of Miss Erika.
ITEM 5. OTHER EVENTS. See Exhibit 99 for press release issued on October 1,
1997.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) & (b) Financial statements of business acquired and pro-forma
financial information.
The required financial statements and pro forma financial
information will be filed as soon as practicable, but not
later than 60 days after the date by which this report must be
filed.
(c) Exhibit Index
2.1 Agreement of Purchase and Sale made as of the 29th day
of August, 1997 by and among Miss Erika, Inc., a
Delaware corporation; Terbem Limited, a British Virgin
Islands corporation, Bobst Investment Corp., a British
Virgin Islands corporation, TCRI Offshore Partners C.V.,
a Netherlands Antilles corporation and TCR International
Partners L.P., a Delaware limited partnership, Triumph
Capital, L.P. II, a Delaware limited partnership, Stuart
Bregman, Howard Zwilling, Sidney Goldstein,
Christian Baillet, ME Acquisition Corp., a Delaware
corporation, and Norton McNaughton, Inc., a Delaware
corporation. Schedules to this Agreement have been
omitted and the Company shall furnish to the Securities
and Exchange Commission a copy of any omitted schedule
as supplemental information upon request.
10.1 Financing Agreement dated as of September 25, 1997 by and
among Norton McNaughton, Inc., Norton McNaughton of Squire,
Inc., Miss Erika, Inc., the Financial Institutions from time
to time party thereto, NationsBanc Commercial Corporation and
The CIT Group/Commercial Services, Inc.
10.2 Factoring Agreement entered into between Miss Erika, Inc.
and NationsBanc Commercial Corporation dated September 25,
1997.
10.3 Amended and Restated Factoring Agreement entered into
between Norton McNaughton of Squire, Inc. and NationsBanc
Commercial Corporation dated September 25, 1997.
10.4 Employment Agreement dated as of August 29, 1997 between ME
Acquisition Corp. and Stuart Bregman.
10.5 Employment Agreement dated as of August 29, 1997 between ME
Acquisition Corp. and Howard Zwilling.
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10.6 Employment Agreement dated as of August 29, 1997 between ME
Acquisition Corp. and Roberta Ciacci.
10.7 Employment Agreement dated as of August 29, 1997 between ME
Acquisition Corp. and Elizabeth Moser.
10.8 Employment Agreement dated as of August 29, 1997 between ME
Acquisition Corp. and Kenny Tse.
10.9 Employment Agreement dated as of August 29, 1997 between ME
Acquisition Corp. and Samuel Glaser.
99 Norton McNaughton, Inc. press release dated September 29,
1997.
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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 hereunto duly authorized.
NORTON MCNAUGHTON, INC.
-----------------------
(Registrant)
Date: October 14, 1997 By:/s/ Sanford Greenberg
---------------------
SANFORD GREENBERG
Chairman of the Board and Chief Executive
Officer
(Principal Executive and Operating Officer)
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EXHIBIT 2.1
AGREEMENT OF PURCHASE AND SALE
By and Among
MISS ERIKA, INC.,
CERTAIN OF THE STOCKHOLDERS OF MISS ERIKA, INC.,
ME ACQUISITION CORP.
and
NORTON MCNAUGHTON, INC.
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Table of Contents
<TABLE>
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SECTION I. PURCHASE AND SALE OF THE ASSETS...................... 2
1.01 Purchase and Sale of the Assets...................... 2
SECTION II. THE PURCHASE PRICE................................... 9
2.01 Purchase Price....................................... 9
2.02 Earn Out............................................. 10
2.03 Allocation of Purchase Price......................... 14
2.04 Registration Rights.................................. 15
SECTION III. REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS.................................. 21
3.01 Organization and Qualification....................... 22
3.02 Authority............................................ 22
3.03 No Legal Bar; Conflicts.............................. 23
3.04 Capitalization....................................... 23
3.05 Financial Statements; No Undisclosed Liabilities..... 23
3.06 Accounts Receivable; Inventories..................... 24
3.07 Accounts Payable, Etc................................ 25
3.08 Absence of Certain Changes........................... 25
3.09 Loans, Etc........................................... 26
3.10 Real Property Owned or Leased........................ 26
3.11 Title to Assets; Condition of Property............... 27
3.12 Taxes................................................ 27
3.13 Permits; Compliance with Applicable Law; Permits;
Environmental........................................ 28
3.14 Licenses............................................. 31
3.15 Contractual and Other Obligations; Customers and
Suppliers............................................ 31
3.16 Compensation......................................... 32
3.17 Employee Benefit Plans............................... 33
3.18 Labor Relations...................................... 34
3.19 Dividends, Transfers, Increases in Compensation or
Benefits............................................. 34
3.20 Insurance............................................ 35
3.21 Conduct of Business.................................. 35
3.22 Intellectual Property................................ 35
3.23 Use of Names......................................... 36
3.24 Power of Attorney; Bank Accounts, Etc................ 37
3.25 Books and Records.................................... 37
3.26 Litigation........................................... 37
3.27 Location of Business and Assets...................... 37
3.28 Insider Interests; Intercompany Transactions......... 37
3.29 Investment........................................... 38
SECTION IV. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS... 39
4.01 Stockholders......................................... 39
4.02 Non-Management Stockholders.......................... 41
</TABLE>
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<TABLE>
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SECTION V. REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER..................................... 43
5.01 Organization......................................... 44
5.02 Authority............................................ 44
5.03 No Legal Bar; Conflicts.............................. 44
5.04 Norton Common Stock.................................. 45
5.05 SEC Documents........................................ 45
SECTION VI. CONDUCT OF THE BUSINESS.............................. 45
6.01 Operation of the Business............................ 45
6.02 Preservation of Organization and Employees........... 45
6.03 Contracts............................................ 45
6.04 Sales or Encumbrances................................ 46
6.05 Documents, Etc....................................... 46
6.06 Permits.............................................. 46
7.01 Company Acquisition Proposal......................... 46
7.02 Publicity............................................ 47
7.03 Further Assurances................................... 47
7.04 Correspondence, Funds, etc........................... 47
7.05 Discharge of Obligations............................. 48
7.06 Encumbrances......................................... 48
7.07 Confidential Information............................. 49
7.08 Employees............................................ 50
7.09 Insurance Policies; Consents......................... 52
7.10 HSR Filing........................................... 53
7.11 Taxes and Tax Returns................................ 53
7.12 Effective Time....................................... 53
7.13 Operation of the Purchaser After the Closing......... 54
7.14 Chase Indebtedness................................... 56
SECTION VIII. CLOSING.............................................. 56
8.01 Time and Place of Closing............................ 56
8.02 Termination.......................................... 56
8.03 Effect on Obligations................................ 57
8.04 Return of Documentation.............................. 58
8.05 Delivery of Assets................................... 58
8.06 Assumption of Liabilities............................ 58
8.07 Contracts and Books.................................. 58
8.08 Additional Steps..................................... 59
8.09 Change of Name....................................... 59
SECTION IX. CONDITIONS TO THE COMPANY'S OBLIGATION TO CLOSE...... 59
9.01 Opinion of Counsel................................... 59
9.02 No Litigation........................................ 60
9.03 Representations and Warranties....................... 60
9.04 Other Certificates................................... 60
9.05 Hart-Scott-Rodino.................................... 60
9.06 Instruments of Assumption of the Assumed Liabilities. 60
9.07 Subordinated Pledge.................................. 61
9.08 Additional Closing Purchase Price.................... 61
9.09 Employment Agreements................................ 61
SECTION X. CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE.... 61
</TABLE>
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<TABLE>
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10.01 Opinion of Counsel................................... 61
10.02 No Litigation........................................ 62
10.03 Representations and Warranties....................... 62
10.04 Other Certificates................................... 63
10.05 Sale of All the Assets............................... 63
10.06 Third Party Consents................................. 63
10.07 Hart-Scott-Rodino.................................... 63
10.08 Instruments of Conveyance of the Assets, Power of
Attorney, Etc........................................ 63
10.09 Regulation S-X and Consent of Price Waterhouse LLP... 64
10.10 Additional Closing Purchase Price.................... 64
10.11 Employment Agreements................................ 64
SECTION XI. INDEMNIFICATION...................................... 64
11.01 Indemnification by the Stockholders.................. 64
11.02 Indemnification by the Purchaser. .................. 66
11.03 Procedure for Indemnification........................ 66
11.04 Subrogation.......................................... 68
11.05 Validity............................................. 69
11.06 Limits on Indemnifications........................... 69
11.07 Set-Off.............................................. 72
11.08 Exclusive Remedy..................................... 72
SECTION XII. BROKERS AND FINDERS.................................. 73
12.01 The Company's and the Stockholders' Obligations...... 73
12.02 The Purchaser's and Norton's Obligations............. 73
SECTION XIII. MISCELLANEOUS........................................ 74
13.01 Notices.............................................. 74
13.02 Entire Agreement and Amendment....................... 75
13.03 Expenses............................................. 75
13.04 Injunctive Relief.................................... 76
13.05 Arbitration.......................................... 76
13.06 Invalidity........................................... 77
13.07 Successors and Assigns............................... 77
13.08 Governing Law........................................ 77
13.09 Counterparts......................................... 78
13.10 Assignment........................................... 78
13.11 Knowledge, Etc....................................... 78
13.12 Independence of Representations and Warranties....... 79
13.13 Interpretation....................................... 79
13.14 Action by the Stockholders........................... 80
SECTION XIV. DEFINITIONS.......................................... 81
14.01 Certain Definitions..................................... 81
</TABLE>
SCHEDULES
A. PERCENTAGES
1.01(a)(ii) PROPERTY
1.01(a)(iii) WAREHOUSES
1.01(a)(vi) CONTRACTS
1.01(c)(iii) ACCRUED MANAGEMENT BONUSES
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2.03 ALLOCATION OF PURCHASE PRICE
3.01 ORGANIZATION
3.03 CONSENTS
3.04 CAPITALIZATION
3.05(b) EXCEPTIONS TO GAAP
3.05(c) LIABILITIES
3.06 ACCOUNTS RECEIVABLE; INVENTORIES
3.07 ACCOUNTS PAYABLE
3.08 CERTAIN CHANGES
3.09 COMPANY INDEBTEDNESS
3.10 REAL PROPERTY LEASED
3.11 CONDITION OF THE ASSETS
3.12(a) INCOME TAXES
3.12(b) NON INCOME TAXES
3.13(b) PERMITS
3.13(c) ENVIRONMENTAL
3.14 LICENSES
3.15 CONTRACTS; CUSTOMERS AND SUPPLIERS
3.16 COMPENSATION
3.17 EMPLOYEE BENEFIT PLANS
3.18 LABOR MATTERS
3.19 INCREASES IN COMPENSATION
3.20 INSURANCE
3.22 INTELLECTUAL PROPERTY
3.23 USE OF NAMES
3.24 POWERS OF ATTORNEY; BANK ACCOUNTS
3.26 LITIGATION
3.27 LOCATIONS
3.28 INSIDER INTERESTS; INTERCOMPANY TRANSACTIONS
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AGREEMENT OF PURCHASE AND SALE
THIS AGREEMENT OF PURCHASE AND SALE (this "Agreement") made as of the 29th
day of August, 1997 by and among Miss Erika, Inc., a Delaware corporation (the
"Company"); Terbem Limited, a British Virgin Islands corporation, Bobst
Investment Corp., a British Virgin Islands corporation, TCRI Offshore Partners
C.V., a Netherlands Antilles corporation and TCR International Partners L.P., a
Delaware limited partnership (collectively, "TCR"); Triumph Capital, L.P. II, a
Delaware limited partnership ("Triumph"; TCR and Triumph sometimes are referred
to herein individually as a "Financial Stockholder" and collectively as the
"Financial Stockholders"); Stuart Bregman ("Bregman") and Howard Zwilling
("Zwilling") (individually, a "Management Stockholder" and collectively, the
"Management Stockholders"); Sidney Goldstein and Christian Baillet
(individually, an "Other Stockholder" and collectively, the "Other
Stockholders"; the Financial Stockholders and the Other Stockholders sometimes
are referred to herein individually as a "Non-Management Stockholder" and
collectively as the "Non-Management Stockholders"; and the Management
Stockholders and the Non-Management Stockholders sometimes are referred to
herein individually as a "Stockholder" and collectively as the "Stockholders");
ME Acquisition Corp., a Delaware corporation (the "Purchaser"); and Norton
McNaughton, Inc., a Delaware corporation ("Norton"). Capitalized terms used
herein and not defined above or in the Section in which they are used, shall
have the meanings assigned to such terms in Section 14.01 hereof.
W I T N E S S E T H :
WHEREAS, the Company is engaged in the businesses of the design,
importing, marketing, merchandising, distribution and sale of women's apparel
(such activities and all incidental or related businesses of the Company, and
all activities and businesses currently planned or under development (such
planned activities or activities under development collectively, the
"Development Projects") by the Company (other than in respect of Excluded Assets
and Excluded Liabilities) being referred to herein collectively as the
"Business");
WHEREAS, the Purchaser desires to acquire from the Company the Business
and all of the assets of the Company, other than those assets specifically
described in Section 1.01(b) hereof, and to assume only the liabilities of the
Company specifically described in Section 1.01(c) hereof, the Company intending
to retain and remain solely responsible for all liabilities not so assumed by
the Purchaser. The Company desires to sell, transfer and assign the Assets and
to assign the Assumed Liabilities to the Purchaser, all on the terms and subject
to the conditions hereinafter set forth;
WHEREAS, the Company has been given and has exercised the option of
receiving, in lieu of part of the contingent consideration payable for the
Assets hereunder, cash at Closing, which exercise is reflected in full in
Section II hereof; and
WHEREAS, to induce each of the Purchaser and Norton to enter into this
Agreement and perform its obligations hereunder, the Company and the
Stockholders have agreed to make the representations, warranties, covenants and
agreements (including, without limitation, the indemnification agreements) set
forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, and intending to be legally bound, the
parties hereto hereby agree as follows:
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SECTION I.
PURCHASE AND SALE OF THE ASSETS
1.1 Purchase and Sale of the Assets. (a).1 Subject to the terms
and conditions of this Agreement and on the basis of the representations,
warranties, covenants and agreements herein contained, at the Closing, the
Company shall sell, assign, convey and deliver to the Purchaser, and the
Purchaser shall purchase, acquire and accept from the Company, all of the
Company's right, title and interest in and to all of the Business and all of the
Company's assets, rights and properties of every kind and nature, whether real,
personal or mixed, tangible or intangible, whether identifiable or contingent,
wherever located, whether or not reflected on the books and records of the
Company, whether or not used or useful in or related to the Business, other than
the Excluded Assets, which Business, assets, rights and properties
(collectively, the "Assets") shall include, without limitation, all of the
following, except to the extent that any of the following are Excluded Assets:
(i) all assets shown or reflected on the Current Balance
Sheet except for changes made therein in the ordinary course of business
since the Current Balance Sheet Date and as otherwise permitted by the
terms hereof;
(ii) all of the fixed assets and other tangible personal
property, including without limitation, machinery, vehicles, tools,
equipment, furniture, fixtures, leasehold improvements, materials and
supplies, in each case other than Inventory (collectively, "Property") of
the Company wherever located, including without limitation, the Property
set forth on (with locations thereof) Schedule 1.01(a)(ii) hereto and
Property acquired by the Company through the Closing Date;
(iii) all work-in-process, finished goods and other inventory
whether on hand, on order, in transit or held by others on a consignment
or other basis (collectively, "Inventory") owned by the Company (including
without limitation, the Inventory located in any warehouses (the
"Warehouses") wherever located, including without limitation, the
Warehouses set forth on Schedule 1.01(a)(iii) hereto), including without
limitation, the Inventory shown or reflected on the Current Balance Sheet
and the Inventory acquired or created by the Company from the Current
Balance Sheet Date through the Closing Date, excluding only such Inventory
as shall have been sold by the Company from the Current Balance Sheet Date
through the Closing Date;
(iv) all tradenames, tradename rights, trademarks, trademark
rights, patents, patent rights, copyrights, copyright rights, service
marks, service mark rights, trade secrets, trade secret rights,
intellectual property, intellectual property rights, confidential
information, mailing lists, customer lists, supplier lists, market
studies, training and equipment manuals, trade dress, designs, patterns,
technology, know-how, processes, business opportunities and businesses,
projects and products planned or under development (including without
limitation, all goodwill associated with any of the foregoing, licenses in
respect of any of the foregoing, applications relating to any of the
foregoing and claims for infringement of or interference with any of the
foregoing) and other proprietary information owned or used by the Company,
in any case whether domestic or foreign, registered or common law,
including without limitation, the tradename "Miss Erika" and the trademark
"Erika" and the goodwill associated therewith and all variations,
simulations and derivations thereof;
(v) all receivables of the Company, including without
limitation, trade accounts receivable and other accounts receivable, notes
receivable, loans receivable and advances shown or reflected on the
Current Balance Sheet and all such acquired or created by the Company from
the Current Balance Sheet Date through the Closing Date (collectively, the
"Receivables"), excluding only such Receivables as shall have been
collected by the Company from the Current Balance Sheet Date through the
Closing Date;
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(vi) all of the Company's rights and entitlements under all
Contracts (other than Retained Contracts), including without limitation,
the Health Contract and the Contracts set forth on Schedule 1.01(a)(vi)
hereto;
(vii) all goodwill, other intangible property, and causes of
action, actions, claims and rights of any kind of the Company against
other Persons (whether by contract or otherwise) relating to any of the
Assets (including without limitation, the Intellectual Property, the
Contracts and the Receivables), the Assumed Liabilities or the Business;
(viii) all books and records (financial, accounting and other),
correspondence, and all sales, marketing, advertising, packaging,
promotional and other materials, files, data, drawings, designs,
engineering and manufacturing data and other technical information and
data (whether written, on disk, film, tape or other media, and including
without limitation, all computerized data), and all other business and
other records, in each case arising under or relating to the Assets (or
any of them), the Assumed Liabilities or the Business;
(ix) all Permits, to the extent legally transferable;
(x) all prepaid expenses, refunds in respect of payments made
prior to the Closing Date (other than Income Tax refunds, but including
insurance refunds), security and like deposits, securities, instruments
and investments of the Company;
(xi) all rights, remedies and benefits of the Company arising
under or relating to any of the Assets, the Assumed Liabilities or the
Business, including without limitation, rights, remedies and benefits
arising out of express or implied warranties from builders, manufacturers,
contractors or suppliers of Property, Inventory or other Assets (or
components thereof) or products sold or ordered by the Company prior to
the Closing Date (and in any case, any component thereof), and all causes
of action and claims arising therefrom;
(xii) all cash and cash equivalents (net of Outstanding Checks
for payments not prohibited by this Agreement), bank and investment
accounts and lockboxes (and their contents on the Closing Date) to which
payments to the Company may be sent by any customer or other Person
(collectively, the "Lockboxes") (together with the cash, securities and
other things held in all such accounts); and
(xiii) all products and proceeds of any of the foregoing.
(b) Excluded Assets. It is understood and agreed that the
Company is not selling, assigning or conveying to the Purchaser, the
Purchaser is not purchasing and the Assets shall not include any of the
right, title or interest of the Company in the following (collectively,
the "Excluded Assets"):
(i) Retained Contracts;
(ii) corporate minute books, stock transfer records and
corporate seal of the Company;
(iii) Income Tax refunds, prepaid Income Taxes and deferred
Income Tax assets;
(iv) cash to the extent of Outstanding Checks;
(v) subject to Section 11.04 hereof, all causes of action,
actions, claims and rights of any kind of the Company against other
Persons (whether by contract or otherwise), and other rights, remedies and
benefits of the Company relating to any of the Excluded Assets or any of
the Excluded Liabilities;
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(vi) insurance claims arising out of occurrences prior to the
Closing Date; and
(vii) all products and proceeds of any of the foregoing.
(c) Assumed Liabilities. Subject to the terms and conditions
of this Agreement and on the basis of the representations, warranties,
covenants and agreements herein contained, at the Closing, the Company
agrees to assign to the Purchaser and the Purchaser agrees to assume from
the Company, without duplication, the following (collectively, the
"Assumed Liabilities"):
(i) each of the Contracts (other than Retained Contracts, but
including the Health Contract, including without limitation, with respect
to Sidney Goldstein's post-retirement medical benefits (but only in
respect of liabilities and obligations after the Closing Date));
(ii) all trade and other accounts payable of the Company, and
all ordinary course operating expenses, accrued expenses and liabilities
of the Company, including the payable due to P.S. Moon, in any case, that
are not Excluded Liabilities described in clauses (i) through (iv) of
Section 1.01(d);
(iii) all liabilities or obligations owing by the Company for
(a) accrued and unpaid salaries reflected on the Company's books and
records, (b) accrued management bonuses to the extent set forth on
Schedule 1.01(c)(iii) hereof (the "Management Bonuses"), (c) accrued
vacation pay in the ordinary course of business consistent with past
practices, and (d) reimbursement obligations for travel and entertainment
expenses incurred in the ordinary course of business consistent with past
practices;
(iv) severance obligations, if any, of the Company to
employees without written employment or severance contracts arising out of
the termination of such employees' employment with the Company pursuant to
Section 7.08;
(v) all obligations in respect of Products sold prior to the
Closing Date and returnable in the ordinary course of business after the
Closing Date;
(vi) Non Income Taxes payable by the Company in respect of
periods ending before the Closing Date, which are not Excluded
Liabilities; and
(vii) one half of any liability arising out of the matter
indicated with an asterisk on Schedule 3.26 hereto.
(d) No Other Liabilities. It is expressly agreed and understood
that, except as specifically provided in Section 1.01(c) hereof, the Purchaser
shall not assume or be deemed to assume and shall have no responsibility or
obligation with respect to, any liability or obligation of, or claim against,
the Company, or of or against any predecessor, director, officer, employee,
agent, stockholder or other affiliate of the Company of any kind or nature,
whether absolute, accrued, contingent or otherwise and whether due or to become
due and whether or not asserted, and whether known or unknown, and however
arising, all of which liabilities, obligations and claims the Company hereby
agrees to retain, remain solely responsible for, perform, pay and discharge
promptly as and when due.
Without limiting the generality of the foregoing, except as
specifically provided in Section 1.01(c) hereof, the Purchaser shall not assume
nor be deemed to assume and the Company hereby agrees to retain, remain solely
responsible for, perform, pay and discharge promptly as and when due each of the
following (collectively, the "Excluded Liabilities"):
(i) any and all liabilities or obligations owing by the Company
to, or claims against the Company by, any Stockholder (other than (a)
accrued and unpaid salaries reflected on the Company's books and records,
(b) Management Bonuses, (c) accruals for vacation pay in the
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ordinary course of business consistent with past practices, and (d)
reimbursement obligations for travel and entertainment expenses incurred
in the ordinary course of business consistent with past practices) or any
affiliate of the Company or of any Stockholder, including without
limitation, all liabilities and obligations arising out of or related to
the Subordinated Debt, the Preferred Stock and the Retained Contracts;
(ii) any and all liabilities, obligations or claims of any type
relating to, arising under or in respect of any Benefit Plan (other than
the Health Contracts in respect of liabilities, obligations or claims
after the Closing Date) or Multiemployer Plan, including without
limitation, (a) any and all liabilities, obligations or claims (including
without limitation costs and expenses incurred by employees of the Company
or by other participants on, prior to or after the Closing Date) relating
to, arising under or in respect of all health (including without
limitation post retirement health), medical, dental and similar plans in
which any employee or other participant of the Company participates or
otherwise covering any employee or other participant of the Company and
(b) any and all liabilities or obligations arising from or as a result of
(x) the operation of the Miss Erika, Inc. Employee Profit Sharing Plan or
(y) the transfer of certain account balances therefrom, other than any
liability to pay a transferred account balance to a specific participant
entitled to such account balance to the extent assets have been
transferred in respect of such participant.
(iii) any and all liabilities, obligations or claims relating to,
arising under or in respect of product liability or warranty claims
(including without limitation for personal injury, damage to or loss of
property, or consequential or punitive damages) relating to, arising out
of or in respect of Products sold prior to the Closing;
(iv) any and all liabilities, obligations or claims to the extent
covered by the Company's insurance policies arising out of events
occurring on or prior to the Closing Date or conditions existing on or
prior to the Closing Date (including without limitation, workers'
compensation liabilities, obligations or claims);
(v) (1) any and all Income Taxes, imposed or claimed by the
United States or by any foreign country or by any state, municipality,
subdivision or instrumentality of the United States or of any foreign
country, or by any other taxing authority, and any and all interest and
penalties thereon, (a) which are or were at any time and from time to time
due or payable by the Company, (b) which relate to the Assets or the
operation or conduct of the Business on or prior to the Closing Date or
(c) which arise out of the sale of the Assets (and any of them) by the
Company; in any and all cases, including without limitation, Income Tax
liabilities, obligations and claims arising out of the Company's (or its
predecessor's) inclusion (if any) in any consolidated or affiliated group
or in any affiliate's combined group (including by reason of Treasury
Regulation Section 1.1502-6(a) or otherwise), and whether or not disputed
and (2) any and all liabilities, obligations or claims relating to,
arising out of or in respect of (x) the audit of the Company for New
Jersey State sales taxes for the 1991 through 1995 tax years (the "New
Jersey Audit") and (y) the desk audit of the Company for New York City
Taxes for fiscal year ended January 31, 1996 (the "New York Audit");
(vi) any and all liabilities, obligations and claims relating to,
arising out of or in respect of any and all checks and drafts of the
Company drawn or issued on or prior to the Closing Date (collectively, the
"Outstanding Checks"); and
(vii) all other liabilities and obligations of, or claims against,
the Company, or of any predecessor, stockholder or other affiliate of the
Company, and claims related to arising out of or in respect of the
ownership of the Assets (or any of them) or the conduct of the Business
prior to the Closing, of any kind or nature, whether absolute, accrued,
contingent or otherwise, whether due or to become due and whether or not
asserted, and whether known or unknown, and however arising, and, in each
case, which are not Assumed Liabilities.
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SECTION II.
THE PURCHASE PRICE
1.021 Purchase Price. The purchase price for the Assets (other than
the assumption the Assumed Liabilities) shall consist of the Closing Purchase
Price and the Earn Out Payment, if any (collectively, the "Purchase Price"). At
the Closing, the Purchaser shall pay (and Norton agrees to cause the Purchaser
to pay) an aggregate amount for the Assets equal to $24,000,000, plus the amount
determined pursuant to Sections 9.08 and 10.10 hereof (collectively, the
"Closing Purchase Price"). The Closing Purchase Price shall be paid at the
Closing in cash in immediately available funds by bank wire transfer to an
account designated by the Company at least two business days prior to the
Closing.
1.022 Earn Out. (a) In addition to the Closing Purchase Price, the
Company shall be entitled to the Earn Out Payment, if any, determined in
accordance with this Section 2.02. In Norton's sole discretion, the Purchaser
may elect to pay all or any portion of the Earn Out Payment (the "Stock Earn Out
Amount") by requesting Norton to issue (and if so requested Norton agrees to
issue) to the Company an aggregate number of shares of Norton's common stock
$0.01 par value ("Norton Common Stock"), equal to the Stock Earn Out Amount
divided by the Average Market Value per share of Norton Common Stock determined
on the third business day preceding the Earn Out Payment Date (the "Earn Out
Shares"). Notwithstanding the foregoing, (i) any amount by which the Final
EBITDA Payment exceeds the Initial EBITDA Payment, as determined by the
Independent Auditor pursuant to Section 2.02(b)(iv) below, shall be payable by
the Purchaser in accordance with the terms and conditions hereof in cash in
immediately available funds, (ii) in no event shall the number of Earn Out
Shares, in the aggregate, exceed the Stock Earn Out Cap and, in such case, the
excess of the Earn Out Payment over the aggregate Average Market Value of the
Stock Earn Out Cap, if any, shall be payable by the Purchaser in accordance with
the terms and conditions hereof in cash in immediately available funds, (iii) in
the event that the Norton Common Stock and the Earn Out Shares are not listed or
admitted to trading on a Securities Exchange on the Earn Out Payment Date, the
Earn Out Payment, if any, shall be payable in cash in immediately available
funds and not in Norton Common Stock, and (iv) the foregoing agreements and the
other matters set forth in this Section 2.02 are subject to the provisions set
forth in Section 7.13(d) hereof.
(b) (i) Norton shall give notice to the Company of its calculations
of EBITDA for the fiscal years ending October 31, 1998 and November 6, 1999, on
or prior to each of February 28, 1999 (the "1999 EBITDA Notice") and, unless a
Security Default shall have occurred and be continuing (in which case no 2000
EBITDA Notice shall be required to be delivered), February 28, 2000 (the "2000
EBITDA Notice," and each of the 1999 EBITDA Notice and the 2000 EBITDA Notice
hereinafter collectively referred to as the "EBITDA Notice"), respectively. The
EBITDA Notice shall be accompanied by an unaudited consolidated balance sheet
and consolidated statement of income of the Purchaser and its subsidiaries for
the applicable fiscal year prepared by Norton. In addition, the 1999 EBITDA
Notice shall set forth the Purchaser's determination of the Initial Earn Out
Payment, if any, which would be payable if a Security Default were to occur and
the 2000 EBITDA Notice, if any, shall set forth the Purchaser's determination of
the Initial Earn Out Payment, if any.
(ii) On the Earn Out Payment Date, subject to the terms and
conditions of this Agreement, the Purchaser shall (i) pay to the Company (or its
permitted assigns) by bank wire transfer in cash in immediately available funds
to a bank account designated by the Company an amount, if any, equal to the
amount by which the Earn Out Payment exceeds the Stock Earn Out Amount and (ii)
deliver to the Company or to its stockholders as the Company's permitted assigns
in accordance with Section 13.10 hereof certificates representing, if any, the
Earn Out Shares (collectively, the "Initial Earn Out Payment"). In addition,
simultaneously with such delivery of the Initial Earn Out Payment, if any,
Norton shall cause its independent public accountants to deliver a written
statement to the Company stating that such accountants have reviewed each EBITDA
Notice and that EBITDA set forth in each EBITDA Notice was calculated in
accordance with the provisions of this Agreement. The Purchaser, Norton, the
Company and the Stockholders agree jointly to satisfy any reasonable request
from Norton's independent public accountants for indemnification and release of
liability in connection with such written statement. The Company and its
permitted assigns as aforesaid shall have reasonable access to all relevant
personnel of Norton and shall have the right to review all accounting books and
records of the Purchaser that the
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Company reasonably deems relevant to the applicable EBITDA Notice and to make
copies of relevant portions thereof, and Norton shall provide access to such
accounting books and records to the Company during normal business hours and
upon reasonable prior notice. Norton shall also request its independent public
accountants to permit the Company and its permitted assigns as aforesaid to
review and make copies of the relevant work papers with respect to the
applicable EBITDA Notice. The Purchaser, Norton, the Company and the
Stockholders agree jointly to satisfy any reasonable request from Norton's
independent public accountants for indemnification and release of liability in
connection with any grant of access to such work papers.
(iii) If the Company or the Stockholder Representative
disputes the amount of the Initial Earn Out Payment set forth in the 2000 EBITDA
Notice or, if a Security Default shall have occurred and be continuing, the
Initial Earn Out Payment set forth in the 1999 EBITDA Notice, the applicable
disputing person shall give written notice (the "Dispute Notice") to Norton
within 45 days after the Earn Out Payment Date. The Dispute Notice shall specify
in reasonable detail the matters and reasons for such dispute, which may include
a dispute as to the EBITDA determination in either or both the 1999 EBITDA
Notice or the 2000 EBITDA Notice (if any), and the amount or amounts in dispute.
In the event that no such Dispute Notice is timely delivered to Norton, the 2000
EBITDA Notice or, if a Security Default shall have occurred and be continuing,
the 1999 EBITDA Notice shall be deemed a final determination of the Earn Out
Payment as of such forty-fifth (45th) day after the Earn Out Payment Date (the
"Final Determination of the Earn Out Payment").
(iv) In the event that Norton timely receives a Dispute Notice
and Norton and the Company or the Stockholder Representative, as applicable, are
unable to resolve the disputed matters set forth in the Dispute Notice within 30
days after receipt by Norton thereof, all disputed matters raised in the Dispute
Notice and not resolved (the "Disputed Matters") shall be submitted to (i) the
New York office of KPMG Peat Marwick LLP, and if such firm refuses to accept
such engagement, (ii) the New York office of Arthur Andersen & Co., and if such
firm refuses to accept such engagement, (iii) such other nationally recognized
independent accounting firm as is chosen by mutual agreement of Norton, on the
one hand, and the Company or the Stockholder Representative, as applicable, on
the other hand, acting in good faith (the "Independent Auditor") for final
resolution in accordance with the terms of this Agreement. The Independent
Auditor shall follow such procedures as it deems reasonably appropriate for
obtaining the necessary information in considering the Disputed Matters and may,
if it deems reasonably appropriate, conduct an independent audit of the
Purchaser. The Independent Auditor shall have the right to review all of the
Purchaser's accounting books and records relevant to the applicable EBITDA
Notice. Norton and the Company or the Stockholder Representative, as applicable,
shall use their respective best efforts to cause the Independent Auditor to
render its determination on the Disputed Matters (the "Determination") within 60
days of submission of the Disputed Matters. The Determination shall be limited
to the Disputed Matters, shall be final, conclusive and binding upon all of the
parties hereto, and shall be reflected in a written report which shall be
delivered by the Independent Auditor to Norton and the Company or the
Stockholder Representative, as applicable. The 2000 EBITDA Notice (if any) or,
if a Security Default shall have occurred, the 1999 EBITDA Notice, as, when and
if adjusted to reflect the Independent Auditor's resolution of any Disputed
Matters shall be deemed the Final Determination of the Earn Out Payment on the
date that the Independent Auditor so delivers the Determination.
(v) By not later than the tenth (1Oth) business day after
there is a Final Determination of the Earn Out Payment in accordance with clause
(iv) above, if any, Norton shall deliver to the Company a calculation of the
Earn Out Payment (the "Final Earn Out Notice") calculated on the basis of the
Final Determination of the Earn Out Payment (the "Final Earn Out Payment"). If
the Final Earn Out Payment is greater than the Initial Earn Out Payment (if
any), then Norton shall, simultaneously with the delivery of the Final Earn Out
Notice, pay such excess amount (the "Excess Amount")(adjusted to reflect any
fees and expenses for which the Company is responsible pursuant to Section
2.02(b)(vi) below, but not below zero) to the Company or its permitted assigns
as aforesaid by bank wire transfer in cash in immediately available funds to a
bank account designated by the Company, together with interest accrued on the
Excess Amount paid at the prime rate per annum (as announced by NationsBank,
N.A.) from the date of delivery of the 2000 EBITDA Notice, if any (or February
28, 2000, if earlier), or, if a Security Default shall have occurred, the date
of delivery of the 1999 EBITDA Notice (or February 28, 1999, if earlier) to the
date of such payment.
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(vi) The fees and expenses of the Independent Auditor (i)
shall be paid by the Company and the Stockholders (on a several basis based upon
the percentages set forth opposite each Stockholder's name on Schedule A hereto,
each such percentage being hereinafter referred to as such Stockholder's "Pro
Rata Percentage")if the Excess Amount is equal to or less than 1% of the Initial
Earn Out Payment, (ii) shall be paid by Norton if the Excess Amount is equal to
or greater than 25% of the Initial Earn Out Payment, and (iii) shall be paid
one-half by the Company and the Stockholders (on a several basis based upon each
Stockholder's Pro Rata Percentage), on the one hand, and one-half by Norton, on
the other hand, if the Excess Amount is greater than 1% but less than 25% of the
Initial Earn Out Payment.
(vii) Notwithstanding any provisions contained herein to the
contrary, the determination pursuant to this Section 2.02 of the Final
Determination of the Earn Out Payment shall in no way limit or otherwise affect
the parties' rights and remedies in accordance with the terms and conditions
hereof for breach of the provisions contained in Section 7.13 hereof.
(viii)If the 1999 EBITDA Notice states that EBITDA for the
fiscal year ending October 31, 1998 is greater than $9,000,000 and if on the
date the 1999 EBITDA Notice is sent to the Company the product of the Average
Market Value and the number of issued and outstanding shares of Norton Common
Stock ("the Market Capitalization") is less than $30,000,000, then any
Stockholder having a Pro Rata Percentage greater than 25% may, by written notice
(the "Security Notice") delivered to Norton within 30 days of delivery of the
1999 EBITDA Notice, require Norton, within 45 days of Norton's receipt of the
Security Notice, either (a) to arrange for the issuance of a letter of credit
(the "Earn Out L/C") with a face amount equal to the Secured Earn Out Amount (as
defined below) by a bank or trust company with assets in excess of $50,000,000
for the benefit of the Stockholder Representative, in its capacity as such,
securing Norton's obligation to pay the cash portion, if any, of the Earn Out
Payment and containing such other terms and conditions as shall be reasonably
satisfactory to the Company or (b) to pay the Secured Earn Out Amount to the
Company as a prepayment to be credited against the Earn Out Payment. The
"Secured Earn Out Amount" shall mean the lesser of (A) $5,000,000 and (B) one
half of the product of (x) (i) four times the amount of EBITDA stated on the
1999 EBITDA Notice (ii) less $24,000,000, and (y) one minus a fraction (a) the
numerator of which is 13.64% of the Market Capitalization and (b) the
denominator of which is the excess of (i) four times the amount of EBITDA stated
in the 1999 EBITDA Notice over (ii) $24,000,000. All costs and expenses incurred
in obtaining the Earn Out L/C, including all fees and charges payable to the
issuer thereof, shall be paid one-half by the Company and each of the
Stockholders (severally on the basis of such Stockholder's Pro Rata Percentage)
and one-half by Norton.
1.023 Allocation of Purchase Price. The Purchase Price (including
the Assumed Liabilities) shall be allocated among the Assets as set forth in
Schedule 2.03 hereto. The parties hereto agree that the allocation of the total
Purchase Price is intended to comply with the allocation method required by
Section 1060 of the Code. The parties hereto shall cooperate to comply with all
substantive and procedural requirements of Section 1060 of the Code and any
regulations thereunder, and the allocation shall be adjusted or supplemented if,
and to the extent, necessary to comply with the requirements of Section 1060 of
the Code. None of the Purchaser, the Company, Norton or any Stockholder will
take, nor permit any affiliated Person to take, for Federal, state or local
income tax purposes, any position inconsistent with the allocation set forth in
Schedule 2.03 hereto, or, if applicable, such adjusted or supplemented
allocation. The Company and the Purchaser agree that each shall attach to its
tax returns for the tax year in which the Closing shall occur an information
statement on Form 8594, which shall be completed in accordance with the
allocations set forth in Schedule 2.03 hereto.
1.024 Registration Rights.
(a) If (i) Norton issues any Earn-Out Shares, (ii) at least 40
days prior to the issuance of such Earn Out Shares, the Stockholder
Representative delivers to Norton a list of Persons to whom Earn Out Shares, if
any, are to be issued and in what proportions and a letter from counsel
reasonably acceptable to Norton (Norton agreeing that the counsel set forth in
Section 13.01(b) hereof will be acceptable) to the effect that such counsel is
unable to opine that certain of the Earn Out Shares the Persons to whom such
shares are to be issued who are not "affiliates" (as defined in Rule 144) may
not be sold pursuant to subsection (k) of Rule 144 by such Persons on the Earn
Out Payment Date and (iii) at least
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10 days prior to the issuance of such Earn Out Shares, Norton does not deliver
to the Stockholder Representative an opinion of counsel reasonably acceptable to
the Stockholder Representative (the Stockholder Representative agreeing that
counsel set forth in Section 13.01(d) hereof will be acceptable) that all of the
Earn Out Shares subject to the letter delivered pursuant to clause (ii) above,
may be sold pursuant to subsection (k) of Rule 144 (all Earn Out Shares covered
by the letter delivered pursuant to clause (ii) but not covered by the opinion
delivered pursuant to clause (iii) are referred to herein as "Restricted
Shares", and all Persons to whom Norton issues Restricted Shares are referred to
herein as "Restricted Stockholders"), then Norton shall use its best efforts to
effect the registration under the Securities Act at its expense on or before the
Earn Out Payment Date (but failing that, as promptly as practicable following
the Earn Out Payment Date) of the offer and sale of all of the Restricted Shares
by the Restricted Stockholders and shall keep such registration in effect for a
period of 180 days following the effective date thereof and furnish to the
Restricted Stockholders at its expense such copies of the prospectus as shall be
reasonably required in connection with the offer and sale of their shares. The
Company and the Restricted Stockholders shall assist and cooperate with Norton
in the preparation of the registration statement covering the Restricted Shares.
Norton, at its sole cost and expense, shall also take any actions necessary to
register the offer and sale of the Restricted Shares by the Restricted
Stockholders under applicable state securities or "blue sky" laws (provided that
Norton 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).
Each of Norton and the Restricted Stockholders shall notify the other promptly
of the receipt of any comments from the Commission or its staff and of any
request by the Commission or its staff for amendments or supplements to the
registration statement or prospectus or for additional information and shall
supply the other with copies of all correspondence with the Commission or its
staff with respect to the registration statement or prospectus.
(b) In the event that, at any time or from time to time,
Norton proposes to register any shares of Norton Common Stock (the "Primary
Registration Shares"), under 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 other transfer of the Primary Registration Shares by
Norton, Norton shall mail or deliver a written notice (a "Registration Notice")
of its intention so to register the Primary Registration Shares to the Company
and to each of the Stockholders to whom Earn Out Shares have been issued and who
continue to hold such Earn Out Shares on the day before such Registration Notice
is sent (the persons to whom such Registration Notice is given, collectively,
the "Supplemental Registration Investors", and together with the Restricted
Stockholders, the "Registration Investors") at least 20 days prior to the filing
of the registration statement covering the Primary Registration Shares.
(c) In the event that a Registration Notice shall have been so
mailed or delivered, the Supplemental Registration Investors, at their election,
may deliver to Norton a written notice or notices (each, a "Supplemental
Notice") (i) specifying the number of Earn Out Shares ("Supplemental
Registration Shares", and together with the Restricted Shares, the "Registration
Shares") proposed to be sold or otherwise transferred by the Supplemental
Registration Investors, (ii) describing the proposed manner of sale or other
transfer thereof and (iii) requesting the registration thereof under the
Securities Act; provided, however, that such Supplemental Notice shall be so
delivered not more than 15 days after the date of delivery to the Supplemental
Registration Investors of a Registration Notice.
(d) From and after receipt of a Supplemental Notice, Norton
shall, subject to the sale or other transfer of some or all of the Primary
Registration Shares, use its best efforts to cause the offer and sale of the
Supplemental Registration Shares in the manner specified in such Supplemental
Notice to be registered under the Securities Act and to effect and to comply
with all such qualifications and requirements as may be necessary to permit the
sale or other transfer of such Supplemental Registration Shares in the manner
described in such Supplemental Notice, including without limitation,
qualifications under the applicable "blue sky" or other state securities laws
(provided that Norton 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 Norton that
inclusion of some or all of such Supplemental Registration Shares would, in such
managing underwriter's judgment, interfere with the proposed distribution of the
securities to be registered by Norton, in any case in respect of which
registration was originally to be effected, then Norton may, upon written notice
to the Supplemental Registration Investors, allocate the
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Supplemental Registration Shares to be included in the registration statement
(if and to the extent such allocation is stated by such managing underwriter as
necessary to eliminate such interference) pro rata among holders of Supplemental
Registration Shares on the basis of the number of shares of Norton Common Stock
held by such holders or (ii) any firm of counsel representing Norton in
connection with such registration shall advise Norton and the Supplemental
Registration Investors in writing that in their opinion one or more of the steps
contemplated hereby is not necessary to permit the sale of the Supplemental
Registration Shares in a transaction constituting a public offering within the
meaning of the Securities Act, then Norton shall not be required to take any
action with respect to such step or steps.
(e) If and whenever Norton is required by the provisions of
this Section 2.04 to use its best efforts to effect the registration under the
Securities Act of the offer and sale of Registration Shares, Norton will, as
promptly as reasonably possible:
(i) prepare and file with the Securities and Exchange Commission
(the "Commission") a registration statement with respect to the offer and
sale of such Registration Shares by the Registration Investors and use its
best efforts to cause such registration statement to become effective;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for a period from the date of the effectiveness
thereof through the earlier of (1) the date which is six months after the
date of effectiveness thereof and (2) the date on which all Registration
Shares, as the case may be, included in such registration statement shall
have been sold by the Registration Investors, and to comply with the
provisions of the Securities Act with respect to the sale or other
disposition of all securities covered by such registration statement
whenever the Registration Investors shall desire to sell or otherwise
dispose of the same within such period;
(iii) furnish to the Registration Investors such number of copies of
a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as may
reasonably be requested thereby in order to facilitate the public sale or
other disposition of such securities owned thereby; and
(iv) notify the Registration Investors in writing, at any time when
a prospectus relating to such securities is required to be delivered under
the Securities Act within the appropriate period mentioned in clause (ii)
above, of the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading in the light of circumstances then existing, and promptly
prepare (and file with the Commission) and furnish to the Registration
Investors a reasonable number of copies of a supplement to or an amendment
of such prospectus as may be necessary so that, as thereafter delivered to
the purchasers of such securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing.
(f) Each of the Registration Investors, severally and not
jointly, agrees to furnish Norton such information regarding itself or himself
and the proposed distribution of Registration Shares by such Registration
Investor as Norton may from time to time reasonably request in writing in order
to prepare a registration statement and prospectus or any supplement or
amendment thereto pursuant to the Securities Act and the rules and regulations
promulgated thereunder.
(g) Each of the Registration Investors, severally and not
jointly, agrees that, upon receipt of a written notice from Norton of the
happening of any event of the kind described in clause (iv) of subsection (e)
above, it or he will forthwith discontinue its or his disposition of
Registration Shares pursuant to the registration statement relating to such
Registration Shares until receipt of the copies
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of the supplemented or amended prospectus contemplated by clause (iv) of
subsection (e) above and, if so requested by Norton in writing, will deliver to
Norton (at Norton's expense) all copies then in its or his possession, other
than permanent file copies, of the prospectus relating to such Registration
Shares.
(h) Norton shall pay all expenses (the "Registration
Expenses") necessary to effect under the Securities Act any registration
statements, amendments or supplements filed pursuant to this Section 2.04 (other
than underwriters' discounts and commissions and brokerage commission and fees,
if any, payable with respect to securities sold by the Registration Investors
and other than legal fees and expenses of counsel to any of the Registration
Investors), including without limitation, printing expenses, fees of the
Commission and The Nasdaq Stock Market, Inc., expenses of compliance with "blue
sky" and other state securities laws, and accounting and legal fees and expenses
of Norton.
(i) If the Primary Registration Shares or the Registration
Shares are to be distributed by or through one or more underwriter(s), as
determined by Norton in its sole discretion, Norton will have the sole right to
select the managing underwriter(s) to administer the offering.
(j) Each of the Registration Investors, severally and not
jointly, agrees that, in the event Norton files a registration statement under
the Securities Act with respect to an underwritten public offering of any shares
of its capital stock, none of the Registration Investors will effect any public
sale or distribution, including any sale pursuant to Rule 144 of the Securities
Act, of any shares of Norton Common Stock or any other equity securities of
Norton or any securities convertible into or exchangeable or exercisable for any
equity security of Norton (other than as part of such underwritten public
offering) during the seven days prior to or 90 days, or such longer period as
may be required by an underwriter (not to exceed in any event 180 days), after
the effectiveness of such registration statement; provided, however, that in the
event that any Persons, other than the Registration Investors, who have
similarly agreed not to effect any such sales are released from such agreements,
the Registration Investors shall also be so released to the extent and at the
time such other Persons are released.
(k) In the event of any registration pursuant to this Section
2.04 covering Registration Shares, Norton will indemnify and hold harmless each
of the Registration Investors whose Registration Shares are included in such
registration and each Person if any, who controls the applicable Registration
Investor (the "Registration Indemnitees") against any Damages which arise out of
or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any such registration statement, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, that Norton will not
be liable to a Registration Indemnitee in any such case to the extent that any
such Damage arises out of or is based upon (x) an untrue statement or alleged
untrue statement or omission or alleged omission made in said registration
statement, said preliminary prospectus, said prospectus, or any said amendment
or supplement, in reliance upon and in conformity with written information
furnished by such Registration Indemnitee specifically for use in the
preparation thereof or (y) such Registration Indemnitee's failure to deliver a
copy of the prospectus or any amendments or supplements thereto (if required by
applicable law) to the Person asserting any Damage.
(l) In the event of any registration pursuant to this Section
2.04 covering Registration Shares, each Registration Investor (if securities of
the applicable person are included in the subject registration statement) shall,
severally and not jointly, as to such person in the instances and to the extent
set forth in this subsection (l) indemnify and hold harmless Norton, each of its
directors and officers who has signed any registration statement, and each
Person, if any, who controls Norton within the meaning of the Securities Act,
against any Damages, to which Norton or any such director, officer, or
controlling Person may become subject, under the Securities Act or otherwise,
insofar as such Damages, arise out of or are based upon any untrue or alleged
untrue statement of any material fact contained in said registration statement,
said preliminary prospectus, said prospectus, or said amendment or supplement
thereto, or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in said registration statement, said
preliminary prospectus, said prospectus, or
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said amendment or supplement, in reliance upon and in conformity with written
information furnished by such Registration Investor specifically for use in the
preparation thereof.
(m) With respect to any underwritten offering, each of the
Registration Investors severally and not jointly (if it or he shall sell
securities owned in such offering) shall, in addition to the foregoing, provide
the underwriter of such offering with customary representations and warranties,
and indemnification, in each instance as shall be reasonably requested by the
underwriter, provided, however, that any such agreement to indemnify an
underwriter with respect to any preliminary prospectus shall not inure to the
benefit of any such underwriter to the extent that any Damage of any such
underwriter results solely from an untrue statement of material fact contained
in, or the omission of a material fact from, such preliminary prospectus which
untrue statement or omission was corrected in the final prospectus, if such
underwriter failed to send or give a copy of the final prospectus to the Person
asserting such loss, claim, damage or liability at or prior to the written
confirmation of the sale of such securities to such Person, and provided further
that any such agreement by any of the Registration Investors to indemnify an
underwriter shall be on a several (and not joint) basis in proportion to the
number of securities sold by each Registration Investor in such underwritten
offering and shall be limited in amount to the net proceeds received by such
Registration Investor in such underwritten offering.
SECTION III.
REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDERS
The Management Stockholders and, solely with respect to (i) Sections
3.01, 3.02, 3.03, 3.04, 3.11(a), 3.12(a) and (c) (insofar as such subsection
deals with Income Taxes) and 3.29 (the foregoing Sections, collectively, the
"First Listed Sections"), (ii) Section 3.05(a) (the "Second Listed Section") and
(iii) Sections 3.13(b) (solely with respect to Permits relating to Environmental
Laws and Hazardous Substances) and 3.13(c) (the foregoing Section, the "Third
Listed Sections;" the First Listed Sections, the Second Listed Section and the
Third Listed Sections are referred to herein collectively as the "Listed
Sections"; all of the subsections of this Section III which are not Listed
Sections are referred to herein as the "Non-Listed Sections") the Non-Management
Stockholders, severally and not jointly, hereby represent and warrant to the
Purchaser and Norton, as of the date hereof and as of the Closing Date (provided
that no representation or warranty herein shall be deemed to refer to any
Excluded Asset or Excluded Liability), that:
1.031 Organization and Qualification. The Company is duly organized,
validly existing and in good standing under the laws of the State of Delaware.
The Company is in good standing and qualified to do business in New York and New
Jersey, which are the only jurisdictions in which the failure so to qualify has
not had and would not be reasonably expected to have, individually or in the
aggregate, a material adverse effect on the Assets, the Business (it being
understood and agreed that wherever used in this Agreement (other than in the
recitals and Section I hereof), the term Business shall not include the
Development Projects), the results of operations or the condition (financial or
other) of the Company (a "Material Adverse Effect"). Except as set forth on
Schedule 3.01 hereto, the Company has no subsidiaries and owns no capital stock
or other proprietary interest, directly or indirectly, in any other corporation,
association, trust, partnership, joint venture or other entity, nor does the
Company have any agreement with any Person to acquire any such capital stock or
other proprietary interest.
1.032 Authority. The execution and delivery by the Company of this
Agreement and each other instrument or document required to be executed and
delivered by the Company pursuant hereto, the performance by the Company of its
covenants and agreements hereunder and thereunder and the consummation by the
Company of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the Company,
including all board of director and stockholder approvals. This Agreement and,
when executed by the Company, each other instrument or document required to be
executed and delivered by the Company pursuant hereto, constitutes, or when
executed will constitute, a valid and legally binding obligation of the Company,
enforceable against the Company in accordance with its terms, subject as to
enforceability to applicable bankruptcy, insolvency,
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reorganization and similar laws affecting creditors' rights and to general
principles of equity.
1.033 No Legal Bar; Conflicts. Neither the execution and delivery of
this Agreement or any other instrument or document required to be executed and
delivered by the Company pursuant hereto, nor the consummation of the
transactions contemplated hereby or thereby, violates or violated any provision
of the certificate of incorporation or by-laws of the Company or, subject to the
satisfaction of Section 9.05 hereof and except as set forth on Schedule 3.03
hereto, any statute, ordinance, regulation, order, judgment or decree of any
Governmental Authority, or will result or resulted in any breach of any of the
terms of or constitute or constituted a default under or will result or resulted
in the termination of or the creation of any Lien pursuant to the terms of or
otherwise affect or affected the continuation, validity or effectiveness of any
Contract, except for such violations, breaches and defaults have not had and
would not be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect. Except with respect to the HSR Act or as set forth on
Schedule 3.03 hereto, no consents, approvals or authorizations of, or filings
with, any Governmental Authority are or were required in connection with the
execution and delivery of this Agreement or any other instrument or document
required to be executed and delivered by the Company pursuant hereto, or the
consummation of the transactions contemplated hereby or thereby, except where
the failure to obtain any such consents, approvals or authorizations, or make
such filings, has not had and would not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect.
1.034 Capitalization. All of the issued and outstanding shares of
capital stock of all classes of the Company, all warrants, options and rights to
purchase any such capital stock and all securities or other instruments
convertible into such capital stock are owned of record by the Stockholders as
set forth on Schedule 3.04 hereto.
1.035 Financial Statements; No Undisclosed Liabilities. (a) The
Company has delivered to the Purchaser the audited balance sheets of the Company
as at January 31, 1997 (the "1997 Balance Sheet"), January 31, 1996 and January
31, 1995 and the related statements of operations and retained earnings and of
cash flows for the 12-month periods then ended (collectively, the "Full Year
Financial Statements"). Except as set forth on Schedule 3.05(a) hereto, the Full
Year Financial Statements have been prepared from the books and records of the
Company and in accordance with GAAP consistently applied and maintained
throughout the periods indicated, and fairly present the financial condition of
the Company as at their respective dates and the results of its operations for
the periods covered thereby.
(b) The Company has delivered to the Purchaser the unaudited balance
sheet of the Company as at June 30, 1997 (the "Current Balance Sheet") and the
related statements of operations and retained earnings and of cash flows for the
five-month period then ended (together with the Current Balance Sheet,
collectively, the "Current Financial Statements"). Except as set forth on
Schedule 3.05(b), the Current Financial Statements have been prepared from the
books and records of the Company and in accordance with GAAP consistently
applied and maintained throughout the period indicated (except that the Current
Financial Statements do not include footnotes or normal year-end adjustments),
and fairly present the financial condition of the Company as at their date and
the results of its operations for the period covered thereby, subject to normal
year end adjustments.
(c) Except to the extent set forth in or reserved against in the
Current Balance Sheet or as identified in Schedule 3.05(c) hereto, except for
liabilities incurred in the ordinary course of business consistent with past
practices since the Current Balance Sheet Date, except for liabilities or
obligations which have not had and would not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect, and except for
liabilities and obligations under the Contracts and contracts entered into since
the Current Balance Sheet Date which would have been permitted under Section
6.03 had such Section been in effect since the Current Balance Sheet Date, the
Company does not have any liabilities or obligations of any nature, whether
accrued, absolute, or contingent, whether due or to become due, of a type which
would currently be required to be reflected under GAAP on a balance sheet as a
liability or a charge or reserve against an asset or equity account.
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1.036 Accounts Receivable; Inventories.
(a) All Receivables of the Company reflected on the Current
Balance Sheet and all Receivables which have arisen since the Current Balance
Sheet Date are valid and shall have arisen only from bona fide arm's-length
transactions in the ordinary course of the Business. To the knowledge of any of
the Management Stockholders except for returns, allowances, discounts and claims
in the ordinary course of business, no such Receivables are subject to any
counterclaim or set-off that has had or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
(b) The values at which items of Inventory are carried on the
Current Balance Sheet, or in the case of Inventory acquired or created following
the Current Balance Sheet Date on the books and records of the Company, reflect
the Inventory valuation policy of the Company set forth on Schedule 3.06 hereto,
which policy has been consistently applied.
1.037 Accounts Payable, Etc. Except as set forth on Schedule 3.07,
the accounts and notes payable and accrued expenses reflected on the Current
Balance Sheet or thereafter incurred by the Company arose in the ordinary course
of business and consistent with past practices. Since the Current Balance Sheet
Date, the accounts and notes payable and accrued expenses of the Company have
been maintained on a basis consistent with past practices, except where such
accounts or notes payable are subject to good faith, bona fide disputes. Except
as set forth on Schedule 3.07 hereto, since the Current Balance Sheet Date, the
Company has paid in full all required installments and other payments under each
of the Contracts, except where such payments are not material in amounts
(individually or in the aggregate) and except where any delays in payment that
have not had and would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.
1.038 Absence of Certain Changes. Except as set forth in Schedule
3.08 hereto, subsequent to the 1997 Balance Sheet Date, with respect to the
Company or the Business, there has not been any (a) event or condition (other
than general economic conditions or conditions affecting the apparel industry in
general) which has had or would be reasonably expected to have, individually or
in the aggregate, a Material Adverse Effect; (b) damage or destruction (whether
or not insured) affecting any of the Assets (other than Inventory in transit) or
the Business or, to the knowledge of any of the Management Stockholders, any
Inventory in transit which had or would be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect; (c) any work
stoppage or strike involving employees of the Company or material labor dispute
or, to the knowledge of any of the Management Stockholders, threatened labor
dispute; (d) changes in the methods or procedures for billing or collection of
customer accounts receivable or other receivables or recording of customer
accounts receivable or other receivables or reserves for doubtful accounts with
respect to the Business; (e) addition to or modification of any of the employee
benefit plans, arrangements or practices (including without limitation, those
listed on Schedule 3.17 hereto) other than contributions made in the ordinary
course of business consistent with past practices; (f) sale, assignment or
transfer of any of the Assets, except in the ordinary course of business and
consistent with past practices; (g) cancellation of any debts or waivers of any
claims or rights of substantial value to the Company; (h) commitments to make
capital expenditures (whether individually or in the aggregate) in excess of
$50,000 in the aggregate for repairs or additions to property, plant, equipment
or tangible capital assets; (i) change in any method of accounting or accounting
principles including without limitation with respect to Inventory valuation; (j)
material change in the methods of purchasing any of the Inventory, Property or
other Assets; (k) failure to replenish inventories or supplies of the Business
in a normal and customary manner consistent with its past practices which
failure has had or would be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect; (l) purchase commitments materially in
excess of the normal, ordinary and usual requirements of the Business or at any
price materially in excess of the current market price at the time of incurring
such purchase commitments; (m) mortgage, pledge, charge, security interest or
any other Lien with respect to any of the Assets or the Business (other than
Permitted Liens); or (n) agreement or commitment to do any of the foregoing.
1.039 Loans, Etc. Except as set forth on Schedule 3.09 hereto, the
Company does not have outstanding, any Company Indebtedness and is not a party
to any loan agreement or contract or obligation or arrangement for the payment
of borrowed money to any Person.
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3.10 Real Property Owned or Leased. A complete and accurate list of
all real property leased to the Company or in which the Company has any interest
is set forth on Schedule 3.10 hereto. The Company does not own and has never
owned any real property. All such leased real property is held subject to
written leases or other written agreements which are valid and effective in all
material respects in accordance with their respective terms against the Company
and, to the knowledge of each of the Management Stockholders, are valid and
effective in accordance with their respective terms against the other parties
thereto, subject in each case as to enforceability to applicable bankruptcy,
insolvency, reorganization and similar laws affecting creditors' rights and to
general principles of equity. There are no existing defaults or events of
default, or events which with notice or lapse of time or both would constitute
defaults, thereunder on the part of the Company or, to the knowledge of any of
the Management Stockholders, any other party thereto, except for defaults which
have not had and would not reasonably be likely to have, individually or in the
aggregate, a Material Adverse Effect. The Company has not received any written
notice to the effect that any lease will not be renewed at the termination of
the term thereof or that any such lease will be renewed only at a substantially
higher rent.
3.11 Title to Assets; Condition of Property. (a) The Company has
good and valid title to all of the Assets, including without limitation, the
Assets reflected on the Current Balance Sheet (except for Assets sold, used or
consumed and Receivables collected or written off since the Current Balance
Sheet Date, in any case in the ordinary course of business consistent with past
practices), free and clear of all Liens, except for Permitted Liens. The Assets,
the Excluded Assets and the property leased by the Company constitute all of the
assets used in the operations of, and necessary to operate, the Business as
presently conducted. Assuming Norton and the Purchaser comply with Section 7.14,
except as set forth in Schedule 3.11 hereto, the Company has the right, power
and authority to sell and transfer all of the Assets to the Purchaser, and upon
such sale and transfer the Purchaser will acquire good and valid title to the
Assets, free and clear of all Liens, except for Permitted Liens.
(b) Except as set forth on Schedule 3.11 hereto, all of the material
tangible Assets (including without limitation, all material equipment, but
excluding Inventory) owned or leased by the Company are in good operating
condition and repair, normal wear and tear excepted, and are suitable for the
purposes for which they presently are being used.
3.12 Taxes. (a) The Company has filed or caused to be filed on a
timely basis all Income Tax Returns required to be filed by the Company and has
paid all Income Taxes shown to be due and payable on such Income Tax Returns.
There are no Income Tax or Non Income Tax Liens on any of the Assets other than
for Income Taxes and Non Income Taxes not due and payable. Schedule 3.12(a)
hereto sets forth a complete and accurate list of all jurisdictions in which
such Income Tax Returns are currently required to be filed. Except as set forth
on Schedule 3.12(a) hereto, no Income Tax Returns of the Company have ever been
audited and, to the knowledge of any of the Stockholders, no written inquiries
have been received by the Company from any taxing authorities with respect to
possible claims for Income Taxes or assessments which remain unresolved.
(b) The Company has filed or caused to be filed on a timely basis
all Federal, state, local, foreign and other Non Income Tax Returns required to
be filed by the Company, except where the failure to file has not had and would
not reasonably be likely to have, individually or in the aggregate, a Material
Adverse Effect and has paid or withheld all Non Income Taxes shown to be due and
payable on such Non Income Tax Returns. Schedule 3.12(b) hereto sets forth a
complete and accurate list of all jurisdictions in which such Non Income Tax
Returns are currently required to be filed and the type of such Non Income Tax
Return. Except as set forth on Schedule 3.12(b) hereto, no Non Income Tax
Returns of the Company have ever been audited and, to the knowledge of any of
the Management Stockholders, no written inquiries have been received by the
Company from any taxing authorities with respect to possible claims for Non
Income Taxes or assessments.
(c) Except with respect to the New Jersey Audit and the New York
Audit, adequate charges, accruals and reserves have been made in the Current
Financial Statements and the books and records of the Company for the payment of
all accrued and unpaid Income Taxes and Non Income Taxes for the periods through
the respective dates thereof and through July 31, 1997, whether or not yet due
and payable and whether or not disputed by the Company and nothing has occurred
subsequent to the date of
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such Financial Statements and which makes such charges, accruals or reserves
inadequate.
(d) The Company is not a foreign person within the meaning of
Section 897 or Section 1445 of the Code.
3.13 Permits; Compliance with Applicable Law; Permits;
Environmental.
(a) General. The Company is not in default under, nor has the
Company failed to comply with, any existing Law (other than Environmental Laws,
as to which clauses (b) and (c) below shall be applicable) or any order,
judgment or decree of any Governmental Authority, and the Premises are in
compliance with all existing Laws (other than Environmental Laws) and all
orders, judgments and decrees of any Governmental Authority, except where the
failure to be in compliance has not had and would not be reasonably expected to
have, individually or in the aggregate, a Material Adverse Effect. Except as set
forth on Schedule 3.13(a), to the knowledge of any of the Management
Stockholders, since July 31, 1996 the Company has not received any written
notification of any asserted present or past failure to comply with any of the
foregoing which has not been satisfactorily responded to in the time period
required thereunder.
(b) Permits. Set forth in Schedule 3.13(b) hereto, is a complete and
accurate list of all Federal, state, local and foreign permits, licenses,
approvals, franchises and authorizations issued by Governmental Authorities
(collectively the "Permits"), held by the Company that are material to the
conduct of the Business or the ownership any of the Assets. The Permits set
forth in Schedule 3.13(b) hereto are all the Permits required for the Company to
conduct the Business or own any of the Assets (including without limitation, any
Permits relating to (A) air emissions, (B) discharges to surface water or ground
water, (C) noise emissions, (D) solid or liquid waste disposal, (E) the use,
generation, storage, transportation or disposal of toxic or hazardous substances
or wastes (intended hereby and hereafter to include any and all such materials
listed in any Law as hazardous or potentially hazardous (including, without
limitation, (1) any chemical, compound, material or substance that is defined,
listed in, or otherwise classified pursuant to, any of the Environmental Laws as
a "hazardous substance", "hazardous material", "hazardous waste", "toxic
substance" or "toxic pollutant", and (2) petroleum, natural gas, natural gas
liquids, liquified natural gas, synthetic gas usable for fuel and drilling
fluids, produced waters, and other wastes associated with the exploration,
development or production), or (F) other environmental, health and safety
matters (collectively, "Hazardous Substances")), except where the failure to
have any such Permits has not had and would not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect. Except as set forth
on Schedule 3.13(b), all of the Permits set forth in Schedule 3.13(b) hereto are
in full force and effect, and the Company has not engaged in any activity which
would cause or permit revocation or suspension of any such Permit, except where
such revocations or suspensions have not had and would not be reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect,
and no action or proceeding looking to or contemplating the revocation or
suspension of any such Permit is pending or, to the knowledge of any of the
Management Stockholders, threatened. Except as set forth in Schedule 3.13(b)
hereto, there are no existing defaults or events of default or events or states
of facts which with notice or lapse of time or both would constitute a default
by the Company under any such Permit, except for such defaults which have not
had and would not be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect.
(c) Environmental.
Except as set forth on Schedule 3.13(c) hereto:
(i) The Company duly complied with, the Business is being
conducted and has been conducted in compliance with, and, to the knowledge of
each of the Management Stockholders or the Non-Management Stockholders, the real
property subject to the leases listed on Schedule 3.10 hereto, and improvements
thereon, (all such leased real property, and improvements thereon, is herein
referred to collectively as the "Premises"), are in compliance with, all
applicable Environmental Laws, except where the failure to be in compliance has
not had and would not be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect;
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(ii) To the knowledge of any of the Management Stockholders,
the Company has not received written notice of any Environmental Claim made or
threatened against the Company;
(iii) Neither the Company nor, to the knowledge of any of the
Management Stockholders or the Non-Management Stockholders, any other Person has
generated, treated, transported, stored, recycled, discharged, emitted, disposed
of or released any Hazardous Substances, arranged for the generation, treatment,
transport, storage, recycling, discharge, emission, disposal or release of any
Hazardous Substances, or exposed any employee or other individual to any
Hazardous Substances or condition so as to give rise to any liability or
corrective or remedial obligation under any Environmental Laws, in each case, at
or under the Premises and the Company has not done any of the foregoing at or
under any other real property, whether or not presently or formerly owned or
leased by the Company;
(iv) To the knowledge of any of the Management Stockholders or
the Non-Management Stockholders, none of the Premises, nor any property to which
the Company has, directly or indirectly, transported or arranged for the
transportation of any Hazardous Substances, is listed on the National Priorities
List promulgated pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), on CERCLIS (as
referred to in CERCLA) or on any similar Federal, state or foreign list of sites
requiring investigation or clean-up;
(v) Other than the Premises, the Company has never leased any
real property.
3.14 Licenses. Except as set forth on Schedule 3.14 and other than
pursuant to Permits listed on Schedule 3.13, the Company does not produce or
distribute any Product nor does it perform any service, under a license granted
by another Person (other than any Governmental Authority and other than private
label merchandise orders) and the Company has not licensed its rights in any
Intellectual Property, current Products, designs or services to any other
Person.
3.15 Contractual and Other Obligations; Customers and Suppliers. (a)
Except for contracts and agreements entered into after the date hereof and not
prohibited by Section 6.03 hereof and except for the Debt Documents, set forth
in Schedule 1.01(a)(vi) hereto is a complete and accurate list of each contract,
agreement, license, lease, guarantee or instrument (or other agreement relating
to contingent obligations of the Company with respect to the Assets, the Assumed
Liabilities or the Business) to which the Company is a party or by which the
Company, the Assumed Liabilities, the Business or any of the Assets is bound or
subject, without duplication (i) with respect to which the outstanding
obligation of any party thereto is in excess of $50,000, (ii) with respect to
which the Company leases any personal property used in the conduct of the
Business the aggregate lease payments for which are in excess of $5,000 or any
real property, (iii) with customers of the Company (which listing may set forth
the names of the customers and the aggregate dollar amount of all open purchase
orders and other contracts with each such customer by season), and (iv) in
respect of obligations and liabilities of the Company pursuant to uncompleted
orders or agreements for the purchase by the Company of Inventory, Property or
services for the requirements of the Business with respect to which the
remaining obligation of the Company arising under any such uncompleted order or
agreement is, or in the next year could reasonably be expected to be, in excess
of $50,000; all of the foregoing described under clauses (i) through (iv) above,
together with all other contracts, agreements, purchase orders, or other
instruments or documents to which the Company or any of the Assets, Assumed
Liabilities or Business is subject or bound, other than Retained Contracts,
being herein collectively referred to as the "Contracts" and singularly referred
to as a "Contract".
(b) Except as set forth on Schedule 3.15 hereto, the Company
is not in default in the performance of any covenant or condition under any
Contract and, to the knowledge of any of the Management Stockholders, no written
claim of such a default has been made and no event has occurred which with the
giving of notice or the lapse of time would constitute such default under any
covenant or condition under any Contract, except for defaults which have not had
and would not be reasonably expected to have, individually or in the aggregate,
a Material Adverse Effect. Except as set forth on Schedule 3.15 hereto, all of
the Contracts have been entered into in the ordinary course of business of the
Company, at arm's length and on commercially reasonable terms and conditions.
The Company has delivered or made available to the Purchaser true and complete
copies of each written Contract set forth on Schedule 1.01(a)(vi). Each of the
Contracts is a legal, valid and binding obligation of the Company and, to
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the knowledge of each of the Management Stockholders, each other party thereto,
subject as to enforceability to applicable bankruptcy, insolvency,
reorganization and similar laws affecting creditors' rights and to general
principles of equity.
(c) The names of each of the 20 largest customers and 15
largest purchasing agents and of the suppliers of the Company are set forth on
Schedule 3.15 hereto. Since July 31, 1996, the Company has experienced no
material difficulties in obtaining in a timely manner consistent with industry
norms (including the recent strike by United Parcel Service employees) and at
market prices materials, goods and supplies used in the Business.
3.16 Compensation. Set forth in Schedule 3.16 hereto, is (a) a
complete and accurate list of all agreements, plans, arrangements or commitments
maintained, entered into or contributed to by the Company, or by which the
Company is bound pursuant to which the Company is obligated to pay to any
current or former employees, directors, officers or consultants, or any of their
respective family members or affiliates, any compensation, bonus, incentive,
stock option, stock purchase, severance pay, or other benefits or perquisites,
other than any agreements, plans, arrangements or commitments listed in Schedule
3.17 hereto; and (b) a complete and accurate list of all employees of the
Company with current annual salaries of $50,000 or more and their respective
positions, job categories and salaries. Except as set forth in Schedule 3.16
hereto, neither the execution of this Agreement, nor the consummation of the
transactions contemplated hereby, will result in any liability or obligation of
the Purchaser, for a bonus payment, severance pay or similar payment or other
compensatory requirements to any employee, salesman, independent contractor,
consultant, distributor, agent, stockholder or affiliate of the Company.
3.17 Employee Benefit Plans. Except as set forth in Schedule 3.17
hereto, the Company does not maintain or sponsor, nor is it required to make
contributions to, any employee benefit plan within the meaning of Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended (hereinafter
referred to as "ERISA") (such plans and related trusts, insurance and annuity
contracts, funding media and related agreements and arrangements, other than any
"multiemployer plan" (within the meaning of Section 3(37) or Section 4001(a)(3)
of ERISA), being herein referred to as the "Benefit Plans" and such
multiemployer plans being hereinafter referred to as the "Multiemployer Plans").
Each Benefit Plan complies with all requirements of the Department of Labor and
the Internal Revenue Service, and with all other existing applicable Laws,
including but not limited to, ERISA and the Code and any rules or regulations
promulgated thereunder, except where the failure to be in compliance has not had
and would not be reasonably expected to have, individually or in the aggregate,
a Material Adverse Effect, and neither the Company nor any affiliate has taken
or failed to take any action with respect to the Benefit Plans (including the
failure to timely and completely file all required reports, returns and similar
documents with applicable Governmental Authorities) which could create any
material liability on the part of the Purchaser. Each "fiduciary" (within the
meaning of Section 3(21)(A) of ERISA) as to each Benefit Plan has complied with
the requirements of ERISA and the Code, including any rules or regulations
promulgated thereunder and all other applicable Laws in respect of each Benefit
Plan.
(b) Benefit Plans that are intended to be qualified under Section
401(a) of the Code have received any and all appropriate favorable determination
letters from the Internal Revenue Service as to such qualification and, to the
knowledge of any of the Management Stockholders, nothing has occurred since the
most recent determination letter to adversely affect the qualified status of any
such Benefit Plan;
(c) The Company does not maintain, sponsor or contribute to (nor is
it required to contribute to), and, to the knowledge of any of the Management
Stockholders, has never maintained, sponsored, contributed to (nor has it been
required to contribute to) or withdrawn from any Multiemployer Plan; and
(d) The Company is not a party to any agreement, contract or
arrangement that would result, separately or in the aggregate, in the payment
(whether or not in connection with any termination of employment or otherwise)
of any "excess parachute payment" within the meaning of Section 280G of the
Code. The Company has complied with the notice and continuation requirements of
Section 4980B of the Code and Section 601 of ERISA, and the regulations
thereunder.
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3.18 Labor Relations. Except as set forth on Schedule 3.18 hereto,
to the knowledge of each of the Management Stockholders, the Company has
complied with all Laws with respect to the employment of individuals by, or the
employment practices or work conditions of, the Company, or the terms and
conditions of employment, wages and hours, except where any failure to be in
compliance has not had and would not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect. Except as set forth
on Schedules 3.18 and 3.26, the Company has not received notice of any charges
of unfair labor practices or other employee-related complaints which are pending
nor, to the knowledge of any of the Management Stockholders, have any such
charges been threatened against the Company before the National Labor Relations
Board, the Equal Employment Opportunity Commission, the Occupational Safety and
Health Review Commission, the Department of Labor or any other Governmental
Authority. There is currently no strike, picketing, slowdown or work stoppage or
organizational attempt pending or, to the knowledge of any of the Management
Stockholders, threatened against or involving the Company or the Business. No
union or collective bargaining unit or other labor organization has ever been
certified or recognized by the Company as the representative of any of the
employees of the Company.
3.19 Dividends, Transfers, Increases in Compensation or Benefits.
Except as set forth on Schedule 3.19 hereto, subsequent to the 1997 Balance
Sheet Date, there have been no (i) dividends or other distributions or payments
made or declared (whether payable in cash or other property) with respect to any
class of capital stock of the Company, (ii) sales, assignments or other payments
or transfers of any of the Company's assets (including without limitation, cash)
to any Stockholder or to any related or affiliated Persons thereof (other than
payments of salaries, bonuses and benefits to employee Stockholders of the
Company in the ordinary course of business and in accordance with the applicable
rate of salary set forth for each such individual on Schedule 3.16 hereof and
management fees payable to certain Financial Stockholders pursuant to an
agreement as in effect prior to the 1997 Balance Sheet Date), (iii) payments in
respect of the Subordinated Debt other than interest accrued on the 1997 Balance
Sheet and other than interest paid since the 1997 Balance Sheet Date as required
by the terms of the documents governing the Subordinated Debt, (iv) increases in
the rate of compensation or other amounts payable or to become payable to any
Stockholder, (v) increases in the rate of compensation or other amounts payable
or to become payable to any salesman, distributor, independent contractor,
consultant, agent, director or employee of the Company except in the ordinary
course of business consistent with past practice and (vi) payments under or
provisions (including accruals) for any awards, bonuses, stock options, loans,
profit sharing, pension, retirement or welfare plans or similar arrangements for
or on behalf of any Stockholder, Roberta Ciacci or Elizabeth Moser (or Persons
related by blood or marriage to or controlled, directly or indirectly, by any
such Persons) other than pursuant to the Company's existing plans and agreements
in the ordinary course of business consistent with past practices; provided,
however, that in no event was any such increase in the rate of compensation or
any such payment or provision made with respect to any such employee earning or
paid in excess of $50,000 per annum except as specifically indicated on Schedule
3.16 or 3.19 hereto other than regular annual increases in the ordinary course
of business consistent with past practices.
3.20 Insurance. A complete and accurate list and brief description
of the insurance policies held by or on behalf of the Company that relate to the
Business, the Premises or the Assets is set forth in Schedule 3.20 hereto,
including a complete and accurate list of all deductibles and self insured
levels applicable to such policies. Such policies are in full force and effect
and all premiums due thereon have been paid in full.
3.21 Conduct of Business. The Company is not party to any contract
or agreement restricting it from conducting the Business in any manner or
location which restriction has had or would be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect nor is the Company
subject to any court order or decree restricting it from conducting the Business
in any manner or location.
3.22 Intellectual Property. Set forth on Schedule 3.14 and 3.22 is a
complete and accurate list of the Company's patents, registered and common law
trademarks, service marks, tradenames and copyrights, and other similar rights
and applications for and all contracts, agreements, licenses or other rights
licensing, granting rights over or restricting the use of each of the foregoing,
in any case whether
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domestic or foreign (collectively, together with all of the other Assets
referred to in Section 1.01(a)(iv) hereof, the "Intellectual Property"). The
Company owns all right, title and interest in and to all of its Intellectual
Property listed on Schedule 3.22 free and clear of all Liens (except for
Permitted Liens and all restrictions and covenants contained in contracts,
agreements and licenses set forth on Schedule 1.01(a)(vi) hereto relating to the
Intellectual Property). Schedule 3.22 sets forth which of the Intellectual
Property is duly, validly and properly registered with, as applicable, the U.S.
Patent and Trademark Office, the Registrar of Copyrights and applicable foreign
Governmental Authorities in foreign jurisdictions. Except as set forth on
Schedule 3.22, to the knowledge of any of the Management Stockholders, (i) the
Intellectual Property constitutes all such rights necessary to the conduct of
the Business as currently conducted; (ii) no adverse claims have been made
against the Company and no disputes have arisen with respect to the registered
trademarks for "Erika", "Ricki" and "Sugar Blues" listed on Schedule 3.22 and no
adverse claims have been made and no disputes have arisen with respect to the
other Intellectual Property on Schedule 3.22 which has had or would be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect; and (iii) the operation of the Company and the Business and the
use by the Company of its Intellectual Property do not involve infringement or
violation of any patent, trademark, service mark, tradename, copyright,
agreement, license or similar right, except for infringements and violations
which have not had and would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect. Except as set forth on Schedule
3.22 hereto, the execution and delivery of this Agreement, and the consummation
of the transactions contemplated by this Agreement (including the transfer of
the Assets to the Purchaser), will not affect the continuation, validity or
effectiveness of any Intellectual Property listed on Schedule 3.22 or require
the consent, waiver, approval, authorization of, notice to, or designation,
registration, declaration or filing with, any Governmental Authority, other than
the U.S. Patent and Trademark Office or the U.S. Registrar of Copyrights, or
other Person in respect of any Intellectual Property.
3.23 Use of Names. Except as set forth on Schedule 3.23 hereto, to
the knowledge of any of the Management Stockholders, in the conduct of an
apparel business, there are no other Persons using the names "Miss Erika" or
"Erika" or any variants thereof, and no Person has ever attempted to restrain
the Company from using or contested the Company's right to use, such names,
marks or any variants thereof.
3.24 Power of Attorney; Bank Accounts, Etc. Except as set forth on
Schedule 3.24 hereto and except in favor of the lenders under Debt Documents
evidencing the Chase Indebtedness (in any case, which powers of attorney will
not affect the Purchaser or the Business after the Closing), the Company has not
granted any power of attorney (revocable or irrevocable) to any Person for any
purpose whatsoever. Set forth on Schedule 3.24 hereto (i) is each Lockbox, (ii)
is the name of each institution in which the Company has a bank account,
securities account, safe-deposit box or any other similar account relating to
the Business, and (iii) are all marketable securities and negotiable promissory
notes.
3.25 Books and Records. Except as set forth on Schedules 3.05(a),
3.05(b) and 3.05(c), the books and records of the Company have been maintained
in accordance with good business practices and fairly reflect in all material
respects the basis for the financial position and results of operations of the
Company set forth in the Full Year and Current Financial Statements. All such
books and records have been made available for inspection by the Purchaser and
its representatives.
3.26 Litigation. Except as set forth in Schedule 3.26 hereto, there
are no actions or suits, and there are no investigations or proceedings by or
before any Governmental Authority, pending (for which service has been made) or,
to the knowledge of any of the Management Stockholders, threatened, against or
by the Company, against any of the Assets or, to the knowledge of any of the
Management Stockholders, against or affecting any of the Premises; and, to the
knowledge of any of the Management Stockholders, there are no existing facts
which are reasonably likely to result in any such action, suit, investigation or
proceeding, which if adversely determined, would be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect.
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3.27 Location of Business and Assets. Set forth in Schedule 3.27
hereto is each and every location (specifying state, city and street address)
(each a "Company Location") where the Company (a) has a place of business, (b)
leases real property or (c) owns, leases, maintains or stores any of the Assets,
including Inventory (including on consignment but excluding Inventory in
transit) or Property.
3.28 Insider Interests; Intercompany Transactions. Except as set
forth in Schedules 3.04 and 3.28 hereto, to the knowledge of any of the
Management Stockholders, no present or former affiliate, officer, director or
employee of the Company, or family member of any of the foregoing, or any
corporation, partnership, trust or other entity in which any such individual is
an officer, director, employee, partner or stockholder (a) is presently a party
to any transaction or arrangement with the Company relating to the Business
(other than for services as officers, directors or employees of the Company),
(b) owns any interest in, controls or is an employee, officer, director, partner
or stockholder or agent of, or consultant to any other entity which is a
competitor, supplier or customer or which is a landlord or tenant of the Company
with respect to any aspect of the Business, (c) is indebted or liable to, owns
any interest in, or owns, holds or has guaranteed any obligation or debt of the
Company relating to the Business other than compensation and reimbursement
obligations arising in the normal course of employment, (d) has acquired from or
sold to the Company any assets or properties owned or leased by the Company
relating to the Business or (e) has any right to or interest in the Business or
any of the Assets (other than in such Person's capacity as a stockholder of the
Company or a holder of Subordinated Debt).
3.29 Investment.
(i) The Company has had access to Norton's Annual Report on
Form 10-K for the fiscal year ended November 2, 1996, Norton's Quarterly Reports
on Form 10-Q for the quarters ended February 3, 1997 and May 3, 1997, Norton's
1996 Proxy Statement and Norton's Current Report on Form 8-K dated May 6, 1997
(collectively, the "SEC Documents") and such other information relating to the
business and affairs of Norton which the Company has reasonably requested, and
all additional information which the Company has considered necessary to verify
the accuracy of the information so received. The Company has had the opportunity
to ask questions of and receive answers from Norton concerning the business and
condition (financial and other) of Norton and concerning the terms and
conditions of the transactions contemplated by this Agreement.
(ii) The Company understands and agrees that, subject to
certain restrictions set forth in Section 2.02 hereof, Norton has the option to
issue and deliver to the Company the Earn Out Shares, if any, to be delivered in
connection with any Earn Out Payment pursuant to this Agreement, all in a
transaction exempt from the registration requirements of the Securities Act;
that for such purpose the Purchaser and Norton will rely upon the
representations and warranties of the Company and the Stockholders contained in
this Section 3.29 and in Section 4.01(iv) below; and that such exception from
registration may not be available unless such representations and warranties are
correct. The Company is an "accredited investor" as such term is defined in Rule
501 under the Securities Act.
(iii) The Company understands and agrees that, under existing
rules of the Commission, a holder may be unable to sell its, his or her shares
of Norton Common Stock, if any, except to the extent that its, his or her shares
of Norton Common Stock may be sold (i) pursuant to an effective registration
statement covering such shares pursuant to the Securities Act, (ii) in
transactions exempt from the registration requirements of the Securities Act or
(iii) subject to the restrictions contained in Rule 144 under the Securities Act
("Rule 144").
(iv) The Company is familiar with the provisions of Rule 144
under the Securities Act and the limitations upon the availability and
applicability of such rule.
(v) The Company is a sophisticated investor familiar with the
type of risks inherent in the acquisition of restricted securities such as
shares of Norton Common Stock and the Company's financial position is such that
it can afford to retain its shares of Norton Common Stock for an indefinite
period of time without realizing any direct or indirect cash return on the
investment.
(vi) The Company intends to acquire any shares of Norton
Common Stock
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payable as part of the Earn Out Payment for its own account and not with a view
to, or for sale in connection with, the distribution thereof within the meaning
of the Securities Act; provided, however, that the Company intends to assign its
rights to any Earn Out Shares pursuant to Section 13.10.
SECTION IV.
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
1.041 Stockholders. Each of the Stockholders, severally but not
jointly, hereby represents and warrants to the Purchaser and Norton, as of the
date hereof and as of the Closing Date, that as to himself or itself:
(i) Qualification. Such Stockholder has full power,
authority and legal right and all necessary approvals, permits, licenses and
authorizations to enter into and consummate the transactions contemplated under
this Agreement and under each other instrument and document required to be
executed and delivered by such Stockholder pursuant hereto.
(ii) Enforceability. This Agreement and, when executed by such
Stockholder, each other instrument or document required to be executed and
delivered by such Stockholder pursuant hereto constitutes, or when executed will
constitute, a valid and legally binding obligation of such Stockholder,
enforceable against such Stockholder in accordance with its terms, subject as to
enforceability to applicable bankruptcy, insolvency, reorganization and similar
laws affecting creditors' rights and to general principles of equity.
(iii) No Legal Bar; Conflicts. Subject to the satisfaction of
Section 9.05 hereof, neither the execution and delivery by such Stockholder of
this Agreement nor any other instrument and document required to be executed and
delivered by such Stockholder pursuant hereto, nor the consummation by such
Stockholder of the transactions contemplated hereby or thereby, violates or
violated, any Law, or will result or resulted in any breach of any of the terms
of or constitute or constituted a default under or will result or resulted in
the termination of or the creation of any Lien pursuant to the terms of or
otherwise affect or affected the continuation, validity or effectiveness of any
material contract or agreement to which such Stockholder (or any affiliate
thereof) is a party or by which such Stockholder (or such affiliate) or any of
such Stockholder's (or such affiliate's) assets or properties is bound. Except
with respect to the HSR Act or as set forth on Schedule 3.03 hereto, no material
consents, approvals or authorizations of, or filings with, any Governmental
Authority are or were required in connection with the execution and delivery by
such Stockholder of this Agreement or any other instrument or document required
to be executed and delivered by such Stockholder pursuant hereto or the
consummation of the transactions contemplated hereby by such Stockholder.
(iv)Investment.
A. Such Stockholder has had access to the SEC Documents and such
other information relating to the business and affairs of Norton which such
Stockholder has reasonably requested, and all additional information which such
Stockholder has considered necessary to verify the accuracy of the information
so received. Such Stockholder has had the opportunity to ask questions of and
receive answers from Norton concerning the business and condition (financial and
other) of Norton and concerning the terms and conditions of the transactions
contemplated by this Agreement.
B. Such Stockholder understands and agrees that, subject to certain
restrictions set forth in Section 2.02 hereof, Norton has the option to issue
and deliver to such Stockholder, as assignee of the Company, the Earn Out
Shares, if any, to be delivered in connection with any Earn Out Payment pursuant
to this Agreement, all in a transaction exempt from the registration
requirements of the Securities Act; that for such purpose the Purchaser and
Norton will rely upon the representations and warranties of the Company and the
Stockholders contained in this Section 4.01(iv) and in Section 3.29 above; and
that such exemption from registration may not be available unless such
representations and warranties are
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correct. Such Stockholder is an "accredited investor" as such term is defined in
Rule 501 under the Securities Act.
C. Such Stockholder understands and agrees that, under existing
rules of the Commission, a holder may be unable to sell its, his or her shares
of Norton Common Stock, if any, except to the extent that its, his or her shares
of Norton Common Stock may be sold (i) pursuant to an effective registration
statement covering such shares pursuant to the Securities Act, (ii) in
transactions exempt from the registration requirements of the Securities Act or
(iii) subject to the restrictions contained in Rule 144.
D. Such Stockholder is familiar with the provisions of Rule 144 and
the limitations upon the availability and applicability of such rule.
E. Such Stockholder is, or has been advised by a financial
representative who is, a sophisticated investor familiar with the type of risks
inherent in the acquisition of restricted securities such as shares of Norton
Common Stock and such Stockholder's financial position is such that it can
afford to retain its shares of Norton Common Stock for an indefinite period of
time without realizing any direct or indirect cash return on the investment.
F. Such Stockholder intends to acquire any shares of Norton Common
Stock payable as part of the Earn Out Payment for its own account and not with a
view to, or for sale in connection with, the distribution thereof within the
meaning of the Securities Act.
1.042 Non-Management Stockholders. Each of the Financial
Stockholders, as to clauses (i) through (vi) below, each of the Other
Stockholders solely with respect to clauses (iv) through (vi) below, in any case
severally but not jointly, hereby represents and warrants to, and covenants and
agrees with, the Purchaser and Norton, as of the date hereof and as of the
Closing Date, that as to himself or itself:
(i) Organization. Such Financial Stockholder is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization.
(ii) Authority. The execution and delivery by such Financial
Stockholder of this Agreement and each other instrument or document required to
be executed and delivered by such Financial Stockholder pursuant hereto, the
performance by such Financial Stockholder of its covenants and agreements
hereunder and thereunder, and the consummation by such Financial Stockholder of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary action.
(iii) Conflicts. Neither the execution and delivery by such
Financial Stockholder of this Agreement and the other instruments and documents
required to be executed and delivered by such Financial Stockholder pursuant
hereto, nor the consummation by Financial Stockholder of the transactions
contemplated hereby or thereby violates or violated any provision of the
organizational documents of such Financial Stockholder.
(iv) Litigation. To the knowledge of such Stockholder, except
as set forth in Schedule 3.26 hereto, there are no actions or suits, and there
are no investigations or proceedings by or before any Governmental Authority,
pending (for which service has been made) or threatened, against or by the
Company, or against or affecting any of the Premises, any of the Assets owned or
leased by the Company, in any case which has had or would be reasonably expected
to have, individually or in the aggregate, a Material Adverse Effect.
(v) Insider Interests; Intercompany Transactions. Except as
set forth in Schedules 3.04 and 3.28 hereto, to the knowledge of such
Stockholder, neither such Stockholder nor any present or former affiliate,
officer, director or employee of such Stockholder, or family member of any of
the foregoing, or any corporation, partnership, trust or other entity in which
any such Person is an officer, director, employee, partner or stockholder (a) is
presently a party to any transaction or arrangement with the Company relating to
the Business (other than for services as officers, directors or employees of the
Company), (b) owns any interest in, controls or is an employee, officer,
director, partner or stockholder or
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agent of, or consultant to any other entity which is a competitor, supplier or
customer or which is a landlord or tenant of the Company with respect to any
aspect of the Business, (c) is indebted or liable to, owns any interest in, or
owns, holds or has guaranteed any obligation or debt of the Company relating to
the Business, (d) has acquired from or sold to the Company any assets or
properties owned or leased by the Company relating to the Business or (e) has
any right to or interest in the Business or in the Assets (other than in such
Stockholders capacity as a stockholder of the Company or a holder of
Subordinated Debt).
(vi) Dividends, Transfers, Increases in Compensation or
Benefits. Except as set forth on Schedule 3.19 hereto, subsequent to the 1997
Balance Sheet Date, there have been no (i) dividends or other distributions or
payments made or declared (whether payable in cash or other property) to such
Stockholder with respect to any class of capital stock of the Company held by
such Non-Management Stockholder, (ii) sales, assignments or other payments or
transfers of any of the Company's assets (including without limitation, cash) to
such Non-Management Stockholder or to any related or affiliated Persons thereof
(other than management fees payable to certain Financial Stockholders pursuant
to an agreement as in effect prior to the 1997 Balance Sheet Date), (iii)
payments in respect of Subordinated Debt to such Non-Management Stockholder
other than interest accrued on the 1997 Balance Sheet and other than interest
paid since the 1997 Balance Sheet Date as required by the terms of the documents
governing the Subordinated Debt, (iv) increases in the compensation or other
amounts payable or to become payable to such Non-Management Stockholder and (v)
payments under or provisions (including accruals) for any awards, bonuses, stock
options, loans, profit sharing, pension, retirement or welfare plans or similar
arrangements for or on behalf of such Non-Management Stockholder (or related or
affiliated Persons thereof).
SECTION V.
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER AND NORTON
The Purchaser and Norton, jointly and severally, hereby represent
and warrant to the Company and each of the Stockholders, as of the date hereof
and as of the date of the Closing, that:
1.051 Organization. Each of the Purchaser and Norton is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and authority to purchase
the Assets.
1.052 Authority. The execution and delivery of this Agreement and
the Employment Agreements by the Purchaser and/or Norton, as applicable, the
performance by the Purchaser and/or Norton, as applicable, of their respective
covenants and agreements hereunder and thereunder and the consummation by the
Purchaser and Norton of the transactions contemplated hereby have been duly
authorized by all necessary corporate action, and this Agreement and the
Employment Agreements constitute valid and legally binding obligations of the
Purchaser and/or Norton, as applicable, enforceable against the Purchaser and/or
Norton, as applicable, in accordance with its terms, subject as to
enforceability to applicable bankruptcy, insolvency, reorganization and similar
laws affecting creditors' rights and to general principles of equity.
1.053 No Legal Bar; Conflicts. Neither the execution and delivery of
this Agreement or any of the Employment Agreements by the Purchaser or Norton,
as applicable, nor the consummation of the transactions contemplated hereby or
thereby by the Purchaser or Norton, as applicable, violates any provision of the
certificate of incorporation or by-laws of the Purchaser or Norton,
respectively, or, subject to the satisfaction of Section 10.07, any statute,
ordinance, regulation, order, judgment or decree of any Governmental Authority,
or will result in any breach of any of the terms of or constitute a default
under or result in the termination of or the creation of any Lien pursuant to
the terms of or otherwise affect the continuation, validity or effectiveness of
any contract or agreement to which the Purchaser or Norton is a party or by
which the Purchaser or Norton or any of their respective assets is bound. Except
with respect to the HSR Act, the Securities Act (with respect to the matters set
forth in Section 2.04 hereof) and the listing on the applicable Securities
Exchange of any shares of Norton Common Stock issued as the Earn Out
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Payment, no consents, approvals or authorizations of, or filings with, any
Governmental Authority or any other Person are required in connection with the
execution and delivery of this Agreement or any other instrument or document
required to be executed and delivered by the Purchaser or Norton pursuant
hereto, or the consummation of the transactions contemplated hereby or thereby
by the Purchaser or Norton.
1.054 Norton Common Stock. Any shares of Norton Common Stock issued
pursuant to this Agreement will be duly authorized, validly issued, fully paid
and non-assessable shares of Norton Common Stock.
1.055 SEC Documents. As of their respective dates, the SEC Documents
complied as to form in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations of the Commission thereunder. As of their respective dates,
except to the extent that information contained therein has been revised or
superseded by a later filed SEC Document, none of the SEC Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Subsequent to the date of the latest balance sheet included in the
SEC Documents, there has not been any event or condition (other then general
economic conditions or conditions affecting the apparel industry in general)
which has had or would reasonably be likely to have a material adverse effect on
the business, assets, results of operations or condition (financial or other) of
Norton.
SECTION VI.
CONDUCT OF THE BUSINESS
The Company hereby covenants and agrees with the Purchaser and
Norton that, from and after the date of this Agreement and until the Closing,
the Company shall not:
1.061 Operation of the Business. Operate or otherwise conduct its
business other than in the ordinary course of business and in a manner
consistent with past practices, including make a purchase, sale or lease, or
introduce any method of management, accounting or operation other than in the
ordinary course of business and in a manner consistent with past practices.
1.062 Preservation of Organization and Employees. Fail to use all
reasonable efforts to preserve the present business organization of the Company
intact and keep available the services of the present key employees of the
Company.
1.063 Contracts. Enter into any contract, agreement, license, lease
or other document involving the purchase or sale of inventory (or component or
attendant goods or services) other than in the ordinary cause of business and
consistent with past practices, or enter into any other contract, agreement or
other document in which the obligation of any party thereto is in excess of
$50,000.
1.064 Sales or Encumbrances. Sell, assign or otherwise transfer any
of the Assets, other than sales of Inventory in the ordinary course of business.
Permit any Lien on or against any of the Assets, other than Permitted Liens and
other than Liens securing the Chase Indebtedness prior to the Closing.
1.065 Documents, Etc. Fail to furnish to the Purchaser, its counsel,
accountants and authorized representatives, such financial, legal and other
documents, records and information relating to the Company, the Business and the
Assets as the Purchaser or its counsel, accountants or authorized
representatives may from time to time reasonably request.
1.066 Permits. Fail to maintain through the Closing Date all Permits
required for the conduct of the Business or the ownership of the Assets, except
where the failure to maintain any such Permits would not be reasonably expected
to have, individually or in the aggregate, a Material Adverse Effect, or fail to
use its best efforts to obtain on or prior to the Closing Date all required
consents to make
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available to the Purchaser the full benefits of such Permits as of the Closing
Date.
SECTION VII.
ADDITIONAL COVENANTS OF THE
COMPANY AND THE PURCHASER
1.071 Company Acquisition Proposal. The Company and each Stockholder
severally covenants and agrees that, from and after the date of this Agreement
and until the earlier to occur of the Closing and the termination of this
Agreement pursuant to Section 8.02 hereof, no such Person shall directly or
indirectly (a) take any action to solicit, initiate or encourage any Company
Acquisition Proposal or (b) engage in negotiations with, or disclose any
nonpublic information relating to the Company (other than to employees of the
Company in the ordinary course of business), or afford access to the properties,
books or records of the Company to, in any case, any Person that the Company
believes may be considering making, or has made, a Company Acquisition Proposal.
The Company and each Stockholder severally shall promptly notify the Purchaser
after receipt by the Company or such Stockholder of a Company Acquisition
Proposal or any indication known to the Company or any Stockholder that any
Person is considering making a Company Acquisition Proposal or any request for
nonpublic information relating to the Company or for access to the properties,
books or records of the Company by any Person that the Company or such
Stockholder believes may be considering making, or has made, a Company
Acquisition Proposal. For purposes of this Agreement, "Company Acquisition
Proposal" means any offer or proposal for, or any indication of interest in, or
any negotiations or discussions concerning, a merger or other business
combination involving the Company, the acquisition of any equity interest in the
Company (whether from the Company or from any of the Stockholders), or the
acquisition of all or a substantial portion of the assets of the Company, other
than the transactions contemplated by this Agreement and other than sales of
inventory in the ordinary course of Business.
1.072 Publicity. Except as specifically contemplated by this
Agreement, the Company and each Stockholder severally covenants and agrees that
any and all publicity (whether written or oral) and notices to or other
communications with third parties (including any securities analysts or other
public announcements) concerning the Company, the sale of the Assets and other
transactions contemplated by this Agreement shall be subject to the prior
written approval of Norton, which approval shall not be unreasonably withheld or
delayed. Norton and the Purchaser will consult with the Stockholder
Representative prior to issuing any press release relating to this Agreement.
1.073 Further Assurances. Subject to the terms and conditions of
this Agreement, prior to and after the Closing, the Purchaser, Norton, the
Company and each Stockholder at the request of the applicable party severally
shall use its or his respective best efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary or desirable,
including under applicable Laws and including to obtain all necessary consents
and approvals, to consummate and otherwise give effect to the transactions
contemplated by this Agreement.
1.074 Correspondence, Funds, etc. The Company and each Stockholder
severally covenants and agrees that, subsequent to the Closing, the Company
shall deliver to the Purchaser, promptly after the receipt thereof and in the
form received, all inquiries, correspondence and other items and materials
received by the Company or, such Stockholder, as applicable, from any Person
relating to the Business (other than the Excluded Assets or the Excluded
Liabilities), any of the Assets or the Assumed Liabilities. Without limiting the
generality of the foregoing, subsequent to the Closing, the Company and each
Stockholder severally covenants and agrees to mail on a weekly basis any funds
and any checks, notes, drafts and other instruments for the payment of money,
duly endorsed to the Purchaser, received by the Company or, such Stockholder, as
applicable, comprising payment of any accounts, notes or other Receivables of,
or other amounts owed to, the Company (except with respect to payments made by
the Purchaser or Norton to the Company), or
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otherwise constituting part of the Assets. From and after the Closing, the
Purchaser shall have the right and authority to endorse, without recourse, the
name of the Company on any check, note, draft, instrument or any other evidence
of indebtedness received by the Purchaser on account of any account, note or
other Receivable, or other amounts owed to, the Company, or otherwise
constituting part of the Assets, and the Company shall deliver to the Purchaser
at the Closing such documents (including powers of attorney) as may reasonably
be requested by the Purchaser to permit the Purchaser to negotiate, cash or
otherwise deposit in bank accounts in the name of the Purchaser each such check,
note, draft, instrument or other evidence of indebtedness.
1.075 Discharge of Obligations. (a) The Company and each Stockholder
severally covenants and agrees, subsequent to the Closing, that the Company
shall promptly and timely pay and otherwise fulfill and discharge all
obligations and liabilities of the Company and the Business which are Excluded
Liabilities hereunder, in all cases when due and payable and otherwise prior to
the time at which any of such obligations or liabilities could in any way result
in or give rise to a claim against any of the Assets, the Business or the
Purchaser (or any of its employees, officers, directors, stockholders or other
affiliates), result in any Lien on any of the Assets, or adversely affect the
Purchaser's title to or use of any of the Assets.
(b) The Purchaser and Norton covenant and agree, subsequent to the
Closing, that the Purchaser shall promptly and timely pay and otherwise fulfill
and discharge all Assumed Liabilities, in all cases when due and payable and
otherwise prior to the time at which any of such obligations or liabilities
could in any way result in or give rise to a claim against the Company or any of
the Stockholders.
1.076 Encumbrances. Upon the fulfillment by Norton and the Purchaser
of the obligations under Section 7.14 and the repayment and effectiveness of the
other assignments set forth therein, the Company and each Stockholder severally
covenants and agrees to cause, at the sole expense of the Stockholders (on a
several basis based upon each Stockholder's Pro Rata Percentage), any and all
Liens of any kind whatsoever which affect the Assets or the Business, including
without limitation, those arising under the Debt Documents and all other Liens
which affect the Premises, except for Permitted Liens and any and all
restrictions and covenants in the Contracts relating to the Premises, but
including without limitation, Liens securing the Chase Indebtedness, to be
released, discharged and terminated in full on or prior to the Closing or, at
the Closing, will provide the Purchaser with such termination statements,
releases and other documents, all in recordable form, as are necessary or
reasonably requested by the Purchaser to effect the foregoing.
1.077 Confidential Information. The Company and each Stockholder
severally acknowledges and agrees that after the Closing the Purchaser could be
irreparably damaged if the Company's or any of such Stockholder's confidential
knowledge of or information concerning any aspect of the Business was disclosed
to or utilized on behalf of any Person other than the Purchaser or its
affiliates, and the Company and each Stockholder severally covenants and agrees
that it or he will not, following the Closing, without the prior written consent
of the Purchaser, disclose (or permit to be disclosed) or use in any way any
such confidential knowledge or information other than in the good faith exercise
of their respective rights and remedies hereunder and, as applicable, other than
in the conduct of the Business after the Closing pursuant to the Employment
Agreements, unless (a) compelled to disclose such by judicial or administrative
process or, in the written opinion of its counsel, by other requirements of law,
(b) such is available to the public or to the apparel industry in general
through no fault of the Company or such Stockholder, or (c) such becomes
available to the Company or such Stockholder from a third party who, to the
knowledge of the Company or such Stockholder, is under no confidential or
fiduciary obligation to the Purchaser or the Company (with respect to the
Business) with respect to such knowledge or information. Except in the good
faith exercise of their respective rights and remedies hereunder or under the
Employment Agreements, as applicable, Norton and the Purchaser covenant and
agree that they will not, following the Closing, without the prior written
consent of the applicable Stockholder, disclose (or permit to be disclosed) or
use in any way any confidential knowledge or information concerning such
Stockholder unless any of the circumstances in respect of Norton or the
Purchaser set forth in clauses (a), (b) and (c) above shall exist.
1.078 Employees. (a) As of the Closing Date, the Purchaser shall
offer employment to all those individuals employed as of the Closing Date by the
Company in the Business (all such employees, the "Employees") on such terms and
conditions which, as a whole, are no less favorable than those in effect prior
to the Closing, provided that it is understood and agreed that nothing herein
shall require the Purchaser to maintain any defined benefit pension plan for the
benefit of Employees, and, to the extent the
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Purchaser determines to continue to employ any Employee, to maintain such terms
and conditions through the end of the Purchaser's 1997 fiscal year. As of the
Closing Date the Company shall terminate all of the Employees. For purposes of
the Purchaser's or Norton's employee benefit plans and policies, as applicable,
to the extent permitted or contemplated by such plans and policies, the
Purchaser shall give credit to Employees who accept such offer for their
respective periods of employment with the Company. Subject to the foregoing,
nothing herein, including in any subsection of this Section 7.08, shall be
deemed either to affect or to limit in any way the management prerogatives of
the Purchaser with respect to the Employees who accept such offer of employment
(including without limitation, the right of the Purchaser to modify compensation
or the right of the Purchaser to terminate the employment of any Employee), or
to create or to grant to such Employees any third-party beneficiary rights or
claims or causes of action of any kind or nature against the Purchaser or its
affiliates. Nothing herein shall prevent the Purchaser from terminating any such
Employee at any time for any reason as determined by the Purchaser in its sole
discretion.
(b) Pursuant to Treasury Reg. Section 31.3121(a)(1)-1(b), for
purposes of FICA tax withholding, the Purchaser shall treat all wages (within
the meaning of Section 3121(a) of the Code) paid by the Company in 1997 to each
Employee employed by the Purchaser immediately after the Closing Date as paid by
the Purchaser. Pursuant to Section 5 of Rev. Proc. 84-77, 1984-2 C.B. 753, the
Purchaser and the Company agree that the Form W-2 (Employee's Wage and Tax
Statement) furnished by the Purchaser to each Employee employed by the Purchaser
immediately after the Closing shall include wages and other compensation paid,
and taxes withheld, during 1997 by the Company and the Purchaser. At or prior to
the Closing, the Company shall transfer to the Purchaser a current Form W-4
(Employee's Withholding Allowance Certificate) for each Employee employed by the
Purchaser immediately after the Closing. The Company and the Purchaser agree to
include a statement (with the relevant information described in Section 5 of
Rev. Proc. 84-77) with their respective Forms 941 (Employer's Quarterly Tax
Return) for the calendar quarter during which the Closing occurs, apprising the
Internal Revenue Service of the foregoing arrangements.
(c) The Company and the Stockholders severally covenant and agree
that the Company shall (i) as of the Closing Date, fully vest all Employees in
their accrued benefits under the Miss Erika, Inc. Pension Plan, (ii) cooperate
with the Purchaser and Norton in connection with roll-overs, if any, of accrued
benefits under the Miss Erika, Inc. Pension Plan to employee benefit plans, if
any, maintained or to be maintained by the Purchaser or Norton, (iii) on or as
soon as practicable after the Closing Date issue a Notice of Intent to Terminate
(the "NIT") the Miss Erika, Inc. Pension Plan as of 60 days after the date of
the NIT in accordance with applicable law, including but not limited to Section
4041 of ERISA and the regulations thereunder, (iv) after the Closing Date, take
all necessary actions, in accordance with the terms of the Miss Erika, Inc.
Pension Plan and all applicable Law, to effectuate such termination of the Miss
Erika, Inc. Pension Plan, all without liability to the Purchaser or Norton, and
(v) as soon as reasonably practicable after the Closing Date, cause the trustee
of the Miss Erika, Inc. Employee Profit Sharing Plan to transfer all account
balances (whether or not vested) of Employees in cash or in kind or as evidenced
by a loan document which is in accordance with the terms of the Miss Erika, Inc.
Profit Sharing Plan, as determined in the sole discretion of the Purchaser or
Norton (except with respect to any loans referenced above which shall be
transferred in kind), to the profit sharing plan to be established by the
Purchaser pursuant to Section 7.08(d) (or, if no such plan is established, to a
tax-qualified defined contribution plan of Purchaser or Norton in which such
Employees are eligible to participate).
(d) As soon as reasonably practicable following the Closing Date, to
the extent it legally is able to do so, the Purchaser shall adopt, and shall use
its best efforts to continue in effect for the lesser of (i) four full fiscal
years or (ii) for so long as any Management Stockholder remains employed by the
Purchaser or any successor, a tax-qualified profit sharing plan applicable to
its employees, which profit sharing plan shall (i) contain terms and conditions
substantially similar to those provided pursuant to the Miss Erika, Inc. Profit
Sharing Plan and such other terms and conditions as shall be reasonably
acceptable to the Purchaser and the Management Stockholders and (ii) as soon as
reasonably practicable after its establishment be submitted to the Internal
Revenue Service for a determination letter regarding its tax-qualified status
(unless such plan is a standardized prototype plan for which no further
determination letter is required). Purchaser or Norton shall cause the trustee
of such profit sharing plan (or such other tax qualified defined contribution
plan of Purchaser or Norton) to accept the transfer of account balances from the
Miss Erika, Inc. Employees Profit Sharing Plan as described in Section 7.08(c).
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1.079 Insurance Policies; Consents. (a) The Company and the
Stockholders severally covenant and agree that the Company shall promptly after
the date hereof apply for or otherwise seek and use its respective best efforts
to obtain, at the sole expense of the Company, all necessary amendments,
modifications, consents, approvals and endorsements (collectively, the
"Endorsements"), effective at the Closing, to insurance policies covering the
Company and covering occurrences which have taken place within a period of six
years prior to the Closing (other than in respect of product liability claims),
all in order to add the Purchaser and Norton as a named insured thereon and
thereunder and/or, as specified by the Purchaser, to name the Purchaser and
Norton as an additional insured with an indemnity thereunder.
(b) To the extent that any consent or approval relating to any
Contract requiring consent or approval as disclosed on Schedule 3.03 hereto or
any other consent or approval necessary to assign to the Purchaser any other
Contract or other Asset is not obtained on or before the Closing Date (all such
Contracts or other Assets for which such consent or approval is not obtained on
or before the Closing Date are hereinafter referred to collectively as the
"Designated Agreements"), and, without limiting the Purchaser's rights under
Section 10.06, the Closing occurs, the Company covenants and agrees to use its
best efforts to obtain each such consent and approval that the Purchaser
reasonably requests the Company to obtain, in form and substance reasonably
satisfactory to the Purchaser, promptly following the Closing Date. The Company
covenants and agrees, at the request of the Purchaser, to provide to and enforce
on behalf of the Purchaser all of the Company's rights, benefits, entitlements
and interest in, to and under each Designated Agreement and the Purchaser agrees
to provide the Company with all personnel and other support reasonably necessary
therefor and, subject to Sections 11.01 and 11.02, the Purchaser shall reimburse
the Company for all obligations and liabilities paid by the Company at the
Purchaser's request and arising after the Closing Date under each such
Designated Agreement for which it receives the benefit as provided above;
provided, however, that in the event any such third party refuses or is
otherwise unwilling to consent to an assignment of any Designated Agreement on
terms acceptable to the Purchaser, then upon notice from the Purchaser to the
Company of any such event, such obligation of the Company to obtain such consent
shall cease, and in such event, nothing contained herein shall prohibit or be
deemed to prohibit the Purchaser from entering into a new agreement with such
third party.
7.10 HSR Filing. The parties hereto recognize that a pre-merger notification
must be filed with the Federal Trade Commission (the "FTC") and the Department
of Justice (the "DOJ") pursuant to the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act") and the Company and the Stockholders, on
the one hand, and the Purchaser, on the other hand, hereby agree to fully
cooperate with each other in all reasonable respects to supply and file the
required documentation. The parties hereto agree that, promptly following the
execution of this Agreement by all parties (but in no event later than five (5)
business days following such execution), the Purchaser and the Company will
prepare and file with the FTC and the DOJ all required documents under the HSR
Act, including a complete notification and report form, will seek early
termination of the HSR Act waiting period in connection with such filing, will
fully cooperate with each other in connection with the preparation and filing of
such documents, and will use their respective best efforts to promptly comply
with all formal or informal requests for additional information by the FTC or
the DOJ in respect of such filing.
7.11 Taxes and Tax Returns. After the Closing, the Company and each
Stockholder severally covenants and agrees that the Company shall file or cause
to be filed on a timely basis any and all Tax Returns (including without
limitation, final sales and employment Tax Returns and any real property
transfer Tax Returns required to be filed on account of the assignment to the
Purchaser by the Company of any leases) required to be filed in respect of any
and all periods, including up to and including the Closing Date, and shall pay
on a timely basis all Taxes due and payable with respect to the periods covered
by all such Tax Returns.
7.12 Effective Time. The parties hereto understand, intend and agree
that, notwithstanding the actual Closing Date, the closing of the transactions
contemplated hereby shall be deemed to occur on the opening of business on date
hereof.
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7.13 Operation of the Purchaser After the Closing. (1) From the
Closing Date and continuing until November 7, 1999, Norton and the Purchaser,
covenant and agree, and the Company and the Stockholders acknowledge and
understand as follows:
(a) As between the Purchaser and Norton, the Purchaser (and not
Norton) will conduct the business in which the Company is currently engaged and
all businesses developed by the Purchaser after the Closing Date, and Norton
(and not the Purchaser, without the consent of Bregman and Zwilling to the
extent they continue in the employ of the Purchaser) will conduct the business
in which Norton is currently engaged. Accordingly, for purposes of calculating
EBITDA, all revenues and expenses arising from the conduct of business by the
Purchaser after the Closing, including the use of the Intellectual Property
currently used by the Company and constituting part of the Assets or developed
by the Purchaser subsequent to the Closing Date, will belong to and be the
responsibility of the Purchaser and will be accounted for in determining EBITDA.
(b) Bregman and Zwilling, for so long as each of them is employed by
the Purchaser and subject to the terms and conditions of their respective
Employment Agreements, (i) shall serve as the Chief Executive Officer and
President, respectively, of the Purchaser and (ii) subject to the ultimate
control of the Chairman of the Board of Norton and/or the Purchaser (presently
Sanford Greenberg), the Vice Chairman of the Board of Norton and/or the
Purchaser (presently Peter Boneparth), and the Board of Directors of the
Purchaser, Bregman and Zwilling shall have day-to-day management control over
the Purchaser's business and operations, including without limitation, sales
practices, pricing of merchandise, inventory matters, mark-down allowances,
customer discounts, and the hiring, firing and compensation of other employees
of the Purchaser, all with authority and discretion consistent with past
practices of the Company. In the event that either Bregman or Zwilling are not
serving in the foregoing capacities of the Purchaser, for whatever reason,
including as a result of a termination under their respective Employment
Agreement, subject to the Purchaser's good faith business discretion,
replacement(s) shall be selected by the Purchaser (including from Norton's or
Purchaser's management ranks) and, for purposes of the calculation of EBITDA,
such replacement(s)' compensation and benefits shall not exceed the amounts paid
or payable pursuant to Bregman's or Zwilling's respective Employment Agreement.
(c) Subject to availability on commercially reasonable terms and
subject to the terms and conditions set forth in any credit documentation
entered into in good faith, Norton shall use its best efforts to make available
to the Purchaser from bank or other financial institution sources working
capital (including but not limited to letters of credit) at levels sufficient to
effectuate the Purchaser's business plans developed jointly and in good faith by
Norton, on the one hand, and Bregman and Zwilling (for so long has they are
employed by the Purchaser), on the other hand.
(d) Norton shall not sell the capital stock of the Purchaser
(including by merger) and the Purchaser shall not sell or transfer all or
substantially all of its assets unless the purchaser or transferee thereof shall
assume the Purchaser's obligations under, and in accordance with, Section 2.02
hereof and this Section 7.13. It being understood and agreed by the parties
hereto that in the event of any such sale or transfer, notwithstanding Section
2.02 hereof, any Earn Out Payment shall be payable by the Purchaser (or in the
case of a sale or transfer of all or substantially all of the assets of the
Purchaser, the transferee thereof) in cash in immediately available funds unless
otherwise agreed by the Stockholders Representative and the Management
Stockholders.
(e) Without limiting the provisions of Section 2.02(b) hereof, the
Stockholders Representative and the Management Stockholders shall, through the
Earn Out Payment Date, if any, have reasonable access to the accounting books
and records and personnel of the Purchaser, including the Purchaser's regularly
prepared budget and operations reports. The Company and each Stockholder
severally acknowledges and agrees that Norton and the Purchaser could be
irreparably damaged if any of the information obtained by the Stockholders
Representative, the Company or such Stockholder as a result of the foregoing
access or as a result of the disclosure of the information provided pursuant to
Section 2.02(b) hereof were disclosed (other than to each other and their
respective advisors) or used in any way (other than to assess the calculation of
EBITDA), and the Company and each Stockholders severally
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covenants and agrees that it or he will not, without the prior written consent
of Norton, disclose (or permit to be disclosed) (other than to each other and
their respective advisors) or use in any way (other than to assess the
calculation of EBITDA) any such information unless (i) compelled to disclose
such by a judicial or administrative process or, in the written opinion of their
counsel, by any requirement of law, (ii) such is available to the public or the
apparel industry in general through no fault of the Company, the Stockholder
Representative or such Stockholder, or (iii) such becomes available to the
Company, the Stockholder Representative or Stockholder from a third-party who is
under no confidential or fiduciary obligation to the Purchaser or Norton with
respect to such information.
(2) The Company and each of the Stockholders acknowledge and agree
that neither Bregman nor Zwilling shall have any liability for Damages or
otherwise to the Company or such Stockholder related to or arising out of their
conduct of Purchaser's business after the Closing.
7.14 Chase Indebtedness. Norton and the Purchaser covenant and agree
with the Company, at the Closing, to arrange for the repayment of then
outstanding indebtedness for borrowed money constituting Chase Indebtedness and
to arrange for the issuance of letters of credit or other arrangements to
support then outstanding letters of credit constituting Chase Indebtedness, on
terms and conditions acceptable to the Company, The Chase Manhattan Bank, N.A.
and the Purchaser, subject to the terms and conditions of the commitment letter
dated August 20, 1997 from NationsBanc Commercial Corporation and The CIT
Group/Commercial Services Inc. to Norton and the Purchaser heretofore delivered
to the Company.
SECTION VIII.
CLOSING
1.081 Time and Place of Closing. Subject to the terms and conditions hereof, the
closing of the purchase and sale of the Assets as set forth herein (the
"Closing") shall be held at 10:00 A.M. at the offices of Haythe & Curley, 237
Park Avenue, New York, New York 10017 on the fifth business day after the later
of the termination or expiration of the applicable waiting period (and any
extension thereof) under the HSR Act or the satisfaction or waiver of all other
conditions precedent set forth in Sections IX and X hereof, or such other time,
date and place as the parties shall mutually agree (such date upon which the
Closing occurs is herein referred to as the "Closing Date").
1.082 Termination. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned:
(a) at any time before the Closing, by written agreement of the
Company and the Purchaser or at any time after November 15, 1997 by written
notice from the Company or the Purchaser to the other;
(b) at any time before the Closing, by the Purchaser or the Company
in writing in the event that any Governmental Authority shall have issued an
order, decree, ruling or taken any other action restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling or other action shall have become final and nonappealable;
(c) at any time after October 15, 1997 (the "Termination Date"), by
the Purchaser or the Company in writing, if the transactions contemplated by
this Agreement have not been consummated on or before the Termination Date and
such terminating party is not (and, in the case of the Company, none of the
Stockholders is) then in material breach of this Agreement; provided that the
Termination Date shall be extended, but not beyond November 15, 1997, in the
event that the Company or the Purchaser shall receive a second request for
information under the HSR Act;
(d) at any time before the Closing, by the Purchaser in writing
pursuant to Section 10.03 hereof; and
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(e) at any time before the Closing, by either the Purchaser or the
Company in writing if such terminating party (and, in the case of the Company,
each of the Stockholders) is not then in material breach of this Agreement and
the nonterminating party (and, in the case of the Company, any of the
Stockholders) shall (i) fail to timely perform its or his agreements contained
herein required to be performed on or prior to the Closing Date and such failure
shall have had or would be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect or (ii) subject to Section 10.03 hereof,
breach any of its or his representations or warranties contained herein, which
breach shall have had or would be reasonably expected to have, individually or
in the aggregate, a Material Adverse Effect.
1.083 Effect on Obligations. Termination of this Agreement pursuant
to Section 8.02 shall terminate all obligations and liabilities of the parties
to each other hereunder, except for the rights and obligations under Sections
8.04, XII, 13.03 and 13.04 and, provided, however, that, notwithstanding the
foregoing, in the event of a termination of this Agreement pursuant to clauses
(c) or (e) of Section 8.02 above, Norton in the event the terminating party is
the Company, or the Company, in the event the terminating party is the
Purchaser, agrees promptly to reimburse the Company or Norton, as applicable,
for all reasonable out-of-pocket costs and expenses incurred by such terminating
party in connection with the transactions contemplated hereby (including all
reasonable legal fees and expenses).
1.084 Return of Documentation. Following a termination in accordance
with Section 8.02, the Purchaser and Norton shall use their respective best
efforts to return all agreements, documents, contracts, instruments and other
books and records of the Company provided by the Company to the Purchaser or any
representatives of the Purchaser in connection with the transactions
contemplated by this Agreement and the Company and each of the Stockholders
shall use their respective best efforts to return all agreements, documents,
contracts, instruments and other books and records of the Purchaser and Norton
provided by the Purchaser or any representative of the Purchaser in connection
with the transactions contemplated by this Agreement.
1.085 Delivery of Assets. Without limiting Section 10.08 hereof, the
Company and each Stockholder severally covenants and agrees that delivery of the
Assets shall be made by the Company to the Purchaser at the Closing by
delivering such bills of sale, endorsements, assignments and other good and
sufficient instruments of sale, assignment, conveyance and transfer, and such
powers of attorney, as shall be effective fully to vest in the Purchaser good
and valid title to, and the right to full custody and control of, all of the
Assets, free and clear of all Liens (except for Permitted Liens and restrictions
and covenants in the Contracts), in each case in form and substance reasonably
satisfactory to the Purchaser and its counsel.
1.086 Assumption of Liabilities. Without limiting Section 9.06
hereof, at the Closing, the Purchaser shall deliver to the Company such
instruments of assumption as shall be sufficient fully to effect the assumption
by the Purchaser of the Assumed Liabilities in form and substance reasonably
satisfactory to the Company and its counsel.
1.087 Contracts and Books. At the Closing, the Company and each
Stockholder severally covenants and agrees that the Company shall deliver to the
Purchaser the Contracts and the books and records of the Business constituting a
part of the Assets, excluding those constituting Excluded Assets.
1.088 Additional Steps. At the Closing, the Company and each
Stockholder severally covenants and agrees that it or he shall take all steps
required to put the Purchaser in actual possession and control of all of the
Assets.
1.089 Change of Name. On or prior to the Closing Date, the Company
and each Stockholder severally covenants and agrees that the Company shall take
all necessary steps to deliver, and shall execute and deliver, to the Purchaser
(including an amendment to the Company certificate of incorporation in form for
filing with the Secretary of State of Delaware and such other documents in form
for filing in all states where the Company is qualified or licensed to do
business as a foreign corporation) all documents necessary to change the
Company's corporate name to a name other than "Miss Erika" or "Erika" (or any
variant or derivation thereof) in the Company's state of incorporation and in
all other states in which the Company is qualified or licensed to do business as
a foreign corporation, and to terminate any
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and all d/b/a's with respect to such name, in each case in form and substance
reasonably satisfactory to the Purchaser. If requested by the Purchaser, on and
after the Closing Date, the Company and each Stockholder severally covenants and
agrees that the Company shall execute and deliver to the Purchaser such other
consents, waivers, approvals and other documents and shall take such other
actions as shall be necessary to permit the Purchaser or any designee to use the
names "Miss Erika" and "Erika" (and any variant or derivation thereof),
including as its corporate name.
SECTION IX.
CONDITIONS TO THE COMPANY'S OBLIGATION TO CLOSE
The obligations of the Company to sell the Assets and otherwise
consummate the transactions contemplated by this Agreement at the Closing are
subject to the following conditions precedent, any or all of which, other than
Section 9.09 (which may be waived only in the sole discretion of the Management
Stockholders), may be waived by the Company in its sole discretion, and each of
which the Purchaser hereby agrees to use its best efforts (and Norton hereby
agrees to cause the Purchaser to use its best efforts) to satisfy at or prior to
the Closing:
1.091 Opinion of Counsel. The Company shall have received an opinion
of Haythe & Curley, counsel for the Purchaser and Norton, delivered to the
Company and the Stockholders pursuant to the instructions of the Purchaser and
Norton dated the Closing Date, in form and substance reasonably satisfactory to
the Company and its counsel, covering the matters set forth in Sections 5.01,
5.02, 5.03 and 5.04.
1.092 No Litigation. No action, suit or proceeding against the
Company, any Stockholder, the Purchaser or Norton relating to the consummation
of any of the transactions contemplated by this Agreement or any governmental
action seeking to delay or enjoin any such transactions shall be pending. No
action, suit or proceeding against Norton shall be pending, which if determined
adversely to Norton could reasonably be expected to have a material adverse
effect on the business, assets, results of operations or condition (financial or
other) of Norton.
1.093 Representations and Warranties. The representations and
warranties made by the Purchaser and Norton herein shall be correct at and as of
the date of the Closing with the same force and effect as though such
representations and warranties had been made at and as of the date of the
Closing (except to the extent that any of such representations and warranties
are, by their express terms, made as of another date), and on the date of the
Closing, the Purchaser and Norton shall deliver to the Company a certificate
dated the date of the Closing to such effect. All the terms, covenants and
conditions of this Agreement to be complied with and performed by the Purchaser
and Norton on or before the date of the Closing shall have been duly complied
with and performed, and on the date of the Closing, the Purchaser and Norton
shall deliver to the Company a certificate dated the date of the Closing to such
effect.
1.094 Other Certificates. The Company shall have received such
additional certificates, instruments and other documents, in form and substance
reasonably satisfactory to it and its counsel, as it shall have reasonably
requested in connection with the transactions contemplated hereby.
1.095 Hart-Scott-Rodino. All waiting periods applicable to the
transactions contemplated by this Agreement under the HSR Act shall have expired
or been terminated.
1.096 Instruments of Assumption of the Assumed Liabilities. The
Purchaser shall have delivered to the Company the instruments required to be
delivered by the Purchaser pursuant to Section 8.06 hereof.
1.097 Subordinated Pledge. Norton shall have delivered to the
Company a subordinated pledge agreement pursuant to which Norton will grant to
the Company a subordinated security interest in the capital stock of the
Purchaser to secure any Earn Out Payment payable in cash in
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accordance with the terms and conditions of Section 2.02 hereof, which
subordinated pledge agreement will contain such other terms and conditions as
are reasonably satisfactory to Norton and the Company. It is understood and
agreed by the Company and the Stockholders that Norton's and the Purchaser's
lenders will have a first priority security interest in the capital stock of the
Purchaser and that the Company will be required to enter into a subordination
and intercreditor agreement with such lenders, which among other items, will
prohibit the Company from exercising its rights as pledgee under the
subordinated pledge agreement without the consent of such lenders.
1.098 Additional Closing Purchase Price. The Purchaser and the
Company shall have agreed on an amount to be payable to the Company on the
Closing Date, which amount shall constitute a portion of the Closing Purchase
Price as specified in Section 2.01 and which amount shall equal a mutually
agreed upon amount of accrued and unpaid Income Taxes of the Company as of the
Closing Date.
1.099 Employment Agreements. The Purchaser shall not have terminated
either of the Employment Agreements with the Management Stockholders.
SECTION X.
CONDITIONS TO THE PURCHASER'S OBLIGATION TO CLOSE
The obligation of the Purchaser to purchase the Assets and otherwise
consummate the transactions contemplated by this Agreement at the Closing is
subject to the following conditions precedent, any or all of which may be waived
by the Purchaser in its sole discretion, and each of which the Company and each
Stockholder severally hereby agree to use its or his respective best efforts to
satisfy at or prior to the Closing:
1.101 Opinion of Counsel. The Purchaser and Norton shall have received (a) an
opinion of Paul, Weiss, Rifkind, Wharton & Garrison, counsel for the Company and
the Financial Stockholders and Christian Baillet, delivered to the Purchaser and
Norton pursuant to the instructions of the Company and the Financial
Stockholders dated the Closing Date, in form and substance reasonably
satisfactory to the Purchaser and its counsel, covering the matters set forth in
Sections 3.01, 3.02 and 3.03 and Sections 4.01 (i), (ii) and (iii) (as to the
Financial Stockholders and Christian Baillet) and 4.02 (i), (ii) and (iii) and
(b) an opinion of Morgan, Lewis & Bockius LLP, counsel for the Management
Stockholders and Sidney Goldstein, delivered to the Purchaser and Norton
pursuant to the instructions of the Management Stockholders and Other
Stockholders dated the Closing Date, in form and substance reasonably
satisfactory to the Purchaser and its counsel, covering the matters set forth in
Sections 4.01(i) and (ii) (as to the Management Stockholders and Sidney
Goldstein).
1.102 No Litigation. No action, suit or proceeding against the
Company, any Stockholder, Norton or the Purchaser relating to the consummation
of any of the transactions contemplated by this Agreement nor any governmental
action seeking to delay or enjoin any such transactions shall be pending.
1.103 Representations and Warranties. (a) Subject to the next two
sentences, the representations and warranties made by the Company and each
Stockholder herein shall be correct at and as of the date of the Closing with
the same force and effect as though such representations and warranties had been
made at and as of the date of the Closing (except to the extent that any of such
representations and warranties are, by their express terms, made as of another
date), and on the date of the Closing, the Company and each Stockholder shall
deliver to the Purchaser and Norton a certificate dated the date of the Closing
to such effect. The Company and the Stockholders shall be entitled to notify the
Purchaser on or before the date which is one business day prior to the Closing
Date, which notification (each, an "Update Notice") may disclose the occurrence
of events which have not occurred on or prior to the date hereof, the occurrence
of which does or may result in a breach of the Company's and the Stockholders'
representations and warranties contained in Sections III and IV hereof. Upon
delivery of the Update Notice, the applicable representations and warranties
(and any applicable Schedules), for all purposes of this Agreement, shall be
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deemed to be amended consistent with the such Update Notice. In the event that
the Purchaser receives an Update Notice which sets forth the occurrence of
events which have had or would be reasonably expected to have, individually or
in the aggregate, a Material Adverse Effect, the Purchaser shall have no
obligation to complete the Closing of the transactions contemplated by this
Agreement and may terminate this Agreement pursuant to Section 8.02(d) above.
(b) All the terms, covenants and conditions of this Agreement to be
complied with and performed by the Company and each Stockholder on or before the
date of the Closing shall have been duly complied with and performed, and on the
date of the Closing, the Company and each Stockholder shall deliver to the
Purchaser and Norton a certificate dated the date of the Closing to such effect.
1.104 Other Certificates. The Purchaser shall have received such
other certificates, instruments and other documents, in form and substance
reasonably satisfactory to the Purchaser and counsel for the Purchaser, as it
shall have reasonably requested in connection with the transactions contemplated
hereby.
1.105 Sale of All the Assets. All of the Assets shall be sold and
delivered to the Purchaser (or its designee) at the Closing free and clear of
all Liens (other than Permitted Liens) as provided in Section 7.06.
1.106 Third Party Consents. The Purchaser shall have received
evidence satisfactory to the Purchaser of receipt by the Company of the
consents, approvals and authorizations of Governmental Authorities and of third
parties to the consummation of the transactions contemplated hereby as set forth
with the designation of an asterisk on Schedule 1.01(a)(vi) or Schedule 3.03
hereto, which consents shall not provide for the acceleration of any liabilities
or any other detriment to the Purchaser or any of the Assets and shall be in
form and substance reasonably satisfactory to the Purchaser.
1.107 Hart-Scott-Rodino. All waiting periods applicable to the
transactions contemplated by this Agreement under the HSR Act shall have expired
or been terminated.
1.108 Instruments of Conveyance of the Assets, Power of Attorney,
Etc. (a) The Company shall have delivered to the Purchaser, at the Company's
sole expense (i) the documents described in Section 8.05 (including Intellectual
Property assignments in form for filing with the U.S. Patent and Trademark
Office, the U.S. Registrar of Copyrights and in appropriate foreign
jurisdictions where Intellectual Property is registered) and (ii) executed
releases and other documents necessary to comply with Section 7.06 (including
without limitation, all necessary UCC-3 Termination Statements and all releases
in respect of Liens on Intellectual Property in form for filing with the U.S.
Patent and Trademark Office, the Registrar of Copyrights and all appropriate
foreign authorities).
(b) The Company shall have delivered to the Purchaser the documents
(including powers of attorney and the Endorsements) required to be delivered by
Sections 7.04 and 7.09(a).
1.109 Regulation S-X and Consent of Price Waterhouse LLP. Norton and
its independent public accountants shall have received from the Company copies
of the Full Year Financial Statements, and the Current Financial Statements and
any later interim period financial statements, in each case together with
comparative financial statements for the corresponding period in the prior
fiscal year, all presented in conformity with the requirements of Regulation S-X
of the Commission under the Securities Act. In addition, Norton shall have
received a letter from Price Waterhouse LLP ("PW") stating that PW understands
and agrees that the Full Year Financial Statements and the related audit reports
of PW will be included in Exchange Act and Securities Act registration
statements, reports and other filings by Norton and that PW will, promptly
following the request of Norton, deliver to Norton written consents to such
inclusion and originally executed copies of such audit reports, all for
inclusion in such registration statements, reports and other filings.
10.10 Additional Closing Purchase Price. The Purchaser and the Company shall
have agreed on an amount to be payable to the Company on the Closing Date, which
amount shall constitute a portion of the
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Closing Purchase Price as specified in Section 2.01 and which amount shall equal
a mutually agreed upon amount of accrued and unpaid Income Taxes of the Company
as of the Closing Date.
10.11 Employment Agreements. Neither of the Management Stockholders
shall have terminated their respective Employment Agreement.
SECTION XI.
INDEMNIFICATION
1.111 Indemnification by the Stockholders. (a) From and after the Closing Date,
each Stockholder, severally on the basis of such Stockholder's Pro Rata
Percentage and not jointly, shall indemnify and hold harmless the Purchaser,
Norton and each of their respective directors (collectively, the "Purchaser
Indemnified Parties") from and against any and all Damages which are sustained
or incurred by any of the Purchaser Indemnified Parties in connection with or by
reason of (i) the breach by the Company or such Stockholder of any of its or his
respective covenants, agreements or obligations herein, or under any of the
other certificates, agreements or other documents entered into and delivered by
the Company or such Stockholder pursuant hereto (other than a breach of
representations and warranties herein or in other certificates, agreements or
documents entered into and pursuant hereto, all of which breaches are the
subject of clauses (ii), (iii) and (iv) below, and other than a breach of the
covenants and agreements of such Stockholder in Sections 7.02, 7.04 and 7.07
hereof, all of which breaches are the subject of subsection (c) below), (ii) the
breach of any of the representations or warranties made by such Stockholder in
any of the First Listed Sections (including in any Schedule hereto with respect
to any of the First Listed Sections) or in any certificate, agreement or other
document entered into and delivered pursuant hereto by the Company or such
Stockholder with respect to any of the representations and warranties set forth
in the First Listed Sections, (iii) the breach of any of the representations or
warranties made by such Stockholder in the Second Listed Section (including in
any Schedule hereto with respect to the Second Listed Section) or in any
certificate, agreement or other document entered into and delivered pursuant
hereto by the Company or such Stockholder with respect to any of the
representations and warranties set forth in the Second Listed Section (iv) the
breach of any of the representation or warranties made by such Stockholder in
the Third Listed Sections (including in any Schedule hereto with respect to the
Third Listed Sections) or in any certificate, agreement or any document entered
into and delivered pursuant hereto by the Company or such Stockholder with
respect to any of the representations and warranties set forth in the Third
Listed Sections, or (v) any and all Excluded Liabilities. Subject to the
additional limitations set forth in this Agreement (including, without
limitation, Section 11.06), it is understood and agreed that the obligation of
any Stockholder to make any indemnification payment pursuant to this Section
11.01 is limited to such Stockholder's Pro Rata Percentage of the Damages which
are sustained or incurred by any of the Purchaser Indemnified Parties in
connection with or by reason of the matters referred to in clauses (i) through
(v) of this Section 11.01.
(b) From and after the Closing Date, each of the Management
Stockholders, severally on the basis of such Management Stockholder's Pro Rata
Percentage and not jointly, shall indemnify and hold harmless each of the
Purchaser Indemnified Parties from and against any and all Damages which are
sustained or incurred by any of the Purchaser Indemnified Parties in connection
with or by reason of the breach of any of the representations and warranties
made by such Management Stockholder in the Non-Listed Sections (including in any
Schedule thereto) or in any certificate, agreement or other document entered
into and delivered pursuant hereto by the Company or such Management Stockholder
with respect to the representations and warranties made by the Management
Stockholders in the Non-Listed Sections.
(c) From and after the Closing Date, each of the Stockholders,
severally but not jointly, as to such Stockholder only, shall indemnify and hold
harmless each of the Purchaser Indemnified Parties from and against any and all
Damages which are sustained or incurred by any of the Purchaser Indemnified
Parties in connection with or by reason of (i) the breach of any of the
representations and warranties made by such
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Stockholder in Section IV hereof (including in any Schedule thereto) or in any
certificate, agreement or other document entered into and delivered pursuant
hereto by such Stockholder with respect to such representations and warranties
or (ii) the breach of any of such Stockholder's covenants, agreements or
obligations under Sections 7.02, 7.04 or 7.07 hereof.
1.112 Indemnification by the Purchaser. From and after the Closing
Date, Norton and the Purchaser shall, jointly and severally, indemnify and hold
harmless the Company, each Stockholder and, if applicable, each of their
respective directors (collectively, the "Seller Indemnified Parties") from and
against any and all Damages sustained or incurred by any of the Seller
Indemnified Parties in connection with or by reason of (a) the breach by the
Purchaser or Norton of any of their respective covenants, agreements or
obligations hereof, or under any of the other certificates, agreements or other
documents delivered by the Purchaser or Norton in connection herewith, in any
case, other than a breach of representations and warranties herein or in other
certificates, agreements or documents delivered in connection herewith all of
which breaches are the subject of clause (b) below), (b) the breach of any of
the representations or warranties made by the Purchaser or Norton herein or in
any certificate, agreement or other document delivered pursuant hereto by the
Purchaser or Norton or (c) any and all Assumed Liabilities.
1.113 Procedure for Indemnification. (a) In the event that any
Seller Indemnified Party, on the one hand, or any Purchaser Indemnified Party,
on the other hand, shall sustain or incur any Damages in respect of which
indemnity may be sought by such party pursuant to this Section XI or Section XII
hereof (each, an "Indemnification Matter"), the party indemnified hereunder (the
"Indemnitee") shall notify the parties providing indemnification (collectively,
the "Indemnitor") by sending written notice to the Indemnitor stating a
reasonable detail the basis for the Indemnification Matter (each, an "Indemnity
Notice"). In the case of an Indemnification Matter involving a third party
claim, which, if successful, could result in any liability under this Section XI
or Section XII hereof, an Indemnity Notice shall be given as soon as practicable
following the discovery by an Indemnitee of the filing or assertion of any claim
against the Indemnitee stating the nature and basis of such claim; provided,
however, that any delay or failure to notify any Indemnitor of any claim shall
not relieve it from any liability except to the extent that the defense of such
action is materially prejudiced or materially adversely affected by such delay
or failure to notify.
(b) In the case of third party claims, the Indemnitor shall have the
right (i) to conduct any proceedings or negotiations in connection therewith and
necessary or appropriate to defend the Indemnitee, (ii) to take all other
reasonable steps or proceedings to settle or defend any such claims, provided
that the Indemnitor shall not settle any such claim which is solely for money
damages without the prior written consent of the Indemnitee, which consent shall
not be unreasonably withheld or delayed, and shall not settle any other such
third party claim without the prior written consent of the Indemnitee (including
without limitation, if such claim seeks or such settlement imposes equitable
remedies or injunctive relief on the Indemnitee), and (iii) to employ counsel
designated by the Indemnitor (which counsel shall not be an employee of the
Indemnitor or any affiliate thereof) and reasonably satisfactory to the
Indemnitee to contest any such claim or liability in the name of the Indemnitee
or otherwise. The parties hereto agree that the respective counsel to the
Financial Stockholders, the Management Stockholders and the Other Stockholders,
and the Purchaser and Norton are satisfactory for purposes of clause (iii) of
the preceding sentence. The Indemnitor shall, within 20 days of receipt of an
Indemnity Notice of such claim (the "Indemnity Notice Period"), give written
notice to the Indemnitee of its intention to assume the defense of such claim.
If defendants in any action include any Indemnitee and any Indemnitor and any
Indemnitee shall have been advised by its counsel that there may be legal
defenses available to such Indemnitee which are different from or in addition to
those available to any Indemnitor, or if a conflict of interest exists between
any Indemnitee and any Indemnitor, then in either case, the Indemnitee shall
have the right to employ its own counsel in such action, and, in such event (or
in the event that the Indemnitor does not timely assume the defense within the
Indemnity Notice Period as provided in the immediately succeeding sentence), the
reasonable fees and expenses of the Indemnitee's counsel shall be borne by the
Indemnitor and shall be paid by the Indemnitor from time to time within 20 days
of receipt of appropriate invoices therefor. If the Indemnitor does not deliver
to the Indemnitee within the Indemnity Notice Period written notice that the
Indemnitor shall assume the defense of any such claim or litigation resulting
therefrom pursuant to and in accordance with the provisions of this Section XI,
the Indemnitee
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may defend against any such claim or litigation in such manner as it may deem
appropriate and the Indemnitee may settle such claim or litigation on such terms
as it may deem appropriate, all at the expense of the Indemnitor. In the event
that the Indemnitor does timely assume the defense as provided above, the
Indemnitee shall have the right to fully participate in such defense (including
without limitation, with counsel of its choice), at its sole expense (except as
otherwise provided herein), and the Indemnitor shall reasonably cooperate with
the Indemnitee in connection with such participation, and in all cases the
Indemnitor shall keep the Indemnitee fully informed as to all matters concerning
each third party claim and shall promptly notify the Indemnitee in writing of
any and all significant developments relating thereto. Subject to the other
provisions of this Agreement (including without limitation, Section 11.06),
within five (5) business days after the occurrence of a final, non-appealable
order or other final determination with respect to each third party claim by any
court, panel of arbitrator(s) or Governmental Authority having jurisdiction
thereof, the Indemnitor shall pay the Indemnitee the amount of Damages sustained
or incurred by the Indemnitee which have not theretofore been paid to the
Indemnitee as provided above.
(c) Subject to the other provisions of this Agreement (including
without limitation, Section 11.06), in the event that an Indemnification Matter
does not involve a third party claim, the Indemnitor shall within 30 days after
the date of an Indemnity Notice pay to the Indemnitee the amount of Damages
payable pursuant to Section 11.01 hereof and which are at the time sustained or
incurred by the Indemnitee and shall thereafter pay any other Damages payable
pursuant to Section 11.01 hereof and related to the same Indemnity Notice on
demand.
1.114 Subrogation. Neither the Company nor any of the Non-Management
Stockholders shall assert any rights of any Purchaser Indemnified Party(s) to
which any of them have been subrogated against any customer, supplier or
purchasing agent of the Company (or the Purchaser) with respect to any Damages
for which the Purchaser Indemnified Party(s) has been indemnified by the Company
or any of the Stockholders hereunder without the prior written consent of both
Management Stockholders. Without limiting the other provisions of this Section
XI, no Purchaser Indemnified Party shall be required to make any claim against
any other Person or to take any other action in order to pursue any claim
against the Company or any of the Stockholders.
1.115 Validity. The indemnification agreements provided for in this
Section XI, Section XII and Section 13.05 shall apply notwithstanding any
investigation made at any time by or on behalf of any party hereto and
notwithstanding the knowledge of any of the Purchaser Indemnified Parties other
than the actual knowledge on the date hereof of Peter Boneparth and Amanda J.
Bokman.
1.116 Limits on Indemnifications. (a) Subject to the terms hereof,
the aggregate liability of each Stockholder on any date is, and from time to
time shall be, limited as follows:
(i) for Damages under Section 11.01(a)(iii) the product of (A)
$10,000,000 and (B) such Stockholder's Pro Rata Percentage; and
(ii) for Damages under Section 11.01(a)(iv) hereof, or Section
11.01(c) hereof (but, in the case of Section 11.01(c), only in respect of the
representations and warranties set forth in Section 4.02(iv) hereof), the
product of (A) $4,000,000 and (B) such Stockholder's Pro Rata Percentage.
Notwithstanding anything to the contrary contained herein,
(1) no Non-Management Stockholder's aggregate liability for Damages
on any date under Sections 11.01(a)(i) (but other than in respect of the
covenant set forth in Section 7.05 hereof, as to which the provisions of this
clause (1) shall not be applicable), 11.01(a)(ii), (a)(iii) and (a)(iv) shall
exceed the product of (A) the Purchase Price and (B) such Non-Management
Stockholder's Pro Rata Percentage;
(2) no Management Stockholder's aggregate liability for Damages on
any date under Sections 11.01(a)(i) (but other than in respect of the covenant
set forth in Section 7.05 hereof, as to which the provisions of this clause (2)
shall not be applicable), 11.01(a)(ii), (a)(iii), (a)(iv) and 11.01(b) shall
exceed the product of (A) $480,000 and (B) such Management Stockholder's Pro
Rata Percentage; and
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(3) if an Earn Out Payment is payable under Section 2.02 (without
taking into account any set off under Section 11.07), to the extent that the
recovery of any Damages prior to the Earn Out Payment Date has been limited by
reason of the fact that the Earn Out Payment has not been included in the amount
of the Purchase Price for purposes of clause (A) of paragraph (1) immediately
above, the amount of any Damages not so recovered shall become recoverable from
the applicable Stockholder(s) (including pursuant to Section 11.07 hereof) on
and after the Earn Out Payment Date (subject to Section 11.06(e)), but only to
the extent that such Damages would have been recoverable had the Earn Out
Payment been included in the amount of the Purchase Price for purposes of clause
(A) of paragraph (i) immediately above from and after the Closing Date.
(b) Subject to the terms hereof, the aggregate liability of
the Purchaser and Norton for Damages under Sections 11.02 (a) and (b) is, and
shall be, limited to the Purchase Price.
(c) Subject to the final sentence of this Section 11.06(c), no
Purchaser Indemnified Party and no Seller Indemnified Party shall be entitled to
indemnification pursuant to Sections 11.01(a)(ii), 11.01(a)(iii), 11.01(a)(iv),
11.01(b) or 11.01(c) hereof (other than with respect to a breach of any
representation and warranty contained in Sections 3.11(a), 3.12, 3,29, 4.01(iv)
or 4.02(vi) hereof with respect to which the limitation in this Section 11.06(c)
shall not apply) or Section 11.02(b), respectively, hereof unless and until the
aggregate amount of all Damages sustained or incurred by all Purchaser
Indemnified Parties and all Seller Indemnified Parties, as the case may be, to
which the indemnity set forth in Sections 11.01(a)(ii), 11.01(a)(iii),
11.01(a)(iv), 11.01(b) or 11.01(c) hereof, on the one hand, or Section 11.02(b),
on the other hand, relates exceeds an aggregate amount (the "Deductible Amount")
equal to $250,000. Subject to Sections 11.06(a) and 11.06(b) above, if such
Damages exceed the Deductible Amount, then the Purchaser's and Norton's
liability for indemnification under Section 11.02(b) and the Stockholders'
liability for indemnification under Sections 11.01(a)(ii), 11.01(a)(iii),
11.01(a)(iv), 11.01(b) or 11.01(c) hereof (other than as aforesaid), as the case
may be, shall be limited to the amount of such Damages sustained or incurred
which exceeds the Deductible Amount.
(d) Subject to the final sentence of this Section 11.06(d), no
Purchaser Indemnified Party shall be entitled to indemnification pursuant to
Section 11.01(a)(v) hereof (other than with respect to Damages in respect of
Income Taxes and the New Jersey Audit with respect to which this Section
11.01(d) shall not apply) unless and until the aggregate amount of all Damages
sustained or incurred by all Purchaser Indemnified Parties to which the
indemnity set forth in Section 11.01(a)(v) hereof relates (other than with
respect to Damages in respect of Income Taxes and the New Jersey Audit with
respect to which this Section 11.01(d) shall not apply) exceeds an aggregate
amount (the "Basket Amount") equal to $100,000. Subject to Section 11.06(a)
above, if such Damages exceed the Basket Amount, then the Stockholders'
liability for indemnification under Section 11.01(a)(v) hereof shall be the full
amount of such Damages sustained or incurred notwithstanding such Basket Amount.
(e) The representations and warranties contained in or made
pursuant to this Agreement shall survive until the close of business on January
31, 1999, provided that (i) the representations and warranties contained in
Sections 3.29 and 4.01(iv) hereof shall survive indefinitely, (ii) the
representations and warranties contained in Sections 3.12 and 3.17 hereof shall
survive until the date of expiration of the applicable statute of limitations
(and all extensions thereof) with respect thereto, (iii) the representations and
warranties contained in Section 3.11(a) hereof shall survive for two (2) years
after the Closing Date and (iv) the representations and warranties contained in
Sections 3.13(b) (as such Section relates to Permits required under
Environmental Laws), 3.13(c), 3.26 and 4.02(iv) (as such Sections relates to
Environmental Claims) hereof shall survive for three (3) years after the Closing
Date, and provided further that if written notice is properly given under this
Section XI with respect to any alleged breach of a representation or warranty to
which a party or other indemnified Person is entitled to be indemnified
hereunder prior to the applicable expiration date, such representation or
warranty shall continue indefinitely until the applicable claim is finally
resolved, including by giving effect to Section 11.06(a)(3) above. The covenants
and agreements of the parties hereto set forth herein shall survive
indefinitely, except (i) the provisions of Sections 6.04, 7.06 and 8.05 shall
survive for two (2) years after the Closing Date and (ii) the provisions of
Sections 6.01, 6.02, 6.03, 6.05, 6.06 and 7.01 which shall not survive the
Closing.
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(f) The amount of any Damages for which indemnification is
provided under this Section XI shall be net of any amounts recovered by the
Indemnitee under insurance policies with respect to such Damages. The Indemnitee
agrees to make claims under applicable insurance policies (or the Endorsements,
as the case may be) in respect of Damages which are otherwise covered by such
insurance policies (or Endorsements) and to use its reasonable efforts to
prosecute such claims; provided, however, that the foregoing shall not restrict
the right of the Indemnitee to take any and all actions it deems necessary or
desirable in order to preserve its indemnification rights against any Indemnitor
under this Section XI.
1.117 Set-Off. Subject to the other provisions of this Agreement
(including without limitation, Section 11.06), it is understood and agreed by
the Company and each of the Stockholders that the Purchaser and Norton may (but
shall not be required to, unless and to the extent that an Earn Out Payment is
payable hereunder and on the Earn Out Payment Date Damages shall be the subject
of an unsatisfied judgment which is not appealable against the Company or any
Stockholder or a written agreement between the Company or any Stockholder, on
the one hand, and the Purchaser and Norton, on the other hand, as to the amount
of and their liability for Damages theretofore claimed by a Purchaser
Indemnified Party, and without limiting or affecting any other right or remedy
which it may have) satisfy any claims made against the Company or any of the
Stockholders for Damages under this Section XI, Section XII or Section 13.05
below by offsetting amounts owed to any of the Purchaser Indemnified Parties as
Damages pursuant to this Section XI, Section XII or Section 13.05 against any
Earn Out Payment due under Section 2.02 hereof. Subject to the other provisions
of this Agreement (including without limitation, Section 11.06), it is
understood and agreed that nothing contained in this Section 11.07 shall in any
way relieve any of the parties hereto of their indemnification obligations, or
otherwise limit their indemnification obligations pursuant to this Section XI,
Section XII or Section 13.05 below.
1.118 Exclusive Remedy. Notwithstanding anything to the contrary set
forth herein, in the event that the Closing does not occur none of the parties
hereto shall have any liability, whatsoever hereunder, whether based on
misrepresentation or breach of any representation, warranty, covenant or
agreement or otherwise except as set forth in Section 8.03. Except for Damages
for fraud, from and after the Closing Date, subject to Section 13.04 hereof,
each party hereto acknowledges and agrees that such party's sole remedy with
respect to a claim for Damages (other than a dispute arising under Section 2.02
hereof, which shall be resolved in the manner and with the effect set forth in
Section 2.02 hereof) shall be in accordance with, and limited by (to the extent
of any limitations expressly set forth in this Section XI), the provisions set
forth in this Section XI, Section XII and Section 13.05. Notwithstanding the
foregoing, nothing herein shall limit the rights and remedies of any party
hereto for matters involving fraudulent conduct.
SECTION XII.
BROKERS AND FINDERS
1.121 The Company's and the Stockholders' Obligations. The
Stockholders shall be solely responsible for payment of all fees and expenses of
Financo, Inc. arising in connection with the transactions contemplated hereby.
Neither the Company nor any of the Purchaser Indemnified Parties shall have any
obligation to pay any financial advisory, finder's fee or other compensation to
any Person claiming by, through or under the Company, any Stockholder or any
affiliate thereof in connection with this Agreement and the transactions
contemplated hereby (including without limitation, Financo, Inc.), and the
Company, and each of the Stockholders severally on the basis of such
Stockholder's Pro Rata Percentage, hereby agree to indemnify and save the
Purchaser Indemnified Parties harmless from any and all Damages sustained or
incurred by any of the Purchaser Indemnified Parties by reason of any such claim
for or payment of any such fee or other compensation.
1.122 The Purchaser's and Norton's Obligations. Neither of the
Company nor any of the Stockholders shall have any obligation to pay any fee or
other compensation to any Person claiming by, through or under the Purchaser or
Norton or any affiliate thereof in connection with this Agreement and the
transactions contemplated hereby, and the Purchaser and Norton, jointly and
severally, hereby agree to
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indemnify and save the Company and each Stockholder harmless from any and all
Damages sustained or incurred by the Company or such Stockholder by reason of
any such claim for or payment of any such fee or other compensation.
SECTION XIII.
MISCELLANEOUS
1.131 Notices. All notices, requests or instructions hereunder shall
be in writing and delivered personally, sent by telecopy, sent by registered or
certified mail, postage prepaid, or sent by Federal Express or any other
nationally recognized overnight courier service, as follows:
(a) If to the Company, to any Stockholder or to the Stockholder
Representative prior to the Closing:
1407 Broadway
Suite 405
New York, New York 10018
Attention: Chairman
Telecopy No.: (212) 921-8417
with a copies to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: Robert M. Hirsh, Esq.
Telecopy No.: (212) 757-3990
and
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Attention: W. Preston Tollinger, Esq.
Telecopy No.: (212) 309-6273
(b) If to the Company, to any Stockholder or to the Stockholder
Representative after the Closing: to Paul, Weiss, Rifkind, Wharton &
Garrison as set forth in clause (a) above
(c) If to any Management Stockholder after the Closing: to Morgan, Lewis
& Bockius LLP as set forth in clause (a) above
(d) If to the Purchaser or Norton:
463 Seventh Avenue
New York, New York 10018
Attention: President
Telecopy No.: (212) 563-2766
with a copy to:
Haythe & Curley
237 Park Avenue
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New York, New York 10017
Attention: Bradley P. Cost, Esq.
Telecopy No.: (212) 682-0200
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, requests or instructions
given in accordance herewith shall be deemed received on the date of delivery,
if hand delivered, telecopied, sent by Federal Express or any other recognized
overnight courier service, or mailed by certified mail, return receipt
requested.
1.132 Entire Agreement and Amendment. This Agreement (including the
Exhibits and Schedules hereto) and the other certificates, agreements and
documents referred to herein contain the entire agreement among the parties
hereto with respect to the transactions contemplated hereby and supersedes all
prior agreements, understandings, negotiations and discussions, whether written
or oral, of the parties, including, without limitation, the letter dated July 3,
1997 from Norton to Financo, Inc. and the Confidentiality Agreement dated
February 22, 1997 between the Company and Norton, and no amendment or
modification hereof shall be effective unless in writing and signed by the party
against which it is sought to be enforced.
1.133 Expenses. Except as otherwise provided herein, including in
Section XII hereof, each of the parties hereto shall bear such party's own costs
and expenses in connection with this Agreement and the transactions contemplated
hereby whether or not the Closing occurs; provided that if the Closing shall
occur (i) the Purchaser shall be responsible for any real estate transfer and
other transfer, sales, documentary, stamp or similar taxes payable by the
Company by reason of the sale of the Assets to the Purchaser in accordance with
the terms hereof, (ii) the Stockholders severally on the basis of their
respective Pro Rata Percentages shall be responsible for (and shall pay or,
prior to the Closing, reimburse the Company for all such costs and expenses paid
by the Company prior to the Closing) any and all costs and expenses of the
Company in connection with this Agreement and the transactions contemplated
hereby, whether incurred prior to, at or after the Closing and (iii) the
Purchaser shall be responsible for one-half and the Stockholders severally on
the basis of their respective Pro Rata Percentages shall be responsible for one
half of any legal costs and expenses charged to the Company by The Chase
Manhattan Bank, N.A. in connection with the matters contemplated by Section 7.14
hereof.
1.134 Injunctive Relief. Notwithstanding the provisions of Section
13.05 hereof, in the event of a breach or threatened breach by the Company, any
Stockholder, the Purchaser or Norton of any of their respective obligations
hereunder, including without limitation, their respective obligations to close
the transactions contemplated hereby, the Company, each Stockholder, the
Purchaser and Norton hereby consent and agree that the applicable Person(s)
shall be entitled to an injunction or similar equitable relief restraining the
Company, such Stockholder, the Purchaser or Norton from committing or continuing
any such breach or threatened breach or granting specific performance of any act
required to be performed by the Company, such Stockholder, Purchaser or Norton
under any such provision, 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 for the Southern District of New York for any
proceedings under this Section 13.04, and the Company, each Stockholder, the
Purchaser and Norton further agree that the service of process or of any other
papers upon them or any of them by registered mail, return receipt requested, at
their respective addresses set forth herein shall be deemed good, proper and
effective service upon them. The parties hereto agree that the availability of
arbitration in Section 13.05 hereof shall not be used by any party as grounds
for the dismissal of any injunctive actions or other equitable relief instituted
by the Purchaser pursuant to this Section 13.04. Nothing in this Section 13.04
shall be construed as prohibiting any party hereto from pursuing any other
remedies which it may have under Section XI hereof.
1.135 Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or any breach hereof, shall, except as provided in
Section 2.02(b) and Section 13.04 hereof, be settled by arbitration in New York,
New York by a panel of three arbitrators in accordance with the rules of the
American Arbitration Association then in effect. Judgment upon the award
rendered by the foregoing arbitrators and judgment upon the Determination by the
Independent Auditor may be entered in any court
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having jurisdiction thereof, and the parties hereto hereby consent to the
jurisdiction of the New York courts for this purpose.
1.136 Invalidity. Should any provision of this Agreement be held by
a court or arbitration panel 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 or arbitration panel 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 modified by the court or arbitration panel 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.
1.137 Successors and Assigns. Subject to Section 13.10 hereof, this
Agreement shall be binding upon and inure to the benefit of the successors and
permitted assigns of the Company, the Stockholders, the Purchaser and Norton,
respectively.
1.138 Governing Law. The validity of this Agreement and of any of
its terms or provisions, as well as the rights and duties of the parties under
this Agreement, shall be construed pursuant to and in accordance with the laws
of the State of New York, without regard to conflict of laws principles.
1.139 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.
13.10 Assignment. This Agreement shall not be assignable by the
Purchaser or Norton, except pursuant to a writing executed by all of the parties
hereto, and except that the Purchaser's rights or interests under this Agreement
(but not its obligations) may be assigned (i) to any member of the Purchaser
Group, (ii) in connection with a sale of all or substantially all of the assets
of the Purchaser or Norton or any of their respective direct or indirect
consolidated subsidiaries or (iii) as collateral security to any financial
institution which extends credit to any member of the Purchaser Group; provided
that in the case of each such assignment, the assignee shall accept such rights
or interests subject to the terms of this Agreement. This Agreement shall not be
assignable by the Company or any of the Stockholders except that (i) the Company
may assign its rights under this Agreement to one or more of the Stockholders or
to the Stockholder Representative; provided that as a condition to any such
assignment, including without limitation, any assignment as a result of a
dissolution of the Company, the Company, Norton and each of the Stockholders
hereby agree that if Norton elects to pay a portion of the Earn Out Payment in
shares of Norton Common Stock pursuant to Section 2.02, (a) Norton shall have
the right to require that up to and not more than 50% of the portion of the Earn
Out Payment payable to each of the Management Stockholders and to Sidney
Goldstein be paid in shares of Norton Common Stock and (b) Norton shall not have
the right to require that any of the Earn Out Payment be payable other than in
cash to each of Roberta Ciacci, Elizabeth Moser, Kenny Tse or William Rossler,
so long as the aggregate Earn Out Payment shall equal the amount determined in
accordance with Section 2.02 and (ii) any Management Stockholder or other
Stockholder may assign his right to the Earn Out Payment, if any, to the spouse
or any lineal descendant (including by adoption and stepchildren) of such
person, or any trust of which such person is the trustee and which is
established for the benefit of any of the foregoing persons or any partnership,
limited liability company or other entity all of the general partner(s), limited
partner(s) or member(s) of which are one or more of the foregoing persons. Any
attempted assignment in violation of this Section 13.10 shall be null and void.
13.11 Knowledge, Etc.. Whenever used in this Agreement, the words
"to the knowledge of any Management Stockholder" or "to the knowledge of such
Stockholder" (when referring to a Management Stockholder) or similar words shall
mean the actual knowledge or awareness of such Management Stockholder, together
with the knowledge or awareness such Management Stockholder would
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obtain after consultation by such Management Stockholder with the other
Management Stockholder and with Roberta Ciacci, Elizabeth Moser and Samuel
Glaser, including a review of the representations and warranties contained in
Section III and IV hereof (and related Schedules) with each such individual.
Whenever used in this Agreement, the words "to the knowledge of any
Non-Management Stockholder", "to the knowledge of such Stockholder" (when
referring to a Non-Management Stockholder) or similar words shall mean the
actual knowledge or awareness of such Non-Management Stockholder, together with
the knowledge or awareness such Non-Management Stockholder would obtain after
consultation by such Non-Management Stockholder with Bregman and Zwilling,
including a review of the representations and warranties contained in Sections
III and IV hereof (and related Schedules) with Bregman and Zwilling.
13.12 Independence of Representations and Warranties, Schedules,
Etc. All representations and warranties hereunder shall be given independent
effect so that if a particular representation or warranty proves to be incorrect
or is breached, the fact that another representation or warranty concerning the
same or similar subject matter is correct or is not breached will not affect the
incorrectness of or a breach of a representation and warranty hereunder. The
Exhibits and Schedules attached hereto are hereby made part of this Agreement in
all respects. Section references in the Schedules refer to the specific Section
of the Agreement with respect to which the Company and the Stockholders are
making a disclosure. A disclosures under any Schedule hereto shall be deemed to
be a disclosure under all of the Schedules hereto whether or not specifically
referenced in any other Schedule; provided that any disclosure pursuant to
Section 3.08(a), 3.17, 3.22 or 3.26 shall be specifically referenced on Schedule
3.08, 3.22 or 3.26, respectively. The fact that a particular matter is reflected
in the Schedules hereto shall not have any bearing on the issue of whether such
matter is material for the purposes of this Agreement.
13.13 Interpretation. The parties hereto agree that this Agreement
is the product of negotiations between sophisticated parties and individuals,
all of whom were represented by counsel, and each of whom had an opportunity to
participate in, and did participate in, the drafting of each provision hereof.
Accordingly, ambiguities in this Agreement, if any, shall not be construed
strictly or in favor of or against any party hereto but rather shall be given a
fair and reasonable construction without regard to the rule of contra
proferentem.
13.14 Action by the Stockholders. (a) Any action to be taken by the
Stockholders or the Company, notices to be given by the Stockholders or the
Company or any matters requiring the Stockholders or the Company to act or
refrain from acting hereunder may be undertaken with the concurrence of the
Stockholder named in the next sentence (such Stockholder in its capacity as
representative of the Stockholders and of the Company hereinafter, the
"Stockholder Representative") and, for all purposes, it is expressly understood
and agreed that any action so taken, notice so given or other matter acted upon
or refrained from shall be deemed to constitute the action of all of the
Stockholders on a joint and several basis, on the one hand, and the Company, on
the other hand, and shall be binding on all of the Stockholders and the Company.
It is understood and agreed that Michael E. Nugent shall act as the Stockholder
Representative. In addition, subject to subsection (c) below, the Purchaser and
Norton shall be entitled (i) conclusively to rely upon the direction, notice,
request or other communication received from the Stockholder Representative
without the need to confirm such or otherwise communicate with any other
Stockholders or the Company, and (ii) to give any direction, notice, request or
other communication to any of the Stockholders or the Company without the need
to confirm or otherwise communicate with any other Stockholders or the Company,
and any such direction, notice, request or other communication (whether from or
to any of the Stockholder Representative) shall be conclusive, binding and
enforceable against all Stockholders and the Company.
(b) The Stockholder Representative shall not be liable to the
Stockholders or any third party for any action taken by any of the Stockholder
Representative except with regard to actions involving (i) a breach of such
Stockholder Representative's duty of loyalty to the Stockholders and the
Company, (ii) any acts by such Stockholder Representative not in good faith or
involving a known violation of law or (iii) transactions from which such
Stockholder Representative derived an improper personal benefit.
(c) The Purchaser and Norton shall be entitled to rely on any
and all communications from the Stockholder Representative as being authorized
by all of the Stockholders and the Company as provided hereunder with respect to
the subject matter of this Agreement and the Stockholders, jointly and
severally, on the one hand, and the Company, on the other hand, agree to hold
the
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Purchaser and Norton harmless from any and all Damages sustained or incurred
by any of the Purchaser Indemnified Parties by reason of any claim that such
actions were not properly authorized. The Purchaser and Norton shall be entitled
to send all communications with respect to the subject matter of this Agreement
to the Stockholder Representative at the address indicated herein and to no
other parties.
13.15 LIMITATION OF REPRESENTATIONS AND WARRANTIES. OTHER THAN THOSE
REPRESENTATIONS AND WARRANTIES EXPRESSLY MADE BY HEREIN OR IN ANY OTHER
CERTIFICATES, AGREEMENTS OR OTHER DOCUMENTS ENTERED INTO AND DELIVERED PURSUANT
HERETO, NO PARTY HERETO MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR
IMPLIED, INCLUDING WITHOUT LIMITATION, REPRESENTATIONS OR WARRANTIES OF
MERCHANTABILITY OF FITNESS.
13.16 Several Obligations. With respect to any representation,
warranty, agreement, covenant or undertaking in this Agreement made by one or
more Stockholders, any Stockholder making any such representation, warranty,
agreement, covenant or undertaking is doing so only as to itself or himself and
it or he shall have no liability hereunder in the event of a breach thereof by
any other Stockholder.
13.17 No Third Party Beneficiaries. Except as specifically set forth
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon any Person other than the parties hereto and their successors or
permitted assigns any rights or remedies under or by reason of this Agreement.
SECTION XIV.
DEFINITIONS
1.141 Certain Definitions. The following terms when used herein
shall have the meanings assigned to them below (certain other terms are defined
elsewhere herein):
"Assets" shall have the meaning set forth in Section 1.01(a) hereof.
"Assumed Liabilities" shall have the meaning set forth in Section
1.01(c) hereof.
"Average Market Value" shall mean, for any day, the last sale price
for the Norton Common Stock on the New York Stock Exchange or the American Stock
Exchange, as applicable, on which the Norton Common Stock is listed or admitted
to trading, or, if not so listed or admitted to trading on any such securities
exchange, the last sale price for the Norton Common Stock on the Nasdaq National
Market or the Nasdaq SmallCap Market (but only if at the time Norton would
otherwise qualify for listing on the Nasdaq National Market in accordance with
the listing requirements in effect on the date hereof) (any such securities
exchange, the Nasdaq National Market and, under the foregoing circumstances, the
Nasdaq SmallCap Market, each a "Securities Exchange"), in each such case,
averaged over a period of 30 consecutive business days prior to the day as of
which Average Market Value is being determined.
"Basket Amount" shall have the meaning set forth in Section 11.06(d)
hereof.
"Benefit Plans" shall have the meaning set forth in Section 3.17(a)
hereof.
"Best Efforts" or "best efforts" shall mean diligently, promptly and
in good faith taking all actions which are reasonable, necessary and appropriate
to accomplish the objective requiring the use of best efforts, but shall not
include any obligation (a) to make any payment, incur any costs, commit
available resources or forego the receipt of any payment, which in any case is
material in amount in light of the required objective, (b) to initiate any
lawsuit or other proceeding to achieve the required objective, or (c) to take
any action which is unlawful; provided, however, that neither of the Management
Stockholders nor Sidney Goldstein shall have in any case any obligation to make
any payment, incur any costs, commit available resources or forgo the receipt of
payment.
"Business" shall have the meaning set forth in the recitals hereof,
as modified in Section
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III.
"Chase Indebtedness" shall mean all Company Indebtedness arising
under that certain Credit Agreement dated as of December 31, 1991 by and among
Miss Erika Holding Corporation, Miss Erika, Inc., as borrower, The Chase
Manhattan Bank, N.A., as bank, National Westminster Bank, N.A. as bank, The Bank
of Tokyo Trust Company, as bank, ABN Anro Bank, N.V., as bank, and The Chase
Manhattan Bank, N.A., as agent, as amended, and all collateral documents
executed in connection thereof.
"Closing" shall have the meaning set forth in Section 8.01 hereof.
"Closing Date" shall have the meaning set forth in Section 8.01
hereof.
"Closing Purchase Price" shall have the meaning set forth in Section
2.01 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall have the meaning set forth in Section 2.04
hereof.
"Company" shall have the meaning set forth in the recitals hereof.
"Company Acquisition Proposal" shall have the meaning set forth in
Section 7.01 hereof.
"Company Indebtedness" shall mean all obligations and liabilities of
the Company for borrowed money, including without limitation, the Chase
Indebtedness, the Subordinated Debt and all other bank and other loans, notes
payable, capital lease obligations, guarantees of indebtedness of others,
obligations in respect of letters of credit, and all principal, interest, fees,
prepayment penalties or amounts due or owing with respect thereto, but excluding
endorsements of instruments in the ordinary course of business.
"Company Location" shall have the meaning set forth in Section 3.29
hereof.
"Contracts" or "Contract" shall have the meaning set forth in
Section 3.15(a) hereof.
"Current Balance Sheet" shall have the meaning set forth in Section
3.05 hereof.
"Current Balance Sheet Date" shall mean the date of the Current
Balance Sheet.
"Current Financial Statements" shall have the meaning set forth in
Section 3.05 hereof.
"Damages" shall mean any and all losses, claims, assessments,
demands, damages, liabilities, obligations, costs and expenses (including
without limitation, reasonable fees and disbursements of counsel sustained or
incurred by the Purchaser Indemnified Parties (or any of them) or the Seller
Indemnified Parties (or any of them), as the case may be, in any action,
dispute, claim or proceeding between any of the Purchaser Indemnified Parties,
on the one hand, and any of the Seller Indemnified Parties, on the other hand,
or involving a third-party claim against any of the Purchaser Indemnified
Parties or any of the Seller Indemnified Parties, as the case may be) and other
out-of-pocket costs and expenses incurred in connection with investigating,
preparing or defending any action, suit or proceeding, commenced or threatened,
or any claim whatsoever, in each case net of tax benefits actually realized.
"Debt Documents" shall mean all agreements, promissory notes,
security instruments and other documents to which the Company or any of the
Assets is bound and which evidence, govern or relate to Company Indebtedness.
"Deductible Amount" shall have the meaning set forth in Section
11.06(c) hereof.
"Determination" shall have the meaning set forth in Section 2.02(b)
hereof.
"Development Projects" shall have the meaning set forth in the
recitals to this Agreement.
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"Dispute Notice" shall have the meaning set forth in Section 2.02(b)
hereof.
"Disputed Matters" shall have the meaning set forth in Section
2.02(b) hereof.
"Earn Out Payment" shall mean an aggregate amount equal to the
amount, if any, by which (x) the product of (a) four (4) multiplied by (b)
either (i) if no Security Default shall have occurred and be continuing, the
1998/1999 EBITDA or (ii) on and after the occurrence and during the continuance
of a Security Default, EBITDA for the fiscal year ending October 31, 1998,
exceeds (y) $24,000,000.
"Earn Out Payment Date" shall mean either (x) if no Security Default
shall have occurred, the date on which the 2000 EBITDA Notice is delivered or
(y) the date on which a Security Default shall have occurred.
"Earn Out Shares" shall have the meaning set forth in Section
2.02(a) hereof.
"EBITDA" shall mean the aggregate amount of consolidated net income
or loss of the Purchaser and its subsidiaries for the applicable fiscal year
determined in accordance with GAAP (except as otherwise expressly stated below)
after deducting all amounts provided for in the Employment Agreements and, with
respect to all employees and other participants of the Purchaser and its
subsidiaries, pursuant to all benefits, profit sharing, bonus, incentive,
deferred compensation, health, medical, dental, life insurance or other welfare
or employee benefit plans or programs in which any employee or other participant
of the Purchaser or any of its subsidiaries participates, or otherwise covering
any employee or other participant of the Purchaser or any of its subsidiaries,
and before (A) the deduction of interest expenses and factoring expenses for
interest paid or accrued by the Purchaser and its subsidiaries with respect to
such year, (B) the deduction of taxes based upon income, howsoever computed or
denominated, paid or accrued by the Purchaser and its subsidiaries with respect
to such year, and (C) the deduction by the Purchaser and its subsidiaries of
depreciation and amortization for such year, with all items referred to in
subsections (A) through (C) in this definition determined in accordance with
GAAP (except as otherwise stated below). In determining EBITDA:
(a) The Purchaser's books and records will be maintained in accordance
with GAAP. EBITDA and its components will be derived from those
books and records in accordance with the adjustments set forth
below. GAAP will be applied on a consistent basis in the preparation
of balance sheets of the Purchaser and its subsidiaries as at
November l, 1997, October 31, 1998 and November 6, 1999 and in the
related calculation of EBITDA for the years ended October 31, 1998
and November 6, 1999.
(b) The calculation of EBITDA will be unaffected by GAAP first
applicable to the Purchaser after January 31, 1997.
(c) EBITDA shall without duplication:
(i) Exclude any and all acquisition costs and other costs related
to this Agreement, including, but not limited to, extra
accounting and auditing fees, legal fees and due diligence
costs.
(ii) Compute inventory cost using FIFO.
(iii) Exclude any and all debt costs (other than those relating to
anticipation or sales discounts, letter of credit availability
and commitment fees and letter of credit commissions),
including without limitation, interest expense, amortization
of capitalized debt costs, debt restructuring costs, debt
acquisition costs, commitment fees (other than letter of
credit commitment fees), reimbursement of attorney or due
diligence fees, availability fees (other than letter of credit
availability fees), prepayment fees, prepayment penalties and
any other debt related fees and penalties of any kind.
(iv) Exclude any hedging gains or losses.
(v) Exclude expense reimbursement and fees paid to members of the
Purchaser's
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Board of Directors.
(vi) Exclude the effects of extraordinary or unusual items as
defined in accordance with GAAP.
(vii) Exclude any foreign exchange gains or losses.
(viii) Exclude any and all expense allocations from Norton or any
Norton affiliate, other than as set forth in (d) below.
(ix) Exclude all factoring expenses of any kind.
(x) Exclude all management or other fees charged by Norton or any
Norton affiliate.
(xi) Exclude gains or losses from the sale of any fixed assets or
investments.
(d) If Norton or any affiliate charges the Purchaser for its ratable
share, based upon sales, number of employees or other appropriate
measure, of any expense for unaffiliated third party services (e.g.,
insurance expenses, legal and accounting expenses and payroll
services), EBITDA shall be calculated by taking into account such
ratable share, provided that (i) on or before October 1, 1997,
Norton shall provide to the Company information concerning estimated
rates of expense for unaffiliated third party services provided to
the Purchaser, and (ii) in the event that the Company determines in
good faith on or before November 1, 1997 by notice to Norton that,
based upon historical cost analysis, the Purchaser could have
arranged for such commensurate services with the Company's existing
service suppliers, as adjusted for any increase or decrease in
sales, number of employees or other appropriate circumstances, at
rates of expense that are lower than those obtainable by the
Purchaser, then in such event, such rates of expense shall be
utilized for the calculation of EBITDA on the basis of such Company
determined cost, adjusted annually for the foregoing increases or
decreases and as further adjusted for the change in the Consumer
Price Index for the applicable period.
(e) Neither the anticipated nor the actual Earn Out Payment will affect
the preparation of balance sheets of the Purchaser and its
subsidiaries as at November 1, 1997, October 31, 1998 and November
6, 1999 or the related calculation of EBITDA for the years ended
October 31, 1998 and November 6, 1999.
(f) Only sales returns of goods shipped prior to year end actually
received within 90 days after the end of the period will affect the
calculation of EBITDA for such period. No additional reserve for
returns will be recorded on the balance sheets of the Purchaser and
its subsidiaries as at November 1, 1997, October 31, 1998 or
November 6, 1999 for purposes of calculating the related EBITDA for
the years ended October 31, 1998 and November 6, 1999.
(g) Credits for overbillings on shipments preceding the end of a period
will be expensed for purposes of calculating the related EBITDA for
the years ended October 31, 1998 and November 6, 1999.
(h) The maximum balance of accounts receivable or other assets in
respect of chargebacks relating to overbillings for shipments after
the end of a period shall be $250,000 at the end of the fiscal years
ended October 31, 1998 and November 6, 1999. Any chargebacks
relating to overbillings in excess of such amount taken either prior
to the end of the period or in the 90 day period after a fiscal year
end will be fully expensed for purposes of calculating the related
EBITDA for the years ended October 31, 1998 and November 6, 1999.
(i) Trade discounts available to customers on shipments preceding the
end of a period shall be accrued in full on the balance sheets of
the Purchaser and its subsidiaries as at
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November 1, 1997, October 31, 1998 or November 6, 1999 for purposes
of calculating the related EBITDA for the years ended October 31,
1998 and November 6, 1999.
(j) A reserve for allowances shall be recorded in the amount of total
chargebacks taken by customers within 90 days after the end of the
period in payment of invoices for goods shipped prior to the end of
the period for purposes of calculating the related EBITDA for the
years ended October 31, 1998 and November 6, 1999. It shall be
understood that chargebacks disputed in good faith shall remain as
accounts receivable until such dispute is resolved.
(k) No sales reserves other than those described in paragraphs (f), (g),
(h), (i), (j) and (q) shall be recorded on the balance sheets of the
Purchaser and its subsidiaries as at November 1, 1997, October 31,
1998 or November 6, 1999 for purposes of calculating the related
EBITDA for the years ended October 31 1998 and November 6, 1999.
(l) Only total direct costs, which include f.o.b. origin merchandise
cost, ocean or air freight, duty, custom, tariffs, brokerage and
agent commission, shall be recorded as inventory on the balance
sheets of the Purchaser and its subsidiaries as at November 1, 1997,
October 31, 1998 or November 6, 1999 for purposes of calculating the
related EBITDA for the years ended October 31, 1998 and November 6,
1999. No other costs shall be capitalized into inventory on the
balance sheets of the Purchaser and its subsidiaries as at November
1, 1997, October 31, 1998 or November 6, 1999 for purposes of
calculating the related EBITDA for the years ended October 31, 1998
and November 6, 1999.
(m) A year end markdown equal to 20% of the adjusted perpetual inventory
cost of non-current goods valued as described in (l) above less
outstanding orders for such goods shall be included in the balance
sheets of the Purchaser and its subsidiaries as at November 1, 1997,
October 31, 1998 or November 6, 1999 for purposes of calculating the
related EBITDA for the years ended October 31, 1998 and November 6,
1999. Noncurrent goods at the end of any year are Fall and prior
goods. Non-current goods do not include goods which are or are
intended to be offered consistent with past practices at original
selling price in future collections.
(n) No inventory reserves other than those described in (m) above shall
be recorded on the balance sheets of the Purchaser and its
subsidiaries as at November 1, 1997, October 31, 1998 or November 6,
1999 for purposes of calculating the related EBITDA for the years
ended October 31, 1998 and November 6, 1999.
(o) The reserves for bad debts existing at the Closing Date will be
maintained through November 5, 1999 to cover the potential write-off
of non-collectable accounts receivable which exist at the Closing
Date in preparing the balance sheets of the Purchaser and its
subsidiaries as at November 1, 1997 or October 31, 1998 for purposes
of calculating the related EBITDA for the year ended October 31,
1998. Unless a Security Default shall have occurred and be
continuing, this reserve will be reduced through November 5, 1999
only by actual write-offs of accounts receivable which exist at the
Closing Date. This reserve will be reduced to zero (i) if a Security
Default shall not have occurred and be continuing, at November 6,
1999 for purposes of calculating the related EBITDA for the year
ending November 6, 1999 and (ii) if a Security Default shall have
occurred and be continuing, at October 31, 1998 for purposes of
calculating the related EBITDA for the year ending October 31, 1998.
No write off of an account receivable which exists at the Closing
Date will affect the calculation of EBITDA unless the sum of all
such write-offs exceeds the amount of the accounts receivable
reserve at the Closing Date.
(p) A reserve for bad debts equal to 100% of accounts receivable at year
end arising after the Closing Date and not factored, which are 90
days past due (excluding accounts which are current on a payment
plan) subject to any additional reserve amount required by the
application of (r) below, will be maintained in preparing the
balance sheets of the Purchaser and its subsidiaries as at November
1, 1997, October 31, 1998 or November 6, 1999 for purposes of
calculating the related EBITDA for the years ended October 31,
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1998 and November 6, 1999.
(q) No reserves for accounts receivable other than those described in
(k), (o) and (p) above shall be recorded on the balance sheets of
the Purchaser and its subsidiaries as at November 1, 1997, October
31, 1998 or November 6, 1999 for purposes of calculating the related
EBITDA for the years ended October 31, 1998 and November 6, 1999.
(r) No account shall be written off unless and until all collection
efforts have ceased (in accordance with the Company's past
practices), unless write off of all or a portion of such account is
warranted as a result of any bankruptcy filing or other insolvency
proceeding by such account, without duplication, for purposes of
preparing the balance sheets of the Purchaser and its subsidiaries
as of November 1, 1997, October 31, 1998 and November 6, 1999 and
calculating EBITDA for the years ended October 31, 1998 and November
6, 1999.
(s) No expense reserves, accruals for expense contingencies or other
general expense accruals, other than (i) normal expense accruals for
services or goods provided in the period, (ii) accruals in
accordance with GAAP under FASB 5, or (iii) those described in (f),
(g), (h), (i), (j), (m), (o) and (p) above shall be recorded on the
balance sheets of the Purchaser and its subsidiaries as at November
1, 1997, October 31, 1998 or November 6, 1999 for purposes of
calculating the related EBITDA for the years ended October 31, 1998
and November 6, 1999.
(t) No accruals for fees for professional services to be rendered after
the end of a period shall be recorded on the balance sheets of the
Purchaser and its subsidiaries as at November 1, 1997, October 31,
1998 or November 6, 1999 if there is already one full year of such
expense included within each period, for purposes of calculating the
related EBITDA for the years ended October 31, 1998 and November 6,
1999.
(u) No accruals for travel and entertainment expenses to be incurred
after the end of a period shall be recorded on the balance sheets of
the Purchaser and its subsidiaries as at November 1, 1997, October
31, 1998 or November 6, 1999 for purposes of calculating the related
EBITDA for the years ended October 31, 1998 and November 6, 1999.
(v) In computing pension and OPEB liabilities, the same assumptions,
including assumptions regarding interest rates, discount rates,
mortality and retention shall be used in preparing the balance
sheets of the Purchaser and its subsidiaries as at November 1, 1997,
October 31, 1998 and November 6, 1999 for purposes of calculating
the related EBITDA for the years ended October 31, 1998 and November
6, 1999.
(w) No accruals for Christmas bonuses to be paid after the end of a
period shall be recorded on the balance sheets of the Purchaser and
its subsidiaries as at November 1, 1997, October 31, 1998 or
November 6, 1999 if there is already one full year of such expense
included within each period, if applicable to such period, for
purposes of calculating the related EBITDA for the years ended
October 31, 1999 and November 6, 1999.
(x) If (A) the Management Stockholders shall have requested that a
documentary letter of credit be issued by the Purchaser's primary
lender for the payment of amounts which would become due pursuant to
a bona fide proposed purchase order (which purchase order is
included in the Purchaser's business plan, as approved by the Board
of Directors of Norton) for Inventory from one of the Purchaser's
suppliers, (B) at the time such letter of credit is so requested
both of the Management Stockholders certify to Norton in writing
that they in good faith believe that such Inventory would be
saleable in the ordinary course of business at substantially the
same gross profit margin as the other Inventory being ordered during
that Spring/Transition or Fall/Holiday Season (as used in the books
and records of the Purchaser, each, a "Season"), (C) the issuance of
such letter of credit is denied by such primary lender and (D) such
lender confirms in writing that such letter of credit would be
issuable but for the failure of Norton and its subsidiaries
50
<PAGE> 56
(other than the Purchaser and its subsidiaries) to meet the
requirements for the issuance thereof under applicable credit
agreements, then there shall be added to EBITDA for that fiscal year
an amount equal to the product of (i) the total cost of such
Inventory which would have been incurred had such letter of credit
been issued, (ii) a fraction (1) the numerator of which shall be the
total cost of goods sold related to Inventory purchased for such
Season, calculated in accordance with paragraph (l) above, and (2)
the denominator of which shall be the total cost of Inventory
purchased for such Season, calculated in accordance with paragraph
(l) above, and (iii) a fraction (1) the numerator of which shall be
the EBITDA for that fiscal year, without taking into account this
paragraph (x), and (2) the denominator of which is the total net
sales during such fiscal year, without taking into account this
paragraph (x), calculated in accordance with paragraph (l) above.
"Employee" shall have the meaning set forth in Section 7.08 hereof.
"Employment Agreements" shall mean the employment agreements dated
as of the date hereof between the Purchaser and each of Stuart Bregman, Howard
Zwilling, Roberta Ciacci, Elizabeth Moser, Kenny Tse and Samuel Glaser.
"Endorsements" shall have the meaning set forth in Section 7.09(b)
hereto.
"Environmental Claim" means any notice or claim by any Person
alleging potential liability (including potential liability for investigatory
costs, cleanup costs, governmental response costs, natural resources damages,
property damages, personal injuries or penalties) arising out of, based on or
resulting from (A) the generation, treatment, storage, transportation or
recycling of any Hazardous Substance or the presence, or release, discharge,
disposal or emission into the environment, of any Hazardous Substance at the
Premises or any other real property, whether or not presently or formerly owned
or leased by the Company or (B) any violation, or alleged violation, of any
Environmental Laws.
"Environmental Laws" means all Laws relating to environmental,
health and safety matters, the pollution or protection of the environment
(including ambient air, surface water, ground water, land surface or subsurface
strata) or the protection of human health and safety from environmental and
other hazards, including existing Laws relating to emissions, discharges,
releases or threatened releases of Hazardous Substances, or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances.
"ERISA" shall have the meaning set forth in Section 3.17(a) hereof.
"Exchange Act" shall have the meaning set forth in Section 5.05
hereof.
"Excluded Assets" shall have the meaning set forth in Section
1.01(b) hereof.
"Excluded Liabilities" shall have the meaning set forth in Section
1.01(d) hereof.
"Final Earn Out Payment" shall have the meaning set forth in Section
2.02(b)(v) hereof.
"First Listed Sections" shall have the meaning set forth in the
introductory paragraph of Section III hereof.
"Full Year Financial Statements" shall have the meaning set forth in
Section 3.05 hereof.
"GAAP" shall mean generally accepted accounting principles in the
United States.
"Governmental Authority" shall mean the collective reference to any
court, tribunal, government, or governmental agency, authority or
instrumentality, Federal, state or local, or domestic or foreign.
"Hazardous Substance" shall have the meaning set forth in Section
3.13(c).
51
<PAGE> 57
"HSR Act" shall have the meaning set forth in Section 7.10 hereof.
"Health Contract" shall mean, collectively, the Company's Blue
Select Benefit Program (policy no. 00-89660) from Blue Cross and Blue Shield of
New Jersey, Inc., the Company's group life insurance policy no. J00189-001
(Class I) issued by Medical Life Insurance Company and the Company's dental
insurance policy no. 0022103 issued by Prudential Health Care Group.
"Income Taxes" shall mean all Federal, state, local, foreign and
other income or gains taxes, howsoever computed or denominated, and all
estimated payments, interest, penalties, fines, costs and assessments in respect
thereof.
"Income Tax Returns" shall mean all Federal, state, local, foreign
and other Income Tax returns, reports and declarations.
"Indemnification Matter" shall have the meaning set forth in Section
11.03(a) hereof.
"Indemnitee" shall have the meaning set forth in Section 11.03(a)
hereof.
"Indemnitor" shall have the meaning set forth in Section 11.03(a)
hereof.
"Indemnity Notice" shall have the meaning set forth in Section
11.03(a).
"Indemnity Notice Period" shall have the meaning set forth in
Section 11.03(b) hereof.
"Independent Auditor" shall have the meaning set forth in Section
2.02(b) hereof.
"Initial Earn Out Payment" shall have the meaning set forth in
Section 2.02(b)(ii) hereof.
"Intellectual Property" shall have the meaning set forth in Section
3.22.
"Inventory" shall have the meaning set forth in Section 1.01(a)(iii)
hereof.
"Laws" shall mean all currently existing Federal, state, local and
foreign laws, statutes, ordinances, regulations, rules, directives and executive
orders.
"Lien" shall mean any mortgage, pledge, charge, security interest,
easement or other encumbrance of any kind or nature whatsoever and however
arising.
"Listed Sections" shall have the meaning set forth in the
introductory paragraph of Section III hereof.
"Lockbox" shall have the meaning set forth in Section 1.01(a)(xii)
hereof.
"Management Bonuses" shall have the meaning set forth in Section
1.01(c) hereof.
"Material Adverse Effect" shall have the meaning set forth in
Section 3.01 hereof and shall mean a Material Adverse Effect on the Purchaser in
the conduct of the Business (other than in respect of Development Projects)
after the Closing.
"Multiemployer Plan" shall have the meaning set forth in Section
3.17(a) hereof.
"New Jersey Audit" shall have the meaning set forth in Section
1.01(d)(v)(2) hereof.
"New York Audit" shall have the meaning set forth in Section
1.01(d)(v)(2) hereof.
"1997 Balance Sheet" shall have the meaning set forth in Section
3.05 hereof.
"1997 Balance Sheet Date" shall mean the date of the 1997 Balance
Sheet.
52
<PAGE> 58
"1998/1999 EBITDA" shall mean (A) the sum of (x) EBITDA for the
fiscal year ending October 31, 1998 and (y) EBITDA for the fiscal year ending
November 6, 1999, divided by (B) two.
"Non Income Taxes" shall mean all Federal, state, local, foreign and
other taxes which are not Income Taxes, and all interest, penalties, fines,
costs and assessments in respect thereof.
"Non Income Tax Returns" shall mean all Federal, state, local,
foreign and other Non Income Tax returns, reports and declarations.
"Non Listed Sections" shall have the meaning set forth in the
introductory paragraph of Section III hereof.
"Norton Common Stock" shall have the meaning set forth in Section
2.02(a) hereof.
"Outstanding Checks" shall have the meaning set forth in Section
1.01(d)(vi) hereof.
"Permits" shall have the meaning set forth in Section 3.13(b)
hereof.
"Permitted Liens" shall mean (a) Liens for Income Taxes and Non
Income Taxes not yet due and payable or being contested in good faith by
appropriate proceedings and for which adequate reserves have been established on
the books and records of the Company, (b) mechanics', materialmen's, shippers',
suppliers', vendors' or similar Liens arising by operation of law and in the
ordinary course of business securing amounts which are not delinquent, (c)
deposits made in compliance with workers compensation, unemployment insurance
and social security laws, (d) deposits to secure the performance of bids, trade
agreements, leases, statutory obligations and surety and appeal bonds, (e) any
provision of any Contract pursuant to which the Premises are leased or any such
Contract which might constitute or give rise to a Lien, (f) minor imperfections
of title to any Asset which do not materially affect the use or value of such
Asset, and (g) prior to the Closing, "Permitted Liens" shall include Liens
securing the Chase Indebtedness, but in connection with and after the Closing,
"Permitted Liens" shall not include such Liens.
"Person" shall mean an individual, a corporation, a partnership, an
association, a trust, a limited liability company or any other entity or
organization, including a Governmental Authority.
"Preferred Stock" shall mean all issued and outstanding shares of
10% Cumulative Preferred Stock, $.01 par value per share, of the Company.
"Premises" shall have the meaning set forth in Section 3.13(c)
hereof.
"Products" shall mean any and all products and merchandise of the
Company.
"Property" shall have the meaning set forth in Section 1.01(a)(ii).
"Pro Rata Percentage" shall have the meaning set forth in Section
2.02(b)(vi) hereof.
"Purchase Price" shall have the meaning set forth in Section 2.01
hereof.
"Purchaser Group" shall mean the Purchaser, Norton and the
Purchaser's and Norton's subsidiaries, affiliates and parent entities.
"Purchaser Indemnified Parties" shall have the meaning set forth in
Section 11.01 hereof.
"Receivables" shall have the meaning set forth in Section 1.01(a)(v)
hereof.
"Retained Contracts" shall mean, without duplication, (i) all of the
Company's (or any affiliate's) insurance policies, (ii) except for the Health
Contract which shall be a "Contract" for purposes hereof, all agreements,
instruments and other documents evidencing, governing or in respect of Benefit
Plans, Multiemployer Plans and all of the Company's (or any affiliate's) other
retirement, employee benefit, health (including post-retirement health), dental,
medical, welfare, severance, bonus, profit sharing and similar plans or
programs, (iii) all Debt Documents evidencing, governing or in respect of
Company
53
<PAGE> 59
Indebtedness, (iv) all other Contracts evidencing, governing or in respect of
Excluded Liabilities, (v) this Agreement, including all rights and entitlements
hereunder, (vi) all agreements with any of the Stockholders and (vii) the
Severance Contract, dated April 4, 1997, between the Company and Samuel Glaser.
"Rule 144" shall have the meaning set forth in Section 3.29(iii)
hereof.
"Schedules" shall mean the Schedules attached hereto and made a part
of this Agreement.
"Second Listed Section" shall have the meaning set forth in the
introductory paragraph of Section III hereof.
"Security Default" shall mean the failure of Norton to have the Earn
Out L/C issued or to pay the Secured Earn Out Amount if and when required
pursuant to Section 2.02(b)(viii).
"SEC Documents" shall have the meaning set forth in Section 3.29(i)
hereof.
"Secured Earn Out Amount" shall have the meaning set forth in
Section 2.02(b)(viii).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Exchange" shall have the meaning set forth in the
definition of Average Market Value.
"Seller Indemnified Parties" shall have the meaning set forth in
Section 11.02 hereof.
"Stock Earn Out Amount" shall have the meaning set forth in Section
2.02(a) hereof.
"Stock Earn Out Cap" shall mean a number of shares of Norton Common
Stock which, after giving effect to their issuance, does not exceed a number of
shares of Norton Common Stock constituting 12% of the aggregate number of
outstanding shares of Norton Common Stock determined on the third business day
preceding the Earn Out Payment Date.
"Stockholders Representative" shall have the meaning set forth in
Section 13.14 hereof.
"Subordinated Debt" shall mean all Company Indebtedness arising
under (i) the 20% Subordinated Note, dated December 31, 1991, in the original
principal amount of $3,185,470 issued by Miss Erika Holding Corporation in favor
of Terold, N.V., due in full on December 31, 1999, (ii) the 20% Subordinated
Note, dated December 31, 1991, in the original principal amount of $3,000,000
issued by Miss Erika Holding Corporation in favor of Triumph Capital L.P., II,
due in full on December 31, 1999, and (iii) the 20% Subordinated Note, dated
December 31, 1991, in the original principal amount of $814,530 issued by Miss
Erika Holding Corporation in favor of TCR International Partners, due in full on
December 31, 1999.
"Taxes" shall mean Income Taxes and Non Income Taxes.
"Tax Returns" shall mean Income Tax Returns and Non Income Tax
Returns.
"Third Listed Sections" shall have the meaning set forth in the
introductory paragraph of Section III hereof.
"Warehouses" shall have the meaning set forth in Section
1.01(a)(iii) hereof.
* * *
54
<PAGE> 60
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first above written.
MISS ERIKA, INC.
By: /s/ STUART BREGMAN
----------------------
Name: Stuart Bregman
Title:Chairman/CEO
ME ACQUISITION CORP.
By: /s/ PETER BONEPARTH
----------------------
Name: Peter Boneparth
Title:Vice Chairman
NORTON MCNAUGHTON, INC.
By: /s/ PETER BONEPARTH
-----------------------
Name: Peter Boneparth
Title:President
TRIUMPH CAPITAL, L.P. II
By Triumph Management, L.P., its general partner
By: /s/ MICHAEL E. NUGENT
-----------------------
Name: Michael E. Nugent
Title:General Partner
TERBEM LIMITED
By: /s/ JOHN STEIN
---------------------------
Name: John Stein
Title:Attorney-in-Fact
BOBST INVESTMENT CORP.
By: /s/ JOHN STEIN
--------------------------
Name: John Stein
Title:Attorney-in-Fact
TCRI OFFSHORE PARTNERS C.V.
By Three Cities Management Partners, L.P., its
general partner
By Three Cities Research, Inc., its
general partner
55
<PAGE> 61
By: /s/ WILLEM DE VOGEL
------------------------------
Name: Willem De Vogel
Title: President
TCR INTERNATIONAL PARTNERS L.P.
By Three Cities Management Partners, L.P., its
general partner
By Three Cities Research, Inc., its
general partner
By: /s/ WILLEM DE VOGEL
-------------------------
Name: Willem De Vogel
Title: President
/s/ STUART BREGMAN
--------------------
Stuart Bregman
/s/ HOWARD ZWILLING
----------------------
Howard Zwilling
/s/ SIDNEY GOLDSTEIN
-----------------------
Sidney Goldstein
/s/ JOHN STEIN
---------------------------
Christian Baillet
Attorney-in-Fact
56
<PAGE> 62
Schedule 1.01A
Lenders and Lenders' Commitments
<TABLE>
<CAPTION>
Revolving
Credit Term Loan
Lender Commitment Commitment Percentage
------ ---------- ---------- ----------
<S> <C> <C> <C>
NationsBanc Commercial $62,500,000 $7,500,000 50%
Corporation
The CIT Group/Commercial $62,500,000 $7,500,000 50%
Services, Inc.
</TABLE>
<PAGE> 63
SCHEDULE 1.01B
FISCAL YEAR, FISCAL MONTH, FISCAL QUARTER
PART A: "FISCAL YEAR"
Each fiscal year end for the Company and its Consolidated
Subsidiaries is October 31st, if such date falls on a
Saturday, or the first Saturday following October 31st. The
Company and its Consolidated Subsidiaries operate on a 52 or
53-week fiscal year.
See below for examples of actual fiscal years.
PART B: "FISCAL MONTH"
Each fiscal month end for the Company and its Consolidated
Subsidiaries is the 30th or 31st of such month, if such date
falls on a Saturday, or the first Saturday following the 30th
or 31st.
See below for examples of actual fiscal months.
PART C: "FISCAL QUARTER"
Each fiscal quarter end for the Company and its Consolidated
Subsidiaries is January 31st, April 30th, July 31st and
October 31st, if such date falls on a Saturday, or the first
Saturday following January 31st, April 30th, July 31st and
October 31st. The Company and its Consolidated Subsidiaries
operate on a 13-week quarter (4 weeks, 4 weeks, 5 weeks).
See below for examples of actual fiscal quarters.
<TABLE>
<CAPTION>
FY PERIOD ENDING DATES FOR:
------------------------------------------------
1997 1998 1999 2000
QUARTER PERIOD # MONTH # WKS/MTH 96-97 97-98 98-99 99-00
- ------- -------- ----- --------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1 November 4 11/29/97 11/28/98 12/04/99
1st 2 December 4 12/27/97 12/26/98 01/01/00
3 January 5 01/31/98 01/30/99 02/05/00
4 February 4 02/28/98 02/27/99 03/04/00
2nd 5 March 4 03/28/98 03/27/99 04/01/00
6 April 5 05/02/98 05/01/99 05/06/00
7 May 4 05/30/98 05/29/99 06/03/00
3rd 8 June 4 06/27/98 06/26/99 07/01/00
9 July 5 08/02/97 08/01/98 07/31/99 08/05/00
10 August 4 08/30/97 08/29/98 08/28/99 09/02/00
4th 11 September 4 09/27/97 09/26/98 09/25/99 09/30/00
12 October 5 11/01/97 10/31/98 11/06/99 11/04/00
</TABLE>
Note: Fiscal 1999 is a 53-wk year
1
<PAGE> 64
SCHEDULE 1.01C
PRIOR SEASON INVENTORY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
DATE ELIGIBLE % INELIGIBLE
---- ---------- ----------
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. July 1 - Sept.30 Year 2 - 75% Fall Year 1 without - All Prior Season inventory
confirmed purchase order not set forth in Eligible
Amount column
- 50% Holiday, Spring and
Transition Year 1 without
confirmed purchase order
- 100% Prior Season
Inventory with confirmed
purchase order
- ------------------------------------------------------------------------------------------------------
2. Oct. 1 - Nov. 30 Year 2 - 75% Fall and Holiday - All Prior Season Inventory
Year 1 without confirmed not set forth in Eligible
purchase order Amount column
- 50% Spring and Transition
Year 1 without confirmed
purchase order
- 100% Prior Season
Inventory with confirmed
purchase order
- ------------------------------------------------------------------------------------------------------
3. Dec. 1 - Dec.31 Year 2 - 75% Holiday Year 1 - All Prior Season Inventory
without confirmed not set forth in Eligible
purchase order Amount column
- 50% Spring, Transition
and Fall Year 1 without
confirmed purchase order
- 100% Prior Season
Inventory with confirmed
purchase order
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 65
<TABLE>
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
4. Jan. 1 - Mar. 31 Year 2 - 75% Spring Year 1 - All Prior Season Inventory
without confirmed not set forth in Eligible
purchase order Amount column
- 50% Transition, Fall and
Holiday Year 1 without
confirmed purchase order
- 100% Prior Season
Inventory with confirmed
purchase order
- ------------------------------------------------------------------------------------------------------
5. Apr. 1 - May 31 Year 2 - 75% Spring and Transition - All Prior Season Inventory
Year 1 without confirmed not set forth in Eligible
purchase order Amount column
- 50% Fall and Holiday
Year 1 without confirmed
purchase order
- 100% Prior Season
Inventory with confirmed
purchase order
- ------------------------------------------------------------------------------------------------------
6. Jun. 1 - Jun. 30 Year 2 - 75% Transition Year 1 - All Prior Season Inventory
without confirmed not set forth in Eligible
purchase order Amount column
- 50% Fall, Holiday and
Spring Year 1 without
confirmed purchase order
- 100% Prior Season
Inventory with confirmed
purchase order
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 66
SCHEDULE 5.01(d)(v)
ADDITIONAL PLEDGED STOCK
NORTON MCNAUGHTON, INC.
None
NORTON MCNAUGHTON OF SQUIRE, INC.
None
Norty's Inc.
None
MISS ERIKA, INC.
1. C.R. Anthony Company 859 shares of common stock
2. Richman Gordman 1/2-Price Stores, Inc. 55,449 shares of common stock
3. Salant Corporation 2,675 shares of common stock
4. Chester Holdings, Ltd. 354 shares of common stock
5. Paul Harris Stores, Inc. 2,267 shares of common stock
1
<PAGE> 67
SCHEDULE 5.01(d)(xxi)
CONTRACTORS
NORTON MCNAUGHTON, INC.
None
NORTON MCNAUGHTON OF SQUIRE, INC.
Cutting Edge Services, Inc. 3349 Whelan Road
East Rutherford, NJ 07073
Railroad Enterprises, Inc. 5 Empire Boulevard
South Hackensack, NJ 07606
G.A.G.U. Inc. 450 Murray Hill Parkway/
75-85 Madison Circle Drive
East Rutherford, NJ 07303
Major/Newmark Trucking 7585 Madison Circle
East Rutherford, NJ 07303
NORTY'S INC.
None
MISS ERIKA, INC.
None
1
<PAGE> 68
SCHEDULE 6.01(e), PART A
INVENTORY LOCATIONS
NORTON MCNAUGHTON, INC.
None
NORTON MCNAUGHTON OF SQUIRE, INC.
<TABLE>
<CAPTION>
VDR # CONTRACTOR VDR # CONTRACTOR
- ----- ---------- ----- ----------
<S> <C> <C> <C>
703 Nerely (Nova Sportswear) 748 Fancy Inc. #2
1027 Grand Street 4510 94th Street
Brooklyn, NY 11211 Elmhurst, NY 11373
705 Pure Gold 757 Tan Fashion, Inc.
(formerly Lees H, Pretty H) 40-22 College Point Blvd.
96-35 43rd Avenue Flushing, NY 11354
Corona, NY 11368
707 Evertop Fashions 759 Grandex Inc. (A.G. Royal)
(Formerly Terry) 36-19 Prince Street
6102 Fifth Street Flushing, NY 11380
708 Glossy Corp (H&K) 775 Whitehorse (Winner)
47-28 37th Street 947 61st Street
LIC, NY 11101 Brooklyn, NY 11219
712 J&N (Suyen) 780 Milano Fashions
36-01 36th Ave., 3rd Flr 813 63rd Street
LIC, NY 11106 Brooklyn, NY
714 K-11 (SKK) 782 Supreme
247 36th St. 225 W. 35th St., 6th Flr
New York, NY 10018 New York, NY 10018
719 Ado Fashions 783 Kingsway
338 West 39th Street, 5th Floor 42-05 97th Place, 2nd Flr
New York, NY Corona, NY 11368
727 Advance 786 K.A.K.
6103 Seventh Avenue 40-22 College Point Blvd
AKA 707 61st Street Flushing, NY 11354
Brooklyn, NY 11220
747 Qiao Jing (Cosmo) 789 Tri Fortune (Anna & Taylor)
530 63rd St 45-46 Davis St., 2nd Flr
Brooklyn, NY LIC, NY 11101
</TABLE>
See Parts B, C and D of Exhibit 6.01(e) for additional Inventory locations.
1
<PAGE> 69
SCHEDULE 6.01(e), PART A
INVENTORY LOCATIONS
NORTY'S INC.
See Parts B, C and D of Exhibit 6.01(e) for additional Inventory locations.
MISS ERIKA, INC.: CONSIGNED INVENTORY W/ ASHLEY ROSE, INC. STORES
<TABLE>
<CAPTION>
STORE # LOCATION TRADENAME
- ------- -------- ---------
<S> <C> <C>
192 Conway Crossings Jonathan Logan
Rte 16 & Washington Street
Conway, NH 03818
197 Belz Outlet Mall #2 Jonathan Logan
4949 International Drive
Extended Suite #62
Orlando, FL 32819
202 Rockvale Square Store #2 Jonathan Logan
Lincoln Highway East
35 South Willowday Drive
Lancaster, PA 17602
242 West Kentucky Outlet Center Jonathan Logan
145 Outlet Ave - Suite #45
Eddyville, KY 42038
251 250 Outlet Avenue Jonathan Logan Family Discount Apparel
Eddyville, KY 42038
276 The Crossings Factory Stores Jonathan Logan
475 Crossings Outlet Square
Tannersville, PA 18372
277 Grove City Factory Shops Jonathan Logan
Interstate #79 & US Route #208
Grove City, PA 16127
278 209 North 2nd Avenue Vaughn's
Alpena, MI 49707
</TABLE>
See Parts B, C and D of Exhibit 6.01(e) for additional Inventory locations.
2
<PAGE> 70
SCHEDULE 6.01(e), PART B
INVENTORY LOCATIONS
<TABLE>
<CAPTION>
Company Legal Name Address
- ------- ---------- -------
<S> <C> <C>
Norton McNaughton of Squire, Inc. Norton McNaughton of Squire, Inc. 3349 Whelan Road
(Piece Goods Warehouse) East Rutherford, NJ 07073
Norton McNaughton of Squire, Inc. Cutting Edge Services, Inc. 3349 Whelan Road
(Cutting) East Rutherford, NJ 07073
Norton McNaughton of Squire, Inc. Railroad Enterprises, Inc. 5 Empire Boulevard
South Hackensack, NJ 07606
Norton McNaughton of Squire, Inc. G.A.G.U. Inc. 450 Murray Hill Parkway/
75-85 Madison Circle Drive
East Rutherford, NJ 07303
Norton McNaughton of Squire, Inc. Major/Newmark Trucking 7585 Madison Circle
East Rutherford, NJ 07303
Norton McNaughton of Squire, Inc. Dynamic Distribution Center 90 Caven Point
Jersey City, NJ
Norty's Inc. Norty's Inc. 40 Willow St.
Kutztown, PA 19503
Miss Erika, Inc. Miss Erika, Inc. 333 North Street
Teterboro, NJ 07608
</TABLE>
1
<PAGE> 71
SCHEDULE 6.01(e), PART C
INVENTORY LOCATIONS
CHIEF EXECUTIVE OFFICES AND PLACES OF BUSINESS
NORTON MCNAUGHTON, INC.
463 Seventh Avenue
New York, NY 10018
(Chief Executive Office)
NORTON MCNAUGHTON OF SQUIRE, INC.
463 Seventh Avenue
New York, NY 10018
(Chief Executive Office)
1407 Broadway
New York, NY 10018
(Showroom)
NORTY'S INC.
463 Seventh Avenue
New York, NY 10018
(Chief Executive Office)
See Schedule 6.01(e) Part D for Norty's retail locations
MISS ERIKA, INC.
1407 Broadway
New York, NY 10018
(Chief Executive Office/Showroom)
333 North Street
Teterboro, NJ 07608
(Accounting Office)
1
<PAGE> 72
SCHEDULE 6.01(e), PART D
INVENTORY LOCATIONS
<TABLE>
<CAPTION>
COMPANY STATE LEASE LOCATION LESSOR/PAYEE
- ------- ----- -------------- ------------
<S> <C> <C> <C>
Norty's Inc. PA 35 S. Willowdale Drive Rockvale Square
Lancaster, PA 18447 P.O. Box 10636
Telephone (717)394-0474 Lancaster, PA 17605-0636
Norty's Inc. GA Tanger Factory Outlet Tanger Properties L.P.
800 Steven B. Tanger Blvd. P.O. Box 29168
Suite 108 Greensboro, NC 27429
Commerce, GA 30529 Telephone (910) 274-1666
Telephone (706) 335-5545
Norty's Inc. PA Reading Liquidation Center Moss Realty Company
850 Moss Street 801 North 9th Street
Reading, PA 19604 Reading, PA 19604
Telephone (215)373-4368
Norty's Inc. GA 1000 Tanger Drive Tanger Properties L.P.
Locust Grove, GA 30248 P.O. Box 29168
Telephone (770) 957-0660 Greensboro, NC 27429
Telephone (910) 274-1666
Norty's Inc. TN Five Oaks Factory Stores Five Oaks Outlet Center
1645 Parkway, Suite 440 Epoch Projects Inc.
Sevierville, TN 37862 626 Bernard Avenue
Telephone (615) 429-2701 Knoxville, TN 37921
Norty's Inc. OH 8330 Factory Shops Blvd. Ohio Factory Shops
Jeffersonville, OH 43128 P.O. Box 630487
Telephone (614) 948-2809 Baltimore, MD 21263-0487
Norty's Inc. PA 121 Outlet Square Potmac Associates
Hershey, PA 17033 Factory Stores at Hershey
Telephone (717) 534-2821 Dept 3214
Chicago, IL 60674-3214
Norty's Inc. TN 645 Outlet Center Drive Music Valley Partners
Nashville, TN 37214 P.O. Box 1395
Telephone (615) 889-5750 Smithfield, NC 27577
Norty's Inc. FL St. Augustine Outlet Center New Plan Realty
2700 SR. 16, Suite 907 1120 Ave. of the Americas
St. Augustine, FL 32092 New York, NY 10036
Telephone (904) 826-3484
Norty's Inc. PA I79 & US Route 208, Suite 220 Grove City Factory Shop
Grove City, PA 16127 100 E. Pratt Street 19th Floor
Telephone (412) 748-3351 Baltimore, MD 21202
</TABLE>
1
<PAGE> 73
SCHEDULE 6.01(e), PART D
INVENTORY LOCATIONS
<TABLE>
<CAPTION>
COMPANY STATE LEASE LOCATION LESSOR/PAYEE
- ------- ----- -------------- ------------
<S> <C> <C> <C>
Norty's Inc. FL Orlando Shopping Center Belz Enterprises
5247 International Drive 530 Oak Court Drive, Suite 300
Orlando, FL 32819 Memphis, TN 38117
Telephone (407) 352-0644
Norty's Inc. SC Outlet Park at Waccamaw Mall Belz Enterprises
3200 Pottery Road 530 Oak Court Drive, Suite 300
Myrtle Beach, SC 29577 Memphis, TN 38117
Norton McNaughton NY 463 Seventh Avenue The Arsenal Co.
of Squire, Inc. 9th and 10th Floors c/o Adams & Co. Real Estate, Inc.
New York, NY 10018 411 Fifth Avenue
New York, NY 10016
Norton McNaughton NY 1407 Broadway Gettinger Associates, LLP
of Squire, Inc. 26th Floor 1407 Broadway
New York, NY 10018 New York, NY 10018
Miss Erika, Inc. NY 1407 Broadway Gettinger Associates, LLP
4th Floor 1407 Broadway
New York, NY 10018 New York, NY 10018
Norty's Inc. PA 40 Willow St. Lantek
Kutztown, PA 19503 40 Willow Street
P.O. Box 324
Kutztown, PA 19530
Norton McNaughton NJ 3349 Whelan Road Sublessor:
of Squire, Inc. East Rutherford, NJ 07073 Cutting Edge (formerly Toni
Linda Productions)
5 Empire Blvd.
South Hackensack, NJ 07606
Lessor:
Braun Management Inc.
160 Broadway
New York, NY 10038
Miss Erika, Inc. NJ 333 North Street Teterboro Associates
Teterboro, NJ 07608 90 Main Street
Hackensack, NJ 07601
Norton McNaughton NJ 1400 Broadway Sublessee:
of Squire, Inc. New York, NY 10018 Orient Consulting
1001 6th Avenue
New York, NY 10018
</TABLE>
2
<PAGE> 74
SCHEDULE 6.01(f)
SUBSIDIARIES
<TABLE>
<CAPTION>
NAME OWNERSHIP STATE OF INCORP.
- ---- --------- ----------------
<S> <C> <C>
Miss Erika, Inc. 100% of the capital stock Delaware
(f/k/a ME Acquisition Corp.) owned by Norton
McNaughton, Inc.
Norton McNaughton of Squire, 100% of the capital stock New York
Inc. owned by Norton
McNaughton, Inc.
Norty's Inc. 100% of the capital stock Delaware
owned by Norton
McNaughton of Squire, Inc.
</TABLE>
1
<PAGE> 75
SCHEDULE 6.01(g)
LITIGATION
NORTON MCNAUGHTON, INC.
TAX AUDITS
See Schedule 6.01(k)
NORTON MCNAUGHTON OF SQUIRE, INC.
TAX AUDITS
See Schedule 6.01(k)
SILK INDIA, INC., vs. NORTON MCNAUGHTON OF SQUIRE, INC.
Supreme Court of the State of New York - County of New York Index No.
97-602695 (complaint alleges Norton improperly rejected fabric and refused to
pay and is demanding a judgment in the sum of $38,131.88 with interest since
1/2/97, costs and disbursements.
NORTY'S INC.
TAX AUDITS
See Schedule 6.01(k)
MISS ERIKA, INC.
TAX AUDITS
See Schedule 6.01(k)
YEILDINGS, INC.; MAX C. POPE, TRUSTEE v. MISS ERIKA
United States Bankruptcy Court - Northern District of Alabama, Case No.
96-07068-BGC-7 (complaint alleges a preferential transfer in the amount of
$24,397.60 from Yeildings, Inc. to Miss Erika).
VIOLATION OF THE STATE UNIFORM CONSTRUCTION CODE ACT AND REGULATIONS
Notice of Violation and Order to Terminate and Notice of Order of Penalty
issued August 19, 1997, for occupation of adjacent storage space at warehouse
and for having opened a wall without securing permits.
ALLEGED COPYRIGHT INFRINGEMENT
Pursuant to a letter to Miss Erika, Inc. dated March 20, 1997, By-Design,
L.L.C. alleged that a sweater appearing at J.C. Penney and purportedly
infringing By-Design's copyright in a fabric design was being promoted and/or
sold by Miss Erika, Inc. Miss Erika, Inc. denies that the sweater design in
question has ever been promoted or sold by Miss Erika, Inc. No further
correspondence from By-Design has been received and the matter is considered
closed.
ORAL CLAIM BY EMPLOYEE
A former employee of Miss Erika, Inc. whose employment terminated on August
15, 1997, has made an oral claim of harassment which is currently under
investigation by Miss Erika, Inc.
1
<PAGE> 76
SCHEDULE 6.01(j)
ERISA
NORTON MCNAUGHTON, INC.
None
NORTON MCNAUGHTON OF SQUIRE, INC.
Norton McNaughton of Squire, Inc. 401(k) Savings Plan administered by Mass
Mutual, effective as of January 1, 1995.
Norton McNaughton of Squire, Inc. Group Dental administered by First Fortis
Insurance Co., effective as of November 1, 1996.
Norton McNaughton of Squire, Inc. Group Health administered by Oxford Health
Plans, Inc., effective as of July 1, 1995.
Norton McNaughton of Squire, Inc. Group Health administered by HIP, effective as
of November 1, 1995. As of September 10, 1997 there are only 3 participating
members, therefore it is not necessary to complete a Form 5500 Series for this
plan.
Norton McNaughton of Squire, Inc. Group Long Term Disability/Short Term
Disability administered by First Fortis effective as of April 1, 1995.
Norton McNaughton of Squire, Inc. Cafeteria Plan - Section 125, effective as of
January 1, 1994. This Plan includes a Flexible Spending Account and its
administration is handled by PayPro Inc.
Medical insurance covered for life for Jay Greenberg under the Separation
Agreement between Jay Greenberg and Norton McNaughton of Squire, Inc dated as
of May 1, 1997.
Medical insurance covered for life for Norton Sperling under the Separation
Agreement between Norton Sperling and Norton McNaughton of Squire, Inc dated
as of May 3, 1997.
1
<PAGE> 77
SCHEDULE 6.01(j)
ERISA
NORTY'S INC.
None
MISS ERIKA, INC.
Miss Erika, Inc. Employees' Pension Trust, effective as of March 31, 1970, as
amended. This plan will terminate after the closing of the transactions
contemplated by the Acquisition Agreement.
Miss Erika, Inc. Employees' Deferred Profit Sharing Plan and Trust, effective as
of January 1, 1989, as amended. This plan will terminate after the closing of
the transactions contemplated by the Acquisition Agreement.
Miss Erika, Inc. Health & Welfare Plan, effective May 1, 1992, held by Blue
Cross Blue Shield of New Jersey, Inc.
Group Dental Plan for Miss Erika, Inc., control number 0022103, held by The
Prudential Insurance Co.
Group Life Insurance Plan, insured by Medical Life Insurance Company
Medical insurance covered for Sidney Goldstein pursuant to section 1.01(c)(i) of
the Agreement of Purchase and Sale by and among Miss Erika, Inc., Certain of
the Stockholders of Miss Erika, Inc., ME Acquisition Corp. and Norton
McNaughton, Inc.
2
<PAGE> 78
SCHEDULE 6.01(k)
TAXES, ETC.
NORTON MCNAUGHTON, INC.
TAX AUDITS
New York City Income Tax for Norton McNaughton, Inc. and Subsidiaries for 1995
tax return - in process by the City of New York
Federal Income Tax for Norton McNaughton, Inc. and Subsidiaries for the fiscal
year ended 11/4/95 (1994 tax return) - received notice from the Internal
Revenue Service ("IRS")
NORTON MCNAUGHTON OF SQUIRE, INC.
TAX AUDITS
Federal Income Tax for Norton McNaughton of Squire, Inc. and Subsidiaries for
the fiscal year ended 11/6/92 (1991 tax return) - in process by the IRS
Federal Income Tax for Norton McNaughton of Squire, Inc. and Subsidiaries for
the fiscal year ended 11/5/93 (1992 tax return) - in process by the IRS
Federal Income Tax for NM Acquisition for the period 7/17/91 to 11/1/91 - in
process by the IRS
See 'Tax Audits' under Norton McNaughton, Inc.
NORTY'S INC.
TAX AUDITS
Federal Income Tax for Norton McNaughton of Squire, Inc. and Subsidiaries for
the fiscal year ended 11/6/92 (1991 tax return) - in process by the IRS
See 'Tax Audits' under Norton McNaughton, Inc.
MISS ERIKA, INC.
TAX AUDITS
State of New Jersey - pending tax audit for Sales and Use Tax
New York City Income Tax - pending desk audit
1
<PAGE> 79
SCHEDULE 6.01(s)
OPERATING LEASE OBLIGATIONS
NORTON MCNAUGHTON, INC.
None
NORTON MCNAUGHTON OF SQUIRE, INC.
See Schedule 6.01(e), Part D for list of Real Property Leases
See attached Schedule of Lease Commitments
See attached Schedule of Leased Automobiles
NORTY'S INC.
See Schedule 6.01(e), Part D for list of Real Property Leases
MISS ERIKA, INC.
See Schedule 6.01(e), Part D for list of Real Property Leases
See attached Schedule of Leased Automobiles
Copy equipment contract, dated 2/11/96 between Xerox Corporation and Miss Erika,
Inc., expiring 2/11/99, for equipment at 1407 Broadway, New York, New York
Copy equipment contract, dated 8/30/94 between Xerox Corporation and Miss Erika,
Inc., expiring 8/30/99, for equipment at 1407 Broadway, New York, New York
Copy equipment contract, dated 12/31/96 between Xerox Corporation and Miss
Erika, Inc., expiring 12/31/00, for equipment at 1407 Broadway, New York, New
York
Telephone equipment contract, (undated) between Miss Erika, Inc. and Precision
Interconnect Conversions Corp. for Toshiba telephone/voicemail equipment at
Teterboro office
Equipment contract, dated as of 4/24/96, between Miss Erika, Inc. and
Caterpillar Financial Services Corporation for Caterpillar Lift Truck
1
<PAGE> 80
<TABLE>
<CAPTION>
LEASE
TYPE OF LEASE REFERENCE PAYEE/PREMISES LEASE TERM ANNUAL RENT MONTHLY RENT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MACHINE LEASES:
Toshiba 4550 copier w/20 bin sorter M - 1 Scriptex (E. Rutherford) 6/96-6/00 $ 11,422 $ 952
Toshiba 5540 copier M - 2 Scriptex (Walter) 8/96-7/00 8,873 739
CANON COLOR COPIER M - 3 Copelco (463 Seventh Avenue) 12/95-11/98 19,848 1,654
PITNEY BOWES CREDIT CORP M - 4 Postage Machine (E580 E510-463 7th) 3/20/97-6/20/01 2,741 228
PITNEY BOWES - CARLSTADT M - 5 Model #'s G305 & 5976 + Other Month to Month 12,466 1,039
Toshiba 5540 copier w/20 bin sorter M - 6 AT&T (L#605426 - Ace. Dept) 1/97-12/99 13,588 1,132
Toshiba 2550 w/20 bin sorter & stand M - 7 Scriptex (DPS 10th floor 463 office) 9/1/95-12/11/98 6,760 563
Toshiba 3550 w/20 bin sorter & stand M - 8 Scriptex (Prod 463-10th floor - Roz) 9/11/95-1/11/98 9,167 764
Toshiba 2550 w/20 bin sorter & stand M - 9 Scriptex (Cutting 463-10th floor Casanova) 9/13/95-12/13/98 7,750 646
Toshiba 2550 w/20 bin sorter & stand M - 10 Scriptex (NS Norton Studio Copier) 9/13/95-12/13/98 7,748 646
Panas 1307 Copier M - 11 Tokai (E. Rutherford) Month to Month 999 83
Canon NP 6050 M - 12 Danka (Design) 4/97-4/00 8,766 730
Kodak 2085 M - 13 Danka (463 Seventh Avenue) 7/97-7/02 15,960 1,330
Panasonic EP 4080 & FP 7113 M - 14 Panasonic Lease Program - E. Rutherford 12/7/95-3/7/99 3,844 320
Town Lift Truck - 50FCTT M - 15 Crown Credit Company - E. Rutherford 7/28/94-6/99 5,657 471
Town Lift Truck - 60 PE M - 16 Crown Credit Company - E. Rutherford 3/21/94-2/99 1,779 148
Town Lift Truck - RR3520 M - 17 Crown Credit Company - E. Rutherford 7/28/94-6/99 7,143 595
---------------------------
TOTAL EQUIPMENT LEASE COMMITMENTS $144,511 $12,043
===========================
</TABLE>
<PAGE> 81
NORTON McNAUGHTON OF SQUIRE, INC.
SCHEDULE OF LEASED AUTOMOBILES
ATTACHMENT FOR SCHEDULE 6.01(s)
<TABLE>
<CAPTION>
EMPLOYEE AUTOMOBILE REF # PAYEE/LESSOR SEC. DEP. LEASE TERM
- -------- ---------- ----- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
1 Bokman, Amanda 1997 BMW 740IL 3775 Country Imported Car Corp 1,055* 1/28/97 - 4/20/99
2 Boneparth, Peter 1997 Audi A8 Quattro 4583 VW Credit 1,225 5/10/97 - 5/10/00
3 Burkhard, Alan 1997 Nissan Pathfinder 5177 Biener Pontiac 0 12/5/96 - 12/5/99
4 Ciampi, Ed 1997 Jeep Grand Cherokee 3607 UB Leasing 575 12/16/96 - 12/16/99
5 Daniels, Harvey 1998 BMW 740IL 9615 Wide World of Cars, Inc. 1,153* 7/08/97 - 7/08/00
6 Greenberg, David 1995 BMW 540I 4121 BMW Financial Services 1,050 10/27/95 - 4/27/98
7 Greenberg, Howard 1997 BMW 7401A 5602 BMW Financial Services 1,024* 7/25/96 - 7/25/99
8 Greenberg, Sandy 1997 Mercedes S 500V 5958 Mercedes Benz Credit Corp. 0 11/26/96 - 11/24/98
9 Imbesi, Dennis 1995 Grand Jeep Cherokee 5322 Chase 525 11/22/94 - 11/21/97
10 Langholtz, Larry 1996 Jeep Grand Cherokee 5411 Westbury Jeep 650 2/8/96 - 2/8/99
11 Lorusso, Chris 1997 Jeep Grand Cherokee 3671 U.B. Vehicle Leasing 525 12/05/96 - 12/05/99
12 Miller, Andrew 1997 Land Rover 9518 Land Rover Glen Cove 900 1/31/97 - 1/31/00
13 Monshine, Alan 1997 Ford Expedition 0366 First Union 625 1/27/97 - 1/27/00
14 Sperling, Norty 1997 Mercedes S 500 3892 Mercedes Benz Credit Corp. 0 9/31/96 - 9/30/98
15 Stettner, Adam 1995 Porsche 993 0894 Champion Leasing Group 0 5/23/96 - 4/22/00
TOTAL
</TABLE>
* Security Deposit is actually Last Monthly Payment
<PAGE> 82
<TABLE>
<CAPTION>
D.O.B. DRIVER MAKE/MODEL VEHICLE ID#s VALUE GARAGED
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3/30/37 Stuart Bregman 1995 BMW 7401 WBAGF632XSDH02447 63,740 Telerboro, NJ
- --------------------------------------------------------------------------------------------------------------
3/26/52 Samuel Glaser 1997 Jeep Grand Cherokee IJ4GZ78Y2VC725543 36,815 Telerboro, NJ
- --------------------------------------------------------------------------------------------------------------
9/19/45 Michael Kornweiser 1992 Volvo 964 YV1KS9500N0025076 32,000 Telerboro, NJ
- --------------------------------------------------------------------------------------------------------------
5/6/46 Lisa Moser 1995 Lexus LS400 JTBUF22E750025774 55,553 Telerboro, NJ
- --------------------------------------------------------------------------------------------------------------
8/13/52 Kenny Tse 1996 Mercedes 320 WDBJF557TJ011331 47,000 Telerboro, NJ
- --------------------------------------------------------------------------------------------------------------
4/5/47 Alteon ST Louis-WH 1996 Dodge Van Cargo 287GB11X7TK101338 18,435 Telerboro, NJ
- --------------------------------------------------------------------------------------------------------------
1/11/55 Howard Zwilling 1994 BMW 740l WBAGD4324RDE69122 57,400 New York, NY
- --------------------------------------------------------------------------------------------------------------
9/19/45 Billy Rossier 1996 Jeep Grand Cherokee 1JUGZ78Y5TC156765 35,700 Telerboro, NJ
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
MONTHLY
LEASE
D.O.B. COLLISION COMP LICENSE# AMOUNT EXPIRES
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
3/30/37 500 500 B181894991227249337 889.02 Sep-97
- ----------------------------------------------------------------------
3/26/52 500 500 G50936887403524 472.00 Apr-00
- ----------------------------------------------------------------------
9/19/45 500 500 K66315447309452 280.67 Jun-98
- ----------------------------------------------------------------------
5/6/46 500 500 172107707 760.00 Jun-98
- ----------------------------------------------------------------------
8/13/52 500 500 T80144317208522 763.00 Mar-99
- ----------------------------------------------------------------------
4/5/47 500 500 S0131789253952626 47 328.49 Sep-98
- ----------------------------------------------------------------------
1/11/55 500 500 Z2335381061700856 55 882.67 Aug-97
- ----------------------------------------------------------------------
9/19/45 500 500 R1572081714766058 45 539.02 Jan-98
- ----------------------------------------------------------------------
</TABLE>
Page 1
<PAGE> 83
SCHEDULE 6.01(y)
TRADENAMES
NORTON MCNAUGHTON, INC.
None
NORTON MCNAUGHTON OF SQUIRE, INC.
Norton McNaughton Danielle Paige
Norton McNaughton Petite D.P.S.
Maggie McNaughton D.P.S. Woman
Maggie McNaughton Petite Norton Studio
Pant-Her Norton Studio Woman
Pant-Her Woman Katherine Marie
Pant-Her Petite Katherine Marie Petite
Modiano Katherine Marie Woman
Modiano Woman Norty's
Modiano Petite
McNaughton Wear
NORTY'S INC.
None
MISS ERIKA, INC.
Alyssa Brooke
Erika
Erika Dimensions
Private Party
Return to Nature
Ricki
Sugar Blues
Sugar Co. Ltd.
White Mountain College
1
<PAGE> 84
SCHEDULE 6.01(aa)
MATERIAL CONTRACTS
NORTON MCNAUGHTON, INC.
1 Split Dollar Agreement dated March 8, 1994 between Norton McNaughton,
Inc. and Northwestern Mutual Life Insurance Company for Sanford
Greenberg.
2 Split Dollar Agreement dated March 8, 1994 between Norton McNaughton,
Inc. and Northwestern Mutual Life Insurance Company for Norton
Sperling.
3 Split Dollar Agreement dated March 8, 1994 between Norton McNaughton,
Inc. and Northwestern Mutual Life Insurance Company for Jay Greenberg.
NORTON MCNAUGHTON OF SQUIRE, INC.
1 Amended and Restated Factoring Agreement dated September 25, 1997
between NationsBanc Commercial Corporation and Norton McNaughton of
Squire, Inc.
2 Agreement dated March 17, 1993 between Norton McNaughton of Squire,
Inc. and Toni-Linda Productions, Inc. (now known as Cutting Edge
Services, Inc.), as amended December 15, 1993 and November 7, 1995.
3 Agreement dated January 7, 1993 between Norton McNaughton of Squire,
Inc. and Railroad Enterprises, Inc.
4 Amended and Restated Non-Negotiable Limited Recourse Promissory Note of
Sanford Greenberg dated as of November 5, 1993 payable to Norton
McNaughton of Squire, Inc. in the original principal amount of
$920,000, as amended July 15, 1994 and March 27, 1995.
5 Amended and Restated Non-Negotiable Limited Recourse Promissory Note of
Norton Sperling dated as of November 5, 1993 payable to Norton
McNaughton of Squire, Inc. in the original principal amount of
$920,000, as amended July 15, 1994 and March 27, 1995.
6 Amended and Restated Non-Negotiable Limited Recourse Promissory Note of
Jay Greenberg dated as of November 5, 1993 payable to Norton McNaughton
of Squire, Inc. in the original principal amount of $920,000, as
amended July 15, 1994 and March 27, 1995.
7 Letter Agreement dated February 1, 1993 between Norton McNaughton of
Squire, Inc. and The May Department Stores Company for "Pant-Her".
8 License Agreement effective as of June 1, 1995 between Norton
McNaughton of Squire, Inc. and Federated Merchandising for "Lauren
Alexandra".
9 See Schedule 6.01(e), Part D for the list of real property leases.
10 See Schedule 7.02(c)(iii) for the list of Guaranties.
11 See Schedule 7.02(m) for the Employment Agreements for Sanford
Greenberg and Peter Boneparth.
1
<PAGE> 85
SCHEDULE 6.01(aa)
MATERIAL CONTRACTS
NORTY'S INC.
None
MISS ERIKA, INC.
1 Factoring Agreement dated September 25, 1997 between NationsBanc
Commercial Corporation and Miss Erika, Inc.
2 Consignment Agreement dated June 20, 1997 between Miss Erika, Inc. and
Ashley Rose, Inc.
3 See Schedule 6.01(e), Part D for the list of real property leases.
2
<PAGE> 86
SCHEDULE 7.02(a)(ii)
LIENS
NORTON MCNAUGHTON, INC.
See attached schedule of Liens
NORTON MCNAUGHTON OF SQUIRE, INC.
Interest recorded on February 16, 1990 by Wilmington Trust Company for the
'Pant-Her' Trademark (does not secure any obligations).
Deposits made to landlords in connection with the leases set forth on Schedule
6.01(e), Part D.
See items 1, 2, 4, 5, 6, 7, 9, 10, 11, 12, 13 of Schedule 6.01(s) for Leased
Automobiles holding a security deposit.
See attached schedule of Liens
NORTY'S INC.
See attached schedule of Liens
MISS ERIKA, INC.
See attached schedule of Liens
See Schedule 6.01(s) for Leased Automobiles. All automobiles, except the
auto for Kenny Tse, have a security deposit.
1
<PAGE> 87
SCHEDULE 7.02(b)(ii)
INDEBTEDNESS
NORTON MCNAUGHTON, INC.
See Schedule 7.02(c)(iii) for Guaranties.
NORTON MCNAUGHTON OF SQUIRE, INC.
See Schedule 7.02(c)(iii) for Guaranties.
NORTY'S INC.
None
MISS ERIKA, INC.
None
1
<PAGE> 88
SCHEDULE 7.02(c)(iii)
GUARANTIES
NORTON MCNAUGHTON, INC.
Guaranty by Norton McNaughton, Inc. of Miss Erika, Inc. under the lease
for the premises located at 333 Teterboro, NJ 07608.
NORTON MCNAUGHTON OF SQUIRE, INC.
Limited Guaranty dated December 30, 1993 made by Norton McNaughton of
Squire, Inc. in favor of Braun Management Inc. for Toni-Linda Productions,
Inc. (now known as Cutting Edge Services, Inc.), as amended November 7,
1995 (6 months' rent, currently approximately $250,000).
Guaranty dated May 19, 1992 made by Norton McNaughton of Squire, Inc. in
favor of 5 Empire Boulevard Associates for Railroad Enterprises, Inc.
(currently approximately $500,000).
NORTY'S INC.
None
MISS ERIKA, INC.
None
1
<PAGE> 89
SCHEDULE 7.02(f)(ii)
INVESTMENTS
NORTON MCNAUGHTON, INC.
1 Norton McNaughton, Inc. owns all of the issued and outstanding capital
stock of each of Norton McNaughton of Squire, Inc. and Miss Erika, Inc.
NORTON MCNAUGHTON OF SQUIRE, INC.
1 Norton McNaughton of Squire, Inc. owns all of the issued and
outstanding capital stock of Norty's Inc.
2 Amended and Restated Non-Negotiable Limited Recourse Promissory Note of
Sanford Greenberg dated as of November 5, 1993 payable to Norton
McNaughton of Squire, Inc. in the original principal amount of
$920,000, as amended July 15, 1994 and March 27, 1995.
3 Amended and Restated Non-Negotiable Limited Recourse Promissory Note of
Norton Sperling dated as of November 5, 1993 payable to Norton
McNaughton of Squire, Inc. in the original principal amount of
$920,000, as amended July 15, 1994 and March 27, 1995.
4 Amended and Restated Non-Negotiable Limited Recourse Promissory Note of
Jay Greenberg dated as of November 5, 1993 payable to Norton McNaughton
of Squire, Inc. in the original principal amount of $920,000, as
amended July 15, 1994 and March 27, 1995.
5 Amended and Restated Non-Negotiable Limited Recourse Promissory Note of
Andrew Miller dated as of November 5, 1993 payable to Norton McNaughton
of Squire, Inc. in the original principal amount of $120,000, as
amended July 15, 1994 and March 27, 1995.
6 Amended and Restated Non-Negotiable Limited Recourse Promissory Note of
Howard Greenberg dated as of November 5, 1993 payable to Norton
McNaughton of Squire, Inc. in the original principal amount of
$120,000, as amended July 15, 1994 and March 27, 1995.
7 Promissory Note of Railroad Enterprises, Inc. in favor of Norton
McNaughton of Squire, Inc. for the original principal amount of
$300,000.
1
<PAGE> 90
SCHEDULE 7.02(f)(ii)
INVESTMENTS
NORTY'S INC.
None
MISS ERIKA, INC.
1 Miss Erika, Inc. has acquired the following securities of the following
companies in the following amounts as a result of the bankruptcy or
liquidation of such company:
<TABLE>
<S> <C>
1. C.R. Anthony Company 859 shares of common stock
2. Richman Gordman 1/2-Price Stores, Inc. 55,449 shares of common stock
3. Salant Corporation 2,675 shares of common stock
4. Chester Holdings, Ltd. 354 shares of common stock
5. Paul Harris Stores, Inc. 2,267 shares of common stock
6. Paul Harris Stores, Inc. 11.375% Note due January 21, 2000 in
the amount of $4,800
7. Paul Harris Stores, Inc. 11.375% Note due January 21, 2000 in
the amount of $300
</TABLE>
2
<PAGE> 91
SCHEDULE 7.02(k)(ii)
PROMISSORY NOTES
NORTON MCNAUGHTON, INC.
None
NORTON MCNAUGHTON OF SQUIRE, INC.
See Schedule 7.02(f)(ii), items 2 through 6 under the heading "Norton McNaughton
of Squire, Inc."
NORTY'S INC.
None
MISS ERIKA, INC.
None
1
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SCHEDULE 7.02(m)
TRANSACTIONS WITH AFFILIATES
NORTON MCNAUGHTON, INC.
Norton McNaughton, Inc. 1994 Stock Option Plan
NORTON MCNAUGHTON OF SQUIRE, INC.
Amended and Restated Employment Agreement dated as of December 15, 1995 between
Sanford Greenberg and Norton McNaughton of Squire, Inc.
Employment Agreement dated as of April 30, 1997 between Peter Boneparth and
Norton McNaughton of Squire, Inc.
Amended and Restated Employment Agreement dated as of November 5, 1993 between
Andrew Miller and Norton McNaughton of Squire, Inc.
Amended and Restated Employment Agreement dated as of November 5, 1993 between
Howard Greenberg and Norton McNaughton of Squire, Inc.
Employment Agreement dated as of November 5, 1993 between Amanda J. Bokman and
Norton McNaughton of Squire, Inc., as amended April 1, 1995.
Consulting arrangements as per the Separation Agreement dated as of May 3, 1997
between Norton Sperling and Norton McNaughton of Squire, Inc.
See items 4, 5 and 6 of Schedule 6.01(aa).
NORTY'S INC.
None
1
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SCHEDULE 7.02(m)
TRANSACTIONS WITH AFFILIATES
MISS ERIKA, INC.
ME Acquisition Corp. Executive Bonus Plan for Senior Executives.
Employment Agreement dated as of August 29, 1997 between ME Acquisition
Corp. and Stuart Bregman.
Employment Agreement dated as of August 29, 1997 between ME Acquisition
Corp. and Howard Zwilling.
Employment Agreement dated as of August 29, 1997 between ME Acquisition
Corp. and Roberta Ciacci.
Employment Agreement dated as of August 29, 1997 between ME Acquisition
Corp. and Elizabeth Moser.
Employment Agreement dated as of August 29, 1997 between ME Acquisition
Corp. and Kenny Tse.
Employment Agreement dated as of August 29, 1997 between ME Acquisition
Corp. and Samuel Glaser.
2
<PAGE> 1
EXHIBIT 10.1
FINANCING AGREEMENT
Dated as of September 25, 1997
by and among
NORTON McNAUGHTON, INC.,
NORTON McNAUGHTON OF SQUIRE, INC.,
MISS ERIKA, INC.,
THE FINANCIAL INSTITUTIONS FROM TIME TO TIME PARTY HERETO,
NATIONSBANC COMMERCIAL CORPORATION,
as Collateral Agent
and
THE CIT GROUP/COMMERCIAL SERVICES, INC.,
as Administrative Agent.
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ARTICLE I DEFINITIONS; CERTAIN TERMS...........................................................1
SECTION 1.01. Definitions...................................................................1
SECTION 1.02. Accounting and Other Terms....................................................22
SECTION 1.03. Time References...............................................................22
ARTICLE II THE LOANS.......................................................................22
SECTION 2.01. Commitments...................................................................22
SECTION 2.02. Loans.........................................................................23
SECTION 2.03. Making the Loans..............................................................23
SECTION 2.04. Notes; Repayment of Loans.....................................................24
SECTION 2.05. Funding and Settlement Procedures.............................................24
SECTION 2.06. Interest......................................................................26
SECTION 2.07. Reduction of Commitment; Prepayment of Loans..................................28
SECTION 2.08. Fees..........................................................................31
SECTION 2.09. Eurodollar Rate Not Determinable; Illegality or Impropriety...................31
SECTION 2.10. Indemnity.....................................................................32
SECTION 2.11. Continuation and Conversion of Loans..........................................33
SECTION 2.12. Taxes.........................................................................34
SECTION 2.13. Joint and Several Liability of the Borrowers..................................36
ARTICLE III LETTERS OF CREDIT...............................................................37
SECTION 3.01. Letter of Credit Guaranty.....................................................37
SECTION 3.02. Participations................................................................41
SECTION 3.03. Letters of Credit.............................................................42
ARTICLE IV FEES, PAYMENTS AND OTHER COMPENSATION............................................44
SECTION 4.01. Audit and Collateral Monitoring Fees..........................................44
SECTION 4.02. Payments; Computations and Statements.........................................44
SECTION 4.03. Sharing of Payments, Etc......................................................45
SECTION 4.04. Apportionment of Payments.....................................................46
SECTION 4.05. Increased Costs and Reduced Return............................................46
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ARTICLE V CONDITIONS OF EFFECTIVENESS, LETTER OF CREDIT
ISSUANCE AND LENDING..........................................................................48
SECTION 5.01. Conditions Precedent to Effectiveness.........................................48
SECTION 5.02. Conditions Precedent to Loans and Letters of Credit...........................52
ARTICLE VI REPRESENTATIONS AND WARRANTIES...................................................53
SECTION 6.01. Representations and Warranties................................................53
ARTICLE VII COVENANTS OF THE BORROWER......................................................60
SECTION 7.01. Affirmative Covenants.........................................................60
SECTION 7.02. Negative Covenants............................................................68
ARTICLE VIII MANAGEMENT, COLLECTION AND STATUS OF ACCOUNTS
RECEIVABLE AND OTHER COLLATERAL...............................................................78
SECTION 8.01. Management of Collateral......................................................78
SECTION 8.02. Accounts Receivable Documentation.............................................80
SECTION 8.03. Status of Accounts Receivable and Other Collateral............................80
SECTION 8.04. Collateral Custodian..........................................................81
ARTICLE IX THE AGENTS.....................................................................82
SECTION 9.01. Authorization and Action......................................................82
SECTION 9.02. Borrower's Default............................................................82
SECTION 9.03. Agents' Reliance, Etc.........................................................83
SECTION 9.04. CIT and NationsBanc...........................................................83
SECTION 9.05. Lender Credit Decision........................................................84
SECTION 9.06. Indemnification...............................................................84
SECTION 9.07. Successor Agents..............................................................84
SECTION 9.08. Collateral Matters............................................................85
ARTICLE X EVENTS OF DEFAULT..............................................................86
SECTION 10.01. Events of Default............................................................86
SECTION 10.02. Deposit for Letters of Credit................................................89
ARTICLE XI GUARANTY.......................................................................89
SECTION 11.01. Guaranty.....................................................................89
SECTION 11.02. Obligations Unconditional....................................................89
SECTION 11.03. Waivers......................................................................90
SECTION 11.04. Subrogation..................................................................90
SECTION 11.05. No Waiver; Remedies..........................................................91
SECTION 11.06. Stay of Acceleration.........................................................91
ARTICLE XII MISCELLANEOUS..................................................................91
SECTION 12.01. Termination..................................................................91
SECTION 12.02. Notices, Etc.................................................................92
SECTION 12.03. Amendments, Etc..............................................................94
SECTION 12.04. No Waiver; Remedies, Etc.....................................................94
SECTION 12.05. Expenses; Taxes; Attorneys' Fees.............................................94
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SECTION 12.06. Right of Set-off.............................................................96
SECTION 12.07. Severability.................................................................96
SECTION 12.08. Assignments and Participations...............................................96
SECTION 12.09. Counterparts.................................................................98
SECTION 12.10 Headings.....................................................................98
SECTION 12.11. Governing Law................................................................98
SECTION 12.12. WAIVER OF JURY TRIAL, ETC....................................................98
SECTION 12.13. Consent by the Agents, Lenders...............................................99
SECTION 12.14. No Party Deemed Drafter......................................................99
SECTION 12.15. Reinstatement; Certain Payments..............................................99
SECTION 12.16. Indemnification..............................................................100
SECTION 12.17. Binding Effect...............................................................100
SECTION 12.18. Releases of Collateral.......................................................101
SECTION 12.19. Confidentiality..............................................................101
</TABLE>
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SCHEDULE 1.01A Lenders and Lenders' Commitments
SCHEDULE 1.01B Fiscal Year, Fiscal Month, Fiscal Quarter
SCHEDULE 1.01C Prior Season Inventory
SCHEDULE 3.03(c) Existing Letters of Credit
SCHEDULE 5.01(d)(v) Additional Pledged Stock
SCHEDULE 5.01(d)(xxi) Contractors
SCHEDULE 6.01(e) Inventory Locations
SCHEDULE 6.01(f) Subsidiaries
SCHEDULE 6.01(g) Litigation
SCHEDULE 6.01(j) ERISA
SCHEDULE 6.01(k) Taxes, Etc.
SCHEDULE 6.01(s) Operating Lease Obligations
SCHEDULE 6.01(y) Tradenames
SCHEDULE 6.01(aa) Material Contracts
SCHEDULE 7.02(a)(ii) Liens
SCHEDULE 7.02(b)(ii) Indebtedness
SCHEDULE 7.02(c)(iii) Guaranties
SCHEDULE 7.02(f)(ii) Investments
SCHEDULE 7.02(g) Capitalized Lease Obligations
SCHEDULE 7.02(k)(ii) Promissory Notes
SCHEDULE 7.02(m) Transactions with Affiliates
</TABLE>
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EXHIBIT A Form of Revolving Credit Note
EXHIBIT B Form of Term Note
EXHIBIT C-1 Form of Subsidiary Guaranty
EXHIBIT C-2 Form of Borrower Guaranty
EXHIBIT D-1 Form of Borrower Security Agreement
EXHIBIT D-2 Form of Guarantor Security Agreement
EXHIBIT E-1 Form of Borrower Pledge Agreement
EXHIBIT E-2 Form of Parent Pledge Agreement
EXHIBIT F Form of Letter of Credit Application
EXHIBIT G Form of New York Counsel Opinion
EXHIBIT H Form of Local Counsel Opinion
EXHIBIT I Form of Assignment and Acceptance
EXHIBIT J Form of Notice of Borrowing
EXHIBIT K-1 Form of Monthly Borrowing Base Certificate
EXHIBIT K-2 Form of Weekly Borrowing Base Certificate
EXHIBIT L Form of Release Certificate
EXHIBIT M-1 Form of Subordinated Intercompany Term Note
EXHIBIT M-2 Form of Subordinated Intercompany Revolving Credit Note
(Squire)
EXHIBIT M-3 Form of Subordinated Intercompany Revolving Credit Note
(Miss Erika)
</TABLE>
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<PAGE> 6
FINANCING AGREEMENT
FINANCING AGREEMENT, dated as of September 25, 1997, by and
among Norton McNaughton, Inc., a Delaware corporation (the "Company"), Norton
McNaughton of Squire, Inc., a New York corporation ("Squire"), Miss Erika, Inc.,
a Delaware corporation formerly known as ME Acquisition Corp. ("Miss Erika" and
together with Squire, each a "Borrower" and collectively the "Borrowers"), the
financial institutions from time to time party hereto (each a "Lender" and
collectively the "Lenders"), NationsBanc Commercial Corporation, as collateral
agent for the Lenders (in such capacity, the "Collateral Agent") and The CIT
Group/Commercial Services, Inc., as administrative agent for the Lenders (in
such capacity, the "Administrative Agent" and together with the Collateral
Agent, each an "Agent" and collectively the "Agents").
RECITALS
The Company and the Borrowers have asked the Lenders to extend
credit to the Borrowers consisting of (a) a term loan to Squire in the principal
amount of $15,000,000 and (b) a revolving credit facility to the Borrowers in an
aggregate principal amount not in excess of $125,000,000 at any time
outstanding, a portion of which may be utilized for letters of credit. The
proceeds of the term loan and the loans under the revolving credit facility
shall be used to refinance existing indebtedness of the Borrowers, to finance
the Acquisition (as hereinafter defined) and for general working capital
purposes of the Borrowers. The letters of credit will be used to finance the
purchase by the Borrowers of inventory and for other general working capital
purposes. The Lenders are severally, and not jointly, willing to extend such
credit to the Borrowers subject to the terms and conditions hereinafter set
forth. Accordingly, the Company, the Borrowers, the Lenders and the Agents
hereby agree as follows:
ARTICLE I
DEFINITIONS; CERTAIN TERMS
SECTION 1.01. Definitions. As used in this Agreement, the
following terms shall have the respective meanings indicated below, such
meanings to be applicable equally to both the singular and plural forms of such
terms:
"Account Debtor" means each debtor, customer or obligor in any
way obligated on or in connection with any Account Receivable.
"Accounts Receivable" means any and all rights of a Borrower
to payment for goods sold, including accounts, contract rights, general
intangibles and any and all such rights evidenced by chattel paper, instruments
or documents, whether due or to become due and whether or not earned by
performance, and whether now or hereafter acquired or arising in the future and
any proceeds arising therefrom or relating thereto.
"Acquisition" means the purchase by Miss Erika of the Assets
from the Seller pursuant to the Acquisition Documents.
"Acquisition Agreement" means the Agreement of Purchase and
Sale dated as of the 29th day of August, 1997, as amended through the date
hereof, by and among the Seller, Terbem Limited, a British Virgin Islands
corporation, Bobst Investment Corp., a British Virgin Islands corporation, TCRI
Offshore Partners C.V., a Netherlands Antilles corporation, TCR International
Partners L.P., a Delaware limited partnership, Triumph Capital, L.P. II, a
Delaware limited partnership, Stuart Bregman, Howard Zwilling, Sidney Goldstein,
Christian Baillet, Miss Erika and the Company.
"Acquisition Documents" means the Acquisition Agreement and
all other documents entered into or delivered in connection with the Acquisition
Agreement or the Acquisition.
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<PAGE> 7
"Action" has the meaning specified therefor in Section 12.13.
"Administrative Agent" has the meaning specified therefor in
the preamble hereto.
"Affiliate" means, as to any Person, any other Person that
directly or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, such Person. For purposes of
this definition, "control" of a Person means the power, directly or indirectly,
either to (i) vote 5% or more of the Capital Stock having ordinary voting power
for the election of directors of such Person or (ii) direct or cause the
direction of the management and policies of such Person whether by contract or
otherwise.
"Agents" has the meaning specified therefor in the preamble
hereto.
"Agent Advances" has the meaning specified therefor in Section
9.08.
"A Letter of Credit Obligations" means Letter of Credit
Obligations attributable to Letters of Credit issued for the account of Squire.
"A Revolving Credit Loan" means a Revolving Credit Loan made
by a Lender or the Administrative Agent to Squire.
"Assets" has the meaning specified therefor in the Acquisition
Agreement.
"Assignment and Acceptance" means an assignment and acceptance
entered into by an assigning Lender and an assignee and accepted by the
Administrative Agent, in accordance with Section 12.08 hereof and substantially
in the form of Exhibit I hereto.
"Assignment Agreement" means the Intercreditor Agreement and
Assignment of Factoring Proceeds dated September 25, 1997 among the Factor, the
Collateral Agent, the Administrative Agent, Squire and Miss Erika, as the same
may be amended or otherwise modified from time to time.
"Availability" shall mean, at any time (i) with respect to the
Borrowers on a combined basis, the difference between (A) the lesser of (x) the
aggregate Borrowing Base Before Overadvance Amount of the Borrowers and (y) the
Total Revolving Credit Commitment and (B) the sum of (x) the aggregate
outstanding principal amount of all Revolving Credit Loans and (y) all Letter of
Credit Obligations, and (ii) with respect to any Borrower on an individual
basis, the lesser of (A) the difference between (x) the Borrowing Base Before
Overadvance Amount of such Borrower and (y) the sum of (1) the aggregate
principal amount of all Revolving Credit Loans of such Borrower and (2) the
aggregate Letter of Credit Obligations of such Borrower and (B) the difference
between (x) the Total Revolving Credit Commitment and (y) the sum of (1) the
aggregate outstanding principal amount of all Revolving Credit Loans and (2) the
aggregate Letter of Credit Obligations.
"Base Documentary L/C Fee" has the meaning specified therefor
in Section 3.03(b).
"Base Rate" means, for any day, the Prime Rate for such day.
"Base Rate Loan" means a Loan bearing interest at a rate
calculated based upon the Base Rate.
"Board" means the Board of Governors of the Federal Reserve
System of the United States.
"Borrower" and "Borrowers" each has the meaning specified
therefor in the preamble hereto.
"Borrowing Base" means with respect to a Borrower as of any
date the sum of (i) the Borrowing Base Before Overadvance Amount of such
Borrower and (ii) the Overadvance Amount allocated to such Borrower.
2
<PAGE> 8
"Borrowing Base Before Overadvance Amount" means with respect
to a Borrower as of any date the difference between (i) the sum of (A) 85% of
the Net Amount of Eligible Accounts Receivable of such Borrower and (B) 60% of
the value, determined at the lower of cost or market value in accordance with
GAAP, of such Borrower's Eligible Inventory and (ii) such reserves as the
Collateral Agent may deem appropriate in the exercise of its reasonable business
judgment based upon the lending practices of the Collateral Agent, consistent
with the practices customary in the commercial finance industry generally.
"Borrowing Base Certificate" means the certification of the
Borrowing Base in compliance with Section 7.01(a)(v) hereof, substantially in
the form of Exhibits K-1 and K-2 hereto, as applicable, setting forth the
calculation of the Borrowing Base and Availability for each Borrower on an
individual and combined basis.
"B Letter of Credit Obligations" means the Letter of Credit
Obligations attributable to Letters of Credit issued for the account of Miss
Erika.
"B Revolving Credit Loan" means a Revolving Credit Loan made
by a Lender or the Administrative Agent to Miss Erika.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in New York City and Charlotte, North
Carolina are required or authorized to close, provided, that with respect to the
borrowing, payment, conversion to or continuation of, or determination of
interest rate on, Eurodollar Loans, Business Day shall mean any Business Day on
which dealings in Dollars may be carried on in the interbank eurodollar markets
in New York City, Charlotte and London.
"Capital Guideline" means any law, rule, regulation, policy,
guideline or directive (whether or not having the force of law and whether or
not the failure to comply therewith would be unlawful) (i) regarding capital
adequacy, capital ratios, capital requirements, the calculation of a bank's
capital or similar matters, or (ii) affecting the amount of capital required to
be obtained or maintained by the Lenders, any Person controlling any Lender, or
the L/C Issuer or the manner in which the Lenders, any Person controlling any
Lender or the L/C Issuer allocate capital to any of their contingent liabilities
(including letters of credit), advances, acceptances, commitments, assets or
liabilities.
"Capital Stock" means any and all shares, interests,
participations, warrants, options or other equivalents (however designated) of
capital stock of a corporation or any and all equivalent ownership interests in
a Person (other than a corporation).
"Capitalized Lease" means any lease which is required under
GAAP to be capitalized on the balance sheet of the lessee.
"Capitalized Lease Obligations" means obligations for the
payment of rent for any real or personal property under leases or agreements to
lease that, in accordance with GAAP, have been or should be capitalized on the
books of the lessee and, for purposes hereof, the amount of any such obligation
shall be the capitalized amount thereof determined in accordance with such
principles.
"Change of Control" means (i) any person or group of persons
(within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934,
as amended) shall have acquired beneficial ownership (within the meaning of Rule
13d-3 promulgated by the Securities and Exchange Commission under said Act) of
40% or more of the voting power of the then outstanding common stock of the
Company, (ii) during any period of 12 consecutive calendar months, individuals
who were directors of the Company on the first day of such period shall cease to
constitute a majority of the board of directors of the Company, provided that a
director who has resigned or is replaced during such time shall not be included
in any determination of whether a Change of Control has occurred pursuant to
this clause (ii) to the extent such director is replaced by a successor director
elected by a majority of those directors who were directors at the commencement
of such period, (iii) the Company shall cease to directly own and control, of
record and beneficially, 100% of the then outstanding Capital Stock of each
Borrower free and clear of all Liens other than, in the case of the Capital
Stock of Miss Erika, the Lien of the Seller, (iv) either Sanford Greenberg or
Peter Boneparth shall cease to
3
<PAGE> 9
manage and be involved in the day-to-day operations of the Company and Squire
and a successor, reasonably acceptable to the Agents, is not appointed within
180 days of the cessation of such management and involvement or (v) prior to the
earlier of September 27, 1999 and the date on which the Term Loan is repaid in
full, Howard Zwilling or Stuart Bregman shall cease to manage and be involved in
the day-to-day operations of Miss Erika and a successor, reasonably acceptable
to the Agents, is not appointed within 180 days of the cessation of such
management and involvement.
"CIT" means The CIT Group/Commercial Services, Inc., a New
York corporation.
"Collateral" means all of the property (tangible and
intangible) purported to be subject to the Lien purported to be created by any
mortgage, deed of trust, security agreement, pledge agreement, assignment or
other security document heretofore or hereafter executed by any Person as
security for all or any part of the Obligations.
"Collateral Agent" has the meaning specified therefor in the
preamble hereto.
"Commitment" means, with respect to each Lender, such Lender's
Revolving Credit Commitment and Term Loan Commitment.
"Company" has the meaning specified therefor in the preamble
hereto.
"Consolidated Current Assets" means, at a particular date, all
cash, cash equivalents, accounts and inventory of a Person and its Consolidated
Subsidiaries and all other items which would, in conformity with GAAP, be
included under current assets on a balance sheet of such Person and its
Consolidated Subsidiaries on a consolidated basis as at such date; provided,
however, for the purposes hereof (i) Accounts Receivable of the Borrowers shall
not be considered sold pursuant to the Factoring Agreements and will be included
in Consolidated Current Assets, (ii) the Inventory of Miss Erika shall be
determined without giving effect to any purchase accounting reserves, and (iii)
prior to October 31, 1998, all barter credits arising from the going out of
business sales of Norty's Inc. shall be included as a current asset; provided,
further, that such amounts shall not include (A) any amounts for any
Indebtedness owing by an Affiliate to such Person or any of its Consolidated
Subsidiaries, unless such Indebtedness arose in connection with the sale of
goods or rendition of services in the ordinary course of business and would
otherwise constitute current assets in conformity with GAAP, (B) any shares of
stock issued by an Affiliate of such Person or any of its Consolidated
Subsidiaries or (C) the cash surrender value of any life insurance policy.
"Consolidated Current Liabilities" means, at a particular
date, all amounts which would, in conformity with GAAP, be included under
current liabilities on a balance sheet of a Person and its Consolidated
Subsidiaries on a consolidated basis, as at such date, but in any event
including, without limitation, the amounts of (i) all Indebtedness of such
Person or any of its Consolidated Subsidiaries payable on demand, or, at the
option of the Person to whom such Indebtedness is owed, not more than twelve
(12) months after such date, (ii) any payments in respect of any Indebtedness of
such Person or any of its Consolidated Subsidiaries (whether installment, serial
maturity, sinking fund payment or otherwise) required to be made not more than
twelve (12) months after such date, (iii) all accruals for federal or other
taxes measured by income payable within a twelve (12) month period and (iv) the
Revolving Credit Loans.
"Consolidated EBIT" means, for any Person and its Consolidated
Subsidiaries, for any period, the net income (or net loss) of such Person and
its Consolidated Subsidiaries for such period, plus (i) the sum, without
duplication, of (A) gross interest expense for such period minus gross interest
income for such period, (B) income tax expense, and (C) extraordinary or unusual
non-cash losses (provided such extraordinary or unusual losses do not at any
time result in a cash outlay by such Person), less (ii) extraordinary gains,
each determined on a consolidated basis in accordance with GAAP for such Person
and its Consolidated Subsidiaries.
"Consolidated EBITDA" means for any Person and its
Consolidated Subsidiaries, for any period, the net income (or net loss) of such
Person and its Consolidated Subsidiaries for such period, plus (i) the sum,
without duplication, of (A) gross interest expense for such period minus gross
interest income for
4
<PAGE> 10
such period, (B) income tax expense, (C) depreciation expense, (D) amortization
expense net of negative goodwill amortization, and (E) extraordinary or unusual
non-cash losses (provided such extraordinary or unusual losses do not at any
time result in a cash outlay by such Person), less (ii) extraordinary gains,
each determined on a consolidated basis in accordance with GAAP for such Person
and its Consolidated Subsidiaries.
"Consolidated Fixed Charges" means, for any Person and its
Consolidated Subsidiaries for any period, the sum of, without duplication (i)
Consolidated Net Interest Expense for such period, (ii) all principal of
Indebtedness for borrowed money of such Person or any of its Consolidated
Subsidiaries having a scheduled due date during such period (not including
mandatory prepayments pursuant to Section 2.07 hereof), (iii) cash dividends or
distributions paid by such Person or any of its Consolidated Subsidiaries (other
than dividends and distributions paid to the Company) during such period, (iv)
the total income tax liability actually payable by such Person or any of its
Consolidated Subsidiaries in respect of such period, (v) cash expenditures for
the repurchase of the Company's Capital Stock made during such period, and (vi)
cash capital expenditures of such Person and its Consolidated Subsidiaries made
during such period.
"Consolidated Net Interest Expense" means, for any Person and
its Consolidated Subsidiaries for any period, gross interest expense of such
Person and its Consolidated Subsidiaries for such period determined in
conformity with GAAP less the following for such Person and its Consolidated
Subsidiaries determined in conformity with GAAP (i) the sum of (a) interest
income for such period and (b) gains for such period on Hedging Agreements (to
the extent not included in interest income above and to the extent not deducted
in the calculation of such gross interest expense), plus the following for such
Person and its Consolidated Subsidiaries determined in conformity with GAAP (ii)
the sum of (a) losses for such period on Hedging Agreements (to the extent not
included in such gross interest expense) and (b) the expending of upfront costs
or fees for such period associated with Hedging Agreements (to the extent not
included in gross interest expense).
"Consolidated Subsidiary" of a Person at any time shall mean
those Subsidiaries of such Person whose accounts are or should in accordance
with GAAP be consolidated with those of such Person.
"Consolidated Tangible Net Worth" means, with respect to a
Person and its Consolidated Subsidiaries, the excess of (i) the aggregate net
book value of the assets (other than goodwill, unamortized non-compete
agreements, organization costs, capitalized financing costs and other intangible
assets classified as such in accordance with GAAP and, prior to October 31,
1998, including the barter credits arising from the going out of business sales
of Norty's Inc.) of such Person and its Consolidated Subsidiaries on a
consolidated basis after adjustments in accordance with GAAP (including, without
limitation, reserves for doubtful receivables, obsolescence, depreciation and
amortization and any valuation allowance against tax assets and excluding the
amount of any write-up or revaluation of any asset and the effect of any
purchase accounting reserves applicable to the Inventory of Miss Erika) over
(ii) the Consolidated Total Liabilities of such Person and its Consolidated
Subsidiaries on a consolidated basis, in each case computed and consolidated in
accordance with GAAP.
"Consolidated Total Liabilities" means, for a Person and its
Consolidated Subsidiaries, at any date, without duplication, all obligations
which in conformity with GAAP would be included in determining total liabilities
as shown on the liabilities side of a balance sheet of such Person and its
Consolidated Subsidiaries.
"Default" means an event which, with the giving of notice or
the lapse of time or both, would constitute an Event of Default.
"Documents" means the Acquisition Documents and the Loan
Documents.
"Dollar", "Dollars" and the symbol "$" means lawful money of
the United States of America.
"Early Termination Fee" means a fee equal to (i) the sum of
(A) the aggregate unpaid
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<PAGE> 11
principal amount of the Loans and (B) the Letter of Credit Obligations, in each
case outstanding at the time of the termination of the Total Revolving Credit
Commitment, multiplied by (ii) (A) prior to the time that all principal of and
interest on the Term Loans has been paid in full, (x) 3%, if the Total Revolving
Credit Commitment is terminated on or before September 25, 1998, (y) 1.5%, if
the Total Revolving Credit Commitment is terminated after September 25, 1998 and
before September 27, 1999, and (z) .75%, if the Total Revolving Credit
Commitment is terminated after September 27, 1999 and before September 25, 2000
or (B) after the time that all principal of and interest on the Term Loans has
been paid in full, (x) 3%, if the Total Revolving Credit Commitment is
terminated on or before September 25, 1998 and (y) .75%, if the Total Revolving
Credit Commitment is terminated after September 25, 1998 and before September
27, 1999.
"Earn Out Payment" has the meaning specified therefor in the
Acquisition Agreement.
"Effective Date" has the meaning specified therefor in Article
V hereof.
"Eligible Accounts Receivable" means, with respect to any
Borrower, the Accounts Receivable of such Borrower which are and at all times
continue to be, reasonably acceptable to the Collateral Agent in all respects.
Criteria for eligibility may be established and revised from time to time solely
by the Collateral Agent in the exercise of its reasonable business judgment
based upon the lending practices of the Collateral Agent consistent with those
criteria customary in the commercial finance industry generally. Notwithstanding
the foregoing, Accounts Receivable of a Borrower shall be deemed to be
acceptable and eligible if such Accounts Receivable are generated in the
ordinary course of business of such Borrower and are purchased and credit
approved and continue to be credit approved, in each case by Factor, under the
relevant Factoring Agreement and are and continue to be subject to the
Assignment Agreement. In addition, Accounts Receivable that are purchased and
not credit approved (including as the result of a withdrawal of credit approval)
by Factor under the relevant Factoring Agreement may, in the reasonable business
judgment of the Collateral Agent, be deemed to be eligible if: (i) delivery of
the merchandise has been completed; (ii) no return, rejection or repossession
has occurred; (iii) the merchandise has been accepted by the Account Debtor
without dispute, setoff, defense or counterclaim; (iv) such Account Receivable
is (A) owned by a Borrower free and clear of any Lien, other than in favor of
the Collateral Agent or the Factor under the relevant Factoring Agreement or (B)
if purchased by the Factor, subject to the Assignment Agreement, and in each
such case otherwise continues to be in full conformity with any and all
representations and warranties made by such Borrower to the Agents and the
Lenders with respect thereto in the Loan Documents; (v) such Account Receivable
is unconditionally payable in Dollars within 90 days from the invoice date,
other than Accounts Receivable of Miss Erika existing on the Effective Date for
which Modecraft Fashion is the Account Debtor, and is not evidenced by a
promissory note, chattel paper or any other instrument or document; (vi) no more
than 60 days have elapsed from the invoice due date and no more than 90 days
have elapsed from the invoice date; (vii) the Account Debtor with respect
thereto is not an Affiliate of any Borrower or any Guarantor; (viii) such
Account Receivable does not constitute an obligation of the United States or any
other Governmental Authority; (ix) the Account Debtor (or the applicable office
of the Account Debtor) with respect thereto is located in the continental United
States, unless the Account Receivable is supported by a letter of credit or
other similar obligation satisfactory to the Collateral Agent; (x) the Account
Debtor with respect thereto is not also a supplier to or creditor of a Borrower
or Guarantor, unless such supplier or creditor has executed a no-offset letter
satisfactory to the Collateral Agent; (xi) not more than 50% of the aggregate
amount of all Accounts Receivable of the Account Debtor with respect to such
Account Receivable have remained unpaid 60 days past the invoice due date or 90
days past the invoice date; (xii) the Account Debtor is not the subject of a
"Bankruptcy Proceeding"; for purposes hereof an Account Debtor is subject to a
"Bankruptcy Proceeding" if such Account Debtor has filed a petition for
bankruptcy or any other relief under the United States Bankruptcy Code or any
other law relating to bankruptcy, insolvency, reorganization or relief of
debtors, made an assignment for the benefit of creditors, had filed against it
any petition or other application for relief under the United States Bankruptcy
Code or any such other law, has failed, suspended business operations, become
insolvent, called a meeting of its creditors for the purpose of obtaining any
financial concession or accommodation, or had or suffered to be appointed a
receiver or a trustee for all or a significant portion of its assets or affairs;
and (xiii) the Collateral Agent is, and continues to be, reasonably satisfied
with the credit standing of the Account Debtor in relation to the amount of
credit extended.
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<PAGE> 12
"Eligible Amount of Prior Season Inventory" means, with
respect to each shipping season, the Prior Season Inventory of Miss Erika during
such shipping season or seasons valued at the lower of cost or market value in
accordance with GAAP in an amount equal to the sum of (i) 75% of the Prior
Season Inventory for the corresponding shipping season or seasons of the
immediately preceding year not subject to a confirmed purchased order, (ii) 50%
of the Prior Season Inventory from the immediately preceding year (not covered
by clause (i) above) not subject to a confirmed purchase order, and (iii) 100%
of all other Prior Season Inventory (not covered by clauses (i) or (ii) above)
subject to a confirmed purchase order. By way of illustration see Schedule 1.01C
attached hereto.
"Eligible Inventory" means, with respect to any Borrower, all
finished goods and uncut piece goods Inventory of such Borrower which meets all
of the following specifications: (i) the Inventory is owned by such Borrower
free and clear of any existing Lien, other than that of the Collateral Agent and
the Lenders under the Loan Documents, it is not held on consignment and may be
lawfully sold and it continues to be in full conformity with any representations
and warranties made in this Agreement by such Borrower to the Agents and the
Lenders with respect thereto; (ii) such Borrower has the right to assignment
thereof and the power to grant Liens thereon and security interests therein;
(iii) the Inventory arose or was acquired in the ordinary course of the business
of such Borrower and does not represent damaged goods; (iv) no Account
Receivable or, except as permitted by clause (vi)(B) below, document of title
has been created or issued with respect to such Inventory; (v) the Inventory is
readily marketable for sale by such Borrower; (vi) the Inventory is (A) located
in one of the locations in the United States listed on Part B of Schedule
6.01(e) hereto which is designated with an asterisk or such other locations in
the continental United States which is approved in writing by the Collateral
Agent, which approval will not be unreasonably withheld or delayed or (B) "in
transit" Inventory shipped or to be shipped as finished goods or uncut piece
goods Inventory under a Letter of Credit issued by the L/C Issuer pursuant to
this Agreement to a location in the United States described in the clause (vi)
(A) above; (vii) the Inventory does not represent raw materials (other than
uncut piece goods), trim, work in process, supplies or samples; (viii) if the
Inventory is sold under a licensed trademark, the Collateral Agent shall have
entered into a licensor waiver letter, in form and substance satisfactory to the
Collateral Agent, with the licensor with respect to the rights of the Collateral
Agent to use the trademark to sell or otherwise dispose of such Inventory; (ix)
the Inventory is not Prior Season Inventory, other than, in the case of Miss
Erika, Prior Season Inventory in an amount of up to the Eligible Amount of Prior
Season Inventory; and (x) the Inventory is and at all times shall continue to be
reasonably acceptable to the Collateral Agent in all respects in the exercise of
its reasonable business judgment based upon the lending practices of the
Collateral Agent, consistent with the criteria customary in the commercial
finance industry generally.
"Employee Plan" means an employee benefit plan (other than a
Multiemployer Plan) covered by Title IV of ERISA and maintained (or was
maintained at any time during the six (6) calendar years preceding the date of
any borrowing hereunder) for employees of a Borrower or any of their ERISA
Affiliates.
"Environmental Actions" refers to any complaint, summons,
citation, notice, directive, order, claim, litigation, investigation, judicial
or administrative proceeding, judgment, letter or other written communication
from any governmental agency, department, bureau, office or other authority, or
any third party involving violations of Environmental Laws or Releases of
Hazardous Materials (i) from any assets, properties or businesses of any Loan
Party or any predecessor in interest; or (ii) from or onto any adjoining
properties or businesses; or (iii) from or onto any facilities which received
Hazardous Materials generated by any Loan Party or any predecessor in interest.
"Environmental Law" means the Comprehensive Environmental
Response, Compensation, and Liability Act (42 U.S.C. Section 9601, et seq.), the
Hazardous Materials Transportation Act (49 U.S.C. Section 1801, et seq.), the
Resource Conservation and Recovery Act (42 U.S.C. Section 6901, et seq.), the
Federal Water Pollution Control Act (33 U.S.C. Section 1251 et seq.), the Clean
Air Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances Control Act (15
U.S.C. Section 2601 et seq.) and the Occupational Safety and Health Act (29
U.S.C. Section 651 et seq.), as such laws may be amended or supplemented from
time to time, and any other present or future federal, state, local or foreign
statute, ordinance, rule, regulation, order, judgment, decree, permit, license
or other binding determination of any Governmental Authority imposing liability
or establishing standards of conduct for protection of the environment.
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<PAGE> 13
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and, unless the context otherwise requires,
the rules and regulations promulgated thereunder from time to time.
"ERISA Affiliate" means, with respect to any Person, any trade
or business (whether or not incorporated) which is a member of a group of which
such Person is a member and which would be deemed to be a "controlled group"
within the meaning of Sections 414(b), (c), (m) and (o) of the Internal Revenue
Code.
"Eurodollar Base Rate" means, with respect to each day during
each Interest Period pertaining to a Eurodollar Loan, the rate of interest
published in The Wall Street Journal, Eastern Edition, two Business Days prior
to such Interest Period as the "London Interbank Offered Rate" applicable to
one, three or six months, as selected by a Borrower. In the event that The Wall
Street Journal, Eastern Edition is not published or such rate does not appear in
The Wall Street Journal, Eastern Edition, the Eurodollar Base Rate shall be the
rate determined by the Administrative Agent to be the rate at which deposits in
Dollars are offered by NationsBank, N.A. to first class banks in the interbank
eurodollar market where the eurodollar and foreign currency and exchange
operations in respect of its eurodollar loans are then being conducted at
approximately 11:00 A.M., New York City time, two Business Days prior to the
beginning of such Interest Period, in an amount approximately equal to the
principal amount of the Eurodollar Loan to which such Interest Period is to
apply and for a period of time comparable to such Interest Period.
"Eurodollar Loan" means a Loan bearing interest based on the
Eurodollar Rate.
"Eurodollar Rate" means with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward to the nearest
1/100 of 1%):
Eurodollar Base Rate
1.00 - Reserve Requirements
"Evergreen Letters of Credit" shall have the meaning specified
therefor in Section 3.01(b).
"Event of Default" means any of the events set forth in
Section 10.01 hereof.
"Excess Cash Flow" means, for any fiscal period of the Company
(i) net income (or net loss) of the Company and its Consolidated Subsidiaries
for such period, plus (ii) all non-cash charges of the Company and its
Consolidated Subsidiaries deducted in arriving at such net income (or net loss)
for such period, less (iii) all non-cash credits of the Company and its
Consolidated Subsidiaries included in arriving at such net income (or net loss)
for such period, less (iv) all scheduled and mandatory cash principal payments
on the Loans and optional cash principal payments on the Loans made during such
period (but, in the case of the Revolving Credit Loans, only to the extent that
the Total Revolving Credit Commitment is permanently reduced by the amount of
such payments) during such period, less (v) the cash portion of capital
expenditures made by the Company and its Consolidated Subsidiaries during such
period to the extent permitted to be made under this Agreement, less (vi) cash
expenditures made by the Company for the repurchase of its Capital Stock to the
extent permitted to be made under this Agreement, less (vii) cash expenditures
made by Miss Erika during such period to satisfy the Earn Out Payment.
"Existing Letters of Credit" has the meaning assigned to such
term in Section 3.03(c) hereof.
"Factor" means NationsBanc in its capacity as factor under
each Factoring Agreement and shall include CIT as a participant in each
Factoring Agreement.
"Factoring Agreements" means (i) the Amended and Restated
Factoring Agreement dated as of September 25, 1997 between the Factor and
Squire, and (ii) the Factoring Agreement dated as of September 25, 1997 between
the Factor and Miss Erika.
"Fall Shipping Season" means, with respect to Miss Erika, the
shipping season beginning on July 1 and ending on November 30 of each Fiscal
Year.
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<PAGE> 14
"Federal Funds Rate" means, for any period, a fluctuating
interest rate per annum equal for each day during such period of the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published on the
next succeeding Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day which is a Business Day, the average
of the quotations for such day on such transactions received by the
Administrative Agent from three Federal funds brokers of recognized standing
selected by it.
"Fee Letter" means the letter agreement, dated as of the date
hereof, among the Company, the Borrowers and the Agents obligating the Borrowers
to jointly and severally pay certain fees to the Agents for their account in
connection with this Agreement, as such letter agreement may be modified,
supplemented or amended from time to time.
"Final Maturity Date" means the date this Agreement is
terminated pursuant to Section 12.01 hereof.
"Financial Statements" means (i) the audited financial
statements of the Seller for its fiscal year ended January 31, 1997 and (ii) the
unaudited consolidated financial statements of the Company and its Consolidated
Subsidiaries for the nine month period ended August 2, 1997.
"Fiscal Month" means the fiscal months of the Company and its
Consolidated Subsidiaries as set forth on Part B of Schedule 1.01B hereto.
"Fiscal Quarter" means the fiscal quarters of the Company and
its Consolidated Subsidiaries as set forth on Part C of Schedule 1.01B hereto.
"Fiscal Year" means the fiscal year of the Company and its
Consolidated Subsidiaries as set forth on Part A of Schedule 1.01B hereto.
"GAAP" means generally accepted accounting principles in
effect from time to time in the United States, applied on a consistent basis,
provided that for the purposes of Section 7.02(p) and the definitions used
therein, "GAAP" shall mean generally accepted accounting principles in effect on
the date hereof and consistent with those used in the preparation of the
Financial Statements.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof and any department, commission,
board, bureau, instrumentality, agency or other entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guaranties" means (i) the guaranty made by the Company
contained in Article XI hereof and (ii) each guaranty, substantially in the form
of Exhibits C-1 and C-2 hereto, made by a Guarantor (other than the Company) in
favor of the Collateral Agent for the benefit of the Lenders guaranteeing the
Obligations, as the same may be amended, modified or supplemented from time to
time.
"Guarantors" means the Company, Squire, Miss Erika, Norty's,
Inc. and all Persons which hereafter guarantee, pursuant to Section 7.01(b)
hereof or otherwise, all or any part of the Obligations.
"Hazardous Materials" shall include (i) any element, compound,
or chemical that is defined, listed or otherwise classified as a contaminant,
pollutant, toxic pollutant, toxic or hazardous substances, extremely hazardous
substance or chemical, hazardous waste, special waste, or solid waste under
Environmental Laws; (ii) petroleum and its refined products; (iii)
polychlorinated biphenyls; (iv) any substance exhibiting a hazardous waste
characteristic including but not limited to corrosivity, ignitability, toxicity
or reactivity as well as any radioactive or explosive materials; and (v) any raw
materials, building components, including but not limited to asbestos-containing
materials and manufactured products containing Hazardous Materials.
"Hedging Agreement" means any interest rate swap, collar, cap,
floor or a forward rate agreement or other agreement regarding the hedging of
interest rate risk exposure executed in connection with hedging the interest
rate exposure of the Borrowers, and any confirming letter executed pursuant to
such agreement, all as amended or supplemented from time to time.
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<PAGE> 15
"Holiday Shipping Season" means, with respect to Miss Erika,
the shipping season beginning on October 1 and ending December 31 of each Fiscal
Year.
"Indebtedness" means as to any Person, without duplication,
(i) indebtedness for borrowed money; (ii) indebtedness for the deferred purchase
price of property or services (other than current trade payables incurred in the
ordinary course of business and payable in accordance with customary practices);
(iii) indebtedness evidenced by bonds, debentures, notes or other similar
instruments (other than performance, surety and appeal or other similar bonds
arising in the ordinary course of business); (iv) obligations and liabilities
secured by a Lien upon property owned by such Person, whether or not owing by
such Person and even though such Person has not assumed or become liable for the
payment thereof; (v) obligations and liabilities directly or indirectly
guaranteed by such Person; (vi) obligations or liabilities created or arising
under any conditional sales contract or other title retention agreement with
respect to property used and/or acquired by such Person, even though the rights
and remedies of the lessor, seller and/or lender thereunder are limited to
repossession of such property; (vii) Capitalized Lease Obligations; (viii) all
liabilities in respect of letters of credit, acceptances and similar obligations
created for the account of such Person, and (ix) net liabilities of such Person
under: (A) Hedging Agreements and (B) foreign currency exchange agreements, each
calculated on a basis reasonably satisfactory to the Agents and in accordance
with accepted practice.
"Indemnitees" has the meaning specified therefor in Section
12.16.
"Interest Period" means (i) with respect to any portion of the
Term Loan that is a Eurodollar Loan, the period commencing on the borrowing date
or the date of any continuation of or conversion into such Eurodollar Loan, as
the case may be, and ending three or six months thereafter and (ii) with respect
to a Revolving Credit Loan that is a Eurodollar Loan, the period commencing on
the borrowing date or the date of any continuation or conversion into such
Eurodollar Loan, as the case may be, and ending one or three months thereafter,
in each case as selected by the relevant Borrower in the applicable notice given
to the Administrative Agent pursuant to Sections 2.03 or 2.11 hereof; provided
that (i) each Interest Period shall begin on the first Business Day of a month
and end on the first Business Day of a month, (ii) no Interest Period for any
Eurodollar Loan shall end after the Final Maturity Date in the case of the
Revolving Credit Loans or October 2, 2000 in the case of the Term Loan, (iii)
with respect to Revolving Credit Loans, no more than five (5) Interest Periods
in the aggregate for the Borrowers may exist at any one time and only the Loans
of a single Borrower may be included in a single Interest Period and (iv) with
respect to the Term Loan, no more than one (1) Interest Period may exist at any
one time.
"Internal Revenue Code" means the Internal Revenue Code of
1986, as amended from time to time.
"Inventory" means all goods and merchandise of a Borrower
including, but not limited to, all raw materials, work in process, piece goods,
trim, finished goods, materials and supplies of every nature used or usable in
connection with the manufacture, shipping, storing, advertising or sale of such
goods and merchandise, whether now owned or hereafter acquired and all such
property the sale or other disposition of which would give rise to Accounts
Receivable.
"L/C Issuer" means NationsBank, N.A. and, in the case of
certain Existing Letters of Credit, The Chase Manhattan Bank, or such other bank
as the Agents may select in their sole and absolute discretion.
"L/C Subfacility" means that portion of the Total Revolving
Credit Commitment equal to $70,000,000, or such other amount as shall be agreed
to in writing by the Agents, the Lenders and the Borrowers.
"Ledger Debt" means indebtedness owing by a Borrower to the
Factor by reason of such Borrower's purchases from other entities factored by
the Factor, provided that the Factor shall include CIT, as a participant of the
Factor in each Factoring Agreement .
"Lender" has the meaning specified therefor in the preamble
hereto.
"Letter of Credit" has the meaning specified therefor in
Section 3.01(a) hereof.
"Letter of Credit Application" has the meaning specified
therefor in Section 3.01(a) hereof.
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<PAGE> 16
"Letter of Credit Guaranty" means one or more guaranties by
NationsBanc or, in the case of certain Existing Letters of Credit, CIT in favor
of the L/C Issuer guaranteeing the Borrowers' obligations to the L/C Issuer
under a reimbursement agreement, Letter of Credit Application or other like
document in respect of any Letters of Credit.
"Letter of Credit Obligations" means, at any time and without
duplication, the sum of (i) the outstanding Reimbursement Obligations at such
time, plus (ii) the aggregate maximum amount available for drawing under the
Letters of Credit outstanding at such time, plus (iii) all amounts for which
NationsBanc or CIT may be liable to the L/C Issuer pursuant to the Letter of
Credit Guaranty in connection with any steamship guaranty, airway release,
indemnity or delivery order issued by the L/C Issuer at the request of or for
the benefit of a Borrower, in each case as calculated by the L/C Issuer.
"Lien" shall mean any mortgage, deed of trust, pledge, lien,
security interest, charge or other encumbrance or security arrangement of any
nature whatsoever, including but not limited to any conditional sale or title
retention arrangement, and any assignment, deposit arrangement or lease intended
as, or having the effect of, security.
"Loan" means any Revolving Credit Loan or Term Loan made by a
Lender or the Administrative Agent to a Borrower pursuant to Article II hereof.
"Loan Account" means a separate account for each Borrower
maintained at the Payment Office of the Administrative Agent in the name of a
Borrower in which such Borrower will be charged with all Loans made to, and all
other Obligations incurred by, such Borrower or such other accounts as the
Administrative Agent shall designate from time to time.
"Loan Documents" means this Agreement, the Notes, the
Guaranties, the Security Agreements, the Pledge Agreements, the Assignment
Agreement, the Fee Letter, the Subordination Agreement, the Letter of Credit
Applications and all other instruments, agreements and other documents executed
and delivered pursuant hereto or thereto.
"Loan Parties" means each of the Company, the Borrowers and
the other Guarantors.
"Material Adverse Effect" means a material adverse effect upon
(i) the business, properties, operations, or condition (financial or otherwise)
of any Borrower or of the Loan Parties taken as a whole but excluding an event
or condition that has a material adverse effect solely upon general economic
conditions or the apparel industry generally and not upon the business,
operation or condition (financial or otherwise) of any Borrower or of the Loan
Parties taken as a whole, (ii) the ability of any Borrower or of the Loan
Parties taken as a whole to perform its or their obligations hereunder or under
any other Loan Document to which any of such Persons is a party, (iii) the Lien
arising under the Loan Documents on any Collateral or (iv) the rights, powers
and remedies of the Agents and the Lenders under this Agreement or any other
Loan Document or the legality, validity or enforceability of this Agreement or
any other Loan Document.
"Material Contract" means, with respect to any Person, each
contract to which such Person is a party involving aggregate consideration
payable to or by such Person of $500,000 or more (other than contracts that by
their terms may be terminated by any party thereto in the ordinary course of its
business upon less than 60 days' notice) or otherwise material to the business,
condition (financial or otherwise), operations, performance, properties or
prospects of such Person.
"Miss Erika" has the meaning specified therefor in the
preamble hereto.
"Multiemployer Plan" means a "multiemployer plan" as defined
in Section 4001(a)(3) of ERISA for which a Borrower or any ERISA Affiliate has
contributed to, or has been obligated to contribute to, at any time during the
six (6) years preceding the date hereof.
"NationsBanc" means NationsBanc Commercial Corporation, a
Georgia corporation.
"Net Amount of Eligible Accounts Receivable" means the
aggregate unpaid invoice amount of
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Eligible Accounts Receivable less, without duplication (i) in the case of
Accounts Receivable not purchased by the Factor under a Factoring Agreement,
sales, excise or similar taxes, returns, discounts, chargebacks, claims, advance
payments, credits and allowances of any nature at any time issued, owing,
granted, outstanding, available or claimed, and (ii) in the case of Accounts
Receivable purchased by a Factor under a Factoring Agreement and sums due under
a Factoring Agreement, deductions for factoring charges, discounts, estimated
anticipation, chargebacks based upon disputes and returns, chargebacks of
department risk accounts purchased with recourse, and all other charges, offsets
and reserves under a Factoring Agreement.
"Net Proceeds" means (a) with respect to the sale or other
disposition of any asset by the Company or any of its Subsidiaries (including in
connection with any sale-leaseback), the excess, if any, of (i) the aggregate
amount received in cash (including any cash received by way of deferred payment
pursuant to a note receivable, other non-cash consideration or otherwise, but
only as and when such cash is so received) in connection with such sale or other
disposition, over (ii) the sum of (A) the principal amount of any Indebtedness
which is secured by any such asset (other than Indebtedness assumed by the
purchaser of such asset) or which is required to be, and is, repaid in
connection with the sale or other disposition thereof (other than Indebtedness
hereunder), (B) the reasonable out-of-pocket expenses and fees incurred by the
Company or its Subsidiaries in connection with such sale or other disposition
(but only to the extent that such out-of-pocket expenses and fees, if paid to an
Affiliate of the Company (other than legal fees and expenses), are approved by
the Agents in their sole discretion exercised reasonably), and provided that all
such expenses and fees are set forth on a certificate provided to the Agents,
and (C) federal and state taxes incurred in connection with such sale or other
disposition, whether payable at such time or thereafter and (b) with respect to
the sale or other disposition of any Capital Stock or debt security by the
Company or any of its Subsidiaries, the excess of (i) the aggregate amount
received in cash (including any cash received by way of deferred payment
pursuant to a note receivable, other non-cash consideration or otherwise, but
only as and when such cash is so received) in connection with such sale or other
disposition, over (ii) the sum of (A) the reasonable fees, commissions,
discounts and other out-of-pocket expenses incurred by the Company or its
Subsidiaries in connection with such sale or other disposition (but only to the
extent such fees, commissions and expenses, if paid to an Affiliate of the
Company (other than legal fees and expenses), are approved by the Agents in
their sole discretion exercised reasonably and provided that all such fees,
commissions and expenses are set forth on a certificate provided to the Agents)
and (B) federal and state taxes incurred in connection with such sale or other
disposition, whether payable at such time or thereafter.
"Notes" means the Revolving Credit Notes and the Term Notes.
"Notice of Borrowing" has the meaning specified therefor in
Section 2.03 hereof.
"Obligations" means (i) the obligations of each Borrower to
pay, as and when due and payable (by scheduled maturity or otherwise), all
amounts from time to time owing by it in respect of any Loan Document to which
it is a party, whether for principal, interest (including, without limitation,
all interest that accrues after the commencement of any case, proceeding or
other action relating to bankruptcy, insolvency or reorganization of any
Borrower, whether or not a claim for post-filing interest is allowed in such
proceeding), Letter of Credit Obligations, fees, commissions, expense
reimbursements, indemnifications or otherwise and all Ledger Debt, and (ii) the
obligations of each Borrower to perform or observe all of its other obligations
from time to time existing under any Loan Document to which it is a party.
"Operating Lease Obligations" means all obligations for the
payment of rent for any real or personal property under leases or agreements to
lease, other than Capitalized Lease Obligations.
"Other Taxes" shall have the meaning specified therefor in
Section 2.12 hereto.
"Overadvance Amount" means (i) for the Borrowers on a combined
basis, an amount (A) up to $10,000,000 on the last day of any Fiscal Month, (B)
up to $20,000,000 at any time (other than the last day of such Fiscal Month)
during the August, September and October Fiscal Months and (C) up to $15,000,000
at any time (other than the last day of such Fiscal Month) during any other
Fiscal Month, which amount shall be allocated between the Borrowers by the
Administrative Agent pursuant to the terms of Section 2.01(b) hereof and (ii)
for each Borrower on an individual basis, the portion of the relevant amount set
forth in clause (i) above allocated by the Administrative Agent to such Borrower
pursuant to Section 2.01(b) hereof.
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<PAGE> 18
"Payment Office" means the Administrative Agent's offices
located at 1211 Avenue of the Americas, New York, NY 10036, or such other
offices as the Administrative Agent may designate and, when used in connection
with any payments made to the Administrative Agent, shall mean an account in the
name of the Administrative Agent designated to the Borrowers and the Lenders
from time to time into which the Borrowers and the Lenders shall make all
payments to the Administrative Agent under this Agreement.
"Permitted Disposition" has the meaning specified therefor in
Section 12.18.
"Permitted Investments" means (i) marketable direct
obligations issued or unconditionally guaranteed by the United States Government
or issued by any agency thereof and backed by the full faith and credit of the
United States or marketable direct obligations issued or unconditionally
guaranteed by any State or agency thereof and backed by the full faith and
credit of such State, in each case maturing within one year from the date of
acquisition thereof; (ii) commercial paper, maturing not more than 270 days
after the date of issue rated P-1 by Moody's Investors Service, Inc. or A-1 by
Standard & Poor's Ratings Group, (iii) overnight bank deposits, certificates of
deposit and bankers' acceptances in each case maturing not more than 270 days
after the date of issue, issued by any Lender or issued by commercial banking
institutions, and money market or time or demand deposit accounts maintained at
any Lender or commercial banking institutions each commercial banking
institutions (other than any Lender) of which is a member of the Federal Reserve
System and has a combined capital and surplus and undivided profits of not less
than $500,000,000, and (iv) repurchase agreements having maturities of not more
than 90 days from the date of acquisition which are entered into with the
commercial banking institutions described in clause (iii) above and which are
secured by readily marketable direct obligations of the Government of the United
States of America or any agency thereof.
"Permitted Liens" shall have the meaning specified therefor in
Section 7.02(a) hereto.
"Person" means an individual, corporation, limited liability
company, partnership, association, joint-stock company, trust, unincorporated
organization, joint venture or Governmental Authority.
"Pledge Agreements" means the Pledge and Security Agreements
made by each of the Company and the Borrowers in favor of the Collateral Agent,
each in the form of Exhibits E-1 or E-2 hereto, as applicable, as the same may
be amended or otherwise modified from time to time.
"Post-Default Rate" means a rate of interest per annum equal
to the rate of interest otherwise in effect plus 2% or, if no other rate of
interest is in effect, the Base Rate plus 2.5%.
"Prime Rate" means the rate of interest publicly announced by
NationsBank, N.A. in Charlotte, North Carolina from time to time as its prime
rate. The prime rate is determined from time to time by NationsBank, N.A. as a
means of pricing some loans to its borrowers and neither is tied to any external
rate of interest or index, nor necessarily reflects the lowest rate of interest
actually charged by NationsBank, N.A. to any particular class or category of
customers. Each change in the Prime Rate shall be effective on the first day of
the month following the date such change is announced.
"Prior Season Inventory" means, during any shipping season of
Miss Erika, finished goods Inventory that is manufactured to be shipped in the
shipping seasons of Miss Erika prior to the current shipping season of Miss
Erika.
"Pro Rata Share" means, with respect to any Lender, a fraction
(expressed as a percentage), the numerator of which shall be the amount of such
Lender's Commitment and the denominator of which shall be the Total Commitment,
provided that, if the Commitments have been reduced to zero, the numerator shall
be the aggregate unpaid principal amount of such Lender's Loans and interest in
Letter of Credit Obligations and the denominator shall be the aggregate unpaid
principal amount of all of the Loans and Letter of Credit Obligations.
"Reimbursement Obligations" means the aggregate joint and
several obligations of the Borrowers to reimburse NationsBanc, CIT and the
Lenders for amounts payable by NationsBanc, CIT or the Lenders under a Letter of
Credit Guaranty in respect of any drawing made under any Letter of Credit,
together with interest thereon as provided in Section 2.06.
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"Release" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, seeping,
migrating, dumping, or disposing of any Hazardous Material (including the
abandonment or discarding of barrels, containers, and other closed receptacles
containing any Hazardous Material) into the indoor or outdoor environment,
including ambient air, soil, surface or ground water.
"Release Certificate" has the meaning specified therefor in
Section 12.18.
"Remedial Action" shall mean all actions taken to (i) monitor,
assess, evaluate, investigate, clean up, remove, treat, remediate or contain or
in any way address Hazardous Materials in the indoor or outdoor environment,
(ii) prevent, mitigate or minimize any Release or threatened Release so that the
Release or threatened Release does not migrate or endanger or threaten to
endanger public health or welfare or the environment or (iii) perform
pre-remedial investigations and studies, and post remedial operation and
maintenance activities or any other actions authorized by 42 USC Section 9601.
"Reportable Event" means an event described in Section 4043 of
ERISA (other than an event not subject to the provision for 30-day notice to the
Pension Benefit Guaranty Corporation under the regulations promulgated under
such Section).
"Required Lenders" means, at any time, Lenders whose Pro Rata
Shares aggregate at least 60%.
"Reserve Requirements" means, for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the rates (expressed as
a decimal fraction) of reserve requirements in effect on such day (including,
without limitation, basic, supplemental, marginal and emergency reserves under
any regulations of the Board or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board) maintained by a member bank of the Federal Reserve
System. Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities
and to be subject to such reserve requirements without benefit of or credit for
proration, exceptions or offsets which may be available from time to time to any
Lender or the Affiliate of any Lender under Regulation D.
"Revolving Credit Commitment" means, with respect to each
Lender the revolving credit commitment of such Lender as set forth in Schedule
1.01A hereto, as the same may be adjusted from time to time pursuant to the
terms of this Agreement.
"Revolving Credit Loan" means a Loan made by a Lender or the
Administrative Agent to a Borrower pursuant to Section 2.01(a)(i) hereof.
"Revolving Credit Note" means a joint and several promissory
note of the Borrowers, substantially in the form of Exhibit A hereto, made
payable to the order of a Lender and evidencing the Indebtedness resulting from
the making by such Lender of Revolving Credit Loans and delivered to the
Administrative Agent pursuant to Article V hereof, as such promissory note may
be modified or extended from time to time, and any promissory note or notes
issued in exchange or replacement therefor.
"Security Agreements" means the Security Agreements made by
each of the Loan Parties in favor of the Collateral Agent, each in the form of
Exhibits D-1 or D-2 hereto, as applicable, as the same may be amended or
otherwise modified from time to time.
"Security Documents" means collectively, each Security
Agreement and each Pledge Agreement executed and delivered by a Loan Party, and
all Uniform Commercial Code financing statements required by this Agreement and
the Security Agreements to be filed with respect to the security interests in
personal property and fixtures created pursuant to such agreements, and all
other documents and agreements executed and delivered by the Loan Parties in
connection with any of the foregoing documents.
"Seller" means Miss Erika, Inc., a Delaware corporation, prior
to the effective time of the Acquisition, which entity will change its name to
Old ME Corp. immediately after the effective time of the Acquisition.
"Settlement Period" has the meaning specified therefor in
Section 2.05(b)(i).
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"Solvent" means, with respect to any Person on a particular
date, that on such date (a) the fair value of the property of such Person is not
less than the total amount of its liabilities (including, without limitation,
liabilities on all claims, whether or not reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured or unsecured) of such Person, (b) the present fair
salable value of the assets of such Person is not less than the amount that will
be required to pay the probable liability of such Person on its existing debts
as they become absolute and matured, (c) such Person is able to realize upon its
assets and pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature, and (e) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's
property would constitute unreasonably small capital.
"Spring Shipping Season" means, with respect to Miss Erika,
the shipping season beginning on January 1 and ending on May 31 of each Fiscal
Year.
"Squire" has the meaning specified therefor in the preamble
hereto.
"Subordinate Pledge and Security Agreement" means the
subordinate pledge and security agreement dated as of the date hereof between
the Company and the Seller, as the same may be amended or otherwise modified
from time to time.
"Subordination Agreement" means the subordination agreement
dated as of the date hereof between the Collateral Agent and the Seller, as the
same may be amended or otherwise modified from time to time.
"Subsidiary" means, as to any Person, any corporation of which
more than 50% of the outstanding Capital Stock having (in the absence of
contingencies) ordinary voting power to elect directors (or Persons performing
similar functions) of such corporation is, at the time of determination, owned
directly, or indirectly through one or more intermediaries, by such Person.
"Syndication Date" shall mean the earlier of (i) the date
which is 60 days after the date of the initial Loan and (ii) the date on which
the Administrative Agent determines in its sole discretion (and notifies the
Borrowers and the Lenders) that the primary syndication (and the resulting
addition of institutions as Lenders pursuant to Section 12.08) has been
completed.
"Taxes" shall have the meaning given to that term in Section
2.12.
"Term Loan" means a Loan made by a Lender to Squire pursuant
to Section 2.01(a)(ii) hereof.
"Term Loan Commitment" means, with respect to each Lender, the
term commitment of such Lender as set forth in Schedule 1.01A hereto, as the
same may be adjusted from time to time pursuant to the terms of this Agreement.
"Term Note" means a promissory note of Squire, substantially
in the form of Exhibit B hereto, made payable to the order of a Lender and
evidencing the Indebtedness resulting from the making by such Lender of such
Lender's Term Loan and delivered to the Administrative Agent pursuant to Article
V hereof, as such promissory note may be modified or extended from time to time,
and any promissory note or notes issued in exchange or replacement therefor.
"Termination Agreement" means the termination agreement, in
form and substance reasonably satisfactory to the Agents, dated as of the
effective date of the Acquisition between The Chase Manhattan Bank and the
Seller confirming the payment in full of all of the obligations of the Seller
owing to The Chase Manhattan Bank and the termination or release of all Liens
existing in favor of The Chase Manhattan Bank in and to the Assets.
"Termination Anniversary Date" means October 2, 2000 and
thereafter October 2 of each succeeding calendar year.
"Termination Event" means (i) a Reportable Event with respect
to any Employee Plan, (ii) any event
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that causes a Borrower or any of its ERISA Affiliates to incur liability under
Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of
ERISA or Section 4971 or 4975 of the Internal Revenue Code, (iii) the filing of
a notice of intent to terminate an Employee Plan under Section 4041(c) of ERISA,
(iv) the institution of proceedings by the Pension Benefit Guaranty Corporation
to terminate an Employee Plan, or (v) any other event or condition that would
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Employee Plan.
"Title Company" shall have the meaning specified therefor in
Section 7.01(m).
"Total Commitment" means the sum of the amounts of the
Lenders' Commitments.
"Total Revolving Credit Commitment" means the sum of the
Lenders' Revolving Credit Commitments.
"Total Term Loan Commitment" means the sum of the Lenders'
Term Loan Commitments.
"Transition Shipping Season" means, with respect to Miss
Erika, the shipping season beginning on April 1 and ending on June 30 of each
Fiscal Year.
"WARN" has the meaning specified therefor in Section 6.01(j).
"Working Capital" means as to any Person at a particular date,
the excess, if any, of Consolidated Current Assets of such Person and its
Consolidated Subsidiaries over Consolidated Current Liabilities of such Person
and its Consolidated Subsidiaries at such date.
SECTION 1.02. Accounting and Other Terms. Unless otherwise
expressly provided herein, each accounting term used herein shall have the
meaning given it under GAAP applied on a basis consistent with those used in
preparing the Financial Statements. All terms used in this Agreement which are
defined in Article 9 of the Uniform Commercial Code in effect in the State of
New York on the date hereof and which are not otherwise defined herein shall
have the same meanings herein as set forth therein.
SECTION 1.03. Time References. Unless otherwise indicated
herein, all references to time of day refer to Eastern standard time or Eastern
daylight saving time, as in effect in New York City on such day. For purposes of
the computation of a period of time from a specified date to a later specified
date, the word "from" means "from and including" and the words "to" and "until"
each means "to but excluding", provided, however, that with respect to a
computation of fees or interest payable to the Agents, the Lenders or the L/C
Issuer, such period shall in any event consist of at least one full day.
ARTICLE II
THE LOANS
SECTION 2.01. Commitments. (a) Subject to the terms and
conditions and relying upon the representations and warranties set forth herein,
each Lender severally agrees to make the following Loans to the Borrowers:
(i) Revolving Credit Loans, which may be
either A Revolving Credit Loans to Squire or B Revolving Credit Loans to Miss
Erika, at any time and from time to time from the Effective Date to the Final
Maturity Date, or until the earlier reduction of its Revolving Credit Commitment
to zero in accordance with the terms hereof, in an aggregate principal amount of
Revolving Credit Loans at any time outstanding not to exceed the amount of such
Lender's Revolving Credit Commitment; and
(ii) a Term Loan to Squire on the Effective
Date in a principal amount not to exceed such Lender's Term Loan Commitment.
(b) Notwithstanding the foregoing, (i) the aggregate
principal amount of Revolving Credit Loans outstanding at any time to the
Borrowers on a combined basis shall not exceed the lowest of (A) the
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difference between (1) the Total Revolving Credit Commitment and (2) the
aggregate Letter of Credit Obligations, (B) the difference between (1) the then
current Borrowing Base of the Borrowers on a combined basis and (2) the
aggregate Letter of Credit Obligations, and (C) $70,000,000, (ii) the aggregate
principal amount of A Revolving Credit Loans outstanding at any time to Squire
shall not exceed the difference between (A) the then current Borrowing Base of
Squire on an individual basis and (B) the aggregate A Letter of Credit
Obligations, and (iii) the aggregate principal amount of B Revolving Credit
Loans outstanding at any time to Miss Erika shall not exceed the difference
between (A) the then current Borrowing Base of Miss Erika on an individual basis
and (B) the aggregate B Letter of Credit Obligations, provided that (x) the
Lenders agree to include the Overadvance Amount as part of the Borrowing Base,
(y) no Borrower shall be permitted to obtain a Revolving Credit Loan that
results in such Borrower having an Overadvance Amount if and to the extent that,
at such time, the other Borrower has positive Availability, and (z) except as
provided in clause (y) above, the Overadvance Amount shall be allocated between
the Borrowers by the Administrative Agent in the exercise of its reasonable
business judgment based upon such factors as the Administrative Agent may deem
appropriate.
(c) Within the foregoing limits, the Borrowers may
borrow, repay and reborrow Revolving Credit Loans, on or after the Effective
Date and prior to the Final Maturity Date, subject to the terms, provisions and
limitations set forth herein. Any principal amount of a Term Loan which is
repaid or prepaid may not be reborrowed.
SECTION 2.02. Loans. Except as otherwise provided in Section
2.05, Loans shall be made ratably by the Lenders in accordance with their
respective Revolving Credit Commitments and Term Loan Commitments, as the case
may be. The Term Loan shall be made on the Effective Date by the Lenders against
delivery hereunder of the Term Notes, and the initial Revolving Credit Loans
shall be made on or after the Effective Date against delivery hereunder of the
Revolving Credit Notes.
SECTION 2.03. Making the Loans. A Borrower shall give the
Administrative Agent prior telephone notice (which notice, if requested by the
Administrative Agent, must be promptly confirmed in writing in substantially the
form of Exhibit J hereto (a "Notice of Borrowing")) (i) not later than 11:00
a.m. (New York City time) on the date of the proposed borrowing, in the case of
a borrowing consisting of Base Rate Loans, or (ii) not later than 12:00 noon
(New York City time) three Business Days prior to such proposed borrowing in the
case of a borrowing consisting of Eurodollar Loans, provided that Eurodollar
Loans will only be made on the first Business Day of a month. Such Notice of
Borrowing shall be irrevocable and shall specify the Borrower that is requesting
such Loan, the principal amount of the proposed borrowing (which, in the case of
a Eurodollar Loan that is a Revolving Credit Loan, must be in a minimum amount
of $5,000,000 and, in the case of a Eurodollar Loan that is a Term Loan, must be
in a minimum amount of $10,000,000 and, in each case, in multiples of $1,000,000
in excess thereof), whether such Loan is requested to be a Base Rate Loan or a
Eurodollar Loan and, in the case of a Eurodollar Loan, the Initial Interest
Period for such Eurodollar Loan, the use of the proceeds of such proposed Loan,
and the proposed borrowing date, which must be a Business Day and, in the case
of a Eurodollar Loan, the first Business Day of a month, and such Borrower shall
be bound to make a borrowing in accordance therewith. At no time shall the
principal amount of Revolving Credit Loans that are Eurodollar Loans exceed
$40,000,000 in the aggregate for the Borrowers and at no time shall the
principal amount of the Term Loan that is a Eurodollar Loan exceed $12,000,000.
Notwithstanding anything to the contrary contained herein, prior to the
Syndication Date, all Loans shall be incurred and maintained as Base Rate Loans.
The Administrative Agent may act without liability upon the basis of written,
telecopy or telephone notice believed by the Administrative Agent in good faith
to be from a Borrower (or from any officer thereof designated in writing to the
Administrative Agent), and each Borrower hereby waives the right to dispute the
Administrative Agent's record of the terms of any such telephonic Notice of
Borrowing.
SECTION 2.04. Notes; Repayment of Loans. (a) The Term Loan
made by a Lender shall be evidenced by a Term Note, each duly executed by
Squire, dated the Effective Date and delivered to and made payable to the order
of such Lender in a principal amount equal to such Lender's Term Loan
Commitment. All Revolving Credit Loans made by a Lender shall be evidenced by a
single Revolving Credit Note, duly executed by the Borrowers, dated the
Effective Date, and delivered to and made jointly and severally payable to the
order of such Lender in a principal amount equal to its Revolving Credit
Commitment on such date.
(b) The outstanding principal balance of each
Revolving Credit Loan shall be due and
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payable on the Final Maturity Date. The Term Loans shall be payable as to
principal in thirty-five (35) equal installments of $250,000 on the first day of
each month following the Effective Date, beginning on November 1, 1997 and a
final installment of $6,250,000 on October 2, 2000; provided, however that the
last such installment shall be in the amount necessary to repay in full the
principal amount of the Term Loans outstanding on October 2, 2000.
SECTION 2.05. Funding and Settlement Procedures.
(a) (i) Except as otherwise provided in this
subsection 2.05(a), all Loans under this Agreement shall be made by the Lenders
simultaneously and proportionately according to their Pro Rata Shares of the
Total Term Loan Commitment or the Total Revolving Credit Commitment, as the case
may be, it being understood that no Lender shall be responsible for any default
by any other Lender in such other Lender's obligation to make a Loan requested
hereunder nor shall the relevant Commitment of any Lender to make the Loan
requested be increased or decreased as a result of the default by any other
Lender in such other Lender's obligation to make a Loan requested hereunder.
(ii) Notwithstanding any other provision of
this Agreement, in order to reduce the number of fund transfers among the
Borrowers, the Lenders and the Agents, the Borrowers, the Lenders and the Agents
agree that the Administrative Agent may, but shall not be obligated to, and the
Borrowers and the Lenders hereby irrevocably authorize the Administrative Agent
to, fund, on behalf of the Lenders, Revolving Credit Loans pursuant to Sections
2.02 and 2.03, subject to the procedures for settlement set forth in subsection
2.05(b); provided, however, that (A) the Administrative Agent shall in no event
fund such Revolving Credit Loan if the Administrative Agent shall have received
written notice from the Required Lenders on the Business Day prior to the date
of the proposed Revolving Credit Loan that one or more of the conditions
precedent contained in Section 5.02 hereof will not be satisfied on the date of
the proposed Revolving Credit Loan and (B) the Administrative Agent shall not
otherwise be required to determine that, or take notice whether, the conditions
precedent in Section 5.02 have been satisfied. If the Administrative Agent
elects not to fund a requested Revolving Credit Loan on behalf of the Lenders,
promptly after receipt of a Notice of Borrowing, the Administrative Agent shall
so notify each Lender. If the Administrative Agent notifies the Lenders that it
will not fund a requested Revolving Credit Loan on behalf of the Lenders, each
Lender shall make its Pro Rata Share of the Loan available to the Administrative
Agent, in immediately available funds, at the Payment Office no later than 2:00
p.m. (New York City time) on the date of the proposed Loan. The Administrative
Agent will make the proceeds of such Loans available to the appropriate Borrower
on the day of the proposed Loan by causing an amount, in immediately available
funds, equal to the proceeds of all such Loans received by the Administrative
Agent at the Payment Office or the amount funded by the Administrative Agent on
behalf of the Lenders to be deposited in an account designated by the
appropriate Borrower.
(iii) If the Administrative Agent has
notified the Lenders that the Administrative Agent will not fund a particular
Loan pursuant to subsection 2.05(a)(ii) on behalf of the Lenders, the
Administrative Agent may assume that such Lender has made such amount available
to the Administrative Agent on such day and the Administrative Agent, in its
sole and absolute discretion, may, but shall not be obligated to, cause a
corresponding amount to be made available to the appropriate Borrower on such
day. If, in such case, the Administrative Agent makes such corresponding amount
available to the appropriate Borrower and such corresponding amount is not in
fact made available to the Administrative Agent by such Lender, such Lender and
each of the Borrowers, severally agree to repay to the Administrative Agent
forthwith on demand such corresponding amount together with interest thereon for
each day from the date such amount is made available to such Borrower until the
date such amount is repaid to the Administrative Agent, at (A) in the case of
such Borrower, a rate per annum equal to the higher of the Federal Funds Rate
and the interest rate applicable thereto pursuant to Section 2.06 and (B) in the
case of such Lender, at the Federal Funds Rate for three Business Days and
thereafter at the Prime Rate. If such Lender shall repay to the Administrative
Agent such corresponding amount, such amount so repaid shall constitute such
Lender's Pro Rata Share of such Revolving Credit Loan.
(iv) Nothing in this Section 2.05(a) shall
be deemed to relieve any Lender from its obligation to fulfill its Revolving
Credit Commitment hereunder or to prejudice any rights that the Administrative
Agent or a Borrower may have against any Lender as a result of any default by
such Lender hereunder.
(b) (i) With respect to all periods for which the
Administrative Agent, on behalf of the Lenders, has funded Revolving Credit
Loans pursuant to subsection 2.05(a), on the first Business Day after the
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last day of each week, or such shorter period as the Administrative Agent may
from time to time select (any such week or shorter period being herein called a
"Settlement Period"), the Administrative Agent shall notify each Lender of the
average daily unpaid principal amount of the Revolving Credit Loans outstanding
during such Settlement Period. In the event that such amount is greater than the
average daily unpaid principal amount of the Revolving Credit Loans outstanding
during the Settlement Period immediately preceding such Settlement Period (or,
if there has been no preceding Settlement Period, the amount of the Revolving
Credit Loans made on the date of such Lender's initial funding), each Lender
shall promptly make available to the Administrative Agent such Lender's Pro Rata
Share of the difference in immediately available funds. In the event that such
amount is less than such average daily unpaid principal amount, the
Administrative Agent shall promptly pay over to each other Lender such Lender's
Pro Rata Share of the difference in immediately available funds. In addition, if
the Administrative Agent shall so request at any time when a Default or an Event
of Default shall have occurred and be continuing, or any other event shall have
occurred as a result of which the Administrative Agent shall determine that it
is desirable to present claims against the Borrowers for repayment, each Lender
shall promptly remit to the Administrative Agent or, as the case may be, the
Administrative Agent shall promptly remit to each Lender, sufficient funds to
adjust the interests of the Lenders in the then outstanding Revolving Credit
Loans to such an extent that, after giving effect to such adjustment, each
Lender's interest in the then outstanding Revolving Credit Loans will be equal
to its Pro Rata Share thereof. The obligations of the Administrative Agent and
each Lender under this subsection 2.05(b) shall be absolute and unconditional.
Each Lender shall only be entitled to receive interest on its Pro Rata Share of
the Revolving Credit Loans which have been funded by such Lender.
(ii) In the event that any Lender fails to
make any payment required to be made by it pursuant to subsection 2.05(b)(i),
the Administrative Agent shall be entitled to recover such corresponding amount
on demand from such Lender together with interest thereon, for each day from the
date such payment was due until the date such amount is paid to the
Administrative Agent, at the Federal Funds Rate for three Business Days and
thereafter at the Prime Rate. During the period in which such Lender has not
paid such corresponding amount to the Administrative Agent, notwithstanding
anything to the contrary contained in this Agreement or any other Loan Document,
the amount so advanced by the Administrative Agent to any Borrower shall, for
all purposes hereof, be a Loan made by the Administrative Agent for its own
account. Upon any such failure by a Lender to pay the Administrative Agent, the
Administrative Agent shall promptly thereafter notify the Borrowers of such
failure and the Borrowers shall immediately pay such corresponding amount to the
Administrative Agent for its own account.
SECTION 2.06. Interest.
(a) Revolving Credit Loans. Each Revolving Credit
Loan which is a Eurodollar Loan shall bear interest on the principal amount
thereof from time to time outstanding from the date of such Loan until such
principal amount becomes due, at a rate per annum equal to the Eurodollar Rate
for the Interest Period in effect for such Loan plus (i) 2.75% prior to the
payment in full of the Term Loan and (ii) 2.50% after the payment in full of the
Term Loan. Interest shall accrue from and include the first date of an Interest
Period, but exclude the last day of such Interest Period. Each Revolving Credit
Loan which is a Base Rate Loan shall bear interest on the principal amount
thereof from time to time outstanding from the date of such Loan, until such
principal amount becomes due, at a rate per annum equal to (A) the Base Rate
less .25% prior to the payment in full of the Term Loan and (B) the Base Rate
less .50% after the payment in full of the Term Loan.
(b) Term Loan. The portion of the Term Loan that is a
Eurodollar Loan shall bear interest on the principal amount thereof from time to
time outstanding from the date of such Term Loan until such principal amount
becomes due at a rate per annum equal to the Eurodollar Rate for the Interest
Period in effect for such Loan plus (i) 3.25% on and before September 27, 1999
and (ii) 3.75% thereafter. Interest shall accrue from and include the first date
of an Interest Period, but exclude the last day of such Interest Period. The
portion of the Term Loan which is a Base Rate Loan shall bear interest on the
principal amount thereof from time to time outstanding from the date of such
Loan until such principal amount becomes due, at a rate per annum equal to the
Base Rate plus (i) .25% on and before September 27, 1999 and (ii) .75%
thereafter.
(c) Default Interest. Upon the occurrence and during
the continuance of an Event of Default, all outstanding principal of the Loans
and all outstanding Reimbursement Obligations and (to the extent permitted by
law) interest which is not paid when due, may, at the option of the
Administrative Agent or the Required
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Lenders, bear interest until such amount is paid in full at a fluctuating
interest rate per annum equal at all times to the Post-Default Rate.
(d) Interest Payment. Interest on each Eurodollar
Loan shall be payable, in arrears, on the last day of each Interest Period of
such Eurodollar Loan and, in the case of any Eurodollar Loan of six month
duration, the day that interest would have been payable if such Eurodollar Loan
had an Interest Period of three months. Interest on each Base Rate Loan shall be
payable monthly, in arrears, on the first day of each month, commencing on the
first day of the month following the month in which such Loan is made, and at
maturity (whether upon demand, by acceleration or otherwise). Interest at the
Post-Default Rate shall be payable on demand. The Borrowers hereby authorize the
Administrative Agent to, and the Administrative Agent may, from time to time,
charge the Loan Account pursuant to Section 4.02 hereof with the amount of any
interest payment due hereunder.
(e) General. All interest shall be computed on the
basis of a year of 360 days for the actual number of days, including the first
day but excluding the last day, elapsed.
SECTION 2.07. Reduction of Commitment; Prepayment of Loans.
(a) The Total Term Loan Commitment shall
automatically terminate in full at 5:00 p.m. on the Effective Date. The
Borrowers may at any time or from time to time and without penalty or premium
reduce the Total Revolving Credit Commitment to an amount (which may be zero)
not less than the sum of the unpaid principal amount of all Revolving Credit
Loans then outstanding plus the principal amount of all Revolving Credit Loans
not yet made as to which notice has been given by a Borrower under Section 2.03
hereof plus the Letter of Credit Obligations at such time plus the stated amount
of all Letters of Credit not yet issued as to which a request has been made and
not withdrawn. Any reduction shall be in an amount which is an integral multiple
of $5,000,000. Reduction of the Total Revolving Credit Commitment shall be made
by providing not less than two Business Days' written notice (which notice shall
be irrevocable) to such effect to the Administrative Agent (which notice the
Administrative Agent shall promptly transmit to each Lender). Reductions of the
Total Revolving Credit Commitment are irrevocable and may not be reinstated.
Each such reduction shall reduce the Revolving Credit Commitment of each Lender
proportionately in accordance with its Pro Rata Share.
(b) Subject to the terms and conditions contained in
this Section 2.07, Section 2.10 hereof and elsewhere in this Agreement, the
Borrowers shall have the right to prepay, in whole or in part, the Revolving
Credit Loans and the Term Loans, provided that, subject to the terms of Section
2.08(a) hereof, the Borrowers shall be obligated to pay the Early Termination
Fee with respect to any Loans prepaid in connection with a termination of the
Total Revolving Credit Commitment prior to September 25, 2000.
(c) If at any time (i) the Borrowing Base of the
Borrowers calculated on a combined basis is less than the sum of the outstanding
principal on all Revolving Credit Loans outstanding plus the outstanding amount
of all Letter of Credit Obligations, (ii) the Borrowing Base of Squire on an
individual basis is less than the sum of the outstanding principal on all A
Revolving Credit Loans plus the outstanding amount of all A Letter of Credit
Obligations or (iii) the Borrowing Base of Miss Erika on an individual basis is
less than the sum of the outstanding principal on all B Revolving Credit Loans
plus the outstanding amount of all B Letter of Credit Obligations, Squire or
Miss Erika, as appropriate, will (A) immediately give notice of such occurrence
to the Administrative Agent and (B) prepay the appropriate Revolving Credit
Loans in an amount which will reduce the sum of the outstanding principal on all
such Revolving Credit Loans, the A Revolving Credit Loans or the B Revolving
Credit Loans, as the case may be, to an amount less than or equal to the then
current Borrowing Base of the Borrowers on a combined basis or the Borrowing
Base of Squire or Miss Erika on an individual basis, as the case may be. If at
any time after the applicable Borrowers have complied with the first sentence of
this Section 2.07(c), the aggregate Letter of Credit Obligations is greater than
the then current Borrowing Base of the Borrowers on a combined basis, the A
Letter of Credit Obligations is greater than current Borrowing Base of Squire on
an individual basis or the B Letter of Credit Obligations is greater than the
current Borrowing Base of Miss Erika on an individual basis, Squire or Miss
Erika, as appropriate, shall provide cash collateral to the Collateral Agent in
the amount of such excess, which cash collateral shall be deposited in an
interest bearing account maintained by the Collateral Agent and, provided that
no Event of Default shall have occurred and be continuing, returned to Squire or
Miss Erika, as appropriate, at such time as (x) the aggregate Letter of Credit
Obligations plus the aggregate principal amount of all outstanding Revolving
Credit Loans no longer exceeds the then current Borrowing Base of the Borrowers
on a combined basis, (y) the aggregate A Letter of Credit Obligations
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plus the aggregate principal amount of all outstanding A Revolving Credit Loans
no longer exceeds the then current Borrowing Base of Squire on an individual
basis or (z) the aggregate B Letter of Credit Obligations plus the aggregate
principal amount of all outstanding B Revolving Credit Loans no longer exceeds
the then current Borrowing Base of Miss Erika on an individual basis, as the
case may be.
(d) Within ten (10) Business Days of delivery to the
Administrative Agent of audited annual financial statements pursuant to Section
7.01(a)(ii) hereof or, if such financial statements are not delivered to the
Administrative Agent on the date such statements are required to be delivered
pursuant to such Section 7.01(a)(ii), ten (10) Business Days after the date such
statements are required to be delivered to the Administrative Agent pursuant to
Section 7.01(a)(ii), Squire shall pay to the Administrative Agent an amount
equal to the Excess Cash Flow for the Fiscal Year covered by such financial
statements. Each prepayment pursuant to this paragraph (d) shall be applied to
principal installments of the Term Loan in the inverse order of maturity.
(e) Squire shall immediately prepay the outstanding
principal amount of the Term Loan in full in the event the Total Revolving
Credit Commitment is terminated for any reason.
(f) The Borrowers shall immediately prepay the Loans
and provide cash collateral to the Collateral Agent in the amount of all Letter
of Credit Obligations (which cash collateral shall be deposited in an interest
bearing account maintained by the Collateral Agent) if, without its consent,
NationsBanc has been replaced as the Factor by a Borrower.
(g) Promptly following, and in any event within two
Business Days after, the receipt by the Company or any of its Subsidiaries of
any Net Proceeds from the issuance, sale, assignment, transfer or other
disposition by the Company or any of its Subsidiaries of any Capital Stock, debt
securities or assets of the Company or any of its Subsidiaries, Squire shall
make a prepayment of the Term Loan in an amount equal to the amount of such Net
Proceeds, provided that Squire shall not be required to prepay the Term Loan in
the case of (i) the issuance of Capital Stock of the Company pursuant to the
Company's 1994 Stock Option Plan or pursuant to other plans or arrangements with
respect to options or warrants issued to the employees, consultants and
directors of the Company or any Borrower to the extent such issuance results in
cash Net Proceeds of less than $100,000 to the Company and the Borrowers in the
aggregate in any Fiscal Year, (ii) the issuance of Capital Stock of the Company
to make the Earn Out Payment, (iii) intercompany indebtedness between the Loan
Parties permitted by Sections 7.02(b) and 7.02(f) hereof, (iv) sales of
Inventory (A) by the Borrowers and their Subsidiaries in the ordinary course of
business and (B) by Norty's in going out of business sales, (v) sales of
Accounts Receivable by the Borrowers pursuant to the Factoring Agreements, (vi)
the disposition of obsolete or worn-out property in the ordinary course of
business, (vii) sales of the Capital Stock or assets of Norty's, and (viii)
sales or dispositions of assets other than Inventory, provided that the
aggregate Net Proceeds of such sales or dispositions do not exceed $100,000 in
the aggregate in any Fiscal Year. The aggregate amount of Net Proceeds shall be
applied first to the principal installments of the Term Loan in the inverse
order of maturity and, if any Net Proceeds remain after such application,
second, to the Revolving Credit Loans.
(h) Subject to paragraph (b) of Section 2.10 of this
Agreement, the Administrative Agent shall on each Business Day apply all funds
received from the Factor pursuant to the Assignment Agreement or representing
other proceeds of Accounts Receivable or Inventory, to the payment, in whole or
in part, of the outstanding Revolving Credit Loans and, if any proceeds remain
after such application, to the principal installments of the Term Loan in the
inverse order of maturity.
(i) Immediately upon the receipt by any Loan Party of
any insurance proceeds, the Borrowers shall prepay the Revolving Credit Loans in
an amount equal to the insurance proceeds received by such Loan Party, provided
that (i) except with respect to the proceeds from key-man life insurance and
except during the continuance of an Event of Default, proceeds from insurance
covering damage to property not in excess of $500,000 for any one occurrence
shall not be required to be so prepaid on such date to the extent such insurance
proceeds are used to replace or restore the properties or assets in respect of
which such proceeds were paid if the Borrowers deliver a certificate to the
Administrative Agent on or prior to such date stating that such proceeds shall
be used to replace or restore any such properties or assets within a period
specified in such certificate not to exceed 60 days after the date of receipt of
such proceeds (which certificate shall set forth estimates of the proceeds to be
so expended) and (ii) if all or any portion of such proceeds not so applied to
the repayment of the Revolving Credit Loans are not so used within the period
specified in the relevant certificate furnished pursuant to clause (i) above,
such remaining portion shall be
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prepaid on the last day of such specified period. Such insurance proceeds shall
be applied to the outstanding Revolving Credit Loans and, if any proceeds remain
after such application, to the principal installments of the Term Loan in the
inverse order of maturity.
(j) Notwithstanding anything to the contrary
contained in this Agreement, the Borrowers shall repay the Revolving Credit
Loans in an amount sufficient to cause the Overadvance Amount calculated on a
combined basis to equal zero on the last day of each of two consecutive Fiscal
Months in each period of twelve consecutive months.
(k) The Borrowers shall repay the Revolving Credit
Loans in the amount of any payments received as (i) principal of the
non-negotiable limited recourse promissory notes listed on Schedule 7.02(k)(ii)
hereof and (ii) principal of or interest on loans or advances made pursuant to
Section 7.02(f)(xii) hereof and dividends or distributions made by Norty's to
Squire pursuant to Section 7.02(i)(iv) hereof, in each case on the Business Day
following the receipt of such payments.
(l) Any prepayment made pursuant to this Section 2.07
shall be accompanied by accrued interest on the principal amount being prepaid
to the date of prepayment.
(m) Except as otherwise expressly provided in this
Section 2.07, payments with respect to any paragraph of this Section 2.07 are in
addition to payments made or required to be made under any other paragraph of
this Section 2.07. Prepayments of the Revolving Credit Loans pursuant to this
Section 2.07 shall be applied to the A Revolving Credit Loan or the B Revolving
Credit Loan by the Administrative Agent, first, based upon the Borrower making
such prepayment and, second, based upon such factors as the Administrative Agent
deem appropriate in the exercise of its reasonable business judgment (which
factors may include the minimization or reduction of the payments required by
Section 2.10(a) hereof).
SECTION 2.08. Fees.
(a) Early Termination Fee. If the Total Revolving
Credit Commitment is terminated prior to September 25, 2000 the Borrowers shall
pay to the Administrative Agent for the Pro Rata Share of the Lenders, on the
date of such termination, the Early Termination Fee, provided, that the Early
Termination Fee shall not be payable if (i) the Loans are prepaid from the
proceeds generated by the public sale or the private sale, pursuant to Rule 144A
of the Securities Act of 1933 of Capital Stock, of debt securities or
convertible debt securities of the Company or any of its Subsidiaries, (ii) the
Total Revolving Credit Commitment is terminated as a result of an Event of
Default and the Loans are not repaid from the proceeds generated from a third
party refinancing, other than a refinancing described in clause (i) above, or
(iii) only the Term Loan is prepaid, in whole or in part.
(b) Other Fees. The Borrowers shall jointly and
severally pay to the Agents the fees set forth in the Fee Letter at the times
set forth in the Fee Letter. All fees required to be paid to the Agents pursuant
to the Fee Letter shall be paid to the Administrative Agent, for the account of
the Agents. All fees required to be paid to the Lenders pursuant to this
Agreement shall be paid to the Administrative Agent for the Pro Rata Share of
the Lenders. All fees under this Agreement and the Fee Letter are non-refundable
under all circumstances.
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SECTION 2.09. Eurodollar Rate Not Determinable; Illegality or
Impropriety.
(a) In the event, and on each occasion, that on or
before the day on which the Eurodollar Rate is to be determined for a borrowing
that is to include Eurodollar Loans, the Administrative Agent has determined in
good faith that, or has been advised by the Required Lenders that, (i) the
Eurodollar Rate cannot be determined for any reason, (ii) the Eurodollar Rate
will not adequately and fairly reflect the cost of maintaining Eurodollar Loans
or (iii) Dollar deposits in the principal amount of the applicable Eurodollar
Loans are not available in the interbank eurodollar market where the eurodollar
and foreign currency and exchange operations in respect of the Lenders'
Eurodollar Loans are then being conducted, the Administrative Agent shall, as
soon as practicable thereafter, give written notice of such determination to the
Borrowers and the other Lenders. In the event of any such determination, any
request by the Borrowers for a Eurodollar Loan pursuant to Section 2.03 shall,
until, in the case of such a determination by the Required Lenders, the
Administrative Agent has been advised by the Required Lenders and the
Administrative Agent has so advised such Borrower that, or in the case of a
determination by the Administrative Agent, the Administrative Agent has advised
such Borrower and the other Lenders that, the circumstances giving rise to such
notice no longer exist, be deemed to be a request for a Base Rate Loan. Each
determination by the Administrative Agent and/or the Required Lenders hereunder
shall be conclusive and binding absent manifest error.
(b) In the event that it shall be unlawful for any
Lender to make, maintain or fund any Eurodollar Loan as contemplated by this
Agreement, then such Lender shall forthwith give notice thereof to the
Administrative Agent and the Borrowers describing such illegality in reasonable
detail. Effective immediately upon the giving of such notice, the obligation of
such Lender to make Eurodollar Loans shall be suspended for the duration of such
illegality and, if and when such illegality ceases to exist, such suspension
shall cease, and such Lender shall notify the Administrative Agent and the
Borrowers. If any such change shall make it unlawful for any Lender to maintain
any outstanding Eurodollar Loan as a Eurodollar Loan, such Lender shall, upon
the happening of such event, notify the Administrative Agent and the Borrowers,
and the Borrowers shall immediately, or if permitted by applicable law, rule,
regulation, order, decree, interpretation, request or directive, at the end of
the then current Interest Period for such Eurodollar Loan, convert each such
Eurodollar Loan into a Base Rate Loan.
SECTION 2.10. Indemnity.
(a) The Borrowers hereby jointly and severally
indemnify each Lender against any loss or expense that such Lender actually
sustains or incurs (including, without limitation, any loss or expense incurred
by reason of the liquidation or reemployment of deposits or other funds acquired
by such Lender to fund or maintain any Eurodollar Loan and including loss of
anticipated profits) as a consequence of (i) any failure by the Borrowers to
fulfill on the date of any borrowing hereunder the applicable conditions set
forth in Article V, (ii) any failure by the Borrowers to borrow any Eurodollar
Loan hereunder, to convert any Base Rate Loan into a Eurodollar Loan or to
continue a Eurodollar Loan as such after notice of such borrowing, conversion or
continuation has been given pursuant to Section 2.03 or Section 2.11 hereof,
(iii) any payment, prepayment (mandatory or optional) or conversion of a
Eurodollar Loan required by any provision of this Agreement or otherwise made on
a date other than the last day of the Interest Period applicable thereto, (iv)
any default in payment or prepayment of the principal amount of any Eurodollar
Loan or any part thereof or interest accrued thereon, as and when due and
payable (at the due date thereof, by notice of prepayment or otherwise), or (v)
the occurrence of any Event of Default, including, in each such case, any loss
(including, without limitation, loss of anticipated profits) or reasonable
expense sustained or incurred in liquidating or employing deposits from third
parties acquired to effect or maintain such Loan or any part thereof as a
Eurodollar Loan. Such loss or reasonable expense shall include but not be
limited to an amount equal to the excess, if any, as reasonably determined by
such Lender, of (i) its cost of obtaining the funds for the Loan being paid or
prepaid or converted or continued or not borrowed or converted or continued
(based on the Eurodollar Rate applicable thereto) for the period from the date
of such payment, prepayment, conversion, continuation or failure to borrow,
convert or continue on the last day of the Interest Period for such Loan (or, in
the case of a failure to borrow, convert or continue, the last day of the
Interest Period for such Loan that would have commenced on the date of such
failure to borrow, convert or continue) over (ii) the amount of interest (as
reasonably determined by such Lender) that would be realized by such Lender in
re-employing the funds so paid, prepaid, converted or continued or not borrowed,
converted or continued for such Interest Period. A certificate of any Lender
setting forth in reasonable detail any amount or amounts that such Lender is
entitled to receive pursuant to this Section 2.10 and the basis for the
determination of such amount or amounts shall be delivered to the Borrowers and
shall be conclusive and binding absent manifest error.
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(b) Notwithstanding paragraph (a) of this Section
2.10, the Administrative Agent will use reasonable efforts to minimize or reduce
any such loss or expense resulting from the mandatory prepayments required by
Section 2.07 (other than paragraphs (e) and (f) thereof) of this Agreement by
(i) applying all payments and prepayments to Loans bearing interest at the Base
Rate prior to any application of payments to Loans bearing interest at the
Eurodollar Rate and (ii) in the case of Revolving Credit Loans, after all Base
Rate Loans have been paid in full, calculating any such loss or expense based
upon the net decrease in Eurodollar Loans on a day after giving effect to all
prepayments and all Loans made on such day.
SECTION 2.11. Continuation and Conversion of Loans.
(a) Subject to Section 2.09 hereof, the Borrowers
shall have the right, at any time, on three (3) Business Days' prior irrevocable
written or telecopy notice to the Administrative Agent, to continue any
Eurodollar Loan, or any portion thereof, into a subsequent Interest Period or,
after the Syndication Date, to convert any Base Rate Loan or portion thereof
into a Eurodollar Loan, or on one (1) Business Day's prior irrevocable written
or telecopy notice to the Administrative Agent, to convert any Eurodollar Loan
or portion thereof into a Base Rate Loan, subject to the following:
(i) no Eurodollar Loan may be continued as
such and no Base Rate Loan may be converted into a Eurodollar Loan,
when any Event of Default or Default shall have occurred and be
continuing at such time;
(ii) in the case of a continuation of a
Eurodollar Loan as such or a conversion of a Base Rate Loan into a
Eurodollar Loan, the aggregate principal amount of such Eurodollar Loan
shall not be less than $5,000,000 in the case of a Revolving Credit
Loan and $10,000,000 in the case of the Term Loan and, in each case, in
multiples of $1,000,000 if in excess thereof;
(iii) in the case of a conversion from a
Eurodollar Loan to a Base Rate Loan, accrued interest on the Loan (or
portion thereof) being converted shall be paid by the applicable
Borrower at the time of conversion;
(iv) a Base Rate Loan may be converted into
a Eurodollar Loan only on the first Business Day of a month;
(v) any portion of a Loan maturing or
required to be repaid in less than one month may not be converted into
or continued as a Eurodollar Loan; and
(vi) if any conversion of a Eurodollar Loan
shall be effected on a day other than the last day of an Interest
Period, the Borrowers shall jointly and severally reimburse each Lender
on demand for any loss incurred or to be incurred by it in the
reemployment of the funds released by such conversion as provided in
Section 2.10 hereof.
In the event that a Borrower shall not give notice to continue any Eurodollar
Loan into a subsequent Interest Period, such Loan shall automatically become a
Base Rate Loan at the expiration of the then current Interest Period.
SECTION 2.12. Taxes. (a) All payments made by the Borrowers
hereunder, under the Notes or under any other Loan Document shall be made
without set-off, counterclaim, deduction or other defense. All such payments
shall be made free and clear of and without deduction for any present or future
income, franchise, sales, use, excise, stamp or other taxes, levies, imposts,
deductions, charges, fees, withholdings, restrictions or conditions of any
nature now or hereafter imposed, levied, collected, withheld or assessed by any
jurisdiction (whether pursuant to United States Federal, state, local or foreign
law) or by any political subdivision or taxing authority thereof or therein, and
all interest, penalties or similar liabilities, excluding taxes on the net
income of, and branch profit taxes of, any Lender, the Agents or the L/C Issuer
imposed by the jurisdiction in which such Lender, the Agents or the L/C Issuer
is organized or any political subdivision thereof or taxing authority thereof or
any jurisdiction in which such Person's principal office or relevant lending
office is located or any political subdivision thereof or taxing authority
thereof (such nonexcluded taxes being hereinafter collectively referred to as
"Taxes"). If the Borrowers shall be required by law to deduct or to withhold any
Taxes from or in respect of any amount payable hereunder, (i) the amount so
payable shall be increased to
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the extent necessary so that after making all required deductions and
withholdings (including Taxes on amounts payable to the Lenders or the L/C
Issuer pursuant to this sentence) the Lenders or the L/C Issuer receive an
amount equal to the sum they would have received had no such deductions or
withholdings been made, (ii) the Borrowers shall make such deductions or
withholdings, and (iii) the Borrowers shall pay the full amount deducted or
withheld to the relevant taxation authority in accordance with applicable law.
Whenever any Taxes are payable by the Borrowers, as promptly as possible
thereafter, the Borrowers shall send the Lenders, the L/C Issuer and the Agents
an official receipt (or, if an official receipt is not available, such other
documentation as shall be satisfactory to the Lenders, L/C Issuer or the Agents,
as the case may be) showing payment. In addition, the Borrowers agree to pay any
present or future taxes, charges or similar levies which arise from any payment
made hereunder or from the execution, delivery, performance, recordation or
filing of, or otherwise with respect to, this Agreement, the Notes, the Letters
of Credit or any other Loan Document other than the foregoing excluded taxes
(hereinafter referred to as "Other Taxes").
(b) The Borrowers will jointly and severally
indemnify the Lenders and the L/C Issuer for the amount of Taxes or Other Taxes
(including, without limitation, any Taxes or Other Taxes imposed by any
jurisdiction on amounts payable under this Section 2.12) paid by any Lender or
the L/C Issuer and any liability (including penalties, interest and expenses for
nonpayment, late payment or otherwise) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted. This indemnification shall be paid within 30 days from the date on
which such Lender or such L/C Issuer makes written demand which demand shall
identify the nature and amount of Taxes or Other Taxes for which indemnification
is being sought and the basis of the claim.
(c) Each Lender that is organized in a jurisdiction
other than the United States, a State thereof or the District of Columbia hereby
agrees that:
(i) it shall, no later than the Effective
Date (or, in the case of a Lender which becomes a party hereto pursuant
to Section 12.08 hereof after the Effective Date, the date upon which
such Lender becomes a party hereto) deliver to the Borrowers and the
Administrative Agent:
(A) two accurate, complete and
signed originals of U.S. Internal Revenue Service Form 4224 or
successor form, or
(B) two accurate, complete and
signed originals of U.S. Internal Revenue Service Form 1001 or
successor form,
in each case indicating that such Lender is on the date of delivery
thereof entitled to receive payments of principal, interest and fees
for the account of its lending office under this Agreement free from
withholding of United States Federal income tax;
(ii) if at any time such Lender changes its
lending office or offices or selects an additional lending office it
shall, at the same time or reasonably promptly thereafter, deliver to
the Borrowers through the Administrative Agent in replacement for, or
in addition to, the forms previously delivered by it hereunder:
(A) if such changed or additional
lending office is located in the United States, two accurate,
complete and signed originals of such Form 4224 or successor
form, or
(B) two accurate, complete and
signed originals of such Form 1001 or successor form,
in each case indicating that such Lender is on the date of delivery
thereof entitled to receive payments of principal, interest and fees
for the account of such changed or additional lending office under this
Agreement free from withholding of United States Federal income tax;
and
(iii) it shall, promptly upon the Borrowers'
reasonable request to that effect, deliver to the Borrowers such other
forms or similar documentation as may be required from time to time by
any applicable law, treaty, rule or regulation in order to establish
such Lender's tax status for withholding
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purposes.
(d) If either of the Borrowers fails to perform its
obligations under this Section 2.12, the Borrowers shall jointly and severally
indemnify the Lenders and the L/C Issuer for any taxes, interest or penalties
that may become payable as a result of any such failure.
SECTION 2.13. Joint and Several Liability of the Borrowers.
(a) Notwithstanding anything in this Agreement or any
other Loan Document to the contrary (including, without limitation, the
designation of Revolving Credit Loans as A Revolving Credit Loans or B Revolving
Credit Loans and the designation of Letter of Credit Obligations as A Letter of
Credit Obligations or B Letter of Credit Obligations), each of the Borrowers
hereby accepts joint and several liability hereunder and under the other Loan
Documents in consideration of the financial accommodations to be provided by the
Agents and the Lenders under this Agreement and the other Loan Documents, for
the mutual benefit, directly and indirectly, of each of the Borrowers and in
consideration of the undertakings of the other Borrower to accept joint and
several liability for the Obligations. Each of the Borrowers, jointly and
severally, hereby irrevocably and unconditionally accepts, not merely as a
surety but also as a co-debtor, joint and several liability with the other
Borrower, with respect to the payment and performance of all of the Obligations
(including, without limitation, any Obligations arising under this Section
2.13), it being the intention of the parties hereto that all the Obligations
shall be the joint and several obligations of each of the Borrowers without
preferences or distinction among them. If and to the extent that any of the
Borrowers shall fail to make any payment with respect to any of the Obligations
as and when due or to perform any of the Obligations in accordance with the
terms thereof, then in each such event the other Borrower will make such payment
with respect to, or perform, such Obligation. Subject to the terms and
conditions hereof, the Obligations of each of the Borrowers under the provisions
of this Section 2.13 constitute the absolute and unconditional, full recourse
Obligations of each of the Borrowers enforceable against each such Person to the
full extent of its properties and assets, irrespective of the validity,
regularity or enforceability of this Agreement, the other Loan Documents or any
other circumstances whatsoever.
(b) The provisions of this Section 2.13 are made for
the benefit of the Agents, the Lenders and their successors and assigns, and may
be enforced by them from time to time against any or all of the Borrowers as
often as occasion therefor may arise and without requirement on the part of the
Agents, the Lenders or such successors or assigns first to marshall any of its
or their claims or to exercise any of its or their rights against any of the
other Borrowers or to exhaust any remedies available to it or them against any
of the other Borrowers or to resort to any other source or means of obtaining
payment of any of the Obligations hereunder or to elect any other remedy. The
provisions of this Section 2.13 shall remain in effect until all of the
Obligations shall have been paid in full or otherwise fully satisfied.
(c) Each of the Borrowers hereby agrees that it will
not enforce any of its rights of contribution or subrogation against the other
Borrowers with respect to any liability incurred by it hereunder or under any of
the other Loan Documents, any payments made by it to the Agents or the Lenders
with respect to any of the Obligations or any Collateral until such time as all
of the Obligations have been paid in full in cash. Any claim which any Borrower
may have against any other Borrower with respect to any payments to the Agents
or the Lenders hereunder or under any other Loan Documents are hereby expressly
made subordinate and junior in right of payment, without limitation as to any
increases in the Obligations arising hereunder or thereunder, to the prior
payment in full in cash of the Obligations and, in the event of any insolvency,
bankruptcy, receivership, liquidation, reorganization or other similar
proceeding under the laws of any jurisdiction relating to any Borrower, its
debts or its assets, whether voluntary or involuntary, all such Obligations
shall be paid in full in cash before any payment or distribution of any
character, whether in cash, securities or other property, shall be made to any
other Borrower therefor.
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ARTICLE III
LETTERS OF CREDIT
SECTION 3.01. Letter of Credit Guaranty.
(a) In order to assist the Borrowers in establishing
or opening documentary and standby letters of credit, which shall not have
expiration dates that exceed 270 days in the case of documentary letters of
credit and 365 days in the case of standby letters of credit (or such longer
periods as may be approved by the Agents from the date of issuance (the "Letters
of Credit"), with the L/C Issuer, the Borrowers have requested NationsBanc to
join in the applications for such Letters of Credit, and/or guarantee payment or
performance of such Letters of Credit and any drafts thereunder through the
issuance of a Letter of Credit Guaranty, thereby lending NationsBanc's credit to
that of the Borrowers, and NationsBanc hereby agrees to do so. These
arrangements shall be coordinated by NationsBanc subject to the terms and
conditions set forth below. NationsBanc shall not be required to be the issuer
of any Letter of Credit. A Borrower will be the account party for each
application for a Letter of Credit, which shall be substantially in the form of
Exhibit F hereto or on a computer transmission system approved by NationsBanc
and the L/C Issuer or such other written form or written transmission system as
may from time to time be approved by the L/C Issuer and NationsBanc, and shall
be duly completed in a manner reasonably acceptable to NationsBanc, together
with such other certificates, agreements, documents and other papers and
information as the L/C Issuer or NationsBanc may reasonably request (the "Letter
of Credit Application"). In the event of any conflict between the terms of the
Letter of Credit Application and this Agreement, for purposes of this Agreement,
the terms of this Agreement shall control.
(b) The aggregate Letter of Credit Obligations shall
not exceed the lowest of (i) the difference between (A) the Total Revolving
Credit Commitment and (B) the aggregate principal amount of Revolving Credit
Loans then outstanding, (ii) the difference between (A) the aggregate Borrowing
Base for the Borrowers on a combined basis and (B) the aggregate principal
amount of the Revolving Credit Loans then outstanding and (iii) the L/C
Subfacility. In addition (x) the A Letter of Credit Obligations shall not exceed
the difference between (1) the then current Borrowing Base of Squire on an
individual basis and (2) the aggregate principal amount of A Revolving Credit
Loans and (y) the B Letter of Credit Obligations shall not exceed the difference
between (1) the then current Borrowing Base of Miss Erika on an individual basis
and (2) the aggregate principal amount of B Revolving Credit Loans, provided
that (AA) no Borrower shall be permitted to obtain a Letter of Credit that
results in such Borrower having an Overadvance Amount if and to the extent that,
at such time, the other Borrower has positive availability, (BB) except as
provided in clause (AA) above, the Overadvance Amount shall be allocated between
the Borrowers by the Administrative Agent, as described in Section 2.01(b)
hereof, and (CC) nothing contained herein shall prohibit a Borrower with
positive Availability at any time from opening a Letter of Credit for the
account of another Borrower that does not have positive Availability at such
time. Not more than $6 million of such Letter of Credit Obligations shall be
Letter of Credit Obligations with respect to standby Letters of Credit. In
addition, the terms and conditions of all Letters of Credit and all changes or
modifications thereof by the Borrowers and/or the L/C Issuer shall in all
respects be subject to the prior approval of NationsBanc (or, in the case of
Existing Letters of Credit issued by The Chase Manhattan Bank, CIT) in the
reasonable exercise of its sole and absolute discretion; provided, however, that
(i) the expiry date of all Letters of Credit shall be no later than forty-five
days prior to the Final Maturity Date unless, on or prior to forty-five days
prior to the Final Maturity Date, either such Letters of Credit shall be cash
collateralized in an amount equal to 105% of the face amount of such Letters of
Credit or the Borrowers shall provide the Agents and the Lenders with an
indemnification, in form and substance reasonably satisfactory to the Collateral
Agent, from a commercial bank or other financial institution acceptable to the
Collateral Agent for any Letter of Credit Obligations with respect to such
Letters of Credit and (ii) the Letters of Credit and all documentation in
connection therewith shall be in form and substance reasonably satisfactory to
NationsBanc and the L/C Issuer. At the request of a Borrower, NationsBanc may,
in its sole discretion, assist such Borrower in establishing or opening standby
Letters of Credit that have expiry dates that will automatically be extended for
an additional period or periods unless the L/C Issuer notifies the beneficiary
that the then existing expiry date will not be extended ("Evergreen Letters of
Credit"), provided that (x) NationsBanc shall have no obligation to assist any
Borrower in establishing or opening any Evergreen Letter of Credit, (y)
NationsBanc may at any time, in its sole discretion, instruct the L/C Issuer to
notify the beneficiary of an Evergreen Letter of Credit that the expiry date of
such Letter of Credit will not be automatically extended, if an Event of Default
or Default has occurred and is continuing, and (z) all Evergreen Letters of
Credit shall be subject to all of the terms and conditions contained in this
Agreement applicable to Letters of Credit.
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(c) The Administrative Agent shall have the right,
without notice to the Borrowers, to charge the relevant Loan Account with the
amount of any and all indebtedness, liabilities and obligations of any kind
(including indemnification for breakage costs, capital adequacy and reserve
requirement charges) incurred by the Agents, NationsBanc, CIT or the Lenders
under the Letter of Credit Guaranty or incurred by an L/C Issuer with respect to
a Letter of Credit at the earlier of (i) payment by NationsBanc, CIT or the
Lenders under the Letter of Credit Guaranty or (ii) the occurrence of an Event
of Default. Any amount charged to a Loan Account shall be deemed a Revolving
Credit Loan hereunder made by the Lenders to the relevant Borrower, funded by
the Administrative Agent on behalf of the Lenders and subject to Section 2.05 of
this Agreement. Any charges, fees, commissions, costs and expenses charged to
NationsBanc or CIT for a Borrower's account by the L/C Issuer in connection with
or arising out of Letters of Credit or transactions relating thereto will be
charged to the relevant Loan Account in full when charged to or paid by
NationsBanc or CIT and, when charged, shall be conclusive on such Borrower
absent manifest error. Each of the Lenders and the Borrowers agrees that the
Administrative Agent shall have the right to make such charges regardless of
whether any Event of Default or Default shall have occurred and be continuing or
whether any of the conditions precedent in Section 5.02 have been satisfied.
(d) The Borrowers unconditionally and jointly and
severally indemnify each Agent, NationsBanc, CIT and each Lender and hold each
Agent, NationsBanc, CIT and each Lender harmless from any and all loss, claim or
liability incurred by any Agent, NationsBanc, CIT or any Lender arising from any
transactions or occurrences relating to Letters of Credit, any drafts or
acceptances thereunder, the Collateral relating thereto, and all Obligations in
respect thereof, including any such loss or claim due to any action taken by the
L/C Issuer, other than for any such loss, claim or liability arising out of the
gross negligence or willful misconduct of the Agents, NationsBanc, CIT or any
Lender as determined by a final judgment of a court of competent jurisdiction.
The Borrowers further agree to jointly and severally hold the Agents,
NationsBanc, CIT and each Lender harmless from any errors or omission,
negligence or misconduct by the L/C Issuer. The Borrowers' unconditional, joint
and several obligations to the Agents, NationsBanc, CIT and each Lender with
respect to the Letters of Credit hereunder shall not be modified or diminished
for any reason or in any manner whatsoever, other than as a result of the
Agents', NationsBanc's, CIT's or such Lender's gross negligence or willful
misconduct as determined by a final judgment of a court of competent
jurisdiction. The Borrowers agree that any charges incurred by NationsBanc, CIT
or the L/C Issuer for a Borrower's account hereunder may be charged to the
relevant Loan Account.
(e) None of the Agents, NationsBanc, CIT, the Lenders
and the L/C Issuer shall be responsible for the existence, character, quality,
quantity, condition, packing, value or delivery of the goods purporting to be
represented by any documents; any difference or variation in the character,
quality, quantity, condition, packing, value or delivery of the goods from that
expressed in the documents; the validity, sufficiency or genuineness of any
documents or of any endorsements thereof even if such documents should in fact
prove to be in any or all respects invalid, insufficient, fraudulent or forged;
the time, place, manner or order in which shipment is made; partial or
incomplete shipments, or failure or omission to ship any or all of the goods
referred to in the Letters of Credit or documents; any deviation from
instructions, delay, default, or fraud by the shipper and/or anyone else in
connection with the Collateral or the shipping thereof; or any breach of
contract between the shipper or vendors and the Borrowers. Furthermore, without
limiting any of the foregoing, none of the Agents, NationsBanc, CIT and the
Lenders shall be responsible for any act or omission with respect to or in
connection with any goods covered by any Letter of Credit except in the case of
the Agents', NationsBanc's, CIT's or the Lenders' gross negligence or willful
misconduct as determined by a final judgment of a court of competent
jurisdiction.
(f) The Borrowers jointly and severally agree that
any action taken by any Agent, NationsBanc, CIT or any Lender, if taken in good
faith, or any action taken by the L/C Issuer, under or in connection with the
Letters of Credit, the drafts or acceptances, the guarantees or the Collateral,
shall be binding on the Borrowers and shall not put the Agents, NationsBanc, CIT
or the Lenders in any resulting liability to the Borrowers except in the case of
the Agents', NationsBanc's, CIT's or the Lenders' gross negligence or willful
misconduct as determined by a final judgment of a court of competent
jurisdiction. In furtherance of the foregoing, NationsBanc and CIT shall have
the full right and authority to clear and resolve any questions of
non-compliance of documents; to give any instructions as to acceptance or
rejection of any documents or goods; to execute any and all steamship or airways
guaranties (and applications therefore), indemnities or delivery orders; to
grant any extensions of the maturity of, time of payment for, or time of
presentation of, any drafts, acceptances or documents; and to agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications, Letters of Credit,
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drafts or acceptances, all in NationsBanc's or CIT's sole name, and the L/C
Issuer shall be entitled to comply with and honor any and all such documents or
instruments executed by or received solely from NationsBanc or CIT, all without
any notice to or any consent from the Borrowers. NationsBanc and CIT, as
applicable, shall use reasonable efforts to consult with the Borrowers before
taking any action pursuant to this Section 3.01(f).
(g) Without NationsBanc's or CIT's, as applicable,
express consent, the Borrowers jointly and severally agree: (i) not to execute
any and all applications for steamship or airway guaranties, indemnities or
delivery orders; to grant any extensions of the maturity of, time of payment
for, or time of presentation of, any drafts, acceptances or documents; or to
agree to any amendments, renewals, extensions, modifications, changes or
cancellations of any of the terms or conditions of any of the Letter of Credit
Applications, Letters of Credit, drafts or acceptances; and (ii) after the
occurrence of an Event of Default which is not cured within any applicable grace
period, if any, or waived, not to (A) clear and resolve any questions of
non-compliance of documents, or (B) give any instructions as to acceptances or
rejection of any documents or goods.
(h) The Borrowers jointly and severally agree that
any necessary and material import, export or other license or certificate for
the import or handling of Inventory will have been promptly procured; all
foreign and domestic material governmental laws and regulations in regard to the
shipment and importation of Inventory or the financing thereof will have been
promptly and fully complied with, in each case, where the failure to obtain such
certificate or license or the failure to comply with such laws would have a
Material Adverse Effect; and any certificates in that regard that NationsBanc or
CIT, as applicable, may at any time reasonably request will be promptly
furnished. In this connection, the Borrowers warrant and represent that all
shipments made under any Letters of Credit are in accordance with the laws and
regulations of the countries in which the shipments originate and terminate, and
are not prohibited by any such laws and regulations except where the failure to
be in compliance with such laws and regulations would not have a Material
Adverse Effect. As between the Borrowers, on the one hand, and the Agents,
NationsBanc, CIT, the Lenders and the L/C Issuer, on the other hand, the
Borrowers jointly and severally assume all risk, liability and responsibility
for, and agree to pay and discharge, all present and future local, state,
federal or foreign taxes, duties, or levies in respect of the shipment and
importation of Inventory. As between the Borrowers, on the one hand, and the
Agents, NationsBanc, CIT, the Lenders and the L/C Issuer, on the other hand, any
embargo, restriction, laws, customs or regulations of any country, state, city,
or other political subdivision, where such Inventory is or may be located, or
wherein payments are to be made, or wherein drafts may be drawn, negotiated,
accepted, or paid, shall be solely the Borrowers' joint and several risk,
liability and responsibility.
(i) Upon any payments made to the L/C Issuer under
the Letter of Credit Guaranty, NationsBanc, CIT, the Agents or the Lenders, as
the case may be, shall, without prejudice to its rights under this Agreement
(including that such unreimbursed amounts shall constitute Loans hereunder),
acquire by subrogation, any rights, remedies, duties or obligations granted or
undertaken by the Borrowers in favor of the L/C Issuer in any application for
Letters of Credit, any standing agreement relating to Letters of Credit or
otherwise, all of which shall be deemed to have been granted to NationsBanc,
CIT, the Agents and the Lenders and apply in all respects to NationsBanc, CIT,
the Agents and the Lenders and shall be in addition to any rights, remedies,
duties or obligations contained herein.
SECTION 3.02. Participations.
(a) Purchase of Participations. Immediately upon
issuance by the L/C Issuer of any Letter of Credit pursuant to this Agreement
(and, for each Existing Letter of Credit, on the Effective Date), each Lender
(other than, in the case of Letters of Credit issued after the Effective Date,
NationsBanc and, in the case of the Existing Letters of Credit, NationsBanc or
CIT, as appropriate) shall be deemed to have irrevocably and unconditionally
purchased and received from NationsBanc (or, in the case of Existing Letters of
Credit issued by The Chase Manhattan Bank, CIT), without recourse or warranty,
an undivided interest and participation, to the extent of such Lender's Pro Rata
Share, in all obligations of NationsBanc (and, in the case of the Existing
Letters of Credit issued by The Chase Manhattan Bank, CIT) in such Letter of
Credit (including, without limitation, all Reimbursement Obligations of the
Borrowers with respect thereto pursuant to the Letter of Credit Guaranty or
otherwise).
(b) Sharing of Payments. In the event that
NationsBanc (or, in the case of Existing Letters of Credit issued by The Chase
Manhattan Bank, CIT) makes any payment in respect of the Letter of Credit
Guaranty and the Borrowers shall not have repaid such amount to the
Administrative Agent for the account of
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NationsBanc (or, in the case of Existing Letters of Credit issued by The Chase
Manhattan Bank, CIT), the Administrative Agent shall charge the relevant Loan
Account in the amount of the Reimbursement Obligation, in accordance with
Sections 3.01(c) and 4.02.
(c) Obligations Irrevocable. The obligations of a
Lender to make payments to the Administrative Agent for the account of the
Agents, NationsBanc, CIT or the L/C Issuer with respect to a Letter of Credit
shall be irrevocable, without any qualification or exception whatsoever and
shall be made in accordance with the terms and conditions of this Agreement
under all circumstances, including, without limitation, any of the following
circumstances:
(i) any lack of validity or enforceability
of this Agreement or any of the other Loan Documents;
(ii) the existence of any claim, setoff,
defense or other right which a Borrower may have at any time against a
beneficiary named in such Letter of Credit or any transferee of such
Letter of Credit (or any Person for whom any such transferee may be
acting), the Agents, L/C Issuer, any Lender, or any other Person,
whether in connection with this Agreement, such Letter of Credit, the
transactions contemplated herein or any unrelated transactions
(including any underlying transactions between any Borrower or any
other party and the beneficiary named in such Letter of Credit);
(iii) any draft, certificate or any other
document presented under such Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect;
(iv) the surrender or impairment of any
security for the performance or observance of any of the terms of any
of the Loan Documents;
(v) any failure by NationsBanc, CIT or the
Administrative Agent to provide any notices required pursuant to this
Agreement relating to such Letter of Credit;
(vi) any payment by the L/C Issuer under any
of the Letters of Credit against presentation of a draft or certificate
which does not comply with the terms of such Letter of Credit; or
(vii) the occurrence of any Default or Event
of Default.
SECTION 3.03. Letters of Credit.
(a) Request for Issuance. A Borrower may from time to
time, upon notice not later than 12:00 noon, New York City time, at least three
Business Days in advance, request NationsBanc to assist such Borrower in
establishing or opening a Letter of Credit by delivering to NationsBanc, with a
copy to the Administrative Agent and the L/C Issuer, a Letter of Credit
Application, together with any necessary related documents. NationsBanc shall
not provide support, pursuant to the Letter of Credit Guaranty, if NationsBanc
and the Administrative Agent shall have received written notice from the
Required Lenders on the Business Day immediately preceding the proposed issuance
date for such Letter of Credit that one or more of the conditions precedent in
Section 5.02 will not have been satisfied on such date, and neither NationsBanc
nor the Administrative Agent shall otherwise be required to determine that, or
take notice whether, the conditions precedent set forth in Section 5.02 have
been satisfied.
(b) Letters of Credit Fees. (i) The Borrowers shall
jointly and severally pay to the Administrative Agent for the account of the
Lenders in accordance with such Lender's Pro Rata Share a nonrefundable fee for
each documentary Letter of Credit issued hereunder and for each amendment to a
documentary Letter of Credit that increases the stated amount of such Letter of
Credit or extends the expiration date of such Letter of Credit, such fee to be
equal to (A) for each documentary Letter of Credit with an expiration date of
less than or equal to 90 days from its issuance date and for any amendment to an
existing documentary Letter of Credit that increases the stated amount of such
documentary Letter of Credit, such fee shall be equal to .3125% of the initial
stated amount of such documentary Letter of Credit or the increase in the stated
amount of such existing documentary Letter of Credit, as the case may be (the
"Base Documentary L/C Fee"), (B) for each documentary Letter of Credit with an
expiration date of greater than
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90 days from its issuance date, such fee shall be equal to the Base Documentary
L/C Fee plus .1042% of the stated amount of such documentary Letter of Credit
for each thirty day period or part thereof for which the expiration date of such
documentary Letter of Credit exceeds 90 days, and (C) for any amendment to an
existing documentary Letter of Credit that extends the expiration date of such
documentary Letter of Credit, such fee shall be equal to .1042% of the stated
amount of such documentary Letter of Credit for each 30 day period or part
thereof for which such amendment extends the expiration date beyond 90 days from
the issuance date of such documentary Letter of Credit. This fee shall be
payable in advance on or prior to the issuance of each such documentary Letter
of Credit. In addition, the Borrowers shall jointly and severally pay to the
Administrative Agent for the account of the Lenders, in accordance with the
Lenders' Pro Rata Shares (x) for each standby Letter of Credit issued hereunder,
a nonrefundable fee equal to 1.25% per annum of the stated amount of such
standby Letter of Credit, payable annually in advance commencing on the date
such standby Letter of Credit is issued and on each anniversary of such issuance
date and (y) for any amendment to an existing standby Letter of Credit that
increases the stated amount of such standby Letter of Credit, a nonrefundable
fee equal to 1.25% per annum of the increase in the stated amount of such
standby Letter of Credit for the period from the date of such increase to the
next anniversary of the date such standby Letter of Credit was issued, payable
on the date of such increase.
(ii) L/C Issuer Charges. The Borrowers shall
pay to NationsBanc (or, in the case of Existing Letters of Credit issued by The
Chase Manhattan Bank, CIT) the standard charges assessed by the L/C Issuer in
connection with the issuance, administration, amendment, payment or cancellation
of Letters of Credit and the Letter of Credit Guaranty.
(iii) Charges to Loan Account. The Borrowers
hereby authorize the Administrative Agent to, and the Administrative Agent may,
from time to time, charge the relevant Loan Account pursuant to Sections 3.01(c)
and 4.02 of this Agreement with the amount of any Letter of Credit fees or
charges due under this Section 3.03.
(c) Existing Letters of Credit; Letter of Credit
Indemnity. Schedule 3.03(c) hereto contains a description of all letters of
credit issued pursuant to the Factoring Agreement of Squire and all letters of
credit issued by The Chase Manhattan Bank for the account of Miss Erika, in each
case which are outstanding on the Effective Date. Each such letter of credit,
including any extension or renewal thereof (each, as amended from time to time
in accordance with the terms thereof and hereof, an "Existing Letter of Credit")
shall constitute a "Letter of Credit" issued for the account of Squire or Miss
Erika, as the case may be for all purposes of this Agreement, including, without
limitation, calculations of Availability, the Overadvance Amount, the Borrowing
Base and Letter of Credit fees, issued on the Effective Date.
ARTICLE IV
FEES, PAYMENTS AND OTHER COMPENSATION
SECTION 4.01. Audit and Collateral Monitoring Fees. The
Borrowers acknowledge that the Agents may upon reasonable notice to the Company
conduct audits and/or field examinations of the Borrowers and the Guarantors at
any time and from time to time during normal business hours in a manner so as to
not unduly disrupt the business of the Borrowers and the Guarantors, provided
that (i) such notice shall not be required if an Event of Default has occurred
and is continuing and (ii) in the absence of a continuing Event of Default, the
Agents may conduct no more than four audits and/or field examinations of the
Borrowers and Guarantors in any year. The Borrowers jointly and severally agree
to pay $600 per day per examiner plus the examiner's out-of-pocket costs and
reasonable expenses incurred in connection with all such visits, inspections,
audits and examinations.
SECTION 4.02. Payments; Computations and Statements. (a) The
Borrowers will make each payment under the Notes not later than 12:00 noon (New
York City time) on the day when due, in lawful money of the United States of
America and in immediately available funds, to the Administrative Agent at the
Payment Office. All payments received by the Administrative Agent after 12:00
noon (New York City time) on any Business Day will be credited to the relevant
Loan Account on the next succeeding Business Day. All payments shall be made by
the Borrowers without defense, set-off or counterclaim to the Administrative
Agent and the Lenders. Except as provided in Section 2.05, after receipt, the
Administrative Agent will promptly thereafter cause to be distributed like funds
relating to the payment of principal ratably to the Lenders and like funds
relating to the payment of any other amount payable to
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any Lender to such Lender in each case to be applied in accordance with the
terms of this Agreement, provided that the Administrative Agent will cause to be
distributed all interest and fees received from or for the account of each
Borrower not less than once each month and in any event promptly after receipt
thereof. The Lenders and the Borrowers hereby authorize the Administrative Agent
to, and the Administrative Agent may, from time to time, charge the Loan Account
of a Borrower with any amount due and payable by such Borrower under any Loan
Document to which such Borrower is a party. Each of the Lenders and the
Borrowers agree that the Administrative Agent shall have the right to make such
charges whether or not any Event of Default or Default shall have occurred and
be continuing or whether any of the conditions precedent in Section 5.02 have
been satisfied. Any amount charged to the Loan Account of a Borrower shall be
deemed a Revolving Credit Loan hereunder made by the Lenders to such Borrower,
funded by the Administrative Agent on behalf of the Lenders and subject to
Section 2.05 of this Agreement. The Lenders and the Borrowers confirm that any
charges which the Administrative Agent may so make to the Loan Account of a
Borrower as herein provided will be made as an accommodation to such Borrower
and solely at the Administrative Agent's discretion. It is expressly understood
and agreed by the Borrowers that the Administrative Agent and the Lenders shall
have no responsibility to inquire into the correctness of the apportionment,
allocation or disposition of Loans or Letters of Credit made to the Borrowers or
any fees, costs or expenses for which the Borrowers are jointly and severally
obligated under this Agreement. Whenever any payment to be made under any such
Loan Document shall be stated to be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day and such extension of
time shall in such case be included in the computation of interest or fees, as
the case may be. All computations of fees shall be made by the Administrative
Agent on the basis of a year of 360 days for the actual number of days
(including the first day but excluding the last day) occurring in the period for
which such fees are payable. Each determination by the Administrative Agent of
an interest rate or fees hereunder shall be conclusive and binding for all
purposes in the absence of manifest error.
(b) The Administrative Agent shall provide each
Borrower, promptly after the end of each calendar month, a summary statement (in
the form from time to time used by the Administrative Agent) of the opening and
closing daily balances in the Loan Account of such Borrower during such month,
the amounts and dates on all Loans made to such Borrower during such month, the
amounts and dates of all payments on account of the Loans to such Borrower
during such month and the Loans to which such payments were applied, the amount
of interest accrued on the Loans to such Borrower during such month, any Letters
of Credit issued by the L/C Issuer for the account of such Borrower during such
month, specifying the face amount thereof, the amount of charges to such Loan
Account and/or Loans made to such Borrower during such month to reimburse the
Lenders for drawings made under Letters of Credit, and the amount and nature of
any charges to such Loan Account made during such month on account of fees,
commissions, expenses and other Obligations. All entries on any such statement
shall, 30 days after the same is sent, be presumed to be correct and shall
constitute presumptive evidence of the information contained in such statement
and shall be final and conclusive absent manifest error.
SECTION 4.03. Sharing of Payments, Etc. Except as provided in
Section 2.05 hereof, if any Lender shall obtain any payment (whether voluntary,
involuntary, through the exercise of any right of set-off, or otherwise) on
account of any Obligation in excess of its ratable share of payments on account
of similar obligations obtained by all the Lenders, such Lender shall forthwith
purchase from the other Lenders such participations in such similar obligations
held by them as shall be necessary to cause such purchasing Lender to share the
excess payment ratably with each of them; provided, however, that if all or any
portion of such excess payment is thereafter recovered from such purchasing
Lender, such purchase from each Lender shall be rescinded and such Lender shall
repay to the purchasing Lender the purchase price to the extent of such recovery
together with an amount equal to such Lender's ratable share (according to the
proportion of (i) the amount of such Lender's required repayment to (ii) the
total amount so recovered from the purchasing Lender of any interest or other
amount paid by the purchasing Lender in respect of the total amount so
recovered). The Borrowers agree that any Lender so purchasing a participation
from another Lender pursuant to this Section 4.03 may, to the fullest extent
permitted by law, exercise all its rights (including the Lender's right of
set-off) with respect to such participation as fully as if such Lender were the
direct creditor of the Borrowers in the amount of such participation.
SECTION 4.04. Apportionment of Payments. (a) Subject to
Sections 2.05 and 12.01 hereof, all payments of principal and interest in
respect of outstanding Loans, all payments in respect of the Reimbursement
Obligations, all payments of fees (other than the fees set forth in the Fee
Letter, fees with respect to Letters of Credit provided for in Section
3.03(b)(ii) and the audit and collateral monitoring fee provided for in Section
4.01) and all other
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payments in respect of any other Obligations, shall be allocated by the
Administrative Agent among such of the Lenders as are entitled thereto, in
proportion to their respective Pro Rata Shares or otherwise as provided herein
or, in respect of payments not made on account of Loans or Letter of Credit
Obligations, as designated by the Person making payment when the payment is
made.
(b) After the occurrence and during the continuance
of an Event of Default, the Administrative Agent may, and upon the direction of
the Required Lenders shall, apply all payments in respect of any Obligations and
all proceeds of the Collateral, subject to the provisions of this Agreement (i)
first, to pay the Obligations in respect of any fees, expense reimbursements or
indemnities then due to any Agent or the L/C Issuer; (ii) second, to pay the
Obligations in respect of any fees and indemnities then due to the Lenders;
(iii) third, ratably to pay interest due in respect of the Loans and
Reimbursement Obligations; (iv) fourth, ratably to pay or prepay principal of
the Loans and Letter of Credit Obligations (or, to the extent such Obligations
are contingent, to prepay or provide cash collateral in respect of such
Obligations); and (v) fifth, to the ratable payment of all other Obligations
then due and payable.
SECTION 4.05. Increased Costs and Reduced Return.
(a) If any Lender or the L/C Issuer shall have
determined that the adoption or implementation of, or any change in, any law,
rule, treaty or regulation, or any policy, guideline or directive of, or any
change in the interpretation or administration thereof by, any court, central
bank or other administrative or Governmental Authority, or compliance by the L/C
Issuer or any Lender or any Person controlling any such Lender or the L/C Issuer
with any directive of or guideline from any central bank or other Governmental
Authority or the introduction of or change in any accounting principles
applicable to the L/C Issuer or any Lender or any Person controlling any such
Lender or the L/C Issuer (in each case, whether or not having the force of law),
shall (i) change the basis of taxation of payments to the L/C Issuer or any
Lender or any Person controlling any such Lender or the L/C Issuer of any
amounts payable hereunder (except for taxes on the overall net income of the L/C
Issuer or any Lender or any Person controlling any such Lender or the L/C
Issuer), (ii) impose, modify or deem applicable any reserve, special deposit or
similar requirement against any Loan, Letter of Credit or against assets of or
held by, or deposits with or for the account of, or credit extended by, the L/C
Issuer or any Lender, or any Person controlling any such Lender or the L/C
Issuer or (iii) impose on the L/C Issuer or any Lender or any Person controlling
any such Lender or the L/C Issuer any other condition regarding this Agreement
or any Loan or Letter of Credit, and the result of any event referred to in
clauses (i), (ii) or (iii) above shall be to increase the cost to the L/C Issuer
or any Lender of making any Loan, issuing, guaranteeing or participating in any
Letter of Credit, or agreeing to make any Loan or issue, guaranty or participate
in any Letter of Credit, or to reduce any amount received or receivable by the
L/C Issuer or any Lender hereunder, then, upon demand by the L/C Issuer or such
Lender, the Borrowers shall pay to the L/C Issuer or such Lender such additional
amounts as will compensate the L/C Issuer or such Lender for such increased
costs or reductions in amount.
(b) If any Lender or the L/C Issuer shall have
determined that any Capital Guideline or adoption or implementation of, or any
change in, any Capital Guideline by the Governmental Authority charged with the
interpretation or administration thereof, or compliance by the L/C Issuer, any
Lender or any Person controlling such L/C Issuer or any Lender with any Capital
Guideline or with any request or directive of any such Governmental Authority
with respect to any Capital Guideline, or the implementation of, or any change
in, any applicable accounting principles (in each case, whether or not having
the force of law), either (i) affects or would affect the amount of capital
required or expected to be maintained by the L/C Issuer, any Lender or any
Person controlling such L/C Issuer or any Lender, and the L/C Issuer or any
Lender determines that the amount of such capital is increased as a direct or
indirect consequence of any Loans made or maintained, Letters of Credit issued
or any guaranty or participation with respect thereto, or the L/C Issuer's, any
Lender's or any such other controlling Person's other obligations hereunder, or
(ii) has or would have the effect of reducing the rate of return on the L/C
Issuer's, any Lender's, any such other controlling Person's capital to a level
below that which such L/C Issuer, such Lender or such controlling Person could
have achieved but for such circumstances as a consequence of any Loans made or
maintained, Letters of Credit issued, or any guaranty or participation with
respect thereto or any agreement to make Loans, to issue Letters of Credit or
such L/C Issuer's, such Lender's, such other controlling Person's other
obligations hereunder (in each case, taking into consideration such L/C
Issuer's, such Lender's or such other controlling Person's policies with respect
to capital adequacy), then, upon demand by the L/C Issuer or any Lender, the
Borrowers shall pay to the L/C Issuer or such Lender from time to time such
additional amounts as will compensate the L/C Issuer or such Lender for such
cost of
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maintaining such increased capital or such reduction in the rate of return on
such L/C Issuer's, such Lender's or such other controlling Person's capital.
(c) All amounts payable under this Section 4.05 shall
bear interest from the date that is ten days after the date of demand by the L/C
Issuer or a Lender until payment in full to the L/C Issuer or such Lender at the
Base Rate. A certificate of the L/C Issuer or any Lender claiming compensation
under this Section 4.05 specifying the event herein above described and the
nature of such event shall be submitted by the L/C Issuer or such Lender to a
Borrower, setting forth the additional amount due and an explanation of the
calculation thereof, the L/C Issuer's or such Lender's reasons for invoking the
provisions of this Section 4.05, and shall be final and conclusive absent
manifest error.
ARTICLE V
CONDITIONS OF EFFECTIVENESS, LETTER OF CREDIT
ISSUANCE AND LENDING
SECTION 5.01. Conditions Precedent to Effectiveness. This
Agreement shall become effective as of the Business Day (the "Effective Date")
when each of the following conditions precedent shall have been satisfied:
(a) Payment of Fees, Etc. The Borrowers shall have
paid on or before the date of this Agreement, all fees, costs, expenses and
taxes then payable by the Borrowers pursuant to Sections 2.08(b) and 12.05
hereof.
(b) Representations and Warranties; No Event of
Default. The representations and warranties contained in Section 6.01 of this
Agreement and in each other Loan Document and certificate or other writing
delivered to the Agents, the Lenders or the L/C Issuer pursuant hereto on or
prior to the Effective Date shall be correct on and as of the Effective Date as
though made on and as of such date (other than those which expressly speak only
as of a different date); and no Default or Event of Default shall have occurred
and be continuing on the Effective Date or would result from this Agreement
becoming effective in accordance with its terms.
(c) Legality. The making of the initial Loans or the
issuance of the initial Letter of Credit shall not contravene any law, rule or
regulation applicable to the Lenders or the L/C Issuer.
(d) Delivery of Documents. The Agents shall have
received on or before the Effective Date the following, each in form and
substance reasonably satisfactory to the Agents and, unless indicated otherwise,
dated the Effective Date:
(i) a Term Note payable to the order of each
Lender, duly executed by Squire;
(ii) a Revolving Credit Note payable to the
order of each Lender, duly executed by each Borrower;
(iii) a Guaranty, duly executed by each
Borrower and Norty's Inc.;
(iv) a Security Agreement, duly executed by
each Borrower and Guarantor;
(v) a Pledge Agreement, duly executed by the
Company and each Borrower; together with the original stock
certificates representing all of the common stock of the Subsidiaries
of the Company, all inter-company promissory notes of the Borrowers,
the non-negotiable limited recourse promissory notes of shareholders of
the Company listed on Schedule 7.02(k)(ii) hereof and in the case of
Miss Erika original stock certificates representing certain shares of
common stock of the companies listed in Schedule 5.01(d)(v) hereto, in
each case accompanied by undated stock powers executed in blank or
other instruments of transfer;
(vi) appropriate financing statements on
Form UCC-1, duly executed by each Borrower and Guarantor duly filed (in
the case of all Loan Parties other than Miss Erika) and for filing (in
the
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case of Miss Erika) in such office or offices as may be necessary or,
in the reasonable opinion of the Agents, desirable to perfect the
security interests purported to be created by the Security Agreements;
(vii) certified copies of requests for
copies of information on Form UCC-11, listing all effective financing
statements which name as debtor any Borrower or Guarantor or the Seller
and which are filed in the offices referred to in paragraph (vi) above,
together with copies of such financing statements, none of which,
except as otherwise agreed to in writing by the Agents, shall cover any
of the Collateral;
(viii) a copy of the resolutions adopted by
the Board of Directors of each Borrower and Guarantor, certified as of
the Effective Date by authorized officers thereof, authorizing (A) the
borrowings hereunder and the transactions contemplated by the Loan
Documents and the Factoring Agreements to which such Borrower or
Guarantor is or will be a party, and (B) the execution, delivery and
performance by each Borrower and Guarantor of each Loan Document and
Factoring Agreement and the execution and delivery of the other
documents to be delivered by each Borrower and Guarantor in connection
herewith;
(ix) a certificate of an authorized officer
of each Borrower and Guarantor, certifying the names and true
signatures of the officers of such Borrower or Guarantor authorized to
sign each Loan Document and Factoring Agreement to which such Borrower
or Guarantor is or will be a party and the other documents to be
executed and delivered by such Borrower or Guarantor in connection
herewith, together with evidence of the incumbency of such authorized
officers;
(x) a certificate dated as of a recent date
of the appropriate official(s) of the states of incorporation and each
state of foreign qualification of each Borrower and Guarantor,
certifying as to the subsistence in good standing of, and the payment
of taxes by, such Borrower or Guarantor in such states and listing all
charter documents of such Borrower and Guarantor on file with such
official(s);
(xi) a copy of the charter of each Borrower
and Guarantor certified by the appropriate official(s) of the state of
organization of such Borrower or Guarantor and as of the Effective Date
by an authorized officer of the Borrower or Guarantor;
(xii) a copy of the by-laws of each Borrower
and Guarantor, certified as of the Effective Date by an authorized
officer of such Borrower or Guarantor;
(xiii) an opinion of Haythe & Curley, New
York counsel to the Borrowers and Guarantors, substantially in the form
of Exhibit G hereto, and as to such other matters as the Agents may
reasonably request;
(xiv) an opinion of Jamieson, Moore, Peskin
& Spicer, New Jersey counsel to the Borrowers and the Guarantors,
substantially in the form of Exhibit H hereto, and as to such other
matters as the Agents may reasonably request;
(xv) a certificate of the chief executive
officer or the chief financial officer of the Company and each
Borrower, certifying as to the matters set forth in subsection (b) of
this Section 5.01;
(xvi) a copy of the Financial Statements and
the pro forma and projected financial statements described in Section
6.01(h) hereof together with a certificate of the chief executive
officer or chief financial officer of the Company and each Borrower
setting forth (i) all existing Indebtedness not reflected on the
Financial Statements, including guarantees, pending or, to the best of
the Company's and each Borrower's knowledge, threatened litigation and
other contingent liabilities of the Borrowers and Guarantors (in the
case of such contingent liabilities, only if required to be reported in
a Financial Statement by GAAP), and (ii) all dividends declared or paid
since the date of such financial statements and all inter-company
payments made or obligations incurred to Affiliates outside the
ordinary course of the Borrowers' businesses since the date of such
Financial Statements;
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(xvii) a breakdown of Inventory by Borrower
and by location in the form specified in Section 7.01(a)(v)(A) hereof
certified by the chief financial officer of each Borrower;
(xviii) the Assignment Agreement duly
executed by the Borrowers and the Factor, and a copy, certified by the
chief executive officer or the chief financial officer of each
Borrower, of each executed Factoring Agreement and related documents;
(xix) copies of the insurance policies and
certificates of insurance evidencing such insurance on the property of
the Borrowers and the Guarantors as is required by Section 7.01(h)
hereof naming the Collateral Agent as additional insured and loss
payee, using a long form loss payee endorsement, for all insurance
maintained by the Borrowers and the Guarantors;
(xx) a certificate of an authorized officer
of each Borrower and Guarantor certifying the names and true signatures
of those officers of each Borrower and Guarantor that are authorized to
provide Notices of Borrowings, Letter of Credit Applications and all
other notices under this Agreement and the Loan Documents;
(xxi) (A) a landlord waiver or appropriate
language in the assignment of lease for the premises of Miss Erika
located at 333 North Street, Teterboro, New Jersey and (B) processor no
offset letters for each of the Borrowers' contractors listed on
Schedule 5.01(d)(xxi) hereto, in the case of clauses (A) and (B), in
form and substance reasonably satisfactory to the Agents;
(xxii) a Borrowing Base Certificate
calculated on a consolidated basis and on an individual basis for each
Borrower current as of September 29, 1997;
(xxiii) a copy of (A) each Acquisition
Document, including any Update Notice (as defined in the Acquisition
Agreement), certified as a true and correct copy thereof by the chief
executive officer of the Company, and if there is no Update Notice, a
certificate of the chief executive officer of the Company to that
effect, (B) each financial statement delivered to Miss Erika pursuant
to Section 10.09 of the Acquisition Agreement, (C) the Current Balance
Sheet (as defined in the Acquisition Agreement), and (D) the assignment
of lease regarding the property located at 333 North Street, Teterboro,
NJ 07608;
(xxiv) a copy of the most recent annual
report (Form 5500 Series) for each Employee Plan, including Schedule B
attached thereto;
(xxv) the Termination Agreement duly
executed by The Chase Manhattan Bank and the Seller, together with UCC
termination statements and other documentation evidencing the
termination by The Chase Manhattan Bank of its Liens in and to the
properties and assets of the Seller;
(xxvi) the Subordination Agreement, duly
executed by the Collateral Agent and the Seller;
(xxvii) the Subordinate Pledge Agreement,
duly executed by the Company and the Seller; and
(xxviii) such other agreements, instruments,
approvals, opinions and other documents as the Agents may reasonably
request.
(e) Proceedings; Receipt of Documents. All
proceedings in connection with the transactions contemplated by this Agreement,
and all documents incidental thereto, shall be satisfactory to the Agents and
their special counsel, and the Agents and such special counsel shall have
received all such information and such counterpart originals or certified or
other copies of such documents as the Agents or such special counsel may
reasonably request.
(f) Material Adverse Effect. The Lenders shall have
determined, in their sole judgment, that no Material Adverse Effect shall have
occurred (i) after August 2, 1997 with respect to the Company and Squire and
(ii) after January 31, 1997 with respect to the Assets and with respect to Miss
Erika.
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(g) Consummation of the Acquisition. All terms and
provisions of the Acquisition Documents shall be in form and substance
reasonably satisfactory to the Agents and shall not be amended without the
consent of the Agents. The Agents shall be reasonably satisfied with the nature
of and the amount and type of assets and liabilities being acquired and/or
assumed in the Acquisition. The Acquisition, including all of the terms and
conditions thereof, shall have been duly authorized by the board of directors
and (if required by applicable law) the shareholders of the parties to the
Acquisition Agreement and all Acquisition Documents shall have been duly
executed and delivered by the parties thereto and shall be in full force and
effect in all respects as if made on and as of the Effective Date. The
representations and warranties set forth in the Acquisition Documents shall be
true and correct in all material respects as if made on and as of the Effective
Date. Each of the conditions precedent to the obligations of each of the parties
to the Acquisition Documents to consummate the Acquisition as set forth in the
Acquisition Documents shall have been satisfied or waived with the consent of
the Agents and the Acquisition shall have been consummated in accordance with
all applicable law and the Acquisition Documents. The consideration paid in the
Acquisition, excluding the Earn-Out Payment, shall not exceed $24,000,000 plus
the amount contemplated by Sections 9.08 and 10.10 of the Acquisition Agreement.
(h) Name Change. The Agents shall have received
evidence satisfactory to them that ME Acquisition Corp. has changed its name to
Miss Erika, Inc. and that Seller has changed its name to Old ME Corp.
(i) Overadvance Amount. The Overadvance Amount,
calculated on a combined basis for the Borrowers as of September 29, 1997 after
giving effect to the Loans and Letters of Credit necessary to effect the
Acquisition, as set forth in the combined Borrowing Base Certificate delivered
to the Agents pursuant to Section 5.01(d)(xxii) hereof, shall not exceed
$15,000,000.
SECTION 5.02. Conditions Precedent to Loans and Letters of
Credit. As a condition precedent to the Administrative Agent or any Lender
making any Loan (including the initial Loans on the Effective Date), or the
Agents assisting the Borrowers in establishing, or opening any Letter of Credit
(including the initial Letters of Credit on the Effective Date), each of the
following conditions precedent shall be fulfilled in a manner satisfactory to
the Administrative Agent;
(a) Payment of Fees, Etc. The Borrowers shall have
paid all fees, costs, expenses and taxes then payable by the Borrowers pursuant
to Sections 2.08 and 12.05 hereof.
(b) Representations and Warranties; No Event of
Default. The following statements shall be true, and the submission by a
Borrower to the Administrative Agent of a Notice of Borrowing with respect to a
Loan and a Borrower's acceptance of the proceeds of such Loan, or the submission
by a Borrower of a Letter of Credit Application with respect to a Letter of
Credit and the issuance of such Letter of Credit shall be deemed to be a
representation and warranty by such Borrower on the date of such Loan and the
date of the issuance of such Letter of Credit that (i) the representations and
warranties contained in Section 6.01 of this Agreement and in each other Loan
Document and certificate or other writing delivered to the Lenders pursuant
hereto on or prior to the date of such Loan or Letter of Credit are correct on
and as of such date as though made on and as of such date (other than those
representations and warranties which expressly speak only as of a different
date); and (ii) no Event of Default or Default has occurred and is continuing or
would result from the making of the Loan to be made on such date or the issuance
of the Letter of Credit to be issued on such date.
(c) Legality. The making of such Loan or the issuance
of such Letter of Credit shall not contravene any law, rule or regulation
applicable to the Agents, the Lenders or the L/C Issuer, as the case may be.
(d) Notices. Except in the case of a borrowing of a
Loan pursuant to Sections 3.01(c), the Administrative Agent shall have received
(i) a Notice of Borrowing pursuant to Section 2.03 hereof no later than 12:00
noon (New York City time) (A) on the date of the proposed borrowing with respect
to a Base Rate Loan and (B) three Business Days prior to the date of the
proposed borrowing in the case of a Eurodollar Loan and (ii) a Letter of Credit
Application pursuant to Section 3.03 hereof not later than 12:00 noon (New York
City time) three Business Days prior to the proposed date of issuance of a
Letter of Credit.
(e) Delivery of Documents. The Administrative Agent
shall have received such other reasonably available information, approvals and
documents, each in form and substance reasonably satisfactory to the
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Administrative Agent, as the Administrative Agent may reasonably request.
(f) Proceedings. All proceedings in connection with
the making of such Loan or the issuance of such Letter of Credit and the other
transactions contemplated by this Agreement, and all documents incidental
thereto, shall be reasonably satisfactory to the Administrative Agent and its
special counsel.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.01. Representations and Warranties. The Company and
each Borrower represents and warrants as follows:
(a) Organization, Good Standing, Etc. Each Loan Party
(i) is a corporation duly organized, validly existing and in good standing under
the laws of the state of its organization, (ii) has all requisite corporate
power and authority to conduct its business as now conducted and as presently
contemplated and to make the borrowings hereunder (in the case of the Borrowers)
and to consummate the transactions contemplated by the Documents to which it is
a party, and (iii) is duly qualified to do business and is in good standing in
each jurisdiction in which the character of the properties owned or leased by it
or in which the transaction of its business makes such qualification necessary,
except in the case of clause (iii) where the failure to qualify and be in good
standing would not have a Material Adverse Effect.
(b) Authorization, Etc. The execution, delivery and
performance by each Loan Party of each Document to which it is a party, (i) have
been duly authorized by all necessary corporate action, (ii) do not contravene
the charter, by-laws or any applicable law or any contractual restriction
binding on or otherwise affecting it or any of its properties, (iii) do not
result in or require the creation of any Lien, (other than pursuant to any such
Loan Document) upon or with respect to any of its properties, and (iv) do not
result in any suspension, revocation, impairment, forfeiture or nonrenewal of
any permit, license, authorization or approval applicable to its operations or
any of its properties.
(c) Governmental Approvals. No authorization or
approval or other action by, and no notice to or filing with, any Governmental
Authority or other regulatory body is required in connection with the due
execution, delivery and performance by each Loan Party of any Document to which
it is or will be a party other than those pursuant to the Hart-Scott Rodino
Antitrust Improvement Act of 1976 and as otherwise contemplated by the
Acquisition Documents, each of which will have been received or been made, as
applicable, by the Effective Date and shall be in full force and effect.
(d) Enforceability of Loan Documents. This Agreement
is, and each other Document to which each Loan Party is or will be a party, when
delivered hereunder, will be, a legal, valid and binding obligation of such Loan
Party, enforceable against such Loan Party in accordance with its terms except
to the extent the enforceability thereof may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws from time to
time in effect affecting generally, the enforcement of creditors' rights and
remedies and by general principles of equity.
(e) Inventory Locations; Places of Business; Chief
Executive Office. There is no location at which any Borrower has any Inventory
(except for Inventory in transit) other than (i) those locations listed on Part
A of Schedule 6.01(e) hereto and (ii) any other locations in the continental
United States permitted pursuant to the terms of Section 7.01(n) hereof. Part B
of Schedule 6.01(e) hereto contains a true, correct and complete list, as of the
Effective Date, of the legal names and addresses of each warehouse at which
Inventory of any Borrower is stored. None of the receipts received by a Borrower
from any warehouse states that the goods covered thereby are to be delivered to
bearer or to the order of a named Person or to a named Person and such named
Person's assigns. Part C of Schedule 6.01(e) sets forth a complete and accurate
list as of the date hereof of (A) each place of business of each Loan Party and
(B) the chief executive office of each Loan Party. Part D of Schedule 6.01(e)
sets forth a complete and accurate description and list as of the date hereof of
the location, by state and street address, of all real property owned and leased
by the Company and its Subsidiaries.
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(f) Subsidiaries. Schedule 6.01(f) hereto is a
complete and correct description of the name, jurisdiction of incorporation and
ownership of the outstanding Capital Stock of each Subsidiary of the Company in
existence on the date hereof. All shares of such stock owned by the Company or
one or more of its Subsidiaries, as indicated in such Schedule, are owned free
and clear of all Liens other than (i) Liens created by the Loan Documents and
(ii) in the case of the Capital Stock of Miss Erika, Permitted Liens.
(g) Litigation. Except (i) as set forth on Schedule
6.01(g) hereto and (ii) for all pending or, to the best of the Loan Parties'
knowledge, threatened actions, suits or proceedings affecting the Company or any
of its Subsidiaries before any court or other Governmental Authority or any
arbitrator seeking money damages in an aggregate amount for all such actions,
suits or proceedings of not more than $500,000 in excess of any applicable
insurance or bond coverage and, in the case of clause (ii), which actions, suits
or proceedings were not pending or, to the best of the Loan Parties' knowledge
threatened on the Effective Date, there is no pending or, to the best of the
Loan Parties' knowledge, threatened action, suit or proceeding affecting the
Company or any of its Subsidiaries before any court or other Governmental
Authority or any arbitrator. There is no pending or, to the best of the Loan
Parties' knowledge, threatened action, suit or proceeding affecting the Company
or any of its Subsidiaries before any court or other Governmental Authority or
any arbitrator which may have a Material Adverse Effect.
(h) Financial Condition. (i) The Financial
Statements, copies of which have been delivered to the Lenders, fairly present
in all material respects the financial condition of the Company and its
Subsidiaries and the Seller, as the case may be, as at the respective dates
thereof and the results of operations of the Company and its Subsidiaries and
the Seller, as the case may be, for the fiscal periods ended on such respective
dates, all in accordance with GAAP, and since (A) August 2, 1997 with respect to
the Company and Squire and (B) since January 31, 1997 with respect to the Assets
and with respect to Miss Erika, there has been no Material Adverse Effect.
(ii) The pro forma consolidated and
consolidating balance sheets of the Company as at August 30, 1997 after giving
effect to the Acquisition and related financings, certified by the chief
financial officer of the Company, copies of which have been furnished to the
Lenders, were believed at the time furnished to be reasonable, have been
prepared on a reasonable basis and in good faith by the Company, and have been
based on assumptions believed by the Company to be reasonable at the time made
and upon the best information then reasonably available to the Company.
(iii) The Company has heretofore furnished
to the Agents and the Lenders projected balance sheets, income statements and
statements of cash flow prepared on a monthly basis for the period from
September 1997 to October 1998 and prepared on an annual basis for the Fiscal
Years ending in 1998, 1999, 2000, 2001 and 2002 and such projections were
believed at the time furnished to be reasonable, have been prepared on a
reasonable basis and in good faith by the Company, and have been based on
assumptions believed by the Company to be reasonable at the time made and upon
the best information then reasonably available to the Company.
(i) Compliance with Law, Etc. Neither the Company nor
any other Loan Party is in violation of its charter or by-laws, any material law
or any term of any agreement or instrument binding on or otherwise affecting it
or any of its properties, except, in the case of any violation of any agreement
or instrument, where such violation would not have a Material Adverse Effect.
(j) ERISA. Schedule 6.01(j) hereto sets forth each
Employee Plan and Multiemployer Plan. Except as set forth on Schedule 6.01(j)
hereto, (i) each Employee Plan is in substantial compliance with the applicable
provisions of ERISA and the Internal Revenue Code, (ii) no Termination Event has
occurred nor is reasonably expected to occur with respect to any Employee Plan,
(iii) the most recent annual report (Form 5500 Series) with respect to each
Employee Plan, including Schedule B (Actuarial Information) thereto, copies of
which have been filed with the Internal Revenue Service and delivered to the
Agents, is complete and correct in all material respects and fairly presents the
funding status of such Employee Plan, and since the date of such report there
has been no material adverse change in such funding status, (iv) no Employee
Plan had an accumulated or waived funding deficiency or permitted decreases or
has applied for an extension of any amortization period within the meaning of
Section 412 of the Internal Revenue Code at any time during the previous 60
months, and (v) no Lien imposed under the Internal Revenue Code or ERISA exists
or is likely to arise on account of any Employee Plan within the meaning of
Section 412 of the Internal Revenue Code at any time during the previous 60
months, except as described in clauses (ii) and (iii) of paragraph 6.01(k)
hereof. Except as set forth on Schedule 6.01(j) hereto, neither the
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Company nor any other Loan Party nor any of their respective ERISA Affiliates
have incurred any withdrawal liability under ERISA with respect to any
Multiemployer Plan, and neither the Company nor any other Loan Party is aware of
any facts indicating that the Company or any other Loan Party or any of their
respective ERISA Affiliates may in the future incur any such withdrawal
liability. Except as required by Section 4980B of the Internal Revenue Code, and
except as set forth on Schedule 6.01(j) hereto, neither the Company nor any
other Loan Party nor any of their respective ERISA Affiliates maintains an
employee welfare benefit plan (as defined in Section 3(1) of ERISA) which
provides health or welfare benefits (through the purchase of insurance or
otherwise) for any retired or former employee of the Company or any other Loan
Party or any of their respective ERISA Affiliates or coverage after a
participant's termination of employment. Neither the Company nor any other Loan
Party nor any of their respective ERISA Affiliates has incurred any liability or
obligation under the Worker Adjustment and Retraining Notification Act ("WARN")
or similar state law, which remains unpaid or unsatisfied.
(k) Taxes, Etc. All Federal, state and local tax
returns and other reports required by applicable law to be filed by the Company
and each Loan Party have been filed, and, except as set forth on Schedule
6.01(k) hereto, all taxes, assessments and other governmental charges imposed
upon the Company or any other Loan Party or any property of the Company or such
other Loan Party and which have become due and payable on or prior to the date
hereof have been paid, except (i) to the extent contested in good faith by
proper proceedings which stay the imposition of any penalty, fine or Lien
resulting from the non-payment thereof and with respect to which adequate
reserves have been set aside for the payment thereof, and (ii) for taxes,
assessments or other charges in an amount of not more than $200,000 in the
aggregate and the Liens, if any, securing such amounts.
(l) Regulation U. Neither the Company nor any other
Loan Party is or will be engaged in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of Regulation
U issued by the Board of Governors of the Federal Reserve System), and no
proceeds of any Loan will be used to purchase or carry any margin stock or to
extend credit to others for the purpose of purchasing or carrying any margin
stock.
(m) Nature of Business. Neither the Company nor any
other Loan Party is engaged in any business other than the women's apparel
business, excluding manufacturing but not excluding contracting for manufacture
or the manufacture of samples.
(n) Adverse Agreements, Etc. Neither the Company nor
any other Loan Party nor any of their respective Subsidiaries is a party to any
agreement or instrument, or subject to any charter or other corporate
restriction or any judgment, order, regulation, ruling or other requirement of a
court or other Governmental Authority or regulatory body, which has or, to the
best knowledge of the Company and the other Loan Parties, in the future is
reasonably likely to result in, a Material Adverse Effect.
(o) Holding Company and Investment Company Acts.
Neither the Company nor any other Loan Party is (i)a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company", as such terms are defined in the Public Utility Holding Company Act of
1935, as amended, or (ii) an "investment company" or an "affiliated person" or
"promoter" of, or "principal underwriter" of or for, an "investment company", as
such terms are defined in the Investment Company Act of 1940, as amended.
(p) Permits, Etc. Each Loan Party has all permits,
licenses, authorizations and approvals required for them lawfully to own and
operate their business except where the failure to have such would not have a
Material Adverse Effect.
(q) Title to Properties. Each Loan Party has good and
marketable title to all of their properties and assets, free and clear of all
Liens, and other types of preferential arrangements except for Permitted Liens.
(r) Full Disclosure. No Loan Document or schedule or
exhibit thereto and no certificate, report, statement or other document or
information furnished in writing by or on behalf of the Loan Parties to the
Lenders in connection herewith or with the consummation of the transactions
contemplated hereby, contains any material misstatement of fact or omits to
state a material fact or any fact necessary to make the statements contained
herein or therein not misleading in any material respect. There is no fact
reasonably likely to result in a Material
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Adverse Effect which has not been set forth in a footnote included in the
Financial Statements or a Schedule hereto.
(s) Operating Lease Obligations. As of the date
hereof, the Company and the other Loan Parties do not have any obligations as
lessee for the payment of rent for any real or personal property other than the
Operating Lease Obligations set forth in Schedule 6.01(s) hereto.
(t) Environmental Matters. (i) The operations of the
Loan Parties are in compliance with all Environmental Laws except where the
failure to be in compliance would not have a Material Adverse Effect; (ii) there
has been no Release at any of the properties owned or operated by any Loan Party
or a predecessor in interest, or at any disposal or treatment facility which
received Hazardous Materials generated by any Loan Party or any predecessor in
interest except, in each case, where the Release would not have a Material
Adverse Effect; (iii) no Environmental Actions have been asserted against any
Loan Party or any predecessor in interest nor does any Loan Party have knowledge
or notice of any threatened or pending Environmental Action against any Loan
Party or any predecessor in interest which will have a Material Adverse Effect;
and (iv) no Environmental Actions have been asserted against any facilities that
may have received Hazardous Materials generated by any Loan Party or any
predecessor in interest which will result in a Material Adverse Effect.
(u) Schedules. All of the information which is
required to be scheduled to this Agreement on the date hereof is set forth on
the Schedules attached hereto, is correct and accurate in all material respects
and does not omit to state any information material thereto.
(v) Insurance. The Loan Parties keep their properties
adequately insured and maintain (i) insurance to such extent and against such
risks, including fire, as is customary with companies in the same or similar
businesses, (ii) workmen's compensation insurance in the amount required by
applicable law, (iii) public liability insurance, which shall include product
liability insurance, in the amount customary with companies in the same or
similar business against claims for personal injury or death on properties
owned, occupied or controlled by them, and (iv) such other insurance as may be
required by law.
(w) Use of Proceeds. The proceeds of the Loans shall
be used to refinance existing Indebtedness of the Company and its Subsidiaries,
to finance the Acquisition, for general working capital purposes and to make
intercompany loans and advances permitted by Sections 7.02(b) and 7.02(f)
hereof. The Letters of Credit will be used to finance the purchase by the
Borrowers of Inventory and for other general working capital purposes.
(x) Security Interests. The Security Documents create
in favor of the Collateral Agent, for the benefit of the Lenders, a legal, valid
and (upon the filing of UCC-1 financing statements described in Section
5.01(d)(vi), the recording of the Assignment For Security (Trademarks) referred
to in the Security Agreements in the United States Patent and Trademark Office,
the recording of the Assignment For Security (Copyrights) referred to the
Security Agreements in the United States Registrar of Copyrights, and the
delivery to the Collateral Agent of the Pledged Collateral (as defined in the
Pledge Agreements)) perfected first priority (except as permitted by Section
7.02(a) hereof) security interest in the Collateral.
(y) Tradenames. Schedule 6.01(y) hereto sets forth a
complete and accurate list as of the Effective Date of all tradenames used by
the Company and its Subsidiaries.
(z) Solvency. After giving effect to the transactions
contemplated or required to occur by the terms of this Agreement and the
Acquisition Documents, each Loan Party is, individually and together with its
Subsidiaries, Solvent.
(aa) Material Contracts. Set forth on Schedule
6.01(aa) hereto is a complete and accurate list as of the Effective Date of all
Material Contracts of the Company and its Subsidiaries, showing the parties
thereto and amendments and modifications thereto. As of the date hereof, each
such Material Contract (i) is in full force and effect and is binding upon and
enforceable against each Loan Party that is a party thereto and, to the best of
such Loan Party's knowledge, all other parties thereto in accordance with its
terms, (ii) has not been otherwise amended or modified, and (iii) there exists
no default under any Material Contract by any Loan Party thereto or, to the Loan
Parties' knowledge, any other party thereto which default gives the
non-defaulting party the right to terminate such Material Contract.
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(bb) Representations and Warranties in Documents. All
representations and warranties set forth in the Documents are true and correct
in all material respects at the time as of which such representations were made
and on the Effective Date.
(cc) The Acquisition. The Acquisition has been
effected in accordance with the terms of the Acquisition Documents and all
applicable law. At the time of consummation thereof, all consents and approvals
of, and filings and registrations with, and all other actions in respect of, all
Governmental Authorities required in order to consummate the Acquisition shall
have been obtained, given, filed or taken and shall be in full force and effect.
At the time of consummation of the Acquisition, there does not exist any
judgment, order or injunction prohibiting or imposing any material adverse
condition upon the consummation of the Acquisition. All actions taken by the
Company or any of its Subsidiaries pursuant to or in furtherance of the
Acquisition have been taken in compliance in all material respects with the
respective Documents and all applicable law.
(dd) Acquisition Documents. (i) The Loan Parties are
not in default on any of their obligations under any Acquisition Document, and,
to the best knowledge of the Loan Parties, neither Seller nor any other party to
any Acquisition Document is in default thereunder, (ii) all representations and
warranties made by the Loan Parties in the Acquisition Documents and in the
certificates delivered in connection therewith are true and correct in all
material respects as of the date hereof and, to the best knowledge of the Loan
Parties, all material representations and warranties made in the Acquisition
Documents by or on behalf of Seller, or any other party thereto other than the
Loan Parties, is true and correct in all material respects as of the date
hereof, (iii) all written information (other than pro forma information and
projections as to which Section 6.01(h)(ii) and (iii) above shall be
applicable), with respect to the Loan Parties, the Acquisition, and, to the best
knowledge of the Loan Parties, the business and Assets acquired in connection
with the Acquisition, furnished to the Agents by the Loan Parties or on behalf
of the Loan Parties, were, at the time the same were so furnished, complete and
correct in all material respects, or have been subsequently supplemented by
other written information, to the extent necessary to give the Agents and the
Lenders a true and accurate knowledge of the subject matter of each of them in
relation to the Loan Parties, the Acquisition, and the business and Assets
acquired in the Acquisition, in all material respects, (iv) no representation,
warranty or statement made by the Loan Parties or, to their best knowledge,
Seller or any other party thereto other than the Loan Parties, at the time they
were made in any Acquisition Document, or any agreement, certificate, statement
or document required to be delivered pursuant to any Acquisition Document
contains any untrue statement of material fact or omits to state a material fact
necessary in order to make the statements contained in such Acquisition Document
not misleading in light of the circumstances in which they were made, and (v) in
connection with the Acquisition, Miss Erika is acquiring the Assets, including,
without limitation, the accounts receivable and inventory of the Seller and, on
the date hereof, after giving effect to the transactions contemplated by this
Agreement, by the Acquisition Agreement and by the other Acquisition Documents
and Loan Documents, Miss Erika will have good title to such Assets, including
without limitation, the account receivables and inventory of the Seller free and
clear of all Liens other than the Liens created by the Loan Documents and other
than Permitted Liens.
ARTICLE VII
COVENANTS OF THE BORROWER
SECTION 7.01. Affirmative Covenants. So long as any principal
of or interest on the Loans or the Reimbursement Obligations or any other Letter
of Credit Obligations (whether or not due) shall remain unpaid or any Lender
shall have any Commitment hereunder, the Company and the Borrowers will unless
the Required Lenders shall otherwise consent in writing:
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(a) Reporting Requirements. Furnish to the Lenders
(except in the case of clause (v)(C) below, which shall be furnished to the
Agents):
(i) as soon as available and in any event
within 50 days after the end of each Fiscal Quarter of the Company,
consolidated and consolidating balance sheets, consolidated and
consolidating statements of income and consolidated statements of
retained earnings and cash flow of the Company and its Consolidated
Subsidiaries and statements of retained earnings and cash flows
prepared on a stand alone basis for the Company and its Subsidiaries,
in each case as at the end of such Fiscal Quarter; and for the period
commencing at the end of the immediately preceding Fiscal Year and
ending with the end of such Fiscal Quarter, setting forth in each case
in comparative form the figures for the corresponding date or period of
the immediately preceding Fiscal Year (except in the case of Miss Erika
until the 1999 Fiscal Year), all in reasonable detail and certified by
the chief financial officer of the Company as fairly presenting, in all
material respects, the financial position of the Company and its
Consolidated Subsidiaries as of the end of such Fiscal Quarter and the
results of operations and changes in financial position of the Company
and its Consolidated Subsidiaries for such Fiscal Quarter, in
accordance with GAAP applied in a manner consistent with that of the
most recent audited financial statements furnished to the Lender,
subject to year end adjustments and the absence of footnotes;
(ii) as soon as available, and in any event
within 105 days after the end of each Fiscal Year of the Company,
consolidated and consolidating balance sheets, consolidated and
consolidating statements of income and consolidated statements of
retained earnings and cash flow of the Company and its Consolidated
Subsidiaries and statements of retained earnings and cash flows
prepared on a stand alone basis for the Company and its Subsidiaries,
in each case as at the end of such Fiscal Year, setting forth in
comparative form the corresponding figures for the immediately
preceding Fiscal Year, all in reasonable detail and prepared in
accordance with GAAP, and with respect to the consolidated financial
statements accompanied by a report and an unqualified opinion, prepared
in accordance with generally accepted auditing standards, of Ernst &
Young LLP or other independent certified public accountants of
recognized standing selected by the Company and reasonably satisfactory
to the Agents, together with a written statement of such accountants
(1) to the effect that, in making the examination necessary for their
certification of such financial statements, they have not obtained any
knowledge of the existence of an Event of Default or a Default under
Sections 7.02(f)(vi), 7.02(h), 7.02(i)(ii), 7.02(p) or 7.02(q) hereof
and (2) if such accountants shall have obtained any knowledge of the
existence of an Event of Default or such Default, describing the nature
thereof;
(iii) as soon as available and in any event
within 30 days of the end of each Fiscal Month, an internally prepared
consolidated balance sheets and consolidated statements of income for
such Fiscal Month of the Company and its Consolidated Subsidiaries and
balance sheets and statements of income prepared on a stand alone basis
for the Company and its Subsidiaries for such Fiscal Month, in each
case for the period from the beginning of such Fiscal Year to the end
of such Fiscal Month all in reasonable detail and certified by the
chief financial officer of the Company as fairly presenting, in all
material respects, the financial position of the Company and its
Consolidated Subsidiaries as of the end of such Fiscal Month and the
results of operations of the Company and its Consolidated Subsidiaries
for such Fiscal Month, in accordance with GAAP applied in a manner
consistent with that of the most recent audited financial statements
furnished to the Lenders, subject to quarterly and year end adjustments
and the absence of footnotes;
(iv) simultaneously with the delivery of the
financial statements required by clauses (i), (ii) and (iii) of this
Section 7.01(a), a certificate of the chief financial officer of the
Company, stating (a) that such officer has reviewed the provisions of
this Agreement and the other Loan Documents and has made or caused to
be made under such officer's supervision a review of the condition and
operations of the Company and its Subsidiaries during the period
covered by such financial statements with a view to determining whether
the Company and its Subsidiaries were in compliance with all of the
provisions of such Loan Documents at the times such compliance is
required by the Loan Documents, and that such review has not disclosed,
and such officer has no knowledge of, the existence during such period
of an Event of Default or Default or, if an Event of Default or such
Default existed, describing the nature and period of existence
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thereof and the action which the Company and its Subsidiaries propose
to take or took with respect thereto and (b) a schedule showing the
calculations specified in Section 7.02(p) of this Agreement if such
financial covenants are applicable for such period;
(v) (A) within 30 days after the end of each
Fiscal Month, a schedule, in form and substance reasonably satisfactory
to the Collateral Agent, current as of the close of business on the
last day of such Fiscal Month, certified by the chief financial officer
of each Borrower, containing a breakdown of each Borrower's Inventory
by amount and valued at cost (which shall include dollar valuation by
location) and warehouse and production facility location and shall
include a breakdown of all Prior Season Inventory, appropriately
completed with information reasonably satisfactory to the Collateral
Agent, incorporating all appropriate month-end adjustments and current
as of the close of business on the last day of such Fiscal Month
immediately prior to such date, and (B) within 30 days after the end of
each Fiscal Month, a Borrowing Base Certificate, in the form of Exhibit
K-1 hereto, current as of the close of business on the last day of such
Fiscal Month setting forth the calculation of the Borrowing Base
(utilizing the Accounts Receivable at the end of such Fiscal Month and
the Inventory set forth in the report delivered pursuant to clause (A)
above at such time including in-transit Inventory) and Availability for
each Borrower on an individual and combined basis, and (C) within 3
Business Days after the end of each week, a Borrowing Base Certificate,
in the form of Exhibit K-2 hereto, current as of the close of business
on the Saturday of the immediately preceding week setting forth the
calculation of the Borrowing Base and Availability for each Borrower on
an individual and combined basis, and in the case of the Borrowing Base
Certificates described in clauses (B) and (C) above, supported by
schedules showing the derivation thereof and containing such detail and
such other information as the Collateral Agent may reasonably request
from time to time provided that (1) the Borrowing Base and the
Availability set forth in the Borrowing Base Certificate shall be
effective from and including the date such Borrowing Base Certificate
is duly received by the Collateral Agent to but not including the date
on which a subsequent Borrowing Base Certificate is duly received by
the Collateral Agent, unless the Collateral Agent disputes the
eligibility of any asset for inclusion in the calculation of the
Borrowing Base or the valuation thereof by notice of such dispute to
the appropriate Borrower and (2) in the event of any dispute about the
eligibility of any asset for inclusion in the calculation of the
Borrowing Base or the valuation thereof, the Collateral Agent's good
faith judgment shall control;
(vi) prior to the end of each Fiscal Year,
financial projections (including projected income statements, balance
sheets and schedules of cash receipts and cash disbursements, all
projected on a monthly basis for the succeeding Fiscal Year and on an
annual basis for each Fiscal Year thereafter until the Termination
Anniversary Date and in each case prepared on a consolidated and stand
alone basis), in form and substance reasonably satisfactory to the
Agents; all such financial projections shall be reasonable, shall be
prepared on a reasonable basis and in good faith, and shall be based on
assumptions believed by the Company to be reasonable at the time made
and from the best information then available to the Company;
(vii) promptly upon their becoming
available, a copy of (A) all consultants' reports, investment bankers'
reports, accountants' management letters, business plans and similar
documents, (B) all reports, financial statements or other information
delivered by the Company or any other Loan Party to its shareholders
generally, (C) all reports, proxy statements, financial statements and
other information generally distributed by the Company or any other
Loan Party to its creditors or the financial community in general, and
(D) any audit or other reports submitted to the Company or any other
Loan Party by independent accountants in connection with any annual,
interim or special audit;
(viii) promptly after submission to any
Government Authority all documents and information furnished to such
Government Authority in connection with any investigation of any Loan
Party other than routine inquiries by such Governmental Authority and,
except as requested by the Agents, other than in connection with tax
audits by Governmental Authorities;
(ix) as soon as possible, and in any event
within five days after the occurrence of an Event of Default, Default
or a Material Adverse Effect, the written statement of the chief
executive officer or the chief financial officer of each Borrower,
setting forth the details of such Event of Default,
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Default or Material Adverse Effect and the action which the Company and
its Subsidiaries propose to take with respect thereto;
(x) (A) as soon as possible and in any event
(1) within 30 days after the Borrowers, the Guarantors or any of their
respective ERISA Affiliates knows or has reason to know that any
Termination Event described in clause (i) of the definition of
Termination Event with respect to any Employee Plan has occurred, (2)
within 10 Business Days after the Borrowers, the Guarantors or any of
their respective ERISA Affiliates knows or has reason to know that any
other Termination Event with respect to any Employee Plan has occurred,
or (3) within 10 Business Days after any of the Borrowers, any of the
Guarantors or any of their respective ERISA Affiliates knows or has
reason to know that an accumulated funding deficiency has been incurred
or an application has been made to the Secretary of the Treasury for a
waiver or modification of the minimum funding standard (including
installment payments) or an extension of any amortization period under
Section 412 of the Internal Revenue Code with respect to an Employee
Plan, a statement of the chief financial officer of the Company setting
forth the details of such occurrence and the action, if any, which the
Borrowers, the Guarantors or any of their respective ERISA Affiliates
proposes to take with respect thereto, (B) promptly and in any event
within two Business Days after receipt thereof by the Borrowers, the
Guarantors or any of their respective ERISA Affiliates from the Pension
Benefit Guaranty Corporation, copies of the notice received by the
Borrowers, the Guarantors or any of their respective ERISA Affiliates
of the Pension Benefit Guaranty Corporation's intention to terminate
any Plan or to have a trustee appointed to administer any Plan, (C)
promptly and in any event within 30 days after the filing thereof with
the Internal Revenue Service, copies of each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) with respect to
each Employee Plan and Multiemployer Plan, (D) promptly and in any
event within 10 Business Days after receipt thereof by the Borrowers,
the Guarantors or any of their respective ERISA Affiliates from a
sponsor of a Multiemployer Plan or from the Pension Benefit Guaranty
Corporation, a copy of the notice received by the Borrowers, the
Guarantors or any of their respective ERISA Affiliates concerning the
imposition or amount of withdrawal liability under Section 4202 of
ERISA or indicating that such Multiemployer Plan may enter
reorganization status under Section 4241 of ERISA, and (E) promptly and
in any event within 10 Business Days after any of the Borrowers, any of
the Guarantors or any of their respective ERISA Affiliates sends notice
of a plant closing or mass layoff (as defined in WARN) to employees,
copies of each such notice sent by the Borrowers, the Guarantors or any
of their respective ERISA Affiliates;
(xi) as soon as available and in any event
within 5 days after receipt or delivery thereof, copies of any notices
that any Loan Party receives or sends in connection with the
Acquisition Documents including, without limitation, each EBITDA
Notice, Dispute Notice, Determination and Final Earn-Out Notice (each
as defined in the Acquisition Agreement);
(xii) promptly after the commencement
thereof but in any event not later than five days after service of
process with respect thereto on, or the obtaining of knowledge thereof
by, the Company or any other Loan Party, notice of each action, suit or
proceeding before any court or other Governmental Authority or other
regulatory body or any arbitrator which would have a Material Adverse
Effect;
(xiii) at the time of the first delivery of
the audited financial statements pursuant to sub-clause (ii) of this
Section 7.01(a), consolidated and consolidating balance sheets of the
Company and its Consolidated Subsidiaries as of the effective date of
the Acquisition, all in reasonable detail and prepared in accordance
with GAAP (other than the absence of footnotes and adjustments but
including a narrative description of any adjustments) and based upon
the audited consolidated balance sheet of the Company and its
Consolidated Subsidiaries as of November 1, 1997, as adjusted by Ernst
& Young LLP pursuant to the procedures set forth in the letter dated
September 25, 1997 from Ernst & Young LLP to the Company; and
(xiv) promptly upon request, such other
information concerning the condition or operations, financial or
otherwise, of the Company or any other Loan Party that the Agents from
time to time may reasonably request.
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(b) Guaranties, Etc. Cause each of their respective
Subsidiaries not existing on the Effective Date to execute and deliver to the
Collateral Agent promptly, and in any event within 15 days after the formation
or acquisition thereof (i) a guaranty, substantially in the form of Exhibit C-1
hereto, guaranteeing the Obligations, and (ii) a security agreement,
substantially in the form of Exhibit D-2 hereto, securing such guaranty, and, in
connection with each such delivery, cause to be delivered to the Collateral
Agent, in form and substance reasonably satisfactory to the Collateral Agent, a
written opinion of counsel as to such matters relating thereto as the Collateral
Agent may reasonably request, together with such other agreements, instruments,
approvals or other documents as the Collateral Agent may reasonably request. In
addition, within 15 days after the formation or acquisition of any Subsidiary
not existing on the Effective Date, the parent of such Subsidiary shall pledge
all of the Capital Stock of such Subsidiary to the Collateral Agent pursuant to
the terms of the Pledge Agreement to which such parent is a party.
(c) Compliance with Laws, Etc. Comply, and cause each
of their respective Subsidiaries to comply, with all applicable material laws,
rules, regulations and orders (including, without limitation, ERISA and
Environmental Laws), such compliance to include, without limitation, (i) paying
before the same become delinquent all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits or upon any of
its properties, and (ii) paying all lawful claims arising under such laws which
if unpaid might become a Lien upon any of its properties, except (A) to the
extent contested in good faith by proper proceedings which stay the imposition
of any penalty, fine or Lien resulting from the non-payment thereof and with
respect to which adequate reserves have been set aside for the payment thereof
and (B) taxes, assessments or other claims in an amount of not more than
$200,000 in the aggregate and the Liens, if any, securing such amounts.
(d) Preservation of Existence, Etc. Except for
Norty's, Inc., maintain and preserve, and cause each of their Subsidiaries to
maintain and preserve, its existence, rights and privileges, and become or
remain duly qualified and in good standing in each jurisdiction in which the
character of the properties owned or leased by them or in which the transaction
of their business makes such qualification necessary, except where the failure
to preserve its rights and privileges and to qualify and be in good standing
would not have a Material Adverse Effect.
(e) Keeping of Records and Books of Account. Keep,
and cause each of their Subsidiaries to keep, adequate records and books of
account, with complete entries made in accordance with GAAP.
(f) Inspection Rights. Permit, and cause each of
their Subsidiaries to permit, the Agents, or any agents or representatives
thereof at any time and from time to time upon reasonable notice to the Company,
during normal business hours to examine and make copies of and abstracts from
their records and books of account, to visit and inspect their properties, to
conduct audits, physical counts, valuations or examinations and to discuss their
affairs, finances and accounts with any of the directors, officers, managerial
employees, independent accountants or other representatives thereof, provided
that (i) the foregoing shall be in a manner so as to not unduly disrupt the
business of the Borrowers and (ii) such notice shall not be required if an Event
of Default has occurred and is continuing.
(g) Maintenance of Properties, Etc. Except in respect
of Norty's Inc., maintain and preserve, and cause each of their Subsidiaries to
maintain and preserve, all of their properties which are necessary or useful in
the proper conduct of their business in good working order and condition,
ordinary wear and tear and damage due to casualty excepted. Except where the
failure to comply would not have a Material Adverse Effect, comply, and cause
each of their Subsidiaries to comply, at all times with the provisions of all
leases to which each of them is a party as lessee or under which each of them
occupies property, so as to prevent any loss or forfeiture thereof or
thereunder.
(h) Maintenance of Insurance. Maintain for the
Company and its Subsidiaries, with responsible and reputable insurance companies
or associations insurance (including, without limitation, comprehensive general
liability and property and casualty insurance) with respect to their properties
and business, in such amounts and covering such risks, as is required by any
Governmental Authority or other regulatory body having jurisdiction with respect
thereto and as is carried generally in accordance with sound business practice
by companies in similar businesses similarly situated.
(i) Environmental. Cause each Loan Party to (i) keep
any property either owned or operated by it free of any Liens arising under any
Environmental Laws; (ii) comply with Environmental Laws except where the failure
to comply would not have a Material Adverse Effect and provide to the Agents
documentation of such
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compliance which the Agents reasonably request; (iii) promptly notify the Agents
of any Release of a Hazardous Material in excess of any reportable quantity and
take any Remedial Actions required by Governmental Authorities to abate said
Release; and (iv) promptly provide the Agents with written notice within ten
(10) days of the receipt of any Environmental Action or notice that an
Environmental Action will be filed against either of the Borrowers.
(j) Further Assurances. Shall, and shall cause each
Subsidiary to, do, execute, acknowledge and deliver, at the sole cost and
expense of the Borrowers all such further acts, deeds, conveyances, mortgages,
assignments, estoppel certificates, financing statements, notices of assignment,
transfers and assurances as the Agents may reasonably require from time to time
in order to (i) carry out more effectively the purposes of this Agreement and
the other Loan Documents, (ii) subject to valid and perfected first priority
Liens, all the Collateral, (iii) perfect and maintain the validity,
effectiveness and priority of any of the Loan Documents and the Liens intended
to be created thereby, and (iv) better assure, convey, grant, assign, transfer
and confirm unto the Agents, the Lenders and the L/C Issuer the rights now or
hereafter intended to be granted to the Agents, the Lenders and the L/C Issuer
under this Agreement, any Loan Document or any other instrument under which the
Borrowers, the Guarantors or any of their respective Subsidiaries may be or may
hereafter become bound for carrying out the intention or facilitating the
performance of the terms of the Agreement.
(k) Key Man Life Insurance. Furnish to the Agents
within sixty (60) days of the Effective Date a copy of key man life insurance
policies on the lives of Sanford Greenberg in the amount of $1,500,000, Peter
Boneparth in the amount of $3,000,000 and Howard Zwilling in the amount of
$1,500,000, in each case from a responsible and reputable life insurance
company, together with a collateral assignment of each such life insurance
policy to the Collateral Agent for the benefit of the Lenders, duly executed by
each of the Borrowers, and acknowledged by the home office of the insurance
company. Maintain at all times such key man or other life insurance policies on
the lives of Sanford Greenberg, Peter Boneparth and Howard Zwilling or their
successors for so long as such individuals or their successors are employed by
the Company or any Borrower from a responsible and reputable life insurance
company each in an amount of not less than $1,500,000, $3,000,000 and
$1,500,000, respectively, together with an assignment of such life insurance
policies to the Collateral Agent for the benefit of the Lenders.
(l) Landlords Waivers; No-offset Letters. Use their
best efforts to furnish to the Collateral Agent within sixty (60) days of the
Effective Date or the first date on which a Borrower maintains Inventory on
leased premises, the location of a contractor, processor or supplier or a
warehouse (i) landlord waivers in form and substance reasonably satisfactory to
the Collateral Agent from each of the Borrowers' landlords and from each of the
landlord's of the premises of the Borrower's contractors set forth on Schedule
5.01(d)(xxi) (other than the landlord for the premises of Miss Erika located at
333 North Street, Teterboro, New Jersey), (ii) no-offset letters in form and
substance reasonably satisfactory to the Collateral Agent from each of the
Borrowers' contractors, processors and suppliers that may from time to time have
possession of the Inventory with a value in excess of $1 million (other than
those set forth on Schedule 5.01(d)(xxi) hereto), and (iii) warehouse letters in
form and substance reasonably satisfactory to the Collateral Agent from the
owner of each of the warehouses that may from time to time have possession of
Inventory.
(m) Real Estate. If at any time any Loan Party or any
of its Subsidiaries acquires any fee interest in real property, such Loan Party
shall promptly execute, deliver and record, or cause such Subsidiary to execute,
deliver and record, a first priority mortgage and/or deed of trust in favor of
the Collateral Agent covering such real property interest, in form and substance
reasonably satisfactory to the Collateral Agent, and provide the Collateral
Agent with a title insurance policy covering such real property interest in an
amount reasonably acceptable to the Collateral Agent, a current ALTA survey
thereof, a surveyor's certificate, a satisfactory legal description of such
property and an opinion from special counsel to such Loan Party, each in form
and substance reasonably satisfactory to the Collateral Agent and as to such
matters as the Collateral Agent may reasonably request together with a report of
title on forms of and issued by a title company reasonably satisfactory to the
Collateral Agent ("Title Company"), subject to such exceptions as are reasonably
satisfactory to the Collateral Agent, and, to the extent necessary under
applicable law, Uniform Commercial Code financing statements covering fixtures,
in each case appropriately completed and duly executed, for filing in the
appropriate county land office and evidence that such Loan Party shall have paid
to the Title Company all expenses of the Title Company in connection with the
issuance of such reports and in addition shall have paid to the Title Company an
amount equal to the recording and stamp taxes (including mortgage recording
taxes), if any, payable in connection with recording such mortgages in the
appropriate county land offices, each in form and substance reasonably
satisfactory to the Collateral Agent.
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<PAGE> 53
(n) Change in Collateral; Collateral Records. Give
the Collateral Agent not less than thirty days' prior written notice of any
change in the location of any Collateral, other than to locations, that as of
the date hereof are known to the Collateral Agent and at which the Collateral
Agent has filed financing statements and otherwise fully perfected its Liens
thereon, except for (i) in-transit Inventory and (ii) new locations of Inventory
in the possession of third-party contractors, processors or suppliers where the
value of such Inventory does not exceed $100,000 for all such locations,
provided that, in the case of clause (ii), the Borrower owning such Inventory
(A) provides the Collateral Agent with prompt written notice of such new
location, not more than 5 Business Days after the first date on which Inventory
is located at such new location, and (B) takes all action reasonably requested
by the Collateral Agent to grant to the Collateral Agent a perfected first
priority Lien on such Inventory. The Borrowers shall also advise the Collateral
Agent promptly, in reasonable detail, of any material adverse change relating to
the value of or the Lien granted on the Collateral. The Borrowers agree to
execute and deliver to the Collateral Agent for the benefit of the Lenders from
time to time, solely for the Collateral Agent's convenience in maintaining a
record of Collateral, such written statements and schedules as the Collateral
Agent may reasonably require, designating, identifying or describing the
Collateral. The Borrowers' failure, however, to promptly give the Collateral
Agent such statements or schedules shall not effect, diminish or modify or
otherwise limit the Collateral Agent's security interest in the Collateral.
(o) Borrowing Base. Maintain (i) all Revolving Credit
Loans and Letter of Credit Obligations of each Borrower in compliance with the
then current Borrowing Base of each such Borrower on an individual basis and
(ii) all Revolving Credit Loans and Letter of Credit Obligations in compliance
with the then current Borrowing Base on a combined basis.
(p) Intellectual Property Appraisals. Furnish to the
Lenders within sixty (60) days of the Effective Date, appraisals, at the sole
cost and expense of the Borrowers, reasonably satisfactory to the Agents, of all
trademarks of the Borrowers, such appraisals to be performed by Daley Hodkin
Corporation on an "orderly liquidation value" basis.
SECTION 7.02. Negative Covenants. So long as any principal of
or interest on the Loans or any Letter of Credit Obligations (whether or not
due) shall remain unpaid or any Lender shall have any Commitment hereunder, the
Company and the Borrowers will not without the prior written consent of the
Required Lenders:
(a) Liens, Etc. Create or suffer to exist, or permit
any of their Subsidiaries to create or suffer to exist, any Lien upon or with
respect to any of their properties, rights or other assets, whether now owned or
hereafter acquired, or assign or otherwise transfer, or permit any of its
Subsidiaries to assign or otherwise transfer, any right to receive income, other
than the following ("Permitted Liens"):
(i) Liens created pursuant to the Loan
Documents;
(ii) Liens existing on the date hereof, as
set forth in Schedule 7.02(a)(ii) hereto, and the renewal and
replacement of such Liens, provided that any such renewal or
replacement Lien shall be limited to the property or assets covered by
the Lien renewed or replaced and the Indebtedness secured by any such
renewal or replacement Lien shall be in an amount not greater than the
amount of Indebtedness secured by the Lien renewed or replaced;
(iii) Liens for taxes, assessments or
governmental charges or levies to the extent that the payment thereof
shall not be required by Section 7.01(c) hereof;
(iv) Liens created by operation of law or
leases (other than Liens created under Environmental Laws), such as
landlords' liens, materialmen's liens, mechanics' liens and other
similar Liens, arising in the ordinary course of business and securing
claims the payment of which shall not be required by Section 7.01(c)
hereof;
(v) deposits, pledges or Liens (other than
Liens arising under ERISA or the Internal Revenue Code) securing (A)
obligations incurred in respect of workers' compensation, unemployment
insurance or other forms of governmental insurance or benefits, (B) the
performance of bids, tenders, leases, contracts (other than for the
payment of money) and statutory obligations, or (C) obligations on
surety or appeal bonds, but only to the extent such deposits, pledges
or Liens are incurred or otherwise arise in the
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<PAGE> 54
ordinary course of business and secure obligations which are not past
due;
(vi) easements, rights-of-way, zoning and
similar restrictions and other similar charges and encumbrances on the
use of real property and minor irregularities in the title thereto
which do not (A) secure obligations for the payment of money, or (B)
materially impair the value of such property or materially impair the
use thereof by the Borrowers, the Guarantors or any of their
Subsidiaries in the normal conduct of such Person's business;
(vii) Liens created under the Factoring
Agreements;
(viii) purchase money liens on or purchase
money security interests in equipment acquired or held in the ordinary
course of business of the Borrowers, the Guarantors and their
Subsidiaries securing Indebtedness not exceeding in any Fiscal Year of
the Company the aggregate principal amount of $500,000 for the
Borrowers, the Guarantors and their Subsidiaries;
(ix) Liens securing Capitalized Leases
permitted by Section 7.02(g); and
(x) Liens in favor of the Seller on the
Capital Stock of Miss Erika securing the Earn Out Payment.
(b) Indebtedness. Create, incur or suffer to exist,
or permit any of their Subsidiaries to create, incur or suffer to exist, any
Indebtedness, other than:
(i) Indebtedness created hereunder or under
the Notes or any Letter of Credit;
(ii) Indebtedness existing on the date
hereof, as set forth in Schedule 7.02(b)(ii) hereto, and any extensions
of maturity, refinancing or modification of the terms thereof, provided
that such extension, refinancing or modification (A) is pursuant to
terms that are not less favorable to the Borrowers or the Guarantors
than the terms of the Indebtedness being extended, refinanced or
modified, (B) after giving effect to the extension, refinancing or
modification, such Indebtedness is not greater than the amount of the
Indebtedness outstanding immediately prior to such extension,
refinancing or modification, and (C) the extension, refinancing or
modification does not change the Persons liable for such Indebtedness;
(iii) intercompany Indebtedness permitted by
Section 7.02(f)(iii) owing to any Borrower by the other Borrower,
provided that (A) the repayment of such Indebtedness shall be
subordinated to the payment of the Obligations, pursuant to the terms
of and evidenced by one or more promissory notes, substantially in the
form of Exhibits M-1, M-2 or M-3 hereto, as applicable, and (B) such
notes shall be pledged to the Collateral Agent for the benefit of the
Lenders;
(iv) Indebtedness permitted by subsection
(c) of this Section 7.02;
(v) Indebtedness secured by Liens permitted
by clause (viii) of subsection (a) of this Section 7.02;
(vi) Indebtedness under the Hedging
Agreements;
(vii) Indebtedness under Capitalized Leases
permitted by Section 7.02(g);
(viii) to the extent that it constitutes
Indebtedness, the obligation of Miss Erika with respect to the Earn Out
Payment; and
(ix) intercompany Indebtedness of the
Company and Norty's Inc. permitted by Sections 7.02(f)(viii), (ix) and
(xii) hereof.
(c) Guaranties, Etc. Assume, guarantee, indorse or
otherwise become directly or contingently liable (including, without limitation,
liable by way of agreement, contingent or otherwise, to purchase, to
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<PAGE> 55
provide funds for payment, to supply funds to or otherwise invest in the debtor
or otherwise to assure the creditor against loss), in connection with any
Indebtedness of any other Person, other than:
(i) guaranties in favor of the Agents and
the Lenders under the Loan Documents;
(ii) guaranties by indorsement of negotiable
instruments for deposit or collection in the ordinary course of
business;
(iii) guaranties existing on the date
hereof, as set forth in Schedule 7.02(c)(iii) hereto, but not any
renewal or other modification thereof provided that, if the
Indebtedness guaranteed by such guaranty is renewed, modified or
extended pursuant to the terms of this Agreement, such guaranty may be
renewed or modified on terms no less favorable to the Borrowers or the
Guarantors than the guaranty being renewed or modified;
(iv) advances incurred in the ordinary
course of a Borrower's business, in an aggregate amount not to exceed
(A) $2,000,000 at any time outstanding to domestic contractors,
processors or agents and (B) $7,500,000 at any time outstanding between
April 1 and October 31 of any year and $4,000,000 at any time
outstanding between November 1 and March 31 of any year to Style
International, Inc., provided that the amounts set forth in sub-clause
(B) above may include (but not be increased by) an amount of up to
$500,000 at any one time outstanding to foreign contractors, processors
or agents other than Style International, Inc.;
(v) guaranties by the Company of Miss
Erika's obligations under the Acquisition Agreement; and
(vi) guaranties in favor of contractors,
processors or agents of the Borrowers incurred in the ordinary course
of a Borrower's business, in an aggregate amount not to exceed
$1,000,000 at any time outstanding.
(d) Merger, Consolidation, Sale of Assets, Etc.
(i) Merge or consolidate with any Person, or
permit any of their Subsidiaries to merge or consolidate with, any Person;
provided, however, that any Loan Party (other than the Borrowers) including any
Subsidiary of a Loan Party formed or acquired after the Effective Date, may be
merged into a Guarantor (other than the Borrowers) or another such Subsidiary,
or may consolidate with another such Subsidiary, so long as (A) the Company
gives the Administrative Agent at least 60 days' prior written notice of such
merger or consolidation and (B) no Default or Event of Default shall have
occurred and be continuing either before or after giving effect to such
transactions.
(ii) Sell, assign, lease or otherwise
transfer or dispose of, or permit any of its Subsidiaries to sell, assign, lease
or otherwise transfer or dispose of, whether in one transaction or in a series
of related transactions, any of its properties, rights or other assets whether
now owned or hereafter acquired to any Person, provided that (A) the Borrowers
and their Subsidiaries may sell Inventory in the ordinary course of business,
(B) the Company and its Subsidiaries may dispose of obsolete or worn-out
property in the ordinary course of business, (C) the Loan Parties may sell or
otherwise dispose of assets, other than Inventory, for fair market value,
provided that the aggregate Net Proceeds of such dispositions do not exceed
$100,000 in any Fiscal Year, (D) the Borrowers may sell Accounts Receivable to
the Factor pursuant to the Factoring Agreements, (E) Squire may sell, assign or
otherwise transfer the Capital Stock of Norty's, Inc. and Norty's, Inc. may
sell, assign or otherwise transfer any or all of its properties, rights and
assets, and (F) the Company and its Subsidiaries may enter into licensing
agreements as a licensor.
(e) Nature of Business. Engage in, or permit any of
their Subsidiaries to engage in, any business other than the women's apparel
business, excluding manufacturing but not excluding contracting for manufacture
or the manufacture of samples.
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(f) Investments, Etc. Make, or permit any of its
Subsidiaries to make, any loan or advance to any Person or purchase, hold or
otherwise acquire, or permit any of its Subsidiaries to purchase, hold or
otherwise acquire, any Capital Stock, other securities, properties, assets or
obligations of, or any interest in, any Person, other than:
(i) Permitted Investments;
(ii) investments in Subsidiaries existing on
the date hereof, and other investments and loans existing on the date
hereof, in each case existing on the date hereof as set forth in
Schedule 7.02(f)(ii) hereto;
(iii) loans or advances made by any Borrower
to the other Borrower, provided that (A) the repayment of all such
loans and advances is subordinated to the payment of the Obligations
pursuant to the terms of and evidenced by one or more promissory notes
substantially in the form of Exhibits M-1, M-2 or M-3 hereto, as
applicable, and (B) such notes shall be pledged to the Collateral Agent
for the benefit of the Lenders;
(iv) loans or advances to employees in the
ordinary course in an aggregate amount not to exceed $100,000 at any
time outstanding;
(v) loans, advances and guaranties permitted
by Sections 7.02(c)(iv) and (vi);
(vi) investments in the Capital Stock of the
Company permitted by Section 7.02(i)(ii);
(vii) the Acquisition;
(viii) loans or advances by any Borrower to
the Company in the ordinary course of business for the purpose of the
payment of taxes due and owing by the Company and to purchase Capital
Stock of the Company permitted by Section 7.02(i)(ii);
(ix) loans or advances made by Squire to
Norty's, Inc. in an aggregate amount at any time outstanding not to
exceed the sum of (A) the amount, if any, loaned, advanced, paid as a
dividend or otherwise distributed to Squire by Norty's after the
Effective Date and (B) $700,000;
(x) acquisitions by any Loan Party of
Capital Stock or assets provided that each of the following conditions
has been satisfied and the chief executive officer of the Company shall
provide the Lenders with a certificate stating that each of the
following conditions has been satisfied together with any additional
information that the Agents may reasonably request (A) the Term Loan
has been repaid in full, (B) both before and after giving effect to
such acquisition, no Default or Event of Default shall have occurred
and be continuing, (C) the consideration paid by the Loan Party making
such acquisition shall be limited to the Capital Stock of the Company,
(D) the entity or assets acquired in such acquisition shall be in a
line of business permitted by Section 7.02(e) hereof, (E) the entity or
assets acquired shall not require financing in addition to that
provided by this Agreement, (F) the independent directors of the
Company's board of directors shall approve such acquisition, (G) the
Company shall obtain and deliver to the Lenders a fairness opinion with
respect to the acquisition from an independent investment banking firm
reasonably acceptable to the Agents, and (H) in the case of the
acquisition of stock, the new subsidiary shall comply with the
provisions of Section 7.01(b) hereof and, in the case of the
acquisition of stock or assets, the Loan Parties shall take all action
reasonably requested by the Collateral Agent to grant to the Collateral
Agent a perfected first priority Lien on all Capital Stock and assets
acquired;
(xi) purchases of inventory and supplies by
any Borrower in the ordinary course of business;
(xii) loans or advances by Norty's to
Squire; and
(xiii) other loans, advances or investments
in an aggregate amount not to
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<PAGE> 57
exceed $100,000.
(g) Lease Obligations. Create, incur or suffer to
exist, or permit any of their Subsidiaries to create, incur or suffer to exist,
any obligations as lessee (i) for the payment of rent for any real or personal
property in connection with any sale and leaseback transaction, or (ii) for the
payment of rent for any real or personal property under leases or agreements to
lease other than (A) obligations under Capitalized Leases (other than the
existing Capitalized Leases set forth on Schedule 7.02(g) hereto) which would
not cause the aggregate amount of all obligations under Capitalized Leases
entered into after the Effective Date owing by the Loan Parties in any Fiscal
Year to exceed the amounts set forth in subsection (h) of this Section 7.02, and
(B) Operating Lease Obligations which would not cause the aggregate amount of
all Operating Lease Obligations owing by the Loan Parties in any Fiscal Year to
exceed $5,000,000 or such greater amount as shall be approved by the Required
Lenders.
(h) Capital Expenditures. Make or be committed to
make, or permit any of its Subsidiaries to make or be committed to make, any
expenditure (by purchase or Capitalized Lease) for fixed or capital assets other
than expenditures (including obligations under Capitalized Leases) which would
not cause the aggregate amount of all such expenditures to exceed $2,500,000 for
the Fiscal Year ended October 31, 1998 and $2,000,000 for each Fiscal Year
thereafter.
(i) Dividends, Prepayments, Etc. Declare or pay any
dividends, purchase or otherwise acquire for value any of its Capital Stock now
or hereafter outstanding, return any capital to its stockholders as such, or
make any other payment or distribution of assets to its stockholders as such, or
purchase or otherwise acquire for value any stock of any Loan Party, or make any
payment or prepayment of principal of, premium, if any, or interest on, or
redeem, defease or otherwise retire, any Indebtedness of any Loan Party (other
than Indebtedness under the Loan Documents) before its scheduled due date, or
permit any of its Subsidiaries to do any of the foregoing; provided, however,
that so long as no Default or Event of Default shall have occurred and be
continuing, or would result therefrom, (i) Miss Erika may make the Earn-Out
Payment, (ii) the Company may repurchase shares of its Capital Stock during its
Fiscal Year ended October 31, 1998, provided, that the aggregate consideration
paid for such purchases does not exceed $1,000,000 in the aggregate for such
Fiscal Year less all amounts paid by the Company for similar repurchases of its
Capital Stock during the Fiscal Quarter of the Company ending November 1,1997,
(iii) the Borrowers may pay dividends to the Company in amounts necessary to (A)
make the repurchase of its shares of Capital Stock to the extent permitted by
clause (ii) above and (B) to pay taxes due and owing by the Company, (iv) any
Subsidiaries of the Borrowers may pay dividends to the Borrowers, and (v) the
Company may pay dividends in the form of Capital Stock.
(j) Sale of Notes, Etc. Except pursuant to the
Factoring Agreements and, in the absence of a continuing Event of Default, in
the ordinary course of business, sell, discount or otherwise dispose of notes,
Accounts Receivable or other obligations owing to a Loan Party or permit any of
their Subsidiaries to do so.
(k) Compromise of Receivable; Other Obligations.
(i) Compromise or adjust any of the Accounts
Receivable (or extend the time for payment thereof) or grant any discounts,
allowance or credits thereon or permit any of their Subsidiaries to do so, in
each case other than (i) as permitted by the Factoring Agreements and (ii) in
the absence of a continuing Event of Default, in the ordinary course of
business.
(ii) Forgive or compromise any principal of
or interest on, or amend, modify or waive, if the effect of such amendment,
modification or waiver is to forgive or compromise any principal of or interest
on, the non-negotiable limited recourse promissory notes described on Schedule
7.02(k)(ii) hereto or release any security for such notes (except, in connection
with a sale of such notes, as provided in such notes or the pledge agreements
related thereto as such notes and pledge agreements existed on the Effective
Date).
(l) Federal Reserve Regulations. Permit any Loan or
the proceeds of any Loan under this Agreement to be used for any purpose which
violates or is inconsistent with the provisions of Regulations G, T, U or X of
the Board of Governors of the Federal Reserve System.
(m) Transactions with Affiliates. Enter into or be a
party to, or permit any Subsidiary
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to enter into or be a party to any transaction with any Affiliate of the Company
except as otherwise expressly permitted in this Agreement or except in the
ordinary course of business in a manner and to an extent necessary or desirable
for the prudent operation of its business for fair consideration and on terms no
less favorable to the Company or such Subsidiary as are available from
unaffiliated third parties except for the employment, compensation or consulting
arrangements described in Schedule 7.02(m) hereto and any renewals, extensions
or modifications thereof on fair and reasonable terms necessary or desirable for
the prudent operation of its business.
(n) Environmental. The Loan Parties shall not allow
the use, handling, generation, storage, treatment, release or disposal of
Hazardous Materials at any property owned or leased by the Loan Parties except
in compliance with Environmental Laws so long as such use, handling, generation,
storage, treatment, release or disposal of Hazardous Materials does not result
in a Material Adverse Effect.
(o) Factoring Agreements. Cause any voluntary
termination by a Loan Party of any Factoring Agreement.
(p) Financial Covenants.
(i) Tangible Net Worth. Permit Consolidated
Tangible Net Worth of the Company and its Consolidated Subsidiaries at
the end of each Fiscal Quarter to be less than the amount set forth
below opposite each such Fiscal Quarter end:
<TABLE>
<CAPTION>
Fiscal Minimum Tangible
Quarter End Net Worth
----------- ---------
<S> <C> <C>
November 1, 1997 $37,000,000
January 31, 1998 $36,000,000
May 2, 1998 $39,500,000
August 1, 1998 $40,500,000
October 31, 1998 $43,500,000
</TABLE>
provided that, upon receipt of the financial projections required to be
delivered to the Lenders pursuant to Section 7.01(a)(vi) hereof for
each Fiscal Year, the Company and the Agents shall negotiate in good
faith to determine the Consolidated Tangible Net Worth for the Company
and its Consolidated Subsidiaries as of the end of each Fiscal Quarter
covered by such financial projections and, in the event that the
Company and the Required Lenders are unable to agree upon the amounts
of such Consolidated Tangible Net Worth on or before the date that is
30 days after the date that the Lenders have received such financial
projections, the Consolidated Tangible Net Worth at the end of each
Fiscal Quarter of the Fiscal Year covered by such financial projections
shall not be less than the amount set forth for the last Fiscal Quarter
end set forth above.
(ii) Leverage Ratio. Permit the ratio of
Consolidated Total Liabilities to Consolidated Tangible Net Worth of
the Company and its Consolidated Subsidiaries as of the end of each
Fiscal Quarter to be greater than the amount set forth below opposite
each such Fiscal Quarter end:
<TABLE>
<CAPTION>
Fiscal Maximum
Quarter End Leverage Ratio
----------- --------------
<S> <C> <C>
November 1, 1997 1.8:1.0
January 31, 1998 1.5:1.0
May 2, 1998 1.7:1.0
August 1, 1998 1.45:1.0
October 31, 1998 1.25:1.0
</TABLE>
provided that, upon receipt of the financial projections required to be
delivered to the Lenders pursuant to Section 7.01(a)(vi) hereof for
each Fiscal Year, the Company and the Agents shall negotiate in good
faith to
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<PAGE> 59
determine the ratio of Consolidated Total Liabilities to Consolidated
Tangible Net Worth of the Company and its Consolidated Subsidiaries as
of the end of each Fiscal Quarter covered by such financial projections
and, in the event that the Company and the Required Lenders are unable
to agree upon such ratio on or before the date that is 30 days after
the date that the Lenders have received such projections, such ratio as
of the end of each Fiscal Quarter of the Fiscal Year covered by such
financial projections shall not be greater than the ratio set forth for
the last Fiscal Quarter end set forth above.
(iii) Working Capital. Permit Working
Capital at the end of each Fiscal Quarter to be less than the amount
set forth below opposite each such Fiscal Quarter:
<TABLE>
<CAPTION>
Fiscal Minimum
Quarter End Working Capital
----------- ---------------
<S> <C> <C>
November 1, 1997 $38,000,000
January 31, 1998 $37,500,000
May 2, 1998 $40,500,000
August 1, 1998 $41,500,000
October 31, 1998 $44,000,000
</TABLE>
provided that, upon receipt of the financial projections required to be
delivered to the Lenders pursuant to Section 7.01(a)(vi) hereof for
each Fiscal Year, the Company and the Agents shall negotiate in good
faith to determine the minimum Working Capital as of the end of each
Fiscal Quarter covered by such financial projections and, in the event
that the Company and the Required Lenders are unable to agree upon the
amounts of such Working Capital on or before the date that is 30 days
after the date that the Lenders have received such projections, the
Working Capital at the end of each Fiscal Quarter of the Fiscal Year
covered by such financial projections shall not be less than the amount
set forth for the last Fiscal Quarter end set forth above.
(iv) Fixed Charge Coverage Ratio. Permit the
ratio of Consolidated EBITDA of the Company and its Consolidated
Subsidiaries to Consolidated Fixed Charges of the Company and its
Consolidated Subsidiaries for each Fiscal Quarter to be less than the
amount set forth below opposite each such Fiscal Quarter:
<TABLE>
<CAPTION>
Fiscal Minimum Fixed
Quarter End Charge Coverage Ratio
----------- ---------------------
<S> <C> <C>
November 1, 1997 2:1.0
January 31, 1998 (0.25):1.0
May 2, 1998 1.6:1.0
August 1, 1998 0.8:1.0
October 31, 1998 1.4:1.0
</TABLE>
provided that, upon receipt of the financial projections required to be
delivered to the Lenders pursuant to Section 7.01(a)(vi) hereof for
each Fiscal Year, the Company and the Agents shall negotiate in good
faith to determine the ratio of Consolidated EBITDA of the Company and
its Consolidated Subsidiaries to Consolidated Fixed Charges of the
Company and its Consolidated Subsidiaries as of the end of each Fiscal
Quarter covered by such financial projections and, in the event that
the Company and the Required Lenders are unable to agree upon the
amounts of such ratio on or before the date that is 30 days after the
date that the Lenders have received such projections, such ratio for
each Fiscal Quarter of the Fiscal Year covered by such financial
projections shall not be less than the ratio set forth for the last
Fiscal Quarter end set forth above.
(v) Cash Flow Ratio. Permit the ratio of
Consolidated EBIT of the Company and its Consolidated Subsidiaries to
Consolidated Net Interest Expense of the Company and its Consolidated
Subsidiaries at the end of each Fiscal Quarter be less than the amount
set forth below opposite each such Fiscal
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<PAGE> 60
Quarter:
<TABLE>
<CAPTION>
Fiscal Minimum
Quarter End Cash Flow Ratio
----------- ---------------
<S> <C> <C>
November 1, 1997 3.5:1.0
January 31, 1998 (0.55):1.0
May 2, 1998 5.2:1.0
August 1, 1998 2.4:1.0
October 31, 1998 4:1.0
</TABLE>
provided that, upon receipt of the financial projections required to be
delivered to the Lenders pursuant to Section 7.01(a)(vi) hereof for
each Fiscal Year, the Company and the Agents shall negotiate in good
faith to determine the ratio of Consolidated EBIT of the Company and
its Consolidated Subsidiaries to Consolidated Net Interest Expense of
the Company and its Consolidated Subsidiaries as of the end of each
Fiscal Quarter covered by such financial projections and, in the event
that the Company and the Required Lenders are unable to agree upon such
ratio on or before the date that is 30 days after the date that the
Lenders have received such projections, such ratio at the end of each
Fiscal Quarter of the Fiscal Year covered by such financial projections
shall not be less than the ratio set forth for the last Fiscal Quarter
set forth above.
(q) Restructuring Charges. Permit Squire to incur a
restructuring charge in an aggregate amount in excess of $5,000,000 during the
third and fourth fiscal quarters of the Fiscal Year ending November 1, 1997.
(r) Fiscal Periods. Change the Fiscal Months, Fiscal
Years and Fiscal Quarters as set forth on Schedule 1.01B, except as otherwise
agreed to in writing by the Agents.
ARTICLE VIII
MANAGEMENT, COLLECTION AND STATUS OF
ACCOUNTS RECEIVABLE AND OTHER COLLATERAL
SECTION 8.01. Management of Collateral. (a) After the
occurrence and during the continuance of an Event of Default and subject to the
prior rights of the Factor under the Factoring Agreements and the Assignment
Agreement , the Collateral Agent may for the benefit of the Lenders, send a
notice of assignment and/or notice of the Collateral Agent's security interest
to any and all Account Debtors or any third party holding or otherwise concerned
with any of the Collateral, and thereafter the Collateral Agent on behalf of the
Lenders shall have the sole right to collect the Accounts Receivable and/or take
possession of the Collateral and the books and records relating thereto. The
Company and the Borrowers shall not and shall not permit their Subsidiaries,
without prior written consent of the Collateral Agent, to grant any extension of
time of payment of any Account Receivable, compromise or settle any Account
Receivable for less than the full amount thereof, release, in whole or in part,
any Person or property liable for the payment thereof, or allow any credit or
discount whatsoever thereon, except (i) prior to the occurrence and during the
continuance of an Event of Default, in the ordinary course of business or (ii)
as permitted by the Factoring Agreements.
(b) (i) Subject to the prior rights of the Factor
under the Factoring Agreements and the Assignment Agreement, the Company and the
Borrowers hereby appoint the Collateral Agent or its designee on behalf of the
Collateral Agent as the Company's and the Borrowers' attorney-in-fact with power
after the occurrence and during the continuance of an Event of Default to
endorse the Company's or Borrower's name upon any notes, acceptances, checks,
drafts, money orders or other evidences of payment or Collateral that may come
into its possession, to sign the Company's or a Borrower's name on any invoice
or bill of lading relating to any of the Accounts Receivable, drafts against
Account Debtors, assignments and verifications of Accounts Receivable and
notices to Account Debtors, to send verification of Accounts Receivable, to
notify the Postal Service authorities to change the address for delivery of mail
addressed to the Company and the Borrowers to such address as the Administrative
Agent may designate and to do all other acts and things necessary to carry out
this Agreement. All acts of said attorney or
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designee are hereby ratified and approved, and said attorney or designate shall
not be liable for any acts of omission or commission (other than acts or
omissions constituting gross negligence or willful misconduct as determined by a
final judgment of a court of competent jurisdiction), nor for any error of
judgment or mistake of fact or law; this power being coupled with an interest is
irrevocable until all of the Loans and any other Obligations under the Loan
Documents are paid in full and all of the Commitments are terminated.
(ii) Subject to the prior rights of the Factor under
the Factoring Agreements and the Assignment Agreement, the Collateral Agent,
without notice to or consent of the Company, any Borrower or any Guarantor upon
the occurrence and during the continuance of an Event of Default (A) may sue
upon or otherwise collect, extend the time of payment of, or compromise or
settle for cash, credit or otherwise upon any terms, any of the Accounts
Receivable or any securities, instruments or insurance applicable thereto and/or
release the Account Debtor thereon; (B) is authorized and empowered to accept
the return of the goods represented by any of the Accounts Receivable, and (C)
shall have the right to receive, endorse, assign and/or deliver in its name or
the name of the Company, any Borrower or any Guarantor any and all checks,
drafts, and other instruments for the payment of money relating to the Accounts
Receivable. The Company and each Borrower and Guarantor hereby waive notice of
presentment, protest and non-payment of any instrument so endorsed, all in a
commercially reasonable manner and without discharging or in any way affecting
liability hereunder.
(c) Nothing herein contained shall be construed to
constitute the Company, any Borrower or any Guarantor as agent of the Agents or
the Lenders for any purpose whatsoever, and the Agents and the Lenders shall not
be responsible or liable for any shortage, discrepancy, damage, loss or
destruction of any part of the Collateral wherever the same may be located and
regardless of the cause thereof (other than from acts or omissions of the Agents
or the Lenders constituting gross negligence or willful misconduct as determined
by a final judgment of a court of competent jurisdiction). The Agents and the
Lenders shall not, under any circumstances or in any event whatsoever, have any
liability for any error or omission or delay of any kind occurring in the
settlement, collection or payment of any of the Accounts Receivable or any
instrument received in payment thereof or for any damage resulting therefrom
(other than acts or omissions of the Agents or the Lenders constituting gross
negligence or willful misconduct as determined by a final judgment of a court of
competent jurisdiction). The Agents and the Lenders, by anything herein or in
any assignment or otherwise, do not assume any of the Company's, Borrowers' or
any Guarantor's obligations under any contract or agreement assigned to the
Agents and the Agents or the Lenders shall not be responsible in any way for the
performance by the Company or such Borrower of any of the terms and conditions
thereof.
(d) If any of the Accounts Receivable includes a
charge for any tax payable to any Governmental Authority, subject to the prior
rights of the Factor under the Factoring Agreement and the Assignment Agreement,
the Collateral Agent is hereby authorized (but in no event obligated) in its
discretion to pay the amount thereof to the proper taxing authority for the
Company's, any Borrower's or any Guarantor's account and to charge the Company
or such Borrower or Guarantor therefor. The Company or such Borrower or
Guarantor shall notify the Collateral Agent if any Accounts Receivable include
any taxes due to any such authority and, in the absence of such notice and, the
Collateral Agent shall have the right to retain the full proceeds of such
Accounts Receivable and shall not be liable for any taxes that may be due from
the Company or such Borrower or Guarantor by reason of the sale and delivery
creating such Accounts Receivable.
SECTION 8.02. Accounts Receivable Documentation. Subject to
the prior rights of the Factor under the Factoring Agreements and the Assignment
Agreement, the Company and each Borrower will at such intervals as the
Collateral Agent may reasonably require, execute and deliver confirmatory
written assignments of the Accounts Receivable to the Collateral Agent and
furnish such further schedules and/or information as the Collateral Agent may
reasonably require relating to the Accounts Receivable, including, without
limitation, sales invoices or the equivalent, credit memos issued, remittance
advises, reports and copies of deposit slips and copies of original shipping or
delivery receipts for all merchandise sold. In addition, the Company and each
Borrower shall notify the Collateral Agent of any material non-compliance in
respect of the representations, warranties and covenants contained in Section
8.03 below. The items to be provided under this Section 8.02 are to be in form
reasonably satisfactory to the Collateral Agent and are to be executed and
delivered to the Collateral Agent from time to time solely for its convenience
in maintaining records of the Collateral. The Company or any Borrower's failure
to give any of such items to the Collateral Agent shall not affect, terminate,
modify or otherwise limit the Collateral Agent's Lien in the Collateral.
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Subject to the provisions of the Factoring Agreements, the Company and each
Borrower shall not re-date any invoice or sale or make sales on extended dating
beyond that customary in the Company's or such Borrower's industry, and shall
not re-bill any Accounts Receivable without promptly disclosing the same to the
Factor and the Collateral Agent and providing the Factor and the Collateral
Agent with copy of such re-billing, identifying the same as such. If the Company
or any Borrower becomes aware of anything materially detrimental to the credit
of any of the Company's or any of the Borrowers' customers' which is not
otherwise publicly known with respect to non-credit approved Accounts
Receivable, the Company or such Borrower will promptly advise the Collateral
Agent thereof.
SECTION 8.03. Status of Accounts Receivable and Other
Collateral. With respect to Collateral of the Borrowers and the Guarantors at
the time the Collateral becomes subject to the Collateral Agent's security
interests, the Borrowers and the Guarantors covenant, represent and warrant: (a)
the Borrower or such Guarantor shall be the sole owner of the Collateral owned
by it, free and clear of all Liens except the Lien of the Factor, the Lien in
the favor of the Collateral Agent for the benefit of the Lenders and Permitted
Liens, fully authorized to sell, transfer, pledge and/or grant a security
interest in each and every item of said Collateral; (b) to the knowledge of the
Borrowers and the Guarantors, at the time created, each Account Receivable shall
be a good and valid account representing an undisputed bona fide indebtedness
incurred or an amount indisputably owed by the Account Debtor therein named, for
a fixed sum as set forth in the invoice relating thereto with respect to an
absolute sale and delivery upon the specified terms of goods sold by a Borrower
or Guarantor or work, labor and/or services theretofore rendered by a Borrower
or Guarantor; (c) to the best knowledge of the Borrowers and the Guarantors and
except as otherwise disclosed to the Factor and the Collateral Agent, no Account
Receivable is subject to any defense, offset, counterclaim, discount or
allowance except as may be stated in the invoice relating thereto or discounts
and allowances as may be customary in the Borrowers' or the Guarantors'
business, and, each of such Accounts Receivable will be paid when due; (d) none
of the transactions underlying or giving rise to any Accounts Receivable shall
violate any applicable material state or federal laws or regulations; (e) except
as disclosed to the Factor and the Collateral Agent, no agreement under which
any deduction or offset of any kind, other than normal trade discounts and
allowances, may be granted or shall have been made by the Borrowers or the
Guarantors at or before the time such Accounts Receivable is created; (f) all
documents and agreements relating to Accounts Receivable shall be true and
correct in all material respects and in all respects what they purport to be;
(g) to the best knowledge of the Borrowers and the Guarantors, all signatures
and endorsements that appear on all documents and agreements relating to
Accounts Receivable shall be genuine and all signatories and endorsers shall
have full capacity to contract; (h) the Borrowers and the Guarantors shall
maintain books and records pertaining to said Collateral in such detail, form
and scope as required by Section 7.01(l) hereof; (i) the Borrowers and the
Guarantors will promptly notify the Factor and the Collateral Agent if any of
their accounts arise out of contracts with the United States or any department,
agency, or instrumentality thereof and, subject to the prior rights of the
Factor under the Factoring Agreements and the Assignment Agreement, will execute
any instruments and take any steps required by the Collateral Agent in order
that all monies due or to become due under any such contract shall be assigned
to the Collateral Agent and notice thereof given to the United States Government
under the Federal Assignment of Claims Act; (j) the Borrowers and the Guarantors
will, immediately upon learning thereof, report to the Collateral Agent any
material loss or destruction of, or substantial damage to, any of the
Collateral, and any other material matters affecting the value, enforceability
or collectibility of any of the Collateral; (k) if any amount payable under or
in connection with any Account Receivable is evidenced by a promissory note or
other instrument, as such term is defined in the Uniform Commercial Code,
subject to the prior rights of the Factor under the Factoring Agreements and the
Assignment Agreement, such promissory note or instrument shall be immediately
pledged, endorsed, assigned and delivered to the Collateral Agent as additional
Collateral; (l) the Borrowers and the Guarantors shall not redate any invoice or
sale or make sales on extended dating beyond that which is customary in the
ordinary course of their business and in the industry; (m) the Borrowers and the
Guarantors shall conduct a physical count of their Inventory not less than once
each year and, upon the occurrence and during the continuance of an Event of
Default, at such other intervals as the Collateral Agent may reasonably request
and, if requested by the Collateral Agent, the Borrowers and the Guarantors
shall promptly supply the Collateral Agent with a copy of each such count (in
such form as is available) accompanied by a report of the value (based on the
lower of cost (on a FIFO basis) or market value) of such Inventory; and (n) the
Borrowers and the Guarantors are not and shall not be entitled to pledge the
Collateral Agents' or the Lenders' credit on any purchases for or any purpose
whatsoever.
SECTION 8.04. Collateral Custodian. Upon the occurrence and
during the continuance of an Event of Default, the Collateral Agent may at any
time and from time to time employ and maintain in the premises of the Company
and the Borrowers a custodian selected by the Collateral Agent who shall have
full authority to do all acts
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necessary to protect the Collateral Agent's interests in accordance with
applicable law and the provisions of the Loan Documents. The Company and the
Borrowers hereby agree to cooperate with any such custodian and to do whatever
the Collateral Agent may reasonably request to preserve the Collateral. All
reasonable costs and expenses incurred by the Collateral Agent, by reason of the
employment of the custodian, shall be charged to the Loan Account.
ARTICLE IX
THE AGENTS
SECTION 9.01. Authorization and Action. Each Lender (and each
subsequent holder of any Note by its acceptance thereof) hereby irrevocably
appoints and authorizes CIT, in its capacity as the Administrative Agent, and
NationsBanc, in its capacity as Collateral Agent, to perform the duties of each
such Agent as set forth in this Agreement including: (i) to receive on behalf of
each Lender any payment of principal of or interest on the Notes outstanding
hereunder and all other amounts accrued hereunder paid to the Administrative
Agent, and, subject to Section 2.05 of this Agreement and the other provisions
of this Agreement, to distribute promptly to each Lender its Pro Rata Share of
all payments so received, (ii) to distribute to each Lender copies of all
material notices and agreements received by the Agents and not required to be
delivered to each Lender pursuant to the terms of this Agreement, provided that
the Agents shall not have any liability to the Lenders for the Agents'
inadvertent failure to distribute any such notice or agreements to the Lenders,
and (iii) subject to Section 12.03 of this Agreement, to take such action as the
Agents deem appropriate on its behalf to administer the Loans, Letters of Credit
and the Loan Documents and to exercise such other powers delegated to the Agents
by the terms hereof or the Loan Documents (including, without limitation, the
power to give or to refuse to give notices, waivers, consents, approvals and
instructions and the power to make or to refuse to make determinations and
calculations), together with such powers as are reasonably incidental thereto to
carry out the purposes hereof and thereof. As to any matters not expressly
provided for by this Agreement and the other Loan Documents (including, without
limitation, enforcement or collection of the Notes), the Agents shall not be
required to exercise any discretion or take any action, but shall be required to
act or to refrain from acting (and shall be fully protected in so acting or
refraining from acting) upon the instructions of the Required Lenders, and such
instructions of the Required Lenders shall be binding upon all Lenders and all
holders of Notes; provided, however, that the L/C Issuer shall not be required
to refuse to honor a drawing under any Letter of Credit and the Agents shall not
be required to take any action which, in the reasonable opinion of the Agents,
exposes the Agents to liability or which is contrary to this Agreement or any
Loan Document or applicable law.
SECTION 9.02. Borrower's Default. In the event that (i) any
Borrower fails to pay when due the principal of or interest on any Note or any
Reimbursement Obligation or any other amount payable hereunder, or (ii) the
Administrative Agent receives written notice of the occurrence of an Event of
Default, the Administrative Agent shall promptly give written notice thereof to
the Lenders, and shall take such action with respect to such Event of Default as
it shall be directed to take by the Required Lenders; provided, however, that,
unless and until the Administrative Agent shall have received such directions
and except as otherwise expressly provided in this Agreement, the Administrative
Agent may take such action or refrain from taking such action hereunder or under
the other Loan Documents with respect to an Event of Default or Default, as it
shall deem advisable in the best interest of the Lenders.
SECTION 9.03. Agents' Reliance, Etc. The Agents or any of
their directors, officers, agents or employees shall not be liable for any
action taken or omitted to be taken by them under or in connection with this
Agreement or the other Loan Documents, except for their own gross negligence or
willful misconduct as determined by a final judgment of a court of competent
jurisdiction. Without limiting the generality of the foregoing, the Agents (i)
may treat the payee of any Note as the holder thereof until the Administrative
Agent receive written notice of the assignment or transfer thereof, pursuant to
Section 12.08 hereof, signed by such payee and in form satisfactory to the
Administrative Agent; (ii) may consult with legal counsel (including, without
limitation, counsel to the Agents or counsel to the Borrowers), independent
public accountants, and other experts selected by it and shall not be liable for
any action taken or omitted to be taken in good faith by it in accordance with
the advice of such counsel, accountants or experts; (iii) makes no warranty or
representation to any Lender and shall not be responsible to any Lender for any
statements, certificates, warranties or representations made in or in connection
with this Agreement or the other Loan Documents; (iv) shall not have any duty to
ascertain or to inquire as to the performance or observance of any of the terms,
covenants or conditions of this Agreement or the other Loan Documents on the
part of any Person or to inspect
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the Collateral or other property (including, without limitation, the books and
records) of any Person; (v) shall not be responsible to any Lender for the due
execution, legality, validity, enforceability, genuineness, sufficiency or value
of this Agreement or the other Loan Documents or any other instrument or
document furnished pursuant hereto or thereto; (vi) shall not be deemed to have
made any representation or warranty regarding the existence, value or
collectibility of the Collateral, the existence, priority or perfection of the
Collateral Agent's Lien thereon, or the Borrowing Base or any certificate
prepared by a Borrower in connection therewith, nor shall the Agents be
responsible or liable to the Lenders for any failure to monitor or maintain the
Borrowing Base or any portion of the Collateral; and (vii) shall incur no
liability under or in respect of this Agreement or the other Loan Documents by
acting upon any notice, consent, certificate or other instrument or writing
(which may be by telegram, telecopy, cable or telex) believed by it to be
genuine and signed or sent by the proper party or parties.
SECTION 9.04. CIT and NationsBanc. With respect to the Loans
made by it and the Notes issued to it and the Letters of Credit, each of CIT and
NationsBanc and each of their Affiliates shall have the same rights and powers
under this Agreement as any other Lender and may exercise the same as though it
were not an Agent; and the term "Lender" or "any Lenders" shall, unless
otherwise expressly indicated, include CIT and NationsBanc each in its
individual capacity. CIT and NationsBanc and each of their respective Affiliates
may accept deposits from, lend money to, act as trustee or paying agent under
indentures of, and generally engage in any kind of business with, any Borrower
or any Guarantor, any of their Affiliates, or any Person who may do business
with or own securities of any Borrower or Guarantor, or any of their Affiliates,
all as if CIT and NationsBanc were not Agents and without any duty to account
therefor to any Lenders. The Lenders acknowledge and agree that NationsBanc, as
Factor under the Factoring Agreements, CIT as a participant of Factor in the
Factoring Agreements, and the L/C Issuer, which may be an Affiliate of the
Collateral Agent, may take actions which are not in the interests of, or may
have an adverse effect on, the Lenders, or may omit to take actions which would
be in the interests of, or would have a favorable effect on, the Lenders, and
the Lenders will not assert any claim against the Collateral Agent based on
actions or omissions by NationsBanc, as Factor under the Factoring Agreements or
the Administrative Agent, as a participant of Factor, or the L/C Issuer and will
not assert any such actions or omissions as a defense or offset to the Lenders'
obligations hereunder.
SECTION 9.05. Lender Credit Decision. Each Lender acknowledges
that it has, independently and without reliance upon the Agents or any other
Lender, made its own credit analysis and decision to enter into this Agreement.
Each Lender also acknowledges that it will, independently and without reliance
upon the Agents or any other Lender and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under this Agreement and the other Loan
Documents.
SECTION 9.06. Indemnification. Each Lender agrees to indemnify
and hold harmless each Agent (to the extent not reimbursed by any Borrower or
any Guarantor), ratably according to the Pro Rata Shares of each Lender, from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against any
Agent in any way relating to or arising out of this Agreement or the other Loan
Documents or any action taken or omitted by any Agent under this Agreement or
the other Loan Documents; provided, however, that no Lender shall be liable to
any Agent for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements for which
there has been a final judicial determination that such resulted from such
Agent's gross negligence or willful misconduct. Without limiting the foregoing,
each Lender agrees to reimburse the Agents promptly upon demand for its ratable
share of any out-of-pocket expenses (including reasonable counsel fees,
disbursements and other charges) incurred by the Agents in connection with the
preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiation, legal proceedings or otherwise) of, or
legal advice in respect of rights or responsibilities under, this Agreement or
the other Loan Documents, to the extent that the Agents are not reimbursed in
full for such expenses by the Borrowers. The obligations of each Lender under
this Section 9.06 shall survive the termination of this Agreement and the other
Loan Documents and the payment of all other obligations of the Agents and the
Lenders under this Agreement and the other Loan Documents.
SECTION 9.07. Successor Agents. Any Agent may resign at any
time by giving written notice thereof to the Lenders and the Company. Upon any
such resignation, the Required Lenders shall have the right to appoint a
successor Agent, reasonably acceptable to the Company, with such rights and
obligations hereunder as those previously held by the retiring Agent, provided,
the successor Agent may be appointed by the Required Lenders without any
consultation with or consent of the Company or any other Loan Party if an Event
of Default or Default has
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occurred and is continuing. If no successor Agent shall have been so appointed
by the Required Lenders, been accepted by the Company, and shall have accepted
such appointment, within 30 days after the retiring Agent's giving of notice of
resignation, then the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent, which shall be a Lender or a commercial bank or other financial
institution organized under the laws of the United States of America or any
State thereof and having a combined capital and surplus of at least
$500,000,000. Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations under
this Agreement and the other Loan Documents. After any retiring Agent's
resignation hereunder as an Agent, the provisions of this Article IX shall inure
to its benefit as to any actions taken or omitted to be taken by it while it was
an Agent under this Agreement and the other Loan Documents.
SECTION 9.08. Collateral Matters.
(a) The Administrative Agent may from time to time,
make such disbursements and advances ("Agent Advances") which the Administrative
Agent, in its sole discretion, deems necessary or desirable to preserve or
protect the Collateral or any portion thereof, to enhance the likelihood or
maximize the amount of repayment by any Borrower, any Guarantor or other Person
of the Loans, Reimbursement Obligations or Letters of Credit and other
Obligations or to pay any other amount chargeable to any Borrower or Guarantor
pursuant to the terms of this Agreement, including, without limitation, costs,
fees and expenses as described in Section 12.05. The Agent Advances shall be
repayable on demand and be secured by the Collateral. The Agent Advances shall
not constitute Loans but shall otherwise constitute Obligations hereunder.
Without limitation to its obligations pursuant to Section 9.06, each Lender
agrees that it shall make available to the Administrative Agent, upon the
Administrative Agent's demand, in Dollars in immediately available funds, the
amount equal to such Lender's Pro Rata Share of each such Agent Advance. If such
funds are not made available to the Administrative Agent by such Lender the
Administrative Agent shall be entitled to recover such funds, on demand from
such Lender together with interest thereon, for each day from the date such
payment was due until the date such amount is paid to the Administrative Agent,
at the Federal Funds Rate for three Business Days and thereafter at the Base
Rate.
(b) The Agents shall have no obligation whatsoever to
any Lenders to assure that the Collateral exists or is owned by any Borrower or
any Guarantor or is cared for, protected or insured or has been encumbered or
that the Liens granted to the Collateral Agent herein or pursuant hereto have
been properly or sufficiently or lawfully created, perfected, protected or
enforced or are entitled to any particular priority, or to exercise at all or in
any particular manner or under any duty of care, disclosure or fidelity, or to
continue exercising, any of the rights, authorities and powers granted or
available to the Agents in this Section 9.08 or in any of the Loan Documents, it
being understood and agreed that in respect of the Collateral, or any act,
omission or event related thereto, the Collateral Agent may act in any manner it
may deem appropriate, in its sole discretion, given the Collateral Agent's own
interest in the Collateral as one of the Lenders and that the Collateral Agent
shall have no duty or liability whatsoever to any other Lender other than for
acts or omissions constituting gross negligence or willful misconduct as
determined by a final judgment of a court of competent jurisdiction.
(c) The Lenders hereby irrevocably authorize the
Collateral Agent, at its option and in its discretion, to release any Lien
granted to or held by the Collateral Agent upon any Collateral upon termination
of the Revolving Credit Commitments and payment and satisfaction of all Loans
and Letter of Credit Obligations, (whether or not due) and all other Obligations
which have matured and which the Collateral Agent has been notified in writing
are then due and payable; or constituting property being sold or disposed of if
a Loan Party certifies to the Collateral Agent that the sale or disposition is
made in compliance with Section 7.02(d)(ii) hereof (and the Collateral Agent may
rely conclusively on any such certificate, without further inquiry); or
constituting property in which the Loan Parties owned no interest at the time
the Lien was granted or at any time thereafter; or (except as otherwise provided
in Section 12.03 of this Agreement) if approved, authorized or ratified in
writing by the Required Lenders. Without in any manner limiting the Collateral
Agent's authority to act without any specific or further authorization or
consent by the Required Lenders, upon request by the Collateral Agent at any
time, the Lenders shall confirm in writing the Collateral Agent's authority to
release particular types or items of Collateral pursuant to this Section
9.08(c).
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ARTICLE X
EVENTS OF DEFAULT
SECTION 10.01. Events of Default. If any of the following Events of
Default shall occur and be continuing:
(a) Any Loan Party shall fail to pay any principal of
or interest on any Loan, any Agent Advance, any Reimbursement Obligation, or any
fee or other amount when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise);
(b) Any representation or warranty made by any Loan
Party or any officer of such Loan Party under or in connection with any Loan
Document shall have been incorrect in any material respect when made;
(c) Any Loan Party shall fail to perform or observe
any covenant contained in (i) paragraphs (b), (c) (d), (f), (h), (k), (n), (o)
or (p) of Section 7.01, Section 7.02 or Article VIII of this Agreement, (ii)
paragraphs (b), (d), (e), (f)(i), (g), (h) or (j) of Section 5 of the Security
Agreements, or (iii) Section 4(a) or paragraphs (e), (f), (g) or (h) of Section
6 of the Pledge Agreements;
(d) Any Loan Party shall default in the performance
or observance of (i) the covenants contained in Section 7.01(a) of this
Agreement (other than subparagraphs (v), (ix), (xii) and (xiii) thereof) and
such default shall continue unremedied for a period of 10 days, (ii) the
covenants contained in subparagraphs (v), (ix), (xii) and (xiii) of Section
7.01(a) of this Agreement and such default shall continue unremedied for a
period of 3 days, or (iii) any other covenant contained in Section 7.01 of this
Agreement (to the extent not otherwise provided for in paragraphs (a), (b) or
(c) of this Section 10.01) and such default shall continue unremedied for a
period of 20 days;
(e) Any Loan Party shall fail to perform or observe
any other term, covenant or agreement contained in any Loan Document to be
performed or observed by such Loan Party (to the extent not otherwise provided
for in paragraphs (a), (b), (c) or (d) of this Section 10.01) and such failure,
if capable of being remedied, shall remain unremedied for 20 days;
(f) Any Loan Party shall fail to pay any principal or
interest on any of its Indebtedness (excluding Indebtedness evidenced by the
Notes) in excess of $200,000, or any interest or premium thereon, when due
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise) and such failure shall continue after the applicable grace period, if
any, specified in the agreement or instrument relating to such Indebtedness, or
any other default under any agreement or instrument relating to any such
Indebtedness, or any other event, shall occur and shall continue after the
applicable grace period, if any, specified in such agreement or instrument, if
the effect of such default or event is to accelerate, or to permit the
acceleration of, the maturity of such Indebtedness; or any such Indebtedness in
excess of such amount shall be declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled required prepayment), prior to the
stated maturity thereof;
(g) Any Loan Party (i) shall institute any proceeding
or voluntary case seeking to adjudicate it a bankrupt or insolvent, or seeking
dissolution, liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of it or its debts under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors, or seeking the
entry of an order for relief or the appointment of a receiver, trustee,
custodian or other similar official for such Loan Party or for any substantial
part of its property, (ii) shall be generally not paying its debts as such debts
become due, or shall admit in writing its inability to pay its debts generally,
(iii) shall make a general assignment for the benefit of creditors, or (iv)
shall take any action to authorize or effect any of the actions set forth above
in this subsection (g);
(h) Any proceeding shall be instituted against any
Loan Party seeking to adjudicate it a bankrupt or insolvent, or seeking
dissolution, liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief of debtors, or seeking the entry of an order for relief or
the appointment of a receiver, trustee, custodian or other similar official for
such Loan Party or for any substantial part of its property, and either such
proceeding shall remain undismissed or unstayed for a period of 45 days or any
of the actions sought in such
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proceeding (including, without limitation, the entry of an order for relief
against it or the appointment of a receiver, trustee, custodian or other similar
official for it or for any substantial part of its property) shall occur;
(i) Any material provision of any Loan Document shall
at any time for any reason be declared by a court of competent jurisdiction to
be null and void, or the validity or enforceability thereof shall be contested
by any Loan Party, or a proceeding shall be commenced by any Loan Party or any
Governmental Authority or other regulatory body having jurisdiction over such
Loan Party, seeking to establish the invalidity or unenforceability thereof, or
any Loan Party shall deny in writing that such Loan Party has any liability or
obligation purported to be created under any Loan Document;
(j) Any Security Agreement, Pledge Agreement, any
mortgage or any other security document, after delivery thereof pursuant hereto,
shall for any reason not as a result of any act or omission of the Collateral
Agent fail or cease to create a valid and perfected and, except to the extent
permitted by the terms hereof or thereof, first priority Lien on or security
interest in any Collateral purported to be covered thereby;
(k) One or more judgments or orders (other than a
judgment or award described in subsections (g) or (h) of this Section 10.01) for
the payment of money exceeding any applicable insurance or bond coverage by more
than $200,000 in the aggregate for the Loan Parties shall be rendered against
any Loan Party and either (i) enforcement proceedings shall have been commenced
by any creditor upon any such judgment or order, or (ii) there shall be any
period of 30 consecutive days during which a stay of enforcement of any such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect;
(l) Any Loan Party or any of its ERISA Affiliates
shall have made a complete or partial withdrawal from a Multiemployer Plan, and,
as a result of such complete or partial withdrawal, such Loan Party or such
ERISA Affiliate incurs a withdrawal liability in an annual amount exceeding
$200,000; or a Multiemployer Plan enters reorganization status under Section
4241 of ERISA, and, as a result thereof, such Loan Party's or such ERISA
Affiliate's annual contribution requirement with respect to such Multiemployer
Plan increases in an annual amount exceeding $200,000;
(m) Any Termination Event with respect to any
Employee Plan shall have occurred, and, 30 days after notice thereof shall have
been given to any Loan Party by the Administrative Agent, (i) such Termination
Event (if correctable) shall not have been corrected, and (ii) the then current
value of such Employee Plan's vested benefits exceeds the then current value of
assets allocable to such benefits in such Employee Plan by more than $200,000
(or, in the case of a Termination Event involving liability under Section 409,
502(i), 502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or
Section 4971 or 4975 of the Internal Revenue Code, the liability is in excess of
such amount);
(n) A breach, default, event of default shall occur
under any Factoring Agreement, if such breach, default or event of default has
resulted in the Factor terminating such Factoring Agreement;
(o) A Change of Control shall have occurred;
then, and in any such event, the Administrative Agent may, and upon the
direction of the Required Lenders shall, by notice to the Company, (i) declare
the Total Commitment to be reduced to zero, whereupon the Total Commitment shall
forthwith be reduced to zero, (ii) declare all Loans and all Reimbursement
Obligations, all interest thereon and all other amounts payable under this
Agreement to be forthwith due and payable, whereupon the Loans, all
Reimbursement Obligations, all such interest and all such amounts shall become
and be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived by each
Loan Party; provided, however, that upon the occurrence of any Event of Default
described in subsections (g) or (h) of this Section 10.01, the Loans, all
Reimbursement Obligations, all such interest and all such amounts shall become
and be forthwith due and payable, without presentment, demand, protest or
further notice of any kind, all of which are expressly waived by each Loan
Party, and (iii) exercise any and all of its other rights under applicable law,
hereunder and under the other Loan Documents.
SECTION 10.02. Deposit for Letters of Credit. Upon demand by
the Administrative Agent after the occurrence and during the continuation of any
Event of Default, the Borrowers shall deposit with the Collateral Agent
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with respect to each Letter of Credit then outstanding cash or equivalents,
acceptable to the Collateral Agent, and readily convertible into cash in an
amount equal to the greatest amount for which such Letter of Credit may be
drawn. Such deposits shall be held by the Collateral Agent in an interest
bearing account maintained by the Collateral Agent as security for, and to
provide for the payment of, the Letter of Credit Obligations.
ARTICLE XI
GUARANTY
SECTION 11.01. Guaranty. The Company hereby (i) irrevocably,
absolutely and unconditionally guarantees the prompt payment, as and when due
and payable (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise), of all the Obligations, including, without limitation, all
amounts now or hereafter owing in respect of the Loan Documents, whether for
principal, interest (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to a Borrower whether or
not a claim for post-filing interest is allowed in such proceeding), fees,
expenses, indemnifications or otherwise, and (ii) agrees to pay any and all
expenses (including reasonable counsel fees and expenses) incurred by the
Agents, the Lenders, the L/C Issuer, NationsBanc or CIT in enforcing its rights
under this Article XI.
SECTION 11.02. Obligations Unconditional.
(i) The Company hereby guarantees that the
Obligations will be paid strictly in accordance with the terms of the Loan
Documents, regardless of any law, regulation or order now or hereafter in effect
in any jurisdiction affecting any of such terms or the rights of the Agents, the
Lenders, the L/C Issuer, NationsBanc or CIT with respect thereto. The Company
agrees that its guarantee constitutes a guaranty of payment when due and not of
collection, and waives any right to require that any resort be had by the
Agents, the Lenders, the L/C Issuer, NationsBanc or CIT to any Collateral. The
obligations of the Company under this Article XI are independent of the
obligations of the Borrowers under this Agreement and the other Loan Documents
and a separate action or actions may be brought and prosecuted against the
Company to enforce this Article XI irrespective of whether any action is brought
against the Borrowers or whether the Borrowers are joined in any such action.
The liability of the Company hereunder shall be absolute and unconditional,
irrespective of: (i) any lack of validity or enforceability of any Loan Document
or any agreement or instrument relating thereto; (ii) any extension or change in
the time, manner or place of payment of, or in any other term in respect of, all
or any of the Obligations (including, without limitation, any extension for
longer than the original period), or any other amendment or waiver of or consent
to any departure from any provision of any Loan Document (including the creation
or existence of any Obligations in excess of the amounts permitted by any
lending formulas contained in this Agreement; (iii) any exchange or release of,
or non-perfection of any Lien on, any Collateral, or any release or amendment or
waiver of or consent to any departure from any other guaranty, for all or any of
the Obligations; (iv) the existence of any claim, set off, defense or other
right that the Company may have against any Person, including the Agents or the
Lenders; (v) any other circumstance which might otherwise constitute a defense
available to, or a discharge of, any Borrower or any other Guarantor in respect
of the Obligations of the Company in respect hereof.
(ii) This Guaranty (i) is a continuing
guaranty and shall remain in full force and effect until such date on which all
of the Obligations and all other expenses to be paid by the Company pursuant
hereto shall have been satisfied in full after the Total Commitment shall have
been terminated, (ii) shall continue to be effective or shall be reinstated, as
the case may be, if at any time any payment of any of the Obligations is
rescinded or must otherwise be returned by the Agents, the Lenders, the L/C
Issuer or NationsBanc upon the insolvency, bankruptcy or reorganization of any
Borrower or any Guarantor or otherwise, all as though such payment had not been
made, and (iii) shall be binding upon the Company, its successors and assigns.
SECTION 11.03. Waivers. The Company hereby waives, to the
extent permitted by applicable law, (i) promptness and diligence, (ii) notice of
acceptance and notice of the incurrence of any Obligation, (iii) notice of any
action taken by the Agents, the Lenders, the L/C Issuer, NationsBanc or any
Borrower or any other agreement or instrument relating thereto, (iv) all other
notices, demands and protests, and all other formalities of every kind in
connection with the enforcement of the Obligations or of the obligations of the
Company hereunder, the omission of or delay in which, but for the provisions of
this Section 11.03, might constitute grounds for relieving the Company of its
obligations hereunder, (v) any right to compel or direct the Agents or the
Lenders to seek payment or recovery of any
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amounts owed under this Article IX from any one particular fund or source, (vi)
any requirement that the Agents, the Lenders, the L/C Issuer or NationsBanc
protect, secure, perfect or insure any Lien or any property subject thereto or
exhaust any right or take any action against any Person or any Collateral, and
(vii) any other defenses available to the Borrowers or the Company. All such
waivers by the Company shall be effective only to the extent permitted by
applicable law.
SECTION 11.04. Subrogation. Until such time as the Obligations
have been satisfied in full and all Commitments have been terminated, the
Company hereby irrevocably agrees that it will not exercise any and all rights
which it has or may have at any time or from time to time (whether arising
directly or indirectly by operation of law or contract) to assert any claim
against any Borrower or any other Guarantor on account of any payments made
under this Agreement, including, without limitation, all existing and future
rights of subrogation, reimbursement, exoneration, contribution and/or
indemnity. If any amount shall be paid to the Company on account of such rights
at any time when all of such Obligations and all other Obligations shall not
have been paid in full, such amount shall be held in trust for the benefit of
the Agents or the Lenders, shall be segregated from the other funds of the
Company and shall forthwith be paid over to the Agents to be applied in whole or
in part by the Agents against the Obligations, whether matured or unmatured, in
accordance with the terms of this Agreement.
SECTION 11.05. No Waiver; Remedies. No failure on the part of
the Agents, the Lenders, the L/C Issuer or NationsBanc to exercise, and no delay
in exercising, any right hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedy provided by law.
SECTION 11.06. Stay of Acceleration. If acceleration of the
time for payment of any amount payable by any Borrower in respect of the
Obligations is stayed upon the insolvency, bankruptcy or reorganization of such
Borrower, all such amounts otherwise subject to acceleration under the terms of
this Agreement shall nonetheless be payable by the Company hereunder forthwith
on demand by the Agents, Lenders, the L/C Issuer or NationsBanc.
ARTICLE XII
MISCELLANEOUS
SECTION 12.01. Termination. (a) Except as otherwise permitted
herein, the Borrowers may terminate the Total Commitment and this Agreement only
by giving the Administrative Agent not less than sixty (60) days prior written
notice of termination, provided that if any Loan Party intends to conduct a
public sale or private sale pursuant to Rule 144A of the Securities Act of 1933
of securities as described in clause (i) of Section 2.08(a) hereof and gives the
Agents prompt notice after such Loan Party determines to conduct such sale, such
sixty (60) day notice requirement shall be reduced to fifteen (15) days.
Notwithstanding the foregoing, the Administrative Agent may terminate the Total
Commitment and this Agreement immediately by notice to the Company upon the
occurrence and during the continuance of an Event of Default, provided, however,
that if the Event of Default is an event listed in Sections 10.01(g) or (h) of
this Agreement, the Agents and the Lenders may regard the Total Commitment and
the Agreement as terminated and notice to that effect is not required. The Total
Commitment and this Agreement, unless terminated as herein provided on a
Termination Anniversary Date, shall automatically continue to the next
Termination Anniversary Date. All Obligations shall become due and payable as of
the date of any termination under this Section 12.01 and, pending a final
accounting, the Administrative Agent may withhold any balances in the Loan
Account (unless supplied with an indemnity satisfactory to the Agents) to cover
all of the Obligations, whether absolute or contingent. All of the Collateral
Agent's and the Lenders' rights and Liens and security interests shall continue
after any termination until all Obligations for the payment of money have been
paid in cash and satisfied in full and all Letters of Credit have been canceled
and returned to the L/C Issuer or cash collateralized to the reasonable
satisfaction of the Agents. After such payment and satisfaction, the Collateral
Agent and the Lenders will, upon the reasonable request of the Borrowers,
execute all documents necessary to release, without recourse, representation and
warranty and at the expense of the Borrowers, its Liens granted pursuant to the
terms of this Agreement and the other Loan Documents.
(b) Any Lender may elect not to renew its Commitment
by giving the Agents and the Borrowers written notice of its intention to not
renew its Commitment not less than 60 days prior to a Termination Anniversary
Date. If such Lender does not assign its rights, interests and obligations under
this Agreement pursuant to Section 12.08 hereof, then the Commitment of such
Lender shall be terminated as of such Termination Anniversary Date. The
Borrowers hereby, jointly and severally, agree to pay to the Administrative
Agent on such Termination Anniversary
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Date, for the account of such non-renewing Lender, the principal amount of, and
all accrued interest on, such Lender's Pro Rata Share of all funded Loans and
Reimbursement Obligations, together with any amounts payable to such Lender
pursuant to Section 12.16 and any fees or other amounts owing to such Lender
under this Agreement and such Lender's Note. If an Agent makes any Loan or Agent
Advance or assists a Borrower in opening or establishing any Letter of Credit,
during the period between a Lender giving notice of its intention to not renew
its Commitment and such Termination Anniversary Date, the obligations of such
non-renewing Lender pursuant to Sections 2.05, 3.01, 3.02, 4.02 and 9.08 of this
Agreement shall be irrevocable, absolute and unconditional with respect to such
Loan, Agent Advance or Letter of Credit. Notwithstanding such termination and
repayment, the non-renewing Lender shall remain obligated to the Administrative
Agent and NationsBanc or CIT, as the case may be, under Sections 3.02 and
3.03(b) for its Pro Rata Share (calculated immediately prior to the Termination
Anniversary Date on which such termination became effective) of the aggregate
maximum amount available for drawing under all outstanding Letters of Credit on
such Termination Anniversary Date (the "Retained Obligations") until all
Retained Obligations have been paid in full and the Letters of Credit giving
rise to such Retained Obligations have been canceled and returned to the L/C
Issuer. After the effective date of any such termination and repayment pursuant
to this Section 12.01(b), for purposes of Sections 3.02 and 3.03(b) of this
Agreement such non-renewing Lender's Pro Rata Share shall be a fraction
(expressed as a percentage) the numerator of which shall be the Retained
Obligations and the denominator of which shall be the aggregate amount of all
unpaid Loans, Agent Advances and Letter of Credit Obligations.
SECTION 12.02. Notices, Etc. All notices and other
communications provided for hereunder shall be in writing and shall be mailed,
sent by overnight courier, telecopied, or delivered, if to any Lender, at its
address specified under its signature on the signature pages hereof; if to any
Borrower or the Company, at the following address:
Norton McNaughton, Inc.
463 Seventh Avenue
New York, New York 10018
Attention: Peter Boneparth, President
Telephone: (212) 947-2960
Telecopier: (212) 563-2766
with a copy to:
Haythe & Curley
237 Park Avenue
New York, New York 10017
Attention: Bradley P. Cost, Esq.
Telephone: (212) 880-6000
Telecopier: (212) 682-0200
if to the Administrative Agent, to it at the following address:
The CIT Group/Commercial Services, Inc.
1211 Avenue of the Americas
New York, New York 10036
Attention: Kenneth H. Wendler, Vice President
Telephone: (212) 382-7253
Telecopier: (212) 382-9036
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if to the Collateral Agent, to it at the following address:
NationsBanc Commercial Corporation
1372 Broadway
New York, New York 10018
Attention: Carl Banilower, Senior Vice President
Telephone: (212) 768-5616
Telecopier: (212) 790-4636
in each case with a copy to:
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Attention: Frederic L. Ragucci, Esq.
Telephone: (212) 756-2000
Telecopier: (212) 593-5955
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section 12.02. All such notices and other communications shall be
effective (i) if mailed (by certified mail, postage prepaid and return receipt
requested), upon receipt or three Business Days after mailing whichever occurs
first, (ii) if telecopied, when transmitted and a confirmation is received,
provided the same is on a Business Day and, if not, on the next Business Day,
(iii) if sent by overnight courier, upon receipt or two Business Days after
delivered to such overnight courier, whichever occurs first, or (iv) if
delivered, upon delivery, provided the same is on a Business Day and, if not, on
the next Business Day, except that notices to the Agents or the L/C Issuer
pursuant to Articles II and III hereof shall not be effective until received by
the Agents or the L/C Issuer, as the case may be.
SECTION 12.03. Amendments, Etc. No amendment or waiver of any
provision of this Agreement or the other Loan Documents, and no consent to any
departure by any Loan Party therefrom, shall in any event be effective unless
the same shall be in writing and signed by such Loan Party and the Required
Lenders, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given; provided, however, that
no amendment, waiver or consent shall (i) increase the Commitment of any Lender,
reduce the principal of, or interest on, the Loans or the Reimbursement
Obligations payable to any Lender, reduce the amount of any fee payable for the
account of any Lender, or postpone or extend any date fixed for any payment of
principal of, or interest or fees on, the Loans or Letter of Credit Obligations
payable to any Lender, in each case without the written consent of any Lender
affected thereby, (ii) increase the Total Commitment without the written consent
of each Lender, (iii) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Notes, or amend the definition of
"Required Lenders", release all or a substantial portion of the Collateral
(except as otherwise provided in this Agreement and the other Loan Documents) or
the Guarantors (other than inactive Guarantors), amend, modify or waive Section
12.01 or this Section 12.03 of this Agreement, or amend the definition of
"Eligible Inventory", "Eligible Accounts Receivable" "Net Amount of Eligible
Accounts Receivable", "Overadvance Amount", "Borrowing Base", "Eligible Amount
of Prior Season Inventory" or "Borrowing Base Before Overadvance Amount" if the
effect of such amendment is to increase the aggregate Availability of the
Borrowers (after adding the Overadvance Amount) on a combined basis, in each
case without the written consent of each Lender. Notwithstanding the foregoing,
no amendment, waiver or consent shall, unless in writing and signed by the
Agents, affect the rights or duties of the Agents or NationsBanc with respect to
the Letter of Credit Guaranty (but not in its capacity as a Lender) under this
Agreement or the other Loan Documents.
SECTION 12.04. No Waiver; Remedies, Etc. No failure on the
part of any Lender or any Agent to exercise, and no delay in exercising, any
right hereunder or under any other Loan Document shall operate as a waiver
thereof; nor shall any single or partial exercise of any right under any Loan
Document preclude any other or further exercise thereof or the exercise of any
other right. The rights and remedies of the Lenders and the Agents provided
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herein and in the other Loan Documents are cumulative and are in addition to,
and not exclusive of, any rights or remedies provided by law. The rights of the
Lenders and the Agents under any Loan Document against any party thereto are not
conditional or contingent on any attempt by the Lenders and the Agents to
exercise any of their rights under any other Loan Document against such party or
against any other Person.
SECTION 12.05. Expenses; Taxes; Attorneys' Fees. The Borrowers
agree to jointly and severally pay or cause to be paid, on demand, and to save
the Agents (and, in the case of clauses (a) and (d) through (m) below, the
Lenders) harmless against liability for the payment of, all reasonable
out-of-pocket expenses, regardless of whether the transactions contemplated
hereby are consummated, including but not limited to reasonable fees and
expenses of counsel for the Agents (and, in the case of clauses (a) and (d)
through (m) below, the Lenders), accounting, due diligence, filing fees,
periodic field audits, investigation, monitoring of assets, syndication,
miscellaneous disbursements, examination, travel, lodging and meals, incurred by
the Agents (and, in the case of clauses (a) and (d) through (m) below, the
Lenders) from time to time arising from or relating to: (a) the negotiation,
preparation, execution, delivery, performance and administration of this
Agreement and the other Loan Documents, provided that the Borrowers shall not be
obligated to reimburse the Lenders under this clause (a) for out-of-pocket
expenses in excess of $40,000 for all Lenders (excluding the expenses of the
Agents), (b) any amendments, waivers or consents to this Agreement or the other
Loan Documents requested or signed by any Loan Party whether or not such
documents become effective or are given, (c) the preservation and protection of
any of the Agents' and the Lenders' rights under this Agreement or the other
Loan Documents, (d) the defense of any claim or action asserted or brought
against the Agents or the Lenders by any Person that arises from or relates to
this Agreement, any other Loan Document, the Agents' or the Lenders' claims
against the Borrowers or the other Loan Parties, or any and all matters in
connection therewith, (e) the commencement or defense of, or intervention in,
any court proceeding arising from or related to this Agreement or any other Loan
Document, (f) the filing of any petition, complaint, answer, motion or other
pleading by the Agents or the Lenders, or the taking of any action in respect of
the Collateral or other security, in connection with this Agreement or any other
Loan Document, (g) the protection, collection, lease, sale, taking possession of
or liquidation of, any Collateral or other security in connection with this
Agreement or any other Loan Document, (h) any attempt to enforce any Lien on any
Collateral or other security in connection with this Agreement or any other Loan
Document, (i) any attempt to collect from the Borrowers or any other Loan Party
amounts owed hereunder or under any other Loan Document, (j) the receipt of any
advice with respect to any of the foregoing, (k) all liabilities and costs
arising from or in connection with the past, present or future operations of the
Loan Parties involving any damage to real or personal property or natural
resources or harm or injury alleged to have resulted from any Release of
Hazardous Materials on, upon or into such property, (l) any costs or liabilities
incurred in connection with the investigation, removal, cleanup and/or
remediation of any Hazardous Materials present or arising out of the operations
of any facility of the Loan Parties, or (m) any liabilities or costs incurred in
connection with any Lien arising under any Environmental Law. Without limitation
of the foregoing or any other provision of any Loan Document: (x) the Borrowers
jointly and severally agree to pay all stamp, document, transfer, recording or
filing taxes or fees (including, without limitation, mortgage recording taxes)
and similar impositions now or hereafter determined by the Agents or any of the
Lenders to be payable in connection with this Agreement or any other Loan
Document, and the Borrowers jointly and severally agree to save the Agents and
the Lenders harmless from and against any and all present or future claims,
liabilities or losses with respect to or resulting from any omission to pay or
delay in paying any such taxes, fees or impositions, and (y) if the Borrowers or
any Loan Party fail to perform any covenant or agreement contained herein or in
any other Loan Document, any Agent may itself perform or cause performance of
such covenant or agreement, and the expenses of the Agents incurred in
connection therewith shall be reimbursed on demand by the Borrowers.
SECTION 12.06. Right of Set-off. Upon the occurrence and
during the continuance of any Event of Default, each Lender may, and is hereby
authorized to, at any time and from time to time, without notice to any Borrower
or Guarantor (any such notice being expressly waived by the Borrowers and
Guarantors) and to the fullest extent permitted by law, set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other indebtedness at any time owing by such Lender to or for
the credit or the account of any Borrower or Guarantor against any and all joint
and several obligations of the Borrowers now or hereafter existing under any
Loan Document, irrespective of whether or not such Lender shall have made any
demand hereunder or thereunder and although such obligations may be contingent
or unmatured. Such set-off shall be subject to the provisions of Section 4.03.
Such Lender agrees to notify the Borrowers promptly after any such set-off and
application made by such Lender provided that the failure to give such notice
shall not affect the validity of such set-off and application. The rights of the
Agents under this Section 12.06 are in addition to the other rights and remedies
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(including, without limitation, other rights of set-off) which such Lender may
have.
SECTION 12.07. Severability. Any provision of this Agreement,
or of any other Loan Document to which any Borrower or any Guarantor is a party,
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining portions hereof or thereof
or affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 12.08. Assignments and Participations.
(a) Each Lender may, with the written consent of the
Agents, assign to one or more other lenders or other entities all or a portion
of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitment, the Loans made by it, the Notes
held by it and its Pro Rata Share of Letter of Credit Obligations); provided,
however, that (i) such assignment is in an amount which is at least $10,000,000
or a multiple of $1,000,000 in excess thereof (or the remainder of such Lender's
Commitment), (ii) each such assignment shall be of a constant, and not a
varying, percentage of all of the assigning Lender's rights and obligations
under this Agreement, (iii) no such assignment shall be made, other than by
NationsBanc or CIT, prior to the Syndication Date, and (iv) the parties to each
such assignment shall execute and deliver to the Administrative Agent, for its
acceptance, an Assignment and Acceptance, together with any Note subject to such
assignment and such parties (other than the Borrowers or the Company) shall
deliver to the Administrative Agent a processing and recordation fee of $5,000.
Upon such execution, delivery and acceptance, from and after the effective date
specified in each Assignment and Acceptance, which effective date shall be at
least three Business Days after the delivery thereof to the Administrative Agent
(or such shorter period as shall be agreed to by the Administrative Agent and
the parties to such assignment), (A) the assignee thereunder shall become a
"Lender" hereunder and, in addition to the rights and obligations hereunder held
by it immediately prior to such effective date, have the rights and obligations
hereunder that have been assigned to it pursuant to such Assignment and
Acceptance and (B) the assigning Lender thereunder shall, to the extent that
rights and obligations hereunder have been assigned by it pursuant to such
Assignment and Acceptance, relinquish its rights and be released from its
obligations under this Agreement (and, in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto). Any such assignment shall not adversely affect the Borrowers' rights
under this Agreement except that the assigning Lender shall not be responsible
for the obligations assigned.
(b) By executing and delivering an Assignment and
Acceptance, the assigning Lender thereunder and the assignee thereunder confirm
to and agree with each other and the other parties hereto that: (i) other than
as provided in such Assignment and Acceptance, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement of any other instrument or document
furnished pursuant hereto, and (ii) such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to the
value, perfection or priority of the Collateral or the financial condition of
any Borrower or any Guarantor or any of their Subsidiaries or the performance or
observance by such Borrower or such Guarantor or any of their Subsidiaries of
any of their obligations under this Agreement, any other Loan Document or any
other instrument or document furnished pursuant hereto.
(c) The Administrative Agent shall maintain at its
address referred to in Section 12.02 hereof a copy of each Assignment and
Acceptance delivered to and accepted by it. Such copies shall be available for
inspection by any Borrower or any Guarantor or any Lender at any reasonable time
and from time to time upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance
executed by an assigning Lender and an assignee Lender, together with the Notes
subject to such assignment and the processing and recordation fee, if the
Administrative Agent consents, which consent will not be unreasonably withheld,
to the proposed Assignment, the Administrative Agent shall, if such Assignment
and Acceptance has been completed and is in substantially the form of Exhibit I
hereto, (i) accept such Assignment and Acceptance, and (ii) give prompt notice
thereof to the Borrower. Within three Business Days after its receipt of such
notice, any Borrower or any Guarantor, at its own expense, shall execute and
deliver to the Administrative Agent in exchange for the surrendered Note a new
Note to the order of such assignee Lender in an aggregate principal amount equal
to the Loans and Revolving Credit Commitment assumed by it pursuant to such
Assignment and Acceptance, and if the assigning Lender has retained any
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Loans and Revolving Credit Commitment hereunder, a new Note to the order of the
assigning Lender in an aggregate principal amount equal to the Loans and
Revolving Credit Commitment retained by it hereunder. Such new Note or Notes
shall be in an aggregate principal amount equal to the aggregate principal
amount of such surrendered Note or Notes, shall be dated the date of the
Administrative Agent's acceptance of such Assignment and Acceptance and shall
otherwise be in substantially the form of Exhibit A and/or Exhibit B hereto.
(e) Each Lender shall not sell participations in or
to all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment, the Loans
made by it and the Notes held by it and the Letter of Credit Obligations).
(f) Nothing contained in this Section 12.08 shall
prohibit any Lender from pledging its Loans hereunder to a Federal Reserve Bank
in support of borrowings made by such Lender from such Federal Reserve Bank.
SECTION 12.09. Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement.
SECTION 12.10 Headings. Section headings herein are included
for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
SECTION 12.11. Governing Law. This Agreement, the Notes and
the other Loan Documents shall be governed by, and construed in accordance with,
the law of the State of New York applicable to contracts made and to be
performed in the State of New York without regard to conflicts of law
principles. Any legal action or proceeding with respect to this Agreement or any
other Loan Document may be brought in the courts of the State of New York or of
the United States for the Southern District of New York, and, by execution and
delivery of this Agreement, the Company and each Borrower hereby irrevocably
accept in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. The Company and each Borrower further
irrevocably consent to the service of process out of any of the aforementioned
courts and in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to each Borrower or the Company
at its address for notices contained in Section 12.02, such service to become
effective ten (10) days after such mailing. Each Borrower and the Company hereby
irrevocably appoint the Secretary of State of the State of New York as its agent
for service of process in respect of any such action or proceeding. Nothing
herein shall affect the right of the Agents to service of process in any other
manner permitted by law or to commence legal proceedings or otherwise proceed
against the Borrowers and/or the Company in any other jurisdiction. The Company
and each Borrower hereby expressly and irrevocably waive, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of venue of any such litigation brought in any such court referred to above and
any claim that any such litigation has been brought in an inconvenient forum. To
the extent that the Company or any Borrower has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution or otherwise) with respect to itself or its property, such Person
hereby irrevocably waives such immunity in respect of its obligations under this
Agreement and the other Loan Documents.
SECTION 12.12. WAIVER OF JURY TRIAL, ETC. THE COMPANY AND EACH
BORROWER, THE LENDERS AND THE AGENTS HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY
IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS
AGREEMENT, THE NOTES OR OTHER LOAN DOCUMENTS, OR UNDER ANY AMENDMENT, WAIVER,
CONSENT, INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE
FUTURE MAY BE DELIVERED IN CONNECTION THEREWITH, OR ARISING FROM ANY BANKING
RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY SUCH
ACTION, PROCEEDINGS OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE
A JURY. THE COMPANY AND EACH BORROWER CERTIFY THAT NO OFFICER, REPRESENTATIVE,
AGENT OR ATTORNEY OF THE AGENT OR ANY LENDER HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT THE AGENT OR ANY LENDER WOULD NOT, IN THE EVENT OF ANY ACTION,
PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS. THE COMPANY
AND EACH BORROWER HEREBY ACKNOWLEDGE THAT THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE AGENTS AND THE LENDERS ENTERING INTO THIS AGREEMENT.
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SECTION 12.13. Consent by the Agents, Lenders. Except as
otherwise expressly set forth herein to the contrary, if the consent, approval,
satisfaction, determination, judgment, acceptance or similar action (an
"Action") of the Agents or the Lenders shall be permitted or required pursuant
to any provision hereof or any provision of any other agreement to which the
Company or any Borrower is a party and to which the Agents or the Lenders has
succeeded thereto, such Action shall be required to be in writing and may be
withheld or denied by any Agent or any Lender, as the case may be, with or
without any reason, and without being subject to question or challenge on the
grounds that such Action was not taken in good faith.
SECTION 12.14. No Party Deemed Drafter. The Company, each of
the Borrowers, the Lenders and the Agents agree that no party hereto shall be
deemed to be the drafter of this Agreement, and each of the Borrowers, the
Company, the Lenders and the Agents further agree that, in the event this
Agreement is ever construed by a court of law, such court shall not construe
this Agreement or any provision of this Agreement against any party hereto as
the drafter of this Agreement.
SECTION 12.15. Reinstatement; Certain Payments. If claim is
ever made upon the Agents or the Lenders for repayment or recovery of any amount
or amounts received by the Agents or the Lenders in payment or on account of any
of the Obligations under this Agreement, the Agents or the Lenders shall give
prompt notice of such claim to each other Lender and the L/C Issuer, the Company
and the Borrowers, and if the Agents or the Lenders repays all or part of said
amount by reason of (i) any judgment, decree or order of any court or
administrative body having jurisdiction over the Agents or the Lenders or any of
their property, or (ii) any good faith settlement or compromise of any such
claim effected by the Agents or the Lenders with any such claimant, then and in
such event the Company and each Borrower agrees that (A) any such judgment,
decree, order, settlement or compromise shall be binding upon the Company and
the Borrowers notwithstanding the cancellation of any Note or other instrument
evidencing the Obligations under this Agreement or the other Loan Documents or
the termination of this Agreement or the other Loan Documents, and (B) it shall
be and remain liable to the Agents and the Lenders hereunder for the amount so
repaid or recovered to the same extent as if such amount had never originally
been received by the Agents or the Lenders.
SECTION 12.16. Indemnification. In addition to all of the
Company's or any Borrowers' other Obligations under this Agreement, each of the
Company and the Borrowers agree to, jointly and severally, defend, protect,
indemnify and hold harmless the Agents, the L/C Issuer, each Lender, and all of
the respective officers, directors, employees, attorneys, consultants and agents
of the Agents, the L/C Issuer and each Lender (collectively called the
"Indemnitees") from and against any and all losses, damages, liabilities,
obligations, penalties, fees, costs and expenses (including, without limitation,
attorneys' fees, costs and expenses) incurred by such Indemnitees, whether prior
to or from and after the Effective Date, whether direct, indirect or
consequential, as a result of or arising from or relating to or in connection
with any of the following: (i) the negotiation, preparation, execution or
performance or enforcement of this Agreement, any Loan Document or of any other
document executed in connection with the transactions contemplated by this
Agreement, (ii) the Lender's furnishing of funds to the Borrowers issuing
Letters of Credit for the account of the Borrowers under this Agreement,
including, without limitation, the management of any such Loans or the
Reimbursement Obligations, (iii) any matter relating to the Acquisition, the
transactions, contemplated by the Acquisition Discounts, financing transactions
contemplated by this Agreement or by any document executed in connection with
the transactions contemplated by this Agreement or the Acquisition Documents, or
(iv) any claim, litigation, investigation or proceeding relating to any of the
foregoing, whether or not any Indemnitee is a party thereto (collectively, the
"Indemnified Matters"); provided, however, that the Company and the Borrowers
shall have no obligation to any Indemnitee hereunder for any Indemnified Matter
caused by or resulting from the gross negligence or willful misconduct of such
Indemnitee, as determined by a final judgment of a court of competent
jurisdiction. Such indemnification for all of the foregoing losses, damages,
fees, costs and expenses of the Indemnitees are chargeable against the Loan
Account. To the extent that the undertaking to indemnify, pay and hold harmless
set forth in this Section 12.16 may be unenforceable because it is violative of
any law or public policy, the Company and the Borrowers shall contribute the
maximum portion which they are permitted to pay and satisfy under applicable
law, to the payment and satisfaction of all Indemnified Matters incurred by the
Indemnitees. The Indemnity shall survive the repayment of the Obligations and
the discharge of the Liens granted under the Loan Documents.
SECTION 12.17. Binding Effect. This Agreement shall become
effective when it shall have been executed by the Company, the Borrowers, the
Agents and the Lenders and when the conditions precedent set forth in Section
5.01 hereof have been satisfied or waived by the Agents, and thereafter shall be
binding upon and inure to the
70
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benefit of the Company, each Borrower, the Agents and each Lender, and their
respective successors and assigns, except that the Company and the Borrowers
shall not have the right to assign their rights hereunder or any interest herein
without the prior written consent of all the Lenders, and the assignment by any
Lender shall be governed by Section 12.08 hereof.
SECTION 12.18. Releases of Collateral.
(a) Upon the request of any Loan Party made in
connection with any sale, transfer or other disposition of Collateral permitted
pursuant to clauses (B), (C) or (E) of Section 7.02(d)(ii) of this Agreement (a
"Permitted Disposition"), provided that, in the case of clause (E) of Section
7.02(d)(ii), the Net Proceeds of any such Permitted Disposition are paid to the
Administrative Agent pursuant to Section 2.07(k) of this Agreement, the
Collateral Agent shall, at the expense of the Loan Parties, promptly release,
without recourse, representation and warranty, its Lien on any such Collateral.
Notwithstanding anything to the contrary, the Collateral Agent shall not have
any obligation to release its Lien on any such Collateral if the Collateral
Agent determines, in its sole discretion exercised reasonably, that the
conditions of this subsection (b) of Section 12.18 have not been satisfied.
(b) The Loan Parties may exercise their rights under
this Section 12.18 at any time during the term of this Financing Agreement in
connection with a Permitted Disposition by delivering to the Collateral Agent,
not less than five Business Days prior to the date of the proposed Permitted
Disposition and release, a certificate substantially in the form of Exhibit L
hereto (the "Release Certificate") of the chief executive officer of the Company
which shall refer to this Section 12.18, identify the assets proposed to be sold
or disposed of and any documents that the Loan Parties are requesting the
Collateral Agent to sign in connection with any such proposed release, and be
accompanied by a counterpart of any such documents executed and acknowledged by
all parties thereto (if any) other than the Collateral Agent (and in form for
execution by the Collateral Agent) certifying, as of the date of the Release
Certificate, that (i) both immediately before and immediately after giving
effect to such requested release, no Default or Event of Default shall have
occurred and be continuing, (ii) the sale, transfer or disposition is made in
compliance with Section 7.02(d)(ii) hereof, and (iii) if the Net Proceeds of
such Permitted Disposition has been made or, as a condition to the requested
release, will be made to the Administrative Agent, provided that in the event
that the Release Certificate states that the Borrowers are required to make a
payment of such Net Proceeds, (A) such Release Certificate shall contain a
calculation of the amount of such payment and (B) prior to or simultaneously
with the release requested by the Loan Parties and the delivery by the
Collateral Agent of any documents relating thereto, the Administrative Agent
shall have received such payment within two Business Days after receipt by the
applicable Borrower.
SECTION 12.19. Confidentiality. Upon delivering to any Lender
or Agent or permitting any Lender or Agent to inspect, any written information
pursuant to this Agreement or the other Loan Documents, each Lender and or Agent
shall treat such information as confidential to the extent such information is
conspicuously marked confidential. Each Lender and Agent agrees to hold such
information in confidence from the date of disclosure thereof. Subject to the
other provisions of this Section 12.19, any Lender or Agent may disclose
confidential information to its officers, directors, employees, attorneys,
accountants or other professionals engaged by any Lender or Agent only after
determining that such third party has been instructed to hold such information
in confidence to the same extent as if it were a Lender. Notwithstanding the
foregoing, the provisions of this Section 12.19 shall not apply to information
within any one of the following categories or any combination thereof: (i)
information the substance of which, at the time of disclosure by any Lender or
Agent, has been disclosed to or is known to any creditor (other than information
as to which such creditor is then under an obligation of nondisclosure), or any
other Person other than (A) a director, officer, employee or agent of any Loan
Party or a professional engaged by a Loan Party or (B) a Person who is then
under an obligation of nondisclosure (otherwise than as a consequence of a
wrongful act of any Lender or Agent), (ii) information which any Lender or Agent
had in its possession prior to receipt thereof from the disclosing party, or
(iii) information received by any Lender or Agent from a third party having no
obligations of nondisclosure with respect thereto. Nothing contained in this
Section 12.19 shall prevent any disclosure: (i) believed in good faith by any
Lender or Agent to be required by any law or guideline or interpretation or
application thereof by any Governmental Authority, arbitrator or grand jury
charged with the interpretation or administration thereof or compliance with any
request or directive of any Governmental Authority, arbitrator or grand jury
(whether or not having the force of law), (ii) determined by counsel for any
Lender or Agent to be necessary or advisable in connection with enforcement or
preservation of rights under or in connection with this Agreement or any other
Loan Document or (iii) of any information which has been made public by a Person
other than any Lender or Agent. Any Lender or Agent shall have
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the right to disclose any confidential information described in this Section
12.19 to the L/C Issuer and to an assignee or prospective assignee or to a
participant or prospective participant in the Obligations hereunder, provided
that the assigning or selling Lender or Agent shall have obtained from such
assignee or prospective assignee or participant or prospective participant an
agreement to hold such information in confidence to the same extent as if it
were a Lender.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
NORTON McNAUGHTON, INC.
By: /s/ Peter Boneparth
------------------------
Title: President
NORTON McNAUGHTON OF SQUIRE, INC.
By: /s/ Peter Boneparth
--------------------------
Title: President
MISS ERIKA, INC.
By: /s/ Peter Boneparth
-------------------------
Title: Vice Chairman
AGENTS AND LENDERS
THE CIT GROUP/COMMERCIAL SERVICES,
INC., as Administrative Agent and Lender
By: /s/ Richard L. Lyons
-------------------------
Title: Vice President
NATIONSBANC COMMERCIAL
CORPORATION, as Collateral Agent and
Lender
By: /s/ Stewart M. Long
-------------------------------
Title: President
LENDERS
73
<PAGE> 79
EXHIBIT A
FORM OF REVOLVING CREDIT NOTE
$__________ Dated: ____________, 199__
New York, New York
FOR VALUE RECEIVED, each of Norton McNaughton of Squire, Inc., a New
York corporation and Miss Erika, Inc., a Delaware corporation formally known as
ME Acquisition Corp. (collectively, the "Borrowers"), HEREBY JOINTLY AND
SEVERALLY PROMISE TO PAY to the order of____________________ (the "Lender") (i)
the principal amount of ____________ ($____________ ), or if less, the aggregate
unpaid principal amount of all Revolving Credit Loans (as defined in the
Financing Agreement hereinafter referred to) made by the Lender to the
Borrowers, payable on the Final Maturity Date (as defined in the Financing
Agreement) and (ii) interest on the unpaid principal amount of all Revolving
Credit Loans, from the date hereof until all such principal amounts are paid in
full, at such interest rates, and payable at such times, as are specified in the
Financing Agreement.
Notwithstanding any other provision of this Revolving Credit Note,
interest paid or becoming due hereunder shall in no event exceed the maximum
rate permitted by applicable law. Both principal and interest are payable in
lawful money of the United States of America in immediately available funds to
The CIT Group/Commercial Services, Inc., as administrative agent (the
"Administrative Agent"), at its office located at 1211 Avenue of the Americas,
New York, New York 10036 or such other office as the Administrative Agent may
designate.
This Revolving Credit Note is the Revolving Credit Note referred to in,
and is entitled to the benefits of, the Financing Agreement dated as of
___________ ___, 1997 (as amended or otherwise modified from time to time, the
"Financing Agreement"), by and among Norton McNaughton, Inc., the Borrowers, the
financial institutions from time to time party to the Financing Agreement,
NationsBanc Commercial Corporation, as Collateral Agent, and the Administrative
Agent. The Financing Agreement, among other things, contains provisions for
certain stated events of default and also for prepayments on account of
principal hereof prior to the maturity hereof upon the terms and conditions
specified therein. The Borrowers hereby waive presentment for payment, demand,
protest and notice of dishonor of this Revolving Credit Note.
<PAGE> 80
This Revolving Credit Note shall be governed by, and construed and
interpreted in accordance with, the internal laws of the State of New York
applicable to contracts made and to be performed therein without consideration
as to choice of law.
NORTON McNAUGHTON OF SQUIRE, INC.
By: ____________________________
Name:
Title:
MISS ERIKA, INC., formerly known as
ME ACQUISITION CORP.
By: ____________________________
Name:
Title:
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<PAGE> 81
EXHIBIT B
FORM OF TERM NOTE
$__________ Dated: ______________, 1997
New York, New York
FOR VALUE RECEIVED, Norton McNaughton of Squire, Inc., a New York
corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order
of_______________ (the "Lender") (i) the principal amount of____________________
($ ________ ), or if less, the aggregate unpaid principal amount of the Term
Loan (as defined in the Financing Agreement hereinafter referred to) made by the
Lender to the Borrower, payable in such installments and at such times as are
specified in the Financing Agreement, and (ii) interest on the unpaid principal
amount hereof from the date hereof until all such principal amount is paid in
full, at such interest rates, and payable at such times, as are specified in the
Financing Agreement.
Notwithstanding any other provision of the Term Note, interest paid or
becoming due hereunder shall in no event exceed the maximum rate permitted by
applicable law. Both principal and interest are payable in lawful money of the
United States of America in immediately available funds to The CIT
Group/Commercial Services, Inc., as administrative agent (the "Administrative
Agent"), at its office located at 1211 Avenue of the Americas, New York, New
York 10036 or such other office as the Administrative Agent may designate.
The Term Loan made by the Lender to the Borrower pursuant to the
Financing Agreement, and all payments made on account of principal hereof, shall
be recorded by the Lender and, prior to any transfer hereof, indorsed on the
schedule attached hereto which is a part of this Term Note.
This Term Note is the Term Note referred to in, and is entitled to the
benefits of, the Financing Agreement dated as of_______, 1997 (as amended or
otherwise modified from time to time, the "Financing Agreement"), by and among
Norton McNaughton, Inc., the Borrower, Miss Erika, Inc., formerly known as ME
Acquisition Corp., the financial institutions from time to time party to the
Financing Agreement, NationsBanc Commercial Corporation, as Collateral Agent,
and the Administrative Agent. The Financing Agreement, among other things,
contains provisions for the acceleration of the maturity of the unpaid principal
amount of this Term Note upon the happening of certain stated events of default
and also for prepayments on account of principal hereof prior to the maturity
hereof upon the terms and conditions specified therein. The Borrower hereby
waives presentment for payment, demand, protest and notice of dishonor of this
Term Note.
This Term Note shall be governed by, and construed and interpreted in
accordance with, the internal laws of the State of New York applicable to
contracts made and to be performed therein without consideration as to choice of
law.
<PAGE> 82
NORTON McNAUGHTON OF SQUIRE, INC.
By: __________________________________
Name:
Title:
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<PAGE> 83
NORTON McNAUGHTON OF SQUIRE, INC.
TERM LOAN AND REPAYMENT OF PRINCIPAL
<TABLE>
<CAPTION>
AMOUNT PRINCIPAL PRINCIPAL NOTATION
OF TERM LOAN PAID OR PREPAID BALANCE MADE BY
- ------------ --------------- ------- -------
<S> <C> <C> <C>
</TABLE>
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<PAGE> 84
EXHIBIT C-1
FORM OF SUBSIDIARY GUARANTY
GUARANTY, dated as of ______________, _____, made by _______________, a
________ corporation (the "Guarantor"), in favor of each of the Lenders (as
hereinafter defined) and NATIONSBANC COMMERCIAL CORPORATION, as collateral agent
for the Lenders (the "Collateral Agent") pursuant to the Financing Agreement
referred to below.
WITNESSETH:
WHEREAS, Norton McNaughton, Inc., a Delaware corporation and a
guarantor (the "Company"), Norton McNaughton of Squire, Inc., a New York
corporation, and Miss Erika, Inc., a Delaware corporation formerly known as ME
Acquisition Corp. (each a "Borrower" and collectively the "Borrowers"), the
financial institutions from time to time party to the Financing Agreement (the
"Lenders"), The CIT Group/Commercial Services, Inc., as administrative agent,
(the "Administrative Agent"), and the Collateral Agent are parties to a
Financing Agreement, dated as of September __, 1997 (such Agreement, as amended,
restated or otherwise modified from time to time, being hereinafter referred to
as the "Financing Agreement");
WHEREAS, [the Company] [a Borrower] directly owns all of the issued and
outstanding shares of capital stock of the Guarantor; and
WHEREAS, pursuant to Section 7.01(b) of the Financing Agreement, the
Guarantor is required to execute and deliver to the Collateral Agent a guaranty
guaranteeing all Loans and Reimbursement Obligations (each as defined in the
Financing Agreement) and all other obligations under the Financing Agreement;
NOW, THEREFORE, in consideration of the premises and the agreements
herein and in order to induce the Lenders to make and maintain the Loans and to
assist the Borrowers in obtaining letters of credit, in each case pursuant to
the Financing Agreement, the Guarantor hereby agrees with the Lenders and the
Collateral Agent as follows:
SECTION 1. Definitions. Reference is hereby made to the Financing
Agreement for a statement of the terms thereof. All terms used in this Guaranty
which are defined therein and not otherwise defined herein shall have the same
meanings herein as set forth therein.
SECTION 2. Guaranty. The Guarantor hereby (i) irrevocably, absolutely
and unconditionally guarantees the prompt payment by the Borrowers, as and when
due and payable (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise), of all amounts now or hereafter owing in
respect of the Notes, the Financing Agreement and the other Loan Documents,
including, without limitation, all Letter of Credit Obligations and all Ledger
Debt, whether for principal, interest (including interest accruing on or after
the filing of any
<PAGE> 85
petition in bankruptcy or for reorganization relating to a Borrower whether or
not a claim for post-filing interest is allowed in such proceeding), fees,
commissions, expenses, indemnifications or otherwise (the "Obligations"), and
(ii) agrees to pay any and all expenses (including counsel fees and expenses)
incurred by the Collateral Agent and the Lenders in enforcing their rights under
this Guaranty.
SECTION 3. Guarantor's Obligations Unconditional.
(a) The Guarantor hereby guarantees that the Obligations will be paid
strictly in accordance with the terms of the Loan Documents, regardless of any
law, regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of the Collateral Agent or the Lenders
with respect thereto. The Guarantor agrees that its guarantee constitutes a
guaranty of payment when due and not of collection and waives any right to
require that any resort be made by the Collateral Agent or the Lenders to any
Collateral. The obligations of the Guarantor under this Guaranty are independent
of the obligations under the Financing Agreement and the other Loan Documents,
and a separate action or actions may be brought and prosecuted against the
Guarantor to enforce this Guaranty, irrespective of whether any action is
brought against any Borrower or whether any Borrower is joined in any such
action. The liability of the Guarantor hereunder shall be absolute and
unconditional irrespective of: (i) any lack of validity or enforceability of any
Loan Document or any agreement or instrument relating thereto; (ii) any change
in the time, manner or place of payment of, or in any other term in respect of,
all or any of the Obligations, or any other amendment or waiver of or consent to
any departure from any provision of any Loan Document other than this Guaranty
(including the creation or existence of any Obligations in excess of the amount
permitted by any lending formulas contained in the Loan Documents or the amount
evidenced by the Loan Documents); (iii) any exchange or release of, or
non-perfection of any Lien on or security interest in, any Collateral, or any
release or amendment or waiver of or consent to any departure from any other
guaranty, for all or any of the Obligations; (iv) the existence of any claim,
set-off, defense or other right that the Guarantor may have against any Person,
including, without limitation, the Collateral Agent or the Lenders, or (v) any
other circumstance which might otherwise constitute a defense available to, or a
discharge of, any Borrower or any other guarantor in respect of the Obligations
or the Guarantor in respect hereof.
(b) This Guaranty (i) is a continuing guaranty and shall remain in full
force and effect until such date on which all of the Obligations and all other
expenses to be paid by the Guarantor pursuant hereto shall have been satisfied
in full after the Total Commitment shall have been terminated and all Letters of
Credit are canceled or cash collateralized, and (ii) shall continue to be
effective or shall be reinstated, as the case may be, if at any time any payment
of any of the Obligations is rescinded or must otherwise be returned by the
Collateral Agent upon the insolvency, bankruptcy or reorganization of any
Borrower or otherwise, all as though such payment had not been made.
SECTION 4. Waivers. The Guarantor hereby waives, to the extent
permitted by applicable law, (i) promptness and diligence; (ii) notice of
acceptance and notice of the incurrence of any Obligation by the Borrowers;
(iii) notice of any actions taken by the Collateral Agent, the Borrowers or any
Lender under any Loan Document or any other agreement or instrument relating
thereto; (iv) all other notices, demands and protests, and all other formalities
-2-
<PAGE> 86
of every kind in connection with the enforcement of the Obligations or of the
obligations of the Guarantor hereunder, the omission of or delay in which, but
for the provisions of this Section 4, might constitute grounds for relieving the
Guarantor of its obligations hereunder; (v) any right to compel or direct the
Collateral Agent or the Lenders to seek payment or recovery of any amounts owed
under this Guaranty from any one particular fund or source; (vi) any requirement
that the Collateral Agent protect, secure, perfect or insure any security
interest or Lien or any property subject thereto or exhaust any right or take
any action against any Borrower or any other Person or any Collateral; and (vii)
any other defense available to the Guarantor.
SECTION 5. Subrogation. Until the Obligations have been satisfied in
full, the Guarantor hereby waives and irrevocably agrees it will not exercise
any and all rights which it has or may have at any time or from time to time
(whether arising directly or indirectly by operation of law or contract) to
assert any claim against any Borrower on account of any payments made under this
Guaranty or otherwise, including, without limitation, any and all existing and
future rights of subrogation, reimbursement, exoneration, contribution and/or
indemnity. If any amount shall be paid to the Guarantor on account of such
subrogation rights at any time when all of the Obligations and all such other
expenses shall not have been paid in full, such amount shall be held in trust
for the benefit of the Collateral Agent and the Lenders, shall be segregated
from the other funds of the Guarantor and shall forthwith be paid over to the
Collateral Agent to be applied in whole or in part by the Collateral Agent
against the Obligations, whether matured or unmatured, and all such other
expenses in accordance with the terms of the Financing Agreement.
SECTION 6. Representations and Warranties. The Guarantor hereby
represents and warrants as follows:
(a) The Guarantor (i) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation as
set forth on the first page hereof; and (ii) has all requisite corporate power
and authority to execute, deliver and perform this Guaranty and each other Loan
Document to which the Guarantor is a party.
(b) The execution, delivery and performance by the Guarantor of this
Guaranty and each other Loan Document to which the Guarantor is a party (i) have
been duly authorized by all necessary corporate action, (ii) do not contravene
its charter or by-laws or any applicable law, (iii) do not violate any
contractual restriction binding on or otherwise affecting the Guarantor, and
(iv) do not result in or require the creation of any Lien, security interest or
other charge or encumbrance upon or with respect to any of its properties other
than pursuant to any such Loan Document.
(c) No authorization, approval or other action by, and no notice to or
filing with, any Governmental Authority or other regulatory body is required in
connection with the due execution, delivery and performance by the Guarantor of
this Guaranty or any of the other Loan Documents to which the Guarantor is a
party.
(d) Each of this Guaranty and the other Loan Documents to which the
Guarantor is a party is a legal, valid and binding obligation of the Guarantor,
enforceable against the Guarantor in accordance with its terms, except as may be
limited by applicable bankruptcy,
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insolvency, reorganization, moratorium or other similar laws and general equity
principles affecting the enforcement of creditors' rights generally.
(e) There is no pending or, to the best knowledge of the Guarantor,
threatened action, suit or proceeding against the Guarantor or to which any of
the properties of the Guarantor is subject, before any court or other
Governmental Authority or any arbitrator (i) which challenges the validity or
enforceability of this Guaranty or any of the other Loan Documents to which the
Guarantor is a party, or (ii) in which there is a reasonable possibility of an
adverse decision which would materially adversely affect the business,
operations or financial condition of the Guarantor.
(f) The Guarantor now has and will continue to have independent means
of obtaining information concerning the affairs, financial condition and
business of the Borrowers, and has no need of, or right to obtain from the
Collateral Agent or any Lender, any credit or other information concerning the
affairs, financial condition or business of the Borrowers that may come under
the control of the Collateral Agent or any Lender.
SECTION 7. Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default, the Collateral Agent, the Administrative
Agent and the Lenders may, and are hereby authorized to, at any time and from
time to time, without notice to the Guarantor (any such notice being expressly
waived by the Guarantor) and to the fullest extent permitted by law, set-off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by the
Collateral Agent, the Administrative Agent or any Lender to or for the credit of
the account of the Guarantor against any and all obligations of the Guarantor
now or hereafter existing under this Guaranty, irrespective of whether or not
the Collateral Agent, the Administrative Agent or any Lender shall have made any
demand under this Guaranty and although such obligations may be contingent or
unmatured. The Collateral Agent, the Administrative Agent and the Lenders agree
to notify the Guarantor promptly after any such set-off and application made by
the Collateral Agent, the Administrative Agent or such Lender, provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of the Collateral Agent, the Administrative Agent and
the Lenders under this Section 7 are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which the Collateral
Agent, the Administrative Agent and the Lenders may have.
SECTION 8. Notices, Etc. All notices and other communications provided
for hereunder shall be in writing and shall be mailed (by certified mail,
postage prepaid and return receipt requested), telecopied or delivered, if to
the Guarantor, to it at its address at ________ ; if to the Collateral Agent, to
it at its address set forth in the Financing Agreement; or, as to any such
Person, at such other address as shall be designated by such Person in a written
notice to such other Persons complying as to delivery with the terms of this
Section 8. All such notices and other communications shall be effective (i) if
sent by registered mail, return receipt requested, when received or three
Business Days after mailing, whichever first occurs, (ii) if telecopied, when
transmitted and a confirmation is received, provided the same is on a Business
Day and, if not, on the next Business Day, or (iii) if delivered, upon delivery,
provided the same is on a Business Day and, if not, on the next Business Day.
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SECTION 9. Consent to Jurisdiction; Waiver of Immunities.
(a) The Guarantor hereby irrevocably submits to the jurisdiction of any
New York State or federal court sitting in New York City in any action or
proceeding arising out of or relating to this Guaranty, and the Guarantor hereby
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such New York State or federal court. The Guarantor
hereby irrevocably appoints ____________ (the "Process Agent"), with an office
on the date hereof at ________________________, as its agent to receive on
behalf of the Guarantor and its property service of copies of the summons and
complaint and any other process which may be served in any such action or
proceeding. Such service may be made by mailing (by certified or registered
mail, postage prepaid and return receipt requested) or delivering a copy of such
process to the Guarantor in care of the Process Agent at the Process Agent's
above address, and the Guarantor hereby irrevocably authorizes and directs the
Process Agent to accept such service on its behalf. As an alternative method of
service, the Guarantor also irrevocably consents to the service of any and all
process in any such action or proceeding by the mailing of copies of such
process to the Guarantor at its address specified in Section 8 hereof. The
Guarantor agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law.
(b) Nothing in this Section 9 shall affect the right of the Collateral
Agent to serve legal process in any other manner permitted by law or affect the
right of the Collateral Agent to bring any action or proceeding against the
Guarantor or its property in the courts of any other jurisdictions.
(c) The Guarantor hereby expressly and irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of venue of any such litigation brought in any such court
referred to above and any claim that any such litigation has been brought in an
inconvenient forum. To the extent that the Guarantor has or hereafter may
acquire any immunity from jurisdiction of any court or from any legal process
(whether through service or notice, attachment prior to judgment, attachment in
aid of execution or otherwise) with respect to itself or its property, the
Guarantor hereby irrevocably waives such immunity in respect of its obligations
under this Guaranty and the other Loan Documents.
SECTION 10. WAIVER OF JURY TRIAL. EACH OF THE GUARANTOR AND, BY
ACCEPTANCE HEREOF, THE COLLATERAL AGENT AND THE LENDERS WAIVES ANY RIGHT TO A
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS
UNDER THIS GUARANTY, THE LOAN DOCUMENTS OR UNDER ANY AMENDMENT, WAIVER, CONSENT,
INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE
DELIVERED IN CONNECTION THEREWITH, OR ARISING FROM ANY RELATIONSHIP EXISTING IN
CONNECTION WITH THIS GUARANTY, AND AGREES THAT ANY SUCH ACTION, PROCEEDING OR
COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
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SECTION 11. Miscellaneous.
(a) The Guarantor will make each payment hereunder in lawful money of
the United States of America and in immediately available funds to the
Collateral Agent, for the benefit of the Lenders, at such address specified by
the Collateral Agent from time to time by notice to the Guarantor.
(b) No amendment of any provision of this Guaranty shall be effective
unless it is in writing and signed by the Guarantor and the Collateral Agent,
and no waiver of any provision of this Guaranty, and no consent to any departure
by the Guarantor therefrom, shall be effective unless it is in writing and
signed by the Collateral Agent, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
(c) No failure on the part of the Collateral Agent, acting on behalf of
the Lenders, to exercise, and no delay in exercising, any right hereunder or
under any other Loan Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any right preclude any other or further exercise
thereof or the exercise of any other right. The rights and remedies of the
Collateral Agent and the Lenders provided herein and in the other Loan Documents
are cumulative and are in addition to, and not exclusive of, any rights or
remedies provided by law. The rights of the Collateral Agent and the Lenders
under any Loan Document against any party thereto are not conditional or
contingent on any attempt by the Collateral Agent and the Lenders to exercise
any of their rights under any other Loan Document against such party or against
any other Person.
(d) Any provision of this Guaranty which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
portions hereof or thereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
(e) This Guaranty shall (i) be binding on the Guarantor and its
successors and assigns, and (ii) inure, together with all rights and remedies of
the Collateral Agent and the Lenders hereunder, to the benefit of the Collateral
Agent and the Lenders and their respective successors, transferees and assigns.
Without limiting the generality of clause (ii) of the immediately preceding
sentence, to the extent permitted by Section 12.09 of the Financing Agreement,
any Lender may assign or otherwise transfer any Note held by it, and assign or
otherwise transfer its rights under any other Loan Document, to any other
Person, and such other Person shall thereupon become vested with all of the
benefits in respect thereof granted to the Lenders herein or otherwise. None of
the rights or obligations of the Guarantor hereunder may be assigned or
otherwise transferred without the prior written consent of the Collateral Agent.
(f) This Guaranty shall be governed by and construed in accordance with
the law of the State of New York applicable to contracts made and to be
performed therein without regard to conflict of law principles.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
executed by an officer thereunto duly authorized, as of the date first above
written.
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<PAGE> 90
[NAME OF GUARANTOR]
By: ________________________________
Name:
Title:
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<PAGE> 91
EXHIBIT C-2
FORM OF BORROWER GUARANTY
GUARANTY, dated as of _____, ___, made by _______________,
a ________ corporation (the "Guarantor"), in favor of each of the Lenders (as
hereinafter defined) and NATIONSBANC COMMERCIAL CORPORATION, as collateral agent
for the Lenders (the "Collateral Agent") pursuant to the Financing Agreement
referred to below.
W I T N E S S E T H:
WHEREAS, Norton McNaughton, Inc., a Delaware corporation (the
"Company"), the Guarantor, [Norton McNaughton of Squire, Inc., a New York
corporation] [Miss Erika, Inc., a Delaware corporation formerly known as ME
Acquisition Corp.] (the "Borrower"), the financial institutions from time to
time party to the Financing Agreement (the "Lenders"), The CIT Group/Commercial
Services, Inc., as administrative agent, (the "Administrative Agent"), and the
Collateral Agent are parties to a Financing Agreement, dated as of September __,
1997 (such Agreement, as amended, restated or otherwise modified from time to
time, being hereinafter referred to as the "Financing Agreement");
WHEREAS, the Company directly owns all of the issued and outstanding
shares of capital stock of the Guarantor; and
WHEREAS, pursuant to Section 5.01(d)(iii) of the Financing Agreement,
the Guarantor is required to execute and deliver to the Collateral Agent a
guaranty guaranteeing all Loans and Reimbursement Obligations (each as defined
in the Financing Agreement) of the Borrower and all other obligations of the
Borrower under the Financing Agreement;
NOW, THEREFORE, in consideration of the premises and the agreements
herein and in order to induce the Lenders to make and maintain the Loans and to
assist the Borrower in obtaining letters of credit, in each case pursuant to the
Financing Agreement, the Guarantor hereby agrees with the Lenders and the
Collateral Agent as follows:
SECTION 1. Definitions. Reference is hereby made to the Financing
Agreement for a statement of the terms thereof. All terms used in this Guaranty
which are defined therein and not otherwise defined herein shall have the same
meanings herein as set forth therein.
SECTION 2. Guaranty. The Guarantor hereby (i) irrevocably, absolutely
and unconditionally guarantees the prompt payment by the Borrower, as and when
due and payable (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise), of all amounts now or hereafter owing by the
Borrower in respect of the Notes, the Financing Agreement and the other Loan
Documents, including, without limitation, all Letter of Credit Obligations and
all Ledger Debt of the Borrower, whether for principal, interest (including
<PAGE> 92
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Borrower whether or not a claim for post-filing
interest is allowed in such proceeding), fees, commissions, expenses,
indemnifications or otherwise (the "Obligations"), and (ii) agrees to pay any
and all expenses (including counsel fees and expenses) incurred by the
Collateral Agent and the Lenders in enforcing their rights under this Guaranty.
SECTION 3. Guarantor's Obligations Unconditional.
(a) The Guarantor hereby guarantees that the Obligations will be paid
strictly in accordance with the terms of the Loan Documents, regardless of any
law, regulation or order now or hereafter in effect in any jurisdiction
affecting any of such terms or the rights of the Collateral Agent or the Lenders
with respect thereto. The Guarantor agrees that its guarantee constitutes a
guaranty of payment when due and not of collection and waives any right to
require that any resort be made by the Collateral Agent or the Lenders to any
Collateral. The obligations of the Guarantor under this Guaranty are independent
of the obligations under the Financing Agreement and the other Loan Documents,
and a separate action or actions may be brought and prosecuted against the
Guarantor to enforce this Guaranty, irrespective of whether any action is
brought against the Borrower or whether the Borrower is joined in any such
action. The liability of the Guarantor hereunder shall be absolute and
unconditional irrespective of: (i) any lack of validity or enforceability of any
Loan Document or any agreement or instrument relating thereto; (ii) any change
in the time, manner or place of payment of, or in any other term in respect of,
all or any of the Obligations, or any other amendment or waiver of or consent to
any departure from any provision of any Loan Document other than this Guaranty
(including the creation or existence of any Obligations in excess of the amount
permitted by any lending formulas contained in the Loan Documents or the amount
evidenced by the Loan Documents); (iii) any exchange or release of, or
non-perfection of any Lien on or security interest in, any Collateral, or any
release or amendment or waiver of or consent to any departure from any other
guaranty, for all or any of the Obligations; (iv) the existence of any claim,
set-off, defense or other right that the Guarantor may have against any Person,
including, without limitation, the Collateral Agent or the Lenders, or (v) any
other circumstance which might otherwise constitute a defense available to, or a
discharge of, the Borrower or any other guarantor in respect of the Obligations
or the Guarantor in respect hereof.
(b) This Guaranty (i) is a continuing guaranty and shall remain in full
force and effect until such date on which all of the Obligations and all other
expenses to be paid by the Guarantor pursuant hereto shall have been satisfied
in full after the Total Commitment shall have been terminated and all Letters of
Credit are canceled or cash collateralized, and (ii) shall continue to be
effective or shall be reinstated, as the case may be, if at any time any payment
of any of the Obligations is rescinded or must otherwise be returned by the
Collateral Agent upon the insolvency, bankruptcy or reorganization of the
Borrower or otherwise, all as though such payment had not been made.
SECTION 4. Waivers. The Guarantor hereby waives, to the extent
permitted by applicable law, (i) promptness and diligence; (ii) notice of
acceptance and notice of the incurrence of any Obligation by the Borrower; (iii)
notice of any actions taken by the Collateral Agent, the Borrower or any Lender
under any Loan Document or any other agreement or instrument relating thereto;
(iv) all other notices, demands and protests, and all other formalities
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<PAGE> 93
of every kind in connection with the enforcement of the Obligations or of the
obligations of the Guarantor hereunder, the omission of or delay in which, but
for the provisions of this Section 4, might constitute grounds for relieving the
Guarantor of its obligations hereunder; (v) any right to compel or direct the
Collateral Agent or the Lenders to seek payment or recovery of any amounts owed
under this Guaranty from any one particular fund or source; (vi) any requirement
that the Collateral Agent protect, secure, perfect or insure any security
interest or Lien or any property subject thereto or exhaust any right or take
any action against the Borrower or any other Person or any Collateral; and (vii)
any other defense available to the Guarantor.
SECTION 5. Subrogation. Until the Obligations have been satisfied in
full, the Guarantor hereby waives and irrevocably agrees it will not exercise
any and all rights which it has or may have at any time or from time to time
(whether arising directly or indirectly by operation of law or contract) to
assert any claim against the Borrower on account of any payments made under this
Guaranty or otherwise, including, without limitation, any and all existing and
future rights of subrogation, reimbursement, exoneration, contribution and/or
indemnity. If any amount shall be paid to the Guarantor on account of such
subrogation rights at any time when all of the Obligations and all such other
expenses shall not have been paid in full, such amount shall be held in trust
for the benefit of the Collateral Agent and the Lenders, shall be segregated
from the other funds of the Guarantor and shall forthwith be paid over to the
Collateral Agent to be applied in whole or in part by the Collateral Agent
against the Obligations, whether matured or unmatured, and all such other
expenses in accordance with the terms of the Financing Agreement.
SECTION 6. Representations and Warranties. The Guarantor hereby
represents and warrants as follows:
(a) The Guarantor (i) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation as
set forth on the first page hereof; and (ii) has all requisite corporate power
and authority to execute, deliver and perform this Guaranty and each other Loan
Document to which the Guarantor is a party.
(b) The execution, delivery and performance by the Guarantor of this
Guaranty and each other Loan Document to which the Guarantor is a party (i) have
been duly authorized by all necessary corporate action, (ii) do not contravene
its charter or by-laws or any applicable law, (iii) do not violate any
contractual restriction binding on or otherwise affecting the Guarantor, and
(iv) do not result in or require the creation of any Lien, security interest or
other charge or encumbrance upon or with respect to any of its properties other
than pursuant to any such Loan Document.
(c) No authorization, approval or other action by, and no notice to or
filing with, any Governmental Authority or other regulatory body is required in
connection with the due execution, delivery and performance by the Guarantor of
this Guaranty or any of the other Loan Documents to which the Guarantor is a
party.
(d) Each of this Guaranty and the other Loan Documents to which the
Guarantor is a party is a legal, valid and binding obligation of the Guarantor,
enforceable against the Guarantor in accordance with its terms, except as may be
limited by applicable bankruptcy,
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<PAGE> 94
insolvency, reorganization, moratorium or other similar laws and general equity
principles affecting the enforcement of creditors' rights generally.
(e) There is no pending or, to the best knowledge of the Guarantor,
threatened action, suit or proceeding against the Guarantor or to which any of
the properties of the Guarantor is subject, before any court or other
Governmental Authority or any arbitrator (i) which challenges the validity or
enforceability of this Guaranty or any of the other Loan Documents to which the
Guarantor is a party, or (ii) in which there is a reasonable possibility of an
adverse decision which would materially adversely affect the business,
operations or financial condition of the Guarantor.
(f) The Guarantor now has and will continue to have independent means
of obtaining information concerning the affairs, financial condition and
business of the Borrower, and has no need of, or right to obtain from the
Collateral Agent or any Lender, any credit or other information concerning the
affairs, financial condition or business of the Borrower that may come under the
control of the Collateral Agent or any Lender.
SECTION 7. Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default, the Collateral Agent, the Administrative
Agent and the Lenders may, and are hereby authorized to, at any time and from
time to time, without notice to the Guarantor (any such notice being expressly
waived by the Guarantor) and to the fullest extent permitted by law, set-off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by the
Collateral Agent, the Administrative Agent or any Lender to or for the credit of
the account of the Guarantor against any and all obligations of the Guarantor
now or hereafter existing under this Guaranty, irrespective of whether or not
the Collateral Agent, the Administrative Agent or any Lender shall have made any
demand under this Guaranty and although such obligations may be contingent or
unmatured. The Collateral Agent, the Administrative Agent and the Lenders agree
to notify the Guarantor promptly after any such set-off and application made by
the Collateral Agent, the Administrative Agent or such Lender, provided that the
failure to give such notice shall not affect the validity of such set-off and
application. The rights of the Collateral Agent, the Administrative Agent and
the Lenders under this Section 7 are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which the Collateral
Agent, the Administrative Agent and the Lenders may have.
SECTION 8. Notices, Etc. All notices and other communications provided
for hereunder shall be in writing and shall be mailed (by certified mail,
postage prepaid and return receipt requested), telecopied or delivered, if to
the Guarantor, to it at its address at ________ ; if to the Collateral Agent, to
it at its address set forth in the Financing Agreement; or, as to any such
Person, at such other address as shall be designated by such Person in a written
notice to such other Persons complying as to delivery with the terms of this
Section 8. All such notices and other communications shall be effective (i) if
sent by registered mail, return receipt requested, when received or three
Business Days after mailing, whichever first occurs, (ii) if telecopied, when
transmitted and a confirmation is received, provided the same is on a Business
Day and, if not, on the next Business Day, or (iii) if delivered, upon delivery,
provided the same is on a Business Day and, if not, on the next Business Day.
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<PAGE> 95
SECTION 9. Consent to Jurisdiction; Waiver of Immunities.
(a) The Guarantor hereby irrevocably submits to the jurisdiction of any
New York State or federal court sitting in New York City in any action or
proceeding arising out of or relating to this Guaranty, and the Guarantor hereby
irrevocably agrees that all claims in respect of such action or proceeding may
be heard and determined in such New York State or federal court. The Guarantor
hereby irrevocably appoints ____________ (the "Process Agent"), with an office
on the date hereof at _________________________, as its agent to receive on
behalf of the Guarantor and its property service of copies of the summons and
complaint and any other process which may be served in any such action or
proceeding. Such service may be made by mailing (by certified or registered
mail, postage prepaid and return receipt requested) or delivering a copy of such
process to the Guarantor in care of the Process Agent at the Process Agent's
above address, and the Guarantor hereby irrevocably authorizes and directs the
Process Agent to accept such service on its behalf. As an alternative method of
service, the Guarantor also irrevocably consents to the service of any and all
process in any such action or proceeding by the mailing of copies of such
process to the Guarantor at its address specified in Section 8 hereof. The
Guarantor agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law.
(b) Nothing in this Section 9 shall affect the right of the Collateral
Agent to serve legal process in any other manner permitted by law or affect the
right of the Collateral Agent to bring any action or proceeding against the
Guarantor or its property in the courts of any other jurisdictions.
(c) The Guarantor hereby expressly and irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of venue of any such litigation brought in any such court
referred to above and any claim that any such litigation has been brought in an
inconvenient forum. To the extent that the Guarantor has or hereafter may
acquire any immunity from jurisdiction of any court or from any legal process
(whether through service or notice, attachment prior to judgment, attachment in
aid of execution or otherwise) with respect to itself or its property, the
Guarantor hereby irrevocably waives such immunity in respect of its obligations
under this Guaranty and the other Loan Documents.
SECTION 10. WAIVER OF JURY TRIAL. EACH OF THE GUARANTOR AND, BY
ACCEPTANCE HEREOF, THE COLLATERAL AGENT AND THE LENDERS WAIVES ANY RIGHT TO A
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS
UNDER THIS GUARANTY, THE LOAN DOCUMENTS OR UNDER ANY AMENDMENT, WAIVER, CONSENT,
INSTRUMENT, DOCUMENT OR OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE
DELIVERED IN CONNECTION THEREWITH, OR ARISING FROM ANY RELATIONSHIP EXISTING IN
CONNECTION WITH THIS GUARANTY, AND AGREES THAT ANY SUCH ACTION, PROCEEDING OR
COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
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<PAGE> 96
SECTION 11. Miscellaneous.
(a) The Guarantor will make each payment hereunder in lawful money of
the United States of America and in immediately available funds to the
Collateral Agent, for the benefit of the Lenders, at such address specified by
the Collateral Agent from time to time by notice to the Guarantor.
(b) No amendment of any provision of this Guaranty shall be effective
unless it is in writing and signed by the Guarantor and the Collateral Agent,
and no waiver of any provision of this Guaranty, and no consent to any departure
by the Guarantor therefrom, shall be effective unless it is in writing and
signed by the Collateral Agent, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
(c) No failure on the part of the Collateral Agent, acting on behalf of
the Lenders, to exercise, and no delay in exercising, any right hereunder or
under any other Loan Document shall operate as a waiver thereof, nor shall any
single or partial exercise of any right preclude any other or further exercise
thereof or the exercise of any other right. The rights and remedies of the
Collateral Agent and the Lenders provided herein and in the other Loan Documents
are cumulative and are in addition to, and not exclusive of, any rights or
remedies provided by law. The rights of the Collateral Agent and the Lenders
under any Loan Document against any party thereto are not conditional or
contingent on any attempt by the Collateral Agent and the Lenders to exercise
any of their rights under any other Loan Document against such party or against
any other Person.
(d) Any provision of this Guaranty which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
portions hereof or thereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
(e) This Guaranty shall (i) be binding on the Guarantor and its
successors and assigns, and (ii) inure, together with all rights and remedies of
the Collateral Agent and the Lenders hereunder, to the benefit of the Collateral
Agent and the Lenders and their respective successors, transferees and assigns.
Without limiting the generality of clause (ii) of the immediately preceding
sentence, to the extent permitted by Section 12.09 of the Financing Agreement,
any Lender may assign or otherwise transfer any Note held by it, and assign or
otherwise transfer its rights under any other Loan Document, to any other
Person, and such other Person shall thereupon become vested with all of the
benefits in respect thereof granted to the Lenders herein or otherwise. None of
the rights or obligations of the Guarantor hereunder may be assigned or
otherwise transferred without the prior written consent of the Collateral Agent.
(f) This Guaranty shall be governed by and construed in accordance with
the law of the State of New York applicable to contracts made and to be
performed therein without regard to conflict of law principles.
IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be
executed by an officer thereunto duly authorized, as of the date first above
written.
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[NAME OF GUARANTOR]
By:
----------------------------------
Name:
Title:
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EXHIBIT D-1
FORM OF BORROWER SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of September __, 1997, made by
____________________________, a _________ corporation (the "Grantor"), in favor
of NATIONSBANC COMMERCIAL CORPORATION, as collateral agent for the Lenders
parties to the Financing Agreement referred to below (in such capacity, the
"Collateral Agent").
W I T N E S S E T H:
WHEREAS, Norton McNaughton, Inc., a Delaware corporation (the
"Company"), the Grantor, [Norton McNaughton of Squire, Inc., a New York
corporation ("Squire")] [Miss Erika, Inc., a Delaware corporation formerly known
as ME Acquisition Corp. ("MISS ERIKA")] (together with the Grantor, each a
"Borrower" and collectively the "Borrowers"), The CIT Group/Commercial Services,
Inc., as administrative agent (the "Administrative Agent"), the Collateral Agent
and the financial institutions from time to time party thereto (the "Lenders")
are parties to a Financing Agreement, dated as of September __, 1997 (such
Agreement, as amended, restated or otherwise modified from time to time, being
hereinafter referred to as the "Financing Agreement");
WHEREAS, pursuant to the Financing Agreement, the Lenders have agreed
to make (i) a term loan to [Grantor] [Squire] in the aggregate principal amount
not to exceed $15,000,000 (the "Term Loan") and (ii) revolving credit loans to
the Borrowers in an aggregate principal amount at any one time outstanding not
to exceed $125,000,000 (the "Revolving Credit Loans" and together with the Term
Loan, each a "Loan" and collectively the "Loans"), which may include letters of
credit (the "Letters of Credit") issued with the assistance of the Collateral
Agent and the Lenders for the account of the Borrowers;
WHEREAS, it is a condition precedent to the Lenders making any Loan or
assisting the Grantor in obtaining the issuance of any Letter of Credit pursuant
to the Financing Agreement that the Grantor shall have executed and delivered to
the Collateral Agent a security agreement providing for the grant to the
Collateral Agent for the benefit of the Lenders of a security interest in all
personal property of the Grantor;
NOW, THEREFORE, in consideration of the premises and the agreements
herein and in order to induce the Lenders to make and maintain the Loans and to
assist the Grantor in obtaining the issuance of Letters of Credit pursuant to
the Financing Agreement, the Grantor hereby agrees with the Collateral Agent as
follows:
SECTION 1. Definitions. Reference is hereby made to the Financing
Agreement for a statement of the terms thereof. All terms used in this Agreement
which are defined in the Financing Agreement or in Article 9 of the Uniform
Commercial Code (the "Code") currently in effect in the State of New York and
which are not otherwise defined herein shall have the same
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meanings herein as set forth therein.
SECTION 2. Grant of Security Interest. As collateral security for all
of the Obligations (as defined in Section 3 hereof), the Grantor hereby pledges
and collaterally assigns to the Collateral Agent, and grants to the Collateral
Agent for the benefit of the Lenders a continuing security interest in, all
personal property and fixtures of the Grantor, wherever located and whether now
or hereafter existing and whether now owned or hereafter acquired, of every kind
and description, tangible or intangible (the "Collateral"), including, without
limitation, all of the Grantor's right, title and interest in and to the
following:
(a) all equipment of any kind including, without limitation, all
furniture, fixtures and machinery, wherever located and whether now or hereafter
existing and whether now owned or hereafter acquired, together with all
substitutes, replacements, accessions and additions thereto, and all tools,
parts, accessories and attachments used in connection therewith (hereinafter
collectively referred to as the "Equipment");
(b) all inventory of any kind wherever located and whether now or
hereafter existing and whether now owned or hereafter acquired, (including,
without limitation, all types of inventory, merchandise, goods, property and
other assets that are held by the Grantor for sale, lease or other disposition
or to be furnished under a contract for services, whether such inventory,
merchandise, goods, property and other assets are raw, in process, finished,
trim or piece goods, and materials used or consumed in the business of the
Grantor, and goods returned to or repossessed by the Grantor and goods in which
the Grantor has an interest in mass or in joint or other interest or right of
any kind, including consigned goods and goods being processed), and all
accessions thereto and products thereof and all packing and shipping materials
(any and all such inventory, accessions and products being hereinafter referred
to as the "Inventory");
(c) (i) all present and future accounts, contract rights, chattel
paper, documents, instruments, general intangibles and other obligations of any
kind arising out of or in connection with the sale, lease or other disposition
of goods or the rendering of services or otherwise; (ii) all of the Grantor's
right, title and interest, and all of the Grantor's rights, remedies, security
and Liens, in, to and in respect of any credit insurance, accounts (including,
without limitation, rights of stoppage in transit, replevin, repossession,
reclamation and other rights and remedies of an unpaid vendor, lienor or secured
party), guaranties or other contracts of suretyship with respect to accounts,
and deposits or other security for the obligation of any Account Debtor; (iii)
all rights relating to the sale or other transfer of property to, or the
construction, renovation, processing or other improvement of property by or for
the Grantor; (iv) all rights now or hereafter existing in and to all letters of
credit, security agreements, leases and other contracts now or hereafter
existing and securing or otherwise relating to such accounts, contract rights,
chattel paper, instruments, documents, general intangibles or other rights or
obligations (including, without limitation, the contracts described in SCHEDULE
I hereto); (v) all goods relating to, or which by sale have resulted in,
accounts, including, without limitation, all goods described in invoices or
other documents or instruments with respect to, or otherwise representing or
evidencing, any accounts, and all returned, reclaimed or repossessed goods; and
(vi) all credit balances and other amounts due and owing to the Grantor under
the [amended and restated] factoring agreement between NationsBanc Commercial
Corporation and the Grantor dated as of September __, 1997, as amended, restated
or otherwise modified from time to time
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(the "Factoring Agreement") and all agreements which replace or supersede the
Factoring Agreement (any and all such accounts, contract rights, chattel paper,
instruments, documents, general intangibles and obligations being hereinafter
referred to collectively as the "Receivables", and any and all such credit
insurance, guaranties, letters of credit, security agreements, leases and other
contracts being hereinafter referred to collectively as the "Related
Contracts");
(d) (i) all trademarks, service marks, trade names, business names,
trade styles, designs, logos and other source or business identifiers and all
general intangibles of like nature, now or hereafter owned, adopted, acquired or
used by the Grantor (including, without limitation, all trademarks, service
marks, trade names, business names, trade styles, designs, logos and other
source or business identifiers described in SCHEDULE II or VI hereto), all
applications, registrations and recordings thereof (including, without
limitation, applications, registrations and recordings in the United States
Patent and Trademark Office or in any similar office or agency of the United
States, any state thereof or any other country or any political subdivision
thereof), and all reissues, extensions or renewals thereof, together with all
goodwill of the business symbolized by such marks and all customer lists,
formulae and other records of the Grantor relating to the distribution of
products and services in connection with which any of such marks are used, and
all income, royalties, damages and payments now or hereafter due and/or payable
under and with respect thereto, including, without limitation, payments under
all licenses entered into in connection therewith and damages and payments for
past and future infringements or dilution's thereof and the right to sue for
past, present and future infringements and dilutions thereof (hereinafter
referred to collectively as the "Trademarks"), and (ii) all licenses, contracts
or other agreements, whether written or oral, naming the Grantor as licensor or
licensee and providing for the grant of any right to use any Trademark,
including, without limitation, all Trademark Licenses described in SCHEDULE II
hereto, together with any goodwill connected with and symbolized by any such
trademark licenses or agreements and the right to prepare for sale and sell any
and all Inventory now or hereafter owned by the Grantor and now or hereafter
covered by such licenses (hereinafter referred to collectively as the "Trademark
Licenses");
(e) (i) all letters patent, design patents and utility patents, and all
inventions, trade secrets, proprietary information and technology, know-how,
formulae and other general intangibles of like nature, now existing or hereafter
acquired (including, without limitation, all letters patent, design patents and
utility patents described in SCHEDULE III hereto), all applications,
registrations and recordings thereof (including, without limitation,
applications, registrations and recordings in the United States Patent and
Trademark Office or in any similar office or agency of the United States or any
other country or any political subdivision thereof), and all reissues,
divisions, continuations, continuations in part and extensions or renewals
thereof (hereinafter referred to collectively as the "Patents"), and (ii) all
licenses, contracts or other agreements, whether written or oral, naming the
Grantor as licensee or licensor and providing for the grant of any right to
manufacture, use or sell any invention covered by any patent (hereinafter
referred to collectively as the "Patent Licenses") (including, without
limitation, all Patent Licenses set forth in SCHEDULE III hereto);
(f) (i) all copyrights, including, without limitation, all original
works of authorship fixed in any tangible medium of expression, acquired or used
by the Grantor
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(including, without limitation, all copyrights described in SCHEDULE IV hereto),
all applications, registrations and recordings thereof (including, without
limitation, applications, registrations and recordings in the United States
Copyright Office or in any similar office or agency of the United States or any
other country or any political subdivision thereof), and all reissues,
divisions, continuations, continuations in part and extensions or renewals
thereof (hereinafter referred to collectively as the "Copyrights"), and (ii) all
licenses, contracts or other agreements, whether written or oral, naming the
Grantor as licensee or licensor and providing for the grant of any right to use
or sell any works covered by any copyright (hereinafter referred to collectively
as the "Copyright Licenses" and together with the Trademark Licenses and the
Patent Licenses, the "Licenses") (including, without limitation, all Copyright
Licenses set forth in SCHEDULE IV hereto);
(g) (i) all moneys, securities and other property and the proceeds
thereof, now or hereafter held or received by, or in transit to, the Collateral
Agent, the Administrative Agent or any Lender from or for the Grantor, whether
for safekeeping, pledge, custody, transmission, collection or otherwise, and all
of the Grantor's sums and credits with, and all of the Grantor's claims against
the Collateral Agent, the Administrative Agent or any Lender at any time
existing; (ii) all rights, interests, choses in action, causes of actions,
claims and all other intangible property of every kind and nature, in each
instance whether now owned or hereafter acquired by the Grantor, including,
without limitation, all corporate and other business records, all loans,
royalties, and all other forms of obligations receivable whatsoever (other than
Receivables); (iii) all computer programs, software, printouts and other
computer materials, customer lists, credit files, correspondence, advertising
materials and other source or business identifiers; (iv) all customer and
supplier contracts, sale orders, rights under license and franchise agreements,
and other contracts and contract rights [, including without limitation, all
rights of Grantor in the Acquisition Agreement and all related agreements]; (v)
all interests in partnerships, limited liability companies and joint ventures,
including all moneys due from time to time in respect thereof; (vi) all federal,
state and local tax refunds and federal, state and local tax refund claims and
all judgments in favor of Grantor and all of Grantor's rights with respect
thereto; (vii) all right, title and interest under leases, subleases, licenses
and concessions and other agreements relating to personal property, including
all moneys due from time to time in respect thereof; (viii) all payments due or
made to the Grantor in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of any property by any Person or
Governmental Authority; (ix) all lock-box and all deposit accounts (general or
special) or other accounts with any bank or other financial institution,
including, without limitation, all depository or other accounts maintained by
the Grantor at the Administrative Agent, the Collateral Agent or any Lender and
all funds on deposit therein; (x) all credits with and other claims against
third parties (including carriers and shippers) (other than Receivables); (xi)
all rights to indemnification; (xii) all reversionary interests in pension and
profit sharing plans and reversionary, beneficial and residual interests in
trusts; (xiii) all proceeds of insurance of which the Grantor is the
beneficiary; (xiv) all letters of credit, guaranties, liens, security interests
and other security held by or granted to the Grantor; (xv) all instruments,
files, records, ledger sheets and documents covering or relating to any of the
Collateral; and (xvi) all general intangibles, whether or not similar to the
foregoing, in each instance, however and wherever arising;
(h) the books and records of the Grantor relating to any of the
foregoing
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Collateral, including, without limitation, all customer contracts, sale orders,
minute books, ledgers, records, computer programs, software, printouts and other
computer materials, customer lists, credit files, correspondence and advertising
materials, in each case indicating, summarizing or evidencing any of the
Collateral; and
(i) all cash and non-cash proceeds of any and all of the foregoing
Collateral (including, without limitation, (i) damages and payments for past or
future infringements of the Trademarks, the Patents or the Copyrights and (ii)
the right to sue for past, present and future infringements of the Trademarks,
the Patents or the Copyrights) and, to the extent not otherwise included, all
payments under insurance (whether or not the Collateral Agent is the loss payee
thereof) and any indemnity, warranty or guaranty payable by reason of loss or
damage to or otherwise with respect to any of the foregoing Collateral;
in each case howsoever the Grantor's interest therein may arise or appear
(whether by ownership, security interest, claim or otherwise); provided that,
nothing hereunder constitutes or shall be deemed to constitute the grant of a
security interest in favor of the Collateral Agent in the Grantor's interest in
any Related Contract or other contract right, any License or other license
agreement, any lease or any other general intangible (other than any of the
foregoing constituting an account or a general intangible for money due or to
become due to which Section 9-318(4) of the Code applies) (each such contract
right, license agreement, lease and other general intangible, other than those
described in the preceding parenthesis, being hereinafter referred to as
"Excluded Property"), if the granting of a security interest therein by the
Grantor to the Collateral Agent is prohibited by the terms and provisions of the
written agreement, document or instrument creating or evidencing such Excluded
Property, and either (i) such agreement, document or instrument was entered into
prior to the date of this Agreement, or (ii) such agreement, document or
instrument is entered into after the date of this Agreement and the Grantor
delivers to the Collateral Agent a copy of such agreement, document or
instrument, provided, however, that (1) if and when the prohibition which
prevents the granting by the Grantor to the Collateral Agent of a security
interest in any Excluded Property is removed or otherwise terminated, the
Collateral Agent will be deemed to have, and at all times to have had, a
security interest in such Excluded Property, and (2) the Grantor shall use its
reasonable efforts to exclude from any written agreement, document or instrument
entered into on or after the date of this Agreement creating or evidencing any
contract right, license, lease or general intangible, any prohibition against
the granting by the Grantor to the Collateral Agent of a security interest
therein to the extent that such exclusion or such efforts would not result in
such agreement, document or instrument containing terms which are less favorable
to the Grantor than would be the case but for such exclusion or such efforts or
would result in a decision by the Persons proposed to be parties to such
agreement, document or instrument not to enter into such agreement, document or
instrument. Notwithstanding anything set forth herein to the contrary, the
Collateral Agent will be deemed to have, and at all times to have had, a
security interest in the proceeds of such Excluded Property.
SECTION 3. Security for Obligations. The security interest created
hereby in the Collateral constitutes continuing collateral security for all of
the following obligations, whether now existing or hereafter incurred (the
"Obligations"):
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(a) the prompt payment by the Grantor, as and when due and payable, of
all amounts from time to time owing by it in respect of the Financing Agreement,
the Notes, its Guaranty and the other Loan Documents, including, without
limitation, principal of and interest on the Loans (including, without
limitation, all interest that accrues after the commencement of any case,
proceeding or other action relating to the bankruptcy, insolvency or
reorganization of the Grantor, whether or not a claim for post-filing interest
is allowed in such proceeding), all Letter of Credit Obligations and Ledger Debt
and all interest thereon, all fees, commissions, expense reimbursements,
indemnifications and all other amounts due or to become due under any Loan
Document; and
(b) the due performance and observance by the Grantor of all of its
other obligations from time to time existing in respect of the Financing
Agreement, the Notes, its Guaranty and all other Loan Documents.
SECTION 4. Representations and Warranties. The Grantor represents and
warrants as follows:
(a) There is no pending or, to the knowledge of the Grantor, threatened
action, suit, proceeding or claim before any court or other Governmental
Authority or any arbitrator, or any order, judgment or award by any court or
other Governmental Authority or arbitrator, that may adversely affect the grant
by the Grantor, or the perfection, of the security interest purported to be
created hereby in the Collateral, or the exercise by the Collateral Agent of any
of its rights or remedies hereunder.
(b) All taxes, assessments and other governmental charges imposed upon
the Grantor or any property of the Grantor (including, without limitation, all
federal income and social security taxes on employees' wages) and which have
become due and payable on or prior to the date hereof have been paid, except (i)
to the extent contested in good faith by proper proceedings which stay the
imposition of any penalty, fine and Lien resulting from the non-payment thereof
and with respect to which adequate reserves in accordance with GAAP have been
established for the payment thereof and (ii) Liens permitted by Section
7.01(c)(ii)(B) of the Financing Agreement.
(c) All Equipment and Inventory is located at the addresses specified
therefor in SCHEDULE V hereto or at such other locations permitted by the terms
of Section 5(b) hereof. The Grantor's chief place of business and chief
executive office, the place where the Grantor keeps its records concerning
Receivables and all originals of all chattel paper which constitute Receivables
are located at the addresses specified therefor in SCHEDULE V hereto. None of
the Receivables is evidenced by a promissory note or other instrument unless
such promissory note or instrument has been pledged to the Collateral Agent. Set
forth in SCHEDULE VI hereto is a complete and correct list of each trade name
used by the Grantor.
(d) The Grantor has delivered to the Collateral Agent complete and
correct copies of each Related Contract described on SCHEDULE I hereto, which
represent all of the Related Contracts existing on the date of this Agreement,
the Factoring Agreement, the Acquisition Agreement and each License described in
SCHEDULE II, SCHEDULE III and SCHEDULE IV hereto, including in each such case
all schedules and exhibits thereto. Each Related Contract,
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Factoring Agreement and License sets forth the entire agreement and
understanding of the parties thereto relating to the subject matter thereof, and
there are no other agreements, arrangements or understandings, written or oral,
relating to the matters covered thereby or the rights of the Grantor in respect
thereof. Each Related Contract now existing is, and each other Related Contract
will be, the legal, valid and binding obligation of the parties thereto,
enforceable against such parties in accordance with its terms, subject as to
enforceability to applicable bankruptcy, insolvency, reorganization and similar
laws affecting creditors' rights and to general principles of equity. To the
knowledge of the Grantor, no default thereunder by any such party has occurred,
nor does any defense, offset, deduction or counterclaim exist thereunder in
favor of any such party.
(e) The Grantor owns and controls, or otherwise possesses adequate
rights to use, all Trademarks, Patents and Copyrights, which are the only
trademarks, patents and copyrights necessary to conduct its business in
substantially the same manner as conducted as of the date hereof. SCHEDULE II
hereto sets forth a true and complete list of all Trademarks and Trademark
Licenses owned or used by the Grantor as of the date hereof. SCHEDULE III hereto
sets forth a true and complete list of all Patents and Patent Licenses owned or
used by the Grantor as of the date hereof. SCHEDULE IV hereto sets forth a true
and complete list of all Copyrights and Copyright Licenses owned or used by the
Grantor as of the date hereof. All of such Copyrights, Patents and Trademarks
are subsisting and in full force and effect, have not been adjudged invalid or
unenforceable, are valid and enforceable and have not been abandoned in whole or
in part. Except as set forth in SCHEDULE II, III or IV hereto, none of such
Copyrights, Patents or Trademarks is the subject of any licensing or franchising
agreement. The Grantor has no knowledge of any conflict with the rights of
others to any Trademark, Patent or Copyright and, to the best knowledge of the
Grantor, the Grantor is not now infringing or in conflict with any such rights
of others in any material respect, and to the best knowledge of the Grantor, no
other Person is now infringing or in conflict in any material respect with any
such properties, assets and rights owned or used by the Grantor.
(f) The Grantor is the sole and exclusive owner of the Collateral free
and clear of any Lien, except for (i) the security interest created by this
Agreement, (ii) the security interests and other encumbrances permitted by the
Financing Agreement and (iii) sales of assets permitted by the terms of the
Financing Agreement. No effective financing statement or other instrument
similar in effect covering all or any part of the Collateral is on file in any
recording or filing office, except (i) such as may have been filed in favor of
the Collateral Agent relating to this Agreement, and (ii) such as may have been
filed to perfect or protect any security interest or encumbrance permitted by
the Financing Agreement.
(g) The exercise by the Collateral Agent of any of its rights and
remedies hereunder will not contravene law or any contractual restriction
binding on or otherwise affecting the Grantor or any of its properties and will
not result in or require the creation of any Lien, security interest or other
charge or encumbrance upon or with respect to any of its properties.
(h) No authorization or approval or other action by, and no notice to
or filing with, any Governmental Authority or any other Person, is required for
(i) the grant by the Grantor, or the perfection, of the security interest
purported to be created hereby in the Collateral or (ii) the exercise by the
Collateral Agent of any of its rights and remedies hereunder, except (A)
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for the filing under the Uniform Commercial Code as in effect in the applicable
jurisdiction of the financing statements described in SCHEDULE VII hereto, (B)
with respect to the perfection of the security interest created hereby in the
United States Trademarks, United States Patents and United States Copyrights for
the recording of the Assignment for Security (Trademarks), substantially in the
form of Exhibit A hereto, the Assignment for Security (Patents), substantially
in the form of Exhibit B hereto, or the Assignment for Security (Copyrights),
substantially in the form of Exhibit C hereto, as applicable, in the United
States Patent and Trademark Office or the United States Copyright Office, as
applicable or (C) with respect to the perfection of the security interest
created hereby in foreign Trademarks, Patents and Copyrights, for registrations
and filings in jurisdictions located outside of the United States and covering
rights in such jurisdictions relating to Patents, Trademarks, Copyrights, Patent
Licenses, Trademark Licenses and Copyright Licenses.
(i) This Agreement creates valid security interests in favor of the
Collateral Agent for the benefit of the Lenders in the Collateral, as security
for the Obligations. The Collateral Agent's having possession of all instruments
and cash constituting Collateral from time to time, the recording of the
Assignment for Security (Trademarks), the Assignment for Security (Patents) and
the Assignment for Security (Copyrights), as applicable, executed pursuant
hereto in the United States Patent and Trademark Office and the United States
Copyright Office, as applicable, and the filing of the financing statements
described in SCHEDULE VII hereto and, with respect to Patents, Trademarks and
Copyrights hereafter existing and not covered by an Assignment for Security
(Trademarks), an Assignment for Security (Patents) or an Assignment for Security
(Copyrights), as applicable, the recording in the United States Patent and
Trademark Office or the United States Copyright Office, as applicable, of
appropriate instruments of assignment, result in the perfection of such security
interests. Such security interests are, or in the case of Collateral in which
the Grantor obtains rights after the date hereof, will be, perfected, first
priority security interests, subject only to the security interests and other
encumbrances permitted pursuant to the Financing Agreement.
SECTION 5. Covenants as to the Collateral. So long as any of the
Obligations shall remain outstanding or the Total Commitment shall not have
terminated, unless the Collateral Agent shall otherwise consent in writing:
(a) Further Assurances. The Grantor will at its expense, at any time
and from time to time, promptly execute and deliver all further instruments and
documents and take all further action that may be necessary or reasonably
desirable or that the Collateral Agent may reasonably request in order (i) to
perfect and protect the security interest purported to be created hereby; (ii)
to enable the Collateral Agent to exercise and enforce its rights and remedies
hereunder in respect of the Collateral; or (iii) otherwise to effect the
purposes of this Agreement, including, without limitation: (A) marking
conspicuously each chattel paper included in the Receivables and each License
and Related Contract and, at the request of the Collateral Agent, each of its
records pertaining to the Collateral with a legend, in form and substance
reasonably satisfactory to the Collateral Agent, indicating that such chattel
paper, License, Related Contract or Collateral is subject to the security
interest created hereby, (B) if any Receivable shall be evidenced by a
promissory note or other instrument or chattel paper, delivering and pledging to
the Collateral Agent hereunder any such note, instrument or chattel paper duly
endorsed and
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accompanied by executed instruments of transfer or assignment, all in form and
substance reasonably satisfactory to the Collateral Agent, (C) executing and
filing such financing or continuation statements, or amendments thereto, as may
be necessary or reasonably desirable or that the Collateral Agent may reasonably
request in order to perfect and preserve the security interest purported to be
created hereby, and (D) furnishing to the Collateral Agent from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Collateral Agent may
reasonably request, all in reasonable detail.
(b) Location of Equipment and Inventory. The Grantor will keep the
Equipment and Inventory (other than used Equipment and Inventory sold in the
ordinary course of business in accordance with Section 5(g) hereof) at the
locations specified therefor in Section 4(c) hereof, or, upon written notice to
the Collateral Agent in accordance with Section 7.01(n) of the Financing
Agreement accompanied by a new SCHEDULE V hereto indicating each new location of
the Equipment and Inventory, at such other locations in the continental United
States as the Grantor may elect, provided that (i) the Grantor shall promptly
have taken all action requested by the Collateral Agent to grant to the
Collateral Agent a perfected, first priority security interest in such Equipment
and Inventory, and (ii) the Collateral Agent's rights in such Equipment and
Inventory, including, without limitation, the existence, perfection and priority
of the security interest created hereby in such Equipment and Inventory, are not
adversely affected thereby.
(c) Condition of Equipment. The Grantor will maintain or cause to be
maintained in good working order and condition, excepting ordinary wear and tear
and damage due to casualty, all of the Equipment. The Grantor shall promptly
furnish to the Collateral Agent a statement describing in reasonable detail any
loss or damage in excess of $100,000 to any Equipment or Inventory due to
casualty.
(d) Taxes Etc. The Grantor will pay promptly when due all property and
other taxes, assessments and governmental charges or levies imposed upon, and
all claims (including claims for labor, materials and supplies) against, the
Equipment and Inventory, except (i) to the extent the validity thereof is being
contested in good faith by proper proceedings which stay the imposition of any
penalty, fine or Lien resulting from the non-payment thereof and with respect to
which adequate reserves in accordance with GAAP have been set aside for the
payment thereof or (ii) Liens permitted by Section 7.01(c)(ii)(B) of the
Financing Agreement.
(e) Insurance.
(i) The Grantor will, at its own expense, maintain insurance
as required by Section 7.01(h) of the Financing Agreement. Each policy for
liability insurance shall provide for all losses to be paid on behalf of the
Collateral Agent and the Grantor as their respective interests may appear. Each
policy for property damage insurance shall provide for all losses (except for
losses of less than $___________ per occurrence and losses accruing during the
continuance of an Event of Default), to be adjusted with, and paid directly to
the Collateral Agent. Each such policy shall in addition (A) name the Grantor
and the Collateral Agent as insured parties thereunder (without any
representation or warranty by or obligation upon the
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Collateral Agent) as their interests may appear, (B) contain the agreement by
the insurer that any loss thereunder shall be payable, notwithstanding any
action, inaction or breach of representation or warranty by the Grantor, (C)
provide that there shall be no recourse against the Collateral Agent for payment
of premiums or other amounts with respect thereto, and (D) provide that at least
30 days' prior written notice of cancellation or of lapse shall be given to the
Collateral Agent by the insurer. The Grantor will, if so requested by the
Collateral Agent, deliver to the Collateral Agent original or duplicate policies
of such insurance and, as often as the Collateral Agent may reasonably request,
a report of a reputable insurance broker with respect to such insurance. The
Grantor will also, at the request of the Collateral Agent, execute and deliver
instruments of assignment of such insurance policies and cause the respective
insurers to acknowledge notice of such assignment.
(ii) Payment under any liability insurance maintained by the
Grantor pursuant to this Section 5(e) may be paid directly to the Person who
shall have incurred liability covered by such insurance. In the case of any loss
involving damage to Equipment or Inventory as to which clause (iii) of this
Section 5(e) is not applicable, the Grantor will, in the exercise of its
reasonable business judgment, make or cause to be made the necessary repairs to
or replacements of such Equipment and Inventory, and any proceeds of insurance
maintained by the Grantor pursuant to this Section 5(e) shall upon receipt by
the Collateral Agent, be paid to the Grantor as reimbursement for the costs of
such repairs or replacements.
(iii) Upon the occurrence and during the continuance of an
Event of Default or the actual or constructive total loss (in excess of $______
per occurrence) of any Equipment or Inventory, all insurance payments in respect
of such Equipment and Inventory shall be paid to the Collateral Agent and
applied as specified in Section 7(b) hereof.
(f) Provisions Concerning the Receivables, the Related Contracts and
the Licenses.
(i) The Grantor will (A) give the Collateral Agent at least 30
days' prior written notice of any change in the Grantor's name, identity or
corporate structure, (B) keep its chief place of business and chief executive
office and all originals of all chattel paper which constitute Receivables at
the location(s) specified therefor in SCHEDULE V hereof or such other location
for which the Grantor has complied with all of the provisions of Section 5(b)
hereof, and (C) keep adequate records concerning the Receivables and such
chattel paper and permit representatives of the Collateral Agent during normal
business hours, upon reasonable notice and without undue interruption of the
business of the Grantor to inspect and make abstracts from such records and
chattel paper pursuant to the terms of the Financing Agreement, provided that
such notice shall not be required during the continuance of an Event of Default.
(ii) The Grantor will duly perform and observe all of its
obligations under each Related Contract and, except as otherwise provided in the
Factoring Agreement and in this subsection (f), continue to collect, at its own
expense, all amounts due or to become due under the Receivables. In connection
with such collections and subject to the prior rights of the Factor under the
Factoring Agreement and the Assignment Agreement, the Grantor may (and, at the
Collateral Agent's direction, will) take such action as the Grantor or the
Collateral Agent may deem necessary or advisable to enforce collection or
performance of the Receivables; provided,
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however, subject to the prior rights of the Factor under the Factoring Agreement
and the Assignment Agreement, the Collateral Agent shall have the right at any
time, upon the occurrence and during the continuance of an Event of Default, to
notify the Account Debtors or obligors under any Receivables of the assignment
of such Receivables to the Collateral Agent and to direct such Account Debtors
or obligors to make payment of all amounts due or to become due to the Grantor
thereunder directly to the Collateral Agent or its designated agent and, upon
such notification and at the expense of the Grantor and to the extent permitted
by law, to enforce collection of any such Receivables and to adjust, settle or
compromise the amount or payment thereof, in the same manner and to the same
extent as the Grantor might have done. After receipt by the Grantor of a notice
from the Collateral Agent that the Collateral Agent has notified or intends to
notify the Account Debtors or obligors under any Receivables as referred to in
the proviso to the immediately preceding sentence and subject to the prior
rights of the Factor under the Factoring Agreement and the Assignment Agreement,
(A) all amounts and proceeds (including instruments) received by the Grantor in
respect of the Receivables shall be received in trust for the benefit of the
Collateral Agent hereunder, shall be segregated from other funds of the Grantor
and shall be forthwith paid over to the Collateral Agent in the same form as so
received (with any necessary indorsement) to be held as cash collateral and
either (1) credited to the Loan Account so long as no Event of Default shall
have occurred and be continuing or (2) if any Event of Default shall have
occurred and be continuing, applied as specified in Section 7(b) hereof, and (B)
the Grantor will not adjust, settle or compromise the amount or payment of any
Receivable or release wholly or partly any Account Debtor or obligor thereof or
allow any credit or discount thereon. In addition, subject to prior rights of
the Factor under the Factoring Agreement and the Assignment Agreement, upon the
occurrence and during the continuance of an Event of Default, the Collateral
Agent shall have the right to notify the United States Postal Service
authorities to change the address for delivery of mail addressed to the Grantor
to such address as the Collateral Agent may designate and to do all other acts
and things necessary to carry out this Agreement. For the avoidance of doubt, as
long as the Factoring Agreement remains in effect, the Collateral Agent will not
exercise any rights with respect to the Receivables prohibited by or which are
inconsistent with the terms of the Factoring Agreements or the Assignment
Agreement.
(iii) Upon the occurrence and during the continuance of any
breach or default under any Related Contract referred to in SCHEDULE I hereto or
otherwise specified in writing by the Collateral Agent from time to time or any
License referred to in SCHEDULE II, III or IV hereto by any party thereto other
than the Grantor, the Grantor will (A) promptly after obtaining knowledge
thereof, give the Collateral Agent written notice of the nature and duration
thereof, specifying what action, if any, it has taken and proposes to take with
respect thereto, and (B) upon written instructions from the Collateral Agent and
at the Grantor's expense, take such action as the Collateral Agent may deem
reasonably necessary or advisable in respect thereof.
(iv) The Grantor will, at its expense, promptly deliver to the
Collateral Agent a copy of each notice or other communication received by it by
which any other party to any Related Contract referred to in SCHEDULE I hereto
or otherwise specified by the Collateral Agent from time to time or any License
referred to in SCHEDULE II, III or IV hereto purports to exercise any of its
rights or affect any of its obligations thereunder which is reasonably likely to
have a Material Adverse Effect, together with a copy of any reply by the Grantor
thereto.
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(v) The Grantor will take all action necessary to maintain all
Licenses in full force and effect, except where such failure to maintain would
not be reasonably likely to have a Material Adverse Effect. The Grantor will
not, without the prior written consent of the Collateral Agent, cancel,
terminate, amend or otherwise modify in any respect, or waive any provision of,
any Related Contract referred to in SCHEDULE I hereto or any License referred to
in SCHEDULE II, III or IV hereto to the extent such action is reasonably likely
to have a Material Adverse Effect.
(g) Transfers and Other Liens.
(i) The Grantor will not sell, assign (by operation of law or
otherwise), lease, exchange or otherwise transfer or dispose of any of the
Collateral except to the extent permitted under Section 7.02(d)(ii) of the
Financing Agreement, subject to the obligation of the Grantor to make payments
pursuant to Section 2.07(g) of the Financing Agreement.
(ii) The Grantor will not create or suffer to exist any Lien,
security interest or other charge or encumbrance upon or with respect to any
Collateral, except for (A) the Liens and security interest created by this
Agreement and the other Loan Documents and (B) the Liens, security interests and
other encumbrances permitted by the Financing Agreement.
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(h) Trademarks, Patents and Copyrights.
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(i) If applicable, the Grantor has duly executed and delivered
the Assignment for Security (Trademarks) in the form attached hereto as Exhibit
A, the Assignment for Security (Patents) in the form attached hereto as Exhibit
B and the Assignment for Security (Copyrights) in the form attached hereto as
Exhibit C. The Grantor (either itself or through licensees) will, and will cause
each licensee thereof to, take all action reasonably necessary to maintain all
of the Trademarks, Patents and Copyrights in full force and effect, including,
without limitation, using the proper statutory notices and markings and using
the Trademarks on each applicable trademark class of goods in order to so
maintain the Trademarks in full force free from any claim of abandonment for
non-use, and the Grantor will not (and will not permit any licensee thereof to)
do any act or knowingly omit to do any act whereby any Trademark or Copyright
may become invalidated; provided, however, that so long as no Event of Default
has occurred and is continuing, the Grantor shall have no obligation to use or
to maintain any Trademark or Copyright (A) that relates solely to any product or
work that has been, or is in the process of being, discontinued, abandoned or
terminated, (B) that is being replaced with a trademark or copyright
substantially similar to the Trademark or Copyright, as the case may be, that
may be abandoned or otherwise become invalid, so long as such replacement
Trademark or Copyright, as the case may be is subject to the security interest
purported to be created by this Agreement, (C) that is substantially the same as
another Trademark or Copyright, as the case may be, that is in full force, so
long as such other Trademark or Copyright, as the case may be, is subject to the
Lien and security interest created by this Agreement, or (D) that is not
necessary for the operation of Grantor's business and is discontinued or
disposed of in the ordinary course of business. The Grantor will cause to be
taken all necessary steps in any proceeding before the United States Patent and
Trademark Office and the United States Copyright Office to maintain each
registration of the Trademarks, the Patents and the Copyrights (other than those
Trademarks and Copyrights described in the proviso to the immediately preceding
sentence), including, without limitation, filing of renewals, affidavits of use,
affidavits of incontestability and opposition, interference and cancellation
proceedings and payment of taxes. If any Trademark, Patent or Copyright is
infringed, misappropriated or diluted in any material respect by a third party,
the Grantor shall (x) upon learning of such infringement, misappropriation or
dilution, promptly notify the Collateral Agent and (y) to the extent the Grantor
shall deem appropriate under the circumstances, promptly sue for infringement,
misappropriation or dilution, seek injunctive relief where appropriate and
recover any and all damages for such infringement, misappropriation or dilution,
or take such other actions as the Grantor shall deem appropriate under the
circumstances to protect such Trademark, Patent or Copyright. The Grantor shall
furnish to the Collateral Agent from time to time (but, unless an Event of
Default has occurred and is continuing, no more frequently than annually)
statements and schedules further identifying and describing the Patents, the
Trademarks and the Copyrights and such other reports in connection with the
Patents, the Trademarks and the Copyrights as the Collateral Agent may
reasonably request, all in reasonable detail and promptly upon request of the
Collateral Agent, following receipt by the Collateral Agent of any such
statements, schedules or reports, the Grantor shall modify this Agreement by
amending SCHEDULES II, III or IV hereto, as the case may be, to include any
Patent, Trademark or Copyright which becomes part of the Collateral under this
Agreement. Notwithstanding anything herein to the contrary, upon the occurrence
and during the continuance of an Event of Default the Grantor may not abandon or
otherwise permit a Trademark, Patent or Copyright to become invalid without the
prior written consent of the Collateral Agent, and if any Trademark, Patent or
Copyright is infringed, misappropriated or
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diluted in any material respect by a third party, the Grantor will take such
action as the Collateral Agent shall deem appropriate under the circumstances to
protect such Trademark, Patent or Copyright.
(ii) In no event shall the Grantor, either itself or through
any agent, employee, licensee or designee, file an application for the
registration of any Trademark or Copyright or the issuance of any Patent with
the United States Patent and Trademark Office or the United States Copyright
Office, as applicable, unless it gives the Collateral Agent written notice
thereof but in no event later than 5 Business Days after the filing of any such
application. Upon request of the Collateral Agent, the Grantor shall execute and
deliver any and all assignments, agreements, instruments, documents and papers
as the Collateral Agent may reasonably request to evidence the Collateral
Agent's security interest hereunder in such Trademark, Patent or Copyright and
the general intangibles of the Grantor relating thereto or represented thereby,
and the Grantor hereby constitutes the Collateral Agent its attorney-in-fact to
execute and file, during the continuance of an Event of Default, all such
writings for the foregoing purposes, all acts of such attorney being hereby
ratified and confirmed, and such power (being coupled with an interest) shall be
irrevocable until the termination of the Total Commitment, the repayment of all
of the Obligations in full and the termination of each of the Loan Documents.
(j) Inspection and Reporting. The Grantor shall permit the Collateral
Agent, the Administrative Agent or any Lender, or any agents or representatives
thereof or such professionals or other Persons as the Collateral Agent may
designate (i) to examine and inspect the books and records of the Grantor and
take copies and extracts therefrom, (ii) to verify materials, leases, notes,
receivables, inventory and other assets of the Grantor from time to time, and
(iii) to conduct physical counts, appraisals and/or valuations at the locations
of the Grantor, in each case as provided and subject to the confidentiality
requirements set forth in the Financing Agreement.
SECTION 6. Additional Provisions Concerning the Collateral.
(a) The Grantor hereby authorizes the Collateral Agent to file, without
the signature of the Grantor where permitted by law, one or more financing or
continuation statements, and amendments thereto, relating to the Collateral.
(b) The Grantor hereby irrevocably appoints the Collateral Agent the
Grantor's attorney-in-fact and proxy, with full authority in the place and stead
of the Grantor and in the name of the Grantor or otherwise, from time to time in
the Collateral Agent's discretion upon the occurrence and during the continuance
of an Event of Default, to take any action and to execute any instrument which
the Collateral Agent may deem necessary or advisable to accomplish the purposes
of this Agreement (subject to the rights of the Grantor under Section 5(f)
hereof), including, without limitation, (i) to obtain and adjust insurance
required to be paid to the Collateral Agent pursuant to Section 5(e) hereof and
to receive, indorse and collect any drafts or other instruments, documents and
chattel paper in connection therewith, (ii) to ask, demand, collect, sue for,
recover, compound, receive and give acquittance and receipts for moneys due and
to become due under or in respect of any Collateral, (iii) to receive, indorse,
and
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collect any drafts or other instruments, documents and chattel paper in
connection with clause (i) or (ii) above, and (iv) to file any claims or take
any action or institute any proceedings which the Collateral Agent may deem
necessary or desirable for the collection of any Collateral or otherwise to
enforce the rights of the Collateral Agent with respect to any Collateral.
(c) For the purpose of enabling the Collateral Agent to exercise rights
and remedies hereunder at such time as the Collateral Agent shall be lawfully
entitled to exercise such rights and remedies, and for no other purpose, the
Grantor hereby grants to the Collateral Agent, to the extent assignable, an
irrevocable, non-exclusive license (exercisable without payment of royalty or
other compensation to the Grantor) to use, assign, license or sublicense any of
the Patents, Trademarks or Copyrights now owned or hereafter acquired by the
Grantor, wherever the same may be located, including in such license reasonable
access to all media in which any of the licensed items may be recorded or stored
and to all computer programs used for the compilation or printout thereof.
Notwithstanding anything contained herein to the contrary, but subject to the
provisions of the Financing Agreement that limits the right of the Grantor to
dispose of its property and Section 5(h) hereof so long as no Event of Default
shall have occurred and be continuing, the Grantor may exploit, use, enjoy,
protect, license, sublicense, assign, sell, dispose of or take other actions
with respect to the Patents, Trademarks or Copyrights in the ordinary course of
the business of the Grantor. In furtherance of the foregoing, unless an Event of
Default shall have occurred and be continuing the Collateral Agent shall
promptly from time to time, upon the request of the Grantor, execute and deliver
any instruments, certificates or other documents, in the form so requested,
which the Grantor shall have certified are appropriate (in its judgment) to
allow it to take any action permitted above (including relinquishment of the
license provided pursuant to this clause (c) as to any Patents, Trademarks or
Copyrights and the release of the Lien created hereby). Further, upon the
payment in full of all of the Obligations and cancellation or termination of the
Total Commitments, the Collateral Agent (subject to Section 10(e) hereof) shall
transfer to the Grantor all of the Collateral Agent's right, title and interest
in and to the Patents, Trademarks and Copyrights, and the Licenses, all without
recourse, representation or warranty whatsoever. The exercise of rights and
remedies hereunder by the Collateral Agent shall not terminate the rights of the
holders of any licenses or sublicenses theretofore granted by the Grantor in
accordance with the second sentence of this clause (c). The Grantor hereby
releases the Collateral Agent from any claims, causes of action and demands at
any time arising out of or with respect to any actions taken or omitted to be
taken by the Collateral Agent under the powers of attorney granted herein other
than actions taken or omitted to be taken through the Collateral Agent's gross
negligence or willful misconduct.
(d) If the Grantor fails to perform any agreement contained herein, the
Collateral Agent may itself perform, or cause performance of such agreement or
obligation, in the name of the Grantor or the Collateral Agent, and the expenses
of the Collateral Agent incurred in connection therewith shall be payable by the
Grantor pursuant to Section 8 hereof and shall be secured by the Collateral.
(e) The powers conferred on the Collateral Agent hereunder are solely
to protect its interest in the Collateral and shall not impose any duty upon it
to exercise any such powers. Except for the safe custody of any Collateral in
its possession and the accounting for
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moneys actually received by it hereunder, the Collateral Agent shall have no
duty as to any Collateral or as to the taking of any necessary steps to preserve
rights against prior parties or any other rights pertaining to any Collateral.
(f) Anything herein to the contrary notwithstanding (i) the Grantor
shall remain liable under the Related Contracts, Factoring Agreement and
Licenses and otherwise with respect to any of the Collateral to the extent set
forth therein to perform all of its obligations thereunder to the same extent as
if this Agreement had not been executed, (ii) the exercise by the Collateral
Agent of any of its rights hereunder shall not release the Grantor from any its
obligations under the Related Contracts, Factoring Agreement and Licenses or
otherwise in respect of the Collateral, and (iii) the Collateral Agent shall not
have any obligation or liability by reason of this Agreement under the Related
Contracts, Factoring Agreement and Licenses or with respect to any of the other
Collateral, nor shall the Collateral Agent be obligated to perform any of the
obligations or duties of the Grantor thereunder or to take any action to collect
or enforce any claim for payment assigned hereunder.
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SECTION 7. Remedies Upon Default. If any Event of Default shall have
occurred and be continuing:
(a) The Collateral Agent may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all of the rights and remedies of a secured party upon default under the
Code (whether or not the Code applies to the affected Collateral), and also may
(i) require the Grantor to, and the Grantor hereby agrees that it will at its
expense and upon request of the Collateral Agent forthwith, assemble all or part
of the Collateral as directed by the Collateral Agent and make it available to
the Collateral Agent at a place or places to be designated by the Collateral
Agent which is reasonably convenient to both parties and (ii) without notice
except as specified below, sell the Collateral or any part thereof in one or
more parcels at public or private sale, at any of the Collateral Agent's offices
or elsewhere, for cash, on credit or for future delivery, and at such price or
prices and upon such other terms as the Collateral Agent may deem commercially
reasonable. The Grantor agrees that, to the extent notice of sale shall be
required by law, at least 10 Business Days' notice to the Grantor of the time
and place of any public sale or the time after which any private sale is to be
made shall constitute reasonable notification. The Collateral Agent shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. The Collateral Agent may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was so
adjourned. The Grantor hereby waives any claims against the Collateral Agent and
the Lenders arising by reason of the fact that the price at which the Collateral
may have been sold at a private sale was less than the price which might have
been obtained at a public sale or was less than the aggregate amount of the
Obligations, even if the Collateral Agent accepts the first offer received and
does not offer the Collateral to more than one offeree and waives all rights
which the Grantor may have to require that all or any part of the Collateral be
marshalled upon any sale (public or private) thereof. In addition to the
foregoing, (i) upon written notice from the Collateral Agent, the Grantor shall
cease any use of the Trademarks, Patents or Copyrights or any mark, patent or
copyright similar thereto for any purpose described in such notice; (ii) the
Collateral Agent may, at any time and from time to time, upon 10 days' prior
notice to the Grantor, license, whether general, special or otherwise, and
whether on an exclusive or non-exclusive basis, any of the Trademarks, Patents
and Copyrights, throughout the world for such term or terms, on such conditions,
and in such manner, as the Collateral Agent shall in its sole discretion
determine; and (iii) the Collateral Agent may, at any time, pursuant to the
authority granted in Section 6 hereof (such authority being effective upon the
occurrence of an Event of Default), execute and deliver on behalf of the
Grantor, one or more instruments of assignment of the Trademarks, Patents and
Copyrights (or any application or registration thereof), in form suitable for
filing, recording or registration in any country.
(b) Any cash held by the Collateral Agent as Collateral and all cash
proceeds received by the Collateral Agent in respect of any sale of or
collection from, or other realization upon, all or any part the Collateral may,
in the discretion of the Collateral Agent, be held by the Collateral Agent as
collateral for, and/or then or at any time thereafter applied in whole or in
part by the Collateral Agent against, all or any part of the Obligations as
provided in Section 4.04(b) of the Financing Agreement.
(c) In the event that the proceeds of any such sale, collection or
realization are
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insufficient to pay all amounts to which the Collateral Agent and the Lenders
are legally entitled, the Grantor shall be liable for the deficiency, together
with interest thereon at the highest rate specified in any applicable Loan
Document for interest on overdue principal thereof or such other rate as shall
be fixed by applicable law, together with the costs of collection and the
reasonable fees, costs, expenses of any attorneys employed by the Collateral
Agent to collect such deficiency.
SECTION 8. Indemnity and Expenses.
(a) The Grantor agrees to indemnify and hold the Collateral Agent
harmless from and against any and all claims, damages, losses, liabilities,
obligations, penalties, costs or expenses (including, without limitation,
reasonable legal fees and disbursements of Collateral Agent's counsel) to the
extent that they arise out of or otherwise result from this Agreement
(including, without limitation, enforcement of this Agreement), except claims,
losses or liabilities resulting solely and directly from the Collateral Agent's
gross negligence or willful misconduct as determined by a final judgment of a
court of competent jurisdiction.
(b) The Grantor will upon demand pay to the Collateral Agent the amount
of any and all costs and expenses, including the reasonable fees and
disbursements of the Collateral Agent's counsel and of any experts and agents,
which the Collateral Agent may incur in connection with (i) the preparation,
negotiation, execution, delivery, recordation, administration, amendment, waiver
or other modification or termination of this Agreement, or (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any Collateral, (iii) the exercise or enforcement of any of
the rights of the Collateral Agent hereunder, or (iv) the failure by the Grantor
to perform or observe any of the provisions hereof.
SECTION 9. Notices, Etc. All notices and other communications provided
for hereunder shall be in writing and shall be mailed (by certified mail,
postage prepaid and return receipt requested), telecopied or delivered, if to
the Grantor or the Collateral Agent, to the parties and at the addresses
specified in the Financing Agreement; or as to either such Person at such other
address as shall be designated by such Person in a written notice to such other
Person complying as to delivery with the terms of this Section 9. All such
notices and other communications shall be effective (i) if sent by certified
mail, return receipt requested, when received or 3 Business Days after mailing,
whichever first occurs, (ii) if telecopied, when transmitted and confirmation is
received, provided same is on a Business Day and, if not, on the next Business
Day or (iii) if delivered, upon delivery, provided same is on a Business Day
and, if not, on the next Business Day.
SECTION 10. Miscellaneous.
(a) No amendment of any provision of this Agreement shall be effective
unless it is in writing and signed by the Grantor and the Collateral Agent, and
no waiver of any provision of this Agreement, and no consent to any departure by
the Grantor therefrom, shall be effective unless it is in writing and signed by
the Collateral Agent, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
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(b) No failure on the part of the Collateral Agent to exercise, and no
delay in exercising, any right hereunder or under any other Loan Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the exercise of any
other right. The rights and remedies of the Collateral Agent provided herein and
in the other Loan Documents are cumulative and are in addition to, and not
exclusive of any rights or remedies provided by law. The rights of the
Collateral Agent under any Loan Document against any party thereto are not
conditional or contingent on any attempt by the Collateral Agent to exercise any
of its rights under any other Loan Document against such party or against any
other Person.
(c) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or thereof or affecting the validity or enforceability
of such provision in any other jurisdiction.
(d) This Agreement shall create a continuing security interest in the
Collateral and shall (i) remain in full force and effect until the payment in
full of the Obligations after the Total Commitment has been terminated and all
Letters of Credit have been canceled or cash collateralized, and (ii) be binding
on the Grantor and its successors and assigns and shall inure, together with all
rights and remedies of the Collateral Agent hereunder, to the benefit of the
Collateral Agent and the Lenders their respective permitted successors,
transferees and assigns. Without limiting the generality of clause (ii) of the
immediately preceding sentence and subject to the terms of the Financing
Agreement, the Collateral Agent and Lenders may assign or otherwise transfer
their rights under this Agreement and any other Loan Document, to any other
Person and such other Person shall thereupon become vested with all of the
benefits in respect thereof granted to the Collateral Agent and the Lenders
herein or otherwise. None of the rights or obligations of the Grantor hereunder
may be assigned or otherwise transferred without the prior written consent of
the Collateral Agent, and any such assignment or transfer shall be null and
void.
(e) Upon the satisfaction in full of the Obligations after the Total
Commitment has been terminated and all Letters of Credit have been canceled or
cash collateralized, (i) this Agreement and the security interests created
hereby shall terminate and all rights to the Collateral shall revert to the
Grantor, and (ii) the Collateral Agent will, upon the Grantor's request and at
the Grantor's expense promptly, (A) return to the Grantor such of the Collateral
as shall not have been sold or otherwise disposed of or applied pursuant to the
terms hereof, and (B) execute and deliver to the Grantor such documents as the
Grantor shall reasonably request to evidence such termination, all without any
representation, warranty or recourse whatsoever.
(f) This Agreement shall be governed by, and construed and interpreted
in accordance with, the laws of the State of New York, except as required by
mandatory provisions of law and except to the extent that the validity and
perfection or the perfection and effect of perfection or non-perfection of the
security interest created hereby or remedies hereunder, in respect of any
particular Collateral are governed by the law of a jurisdiction other than the
State of New York.
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IN WITNESS WHEREOF, the Grantor has caused this Agreement to be
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
[GRANTOR]
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
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SCHEDULE I TO SECURITY AGREEMENT
RELATED CONTRACTS
<PAGE> 121
SCHEDULE II TO SECURITY AGREEMENT
TRADEMARKS
AND
TRADEMARK LICENSES
<PAGE> 122
SCHEDULE III TO SECURITY AGREEMENT
PATENTS AND PATENT LICENSES
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SCHEDULE IV TO SECURITY AGREEMENT
COPYRIGHTS AND COPYRIGHT LICENSES
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SCHEDULE V TO SECURITY AGREEMENT
I. Locations of Equipment and Inventory
II. Grantor's chief place of business, chief executive office and place
where the Grantor keeps its books and records
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SCHEDULE VI TO SECURITY AGREEMENT
TRADE NAMES
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SCHEDULE VII TO SECURITY AGREEMENT
UCC-1 FINANCING STATEMENTS
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EXHIBIT A
ASSIGNMENT FOR SECURITY
(TRADEMARKS)
WHEREAS, (the "Assignor") has adopted,
----------------------------
used and is using the trademarks and service marks listed on the annexed
Schedule 1A, which trademarks and service marks are registered or applied for in
the United States Patent and Trademark Office (the "Trademarks");
WHEREAS, the Assignor, has entered into a Security Agreement dated
September __, 1997 (the "Security Agreement") in favor of NATIONSBANC COMMERCIAL
CORPORATION., as collateral agent for certain lenders (the "Assignee");
WHEREAS, pursuant to the Security Agreement, the Assignor has assigned
to the Assignee and granted to the Assignee a security interest in all right,
title and interest of the Assignor in, to and under the Trademarks together with
the good-will of the business symbolized by the Trademarks and the applications
and restrictions thereof, and all proceeds thereof, including, without
limitation, any and all causes of action which may exist by reason of
infringement thereof (the "Collateral"), to secure the payment, performance and
observance of the Obligations (as defined in the Security Agreement);
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, the Assignor does hereby assign unto the Assignee and
grants to the Assignee a security interest in the Collateral to secure the
prompt payment, performance and observance of the Obligations.
The Assignor does hereby further acknowledge and affirm that the rights
and remedies of the Assignee with respect to the Collateral are more fully set
forth in the Security Agreement, the terms and provisions of which are hereby
incorporated herein by reference as if fully set forth herein.
IN WITNESS WHEREOF, the Assignor has caused this Assignment to be duly
executed by its officer thereunto duly authorized as of , 199 .
------------- -
-------------------------
By:
-------------------------
Name:
-------------------------
Title:
-------------------------
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<PAGE> 128
STATE OF NEW YORK
ss.:
COUNTY OF NEW YORK
On this ____ day of ___________, 19__, before me personally came
_________________, to me known to be the person who executed the foregoing
instrument, and who, being duly sworn by me, did depose and say that he is the
________________ of ___________________________, a __________ corporation, and
that he executed the foregoing instrument in the firm name of _________________,
and that he had authority to sign the same, and he acknowledged to me that he
executed the same as the act and deed of said firm for the uses and purposes
therein mentioned.
_______________________________
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<PAGE> 129
SCHEDULE 1A TO ASSIGNMENT FOR SECURITY
(TRADEMARKS AND TRADEMARK APPLICATIONS)
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<PAGE> 130
EXHIBIT B
ASSIGNMENT FOR SECURITY
(PATENTS)
WHEREAS, (the "Assignor") holds all
------------------------------
right, title and interest in the letter patents, design patents and utility
patents listed on the annexed Schedule 1A, which patents are issued or applied
for in the United States Patent and Trademark Office (the "Patents");
WHEREAS, the Assignor, has entered into a Security Agreement dated
September , 1997 (the "Security Agreement") in favor of NATIONSBANC COMMERCIAL
--
CORPORATION, as collateral agent for certain lenders (the "Assignee");
WHEREAS, pursuant to the Security Agreement, the Assignor has assigned
to the Assignee and granted to the Assignee a security interest in all right,
title and interest of the Assignor in, to and under the Patents and the
applications and registrations thereof, and all proceeds thereof, including,
without limitation, any and all causes of action which may exist by reason of
infringement thereof (the "Collateral"), to secure the payment, performance and
observance of the Obligations (as defined in the Security Agreement);
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, the Assignor does hereby assign unto the Assignee and
grants to the Assignee a security interest in the Collateral to secure the
prompt payment, performance and observance of the Obligations.
The Assignor does hereby further acknowledge and affirm that the rights
and remedies of the Assignee with respect to the Collateral are more fully set
forth in the Security Agreement, the terms and provisions of which are hereby
incorporated herein by reference as if fully set forth herein.
IN WITNESS WHEREOF, the Assignor has caused this Assignment to be duly
executed by its officer thereunto duly authorized as of , 199 .
----------------- -
-------------------------
By:
-------------------------
Name:
-------------------------
Title:
-------------------------
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<PAGE> 131
STATE OF NEW YORK
ss.:
COUNTY OF NEW YORK
On this ____ day of __________, 199__ before me personally came
_________________, to me known to be the person who executed the foregoing
instrument, and who, being duly sworn by me, did depose and say that he is the
_________________ of ___________________________, a ____________ corporation,
and that he executed the foregoing instrument in the firm name of _____________,
and that he had authority to sign the same, and he acknowledged to me that he
executed the same as the act and deed of said firm for the uses and purposes
therein mentioned.
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<PAGE> 132
SCHEDULE 1A TO ASSIGNMENT FOR SECURITY
(PATENTS AND PATENT APPLICATIONS)
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<PAGE> 133
EXHIBIT C
ASSIGNMENT FOR SECURITY
(COPYRIGHTS)
WHEREAS, _______________________________(the "Assignor") holds all
right, title and interest in the copyrights listed on the annexed Schedule 1A,
which copyrights are registered in the United States Copyright Office (the
"Copyrights");
WHEREAS, the Assignor, has entered into a Security Agreement dated
September __, 1997 (the "Security Agreement") in favor of NATIONSBANC COMMERCIAL
CORPORATION, as collateral agent for certain lenders (the "Assignee");
WHEREAS, pursuant to the Security Agreement, the Assignor has assigned
to the Assignee and granted to the Assignee a security interest in all right,
title and interest of the Assignor in, to and under the Copyrights and the
registrations thereof, and all proceeds thereof, including, without limitation,
any and all causes of action which may exist by reason of infringement thereof
(the "Collateral"), to secure the payment, performance and observance of the
Obligations (as defined in the Security Agreement);
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, the Assignor does hereby assign unto the Assignee and
grants to the Assignee a security interest in the Collateral to secure the
prompt payment, performance and observance of the Obligations.
The Assignor does hereby further acknowledge and affirm that the rights
and remedies of the Assignee with respect to the Collateral are more fully set
forth in the Security Agreement, the terms and provisions of which are hereby
incorporated herein by reference as if fully set forth herein.
IN WITNESS WHEREOF, the Assignor has caused this Assignment to be duly
executed by its officer thereunto duly authorized as of ______________ , 199__.
__________________________
By: __________________________
Name: __________________________
Title:__________________________
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<PAGE> 134
STATE OF NEW YORK
ss.:
COUNTY OF NEW YORK
On this ____ day of _______________, 199__, before me personally came
_________________, to me known to be the person who executed the foregoing
instrument, and who, being duly sworn by me, did depose and say that he is the
_________________ of ____________________________, a ___________ corporation,
and that he executed the foregoing instrument in the firm name of ____________,
and that he had authority to sign the same, and he acknowledged to me that he
executed the same as the act and deed of said firm for the uses and purposes
therein mentioned.
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<PAGE> 135
SCHEDULE 1A TO ASSIGNMENT FOR SECURITY
(COPYRIGHTS AND COPYRIGHT APPLICATIONS)
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<PAGE> 136
EXHIBIT D-2
FORM OF GUARANTOR SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of September __, 1997 made by
____________________________, a Delaware corporation (the "Grantor"), in favor
of NATIONSBANC COMMERCIAL CORPORATION, as collateral agent for the Lenders
parties to the Financing Agreement referred to below (in such capacity, the
"Collateral Agent").
WITNESSETH:
WHEREAS, [Norton McNaughton, Inc., a Delaware corporation (the
"Company"),] the Grantor, Norton McNaughton of Squire, Inc., a New York
corporation ("Squire"), Miss Erika, Inc., a Delaware corporation formerly known
as ME Acquisition Corp. ("MISS ERIKA" and, together with Squire, each a
"Borrower" and collectively the "Borrowers"), The CIT Group/Commercial Services,
Inc., as administrative agent (the "Administrative Agent"), the Collateral Agent
and the financial institutions from time to time party thereto (the "Lenders")
are parties to a Financing Agreement, dated as of September __, 1997 (such
Agreement, as amended, restated or otherwise modified from time to time, being
hereinafter referred to as the "Financing Agreement");
WHEREAS, pursuant to the Financing Agreement, the Lenders have agreed
to make (i) a term loan to Squire in the aggregate principal amount not to
exceed $15,000,000 (the "Term Loan") and (ii) revolving credit loans to the
Borrowers in an aggregate principal amount at any one time outstanding not to
exceed $125,000,000 (the "Revolving Credit Loans" and together with the Term
Loan, each a "Loan" and collectively the "Loans"), which may include letters of
credit (the "Letters of Credit") issued with the assistance of the Collateral
Agent and the Lenders for the account of the Borrowers;
WHEREAS, it is a condition precedent to the Lenders making any Loan or
assisting the Borrowers in obtaining the issuance of any Letter of Credit
pursuant to the Financing Agreement that the Grantor shall have executed and
delivered to the Collateral Agent a security agreement providing for the grant
to the Collateral Agent for the benefit of the Lenders of a security interest in
all personal property of the Grantor;
NOW, THEREFORE, in consideration of the premises and the agreements
herein and in order to induce the Lenders to make and maintain the Loans and to
assist the Borrowers in obtaining the issuance of Letters of Credit pursuant to
the Financing Agreement, the Grantor hereby agrees with the Collateral Agent as
follows:
SECTION 1. Definitions. Reference is hereby made to the Financing
Agreement for a statement of the terms thereof. All terms used in this Agreement
which are defined in the Financing Agreement or in Article 9 of the Uniform
Commercial Code (the "Code") currently in effect in the State of New York and
which are not otherwise defined herein shall have the same meanings herein as
set forth therein.
SECTION 2. Grant of Security Interest. As collateral security for all
of the
<PAGE> 137
Guaranteed Obligations (as defined in Section 3 hereof), the Grantor hereby
pledges and collaterally assigns to the Collateral Agent, and grants to the
Collateral Agent for the benefit of the Lenders a continuing security interest
in, all personal property and fixtures of the Grantor, wherever located and
whether now or hereafter existing and whether now owned or hereafter acquired,
of every kind and description, tangible or intangible (the "Collateral"),
including, without limitation, all of the Grantor's right, title and interest in
and to the following:
(a) all equipment of any kind including, without limitation, all
furniture, fixtures and machinery, wherever located and whether now or hereafter
existing and whether now owned or hereafter acquired, together with all
substitutes, replacements, accessions and additions thereto, and all tools,
parts, accessories and attachments used in connection therewith (hereinafter
collectively referred to as the "Equipment");
(b) all inventory of any kind wherever located and whether now or
hereafter existing and whether now owned or hereafter acquired, (including,
without limitation, all types of inventory, merchandise, goods, property and
other assets that are held by the Grantor for sale, lease or other disposition
or to be furnished under a contract for services, whether such inventory,
merchandise, goods, property and other assets are raw, in process, finished,
trim or piece goods, and materials used or consumed in the business of the
Grantor, and goods returned to or repossessed by the Grantor and goods in which
the Grantor has an interest in mass or in joint or other interest or right of
any kind, including consigned goods and goods being processed), and all
accessions thereto and products thereof and all packing and shipping materials
(any and all such inventory, accessions and products being hereinafter referred
to as the "Inventory");
(c) (i) all present and future accounts, contract rights, chattel
paper, documents, instruments, general intangibles and other obligations of any
kind arising out of or in connection with the sale, lease or other disposition
of goods or the rendering of services or otherwise; (ii) all of the Grantor's
right, title and interest, and all of the Grantor's rights, remedies, security
and Liens, in, to and in respect of any credit insurance, accounts (including,
without limitation, rights of stoppage in transit, rep levin, repossession,
reclamation and other rights and remedies of an unpaid vendor, lienor or secured
party), guaranties or other contracts of suretyship with respect to accounts,
and deposits or other security for the obligation of any Account Debtor; (iii)
all rights relating to the sale or other transfer of property to, or the
construction, renovation, processing or other improvement of property by or for
the Grantor; (iv) all rights now or hereafter existing in and to all letters of
credit, security agreements, leases and other contracts now or hereafter
existing and securing or otherwise relating to such accounts, contract rights,
chattel paper, instruments, documents, general intangibles or other rights or
obligations (including, without limitation, the contracts described in SCHEDULE
I hereto); and (v) all goods relating to, or which by sale have resulted in,
accounts, including, without limitation, all goods described in invoices or
other documents or instruments with respect to, or otherwise representing or
evidencing, any accounts, and all returned, reclaimed or repossessed goods (any
and all such accounts, contract rights, chattel paper, instruments, documents,
general intangibles and obligations being hereinafter referred to collectively
as the "Receivables", and any and all such credit insurance, guaranties, letters
of credit, security agreements, leases and other contracts being hereinafter
referred to collectively as the "Related Contracts");
(d) (i) all trademarks, service marks, trade names, business names,
trade
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<PAGE> 138
styles, designs, logos and other source or business identifiers and all general
intangibles of like nature, now or hereafter owned, adopted, acquired or used by
the Grantor (including, without limitation, all trademarks, service marks, trade
names, business names, trade styles, designs, logos and other source or business
identifiers described in SCHEDULE II or VI hereto), all applications,
registrations and recordings thereof (including, without limitation,
applications, registrations and recordings in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
state thereof or any other country or any political subdivision thereof), and
all reissues, extensions or renewals thereof together with all goodwill of the
business symbolized by such marks and all customer lists, formulae and other
records of the Grantor relating to the distribution of products and services in
connection with which any of such marks are used, and all income, royalties,
damages and payments now or hereafter due and/or payable under and with respect
thereto, including, without limitation, payments under all licenses entered into
in connection therewith and damages and payments for past and future
infringements or dilution's thereof and the right to sue for past, present and
future infringements and dilutions thereof (hereinafter referred to collectively
as the "Trademarks"), and (ii) all licenses, contracts or other agreements,
whether written or oral, naming the Grantor as licensor or licensee and
providing for the grant of any right to use any Trademark, including, without
limitation, all Trademark Licenses described in SCHEDULE II hereto, together
with any goodwill connected with and symbolized by any such trademark licenses
or agreements and the right to prepare for sale and sell any and all Inventory
now or hereafter owned by the Grantor and now or hereafter covered by such
licenses (hereinafter referred to collectively as the "Trademark Licenses");
(e) (i) all letters patent, design patents and utility patents, and all
inventions, trade secrets, proprietary information and technology, know-how,
formulae and other general intangibles of like nature, now existing or hereafter
acquired (including, without limitation, all letters patent, design patents and
utility patents described in SCHEDULE III hereto), all applications,
registrations and recordings thereof (including, without limitation,
applications, registrations and recordings in the United States Patent and
Trademark Office or in any similar office or agency of the United States or any
other country or any political subdivision thereof), and all reissues,
divisions, continuations, continuations in part and extensions or renewals
thereof (hereinafter referred to collectively as the "Patents"), and (ii) all
licenses, contracts or other agreements, whether written or oral, naming the
Grantor as licensee or licensor and providing for the grant of any right to
manufacture, use or sell any invention covered by any patent (hereinafter
referred to collectively as the "Patent Licenses") (including, without
limitation, all Patent Licenses set forth in SCHEDULE III hereto);
(f) (i) all copyrights, including, without limitation, all original
works of authorship fixed in any tangible medium of expression, acquired or used
by the Grantor (including, without limitation, all copyrights described in
SCHEDULE IV hereto), all applications, registrations and recordings thereof
(including, without limitation, applications, registrations and recordings in
the United States Copyright Office or in any similar office or agency of the
United States or any other country or any political subdivision thereof), and
all reissues, divisions, continuations, continuations in part and extensions or
renewals thereof (hereinafter referred to collectively as the "Copyrights"), and
(ii) all licenses, contracts or other agreements, whether written or oral,
naming the Grantor as licensee or licensor and providing for the grant of any
right to use or sell any works covered by any copyright (hereinafter referred to
collectively as the
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<PAGE> 139
"Copyright Licenses" and together with the Trademark Licenses and the Patent
Licenses, the "Licenses") (including, without limitation, all Copyright Licenses
set forth in SCHEDULE IV hereto);
(g) (i) all moneys, securities and other property and the proceeds
thereof, now or hereafter held or received by, or in transit to, the Collateral
Agent, the Administrative Agent or any Lender from or for the Grantor, whether
for safekeeping, pledge, custody, transmission, collection or otherwise, and all
of the Grantor's sums and credits with, and all of the Grantor's claims against
the Collateral Agent, the Administrative Agent or any Lender at any time
existing; (ii) all rights, interests, choses in action, causes of actions,
claims and all other intangible property of every kind and nature, in each
instance whether now owned or hereafter acquired by the Grantor, including,
without limitation, all corporate and other business records, all loans,
royalties, and all other forms of obligations receivable whatsoever (other than
Receivables); (iii) all computer programs, software, printouts and other
computer materials, customer lists, credit files, correspondence, advertising
materials and other source or business identifiers; (iv) all customer and
supplier contracts, sale orders, rights under license and franchise agreements,
and other contracts and contract rights [,including without limitation, all
rights of Grantor in the Acquisition Agreement and all related agreements]; (v)
all interests in partnerships, limited liability companies and joint ventures,
including all moneys due from time to time in respect thereof; (vi) all federal,
state and local tax refunds and federal, state and local tax refund claims and
all judgments in favor of Grantor and all of Grantor's rights with respect
thereto; (vii) all right, title and interest under leases, subleases, licenses
and concessions and other agreements relating to personal property, including
all moneys due from time to time in respect thereof; (viii) all payments due or
made to the Grantor in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of any property by any Person or
Governmental Authority; (ix) all lock-box and all deposit accounts (general or
special) or other accounts with any bank or other financial institution,
including, without limitation, all depository or other accounts maintained by
the Grantor at the Administrative Agent, the Collateral Agent or any Lender and
all funds on deposit therein; (x) all credits with and other claims against
third parties (including carriers and shippers) (other than Receivables); (xi)
all rights to indemnification; (xii) all reversionary interests in pension and
profit sharing plans and reversionary, beneficial and residual interests in
trusts; (xiii) all proceeds of insurance of which the Grantor is the
beneficiary; (xiv) all letters of credit, guaranties, liens, security interests
and other security held by or granted to the Grantor; (xv) all instruments,
files, records, ledger sheets and documents covering or relating to any of the
Collateral; and (xvi) all general intangibles, whether or not similar to the
foregoing, in each instance, however and wherever arising;
(h) the books and records of the Grantor relating to any of the
foregoing Collateral, including, without limitation, all customer contracts,
sale orders, minute books, ledgers, records, computer programs, software,
printouts and other computer materials, customer lists, credit files,
correspondence and advertising materials, in each case indicating, summarizing
or evidencing any of the Collateral; and
(i) all cash and non-cash proceeds of any and all of the foregoing
Collateral (including, without limitation, (i) damages and payments for past or
future infringements of the Trademarks, the Patents or the Copyrights and (ii)
the right to sue for past, present and future infringements of the Trademarks,
the Patents or the Copyrights) and, to the extent not otherwise
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<PAGE> 140
included, all payments under insurance (whether or not the Collateral Agent is
the loss payee thereof) and any indemnity, warranty or guaranty payable by
reason of loss or damage to or otherwise with respect to any of the foregoing
Collateral;
in each case howsoever the Grantor's interest therein may arise or
appear (whether by ownership, security interest, claim or otherwise); provided
that, nothing hereunder constitutes or shall be deemed to constitute the grant
of a security interest in favor of the Collateral Agent in the Grantor's
interest in any Related Contract or other contract right, any License or other
license agreement, any lease or any other general intangible (other than any of
the foregoing constituting an account or a general intangible for money due or
to become due to which Section 9-318(4) of the Code applies) (each such contract
right, license agreement, lease and other general intangible, other than those
described in the preceding parenthesis, being hereinafter referred to as
"Excluded Property"), if the granting of a security interest therein by the
Grantor to the Collateral Agent is prohibited by the terms and provisions of the
written agreement, document or instrument creating or evidencing such Excluded
Property, and either (i) such agreement, document or instrument was entered into
prior to the date of this Agreement, or (ii) such agreement, document or
instrument is entered into after the date of this Agreement and the Grantor
delivers to the Collateral Agent a copy of such agreement, document or
instrument, provided, however, that (1) if and when the prohibition which
prevents the granting by the Grantor to the Collateral Agent of a security
interest in any Excluded Property is removed or otherwise terminated, the
Collateral Agent will be deemed to have, and at all times to have had, a
security interest in such Excluded Property, and (2) the Grantor shall use its
reasonable efforts to exclude from any written agreement, document or instrument
entered into on or after the date of this Agreement creating or evidencing any
contract right, license, lease or general intangible, any prohibition against
the granting by the Grantor to the Collateral Agent of a security interest
therein to the extent that such exclusion or such efforts would not result in
such agreement, document or instrument containing terms which are less favorable
to the Grantor than would be the case but for such exclusion or such efforts or
would result in a decision by the Persons proposed to be parties to such
agreement, document or instrument not to enter into such agreement, document or
instrument. Notwithstanding anything set forth herein to the contrary, the
Collateral Agent will be deemed to have, and at all times to have had, a
security interest in the proceeds of such Excluded Property.
SECTION 3. Security for Guaranteed Obligations. The security interest
created hereby in the Collateral constitutes continuing collateral security for
all of the following obligations, whether now existing or hereafter incurred
(the "Guaranteed Obligations"):
(a) the prompt payment by the Grantor, as and when due and payable, of
all amounts from time to time owing by it in respect of [its guaranty made
pursuant to Article XI of the Financing Agreement] [its Guaranty, dated as of
September __, 1997 (as amended or otherwise amended from time to time, the
"Guaranty"), in favor of each of the Lenders and the Collateral Agent] ,
including, without limitation, principal of and interest on the Loans
(including, without limitation, all interest that accrues after the commencement
of any case, proceeding or other action relating to the bankruptcy, insolvency
or reorganization of any Borrower, whether or not a claim for post-filing
interest is allowed in such proceeding), all Letter of Credit Obligations and
Ledger Debt and all interest thereon, all fees, commissions, expense
reimbursements, indemnifications and all other amounts due or to become due
under any Loan Document to
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<PAGE> 141
which it is a party; and
(b) the due performance and observance by the Grantor of all of its
other obligations from time to time existing in respect of [Article XI of the
Financing Agreement] [its Guaranty] and all other Loan Documents to which it is
a party.
SECTION 4. Representations and Warranties. The Grantor represents and
warrants as follows:
(a) There is no pending or, to the knowledge of the Grantor, threatened
action , suit, proceeding or claim before any court or other Governmental
Authority or any arbitrator, or any order, judgment or award by any court or
other Governmental Authority or arbitrator, that may adversely affect the grant
by the Grantor, or the perfection, of the security interest purported to be
created hereby in the Collateral, or the exercise by the Collateral Agent of any
of its rights or remedies hereunder.
(b) All taxes, assessments and other governmental charges imposed upon
the Grantor or any property of the Grantor (including, without limitation, all
federal income and social security taxes on employees' wages) and which have
become due and payable on or prior to the date hereof have been paid, except (i)
to the extent contested in good faith by proper proceedings which stay the
imposition of any penalty, fine and Lien resulting from the non-payment thereof
and with respect to which adequate reserves in accordance with GAAP have been
established for the payment thereof and (ii) Liens permitted by Section
7.01(c)(ii)(B) of the Financing Agreement.
(c) All Equipment and Inventory is located at the addresses specified
therefor in SCHEDULE V hereto or at such other locations permitted by the terms
of Section 5(b) hereof. The Grantor's chief place of business and chief
executive office, the place where the Grantor keeps its records concerning
Receivables and all originals of all chattel paper which constitute Receivables
are located at the addresses specified therefor in SCHEDULE V hereto. None of
the Receivables is evidenced by a promissory note or other instrument unless
such promissory note or instrument has been pledged to the Collateral Agent. Set
forth in SCHEDULE VI hereto is a complete and correct list of each trade name
used by the Grantor.
(d) The Grantor has delivered to the Collateral Agent complete and
correct copies of each Related Contract described on SCHEDULE I hereto, which
represent all of the Related Contracts existing on the date of this Agreement[,
the Acquisition Agreement] and each License described in SCHEDULE II, SCHEDULE
III and SCHEDULE IV hereto, including in each such case all schedules and
exhibits thereto. Each Related Contract and License sets forth the entire
agreement and understanding of the parties thereto relating to the subject
matter thereof and there are no other agreements, arrangements or
understandings, written or oral, relating to the matters covered thereby or the
rights of the Grantor in respect thereof. Each Related Contract now existing is,
and each other Related Contract will be, the legal, valid and binding obligation
of the parties thereto, enforceable against such parties in accordance with its
terms, subject as to enforceability to applicable bankruptcy, insolvency,
reorganization and similar laws affecting creditors' rights and to general
principles of equity. To the knowledge of the Grantor, no default thereunder by
any such party has occurred, nor does any defense, offset, deduction or
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<PAGE> 142
counterclaim exist thereunder in favor of any such party.
(e) The Grantor owns and controls, or otherwise possesses adequate
rights to use, all Trademarks, Patents and Copyrights, which are the only
trademarks, patents and copyrights necessary to conduct its business in
substantially the same manner as conducted as of the date hereof. SCHEDULE II
hereto sets forth a true and complete list of all Trademarks and Trademark
Licenses owned or used by the Grantor as of the date hereof. SCHEDULE III hereto
sets forth a true and complete list of all Patents and Patent Licenses owned or
used by the Grantor as of the date hereof. SCHEDULE IV hereto sets forth a true
and complete list of all Copyrights and Copyright Licenses owned or used by the
Grantor as of the date hereof. All of such Copyrights, Patents and Trademarks
are subsisting and in full force and effect, have not been adjudged invalid or
unenforceable, are valid and enforceable and have not been abandoned in whole or
in part. Except as set forth in SCHEDULE II, III or IV hereto, none of such
Copyrights, Patents or Trademarks is the subject of any licensing or franchising
agreement. The Grantor has no knowledge of any conflict with the rights of
others to any Trademark, Patent or Copyright and, to the best knowledge of the
Grantor, the Grantor is not now infringing or in conflict with any such rights
of others in any material respect, and to the best knowledge of the Grantor, no
other Person is now infringing or in conflict in any material respect with any
such properties, assets and rights owned or used by the Grantor.
(f) The Grantor is the sole and exclusive owner of the Collateral free
and clear of any Lien, except for (i) the security interest created by this
Agreement, (ii) the security interests and other encumbrances permitted by the
Financing Agreement and (iii) sales of assets permitted by the terms of the
Financing Agreement. No effective financing statement or other instrument
similar in effect covering all or any part of the Collateral is on file in any
recording or filing office, except (i) such as may have been filed in favor of
the Collateral Agent relating to this Agreement, and (ii) such as may have been
filed to perfect or protect any security interest or encumbrance permitted by
the Financing Agreement.
(g) The exercise by the Collateral Agent of any of its rights and
remedies hereunder will not contravene law or any contractual restriction
binding on or otherwise affecting the Grantor or any of its properties and will
not result in or require the creation of any Lien, security interest or other
charge or encumbrance upon or with respect to any of its properties.
(h) No authorization or approval or other action by, and no notice to
or filing with, any Governmental Authority or any other Person, is required for
(i) the grant by the Grantor, or the perfection, of the security interest
purported to be created hereby in the Collateral or (ii) the exercise by the
Collateral Agent of any of its rights and remedies hereunder, except (A) for the
filing under the Uniform Commercial Code as in effect in the applicable
jurisdiction of the financing statements described in SCHEDULE VII hereto, (B)
with respect to the perfection of the security interest created hereby in the
United States Trademarks, United States Patents and United States Copyrights for
the recording of the Assignment for Security (Trademarks), substantially in the
form of Exhibit A hereto, the Assignment for Security (Patents), substantially
in the form of Exhibit B hereto, or the Assignment for Security (Copyrights),
substantially in the form of Exhibit C hereto, as applicable, in the United
States Patent and Trademark Office or the United States Copyright Office, as
applicable or (C) with respect to the perfection of the security interest
created hereby in foreign Trademarks, Patents and Copyrights, for registrations
and
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filings in jurisdictions located outside of the United States and covering
rights in such jurisdictions relating to Patents, Trademarks, Copyrights, Patent
Licenses, Trademark Licenses and Copyright Licenses.
(i) This Agreement creates valid security interests in favor of the
Collateral Agent for the benefit of the Lenders in the Collateral, as security
for the Guaranteed Obligations. The Collateral Agent's having possession of all
instruments and cash constituting Collateral from time to time, the recording of
the Assignment for Security (Trademarks), the Assignment for Security (Patents)
and the Assignment for Security (Copyrights), as applicable, executed pursuant
hereto in the United States Patent and Trademark Office and the United States
Copyright Office, as applicable, and the filing of the financing statements
described in SCHEDULE VII hereto and, with respect to Patents, Trademarks and
Copyrights hereafter existing and not covered by an Assignment for Security
(Trademarks), an Assignment for Security (Patents) or an Assignment for Security
(Copyrights), as applicable, the recording in the United States Patent and
Trademark Office or the United States Copyright Office, as applicable, of
appropriate instruments of assignment, result in the perfection of such security
interests. Such security interests are, or in the case of Collateral in which
the Grantor obtains rights after the date hereof, will be, perfected, first
priority security interests, subject only to the security interests and other
encumbrances permitted pursuant to the Financing Agreement.
SECTION 5. Covenants as to the Collateral. So long as any of the
Guaranteed Obligations shall remain outstanding or the Total Commitment shall
not have terminated, unless the Collateral Agent shall otherwise consent in
writing:
(a) Further Assurances. The Grantor will at its expense, at any time
and from time to time, promptly execute and deliver all further instruments and
documents and take all further action that may be necessary or reasonably
desirable or that the Collateral Agent may reasonably request in order (i) to
perfect and protect the security interest purported to be created hereby; (ii)
to enable the Collateral Agent to exercise and enforce its rights and remedies
hereunder in respect of the Collateral; or (iii) otherwise to effect the
purposes of this Agreement, including, without limitation: (A) marking
conspicuously each chattel paper included in the Receivables and each License
and Related Contract and, at the request of the Collateral Agent, each of its
records pertaining to the Collateral with a legend, in form and substance
reasonably satisfactory to the Collateral Agent, indicating that such chattel
paper, License, Related Contract or Collateral is subject to the security
interest created hereby, (B) if any Receivable shall be evidenced by a
promissory note or other instrument or chattel paper, delivering and pledging to
the Collateral Agent hereunder any such note, instrument or chattel paper duly
endorsed and accompanied by executed instruments of transfer or assignment, all
in form and substance reasonably satisfactory to the Collateral Agent, (C)
executing and filing such financing or continuation statements, or amendments
thereto, as may be necessary or reasonably desirable or that the Collateral
Agent may reasonably request in order to perfect and preserve the security
interest purported to be created hereby, and (D) furnishing to the Collateral
Agent from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Collateral Agent may reasonably request, all in reasonable
detail.
(b) Location of Equipment and Inventory. The Grantor will keep the
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Equipment and Inventory (other than used Equipment and Inventory sold in the
ordinary course of business in accordance with Section 5(g) hereof) at the
locations specified therefor in Section 4(c) hereof or, upon written notice to
the Collateral Agent in accordance with Section 7.01(n) of the Financing
Agreement accompanied by a new SCHEDULE V hereto indicating each new location of
the Equipment and Inventory, at such other locations in the continental United
States as the Grantor may elect, provided that (i) the Grantor shall promptly
have taken all action requested by the Collateral Agent to grant to the
Collateral Agent a perfected, first priority security interest in such Equipment
and Inventory, and (ii) the Collateral Agent's rights in such Equipment and
Inventory, including, without limitation, the existence, perfection and priority
of the security interest created hereby in such Equipment and Inventory, are not
adversely affected thereby.
(c) Condition of Equipment. The Grantor will maintain or cause to be
maintained in good working order and condition, excepting ordinary wear and tear
and damage due to casualty, all of the Equipment. The Grantor shall promptly
furnish to the Collateral Agent a statement describing in reasonable detail any
loss or damage in excess of $100,000 to any Equipment or Inventory due to
casualty.
(d) Taxes Etc. The Grantor will pay promptly when due all property and
other taxes, assessments and governmental charges or levies imposed upon, and
all claims (including claims for labor, materials and supplies) against, the
Equipment and Inventory, except (i) to the extent the validity thereof is being
contested in good faith by proper proceedings which stay the imposition of any
penalty, fine or Lien resulting from the non-payment thereof and with respect to
which adequate reserves in accordance with GAAP have been set aside for the
payment thereof or (ii) Liens permitted by Section 7.01(c)(ii)(B) of the
Financing Agreement.
(e) Insurance.
(i) The Grantor will, at its own expense, maintain insurance
as required by Section 7.01(h) of the Financing Agreement. Each policy for
liability insurance shall provide for all losses to be paid on behalf of the
Collateral Agent and the Grantor as their respective interests may appear. Each
policy for property damage insurance shall provide for all losses (except for
losses of less than $____________ per occurrence and losses accruing during the
continuance of an Event of Default), to be adjusted with, and paid directly to
the Collateral Agent. Each such policy shall in addition (A) name the Grantor
and the Collateral Agent as insured parties thereunder (without any
representation or warranty by or obligation upon the Collateral Agent) as their
interests may appear, (B) contain the agreement by the insurer that any loss
thereunder shall be payable, notwithstanding any action, inaction or breach of
representation or warranty by the Grantor, (C) provide that there shall be no
recourse against the Collateral Agent for payment of premiums or other amounts
with respect thereto, and (D) provide that at least 30 days' prior written
notice of cancellation or of lapse shall be given to the Collateral Agent by the
insurer. The Grantor will, if so requested by the Collateral Agent, deliver to
the Collateral Agent original or duplicate policies of such insurance and, as
often as the Collateral Agent may reasonably request, a report of a reputable
insurance broker with respect to such insurance. The Grantor will also, at the
request of the Collateral Agent, execute and deliver instruments of assignment
of such insurance policies and cause the respective insurers to acknowledge
notice of such assignment.
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(ii) Payment under any liability insurance maintained by the
Grantor pursuant to this Section 5(e) may be paid directly to the Person who
shall have incurred liability covered by such insurance. In the case of any loss
involving damage to Equipment or Inventory as to which clause (iii) of this
Section 5(e) is not applicable, the Grantor will, in the exercise of its
reasonable business judgment, make or cause to be made the necessary repairs to
or replacements of such Equipment and Inventory, and any proceeds of insurance
maintained by the Grantor pursuant to this Section 5(e) shall upon receipt by
the Collateral Agent, be paid to the Grantor as reimbursement for the costs of
such repairs or replacements.
(iii) Upon the occurrence and during the continuance of an
Event of Default or the actual or constructive total loss (in excess of $______
per occurrence) of any Equipment or Inventory, all insurance payments in respect
of such Equipment and Inventory shall be paid to the Collateral Agent and
applied as specified in Section 7(b) hereof.
(f) Provisions Concerning the Receivables, the Related Contracts and
the Licenses.
(i) The Grantor will (A) give the Collateral Agent at least 30
days' prior written notice of any change in the Grantor's name, identity or
corporate structure, (B) keep its chief place of business and chief executive
office and all originals of all chattel paper which constitute Receivables at
the location(s) specified therefor in SCHEDULE V hereof or such other location
for which the Grantor has complied with all of the provisions of Section 5(b)
hereof, and (C) keep adequate records concerning the Receivables and such
chattel paper and permit representatives of the Collateral Agent during normal
business hours, upon reasonable notice and without undue interruption of the
business of the Grantor to inspect and make abstracts from such records and
chattel paper pursuant to the terms of the Financing Agreement, provided that
such notice shall not be required during the continuance of an Event of Default.
(ii) The Grantor will duly perform and observe all of its
obligations under each Related Contract and, except as otherwise provided in
this subsection (f), continue to collect, at its own expense, all amounts due or
to become due under the Receivables. In connection with such collections, the
Grantor may (and, at the Collateral Agent's direction, will) take such action as
the Grantor or the Collateral Agent may deem necessary or advisable to enforce
collection or performance of the Receivables; provided, however, the Collateral
Agent shall have the right at any time, upon the occurrence and during the
continuance of an Event of Default, to notify the Account Debtors or obligors
under any Receivables of the assignment of such Receivables to the Collateral
Agent and to direct such Account Debtors or obligors to make payment of all
amounts due or to become due to the Grantor thereunder directly to the
Collateral Agent or its designated agent and, upon such notification and at the
expense of the Grantor and to the extent permitted by law, to enforce collection
of any such Receivables and to adjust, settle or compromise the amount or
payment thereof, in the same manner and to the same extent as the Grantor might
have done. After receipt by the Grantor of a notice from the Collateral Agent
that the Collateral Agent has notified or intends to notify the Account Debtors
or obligors under any Receivables as referred to in the proviso to the
immediately preceding sentence, (A) all amounts and proceeds (including
instruments) received by the Grantor in respect of the Receivables shall be
received in trust for the benefit of the Collateral Agent hereunder, shall be
segregated from other funds of the Grantor and shall be forthwith paid over to
the Collateral Agent in the same
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form as so received (with any necessary endorsement) to be held as cash
collateral and either (1) credited to the Loan Account so long as no Event of
Default shall have occurred and be continuing or (2) if any Event of Default
shall have occurred and be continuing, applied as specified in Section 7(b)
hereof, and (B) the Grantor will not adjust, settle or compromise the amount or
payment of any Receivable or release wholly or partly any Account Debtor or
obligor thereof or allow any credit or discount thereon. In addition, upon the
occurrence and during the continuance of an Event of Default, the Collateral
Agent shall have the right to notify the United States Postal Service
authorities to change the address for delivery of mail addressed to the Grantor
to such address as the Collateral Agent may designate and to do all other acts
and things necessary to carry out this Agreement.
(iii) Upon the occurrence and during the continuance of any
breach or default under any Related Contract referred to in SCHEDULE I hereto or
otherwise specified in writing by the Collateral Agent from time to time or any
License referred to in SCHEDULE II, III or IV hereto by any party thereto other
than the Grantor, the Grantor will (A) promptly after obtaining knowledge
thereof, give the Collateral Agent written notice of the nature and duration
thereof, specifying what action, if any, it has taken and proposes to take with
respect thereto, and (B) upon written instructions from the Collateral Agent and
at the Grantor's expense, take such action as the Collateral Agent may deem
reasonably necessary or advisable in respect thereof.
(iv) The Grantor will, at its expense, promptly deliver to the
Collateral Agent a copy of each notice or other communication received by it by
which any other party to any Related Contract referred to in SCHEDULE I hereto
or otherwise specified by the Collateral Agent from time to time or any License
referred to in SCHEDULE II, III or IV hereto purports to exercise any of its
rights or affect any of its obligations thereunder which is reasonably likely to
have a Material Adverse Effect, together with a copy of any reply by the Grantor
thereto.
(v) The Grantor will take all action necessary to maintain all
Licenses in full force and effect, except where such failure to maintain would
not be reasonably likely to have a Material Adverse Effect. The Grantor will
not, without the prior written consent of the Collateral Agent, cancel,
terminate, amend or otherwise modify in any respect, or waive any provision of,
any Related Contract referred to in SCHEDULE I hereto or any License referred to
in SCHEDULE II, III or IV hereto to the extent such action is reasonably likely
to have a Material Adverse Effect.
(g) Transfers and Other Liens.
(i) The Grantor will not sell, assign (by operation of law or
otherwise), lease, exchange or otherwise transfer or dispose of any of the
Collateral except to the extent permitted under Section 7.02(d)(ii) of the
Financing Agreement, subject to the obligation of Squire to make payments
pursuant to Section 2.07(g) of the Financing Agreement.
(ii) The Grantor will not create or suffer to exist any Lien,
security interest or other charge or encumbrance upon or with respect to any
Collateral, except for (A) the Liens and security interest created by this
Agreement and the other Loan Documents and (B) the Liens, security interests and
other encumbrances permitted by the Financing Agreement.
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(h) Trademarks, Patents and Copyrights.
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(i) If applicable, the Grantor has duly executed and delivered
the Assignment for Security (Trademarks) in the form attached hereto as Exhibit
A, the Assignment for Security (Patents) in the form attached hereto as Exhibit
B and the Assignment for Security (Copyrights) in the form attached hereto as
Exhibit C. The Grantor (either itself or through licensees) will, and will cause
each licensee thereof to, take all action reasonably necessary to maintain all
of the Trademarks, Patents and Copyrights in full force and effect, including,
without limitation, using the proper statutory notices and markings and using
the Trademarks on each applicable trademark class of goods in order to so
maintain the Trademarks in full force free from any claim of abandonment for
non-use, and the Grantor will not (and will not permit any licensee thereof to)
do any act or knowingly omit to do any act whereby any Trademark or Copyright
may become invalidated; provided, however, that so long as no Event of Default
has occurred and is continuing, the Grantor shall have no obligation to use or
to maintain any Trademark or Copyright (A) that relates solely to any product or
work that has been, or is in the process of being, discontinued, abandoned or
terminated, (B) that is being replaced with a trademark or copyright
substantially similar to the Trademark or Copyright, as the case may be, that
may be abandoned or otherwise become invalid, so long as such replacement
Trademark or Copyright, as the case may be is subject to the security interest
purported to be created by this Agreement, (C) that is substantially the same as
another Trademark or Copyright, as the case may be, that is in full force, so
long as such other Trademark or Copyright, as the case may be, is subject to the
Lien and security interest created by this Agreement, or (D) that is not
necessary for the operation of Grantor's business and is discontinued or
disposed of in the ordinary course of business. The Grantor will cause to be
taken all necessary steps in any proceeding before the United States Patent and
Trademark Office and the United States Copyright Office to maintain each
registration of the Trademarks, the Patents and the Copyrights (other than those
Trademarks and Copyrights described in the proviso to the immediately preceding
sentence), including, without limitation, filing of renewals, affidavits of use,
affidavits of incontestability and opposition, interference and cancellation
proceedings and payment of taxes. If any Trademark, Patent or Copyright is
infringed, misappropriated or diluted in any material respect by a third party,
the Grantor shall (x) upon learning of such infringement, misappropriation or
dilution, promptly notify the Collateral Agent and (y) to the extent the Grantor
shall deem appropriate under the circumstances, promptly sue for infringement,
misappropriation or dilution, seek injunctive relief where appropriate and
recover any and all damages for such infringement, misappropriation or dilution,
or take such other actions as the Grantor shall deem appropriate under the
circumstances to protect such Trademark, Patent or Copyright. The Grantor shall
furnish to the Collateral Agent from time to time (but, unless an Event of
Default has occurred and is continuing, no more frequently than annually)
statements and schedules further identifying and describing the Patents, the
Trademarks and the Copyrights and such other reports in connection with the
Patents, the Trademarks and the Copyrights as the Collateral Agent may
reasonably request, all in reasonable detail and promptly upon request of the
Collateral Agent, following receipt by the Collateral Agent of any such
statements, schedules or reports, the Grantor shall modify this Agreement by
amending SCHEDULES II, III or IV hereto, as the case may be, to include any
Patent, Trademark or Copyright which becomes part of the Collateral under this
Agreement. Notwithstanding anything herein to the contrary, upon the occurrence
and during the continuance of an Event of Default the Grantor may not abandon or
otherwise permit a Trademark, Patent or Copyright to become invalid without the
prior written consent of the Collateral Agent, and if any Trademark, Patent or
Copyright is infringed, misappropriated or
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diluted in any material respect by a third party, the Grantor will take such
action as the Collateral Agent shall deem appropriate under the circumstances to
protect such Trademark, Patent or Copyright.
(ii) In no event shall the Grantor, either itself or through
any agent, employee, licensee or designee, file an application for the
registration of any Trademark or Copyright or the issuance of any Patent with
the United States Patent and Trademark Office or the United States Copyright
Office, as applicable, unless it gives the Collateral Agent written notice
thereof, but in no event later than 5 Business Days after the filing of any such
application. Upon request of the Collateral Agent, the Grantor shall execute and
deliver any and all assignments, agreements, instruments, documents and papers
as the Collateral Agent may reasonably request to evidence the Collateral
Agent's security interest hereunder in such Trademark, Patent or Copyright and
the general intangibles of the Grantor relating thereto or represented thereby,
and the Grantor hereby constitutes the Collateral Agent its attorney-in-fact to
execute and file, during the continuance of an Event of Default, all such
writings for the foregoing purposes, all acts of such attorney being hereby
ratified and confirmed, and such power (being coupled with an interest) shall be
irrevocable until the termination of the Total Commitment, the repayment of all
of the Guaranteed Obligations in full and the termination of each of the Loan
Documents.
(j) Inspection and Reporting. The Grantor shall permit the Collateral
Agent, the Administrative Agent or any Lender, or any agents or representatives
thereof or such professionals or other Persons as the Collateral Agent may
designate (i) to examine and inspect the books and records of the Grantor and
take copies and extracts therefrom, (ii) to verify materials, leases, notes,
receivables, inventory and other assets of the Grantor from time to time, and
(iii) to conduct physical counts, appraisals and/or valuations at the locations
of the Grantor, in each case as provided and subject to the confidentiality
requirements set forth in the Financing Agreement.
SECTION 6. Additional Provisions Concerning the Collateral.
(a) The Grantor hereby authorizes the Collateral Agent to file, without
the signature of the Grantor where permitted by law, one or more financing or
continuation statements, and amendments thereto, relating to the Collateral.
(b) The Grantor hereby irrevocably appoints the Collateral Agent the
Grantor's attorney-in-fact and proxy, with full authority in the place and stead
of the Grantor and in the name of the Grantor or otherwise, from time to time in
the Collateral Agent's discretion upon the occurrence and during the continuance
of an Event of Default, to take any action and to execute any instrument which
the Collateral Agent may deem necessary or advisable to accomplish the purposes
of this Agreement (subject to the rights of the Grantor under Section 5(f)
hereof), including, without limitation, (i) to obtain and adjust insurance
required to be paid to the Collateral Agent pursuant to Section 5(e) hereof, and
to receive, endorse and collect any drafts or other instruments, documents and
chattel paper in connection therewith, (ii) to ask, demand, collect, sue for,
recover, compound, receive and give acquittance and receipts for moneys due and
to become due under or in respect of any Collateral, (iii) to receive, endorse,
and collect any drafts or other instruments, documents and chattel paper in
connection with clause (i)
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or (ii) above, and (iv) to file any claims or take any action or institute any
proceedings which the Collateral Agent may deem necessary or desirable for the
collection of any Collateral or otherwise to enforce the rights of the
Collateral Agent with respect to any Collateral.
(c) For the purpose of enabling the Collateral Agent to exercise rights
and remedies hereunder at such time as the Collateral Agent shall be lawfully
entitled to exercise such rights and remedies, and for no other purpose, the
Grantor hereby grants to the Collateral Agent, to the extent assignable, an
irrevocable, non-exclusive license (exercisable without payment of royalty or
other compensation to the Grantor) to use, assign, license or sublicense any of
the Patents, Trademarks or Copyrights now owned or hereafter acquired by the
Grantor, wherever the same may be located, including in such license reasonable
access to all media in which any of the licensed items may be recorded or stored
and to all computer programs used for the compilation or printout thereof.
Notwithstanding anything contained herein to the contrary, but subject to the
provisions of the Financing Agreement that limits the right of the Grantor to
dispose of its property and Section 5(h) hereof, so long as no Event of Default
shall have occurred and be continuing, the Grantor may exploit, use, enjoy,
protect, license, sublicense, assign, sell, dispose of or take other actions
with respect to the Patents, Trademarks or Copyrights in the ordinary course of
the business of the Grantor. In furtherance of the foregoing, unless an Event of
Default shall have occurred and be continuing the Collateral Agent shall
promptly from time to time, upon the request of the Grantor, execute and deliver
any instruments, certificates or other documents, in the form so requested,
which the Grantor shall have certified are appropriate (in its judgment) to
allow it to take any action permitted above (including relinquishment of the
license provided pursuant to this clause (c) as to any Patents, Trademarks or
Copyrights and the release of the Lien created hereby). Further, upon the
payment in full of all of the Guaranteed Obligations and cancellation or
termination of the Total Commitments, the Collateral Agent (subject to Section
10(e) hereof) shall transfer to the Grantor all of the Collateral Agent's right,
title and interest in and to the Patents, Trademarks and Copyrights, and the
Licenses, all without recourse, representation or warranty whatsoever. The
exercise of rights and remedies hereunder by the Collateral Agent shall not
terminate the rights of the holders of any licenses or sub licenses theretofore
granted by the Grantor in accordance with the second sentence of this clause
(c). The Grantor hereby releases the Collateral Agent from any claims, causes of
action and demands at any time arising out of or with respect to any actions
taken or omitted to be taken by the Collateral Agent under the powers of
attorney granted herein other than actions taken or omitted to be taken through
the Collateral Agent's gross negligence or willful misconduct.
(d) If the Grantor fails to perform any agreement contained herein, the
Collateral Agent may itself perform, or cause performance of, such agreement or
obligation, in the name of the Grantor or the Collateral Agent, and the expenses
of the Collateral Agent incurred in connection therewith shall be payable by the
Grantor pursuant to Section 8 hereof and shall be secured by the Collateral.
(e) The powers conferred on the Collateral Agent hereunder are solely
to protect its interest in the Collateral and shall not impose any duty upon it
to exercise any such powers. Except for the safe custody of any Collateral in
its possession and the accounting for moneys actually received by it hereunder,
the Collateral Agent shall have no duty as to any Collateral or as to the taking
of any necessary steps to preserve rights against prior parties or any
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other rights pertaining to any Collateral.
(f) Anything herein to the contrary notwithstanding (i) the Grantor
shall remain liable under the Related Contracts and Licenses and otherwise with
respect to any of the Collateral to the extent set forth therein to perform all
of its obligations thereunder to the same extent as if this Agreement had not
been executed, (ii) the exercise by the Collateral Agent of any of its rights
hereunder shall not release the Grantor from any its obligations under the
Related Contracts and Licenses or otherwise in respect of the Collateral, and
(iii) the Collateral Agent shall not have any obligation or liability by reason
of this Agreement under the Related Contracts and Licenses or with respect to
any of the other Collateral, nor shall the Collateral Agent be obligated to
perform any of the obligations or duties of the Grantor thereunder or to take
any action to collect or enforce any claim for payment assigned hereunder.
SECTION 7. Remedies Upon Default. If any Event of Default shall have
occurred and be continuing:
(a) The Collateral Agent may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all of the rights and remedies of a secured party upon default under the
Code (whether or not the Code applies to the affected Collateral), and also may
(i) require the Grantor to, and the Grantor hereby agrees that it will at its
expense and upon request of the Collateral Agent forthwith, assemble all or part
of the Collateral as directed by the Collateral Agent and make it available to
the Collateral Agent at a place or places to be designated by the Collateral
Agent which is reasonably convenient to both parties and (ii) without notice
except as specified below, sell the Collateral or any part thereof in one or
more parcels at public or private sale, at any of the Collateral Agent's offices
or elsewhere, for cash, on credit or for future delivery, and at such price or
prices and upon such other terms as the Collateral Agent may deem commercially
reasonable. The Grantor agrees that, to the extent notice of sale shall be
required by law, at least 10 Business Days' notice to the Grantor of the time
and place of any public sale or the time after which any private sale is to be
made shall constitute reasonable notification. The Collateral Agent shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. The Collateral Agent may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was so
adjourned. The Grantor hereby waives any claims against the Collateral Agent and
the Lenders arising by reason of the fact that the price at which the Collateral
may have been sold at a private sale was less than the price which might have
been obtained at a public sale or was less than the aggregate amount of the
Guaranteed Obligations, even if the Collateral Agent accepts the first offer
received and does not offer the Collateral to more than one offeree and waives
all rights which the Grantor may have to require that all or any part of the
Collateral be marshalled upon any sale (public or private) thereof. In addition
to the foregoing, (i) upon written notice from the Collateral Agent, the Grantor
shall cease any use of the Trademarks, Patents or Copyrights or any mark, patent
or copyright similar thereto for any purpose described in such notice; (ii) the
Collateral Agent may, at any time and from time to time, upon 10 days' prior
notice to the Grantor, license, whether general, special or otherwise, and
whether on an exclusive or non-exclusive basis, any of the Trademarks, Patents
and Copyrights, throughout the world for such term or terms, on such conditions,
and in such manner, as the Collateral Agent shall in its sole discretion
determine; and (iii) the Collateral Agent may, at any time, pursuant to the
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authority granted in Section 6 hereof (such authority being effective upon the
occurrence of an Event of Default), execute and deliver on behalf of the
Grantor, one or more instruments of assignment of the Trademarks, Patents and
Copyrights (or any application or registration thereof), in form suitable for
filing, recording or registration in any country.
(b) Any cash held by the Collateral Agent as Collateral and all cash
proceeds received by the Collateral Agent in respect of any sale of or
collection from, or other realization upon, all or any part the Collateral may,
in the discretion of the Collateral Agent, be held by the Collateral Agent as
collateral for, and/or then or at any time thereafter applied in whole or in
part by the Collateral Agent against, all or any part of the Guaranteed
Obligations as provided in Section 4.04(b) of the Financing Agreement.
(c) In the event that the proceeds of any such sale, collection or
realization are insufficient to pay all amounts to which the Collateral Agent
and the Lenders are legally entitled, the Grantor shall be liable for the
deficiency, together with interest thereon at the highest rate specified in any
applicable Loan Document for interest on overdue principal thereof or such other
rate as shall be fixed by applicable law, together with the costs of collection
and the reasonable fees, costs, expenses of any attorneys employed by the
Collateral Agent to collect such deficiency.
SECTION 8. Indemnity and Expenses.
(a) The Grantor agrees to indemnify and hold the Collateral Agent
harmless from and against any and all claims, damages, losses, liabilities,
obligations, penalties, costs or expenses (including, without limitation,
reasonable legal fees and disbursements of Collateral Agent's counsel) to the
extent that they arise out of or otherwise result from this Agreement
(including, without limitation, enforcement of this Agreement), except claims,
losses or liabilities resulting solely and directly from the Collateral Agent's
gross negligence or willful misconduct as determined by a final judgment of a
court of competent jurisdiction.
(b) The Grantor will upon demand pay to the Collateral Agent the amount
of any and all costs and expenses, including the reasonable fees and
disbursements of the Collateral Agent's counsel and of any experts and agents,
which the Collateral Agent may incur in connection with (i) the preparation,
negotiation, execution, delivery, recordation, administration, amendment, waiver
or other modification or termination of this Agreement, or (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any Collateral, (iii) the exercise or enforcement of any of
the rights of the Collateral Agent hereunder, or (iv) the failure by the Grantor
to perform or observe any of the provisions hereof.
SECTION 9. Notices, Etc. All notices and other communications provided
for hereunder shall be in writing and shall be mailed (by certified mail,
postage prepaid and return receipt requested), telecopied or delivered, if to
the Grantor or the Collateral Agent, to the parties and at the addresses
specified in the Financing Agreement; or as to either such Person at such other
address as shall be designated by such Person in a written notice to such other
Person complying as to delivery with the terms of this Section 9. All such
notices and other communications shall be effective (i) if sent by certified
mail, return receipt requested, when received or 3 Business Days after mailing,
whichever first occurs, (ii) if telecopied, when
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transmitted and confirmation is received, provided same is on a Business Day
and, if not, on the next Business Day or (iii) if delivered, upon delivery,
provided same is on a Business Day and, if not, on the next Business Day.
SECTION 10. Miscellaneous.
(a) No amendment of any provision of this Agreement shall be effective
unless it is in writing and signed by the Grantor and the Collateral Agent, and
no waiver of any provision of this Agreement, and no consent to any departure by
the Grantor therefrom, shall be effective unless it is in writing and signed by
the Collateral Agent, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
(b) No failure on the part of the Collateral Agent to exercise, and no
delay in exercising, any right hereunder or under any other Loan Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the exercise of any
other right. The rights and remedies of the Collateral Agent provided herein and
in the other Loan Documents are cumulative and are in addition to, and not
exclusive of, any rights or remedies provided by law. The rights of the
Collateral Agent under any Loan Document against any party thereto are not
conditional or contingent on any attempt by the Collateral Agent to exercise any
of its rights under any other Loan Document against such party or against any
other Person.
(c) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or thereof or affecting the validity or enforceability
of such provision in any other jurisdiction.
(d) This Agreement shall create a continuing security interest in the
Collateral and shall (i) remain in full force and effect until the payment in
full of the Guaranteed Obligations after the Total Commitment has been
terminated and all Letters of Credit have been canceled or cash collateralized,
and (ii) be binding on the Grantor and its successors and assigns and shall
inure, together with all rights and remedies of the Collateral Agent hereunder,
to the benefit of the Collateral Agent and the Lenders their respective
permitted successors, transferees and assigns. Without limiting the generality
of clause (ii) of the immediately preceding sentence and subject to the terms of
the Financing Agreement, the Collateral Agent and Lenders may assign or
otherwise transfer their rights under this Agreement and any other Loan
Document, to any other Person and such other Person shall thereupon become
vested with all of the benefits in respect thereof granted to the Collateral
Agent and the Lenders herein or otherwise. None of the rights or obligations of
the Grantor hereunder may be assigned or otherwise transferred without the prior
written consent of the Collateral Agent, and any such assignment or transfer
shall be null and void.
(e) Upon the satisfaction in full of the Guaranteed Obligations after
the Total Commitment has been terminated and all Letters of Credit have been
canceled or cash collateralized, (i) this Agreement and the security interests
created hereby shall terminate and all rights to the Collateral shall revert to
the Grantor, and (ii) the Collateral Agent will, upon the
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Grantor's request and at the Grantor's expense promptly, (A) return to the
Grantor such of the Collateral as shall not have been sold or otherwise disposed
of or applied pursuant to the terms hereof, and (B) execute and deliver to the
Grantor such documents as the Grantor shall reasonably request to evidence such
termination, all without any representation, warranty or recourse whatsoever.
(f) This Agreement shall be governed by, and construed and interpreted
in accordance with, the laws of the State of New York, except as required by
mandatory provisions of law and except to the extent that the validity and
perfection or the perfection and effect of perfection or non-perfection of the
security interest created hereby or remedies hereunder, in respect of any
particular Collateral are governed by the law of a jurisdiction other than the
State of New York.
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<PAGE> 155
IN WITNESS WHEREOF, the Grantor has caused this Agreement to be
executed and delivered by its officer thereunto duly authorized as of the date
first above written.
[GRANTOR]
By: __________________________
Name: ________________________
Title: _______________________
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<PAGE> 156
SCHEDULE I TO SECURITY AGREEMENT
RELATED CONTRACTS
<PAGE> 157
SCHEDULE II TO SECURITY AGREEMENT
TRADEMARKS
AND
TRADEMARK LICENSES
<PAGE> 158
SCHEDULE III TO SECURITY AGREEMENT
PATENTS AND PATENT LICENSES
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<PAGE> 159
SCHEDULE IV TO SECURITY AGREEMENT
COPYRIGHTS AND COPYRIGHT LICENSES
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<PAGE> 160
SCHEDULE V TO SECURITY AGREEMENT
I. Locations of Equipment and Inventory
II. Grantor's chief place of business, chief executive office and place
where the Grantor keeps its books and records
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SCHEDULE VI TO SECURITY AGREEMENT
TRADE NAMES
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<PAGE> 162
SCHEDULE VII TO SECURITY AGREEMENT
UCC-1 FINANCING STATEMENTS
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<PAGE> 163
EXHIBIT A
ASSIGNMENT FOR SECURITY
(TRADEMARKS)
WHEREAS, ___________________________ (the "Assignor") has adopted, used
and is using the trademarks and service marks listed on the annexed Schedule 1A,
which trademarks and service marks are registered or applied for in the United
States Patent and Trademark Office (the "Trademarks");
WHEREAS, the Assignor, has entered into a Security Agreement dated
September __, 1997 (the "Security Agreement") in favor of NATIONSBANC COMMERCIAL
CORPORATION., as collateral agent for certain lenders (the "Assignee");
WHEREAS, pursuant to the Security Agreement, the Assignor has assigned
to the Assignee and granted to the Assignee a security interest in all right,
title and interest of the Assignor in, to and under the Trademarks together with
the good-will of the business symbolized by the Trademarks and the applications
and restrictions thereof, and all proceeds thereof, including, without
limitation, any and all causes of action which may exist by reason of
infringement thereof (the "Collateral"), to secure the payment, performance and
observance of the Guaranteed Obligations (as defined in the Security Agreement);
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, the Assignor does hereby assign unto the Assignee and
grants to the Assignee a security interest in the Collateral to secure the
prompt payment, performance and observance of the Guaranteed Obligations.
The Assignor does hereby further acknowledge and affirm that the rights
and remedies of the Assignee with respect to the Collateral are more fully set
forth in the Security Agreement, the terms and provisions of which are hereby
incorporated herein by reference as if fully set forth herein.
IN WITNESS WHEREOF, the Assignor has caused this Assignment to be duly
executed by its officer thereunto duly authorized as of ________________, 199__.
______________________________
By: __________________________
Name: ________________________
Title: _______________________
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<PAGE> 164
STATE OF NEW YORK
ss.:
COUNTY OF NEW YORK
On this ____ day of _________________, 19__, before me personally came
_________________, to me known to be the person who executed the foregoing
instrument, and who, being duly sworn by me, did depose and say that he is the
_________________ of ____________________________, a __________ corporation, and
that he executed the foregoing instrument in the firm name of
____________________________, and that he had authority to sign the same, and he
acknowledged to me that he executed the same as the act and deed of said firm
for the uses and purposes therein mentioned.
______________________________
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<PAGE> 165
SCHEDULE 1A TO ASSIGNMENT FOR SECURITY
(TRADEMARKS AND TRADEMARK APPLICATIONS)
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<PAGE> 166
EXHIBIT B
ASSIGNMENT FOR SECURITY
(PATENTS)
WHEREAS, ______________________________(the "Assignor") holds all
right, title and interest in the letter patents, design patents and utility
patents listed on the annexed Schedule 1A, which patents are issued or applied
for in the United States Patent and Trademark Office (the "Patents");
WHEREAS, the Assignor, has entered into a Security Agreement dated
September __, 1997 (the "Security Agreement") in favor of NATIONSBANC COMMERCIAL
CORPORATION, as collateral agent for certain lenders (the "Assignee");
WHEREAS, pursuant to the Security Agreement, the Assignor has assigned
to the Assignee and granted to the Assignee a security interest in all right,
title and interest of the Assignor in, to and under the Patents and the
applications and registrations thereof, and all proceeds thereof, including,
without limitation, any and all causes of action which may exist by reason of
infringement thereof (the "Collateral"), to secure the payment, performance and
observance of the Guaranteed Obligations (as defined in the Security Agreement);
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, the Assignor does hereby assign unto the Assignee and
grants to the Assignee a security interest in the Collateral to secure the
prompt payment, performance and observance of the Guaranteed Obligations.
The Assignor does hereby further acknowledge and affirm that the rights
and remedies of the Assignee with respect to the Collateral are more fully set
forth in the Security Agreement, the terms and provisions of which are hereby
incorporated herein by reference as if fully set forth herein.
IN WITNESS WHEREOF, the Assignor has caused this Assignment to be duly
executed by its officer thereunto duly authorized as of _________________,
199__.
______________________________
By: __________________________
Name: ________________________
Title: _______________________
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STATE OF NEW YORK
ss.:
COUNTY OF NEW YORK
On this ____ day of _______________, 199__, before me personally came
_________________, to me known to be the person who executed the foregoing
instrument, and who, being duly sworn by me, did depose and say that he is the
_________________ of ___________________________, a ____________ corporation,
and that he executed the foregoing instrument in the firm name of
_______________________________, and that he had authority to sign the same, and
he acknowledged to me that he executed the same as the act and deed of said firm
for the uses and purposes therein mentioned.
______________________________
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SCHEDULE 1A TO ASSIGNMENT FOR SECURITY
(PATENTS AND PATENT APPLICATIONS)
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<PAGE> 169
EXHIBIT C
ASSIGNMENT FOR SECURITY
(COPYRIGHTS)
WHEREAS, ______________________________(the "Assignor") holds all
right, title and interest in the copyrights listed on the annexed Schedule 1A,
which copyrights are registered in the United States Copyright Office (the
"Copyrights");
WHEREAS, the Assignor, has entered into a Security Agreement dated
September __ 1997 (the "Security Agreement") in favor of NATIONSBANC COMMERCIAL
CORPORATION, as collateral agent for certain lenders (the "Assignee");
WHEREAS, pursuant to the Security Agreement, the Assignor has assigned
to the Assignee and granted to the Assignee a security interest in all right,
title and interest of the Assignor in, to and under the Copyrights and the
registrations thereof, and all proceeds thereof, including, without limitation,
any and all causes of action which may exist by reason of infringement thereof
(the "Collateral"), to secure the payment, performance and observance of the
Guaranteed Obligations (as defined in the Security Agreement);
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged, the Assignor does hereby assign unto the Assignee and
grants to the Assignee a security interest in the Collateral to secure the
prompt payment, performance and observance of the Guaranteed Obligations.
The Assignor does hereby further acknowledge and affirm that the rights
and remedies of the Assignee with respect to the Collateral are more fully set
forth in the Security Agreement, the terms and provisions of which are hereby
incorporated herein by reference as if fully set forth herein.
IN WITNESS WHEREOF, the Assignor has caused this Assignment to be duly
executed by its officer thereunto duly authorized as of _______________, 199__.
______________________________
By: __________________________
Name: ________________________
Title: _______________________
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STATE OF NEW YORK
ss.:
COUNTY OF NEW YORK
On this ____ day of ___________________, 199__, before me personally
came _________________, to me known to be the person who executed the foregoing
instrument, and who, being duly sworn by me, did depose and say that he is the
_________________ of ___________________________, a ___________ corporation, and
that he executed the foregoing instrument in the firm name of
_______________________, and that he had authority to sign the same, and he
acknowledged to me that he executed the same as the act and deed of said firm
for the uses and purposes therein mentioned.
______________________________
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<PAGE> 171
SCHEDULE 1A TO ASSIGNMENT FOR SECURITY
(COPYRIGHTS AND COPYRIGHT APPLICATIONS)
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<PAGE> 172
EXHIBIT E-1
FORM OF BORROWER PLEDGE AGREEMENT
PLEDGE AND SECURITY AGREEMENT dated as of September__, 1997, made by
____________________, a ____________ corporation (the "Pledgor"), in favor of
NATIONSBANC COMMERCIAL CORPORATION, as collateral agent for the Lenders parties
to the Financing Agreement referred to below (in such capacity, the "Collateral
Agent").
WITNESSETH:
WHEREAS, Norton McNaughton, Inc. (the "Company"), the Pledgor, [Norton
McNaughton of Squire, Inc., a New York corporation] [Miss Erika, Inc., a
Delaware corporation formerly known as ME Acquisition Corp.] (together with the
Pledgor, each a "Borrower" and collectively, the "Borrowers"), The CIT
Group/Commercial Services, Inc., as administrative agent (the "Administrative
Agent"), the Collateral Agent and the financial institutions from time to time
party thereto (the "Lenders") have entered into a Financing Agreement, dated the
date hereof (such Agreement, as amended or otherwise modified from time to time,
the "Financing Agreement");
WHEREAS, it is a condition precedent to the Lenders making and maintaining
Loans and assisting the Pledgor in obtaining Letters of Credit under the
Financing Agreement that the Pledgor shall have executed and delivered to the
Collateral Agent a pledge and security agreement providing for the pledge to the
Collateral Agent of, and the grant to the Collateral Agent for the benefit of
the Lenders of a security interest in, certain indebtedness from time to time
owing to the Pledgor and certain of the outstanding shares of capital stock from
time to time owned by the Pledgor of each Subsidiary now or hereafter existing
and in which Pledgor has any interest at any time;
WHEREAS, the Pledgor has determined that the execution, delivery and
performance of this Agreement directly benefits, and is in the best interest of
the Pledgor;
NOW, THEREFORE, in consideration of the premises and the agreements herein
and in order to induce the Collateral Agent and the Lenders to enter into the
Financing Agreement with the Pledgor, the Pledgor hereby agrees with the
Collateral Agent as follows:
SECTION 1. Definitions. All terms used in this Agreement which are defined
in the Financing Agreement or in Article 8 or Article 9 of the Uniform
Commercial Code (the "Code") currently in effect in the State of New York and
which are not otherwise defined herein shall have the same meanings herein as
set forth therein.
SECTION 2. Pledge and Grant of Security Interest. As collateral security
for all of the Obligations (as defined in Section 3 hereof), the Pledgor hereby
pledges and collaterally assigns to the Collateral Agent, and grants to the
Collateral Agent for the benefit of the Lenders a continuing security interest
in, the following (the "Pledged Collateral"): -
(a) the indebtedness described in Schedule I hereto and all indebtedness
from
<PAGE> 173
time to time required to be pledged to the Collateral Agent pursuant to the
terms of the Financing Agreement (the "Pledged Debt"), the promissory notes and
other instruments evidencing the Pledged Debt and all interest, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the Pledged
Debt;
(b) the shares of stock described in Schedule II hereto (the "Pledged
Shares") issued by the corporations described in such Schedule II (the "Existing
Subsidiaries"), the certificates representing the Pledged Shares, all options
and other rights, contractual or otherwise, in respect thereof and all
dividends, cash, instruments and other property (including but not limited to,
any stock dividend and any distribution in connection with a stock split) from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Shares;
(c) the shares of stock at any time and from time to time acquired by the
Pledgor, of any and all Subsidiaries, whether now or hereafter existing, all or
a portion of the stock of which is acquired by the Pledgor at any time (such
Subsidiaries, together with the Existing Subsidiaries, being hereinafter
referred to collectively as the "Pledged Subsidiaries" and individually as a
"Pledged Subsidiary"), the certificates representing such shares, all options
and other rights, contractual or otherwise, in respect thereof and all
dividends, cash, instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such shares;
(d) all additional shares of stock, from time to time acquired by the
Pledgor, of any Pledged Subsidiary, the certificates representing such
additional shares, all options and other rights, contractual or otherwise, in
respect thereof and all dividends, cash, instruments and other property from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such additional shares; and
(e) all proceeds of any and all of the foregoing;
in each case, whether now owned or hereafter acquired by the Pledgor and
howsoever its interest therein may arise or appear (whether by ownership,
security interest, claim or otherwise).
SECTION 3. Security for Obligations. The security interest created hereby
in the Pledged Collateral constitutes continuing collateral security for all of
the following obligations whether now existing or hereafter incurred (the
"Obligations"):
(a) the prompt payment by the Pledgor, as and when due and payable, of all
amounts from time to time owing by it in respect of the Financing Agreement, the
Notes, its Guaranty and the other Loan Documents, including, without limitation,
principal of and interest on the Loans (including, without limitation, all
interest that accrues after the commencement of any case, proceeding or other
action relating to the bankruptcy, insolvency or reorganization of the Pledgor,
whether or not a claim for post-filing interest is allowed in such proceeding),
all Letter of Credit Obligations and all Ledger Debt and all interest thereon,
all fees, commissions, expense reimbursements, indemnifications and all other
amounts due or to become due under any
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Loan Document; and
(b) the due performance and observance by the Pledgor of all of its other
obligations from time to time existing in respect of the Financing Agreement and
the other Loan Documents.
SECTION 4. Delivery of the Pledged Collateral.
(a) All promissory notes currently evidencing the Pledged Debt and all
certificates currently representing the Pledged Shares shall be delivered to the
Collateral Agent on or prior to the execution and delivery of this Agreement.
All other promissory notes, certificates and instruments constituting Pledged
Collateral from time to time or required to be pledged to the Collateral Agent
pursuant to the terms of the Financing Agreement (the "Additional Collateral")
shall be delivered to the Collateral Agent within 10 Business Days of receipt
thereof by or on behalf of Pledgor. All such promissory notes, certificates and
instruments shall be held by or on behalf of the Collateral Agent pursuant
hereto and shall be delivered in suitable form for transfer by delivery or shall
be accompanied by duly executed instruments of transfer or assignment in blank,
all in form and substance reasonably satisfactory to the Collateral Agent.
Within 10 Business Days of the receipt by Pledgor of the Additional Collateral,
a Pledge Amendment, duly executed by the Pledgor, in substantially the form of
Schedule III hereto (a "Pledge Amendment") shall be delivered to the Collateral
Agent, in respect of the Additional Collateral which are to be pledged pursuant
to this Agreement and the Financing Agreement, which Pledge Amendment shall from
and after delivery thereof constitute part of Schedules I and II hereto. The
Pledgor hereby authorizes the Collateral Agent to attach each Pledge Amendment
to this Agreement and agrees that all promissory notes, certificates or
instruments listed on any Pledge Amendment delivered to the Collateral Agent
shall for all purposes hereunder constitute Pledged Collateral and the Pledgor
shall be deemed upon delivery thereof to have made the representations and
warranties set forth in Section 5 with respect to such Additional Collateral.
(b) If the Pledgor shall receive, by virtue of its being or having been an
owner of any Pledged Collateral, any (i) stock certificate (including, without
limitation, any certificate representing a stock dividend or distribution in
connection with any increase or reduction of capital, reclassification, merger,
consolidation, sale of assets, combination of shares, stock split, spinoff or
split-off), promissory note or other instrument, (ii) option or right, whether
as an addition to, substitution for, or in exchange for, any Pledged Collateral,
or otherwise, (iii) dividends payable in cash (except such dividends permitted
to be retained by the Pledgor pursuant to Section 7 hereof) or in securities or
other property or (iv) dividends or other distributions in connection with a
partial or total liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in surplus, the Pledgor shall receive such
stock certificate, promissory note, instrument, option, right, payment or
distribution in trust for the benefit of the Collateral Agent, shall segregate
it from the Pledgor's other property and shall deliver it forthwith to the
Collateral Agent in the exact form received, with any necessary indorsement
and/or appropriate stock powers duly executed in blank, to be held by the
Collateral Agent as Pledged Collateral and as further collateral security for
the Obligations.
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SECTION 5. Representations and Warranties. The Pledgor represents and
warrants as follows:
(a) The Existing Subsidiaries set forth in Schedule II hereto are the
Pledgor's only Subsidiaries existing on the date hereof. The Pledged Shares have
been duly authorized and validly issued, are fully paid and nonassessable and
constitute 100% of the issued shares of capital stock of the Pledged
Subsidiaries as of the date hereof. All other shares of stock constituting
Pledged Collateral will be, when issued, duly authorized and validly issued,
fully paid and nonassessable.
(b) The promissory notes[s] currently evidencing the Pledged Debt have
been, and all other promissory notes from time to time evidencing Pledged Debt,
when executed and delivered, will have been, duly authorized, executed and
delivered by the respective makers thereof, and all such promissory notes are or
will be, as the case may be, legal, valid and binding obligations of such
makers, enforceable against such makers in accordance with their respective
terms, subject as to enforceability to applicable bankruptcy, insolvency,
reorganization and similar laws affecting creditors' rights and to general
principles of equity.
(c) The Pledgor is and will be at all times the legal and beneficial owner
of the Pledged Collateral free and clear of any Lien, security interest, option
or other charge or encumbrance except for the security interest created by this
Agreement and Liens permitted by the Financing Agreement.
(d) The exercise by the Collateral Agent of any of its rights and remedies
hereunder will not contravene law or any material contractual restriction
binding on or affecting the Pledgor or any of its properties and will not result
in or require the creation of any Lien, security interest or other charge or
encumbrance upon or with respect to any of its properties other than pursuant to
this Agreement and the other Loan Documents.
(e) No authorization or approval or other action by, and no notice to or
filing with, any Governmental Authority is required to be obtained or made by
the Pledgor for (i) the due execution, delivery and performance by the Pledgor
of this Agreement, (ii) the grant by the Pledgor, or the perfection, of the
security interest purported to be created hereby in the Pledged Collateral or
(iii) the exercise by the Collateral Agent or the Lenders of any of their rights
and remedies hereunder, except as may be required in connection with any sale of
any Pledged Collateral by laws affecting the offering and sale of securities
generally.
(f) This Agreement creates a valid security interest in favor of the
Collateral Agent in the Pledged Collateral, as security for the Obligations. The
Collateral Agent's having possession of the promissory notes evidencing the
Pledged Debt, the certificates representing the Pledged Shares and all other
certificates, instruments and cash constituting Pledged Collateral from time to
time results in the perfection of such security interest. Such security interest
is, or in the case of Pledged Collateral in which the Pledgor obtains rights
after the date hereof, will be, a perfected, first priority security interest.
All action necessary or desirable to perfect and protect such security interest
has been duly taken, except for the Collateral Agent's having possession of
certificates, instruments and cash constituting Pledged Collateral after the
date hereof.
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SECTION 6. Covenants as to the Pledged Collateral. So long as any
Obligations shall remain outstanding, the Pledgor will, unless the Collateral
Agent shall otherwise consent in writing:
(a) keep adequate records concerning the Pledged Collateral and permit the
Collateral Agent or any agents or representatives thereof at any time or from
time to time to examine and make copies of and abstracts from such records
pursuant to the terms of Section 7.01(f) of the Financing Agreement;
(b) at its expense, upon the request of the Collateral Agent, promptly
deliver to the Collateral Agent a copy of each material notice or other
communication received by it in respect of the Pledged Collateral;
(c) at its expense, defend the Collateral Agent's right, title and
security interest in and to the Pledged Collateral against the claims of any
Person;
(d) at its expense, at any time and from time to time, promptly execute
and deliver all further instruments and documents and take all further action
that may be necessary or that the Collateral Agent may reasonably request in
order to (i) perfect and protect the security interest purported to be created
hereby, (ii) enable the Collateral Agent to exercise and enforce its rights and
remedies hereunder in respect of the Pledged Collateral or (iii) otherwise
effect the purposes of this Agreement, including, without limitation, delivering
to the Collateral Agent, after the occurrence and during the continuation of an
Event of Default, irrevocable proxies in respect of the Pledged Collateral;
(e) not sell, assign (by operation of law or otherwise), exchange or
otherwise dispose of any Pledged Collateral or any interest therein (other than
the Pledged Shares issued by Norty's, Inc.) except as permitted by Section
7(a)(i) hereof;
(f) not create or suffer to exist any Lien, security interest or other
charge or encumbrance upon or with respect to any Pledged Collateral except for
the security interest created hereby or pursuant to any other Loan Document and
Liens permitted by the Financing Agreement;
(g) not make or consent to any amendment or other modification or waiver
with respect to any Pledged Collateral or enter into any agreement or permit to
exist any restriction with respect to any Pledged Collateral other than pursuant
to the Loan Documents and applicable securities laws;
(h) not permit the issuance of (i) any additional shares of any class of
capital stock of any Pledged Subsidiary, (ii) any securities convertible
voluntarily by the holder thereof or automatically upon the occurrence or
non-occurrence of any event or condition into, or exchangeable for, any such
shares of capital stock or (iii) any warrants, options, contracts or other
commitments entitling any Person to purchase or otherwise acquire any such
shares of capital stock; and
(i) not take or fail to take any action which would in any manner impair
the enforceability of the Collateral Agent's security interest in any Pledged
Collateral.
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SECTION 7. Voting Rights, Dividends, Etc. in Respect of the Pledged
Collateral.
(a) So long as no Event of Default shall have occurred and be continuing:
(i) the Pledgor may exercise any and all voting and other consensual
rights pertaining to any Pledged Collateral for any purpose not inconsistent
with the terms of this Agreement, the Financing Agreement or the other Loan
Documents; provided, however, that (A) the Pledgor will not exercise or refrain
from exercising any such right, as the case may be, if the Collateral Agent
gives it notice that, in the Collateral Agent's reasonable judgment, such action
would have a Material Adverse Effect and (B) the Pledgor will give the
Collateral Agent at least 5 Business Days' notice of the manner in which it
intends to exercise, or the reasons for refraining from exercising, any such
right which is reasonably likely to have a Material Adverse Effect;
(ii) the Pledgor may receive and retain any and all dividends or
interest paid in respect of the Pledged Collateral; provided, however, that any
and all (A) dividends and interest paid or payable other than in cash in respect
of, and instruments and other property received, receivable or otherwise
distributed in respect of or in exchange for, any Pledged Collateral, (B)
dividends and other distributions paid or payable in cash in respect of any
Pledged Collateral in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus or
paid-in surplus, and (C) cash paid, payable or otherwise distributed in
redemption of, or in exchange for, any Pledged Collateral, shall be, and shall
forthwith be delivered to the Collateral Agent to hold as, Pledged Collateral
and shall, if received by the Pledgor, be received in trust for the benefit of
the Collateral Agent, shall be segregated from the other property or funds of
the Pledgor, and shall be forthwith delivered to the Collateral Agent in the
exact form received with any necessary indorsement and/or appropriate stock
powers duly executed in blank, to be held by the Collateral Agent as Pledged
Collateral and as further collateral security for the Obligations; and
(iii) the Collateral Agent will execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies and other instruments as
the Pledgor may reasonably request for the purpose of enabling the Pledgor to
exercise the voting and other rights which it is entitled to exercise pursuant
to paragraph (i) of this Section 7(a) and to receive the dividends which it is
authorized to receive and retain pursuant to paragraph (ii) of this Section
7(a).
(b) Upon the occurrence and during the continuance of an Event of Default
and to the extent not inconsistent with the Financing Agreement:
(i) all rights of the Pledgor to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise pursuant to
paragraph (i) of subsection (a) of this Section 7, and to receive the dividends
and interest payments which it would otherwise be authorized to receive and
retain pursuant to paragraph (ii) of subsection (a) of this Section 7, shall
cease, and all such rights shall thereupon become vested in the Collateral Agent
which shall thereupon have the sole right to exercise such voting and other
consensual rights and to receive and hold as Pledged Collateral such dividends
and interest payments;
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(ii) the Collateral Agent is authorized to notify each debtor with
respect to the Pledged Debt to make payment directly to the Collateral Agent and
may collect any and all monies due or to become due to the Pledgor in respect of
the Pledged Debt and the Pledgor hereby authorizes each such debtor to make such
payment directly to the Collateral Agent without any duty of inquiry;
(iii) without limiting the generality of the foregoing, the
Collateral Agent may at its option exercise any and all rights of conversion,
exchange, subscription or any other rights, privileges or options pertaining to
any of the Pledged Collateral as if it were the absolute owner thereof,
including, without limitation, the right to exchange, in its discretion, any and
all of the Pledged Collateral upon the merger, consolidation, reorganization,
recapitalization or other adjustment of any Pledged Subsidiary, or upon the
exercise by any Pledged Subsidiary of any right, privilege or option pertaining
to any Pledged Collateral, and, in connection therewith, to deposit and deliver
any and all of the Pledged Collateral with any committee, depository, transfer
agent, registrar or other designated agent upon such terms and conditions as it
may determine; and
(iv) all dividends and interest payments which are received by the
Pledgor contrary to the provisions of paragraph (i) of this Section 7(b) shall
be received in trust for the benefit of the Collateral Agent, shall be
segregated from other funds of the Pledgor, and shall be forthwith paid over to
the Collateral Agent as Pledged Collateral in the exact form received with any
necessary indorsement and/or appropriate stock powers duly executed in blank, to
be held by the Collateral Agent as Pledged Collateral and as further collateral
security for the Obligations.
SECTION 8. Additional Provisions Concerning the Pledged Collateral.
(a) The Pledgor hereby authorizes the Collateral Agent to file, without
the signature of the Pledgor where permitted by law, one or more financing or
continuation statements, and amendments thereto, relating to the Pledged
Collateral.
(b) The Pledgor hereby irrevocably appoints the Collateral Agent the
Pledgor's attorney-in-fact and proxy, with full authority in the place and stead
of the Pledgor and in the name of the Pledgor or otherwise, from time to time in
the Collateral Agent's discretion exercised reasonably and during the
continuance of an Event of Default, to take any action and to execute any
instrument which the Collateral Agent may deem necessary or reasonably advisable
to accomplish the purposes of this Agreement (subject to the rights of the
Pledgor under Section 7(a) hereof), including, without limitation, to receive,
indorse and collect all instruments made payable to the Pledgor representing any
dividend, interest payment or other distribution in respect of any Pledged
Collateral and to give full discharge for the same.
(c) If the Pledgor fails to perform any agreement or obligation contained
herein, the Collateral Agent itself may perform, or cause performance of, such
agreement or obligation, and the expenses of the Collateral Agent incurred in
connection therewith shall be payable by the Pledgor pursuant to Section 10
hereof.
(d) Other than the exercise of reasonable care to assure the safe custody
of the
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Pledged Collateral while held hereunder, the Collateral Agent shall have no duty
or liability to preserve rights pertaining thereto and shall be relieved of all
responsibility for the Pledged Collateral upon surrendering it or tendering
surrender of it to the Pledgor. The Collateral Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment
substantially equal to that which the Collateral Agent accords its own property,
it being understood that the Collateral Agent shall not have responsibility for
(i) ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relating to any Pledged Collateral, whether
or not the Collateral Agent has or is deemed to have knowledge of such matters,
or (ii) taking any necessary steps to preserve rights against any parties with
respect to any Pledged Collateral.
(e) The Collateral Agent may at any time after the occurrence and during
the continuation of an Event of Default and to the extent not inconsistent with
the Financing Agreement in its discretion (i) without notice to the Pledgor,
transfer or register in the name of the Collateral Agent or any of its nominees
any or all of the Pledged Collateral, subject only to the revocable rights of
the Pledgor under Section 7(a) hereof, and (ii) exchange certificates or
instruments constituting Pledged Collateral for certificates or instruments of
smaller or larger denominations.
SECTION 9. Remedies Upon Default. If any Event of Default shall have
occurred and be continuing:
(a) The Collateral Agent may exercise in respect of the Pledged
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all of the rights and remedies of a secured party on
default under the Code then in effect in the State of New York; and without
limiting the generality of the foregoing and without notice except as specified
below, sell the Pledged Collateral or any part thereof in one or more parcels at
public or private sale, at any exchange or broker's board or elsewhere, at such
price or prices and on such other terms as the Collateral Agent may deem
commercially reasonable. The Pledgor agrees that, to the extent notice of sale
shall be required by law, at least 10 Business Days' notice to the Pledgor of
the time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. The Collateral Agent
shall not be obligated to make any sale of Pledged Collateral regardless of
notice of sale having been given. The Collateral Agent may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned.
(b) The Pledgor recognizes that it is impracticable to effect a public
sale of all or any part of the Pledged Shares or any other securities
constituting Pledged Collateral and that the Collateral Agent may, therefore,
determine to make one or more private sales of any such securities to a
restricted group of purchasers who will be obligated to agree, among other
things, to acquire such securities for their own account, for investment and not
with a view to the distribution or resale thereof. The Pledgor acknowledges that
any such private sale may be at prices and on terms less favorable to the seller
than the prices and other terms which might have been obtained at a public sale
and, notwithstanding the foregoing, agrees that such private sales shall be
deemed to have been made in a commercially reasonable manner and that the
Collateral
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Agent shall have no obligation to delay sale of any such securities for the
period of time necessary to permit the issuer of such securities to register
such securities for public sale under the Securities Act. The Pledgor further
acknowledges and agrees that any offer to sell such securities which has been
(i) publicly advertised on a bona fide basis in a newspaper or other publication
of general circulation in the financial community of New York, New York (to the
extent that such an offer may be so advertised without prior registration under
the Securities Act) or (ii) made privately in the manner described above to not
less than fifteen bona fide offerees shall be deemed to involve a "public sale"
for the purposes of Section 9-504(3) of the Code (or any successor or similar,
applicable statutory provision) as then in effect in the State of New York,
notwithstanding that such sale may not constitute a "public offering" under the
Securities Act, and that the Collateral Agent may, in such event, bid for the
purchase of such securities.
(c) Any cash held by the Collateral Agent as Pledged Collateral and all
cash proceeds received by the Collateral Agent in respect of any sale of,
collection from, or other realization upon, all or any part of the Pledged
Collateral may, in the discretion of the Collateral Agent, be held by the
Collateral Agent as collateral for, and/or then or at any time thereafter
applied (after payment of any amounts payable to the Collateral Agent pursuant
to Section 10 hereof) in whole or in part by the Collateral Agent against, all
or any part of the Obligations in such order as the Collateral Agent shall elect
consistent with the provisions of the Financing Agreement. Any surplus of such
cash or cash proceeds held by the Collateral Agent and remaining after payment
in full of all of the Obligations shall be paid over to the Pledgor or to such
person as may be lawfully entitled to receive such surplus.
(d) In the event that the proceeds of any such sale, collection or
realization are insufficient to pay all amounts to which the Collateral Agent or
any Lender is legally entitled, the Pledgor shall be liable for the deficiency,
together with interest thereon at the highest rate specified in the Financing
Agreement for interest on overdue principal thereof or such other rate as shall
be fixed by applicable law, together with the costs of collection and the
reasonable fees of any attorneys employed by the Collateral Agent and any Lender
to collect such deficiency.
SECTION 10. Indemnity and Expenses.
(a) The Pledgor agrees to indemnify the Collateral Agent from and against
any and all claims, losses and liabilities growing out of or resulting from this
Agreement (including, without limitation, enforcement of this Agreement), except
claims, losses or liabilities resulting solely and directly from the Collateral
Agent's gross negligence or willful misconduct as determined by a final judgment
of a court of competent jurisdiction.
(b) The Pledgor will upon demand pay to the Collateral Agent the amount of
any and all reasonable costs and expenses, including the reasonable fees and
disbursements of the Collateral Agent's counsel and of any experts and agents,
which the Collateral Agent may incur in connection with (i) the administration
of this Agreement, (ii) the custody, preservation, use or operation of, or the
sale of, collection from, or other realization upon, any Pledged Collateral,
(iii) the exercise or enforcement of any of the rights of the Collateral Agent
or any of the Lenders hereunder, or (iv) the failure by the Pledgor to perform
or observe any of the provisions hereof.
SECTION 11. Notices, Etc. All notices and other communications provided
for
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hereunder shall be in writing and shall be mailed (by certified mail, postage
prepaid and return receipt requested), telecopied or delivered, if to the
Pledgor, to it at its address specified in the Financing Agreement, and if to
the Collateral Agent, to it at its address specified in the Financing Agreement,
or as to either such Person at such other address as shall be designated by such
Person in a written notice to such other Person complying as to delivery with
the terms of this Section 11. All such notices and other communications shall be
effective (i) if sent by certified mail, return receipt requested, when received
or 3 Business Days after mailing, whichever first occurs, (ii) if telecopied,
when transmitted and confirmation is received, provided same is on a Business
Day and, if not, on the next Business Day, or (iii) if delivered, upon delivery,
provided same is on a Business Day and, if not, on the next Business Day.
SECTION 12. Consent to Jurisdiction, Etc.
(a) Any legal action or proceeding with respect to this Agreement or any
document related thereto may be brought in the courts of the State of New York
or of the United States of America for the Southern District of New York, and,
by execution and delivery of this Agreement, the Pledgor hereby accepts
unconditionally the jurisdiction of the aforesaid courts. The Pledgor hereby
irrevocably waives any objection, including without limitation, any objection to
the laying of venue or based on the grounds of forum non conveniens, which the
Pledgor may now or hereafter have to the bringing of any such action or
proceeding in such respective jurisdictions.
(b) The Pledgor irrevocably consents to the service of process of any of
the aforementioned courts in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to the Pledgor
at its address referred to in Section 11 hereof.
(c) Nothing contained in this Section 12 shall affect the right of the
Collateral Agent to serve legal process in any other manner permitted by law or
to commence legal proceedings or otherwise proceed against the Pledgor in any
other jurisdiction.
SECTION 13. Waiver of Jury Trial. EACH OF THE PLEDGOR AND THE COLLATERAL
AGENT (BY ACCEPTING THIS AGREEMENT) WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT OR ARISING FROM ANY OTHER LOAN DOCUMENT AND AGREES THAT
ANY SUCH ACTION, PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND
NOT BEFORE A JURY.
SECTION 14. Miscellaneous.
(a) No amendment of any provision of this Agreement shall be effective
unless it is in writing and signed by the Pledgor and the Collateral Agent, and
no waiver of any provision of this Agreement, and no consent to any departure by
the Pledgor therefrom, shall be effective unless it is in writing and signed by
the Collateral Agent, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
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(b) No failure on the part of the Collateral Agent to exercise, and no
delay in exercising, any right hereunder or under any other document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the exercise of any
other right. The rights and remedies of the Collateral Agent provided herein and
in the other Loan Documents are cumulative and are in addition to, and not
exclusive of, any rights or remedies provided by law. The rights of the
Collateral Agent under any document against any party thereto are not
conditional or contingent on any attempt by the Collateral Agent to exercise any
of its rights under any other document against such party or against any other
person.
(c) Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
portions hereof or thereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
(d) This Agreement shall create a continuing security interest in the
Pledged Collateral and shall (i) remain in full force and effect until the
payment in full or release of the Obligations after the Total Commitment has
been terminated and all Letters of Credit have been canceled or cash
collateralized and (ii) be binding on the Pledgor and by its acceptance hereof,
the Collateral Agent, and their respective successors and assigns and shall
inure, together with all rights and remedies of the Collateral Agent and the
Lenders hereunder, to the benefit of the Pledgor, the Collateral Agent and the
Lenders and their respective successors, transferees and assigns. Without
limiting the generality of clause (ii) of the immediately preceding sentence,
the Collateral Agent may assign or otherwise transfer its rights and obligations
under this Agreement to any other Person pursuant to the terms of the Financing
Agreement, and such other Person shall thereupon become vested with all of the
benefits in respect thereof granted to the Collateral Agent herein or otherwise.
Upon any such assignment or transfer, all references in this Agreement to the
Collateral Agent shall mean the assignee of the Collateral Agent. None of the
rights or obligations of the Pledgor hereunder may be assigned or otherwise
transferred without the prior written consent of the Collateral Agent.
(e) Upon the satisfaction in full of the Obligations after the Total
Commitment has been terminated and all Letters of Credit have been canceled or
cash collateralized, (i) this Agreement and the security interest created hereby
shall terminate and all rights to the Pledged Collateral shall revert to the
Pledgor, and (ii) the Collateral Agent will, upon the Pledgor's request and at
the Pledgor's expense promptly, (A) return to the Pledgor such of the Pledged
Collateral as shall not have been sold or otherwise disposed of or applied
pursuant to the terms hereof and (B) execute and deliver to the Pledgor, without
recourse, representation or warranty, such documents as the Pledgor shall
reasonably request to evidence such termination.
(f) This Agreement shall be governed by and construed in accordance with
the law of the State of New York, except as required by mandatory provisions of
law and except to the extent that the validity and perfection or the perfection
and the effect of perfection or non-perfection of the security interest created
hereby, or remedies hereunder, in respect of any particular Pledged Collateral
are governed by the law of a jurisdiction other than the State of New York.
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IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be executed
and delivered by its officer thereunto duly authorized, as of the date first
above written.
[PLEDGOR]
By:.........................................
Name:
Title:
ACCEPTED AND AGREED:
NATIONSBANC COMMERCIAL CORPORATION,
as Collateral Agent
By:...........................
Name:.........................
Title:........................
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<PAGE> 184
SCHEDULE I TO PLEDGE AND SECURITY AGREEMENT
Pledged Debt
Principal Amount
Name of Maker Description Outstanding as of
- ------------- ----------- -----------------
<PAGE> 185
SCHEDULE II TO PLEDGE AND SECURITY AGREEMENT
Pledged Shares
Certificate
Name of Issuer Number of Shares Class No.(s)
- ------------- ---------------- ----- ------
<PAGE> 186
SCHEDULE III
TO
PLEDGE AND SECURITY AGREEMENT
PLEDGE AMENDMENT
This Pledge Amendment, dated ________________________________, is
delivered pursuant to Section 4 of the Pledge Agreement referred to below. The
undersigned hereby agrees that this Pledge Amendment may be attached to the
Pledge Agreement, dated September __, 1997, as it may heretofore have been or
hereafter may be amended or otherwise modified or supplemented from time to time
and that the promissory notes or shares listed on this Pledge Amendment shall be
and become part of the Pledged Collateral referred to in said Pledge Agreement
and shall secure all of the Obligations referred to in said Pledge Agreement.
Pledged Debt
Principal Amount
Name of Maker Description Outstanding as of
------------- ----------- -----------------
Pledged Shares
--------------
Name of Issuer Number of Shares Class Certificate No(s)
- -------------- ---------------- ----- -----------------
PLEDGOR
By:................................
Name:
Title:
<PAGE> 187
EXHIBIT E-2
FORM OF PARENT PLEDGE AGREEMENT
PLEDGE AND SECURITY AGREEMENT dated as of September __ 1997, made by
NORTON MCNAUGHTON, INC., a Delaware corporation (the "Pledgor"), in favor of
NATIONSBANC COMMERCIAL CORPORATION, as collateral agent for the Lenders parties
to the Financing Agreement referred to below (in such capacity, the "Collateral
Agent").
W I T N E S S E T H:
WHEREAS, the Pledgor, Norton McNaughton of Squire, Inc., a New York
corporation ("Squire"), Miss Erika, Inc., a Delaware corporation formerly known
as ME Acquisition Corp. ("MISS ERIKA" and, together with Squire, each a
"Borrower" and collectively, the "Borrowers"), The CIT Group/Commercial
Services, Inc., as administrative agent (the "Administrative Agent"), the
Collateral Agent and the financial institutions from time to time party thereto
(the "Lenders") have entered into a Financing Agreement, dated the date hereof
(such Agreement, as amended or otherwise modified from time to time, the
"Financing Agreement");
WHEREAS, pursuant to Article XI of the Financing Agreement, the Pledgor
has guaranteed all of the obligations of the Borrowers to the Administrative
Agent, the Collateral Agent and the Lenders under the Financing Agreement;
WHEREAS, as collateral security for the obligations of the Pledgor to the
Administrative Agent, the Collateral Agent and the Lenders under Article XI of
the Financing Agreement, the Pledgor has agreed to execute and deliver to the
Collateral Agent a pledge and security agreement providing for the pledge to the
Collateral Agent of and the grant to the Collateral Agent for the benefit of the
Lenders of a security interest in, certain indebtedness from time to time owing
to the Pledgor and certain of the outstanding shares of capital stock from time
to time owned by the Pledgor of each Subsidiary now or hereafter existing and in
which Pledgor has any interest at any time;
WHEREAS, the Pledgor has determined that the execution, delivery and
performance of this Agreement directly benefits, and is in the best interest of
the Pledgor;
NOW, THEREFORE, in consideration of the premises and the agreements herein
and in order to induce the Collateral Agent and the Lenders to enter into the
Financing Agreement with the Pledgor, the Pledgor hereby agrees with the
Collateral Agent as follows:
SECTION 1. Definitions. All terms used in this Agreement which are defined
in the Financing Agreement or in Article 8 or Article 9 of the Uniform
Commercial Code (the "Code") currently in effect in the State of New York and
which are not otherwise defined herein shall have the same meanings herein as
set forth therein.
SECTION 2. Pledge and Grant of Security Interest. As collateral security
for all
<PAGE> 188
of the Obligations (as defined in Section 3 hereof), the Pledgor hereby pledges
and collaterally assigns to the Collateral Agent, and grants to the Collateral
Agent for the benefit of the Lenders a continuing security interest in, the
following (the "Pledged Collateral"):
(a) the indebtedness described in Schedule I hereto and all indebtedness
from time to time required to be pledged to the Collateral Agent pursuant to the
terms of the Financing Agreement (the "Pledged Debt"), the promissory notes and
other instruments evidencing the Pledged Debt and all interest, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the Pledged
Debt;
(b) the shares of stock described in Schedule II hereto (the "Pledged
Shares") issued by the corporations described in such Schedule II (the "Existing
Subsidiaries"), the certificates representing the Pledged Shares, all options
and other rights, contractual or otherwise, in respect thereof and all
dividends, cash, instruments and other property (including but not limited to,
any stock dividend and any distribution in connection with a stock split) from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the Pledged Shares;
(c) the shares of stock at any time and from time to time acquired by the
Pledgor, of any and all Subsidiaries, whether now or hereafter existing, all or
a portion of the stock of which is acquired by the Pledgor at any time (such
Subsidiaries, together with the Existing Subsidiaries, being hereinafter
referred to collectively as the "Pledged Subsidiaries" and individually as a
"Pledged Subsidiary"), the certificates representing such shares, all options
and other rights, contractual or otherwise, in respect thereof and all
dividends, cash, instruments and other property from time to time received,
receivable or otherwise distributed in respect of or in exchange for any or all
of such shares;
(d) all additional shares of stock, from time to time acquired by the
Pledgor, of any Pledged Subsidiary, the certificates representing such
additional shares, all options and other rights, contractual or otherwise, in
respect thereof and all dividends, cash, instruments and other property from
time to time received, receivable or otherwise distributed in respect of or in
exchange for any or all of such additional shares; and
(e) all proceeds of any and all of the foregoing;
in each case, whether now owned or hereafter acquired by the Pledgor and
howsoever its interest therein may arise or appear (whether by ownership,
security interest, claim or otherwise).
SECTION 3. Security for Guaranteed Obligations. The security interest
created hereby in the Pledged Collateral constitutes continuing collateral
security for all of the following obligations whether now existing or hereafter
incurred (the "Guaranteed Obligations"):
(a) the prompt payment by the Pledgor, as and when due and payable, of all
amounts from time to time owing by it in respect of its guaranty made pursuant
to Article XI of the Financing Agreement, including, without limitation,
principal of and interest on the Loans (including, without limitation, all
interest that accrues after the commencement of any case,
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proceeding or other action relating to the bankruptcy, insolvency or
reorganization of any Borrower, whether or not a claim for post-filing interest
is allowed in such proceeding), all Letter of Credit Obligations and Ledger Debt
and all interest thereon, all fees, commissions, expense reimbursements,
indemnifications and all other amounts due or to become due under any Loan
Document to which it is a party; and
(b) the due performance and observance by the Pledgor of all of its other
obligations from time to time existing in respect of Article XI of the Financing
Agreement and the other Loan Documents to which it is a party.
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<PAGE> 190
SECTION 4. Delivery of the Pledged Collateral.
(a) All promissory notes currently evidencing the Pledged Debt and all
certificates currently representing the Pledged Shares shall be delivered to the
Collateral Agent on or prior to the execution and delivery of this Agreement.
All other promissory notes, certificates and instruments constituting Pledged
Collateral from time to time or required to be pledged to the Collateral Agent
pursuant to the terms of the Financing Agreement (the "Additional Collateral")
shall be delivered to the Collateral Agent within 10 Business Days of receipt
thereof by or on behalf of Pledgor. All such promissory notes, certificates and
instruments shall be held by or on behalf of the Collateral Agent pursuant
hereto and shall be delivered in suitable form for transfer by delivery or shall
be accompanied by duly executed instruments of transfer or assignment in blank,
all in form and substance reasonably satisfactory to the Collateral Agent.
Within 10 Business Days of the receipt by Pledgor of the Additional Collateral,
a Pledge Amendment, duly executed by the Pledgor, in substantially the form of
Schedule III hereto (a "Pledge Amendment") shall be delivered to the Collateral
Agent, in respect of the Additional Collateral which are to be pledged pursuant
to this Agreement and the Financing Agreement, which Pledge Amendment shall from
and after delivery thereof constitute part of Schedules I and II hereto. The
Pledgor hereby authorizes the Collateral Agent to attach each Pledge Amendment
to this Agreement and agrees that all promissory notes, certificates or
instruments listed on any Pledge Amendment delivered to the Collateral Agent
shall for all purposes hereunder constitute Pledged Collateral and the Pledgor
shall be deemed upon delivery thereof to have made the representations and
warranties set forth in Section 5 with respect to such Additional Collateral.
(b) If the Pledgor shall receive, by virtue of its being or having been
an owner of any Pledged Collateral, any (i) stock certificate (including,
without limitation, any certificate representing a stock dividend or
distribution in connection with any increase or reduction of capital,
reclassification, merger, consolidation, sale of assets, combination of shares,
stock split, spinoff or split-off), promissory note or other instrument, (ii)
option or right, whether as an addition to, substitution for, or in exchange
for, any Pledged Collateral, or otherwise, (iii) dividends payable in cash
(except such dividends permitted to be retained by the Pledgor pursuant to
Section 7 hereof) or in securities or other property or (iv) dividends or other
distributions in connection with a partial or total liquidation or dissolution
or in connection with a reduction of capital, capital surplus or paid-in
surplus, the Pledgor shall receive such stock certificate, promissory note,
instrument, option, right, payment or distribution in trust for the benefit of
the Collateral Agent, shall segregate it from the Pledgor's other property and
shall deliver it forthwith to the Collateral Agent in the exact form received,
with any necessary indorsement and/or appropriate stock powers duly executed in
blank, to be held by the Collateral Agent as Pledged Collateral and as further
collateral security for the Guaranteed Obligations.
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<PAGE> 191
SECTION 5. Representations and Warranties. The Pledgor represents and
warrants as follows:
(a) The Existing Subsidiaries set forth in Schedule II hereto are the
Pledgor's only directly-owned Subsidiaries existing on the date hereof. The
Pledged Shares have been duly authorized and validly issued, are fully paid and
nonassessable and constitute 100% of the issued shares of capital stock of the
Pledged Subsidiaries as of the date hereof. All other shares of stock
constituting Pledged Collateral will be, when issued, duly authorized and
validly issued, fully paid and nonassessable.
(b) The promissory notes[s] currently evidencing the Pledged Debt have
been, and all other promissory notes from time to time evidencing Pledged Debt,
when executed and delivered, will have been, duly authorized, executed and
delivered by the respective makers thereof, and all such promissory notes are or
will be, as the case may be, legal, valid and binding obligations of such
makers, enforceable against such makers in accordance with their respective
terms, subject as to enforceability to applicable bankruptcy, insolvency,
reorganization and similar laws affecting creditors' rights and to general
principles of equity.
(c) The Pledgor is and will be at all times the legal and beneficial
owner of the Pledged Collateral free and clear of any Lien, security interest,
option or other charge or encumbrance except for the security interest created
by this Agreement and Liens permitted by the Financing Agreement.
(d) The exercise by the Collateral Agent of any of its rights and
remedies hereunder will not contravene law or any material contractual
restriction binding on or affecting the Pledgor or any of its properties and
will not result in or require the creation of any Lien, security interest or
other charge or encumbrance upon or with respect to any of its properties other
than pursuant to this Agreement and the other Loan Documents.
(e) No authorization or approval or other action by, and no notice to
or filing with, any Governmental Authority is required to be obtained or made by
the Pledgor for (i) the due execution, delivery and performance by the Pledgor
of this Agreement, (ii) the grant by the Pledgor, or the perfection, of the
security interest purported to be created hereby in the Pledged Collateral or
(iii) the exercise by the Collateral Agent or the Lenders of any of their rights
and remedies hereunder, except as may be required in connection with any sale of
any Pledged Collateral by laws affecting the offering and sale of securities
generally.
(f) This Agreement creates a valid security interest in favor of the
Collateral Agent in the Pledged Collateral, as security for the Obligations. The
Collateral Agent's having possession of the promissory notes evidencing the
Pledged Debt, the certificates representing the Pledged Shares and all other
certificates, instruments and cash constituting Pledged Collateral from time to
time results in the perfection of such security interest. Such security interest
is, or in the case of Pledged Collateral in which the Pledgor obtains rights
after the date hereof, will be, a perfected, first priority security interest.
All action necessary or desirable to perfect and protect such security interest
has been duly taken, except for the Collateral Agent's having possession of
certificates, instruments and cash constituting Pledged Collateral after the
date hereof.
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SECTION 6. Covenants as to the Pledged Collateral. So long as any
Guaranteed Obligations shall remain outstanding, the Pledgor will, unless the
Collateral Agent shall otherwise consent in writing:
(a) keep adequate records concerning the Pledged Collateral and permit
the Collateral Agent or any agents or representatives thereof at any time or
from time to time to examine and make copies of and abstracts from such records
pursuant to the terms of Section 7.01(f) of the Financing Agreement;
(b) at its expense, upon the request of the Collateral Agent, promptly
deliver to the Collateral Agent a copy of each material notice or other
communication received by it in respect of the Pledged Collateral;
(c) at its expense, defend the Collateral Agent's right, title and
security interest in and to the Pledged Collateral against the claims of any
Person;
(d) at its expense, at any time and from time to time, promptly execute
and deliver all further instruments and documents and take all further action
that may be necessary or that the Collateral Agent may reasonably request in
order to (i) perfect and protect the security interest purported to be created
hereby, (ii) enable the Collateral Agent to exercise and enforce its rights and
remedies hereunder in respect of the Pledged Collateral or (iii) otherwise
effect the purposes of this Agreement, including, without limitation, delivering
to the Collateral Agent, after the occurrence and during the continuation of an
Event of Default, irrevocable proxies in respect of the Pledged Collateral;
(e) not sell, assign (by operation of law or otherwise), exchange or
otherwise dispose of any Pledged Collateral or any interest therein (other than
the Pledged Shares issued by Norty's, Inc.) except as permitted by Section
7(a)(i) hereof;
(f) not create or suffer to exist any Lien, security interest or other
charge or encumbrance upon or with respect to any Pledged Collateral except for
the security interest created hereby or pursuant to any other Loan Document and
Liens permitted by the Financing Agreement;
(g) not make or consent to any amendment or other modification or
waiver with respect to any Pledged Collateral or enter into any agreement or
permit to exist any restriction with respect to any Pledged Collateral other
than pursuant to the Loan Documents and applicable securities laws;
(h) not permit the issuance of (i) any additional shares of any class
of capital stock of any Pledged Subsidiary, (ii) any securities convertible
voluntarily by the holder thereof or automatically upon the occurrence or
non-occurrence of any event or condition into, or exchangeable for, any such
shares of capital stock or (iii) any warrants, options, contracts or other
commitments entitling any Person to purchase or otherwise acquire any such
shares of capital stock; and
(i) not take or fail to take any action which would in any manner
impair the enforceability of the Collateral Agent's security interest in any
Pledged Collateral.
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SECTION 7. Voting Rights, Dividends, Etc. in Respect of the Pledged
Collateral.
(a) So long as no Event of Default shall have occurred and be
continuing:
(i) the Pledgor may exercise any and all voting and other
consensual rights pertaining to any Pledged Collateral for any purpose not
inconsistent with the terms of this Agreement, the Financing Agreement or the
other Loan Documents; provided, however, that (A) the Pledgor will not exercise
or refrain from exercising any such right, as the case may be, if the Collateral
Agent gives it notice that, in the Collateral Agent's reasonable judgment, such
action would have a Material Adverse Effect and (B) the Pledgor will give the
Collateral Agent at least 5 Business Days' notice of the manner in which it
intends to exercise, or the reasons for refraining from exercising, any such
right which is reasonably likely to have a Material Adverse Effect;
(ii) the Pledgor may receive and retain any and all dividends
or interest paid in respect of the Pledged Collateral; provided, however, that
any and all (A) dividends and interest paid or payable other than in cash in
respect of, and instruments and other property received, receivable or otherwise
distributed in respect of or in exchange for, any Pledged Collateral, (B)
dividends and other distributions paid or payable in cash in respect of any
Pledged Collateral in connection with a partial or total liquidation or
dissolution or in connection with a reduction of capital, capital surplus or
paid-in surplus, and (C) cash paid, payable or otherwise distributed in
redemption of, or in exchange for, any Pledged Collateral, shall be, and shall
forthwith be delivered to the Collateral Agent to hold as, Pledged Collateral
and shall, if received by the Pledgor, be received in trust for the benefit of
the Collateral Agent, shall be segregated from the other property or funds of
the Pledgor, and shall be forthwith delivered to the Collateral Agent in the
exact form received with any necessary indorsement and/or appropriate stock
powers duly executed in blank, to be held by the Collateral Agent as Pledged
Collateral and as further collateral security for the Guaranteed Obligations;
and
(iii) the Collateral Agent will execute and deliver (or cause
to be executed and delivered) to the Pledgor all such proxies and other
instruments as the Pledgor may reasonably request for the purpose of enabling
the Pledgor to exercise the voting and other rights which it is entitled to
exercise pursuant to paragraph (i) of this Section 7(a) and to receive the
dividends which it is authorized to receive and retain pursuant to paragraph
(ii) of this Section 7(a).
(b) Upon the occurrence and during the continuance of an Event of
Default and to the extent not inconsistent with the Financing Agreement:
(i) all rights of the Pledgor to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise pursuant to
paragraph (i) of subsection (a) of this Section 7, and to receive the dividends
and interest payments which it would otherwise be authorized to receive and
retain pursuant to paragraph (ii) of subsection (a) of this Section 7, shall
cease, and all such rights shall thereupon become vested in the Collateral Agent
which shall thereupon have the sole right to exercise such voting and other
consensual rights and to receive and hold as Pledged Collateral such dividends
and interest payments;
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(ii) the Collateral Agent is authorized to notify each debtor
with respect to the Pledged Debt to make payment directly to the Collateral
Agent and may collect any and all monies due or to become due to the Pledgor in
respect of the Pledged Debt and the Pledgor hereby authorizes each such debtor
to make such payment directly to the Collateral Agent without any duty of
inquiry;
(iii) without limiting the generality of the foregoing, the
Collateral Agent may at its option exercise any and all rights of conversion,
exchange, subscription or any other rights, privileges or options pertaining to
any of the Pledged Collateral as if it were the absolute owner thereof,
including, without limitation, the right to exchange, in its discretion, any and
all of the Pledged Collateral upon the merger, consolidation, reorganization,
recapitalization or other adjustment of any Pledged Subsidiary, or upon the
exercise by any Pledged Subsidiary of any right, privilege or option pertaining
to any Pledged Collateral, and, in connection therewith, to deposit and deliver
any and all of the Pledged Collateral with any committee, depository, transfer
agent, registrar or other designated agent upon such terms and conditions as it
may determine; and
(iv) all dividends and interest payments which are received by
the Pledgor contrary to the provisions of paragraph (i) of this Section 7(b)
shall be received in trust for the benefit of the Collateral Agent, shall be
segregated from other funds of the Pledgor, and shall be forthwith paid over to
the Collateral Agent as Pledged Collateral in the exact form received with any
necessary indorsement and/or appropriate stock powers duly executed in blank, to
be held by the Collateral Agent as Pledged Collateral and as further collateral
security for the Guaranteed Obligations.
SECTION 8. Additional Provisions Concerning the Pledged Collateral.
(a) The Pledgor hereby authorizes the Collateral Agent to file, without
the signature of the Pledgor where permitted by law, one or more financing or
continuation statements, and amendments thereto, relating to the Pledged
Collateral.
(b) The Pledgor hereby irrevocably appoints the Collateral Agent the
Pledgor's attorney-in-fact and proxy, with full authority in the place and stead
of the Pledgor and in the name of the Pledgor or otherwise, from time to time in
the Collateral Agent's discretion exercised reasonably and during the
continuance of an Event of Default, to take any action and to execute any
instrument which the Collateral Agent may deem necessary or reasonably advisable
to accomplish the purposes of this Agreement (subject to the rights of the
Pledgor under Section 7(a) hereof), including, without limitation, to receive,
indorse and collect all instruments made payable to the Pledgor representing any
dividend, interest payment or other distribution in respect of any Pledged
Collateral and to give full discharge for the same.
(c) If the Pledgor fails to perform any agreement or obligation
contained herein, the Collateral Agent itself may perform, or cause performance
of, such agreement or obligation, and the expenses of the Collateral Agent
incurred in connection therewith shall be payable by the Pledgor pursuant to
Section 10 hereof.
(d) Other than the exercise of reasonable care to assure the safe
custody of the
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Pledged Collateral while held hereunder, the Collateral Agent shall have no duty
or liability to preserve rights pertaining thereto and shall be relieved of all
responsibility for the Pledged Collateral upon surrendering it or tendering
surrender of it to the Pledgor. The Collateral Agent shall be deemed to have
exercised reasonable care in the custody and preservation of the Pledged
Collateral in its possession if the Pledged Collateral is accorded treatment
substantially equal to that which the Collateral Agent accords its own property,
it being understood that the Collateral Agent shall not have responsibility for
(i) ascertaining or taking action with respect to calls, conversions, exchanges,
maturities, tenders or other matters relating to any Pledged Collateral, whether
or not the Collateral Agent has or is deemed to have knowledge of such matters,
or (ii) taking any necessary steps to preserve rights against any parties with
respect to any Pledged Collateral.
(e) The Collateral Agent may at any time after the occurrence and
during the continuation of an Event of Default and to the extent not
inconsistent with the Financing Agreement in its discretion (i) without notice
to the Pledgor, transfer or register in the name of the Collateral Agent or any
of its nominees any or all of the Pledged Collateral, subject only to the
revocable rights of the Pledgor under Section 7(a) hereof, and (ii) exchange
certificates or instruments constituting Pledged Collateral for certificates or
instruments of smaller or larger denominations.
SECTION 9. Remedies Upon Default. If any Event of Default shall have
occurred and be continuing:
(a) The Collateral Agent may exercise in respect of the Pledged
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all of the rights and remedies of a secured party on
default under the Code then in effect in the State of New York; and without
limiting the generality of the foregoing and without notice except as specified
below, sell the Pledged Collateral or any part thereof in one or more parcels at
public or private sale, at any exchange or broker's board or elsewhere, at such
price or prices and on such other terms as the Collateral Agent may deem
commercially reasonable. The Pledgor agrees that, to the extent notice of sale
shall be required by law, at least 10 Business Days' notice to the Pledgor of
the time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. The Collateral Agent
shall not be obligated to make any sale of Pledged Collateral regardless of
notice of sale having been given. The Collateral Agent may adjourn any public or
private sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time and
place to which it was so adjourned.
(b) The Pledgor recognizes that it is impracticable to effect a public
sale of all or any part of the Pledged Shares or any other securities
constituting Pledged Collateral and that the Collateral Agent may, therefore,
determine to make one or more private sales of any such securities to a
restricted group of purchasers who will be obligated to agree, among other
things, to acquire such securities for their own account, for investment and not
with a view to the distribution or resale thereof. The Pledgor acknowledges that
any such private sale may be at prices and on terms less favorable to the seller
than the prices and other terms which might have been obtained at a public sale
and, notwithstanding the foregoing, agrees that such private sales shall be
deemed to have been made in a commercially reasonable manner and that the
Collateral
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<PAGE> 196
Agent shall have no obligation to delay sale of any such securities for the
period of time necessary to permit the issuer of such securities to register
such securities for public sale under the Securities Act. The Pledgor further
acknowledges and agrees that any offer to sell such securities which has been
(i) publicly advertised on a bona fide basis in a newspaper or other publication
of general circulation in the financial community of New York, New York (to the
extent that such an offer may be so advertised without prior registration under
the Securities Act) or (ii) made privately in the manner described above to not
less than fifteen bona fide offerees shall be deemed to involve a "public sale"
for the purposes of Section 9-504(3) of the Code (or any successor or similar,
applicable statutory provision) as then in effect in the State of New York,
notwithstanding that such sale may not constitute a "public offering" under the
Securities Act, and that the Collateral Agent may, in such event, bid for the
purchase of such securities.
(c) Any cash held by the Collateral Agent as Pledged Collateral and all
cash proceeds received by the Collateral Agent in respect of any sale of,
collection from, or other realization upon, all or any part of the Pledged
Collateral may, in the discretion of the Collateral Agent, be held by the
Collateral Agent as collateral for, and/or then or at any time thereafter
applied (after payment of any amounts payable to the Collateral Agent pursuant
to Section 10 hereof) in whole or in part by the Collateral Agent against, all
or any part of the Obligations in such order as the Collateral Agent shall elect
consistent with the provisions of the Financing Agreement. Any surplus of such
cash or cash proceeds held by the Collateral Agent and remaining after payment
in full of all of the Obligations shall be paid over to the Pledgor or to such
person as may be lawfully entitled to receive such surplus.
(d) In the event that the proceeds of any such sale, collection or
realization are insufficient to pay all amounts to which the Collateral Agent or
any Lender is legally entitled, the Pledgor shall be liable for the deficiency,
together with interest thereon at the highest rate specified in the Financing
Agreement for interest on overdue principal thereof or such other rate as shall
be fixed by applicable law, together with the costs of collection and the
reasonable fees of any attorneys employed by the Collateral Agent and any Lender
to collect such deficiency.
SECTION 10. Indemnity and Expenses.
(a) The Pledgor agrees to indemnify the Collateral Agent from and
against any and all claims, losses and liabilities growing out of or resulting
from this Agreement (including, without limitation, enforcement of this
Agreement), except claims, losses or liabilities resulting solely and directly
from the Collateral Agent's gross negligence or willful misconduct as determined
by a final judgment of a court of competent jurisdiction.
(b) The Pledgor will upon demand pay to the Collateral Agent the amount
of any and all reasonable costs and expenses, including the reasonable fees and
disbursements of the Collateral Agent's counsel and of any experts and agents,
which the Collateral Agent may incur in connection with (i) the administration
of this Agreement, (ii) the custody, preservation, use or operation of, or the
sale of, collection from, or other realization upon, any Pledged Collateral,
(iii) the exercise or enforcement of any of the rights of the Collateral Agent
or any of the Lenders hereunder, or (iv) the failure by the Pledgor to perform
or observe any of the provisions hereof.
SECTION 11. Notices, Etc. All notices and other communications provided
for
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hereunder shall be in writing and shall be mailed (by certified mail, postage
prepaid and return receipt requested), telecopied or delivered, if to the
Pledgor, to it at its address specified in the Financing Agreement, and if to
the Collateral Agent, to it at its address specified in the Financing Agreement,
or as to either such Person at such other address as shall be designated by such
Person in a written notice to such other Person complying as to delivery with
the terms of this Section 11. All such notices and other communications shall be
effective (i) if sent by certified mail, return receipt requested, when received
or 3 Business Days after mailing, whichever first occurs, (ii) if telecopied,
when transmitted and confirmation is received, provided same is on a Business
Day and, if not, on the next Business Day, or (iii) if delivered, upon delivery,
provided same is on a Business Day and, if not, on the next Business Day.
SECTION 12. Consent to Jurisdiction, Etc.
(a) Any legal action or proceeding with respect to this Agreement or
any document related thereto may be brought in the courts of the State of New
York or of the United States of America for the Southern District of New York,
and, by execution and delivery of this Agreement, the Pledgor hereby accepts
unconditionally the jurisdiction of the aforesaid courts. The Pledgor hereby
irrevocably waives any objection, including without limitation, any objection to
the laying of venue or based on the grounds of forum non conveniens, which the
Pledgor may now or hereafter have to the bringing of any such action or
proceeding in such respective jurisdictions.
(b) The Pledgor irrevocably consents to the service of process of any
of the aforementioned courts in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to the Pledgor
at its address referred to in Section 11 hereof.
(c) Nothing contained in this Section 12 shall affect the right of the
Collateral Agent to serve legal process in any other manner permitted by law or
to commence legal proceedings or otherwise proceed against the Pledgor in any
other jurisdiction.
SECTION 13. Waiver of Jury Trial. EACH OF THE PLEDGOR AND THE
COLLATERAL AGENT (BY ACCEPTING THIS AGREEMENT) WAIVES ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ARISING FROM ANY OTHER LOAN DOCUMENT AND
AGREES THAT ANY SUCH ACTION, PROCEEDING OR COUNTERCLAIM SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.
SECTION 14. Miscellaneous.
(a) No amendment of any provision of this Agreement shall be effective
unless it is in writing and signed by the Pledgor and the Collateral Agent, and
no waiver of any provision of this Agreement, and no consent to any departure by
the Pledgor therefrom, shall be effective unless it is in writing and signed by
the Collateral Agent, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
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<PAGE> 198
(b) No failure on the part of the Collateral Agent to exercise, and no
delay in exercising, any right hereunder or under any other document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right preclude any other or further exercise thereof or the exercise of any
other right. The rights and remedies of the Collateral Agent provided herein and
in the other Loan Documents are cumulative and are in addition to, and not
exclusive of, any rights or remedies provided by law. The rights of the
Collateral Agent under any document against any party thereto are not
conditional or contingent on any attempt by the Collateral Agent to exercise any
of its rights under any other document against such party or against any other
person.
(c) Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or thereof or affecting the validity or enforceability
of such provision in any other jurisdiction.
(d) This Agreement shall create a continuing security interest in the
Pledged Collateral and shall (i) remain in full force and effect until the
payment in full or release of the Guaranteed Obligations after the Total
Commitment has been terminated and all Letters of Credit have been canceled or
cash collateralized and (ii) be binding on the Pledgor and by its acceptance
hereof, the Collateral Agent, and their respective successors and assigns and
shall inure, together with all rights and remedies of the Collateral Agent and
the Lenders hereunder, to the benefit of the Pledgor, the Collateral Agent and
the Lenders and their respective successors, transferees and assigns. Without
limiting the generality of clause (ii) of the immediately preceding sentence,
the Collateral Agent may assign or otherwise transfer its rights and obligations
under this Agreement to any other Person pursuant to the terms of the Financing
Agreement, and such other Person shall thereupon become vested with all of the
benefits in respect thereof granted to the Collateral Agent herein or otherwise.
Upon any such assignment or transfer, all references in this Agreement to the
Collateral Agent shall mean the assignee of the Collateral Agent. None of the
rights or obligations of the Pledgor hereunder may be assigned or otherwise
transferred without the prior written consent of the Collateral Agent.
(e) Upon the satisfaction in full of the Obligations after the Total
Commitment has been terminated and all Letters of Credit have been canceled or
cash collateralized, (i) this Agreement and the security interest created hereby
shall terminate and all rights to the Pledged Collateral shall revert to the
Pledgor, and (ii) the Collateral Agent will, upon the Pledgor's request and at
the Pledgor's expense promptly, (A) return to the Pledgor such of the Pledged
Collateral as shall not have been sold or otherwise disposed of or applied
pursuant to the terms hereof and (B) execute and deliver to the Pledgor, without
recourse, representation or warranty, such documents as the Pledgor shall
reasonably request to evidence such termination.
(f) This Agreement shall be governed by and construed in accordance
with the law of the State of New York, except as required by mandatory
provisions of law and except to the extent that the validity and perfection or
the perfection and the effect of perfection or non-perfection of the security
interest created hereby, or remedies hereunder, in respect of any particular
Pledged Collateral are governed by the law of a jurisdiction other than the
State of New York.
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IN WITNESS WHEREOF, the Pledgor has caused this Agreement to be
executed and delivered by its officer thereunto duly authorized, as of the date
first above written.
NORTON MCNAUGHTON, INC.
By:________________________________
Name:
Title:
ACCEPTED AND AGREED:
NATIONSBANC COMMERCIAL CORPORATION,
as Collateral Agent
By:________________________________
Name:______________________________
Title:_____________________________
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<PAGE> 200
SCHEDULE I TO PLEDGE AND SECURITY AGREEMENT
Pledged Debt
Principal Amount
Name of Maker Description Outstanding as of
- ------------- ----------- -----------------
<PAGE> 201
SCHEDULE II TO PLEDGE AND SECURITY AGREEMENT
Pledged Shares
Certificate
Name of Issuer Number of Shares Class No.(s)
- -------------- ---------------- ----- ------
<PAGE> 202
SCHEDULE III
TO
PLEDGE AND SECURITY AGREEMENT
PLEDGE AMENDMENT
This Pledge Amendment, dated ________________________________, is
delivered pursuant to Section 4 of the Pledge Agreement referred to below. The
undersigned hereby agrees that this Pledge Amendment may be attached to the
Pledge Agreement, dated September , 1997, as it may heretofore have been or
hereafter may be amended or otherwise modified or supplemented from time to time
and that the promissory notes or shares listed on this Pledge Amendment shall be
and become part of the Pledged Collateral referred to in said Pledge Agreement
and shall secure all of the Obligations referred to in said Pledge Agreement.
Pledged Debt
Principal Amount
Name of Maker Description Outstanding as of
Pledged Shares
Name of Issuer Number of Shares Class Certificate No(s)
PLEDGOR
By:
Name:
Title:
<PAGE> 203
Exhibit G
FORM OF NEW YORK OPINION
[Letterhead of Borrowers' Counsel]
[Closing Date]
To each of the Lenders party
to the Financing Agreement
dated as of ______,1997 by and
among Norton McNaughton, Inc.,
Norton McNaughton of Squire, Inc. and
Miss Erika, Inc., formerly known as ME
Acquisition, Inc., as Borrowers, certain
Lenders, NationsBanc Corporation, as
Structuring Agent for the Lenders and The
CIT Group/Commercial Services, Inc.,
as Administrative Agent for such Lenders
Re: Norton McNaughton, Inc.
Ladies and Gentlemen:
We have acted as counsel to Norton McNaughton, Inc., a Delaware
corporation (the "Company"), Norton McNaughton of Squire, Inc., a Delaware
corporation ("Squire"), and Miss Erika, Inc., a Delaware corporation formerly
known as ME Acquisition, Inc. ("Miss Erika" and together with Squire, each a
"Borrower" and collectively the "Borrowers"), in connection with the making by
the Agents (as defined in the Financing Agreement hereinafter referred to) and
the financial institutions from time to time party to the Financing Agreement of
loans (the "Loans") to the Borrowers and the issuance by the L/C Issuer (as
defined in the Financing Agreement) of letters of credit for the account of the
Borrowers in an aggregate principal amount at any one time outstanding not to
exceed $140,000,000 pursuant to the Financing Agreement,
<PAGE> 204
dated as of , 1997 (the "Financing Agreement"), by and among the
Company, the Borrowers, the financial institutions from time to time party
thereto (the "Lenders"), NationsBanc Commercial Corporation, as Structuring
Agent, and The CIT Group/Commercial Services, Inc., as Administrative Agent. The
joint and several obligation of the Borrowers to repay each Revolving Credit
Loan and the obligations of Squire to repay the Term Loan, is evidenced by
promissory notes of the Borrowers dated the date hereof (the "Notes") and is
secured, inter alia, by the security documents and guaranties referred to in
Section 5.01(d) of the Financing Agreement. This opinion is being delivered to
you pursuant to Section 5.01(d)(xiv) of the Financing Agreement. All capitalized
terms used and not defined herein have the same meanings herein as set forth in
the Financing Agreement.
In connection with this opinion, we have reviewed the organization and
existence of the Loan Parties, the proceedings of the Loan Parties in relation
to the Loan Documents, the Loan Documents, the financing statements which have
been executed and delivered to the Administrative Agent pursuant to Section
5.01(d)(viii) of the Financing Agreement (the "Financing Statements"), and such
certificates and other documents of public officials, officers and other
representatives of the Loan Parties as we have deemed relevant or proper as a
basis for our opinions set forth herein. In this regard, we have relied as to
factual matters on the representations and warranties contained in the Loan
Documents. In addition, we have assumed the genuineness of signatures on
original documents of all Persons other than officers and other representatives
of the Loan Parties, and the conformity to the original of all copies submitted
to us as photocopies or conformed copies.
Based upon the foregoing and such investigations as we deem advisable
and proper, we are of the opinion that:
1. Each Loan Party (i) is a corporation duly organized,
validly existing and in good standing under the laws of the state of
its incorporation, (ii) has all requisite power and authority to
conduct its business as now conducted and to consummate the
transactions contemplated by the Loan Documents to which it is a party,
and (iii) is duly qualified to do business and is in good standing in
each jurisdiction in which the character of the properties owned or
leased by it or in which the transaction of its business makes such
qualification necessary.
2. The execution and delivery by each of the Loan Parties of
each Financing Statement to which it is a party, and the execution,
delivery and performance by each of the Loan Parties of each Loan
Document to which it is a party, (i) have been duly authorized by all
necessary action, (ii) do not contravene its charter or by-laws, any
other applicable law or, to the best of our knowledge, any contractual
restriction binding on or affecting it or any of its properties, and
(iii) do not and will not result in or require the
2
<PAGE> 205
creation of any lien, security interest or other charge or encumbrance
(other than pursuant to the Loan Documents) upon or with respect to any
of its properties.
3. No authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority or other
regulatory body is required of any Loan Party (i) in connection with
the due execution, delivery and performance by any Loan Party of any
Loan Document to which it is a party, (ii) for the grant by any Loan
Party pursuant to any Loan Document, or the perfection, of any lien or
security interest purported to be created thereby in any Collateral, or
(iii) for the exercise by the Agents and the Lenders of any of their
rights and remedies under any Loan Document (except for the recordings
and filings referred to in paragraph 5 below, all of which have been
duly obtained or made and are in full force and effect).
4. Each Loan Document and Financing Statement has been duly
executed and delivered by each Loan Party which is a party thereto.
Each such Loan Document constitutes the legal, valid and binding
obligation of the Loan Party which is a party thereto, enforceable
against such Loan Party in accordance with its terms, except to the
extent that the enforceability thereof may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws from
time to time in effect affecting generally the enforcement of
creditors' rights and remedies and by general principles of equity.
5. Each of the Security Agreements creates a valid security
interest in favor of the Administrative Agent for the benefit of the
Lenders in the Collateral purported to be covered thereby as security
for the obligations purported to be secured thereby. Each Financing
Statement to be filed in the State of New York is in appropriate form
and when filed in the offices set forth in Schedule A hereto, which
filings, and the payment of any required fees, will result in the
perfection of the security interests in the Collateral covered by such
Financing Statements to the extent that such Collateral consists of the
type of property in which a security interest may be created under
Article 9 of the Uniform Commercial Code as currently in effect in the
State of New York (the "UCC") and in which a security interest may be
perfected by the filing of a financing statement in the State of New
York.
6. Each Loan Party which is a party to a Pledge and Security
Agreement is the owner of the Pledged Collateral (as defined in the
respective Pledge and Security Agreement) in existence on the date
hereof, free and clear of any Lien except for the security interest
created by such Pledge and Security Agreement. The Pledged Shares (as
defined in the respective Pledge and Security Agreement) have been duly
authorized and validly issued, are fully paid and nonassessable and
constitute 100% of the issued and
3
<PAGE> 206
outstanding shares of capital stock of the corporation or corporations
issuing such Pledged Shares.
7. Each Pledge and Security Agreement creates a valid security
interest in favor of the Administrative Agent for the benefit of the
Lenders in the Pledged Collateral as security for the obligations
purported to be secured thereby. The Administrative Agent's having
possession of the certificates representing the Pledged Shares and the
notes representing the Pledged Debt delivered to the Administrative
Agent on the date hereof results in the perfection of such security
interest. Such security interest is a perfected, first priority
security interest.
8. To the best of our knowledge there is no pending or
threatened action, suit or proceeding affecting any Loan Party before
any court, arbitrator, or Governmental Authority which may materially
adversely affect the operations or condition, financial or otherwise,
of any such Loan Party or the ability of any such Loan Party to perform
its obligations under any Loan Document to which it is a party.
9. Each Borrower and Guarantor has all federal, state and
local registrations, permits, licenses, authorizations and approvals
necessary to its business.
Very truly yours,
4
<PAGE> 207
Schedule A
FILINGS OF FINANCING STATEMENTS
Debtor Office
5
<PAGE> 208
Exhibit H
FORM OF OPINION OF LOCAL COUNSEL
[Letterhead of New Jersey Counsel]
[Closing Date]
To each of the Lenders party to the Financing Agreement dated as of ___________,
1997 by and among Norton McNaughton, Inc., Norton McNaughton of Squire, Inc. and
Miss Erika, Inc., formerly known as ME Acquisition, Inc., as Borrowers, certain
Lenders, NationsBanc Commercial, as Structuring Agent for the Lenders and The
CIT Group/Commercial Services, Inc., as Administrative Agent for such Lenders
Re: Norton McNaughton, Inc.
Ladies and Gentlemen:
We have acted as special New Jersey counsel to Norton McNaughton, Inc.,
a Delaware corporation (the "Company"), Norton McNaughton of Squire, Inc., a
Delaware corporation ("Squire"), and ME Acquisition, Inc., a Delaware
corporation ("ME Acquisition" and together with Squire, each a "Borrower" and
collectively the "Borrowers"), in connection with the Financing Agreement, dated
as of________, 1997 (the "Financing Agreement"), by and among the Company, the
Borrowers, the financial institutions from time to time party thereto (the
"Lenders"), NationsBanc Commercial Corporation, as Structuring Agent, and The
CIT Group/Commercial Services, Inc., as Administrative Agent, and the Security
Agreements dated the date hereof (the "Security Agreements"), made by each of
the Loan Parties in favor of the
<PAGE> 209
Administrative Agent for the benefit of the Lenders, in the form of Exhibit D to
the Financing Agreement. This opinion is being delivered to you pursuant to
Section 5.01(d)(xv) of the Financing Agreement. All capitalized terms used and
not defined in this opinion have the same meanings herein as set forth in the
Financing Agreement or the Security Agreements.
In connection with this opinion, we have examined the executed copies
of the Financing Agreement, the Notes and the Security Agreements,
acknowledgment copies of financing statements which have been executed and
delivered by each of the Loan Parties pursuant to Section 5.01(d)(viii) of the
Financing Agreement and filed with the Secretary of State of the State of New
Jersey and with the ______ of________ County, New Jersey (the "Financing
Statements"), and such certificates and other documents of public officials and
officers of the Loan Parties as we have deemed relevant or proper as a basis for
this opinion. In this regard, we have relied as to factual matters on the
representations and warranties contained in the Financing Agreement and the
Security Agreements. In addition, we have assumed the genuineness of signatures
on original documents and the conformity to the original of all copies submitted
to us as photocopies or conformed copies.
Based upon the foregoing and such investigations as we deem advisable
and proper, and subject to the qualifications set forth below, we are of the
opinion that:
1. No authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority or other
regulatory body is required of any Loan Party for (i) the grant by any
Loan Party pursuant to any Security Agreement to which it is a party,
or the perfection, of any lien or security interest purported to be
created thereby in any Collateral located in the State of New Jersey,
or (ii) the exercise by the Administrative Agent or any Lender of its
rights and remedies under any Security Agreement, except for the
filings referred to in paragraph 2 below, all of which have been duly
made and are in full force and effect.
2. Each Financing Statement is in appropriate form and has
been duly filed in the offices set forth in Schedule A hereto. Assuming
that each of the Security Agreements creates a valid security interest
in favor of the Agents in the Collateral located in the State of New
Jersey, as security for the obligations purported to be secured
thereby, such filings result in the perfection of such security
interest.
Very truly yours,
2
<PAGE> 210
Schedule A
FILINGS OF FINANCING STATEMENTS
Debtor Office
<PAGE> 211
EXHIBIT I
FORM OF
ASSIGNMENT AND ACCEPTANCE
Dated ________, 199__
Reference is made to the Financing Agreement, dated as of ,
1997 (as the same may be further amended, supplemented or otherwise modified
from time to time, the "Financing Agreement") by and among Norton McNaughton of
Squire, Inc. and Miss Erika, Inc., formerly known as ME Acquisition Corp. (each
a "Borrower" and collectively the "Borrowers"), Norton McNaughton, Inc., certain
lenders (each a "Lender" and collectively, the "Lenders"), NationsBanc
Commercial Corporation and The CIT Group/Commercial Services, Inc., as
administrative agent for the Lenders (in such capacity, the "Administrative
Agent"). Terms defined in the Financing Agreement are used herein as therein
defined.
_______________ (solely in its capacity as a Lender under the Financing
Agreement) (the "Assignor") and ________________ (the "Assignee") agree as
follows:
1. The Assignor hereby sells and assigns to the Assignee, without
recourse, representation or warranty, and the Assignee hereby purchases and
assumes from the Assignor, a ___%* interest (the "Assigned Interest") in and to
all of the Assignor's rights and obligations, solely as a Lender, under the
Financing Agreement and the other Loan Documents as of the Effective Date (as
defined below) (including, without limitation, (i) if the Loans shall not have
been terminated, (x) the Assignor's Revolving Credit Commitment set forth in
Section 2.01 of the Financing Agreement and (y) the Assignor's Term Loan
Commitment set forth in Section 2.01 of the Financing Agreement, (ii) the
outstanding principal amount of the Revolving Credit Loans made by the Assignor,
(iii) the outstanding principal amount of the Term Loan made by the Assignor,
(iv) the Lender's Pro Rata Share of Reimbursement Obligations; and (iv) the
Notes evidencing the Assignor's Loans).
2. The Assignor (i) represents and warrants as of the date hereof that
its Commitment (without giving effect to assignments thereof which have not yet
become effective) is _____% of _________; (ii) represents and warrants that it
is the legal and beneficial owner of the interest it is assigning hereunder;
(iii) makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made by or in
connection with the Financing Agreement, the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Financing Agreement,
any other Loan Document, or any other instrument or document furnished pursuant
thereto; (iv) makes no representation or warranty and assumes no responsibility
with respect to the financial condition of the Borrowers or the performance or
observance by the Borrowers of any of their obligations under the Financing
Agreement, any other Loan Document or any other instrument or document furnished
pursuant thereto; and (v) attaches the Notes referred to in paragraph 1 above,
and requests that the Administrative Agent exchange each such Note for new Notes
(appropriately dated so that no loss of interest accrued prior to the Effective
Date shall result with respect to the portion of the
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* Specify percentage to no more than 4 decimal points.
<PAGE> 212
Loans assigned or the portion of the Loans retained by the Assignor), consisting
of a Term Note in the principal amount of $__________, payable to the order of
the Assignee, a Term Note in the principal amount of $____________ payable to
the order of the Assignor, a Revolving Credit Note in the principal amount of
$_________, payable to the order of the Assignee, and a Revolving Credit Note in
the principal amount of $____________ payable to the order of the Assignor.
(a) The Assignee represents and warrants that it has become a party
hereto solely in reliance upon its own independent investigation of the
financial and other circumstances surrounding the Borrowers, the Collateral, the
Loans and the Letters of Credit and all aspects of the transactions evidenced by
or referred to in the Loan Documents, or has otherwise satisfied itself thereto,
and that it is not relying upon any representation, warranty or statement
(except any such representation, warranty or statement expressly set forth in
this Agreement) of the Assignor in connection with the assignment made under
this Agreement. The Assignee further acknowledges that the Assignee will,
independently and without reliance upon the Administrative Agent, the Assignor
or any other Lender and based upon the Assignee's review of such documents and
information as the Assignee deems appropriate at the time, make and continue to
make its own credit decisions in entering into this Agreement and taking or not
taking action under the Loan Documents. The Assignor shall have no duty or
responsibility either initially or on a continuing basis to make any such
investigation or any such appraisal on behalf of the Assignee or to provide the
Assignee with any credit or other information with respect thereto, whether
coming into its possession before the making of the initial extension of credit
under the Financing Agreement or at any time or times thereafter.
(b) The Assignee represents and warrants to the Assignor that it has
experience and expertise in the making of loans such as the Loans or with
respect to the other types of credit which may be extended under the Financing
Agreement; that it has acquired its Assigned Interest for its own account and
not with any intention of selling all or any portion of such interest; and that
it has received, reviewed and approved copies of all Loan Documents.
(c) The Assignor shall not be responsible to the Assignee for the
execution, effectiveness, accuracy, completeness, legal effect, genuineness,
validity, enforceability, collectibility or sufficiency of any of the Loan
Documents or for any representations, warranties, recitals or statements made
therein or in any written or oral statement or in any financial or other
statements, instruments, reports, certificates or any other documents made or
furnished or made available by the Assignor to the Assignee or by or on behalf
of the Borrower to the Assignor or the Assignee in connection with the Loan
Documents and the transactions contemplated thereby or for the financial
condition or business affairs of the Borrower or any other Person liable for the
payment of any Loans or payment of amounts owed in connection with other
extensions of credit under the Financing Agreement or the value of the
Collateral or any other matter. The Assignor shall not be required to ascertain
or inquire as to the performance or observance of any of the terms, conditions,
provisions, covenants or agreements contained in any of the Loan Documents or as
to the use of the proceeds of the Loans or other extensions of credit under the
Financing Agreement or as to the existence or possible existence of any Event of
Default or Default.
(d) Each party to this Agreement represents and warrants to the other
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<PAGE> 213
party to this Agreement that it has full power and authority to enter into this
Agreement and to perform its obligations under this Agreement in accordance with
the provisions of this Agreement, that this Agreement has been duly authorized,
executed and delivered by such party and that this Agreement constitutes a
legal, valid and binding obligation of such party, enforceable in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, moratorium or other similar laws affecting creditors' rights
generally and by general equitable principles.
(e) Each party to this Agreement represents and warrants that the
making and performance by it of this Agreement do not and will not violate any
law or regulation of the jurisdiction of its incorporation or any other law or
regulation applicable to it.
(f) Each party to this Agreement represents and warrants that all
consents, licenses, approvals, authorizations, exemptions, registrations,
filings, opinions and declarations from or with any agency, department,
administrative authority, statutory corporation or judicial entity necessary for
the validity or enforceability of its obligations under this Agreement have been
obtained, and no governmental authorizations other than any already obtained are
required in connection with its execution, delivery and performance of this
Agreement.
(g) The Assignor represents and warrants that it is the legal and
beneficial owner of the interest being assigned and that such interest is free
and clear of any Lien.
(h) The Assignor makes no representation or warranty and assumes no
responsibility with respect to the operations, condition (financial or
otherwise), business or assets of the Borrowers or any of its Subsidiaries or
the performance or observance by the Borrowers of any of its obligations under
the Financing Agreement or any other Loan Document.
(i) The Assignee appoints and authorizes the Administrative Agent to
take such action as agent on its behalf and to exercise such powers under the
Loan Documents as are delegated to the Administrative Agent by the terms
thereof, together with such powers as are reasonably incidental thereto.
(j) The Assignee agrees that it will perform in accordance with their
terms all of the obligations which by the terms of the Financing Agreement are
required to be performed by it as a Lender.
(k) The Assignee confirms that it has received all documents and
information it has deemed appropriate to make its own credit analysis and
decision to enter into this Agreement.
(l) The Assignee specifies as its address for notices the office set
forth beneath its name on the signature pages hereof.
3. The effective date for this Assignment and Acceptance shall be
_____________ (the "Effective Date"), which date is at least three Business Days
after the execution of this Assignment and Acceptance and the delivery hereof to
the Administrative Agent for acceptance.
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4. Upon such acceptance, as of the Effective Date (i) the Assignee
shall, in addition to the rights and obligations under the Financing Agreement
and the other Loan Documents held by it immediately prior to the Effective Date,
have the rights and obligations under the Financing Agreement and the other Loan
Documents that have been assigned to it pursuant to this Agreement, and (ii) the
Assignor shall, to the extent provided in this Agreement, relinquish its rights
and be released from its obligations under the Financing Agreement and the other
Loan Documents that have been assigned by the Assignor to the Assignee pursuant
to this Agreement.
5. Upon such acceptance, from and after the Effective Date, the
Administrative Agent shall make all payments under the Financing Agreement and
the Notes in respect of the rights assigned hereby (including, without
limitation, all payments of principal, interest and fees with respect thereto)
to the Assignee. If the Assignor receives or collects any payment of interest or
fees attributable to the interests assigned to Assignee by this Agreement which
has accrued after the Assignment Effective Date, the Assignor shall distribute
to the Assignee such payment. If the Assignee receives or collects any payment
of interest or fees which is not attributable to the interests assigned to the
Assignee by this Agreement or which has accrued on or prior to the Assignment
Effective Date, the Assignee shall distribute to the Assignor such payment.
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<PAGE> 215
6. This Agreement shall be governed by, and construed and interpreted
in accordance with, the laws of the State of New York applicable to contracts
made and to be performed entirely therein without consideration as to choice of
law.
[NAME OF ASSIGNOR]
By:___________________________
Name:
Title:
Date:
NOTICE ADDRESS AND PAYMENT
INSTRUCTIONS FOR ASSIGNOR
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Telephone No.
Telecopy No.
[NAME OF ASSIGNEE]
By:___________________________
Name:
Title:
Date:
NOTICE ADDRESS AND PAYMENT
INSTRUCTIONS FOR ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Telephone No.
Telecopy No.
ACCEPTED this ____ day
of ________ , 19__
THE CIT GROUP/COMMERCIAL
SERVICES, INC., as Administrative Agent
By:___________________________
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<PAGE> 216
Name:
Title:
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<PAGE> 217
EXHIBIT J
NOTICE OF BORROWING
___________, 199
The CIT Group/Commercial Services, Inc., as Administrative Agent for the Lenders
party to the Financing Agreement referred to below 1211 Avenue of the Americas
New York, New York 10036
Attention:
Ladies and Gentlemen:
The undersigned, ___________________, ("Borrower") refers to the
Financing Agreement dated as of , 1997 (the "Financing Agreement", the
terms defined therein being used herein as therein defined), by and among Norton
McNaughton of Squire, Inc. and Miss Erika, Inc. (formerly known as ME
Acquisition Corp.), as borrowers, and Norton McNaughton, Inc., as guarantor,
certain Lenders, NationsBanc Commercial Corporation, as collateral agent, and
The CIT Group/Commercial Services, Inc., as administrative agent for such
Lenders (the "Administrative Agent"), and hereby gives you notice pursuant to
Section 2.03 of the Financing Agreement that the undersigned hereby requests a
Loan under the Financing Agreement, and in that connection sets forth below the
information relating to such Loan (the "Proposed Loan") as required by Section
2.03 of the Financing Agreement.
(i) The Proposed Loan is a [Eurodollar Loan] [Base Rate Loan].
(ii) If the Proposed Loan is a Eurodollar Loan, the Interest Period for
such Loan is [one] [three] [six] month(s).
(iii) The date of the Proposed Loan is ____________, 199_.
(iv) The Proposed Loan is a [Term Loan] [Revolving Credit Loan] and the
aggregate amount of the Proposed Loan is $___________.
(v) The proceeds of the Proposed Loan are to be advanced to the
undersigned and applied as follows:
The undersigned hereby certifies that the representations and
warranties contained in Section 6.01 of the Financing Agreement and in each
other Loan Document, certificate or other writing delivered to the
Administrative Agent pursuant thereto are correct as of the date
<PAGE> 218
first above written (other than those which expressly speak only as of a
different date) and no Event of Default or Default has occurred or is continuing
as of the date first written above.
Very truly yours,
[BORROWER]
By:----------------------
Name:--------------------
Title:-------------------
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<PAGE> 219
EXHIBIT K-1
MONTHLY BORROWING BASE CERTIFICATE
NORTON MCNAUGHTON OF SQUIRE, INC.
and
MISS ERIKA, INC.
Reference is made to the Financing Agreement dated September 25, 1997
(as amended, restated, supplemented or otherwise modified from time to time, the
"Financing Agreement"), by and among Norton McNaughton, Inc., a Delaware
corporation, Norton McNaughton of Squire, Inc., a New York corporation
("Squire"), Miss Erika, Inc., a Delaware corporation formerly known as ME
Acquisition Corp. ("Miss Erika" and, together with Squire, each a "Borrower" and
collectively the "Borrowers"), certain lenders named from time to time party
thereto (the "Lenders"), NationsBanc Commercial Corporation, as collateral agent
(in such capacity, the "Collateral Agent"), and The CIT Group/Commercial
Services, Inc., as administrative agent (in such capacity, the "Administrative
Agent"). Capitalized terms used herein without definition shall have the same
meanings herein as set forth in the Financing Agreement. Pursuant to the
Financing Agreement, the undersigned certify as follows:
Computation Date:______________________
RECEIVABLES
<TABLE>
<S> <C>
1. Net Accounts Receivable purchased and credit approved under the Factoring $______
Agreements (after deducting taxes, discounts, credits, allowances, returns,
disputes, charge-backs, deductions for factoring charges, etc.)
2. Net Accounts Receivable purchased and not credit approved under the $______
Factoring Agreements (after deducting taxes, discounts, credits, allowances,
returns, charge-backs, deductions for factoring charges, etc.)
3. Ineligible Accounts Receivable purchased and not credit approved under the $_______
Factoring Agreements (sum of"3(a)" through "3(k)")
(a) Delivery of merchandise not completed or a return, rejection or $_______
repossession has occurred
(b) Accounts Receivable subject to disputes, setoffs, defense or $_______
counterclaims
(c) Accounts Receivable (i) subject to any Lien other than in favor $_______
of the Collateral Agent or the Factor or (ii) if purchased by
Factor, not subject to Assignment Agreement
(d) Accounts Receivable payable more than ninety (90) days from $_______
the original invoice date or evidenced by a note, instrument or
document, except Accounts Receivable of Miss Erika existing
</TABLE>
<PAGE> 220
<TABLE>
<S> <C>
on the Effective Date for which Modecraft Fashion is the
Account Debtor
(e) Accounts Receivable unpaid more than ninety (90) days from $_______
the original invoice date or sixty (60) days from the
original invoice due date
(f) Accounts Receivable for which the Account Debtor is an $_______
Affiliate of a Borrower
(g) Accounts Receivable for which the Account Debtor is the $_______
United States of America or any Governmental Authority
(h) Accounts Receivable for which the Account Debtor is located $_______
outside of the continental United States other than sales secured
by stand-by letters of credit (in form and substance satisfactory
to the Collateral Agent)
(i) Accounts Receivable from sales to a supplier or creditor of a $_______
Borrower unless the Collateral Agent shall have received a no-
offset letter satisfactory to Collateral Agent
(j) Accounts Receivable of Account Debtors if fifty percent (50%) $_______
or more of the aggregate dollar amount of all outstanding
invoices are unpaid more than ninety (90) days from the original
invoice date or sixty (60) days from the original invoice due
date
(k) Accounts Receivable of Account Debtors subject to a $_______
Bankruptcy Proceeding
4. Eligible Accounts Receivable purchased and not credit approved under the $_______
Factoring Agreements (difference of "2" minus "3")
5. Net Amount of Eligible Accounts Receivable (sum of "1" and "4") $_______
6. Adjusted Net Amount of Eligible Accounts Receivable ("5" times 85%) $_______
INVENTORY
7. Total Gross Inventory, including in-transit Inventory (valued at lower of cost $_______
or market value)
8. Ineligible Inventory (sum of"8(a)" through "8(k)") $_______
(a) Inventory held on consignment $_______
(b) Inventory subject to a Lien other than in favor of the Collateral $_______
Agent
(c) Inventory not acquired in the ordinary course of business and $_______
damaged Inventory
(d) Inventory with respect to which an Account Receivable or $_______
document of title has been created (except documents of title
created pursuant to Letters of Credit referred to in 8(g) hereof)
(e) Inventory not readily marketable for sale $_______
(f) Inventory not located in one of the locations listed in Part A of $_______
Schedule 6.01(e) or at another location approved by the
Collateral Agent (each a "Permitted Location")
(g) "In-transit" Inventory which is not "in-transit" finished $_______
goods or uncut piece goods Inventory shipped or to be
shipped to a Permitted Location under a Letter of Credit
issued pursuant to Financing Agreement
</TABLE>
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<PAGE> 221
<TABLE>
<S> <C> <C>
(h) Raw materials (except uncut piece goods in a Permitted $_______
Location) trim, work in process, supplies or samples
(i) Inventory sold under licensed trademark unless covered by $_______
licensor waiver letter satisfactory to Collateral Agent
(j) Ineligible Prior Season Inventory (sum of (i), (ii) and (iii) $_______
below)
(i) 25% of Prior Season Inventory for corresponding $_______
shipping season of immediately preceding year not
subject to confirmed purchased order, and
(ii) 50% of all other Prior Season Inventory from $_______
immediately preceding year (not covered by (i)
above) not subject to confirmed purchased order, and
(iii) 100% of all other Prior Season Inventory (not $_______
covered by (i) and (ii) above) not subject to
confirmed purchase order.
(k) Inventory not reasonably acceptable to the Collateral Agent $_______
9. Unadjusted Eligible finished goods and uncut piece goods Inventory $_______
(difference of "7" minus "8")
10. Adjusted Eligible finished goods and uncut piece goods Inventory (product of $_______
"9" times 60%)
11. Total Borrowing Base before Overadvance Amount and Borrowing Base $_______
Reserves (sum of "6" plus "10")
12. Less Borrowing Base Reserves (see definition of Borrowing Base) $_______
13. Total Borrowing Base before Overadvance Amount (difference of "11" minus $_______
"12")
14. Revolving Credit Commitment $125,000,000
15. Aggregate Revolving Credit Loans outstanding $_______
16. Aggregate Letters of Credit Obligations outstanding $_______
17. Availability before Overadvance Amount (difference of (lesser of "13" and $_______
"14") minus (sum of "15" plus "16"))
18. Overadvance Amount (not to exceed $10,000,000 at month end and $_______
$15,000,000 ($20,000,000 in July, August and September) at other times
during Fiscal Month)
19. Availability after Overadvance Amount $_______
</TABLE>
This certificate is furnished to the Agents and the Lenders pursuant to
Section 7.01(a)(v)(B) of the Financing Agreement. This Borrowing Base
Certificate has been prepared in accordance with the provisions of the Financing
Agreement. This Borrowing Base Certificate and the information attached hereto
and the schedules, if any, delivered herewith represent an accurate statement of
the matters purported to be set forth herein or therein as of the date set forth
above.
Attached hereto and made a part hereof are calculations of the separate
Borrowing
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<PAGE> 222
Base and Availability for each Borrower as of the date hereof presented in the
format set forth above.
NORTON MCNAUGHTON OF SQUIRE, INC.
By:
Title:
MISS ERIKA, INC.
By:
Title:
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<PAGE> 223
EXHIBIT K-2
WEEKLY BORROWING BASE CERTIFICATE
NORTON MCNAUGHTON OF SQUIRE, INC.
and
MISS ERIKA, INC.
Reference is made to the Financing Agreement dated September ___, 1997
(as amended, restated, supplemented or otherwise modified from time to time, the
"Financing Agreement"), by and among Norton McNaughton, Inc., a Delaware
corporation, Norton McNaughton of Squire, Inc., a New York corporation
("Squire"), Miss Erika, Inc., a Delaware corporation formerly known as ME
Acquisition Corp. ("Miss Erika" and, together with Squire, each a "Borrower" and
collectively the "Borrowers"), certain lenders named from time to time party
thereto (the "Lenders"), NationsBanc Commercial Corporation, as collateral agent
(in such capacity, the "Collateral Agent"), and The CIT Group/Commercial
Services, Inc., as administrative agent (in such capacity, the "Administrative
Agent"). Capitalized terms used herein without definition shall have the same
meanings herein as set forth in the Financing Agreement. Pursuant to the
Financing Agreement, the undersigned certify as follows:
Computation Date:____________________________________
<TABLE>
RECEIVABLES
<S> <C>
1. Net Accounts Receivable purchased and credit approved under the Factoring $_______
Agreements (after deducting taxes, discounts, credits, allowances, returns,
disputes, charge-backs, deductions for factoring charges, etc.)
2. Net Accounts Receivable purchased and not credit approved under the $_______
Factoring Agreements (after deducting taxes, discounts, credits, allowances,
returns, charge-backs, deductions for factoring charges, etc.)
3. Ineligible Accounts Receivable purchased and not credit approved under the $_______
Factoring Agreements (sum of "3(a)" through "3(k)")
(a) Delivery of merchandise not completed or a return, rejection or $_______
repossession has occurred
(b) Accounts Receivable subject to disputes, setoffs, defense or $_______
counterclaims
(c) Accounts Receivable (i) subject to any Lien other than in favor $_______
of the Collateral Agent or the Factor or (ii) if purchased by
Factor, not subject to Assignment Agreement
(d) Accounts Receivable payable more than ninety (90) days from $_______
the original invoice date or evidenced by a note, instrument or
document, except Accounts Receivable of Miss Erika existing
on the Effective Date for which Modecraft Fashion is the
Account Debtor
(e) Accounts Receivable unpaid more than ninety (90) days from $_______
the original invoice date or sixty (60) days from the original
</TABLE>
<PAGE> 224
<TABLE>
<S> <C>
invoice due date
(f) Accounts Receivable for which the Account Debtor is an $_______
Affiliate of a Borrower
(g) Accounts Receivable for which the Account Debtor is the $_______
United States of America or any Governmental Authority
(h) Accounts Receivable for which the Account Debtor is located $_______
outside of the continental United States other than sales secured
by stand-by letters of credit (in form and substance satisfactory
to the Collateral Agent)
(i) Accounts Receivable from sales to a supplier or creditor of a $_______
Borrower unless the Collateral Agent shall have received a no-
offset letter satisfactory to Collateral Agent
(j) Accounts Receivable of Account Debtors if fifty percent (50%) $_______
or more of the aggregate dollar amount of all outstanding
invoices are unpaid more than ninety (90) days from the original
invoice date or sixty (60) days from the original invoice due
date
(k) Accounts Receivable of Account Debtors subject to a $_______
Bankruptcy Proceeding
4. Eligible Accounts Receivable purchased and not credit approved under the $_______
Factoring Agreements (difference of "2" minus "3")
5. Net Amount of Eligible Accounts Receivable (sum of "1" and "4") $_______
6. Adjusted Net Amount of Eligible Accounts Receivable ("5" times 85%) $_______
INVENTORY
7. Gross Eligible finished goods and uncut piece goods Inventory (sum of "7(a)" $_______
through "7(e)")
(a) Finished goods Inventory located in one of the locations listed $_______
in Part A of Schedule 6.01(e) or at another location approved by
the Collateral Agent (each a "Permitted Location")
(b) "In-transit" Inventory which is "in-transit" finished goods or $_______
uncut piece goods Inventory shipped or to be shipped to a
Permitted Location under a Letter of Credit issued pursuant to
Financing Agreement
(c) 20% of the amount of drawings during such week under Letters
of Credit issued pursuant to the Financing Agreement
(d) Uncut piece goods Inventory located in a Permitted Location $_______
(e) Eligible Prior Season Inventory (sum of (i), (ii) and (iii) below) $_______
(i) 75% of Prior Season Inventory for corresponding $_______
shipping season of immediately preceding year not
subject to confirmed purchased order, and
(ii) 50% of all other Prior Season Inventory from $_______
immediately preceding year (not covered by (i)
above) not subject to confirmed purchased order, and
(iii) 100% of all other Prior Season Inventory (not $_______
covered by (i) and (ii) above) subject to confirmed
purchase order.
8. Inventory not reasonably acceptable to the Collateral Agent $_______
</TABLE>
-2-
<PAGE> 225
<TABLE>
<C> <C>
9. Unadjusted Eligible finished goods and uncut piece goods Inventory $________
(difference of "7" minus "8")
10. Adjusted Eligible finished goods and uncut piece goods Inventory $________
(product of "9" times 60%)
11. Total Borrowing Base before Overadvance Amount and Borrowing Base $________
Reserves (sum of "6" plus "10")
12. Less Borrowing Base Reserves (see definition of Borrowing Base) $________
13. Total Borrowing Base before Overadvance Amount (difference of "11" $________
minus "12")
14. Revolving Credit Commitment $125,000,000
15. Aggregate Revolving Credit Loans outstanding $________
16. Aggregate Letters of Credit Obligations outstanding $________
17. Availability before Overadvance Amount (difference of (lesser of $________
"13" and "14") minus (sum of "15" plus "16"))
18. Overadvance Amount (not to exceed $10,000,000 at month end and $________
$15,000,000 ($20,000,000 in July, August and September) at other
times during Fiscal Month)
19. Availability after Overadvance Amount $________
</TABLE>
This certificate is furnished to the Agents and the Lenders pursuant
to Section 7.01(a)(v)(C) of the Financing Agreement. This Borrowing Base
Certificate has been prepared in accordance with the provisions of the
Financing Agreement. This Borrowing Base Certificate and the information
attached hereto and the schedules, if any, delivered herewith represent an
accurate statement of the matters purported to be set forth herein or therein
as of the date set forth above.
Attached hereto and made a part hereof are calculations of the separate
Borrowing Base and Availability for each Borrower as of the date hereof
presented in the format set forth above.
MISS ERIKA, INC.
By:
-------------------------------
Title:
----------------------------
-3-
<PAGE> 226
EXHIBIT L
RELEASE CERTIFICATE
________________________, the chief executive officer of Norton
McNaughton, Inc. (the "Company"), pursuant to the terms of Section 12.18 of the
Financing Agreement, dated as of September 25, 1997 (as amended or otherwise
modified from time to time, the "Financing Agreement"; all capitalized terms
used herein and not otherwise defined herein shall have the meanings ascribed to
them in the Financing Agreement), among the Company, the Borrowers, the Lenders,
the Collateral Agent and the Administrative Agent, does hereby certify that as
of the date hereof:
1. The Company hereby requests the Collateral Agent to (i) release its
Lien on the Collateral described in Schedule I hereto in connection with the
Permitted Disposition described in Schedule I hereto, and (ii) execute and
deliver to the Company the documents that the Company is requesting the
Collateral Agent to execute in connection with the proposed release, which
documents are specified in Schedule II hereto and are attached hereto signed by
all parties other than the Collateral Agent.
2. The Permitted Disposition will occur on _________________ and is in
compliance with all of the terms and conditions of the Financing Agreement.
3. The aggregate book value (net of reserves) of the Collateral to be
released is $_____________.
4. All conditions or obligations required under the terms of the Financing
Agreement to be satisfied or performed before the Collateral Agent makes the
release requested hereby, including all of the conditions set forth in Section
12.18 of the Financing Agreement, have been satisfied or performed or will,
prior to, or simultaneously with, the release of the Collateral described in
Schedule I, be satisfied and performed.
5. Both immediately before and immediately after giving effect to the
requested release, no Default or Event of Default has occurred and is
continuing. Attached hereto as Schedule III hereto is a calculation of the Net
Proceeds of such Permitted Disposition and the Net Proceeds of such Permitted
Disposition have been paid to the Administrative Agent or, as a condition to the
requested release, will be paid to the Administrative Agent within two Business
Days after receipt thereof.
<PAGE> 227
6. [In the event that paragraph 5 indicates that a prepayment is required
to be made to the Administrative Agent of the Net Proceeds, the Company
[represents and warrants that such payment of Net Proceeds has been made on or
prior to the date hereof] [covenants that such payment of Net Proceeds will be
made within two Business Days of the release of the Collateral described in
Schedule I hereto].]
IN WITNESS WHEREOF, the undersigned has signed this certificate as of the
___ day of___________ ,19__.
____________________________________________________
[Name]:
[Title]:
<PAGE> 228
SCHEDULE I
TO EXHIBIT L
TO FINANCING AGREEMENT
SCHEDULE I
DESCRIPTION OF COLLATERAL
PURCHASE PRICE
COLLATERAL BOOK VALUE OR OTHER VALUE RECEIVED
- ---------- ---------- -----------------------
<PAGE> 229
SCHEDULE II
TO EXHIBIT L
TO FINANCING AGREEMENT
SCHEDULE II
DESCRIPTION OF RELEASE DOCUMENTS
<PAGE> 230
SCHEDULE III
TO EXHIBIT L
TO FINANCING AGREEMENT
SCHEDULE III
CALCULATION OF NET PROCEEDS
<PAGE> 231
EXHIBIT M-1
FORM OF SUBORDINATED INTERCOMPANY TERM NOTE
$____________ Dated: September __, 1997
New York, New York
FOR VALUE RECEIVED, Miss Erika, Inc., a Delaware corporation (the
"Borrower"), HEREBY PROMISES TO PAY to the order of Norton McNaughton of Squire,
Inc., a New York corporation (the "Lender") (i) the principal amount of Fifteen
Million Dollars ($15,000,000), payable in the same installments and at the same
times as are specified with respect to the Term Loan as defined in the Financing
Agreement dated as of September ___, 1997 by and among Norton McNaughton, Inc.,
a Delaware corporation, the Borrower, the Lender, the financial institutions
from time to time party thereto, NationsBanc Commercial Corporation, as
collateral agent (the "Collateral Agent")and The CIT Group/Commercial Services,
Inc., as administrative agent (the "Administrative Agent" and together with the
Collateral Agent and the aforementioned financial institutions, collectively the
"Senior Lenders") (as amended or otherwise modified from time to time, the
"Financing Agreement") and (ii) interest on the unpaid principal amount hereof
from the date hereof until all such principal amount is paid in
full, at the same interest rates, and payable at the same times, as are
specified with respect to the Term Loan in the Financing Agreement. Capitalized
terms used herein and not otherwise defined herein shall have the meanings set
forth in the Financing Agreement.
The payment of the principal of, all accrued and unpaid interest on and
any other amounts that now or hereafter may be owing by the Borrower to the
Lender pursuant to this Note (collectively, the "Subordinated Debt") is hereby
expressly made subordinate and subject in right of payment to the prior payment
and satisfaction in full of any and all Obligations.
The Senior Lenders are irrevocably authorized and empowered but shall have
no obligation, in any proceeding with respect to the Borrower under any federal
or state bankruptcy or insolvency law, or any other reorganization, dissolution
or liquidation proceedings with respect to the Borrower, to file a proof of
claim on behalf of the Lender with respect to the principal of and interest on
this Note, to accept and receive any payment or distribution which may be
payable or deliverable at any time upon or in respect of this Note in an amount
not in excess of the Obligations then outstanding, and to take such other action
(including voting the principal of and interest on this Note) as may be
reasonably necessary to effectuate the foregoing. The Lender shall provide to
the Senior Lenders all information and documents necessary to present claims or
seek enforcement as aforesaid and will duly and promptly take such action as the
Senior Lenders may request to collect the principal of and interest on this Note
for the account of the Senior Lenders and to file appropriate claims or proofs
of claim with respect thereto. Without limiting the foregoing, the Lender shall
execute and deliver to the Senior
<PAGE> 232
Lenders such powers of attorney, assignments or other instruments as the Senior
Lenders may request in order to enable them to enforce any and all claims with
respect to this Note and to collect and receive any and all payments or
distributions which may be payable or deliverable upon or with respect to this
Note. If the Senior Lenders do not exercise their right to vote the principal of
and interest on this Note or otherwise act in any such reorganization proceeding
as set forth in this paragraph (including the right to vote to accept or reject
any plan of partial or complete liquidation, reorganization, arrangement,
composition or extension), the Lender shall not take any action or vote in any
way so as to contest (a) the validity or enforceability of the Financing
Agreement or any Loan Document, (b) the rights and duties of the Senior Lenders
established in the Financing Agreement and the Loan Documents, or (c) the
validity or enforceability of the subordination provisions set forth in this
Note.
The Senior Lenders may: (i) enter into any agreement or arrangement with
the Loan Parties under the Financing Agreement with respect to the Obligations
and any amendments thereto, as the Senior Lenders may deem proper; (ii) extend
the time for payment and/or renew any or all of the Obligations; and (iii)
surrender any security, collateral or guarantees held with respect to any or all
of the Obligations, make any settlements and compromises thereof as it may deem
proper and take any other action whether or not similar to the foregoing, all
without notice to or consent from the Lender and without in any way impairing or
affecting the subordination provisions of this Note thereby.
Subject to the provisions of the following paragraph, should any payment
with respect to the Subordinated Debt be received by the Lender in any form and
from any source whatsoever prior to the payment in full in cash of all of the
Obligations after all Commitments have terminated and all Letters of Credit have
been canceled or cash collateralized, the Lender immediately shall deliver to
the Senior Lenders any monies, securities or other property so received by it,
or its equivalent in cash, with proper endorsements or assignments if necessary
and without recourse, to be applied (in the case of cash) to, or held as
collateral (in the case of securities or other non-cash property) for the
payment or prepayment of the Obligations; and pending such delivery, the Lender
shall hold such monies, securities or other property as trustee for the account
of the Senior Lenders.
Notwithstanding anything to the contrary stated herein, the Borrower may
make payments of, and the Lender may demand, receive and retain payments of (i)
accrued and unpaid interest on the principal amount of this Note when due,
strictly in accordance with the terms and provisions of this Note and (ii) the
principal amount of this Note strictly in accordance with the terms and
provisions of this Note, unless, in the case of clauses (i) and (ii) above, a
Default or an Event of Default has occurred and is continuing or would result
from the making of such payment. Except as otherwise provided in this paragraph,
the Lender shall not take, demand, receive or accelerate any payment of the
Subordinated Debt and the Borrower shall not give, make or permit any such
payment other than where expressly approved by the Senior Lenders and the Lender
shall not assert, participate in or bring any sort of action, suit or proceeding
(including, without limitation, bankruptcy or insolvency proceedings) either at
law or in equity for
<PAGE> 233
the enforcement, collection or realization of all or any part of the
Subordinated Debt. Notwithstanding the foregoing, should any action be taken, at
any time, by or against the Borrower for any relief or arrangement under any
federal or state bankruptcy or insolvency law, the Subordinated Debt shall be
subordinated to the prior payment of the Obligations of the Senior Lenders in
accordance with the subordination provisions described herein. The Borrower will
(x) not make any payment in respect of any of the Subordinated Debt, or take any
other action, in contravention of the provisions of this Note and (y) promptly
notify the Collateral Agent in writing of the occurrence of a Default or an
Event of Default not later than one Business Day after the occurrence thereof
shall have become known to the Borrower.
The Lender shall have no right to accelerate or to commence legal action
to enforce collection of all or any part of the principal of and interest on
this Note except in the event that the Borrower files or has filed against it
(other than by the Lender) a petition under the United States Bankruptcy Code
(11 U.S.C. Section 101 et seq.), as amended, and any successor statute, provided
that any such involuntary proceeding which is commenced against the Borrower is
not dismissed or discharged within 45 days after commencement thereof, provided,
however, that any amount received by the Lender in advance of its scheduled due
date (without giving effect to any acceleration) hereunder as a result of any
acceleration permitted above, prior to payment in full in cash of the
Obligations and the termination of the Financing Agreement, shall be held in
trust and paid to the Senior Lenders.
The Lender covenants and agrees with the Senior Lenders that, except as
otherwise specifically permitted by this Note, the Lender shall not, directly or
indirectly: (i) demand or receive payment of, (ii) exchange, cancel, discharge,
forgive or modify, (iii) request or obtain collateral, security or guarantees
for, (iv) except in favor of the Senior Lenders, effect a subordination,
assignment, pledge, transfer, sale or other hypothecation of, or (v) commence
any legal action with respect to, the whole or any part of the principal of and
interest on this Note. The Lender further agrees that until such time as all of
the Obligations is paid and satisfied in full in cash, it shall not assert or be
entitled to any subrogation rights. This Note may not be amended without
obtaining the prior written consent of the Collateral Agent.
All rights and interests of the Senior Lenders hereunder, and all
agreements and obligations of the Lender and the Borrower hereunder, shall
remain in full force and effect irrespective of: (i) any lack of validity or
enforceability of the Financing Agreement or any Loan Document or any other
agreement or instrument relating thereto, (ii) any change in the time, manner or
place of payment of, or in any other term in respect of, all or any of the
Obligations, or any other amendment or waiver of or any consent to departure
from the Financing Agreement or any Loan Document, (iii) any exchange or release
of, or non-perfection of any Lien on or security interest in, any collateral, or
any release or amendment or waiver of or consent to departure from any guaranty,
for all or any of the Obligations, or (iv) any other circumstance which might
otherwise constitute a defense available to, or a discharge of the Loan Party in
respect of the Obligations or the Lender or the Borrower in respect of this
Note.
<PAGE> 234
The Lender waives any and all demands, presentments or notices (other than
notices specifically provided for in this Note) to which it otherwise might be
entitled, including, without limitation, any and all notices (i) of the creation
or accrual of any of the Obligations, (ii) of any extension, modification or
renewal of any of the Obligations, and (iii) of the Senior Lenders' reliance on
the subordination provisions of this Note.
The Borrower may at any time prepay the whole or any part of the unpaid
principal amount of this Note, without penalty or premium, with interest accrued
to the date fixed for prepayment.
<PAGE> 235
This Note shall be governed by, and construed and interpreted in
accordance with, the internal laws of the State of New York applicable to
contracts made and to be performed therein without consideration as to choice of
law.
MISS ERIKA, INC.
By:
--------------------------------
Name:
Title:
ACCEPTED AND AGREED:
NORTON McNAUGHTON OF SQUIRE, INC.
By:
----------------------------------------
Name:
Title:
PAY TO THE ORDER OF:
NATIONSBANC COMMERCIAL CORPORATION,
as Collateral Agent
NORTON McNAUGHTON OF SQUIRE, INC.
By:
-----------------------------------
Name:
Title:
<PAGE> 236
EXHIBIT M-2
FORM OF SUBORDINATED INTERCOMPANY REVOLVING CREDIT NOTE
$______________ Dated: ___________, 1997
New York, New York
FOR VALUE RECEIVED, Norton McNaughton of Squire, Inc., a New York
corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of Miss Erika,
Inc., a Delaware corporation (the "Lender") (i) the principal amount of One
Hundred Twenty-Five Million Dollars ($125,000,000), or if less, an amount equal
to the aggregate unpaid principal amount of loans made from time to time by the
Lender to the Borrower, payable on the same terms and conditions as the
Revolving Credit Note (as defined in the Financing Agreement dated as of
September ___, 1997 by and among Norton McNaughton, Inc., a Delaware
corporation, the Borrower, the Lender, the financial institutions from time to
time party thereto, NationsBanc Commercial Corporation, as collateral agent (the
"Collateral Agent") and The CIT Group/Commercial Services, Inc., as
administrative agent (the "Administrative Agent" and together with the
Collateral Agent and the aforementioned financial institutions, collectively the
"Senior Lenders") (as amended or otherwise modified from time to time, the
"Financing Agreement")) and (ii) interest in an amount equal to the unpaid
principal amount of the Revolving Credit Note, from the date hereof until all
such principal amounts are paid in full, at the same interest rates, and payable
at the same times, as are specified in the Financing Agreement with respect to
the Revolving Credit Note. Capitalized terms used herein and not otherwise
defined herein shall have the meanings set forth in the Financing Agreement.
The payment of the principal of, all accrued and unpaid interest on and
any other amounts that now or hereafter may be owing by the Borrower to the
Lender pursuant to this Note (collectively, the "Subordinated Debt") is hereby
expressly made subordinate and subject in right of payment to the prior payment
and satisfaction in full of any and all Obligations.
The Senior Lenders are irrevocably authorized and empowered but shall have
no obligation, in any proceeding with respect to the Borrower under any federal
or state bankruptcy or insolvency law, or any other reorganization, dissolution
or liquidation proceedings with respect to the Borrower, to file a proof of
claim on behalf of the Lender with respect to the principal of and interest on
this Note, to accept and receive any payment or distribution which may be
payable or deliverable at any time upon or in respect of this Note in an amount
not in excess of the Obligations then outstanding, and to take such other action
(including voting the principal of and interest on this Note) as may be
reasonably necessary to effectuate the foregoing. The Lender shall provide to
the Senior Lenders all information and documents necessary to present claims or
seek
<PAGE> 237
enforcement as aforesaid and will duly and promptly take such action as the
Senior Lenders may request to collect the principal of and interest on this Note
for the account of the Senior Lenders and to file appropriate claims or proofs
of claim with respect thereto. Without limiting the foregoing, the Lender shall
execute and deliver to the Senior Lenders such powers of attorney, assignments
or other instruments as the Senior Lenders may request in order to enable them
to enforce any and all claims with respect to this Note and to collect and
receive any and all payments or distributions which may be payable or
deliverable upon or with respect to this Note. If the Senior Lenders do not
exercise their right to vote the principal of and interest on this Note or
otherwise act in any such reorganization proceeding as set forth in this
paragraph (including the right to vote to accept or reject any plan of partial
or complete liquidation, reorganization, arrangement, composition or extension),
the Lender shall not take any action or vote in any way so as to contest (a) the
validity or enforceability of the Financing Agreement or any Loan Document, (b)
the rights and duties of the Senior Lenders established in the Financing
Agreement and the Loan Documents, or (c) the validity or enforceability of the
subordination provisions set forth in this Note.
The Senior Lenders may: (i) enter into any agreement or arrangement with
the Loan Parties under the Financing Agreement with respect to the Obligations
and any amendments thereto, as the Senior Lenders may deem proper; (ii) extend
the time for payment and/or renew any or all of the Obligations; and (iii)
surrender any security, collateral or guarantees held with respect to any or all
of the Obligations, make any settlements and compromises thereof as it may deem
proper and take any other action whether or not similar to the foregoing, all
without notice to or consent from the Lender and without in any way impairing or
affecting the subordination provisions of this Note thereby.
Subject to the provisions of the following paragraph, should any payment
with respect to the Subordinated Debt be received by the Lender in any form and
from any source whatsoever prior to the payment in full in cash of all of the
Obligations after all Commitments have terminated and all Letters of Credit have
been canceled or cash collateralized, the Lender immediately shall deliver to
the Senior Lenders any monies, securities or other property so received by it,
or its equivalent in cash, with proper endorsements or assignments if necessary
and without recourse, to be applied (in the case of cash) to, or held as
collateral (in the case of securities or other non-cash property) for the
payment or prepayment of the Obligations; and pending such delivery, the Lender
shall hold such monies, securities or other property as trustee for the account
of the Senior Lenders.
Notwithstanding anything to the contrary stated herein, the Borrower may
make payments of, and the Lender may demand, receive and retain payments of (i)
accrued and unpaid interest on the principal amount of this Note when due,
strictly in accordance with the terms and provisions of this Note and (ii) the
principal amount of this Note strictly in accordance with the terms and
provisions of this Note, unless, in the case of clauses (i) and (ii) above, a
Default or an Event of Default has occurred and is continuing or would result
from the making of such payment. Except as otherwise provided in this paragraph,
the Lender shall not take, demand, receive or accelerate any
<PAGE> 238
payment of the Subordinated Debt and the Borrower shall not give, make or permit
any such payment other than where expressly approved by the Senior Lenders and
the Lender shall not assert, participate in or bring any sort of action, suit or
proceeding (including, without limitation, bankruptcy or insolvency proceedings)
either at law or in equity for the enforcement, collection or realization of all
or any part of the Subordinated Debt. Notwithstanding the foregoing, should any
action be taken, at any time, by or against the Borrower for any relief or
arrangement under any federal or state bankruptcy or insolvency law, the
Subordinated Debt shall be subordinated to the prior payment of the Obligations
of the Senior Lenders in accordance with the subordination provisions described
herein. The Borrower will (x) not make any payment in respect of any of the
Subordinated Debt, or take any other action, in contravention of the provisions
of this Note and (y) promptly notify the Collateral Agent in writing of the
occurrence of a Default or an Event of Default not later than one Business Day
after the occurrence thereof shall have become known to the Borrower.
The Lender shall have no right to accelerate or to commence legal action
to enforce collection of all or any part of the principal of and interest on
this Note except in the event that the Borrower files or has filed against it
(other than by the Lender) a petition under the United States Bankruptcy Code
(11 U.S.C. Section 101 et seq.), as amended, and any successor statute, provided
that any such involuntary proceeding which is commenced against the Borrower is
not dismissed or discharged within 45 days after commencement thereof, provided,
however, that any amount received by the Lender in advance of its scheduled due
date (without giving effect to any acceleration) hereunder as a result of any
acceleration permitted above, prior to payment in full in cash of the
Obligations and the termination of the Financing Agreement, shall be held in
trust and paid to the Senior Lenders.
The Lender covenants and agrees with the Senior Lenders that, except as
otherwise specifically permitted by this Note, the Lender shall not, directly or
indirectly: (i) demand or receive payment of, (ii) exchange, cancel, discharge,
forgive or modify, (iii) request or obtain collateral, security or guarantees
for, (iv) except in favor of the Senior Lenders, effect a subordination,
assignment, pledge, transfer, sale or other hypothecation of, or (v) commence
any legal action with respect to, the whole or any part of the principal of and
interest on this Note. The Lender further agrees that until such time as all of
the Obligations is paid and satisfied in full in cash, it shall not assert or be
entitled to any subrogation rights. This Note may not be amended without
obtaining the prior written consent of the Collateral Agent.
All rights and interests of the Senior Lenders hereunder, and all
agreements and obligations of the Lender and the Borrower hereunder, shall
remain in full force and effect irrespective of: (i) any lack of validity or
enforceability of the Financing Agreement or any Loan Document or any other
agreement or instrument relating thereto, (ii) any change in the time, manner or
place of payment of, or in any other term in respect of, all or any of the
Obligations, or any other amendment or waiver of or any consent to departure
from the Financing Agreement or any Loan Document, (iii) any exchange or release
of, or non-perfection of any Lien on or security interest in, any collateral, or
any release or amendment or waiver of or consent to departure from any
<PAGE> 239
guaranty, for all or any of the Obligations, or (iv) any other circumstance
which might otherwise constitute a defense available to, or a discharge of, the
Loan Parties in respect of the Obligations or the Lender or the Borrower in
respect of this Note.
The Lender waives any and all demands, presentments or notices (other than
notices specifically provided for in this Note) to which it otherwise might be
entitled, including, without limitation, any and all notices (i) of the creation
or accrual of any of the Obligations, (ii) of any extension, modification or
renewal of any of the Obligations and (iii) of the Senior Lenders' reliance on
the subordination provisions of this Note.
The Borrower may at any time prepay the whole or any part of the unpaid
principal amount of this Note, without penalty or premium, with interest accrued
to the date fixed for prepayment.
<PAGE> 240
This Note shall be governed by, and construed and interpreted in
accordance with, the internal laws of the State of New York applicable to
contracts made and to be performed therein without consideration as to choice of
law.
NORTON McNAUGHTON OF SQUIRE, INC.
By:
-----------------------------
Name:
Title:
ACCEPTED AND AGREED:
MISS ERIKA, INC.
By:
--------------------------
Name:
Title:
PAY TO THE ORDER OF:
NATIONSBANC COMMERCIAL CORPORATION,
as Collateral Agent
MISS ERIKA, INC.
By:
-----------------------------
Name:
Title:
<PAGE> 241
EXHIBIT M-3
FORM OF SUBORDINATED INTERCOMPANY REVOLVING CREDIT NOTE
$_____________ Dated: September __, 1997
New York, New York
FOR VALUE RECEIVED, Miss Erika, Inc., a Delaware corporation (the
"Borrower"), HEREBY PROMISES TO PAY to the order of Norton McNaughton of Squire,
Inc., a New York corporation (the "Lender") (i) the principal amount of One
Hundred Twenty-Five Million Dollars ($125,000,000), or if less, an amount equal
to the aggregate unpaid principal amount of loans made from time to time by the
Lender to the Borrower, payable on the same terms and conditions as the
Revolving Credit Note (as defined in the Financing Agreement dated as of
September __, 1997 by and among Norton McNaughton, Inc., a Delaware corporation,
the Borrower, the Lender, the financial institutions from time to time party
thereto, NationsBanc Commercial Corporation, as collateral agent (the
"Collateral Agent") and The CIT Group/Commercial Services, Inc., as
administrative agent (the "Administrative Agent" and together with the
Collateral Agent and the aforementioned financial institutions, collectively the
"Senior Lenders") (as amended or otherwise modified from time to time, the
"Financing Agreement")) and (ii) interest in an amount equal to the unpaid
principal amount of the Revolving Credit Note, from the date hereof until all
such principal amounts are paid in full, at the same interest rates, and payable
at the same times, as are specified in the Financing Agreement with respect to
the Revolving Credit Note. Capitalized terms used herein and not otherwise
defined herein shall have the meanings set forth in the Financing Agreement.
The payment of the principal of, all accrued and unpaid interest on and
any other amounts that now or hereafter may be owing by the Borrower to the
Lender pursuant to this Note (collectively, the "Subordinated Debt") is hereby
expressly made subordinate and subject in right of payment to the prior payment
and satisfaction in full of any and all Obligations.
The Senior Lenders are irrevocably authorized and empowered but shall have
no obligation, in any proceeding with respect to the Borrower under any federal
or state bankruptcy or insolvency law, or any other reorganization, dissolution
or liquidation proceedings with respect to the Borrower, to file a proof of
claim on behalf of the Lender with respect to the principal of and interest on
this Note, to accept and receive any payment or distribution which may be
payable or deliverable at any time upon or in respect of this Note in an amount
not in excess of the Obligations then outstanding, and to take such other action
(including voting the principal of and interest on this Note) as may
<PAGE> 242
be reasonably necessary to effectuate the foregoing. The Lender shall provide to
the Senior Lenders all information and documents necessary to present claims or
seek enforcement as aforesaid and will duly and promptly take such action as the
Senior Lenders may request to collect the principal of and interest on this Note
for the account of the Senior Lenders and to file appropriate claims or proofs
of claim with respect thereto. Without limiting the foregoing, the Lender shall
execute and deliver to the Senior Lenders such powers of attorney, assignments
or other instruments as the Senior Lenders may request in order to enable them
to enforce any and all claims with respect to this Note and to collect and
receive any and all payments or distributions which may be payable or
deliverable upon or with respect to this Note. If the Senior Lenders do not
exercise their right to vote the principal of and interest on this Note or
otherwise act in any such reorganization proceeding as set forth in this
paragraph (including the right to vote to accept or reject any plan of partial
or complete liquidation, reorganization, arrangement, composition or extension),
the Lender shall not take any action or vote in any way so as to contest (a) the
validity or enforceability of the Financing Agreement or any Loan Document, (b)
the rights and duties of the Senior Lenders established in the Financing
Agreement and the Loan Documents, or (c) the validity or enforceability of the
subordination provisions set forth in this Note.
The Senior Lenders may: (i) enter into any agreement or arrangement with
the Loan Parties under the Financing Agreement with respect to the Obligations
and any amendments thereto, as the Senior Lenders may deem proper; (ii) extend
the time for payment and/or renew any or all of the Obligations; and (iii)
surrender any security, collateral or guarantees held with respect to any or all
of the Obligations, make any settlements and compromises thereof as it may deem
proper and take any other action whether or not similar to the foregoing, all
without notice to or consent from the Lender and without in any way impairing or
affecting the subordination provisions of this Note thereby.
Subject to the provisions of the following paragraph, should any payment
with respect to the Subordinated Debt be received by the Lender in any form and
from any source whatsoever prior to the payment in full in cash of all of the
Obligations after all Commitments have terminated and all Letters of Credit have
been canceled or cash collateralized, the Lender immediately shall deliver to
the Senior Lenders any monies, securities or other property so received by it,
or its equivalent in cash, with proper endorsements or assignments if necessary
and without recourse, to be applied (in the case of cash) to, or held as
collateral (in the case of securities or other non-cash property) for the
payment or prepayment of the Obligations; and pending such delivery, the Lender
shall hold such monies, securities or other property as trustee for the account
of the Senior Lenders.
Notwithstanding anything to the contrary stated herein, the Borrower may
make payments of, and the Lender may demand, receive and retain payments of (i)
accrued and unpaid interest on the principal amount of this Note when due,
strictly in accordance with the terms and provisions of this Note and (ii) the
principal amount of this Note strictly in accordance with the terms and
provisions of this Note, unless, in the case of clauses (i) and (ii) above, a
Default or an Event of Default has occurred and is
<PAGE> 243
continuing or would result from the making of such payment. Except as otherwise
provided in this paragraph, the Lender shall not take, demand, receive or
accelerate any payment of the Subordinated Debt and the Borrower shall not give,
make or permit any such payment other than where expressly approved by the
Senior Lenders and the Lender shall not assert, participate in or bring any sort
of action, suit or proceeding (including, without limitation, bankruptcy or
insolvency proceedings) either at law or in equity for the enforcement,
collection or realization of all or any part of the Subordinated Debt.
Notwithstanding the foregoing, should any action be taken, at any time, by or
against the Borrower for any relief or arrangement under any federal or state
bankruptcy or insolvency law, the Subordinated Debt shall be subordinated to the
prior payment of the Obligations of the Senior Lenders in accordance with the
subordination provisions described herein. The Borrower will (x) not make any
payment in respect of any of the Subordinated Debt, or take any other action, in
contravention of the provisions of this Note and (y) promptly notify the
Collateral Agent in writing of the occurrence of a Default or an Event of
Default not later than one Business Day after the occurrence thereof shall have
become known to the Borrower.
The Lender shall have no right to accelerate or to commence legal action
to enforce collection of all or any part of the principal of and interest on
this Note except in the event that the Borrower files or has filed against it
(other than by the Lender) a petition under the United States Bankruptcy Code
(11 U.S.C. Section 101 et seq.), as amended, and any successor statute, provided
that any such involuntary proceeding which is commenced against the Borrower is
not dismissed or discharged within 45 days after commencement thereof, provided,
however, that any amount received by the Lender in advance of its scheduled due
date (without giving effect to any acceleration) hereunder as a result of any
acceleration permitted above, prior to payment in full in cash of the
Obligations and the termination of the Financing Agreement, shall be held in
trust and paid to the Senior Lenders.
The Lender covenants and agrees with the Senior Lenders that, except as
otherwise specifically permitted by this Note, the Lender shall not, directly or
indirectly: (i) demand or receive payment of, (ii) exchange, cancel, discharge,
forgive or modify, (iii) request or obtain collateral, security or guarantees
for, (iv) except in favor of the Senior Lenders, effect a subordination,
assignment, pledge, transfer, sale or other hypothecation of, or (v) commence
any legal action with respect to, the whole or any part of the principal of and
interest on this Note. The Lender further agrees that until such time as all of
the Obligations is paid and satisfied in full in cash, it shall not assert or be
entitled to any subrogation rights. This Note may not be amended without
obtaining the prior written consent of the Collateral Agent.
All rights and interests of the Senior Lenders hereunder, and all
agreements and obligations of the Lender and the Borrower hereunder, shall
remain in full force and effect irrespective of: (i) any lack of validity or
enforceability of the Financing Agreement or any Loan Document or any other
agreement or instrument relating thereto, (ii) any change in the time, manner or
place of payment of, or in any other term in respect of, all or any of the
Obligations, or any other amendment or waiver of or any consent to departure
from the Financing Agreement or any Loan Document,
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(iii) any exchange or release of, or non-perfection of any Lien on or security
interest in, any collateral, or any release or amendment or waiver of or consent
to departure from any guaranty, for all or any of the Obligations, or (iv) any
other circumstance which might otherwise constitute a defense available to, or a
discharge of, the Loan Parties in respect of the Obligations or the Lender or
the Borrower in respect of this Note.
The Lender waives any and all demands, presentments or notices (other than
notices specifically provided for in this Note) to which it otherwise might be
entitled, including, without limitation, any and all notices (i) of the creation
or accrual of any of the Obligations, (ii) of any extension, modification or
renewal of any of the Obligations and (iii) of the Senior Lenders' reliance on
the subordination provisions of this Note.
The Borrower may at any time prepay the whole or any part of the unpaid
principal amount of this Note, without penalty or premium, with interest accrued
to the date fixed for prepayment.
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This Note shall be governed by, and construed and interpreted in
accordance with, the internal laws of the State of New York applicable to
contracts made and to be performed therein without consideration as to choice of
law.
MISS ERIKA, INC.
By:
----------------------------------
Name:
Title:
ACCEPTED AND AGREED:
NORTON McNAUGHTON OF SQUIRE, INC.
By:
--------------------------------
Name:
Title:
PAY TO THE ORDER OF:
NATIONSBANC COMMERCIAL CORPORATION,
as Collateral Agent
NORTON McNAUGHTON OF SQUIRE, INC.
By:
----------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.2
NationsBank
NationsBanc Commercial Corporation
Factoring Agreement
entered into between
MISS ERIKA, INC.
and
NationsBanc Commercial Corporation
NationsBanc Commercial Corporation
P.O. Box 4095
Atlanta, Georgia 30302
Gentlemen:
We are pleased to confirm the following agreement by which you are to
act as sole factor for sales made by us:
SECTION 1. DEFINITIONS
1.1 "Banking Day" shall mean a day for dealings by and between banks,
excluding Saturday, Sunday and any day which shall be a legal holiday in the
City of Atlanta, Georgia, and any other day on which banking institutions are
authorized to close in the City of Atlanta, Georgia.
1.2 "Credit Risk" shall mean the risk of loss resulting solely and
exclusively from a Customer's failure to pay at maturity because of its
financial inability.
1.3 "Customer Dispute" shall mean any cause for nonpayment of
Receivables, other than the financial inability of the Customer, including,
without limitation, any alleged defense, offset, or counterclaim.
1.4 "Customers" shall mean the account debtors obligated on the
Receivables.
1.5 "Default" shall mean the occurrence of any of the following events:
(a) nonpayment when due of any amount payable on any of the Obligations or
failure to perform in any material respect any material agreement or meet any
obligation of ours contained herein or in any agreement out of which any of the
Obligations arose; (b) default by us in repayment when due of any indebtedness
now or hereafter owed for monies borrowed from any one other than you unless
cured within any applicable grace period; (c) any material statement,
representation, or warranty of ours made orally or in writing herein or in any
other writing or statement at any time furnished or made by us to you is untrue
in any material respect as of the date furnished or made; (d) suspension of the
operation of our present business; (e) any Obligor becomes insolvent or unable
to pay debts as they mature, makes an assignment for the benefit of creditors,
or a proceeding is instituted by or against any Obligor alleging that such
Obligor is insolvent or unable to pay debts as they mature, or a petition under
any provision of Title 11
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of the United States Code (entitled "Bankruptcy"), as amended is brought by or
against any Obligor and if such proceeding or petition is against us, it is
either consented to or not dismissed within sixty (60) days after the filing
thereof; (f) dissolution, merger, or consolidation of any Obligor which is a
corporation except a merger of Norton McNaughton of Squire, Inc. into Norton
McNaughton, Inc. or a dissolution of Norty's Inc.; (g) sale, transfer or
exchange, either directly or indirectly, of a controlling stock interest of any
Obligor which is a corporation; (h) appointment of a receiver for any collateral
pledged for the Obligations or for any property in which we have an interest
unless dismissed within thirty (30) days; (i) the Pension Benefit Guaranty
Corporation shall commence proceedings under Section 4042 of the Employee
Retirement Income Security Act of 1974 (ERISA) to terminate any employee pension
benefit plan of Debtor; or (j) you in good faith deem the prospect of our
payment or performance of the Obligations to have been materially impaired.
1.6 "Ledger Debt" shall mean all sums owing to you and, during the term
of the Participation Agreement between you and The CIT Group/Commercial
Services, Inc. ("CIT") of even date herewith, to CIT for goods and/or services
purchased from any other firm factored by you or CIT.
1.7 "Loan Documents" shall mean the Financing Agreement by and among
Norton McNaughton, Inc., us, Norton McNaughton of Squire, Inc., you, as
collateral agent, CIT, as administrative agent, and certain lenders from time to
time party thereto of even date herewith, the Notes, the Guaranties, the
Security Agreements, the Assignment Agreement, the Letter of Credit Applications
and all other instruments, agreements and other documents executed and delivered
pursuant hereto or thereto.
1.8 "Net Amount" of Receivables shall mean the gross amount of
Receivables, less discounts as shown on Customer invoices, less returns and
deductions by Customers, less credits or allowances of any nature at any time
issued by us, owing, granted or outstanding, and less also your commission as
set forth herein.
1.9 "Obligations" shall mean all of our obligations to you hereunder,
including without limitation, all obligations of ours to you under any note,
contract of surety, guaranty, or accommodation, or with respect to letters of
credit or acceptances, Ledger Debt and all other obligations of ours to you,
however and whenever created, arising or evidenced, whether direct or indirect,
through assignment from third parties in the ordinary course of your business,
absolute, contingent or otherwise, now or hereafter existing or due or to become
due.
1.10 "Obligor" shall mean: us and each other party primarily or
secondarily, directly or indirectly liable on any of the Obligations.
1.11 "Payment Date" shall mean: (a) for each credit-approved Receivable
for which you retain the Credit Risk, the date of deposit of Customer payment by
you plus one (1) Banking Day for collection and clearance of checks or, if such
Receivable is not paid, one hundred twenty (120) days after the due date of the
Receivable or, if such day is not a Banking Day, the next Banking Day; and (b)
for each Receivable for which you do not bear the Credit Risk, the date of
deposit of Customer payment by you plus one (1) Banking Day for collection and
clearance of checks. You will use your best efforts to make deposits promptly.
Payment Date may be delayed to the next Banking Day following the day
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of application of remittances to Receivables.
1.12 "Prime Rate" shall mean the rate of interest announced by
NationsBank, N.A. from time to time as its Prime Rate.
1.13 "Receivables" shall mean all accounts arising from our Sales, the
proceeds thereof, and all instruments, contract rights, chattel paper,
documents, and general intangibles relating directly thereto and all security
and guaranties therefor, whether now existing or hereafter created.
1.14 "Sales" shall mean the sale of goods and/or the rendition of
services by us in the ordinary course of our business to Customers in the United
States of America and Puerto Rico.
SECTION 2. SALE AND APPROVAL; PURCHASE PRICE; COMMISSION; ADVANCES; RESERVE
2.1 We hereby assign and sell to you as absolute owner, without
recourse, except as hereinafter set forth, our entire interest in all of our
present and future Receivables specifically assigned to you.
2.2 Notwithstanding any other provision of this Agreement, each of our
Receivables in a gross amount of One Hundred Dollars ($100) or less is assigned
and sold to you under this Agreement with full recourse.
2.3 All orders for Sales shall be submitted to you for credit approval
prior to shipment of the goods or rendition of the services so ordered, and each
approved Sale shall be made only in accordance with such approval. All credit
approvals must be in writing. Receivables arising from orders not so approved by
you, in whole or in part, shall be with full recourse to us to the extent and in
the respects not so approved. A credit approval shall not be effective if (a)
the approved terms of sale are changed in any material respect, (b) delivery of
the goods to the Customer is not made by us within forty-five (45) days after
the shipping date specified in our request for credit approval, or if no such
date is specified, within forty-five (45) days of the credit approval, or (c)
the invoice representing the Sale is not delivered to you within twenty (20)
days after the shipment date. Credit approval may be by credit line. While a
credit line remains in force, Receivables (or parts thereof) in excess of such
line will succeed amounts within the line which are paid by or credited to the
Customer; the succession of Receivables (or parts thereof) shall take place in
the order of maturity and shall be limited to amounts then so paid or credited.
The right of succession ceases when the line is canceled. Except as hereinafter
provided otherwise, on all credit-approved Sales you assume the Credit Risk up
to the amount so approved and will bear the credit loss on the amount of the
uncollected Receivables if a Customer, after delivery/rendition and acceptance
of the goods/services, fails on due date to pay in full solely because of
financial inability, but you are not to be responsible where nonpayment results
from any Customer Dispute, acts of God, war, civil strife, currency
restrictions, or foreign political impediments, because we assume all other
risks. In each contract year credit-approved Sales shall be with full recourse
to us until you have, by charge-off, established US One Hundred Thousand Dollars
(US$100,000.00) of gross credit losses for credit-approved sales. "Gross Credit
Losses" shall mean the amounts charged-off. Any recoveries with respect to such
charged-off Receivables will be credited to our account. "Contract year" means
the 12-
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month period commencing on the date hereof and each succeeding 12-month period
thereafter. Should there exist for any Customer other credit-approved
Receivables, recoveries shall be shared on a pro rata basis. Credit approvals,
once granted, may be withdrawn by you prior to shipment/rendition of the
goods/services by written notice received by us prior to such
shipment/rendition. Notwithstanding the provisions hereof, with respect to
written credit approval of orders from customers listed on Schedule A annexed
hereto for which our credit inquiries specify in writing that such orders cover
merchandise prepared specifically for such Customer ("Special Goods"), should
you withdraw such a credit approval for any reason, it is agreed that we shall
use our best efforts to sell such Special Goods at the highest price then
attainable, subject to your approval. Immediately upon such sale by us, or if we
are unable to sell such Special Goods immediately after notice by us to you to
that effect, you will pay us the difference or credit our account with the
difference between such sale price and the cost to us of such Special Goods;
provided, however, that in no event can the cost used exceed the amount of the
original selling price, and further provided, however, that in the event, for
whatever reason, you fail to approve any such sale or we are unable to sell such
Special Goods, then for purposes of the foregoing "such sale price" for such
Special Goods shall be deemed to be $0.00.
With regard to Sales without credit approval or in excess of any
approved amount of credit, as to any given Customer, we agree that any payments
or credits on any Receivables owing from such Customer may be applied first to
any credit-approved Receivables which may at any time be unpaid, regardless of
the respective dates such Sales occurred and regardless of any notations on
payment items, or may be applied in such other manner as you in your sole
discretion shall deem appropriate.
2.4 We will provide you with listings of Receivables in form reasonably
satisfactory to you, together with Customers' invoices, shipping documents, and
such other documents and proof of delivery/rendition as you may at any time
reasonably require. Billing on invoices by whomever done shall be conclusive
evidence of assignment and sale hereunder of such Receivables whether or not we
execute any other instrument with regard thereto. All invoices to Customers
shall state plainly on the face thereof that the Receivables represented by such
invoices have been assigned, sold, and are payable to you only. All remittances
obtained by us against Receivables will be received in trust for you, and we
will turn over to you the identical remittances as speedily as possible;
provided, however, that nothing herein authorizes us to collect Receivables.
2.5 The purchase price of Receivables is to be the Net Amount thereof,
which, less any charges made to our account under and in accordance with the
express terms of this Agreement and reserves, will be due and payable on Payment
Date. We shall pay you a commission in an amount equal to four tenths of one
percent (.4%) of the gross amount of such Receivables less applicable discounts
as shown on customer invoices. You may retain from sums payable to us a reserve,
which reserve shall be, at your discretion, exercised in good faith, in order to
provide for Customer Disputes. A discount, credit, or allowance after issuance
or granting may not be claimed by us, but may be claimed solely by the Customer;
provided, however, that at our request and if approved by you, you will credit
to us any Customer credits which have not been applied to specific invoices and
simultaneously you will charge back to us any Receivable related thereto; no
third party beneficiary rights are created hereby. We will indemnify, defend and
hold you harmless from and against any and all claims which may thereafter be
asserted against you for a refund or recovery of such monies credited to our
account or otherwise paid to us or our order.
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2.6 You will render a statement of account monthly, and such statement
shall be binding upon us absent manifest error and except for specific matters
for which you are notified in writing to the contrary within sixty (60) days
after the date of such statement.
SECTION 3. INTEREST
Interest shall be charged for the number of days that charges to our
account remain outstanding at the Prime Rate less three quarters of one percent
(3/4%) per annum. Interest shall be computed on the basis of a year of three
hundred sixty (360) days, for actual days elapsed. Changes in the rate shall be
effected monthly to reflect changes in the Prime Rate, as follows: The rate
shall be adjusted on the first day of each month based on the Prime Rate in
effect at the close of business on the last Banking Day of the immediately
preceding month. After termination, we shall pay interest on our obligations
hereunder at the rates hereinbefore provided. For the purpose of interest
calculation, commissions earned during each month shall be deemed charged to our
account on the fifteenth (15th) day of each month.
SECTION 4. POWER OF ATTORNEY
We hereby appoint you as our attorney-in-fact to receive, open, and
dispose of all mail addressed to us pertaining to Receivables; to endorse our
name upon any notes, acceptances, checks, drafts, money orders, and other
evidences of payment of Receivables that may come into your possession and to
deposit or otherwise collect the same; and following our failure to do so to do
all other acts and things necessary to carry out the terms of this Agreement.
This power, being coupled with an interest, is irrevocable while any Receivable
shall remain unpaid. You, as attorney-in-fact, shall not be liable for any
errors of judgment or mistake of fact excluding, however, acts of omission or
willful misconduct or gross negligence.
SECTION 5. SECURITY INTEREST
We hereby grant you a security interest in all of our present and
future Receivables (whether arising before or after termination of this
Agreement) and all returned, repossessed, and reclaimed goods, and books and
records relating thereto, to secure all of the Obligations. We further sell and
assign to you all our title and/or interest in the goods (unless released by
you) represented by Receivables as well as goods returned by or repossessed from
Customers, all of our rights as an unpaid vendor or lienor, all or our rights of
stoppage in transit, replevin and reclamation relating thereto, and all of our
rights against third parties with respect thereto; we will reasonably cooperate
with you in exercising any rights with respect to the goods. In addition, we
hereby grant you a security interest in the reserve established pursuant to
Section 2.5 hereof, to secure all of the Obligations.
SECTION 6. REPRESENTATIONS, WARRANTIES AND COVENANTS
The following representations and warranties are made as of the date of
execution and delivery hereof:
6.1 We represent and warrant that we are fully authorized to enter into
this Agreement and
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perform hereunder and covenant that we will continue to be so for the duration
of this Agreement.
6.2 We represent and warrant that we are solvent.
6.3 We represent and warrant that our Receivables are, and covenant
that they shall be, at the time of their creation, bona fide and existing
obligations of our Customers arising out of our Sales, free and clear of all
security interests, liens, and claims whatsoever other than the security
interest granted pursuant to the Loan Documents provided that you have entered
into an intercreditor agreement in form and substance satisfactory to you.
6.4 We represent and warrant that our inventory is not subject to any
security interest, lien or encumbrance whatsoever, other than the security
interest granted pursuant to the Loan Documents and we covenant that we shall
not permit it to become so encumbered without your prior written consent.
6.5 We represent and warrant with respect to each Receivable as it
arises:
(a) We will have made delivery of the goods or will have rendered
the services ordered;
(b) To the best of our knowledge, the Customer will accept the
goods and/or services;
(c) To the best of our knowledge, no Customer Dispute will exist in
any respect;
(d) We will have preserved and will continue to preserve any liens
and any rights to liens available by virtue of Sales; and
(e) With respect to all assigned Receivables the Customer will not
be our affiliate.
SECTION 7. CUSTOMER DISPUTES, CHARGEBACKS AND RETURNS
We will notify you promptly and will settle all Customer Disputes in
accordance with prudent business judgment. Upon the occurrence and continuation
of Default, you shall have the right to settle Customer Disputes directly and to
compromise, adjust, or litigate all such Customer Disputes. If a Customer
Dispute exists or is asserted with regard to any Receivable, or if we breach any
representation, warranty or covenant with respect to any Receivable, you may
charge back to our account the Net Amount of such Receivable. You may charge
back to our account at any time any unapproved Receivable, whether before or
after its due date. A chargeback shall not be deemed a reassignment of the
Receivable, and title thereto and to the goods represented thereby shall remain
in you until you execute a reassignment. All returned, replevied, and reclaimed
goods coming into our possession shall be held in trust by us for you.
SECTION 8. BOOKS AND RECORDS; FINANCIAL STATEMENTS
You and your representatives shall at all reasonable times and upon
reasonable prior notice have the right to examine all of our books and records.
We agree to prepare and furnish you within forty-five (45) days after the close
of each of the first three quarters, consolidated financial statements unaudited
and in such form and detail as you may reasonably require. We also agree to have
prepared, and to furnish you within one hundred twenty (120) days after the
close of our fiscal year, consolidated
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financial statements which have been audited and certified by an independent
certified public accountant suitable to you.
SECTION 9. INDEMNITY
We shall indemnify you for all losses, reasonable costs and expenses
incurred by you in connection with Receivables for which credit approval has not
been given and in connection with Receivables which are unpaid at maturity for
reasons other than financial inability. Further, we shall indemnify you for any
liability for duties, forwarder's fees, storage, shipping charges, sales or
excise taxes or other expenses in connection with the Receivables and for any
losses occasioned by claims of Customers under Receivables. This indemnity shall
survive the termination of this Agreement.
SECTION 10. APPLICABLE LAW
This Agreement shall be governed by, construed and enforced according
to the laws of the State of New York.
SECTION 11. EFFECTIVE DATE; TERMINATION; BINDING EFFECT
If accepted by you, this Agreement shall be effective on the 25th day
of September, 1997, and shall continue in full force and effect until: three (3)
years from such effective date and from year to year thereafter until terminated
by either party at any time giving to the other not less than sixty (60) days
prior written notice. This Agreement may be terminated at any time by you
without notice to us should any Default occur and be continuing. Upon
termination, we will pay all of our Obligations to you, and in any event we will
remain liable to you for any deficiency remaining after determination of our
liability hereunder and liquidation of any collateral. Also, upon termination
you may withhold any payment to us unless supplied with an indemnity
satisfactory to you. This Agreement shall bind us, our successors and assigns
and shall inure to the benefit of you, your successors and assigns; we agree
that you may delegate your duties hereunder.
SECTION 12. EXPENSES; ATTORNEYS' FEES; NO WAIVER; SEVERABILITY; NOTICES;
HEADINGS
We shall pay all reasonable expenses incurred by you in connection with
the execution of this Agreement, including expenses incurred in connection with
the filing of financing statements, continuation statements, record searches and
reasonable attorneys' fees. We shall also pay you such reasonable wire transfer
and similar fees as you charge from time to time. Upon liquidation of any
collateral, settlement or prosecution of Customer Disputes, or enforcement of
any obligation of ours hereunder, you may charge to our account all costs and
expenses incurred including reasonable attorneys' fees, if collection is by or
through an attorney and such costs, expenses and fees shall constitute amounts
owed hereunder. No delay or failure on your part in exercising any right,
privilege, or option hereunder shall operate as a waiver of such or of any other
right, privilege, or option, and no waiver, amendment, or modification of any
provision of this Agreement shall be valid, unless in writing signed by you and
then only to the extent therein stated. Should any provision of this Agreement
be prohibited by or invalid under applicable law, the validity of the remaining
provisions shall not be
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affected thereby. Any notices, requests, demands or other communications given
by you under this Agreement may be sent by mail, telex, telegraph, delivery or
telecopy to our most current address as reflected in your records. The headings
used herein are intended to be for convenience of reference only and shall not
define or limit the scope, extent or intent or otherwise affect the meaning of
any portion hereof.
SECTION 13. ENTIRE AGREEMENT; WAIVER OF JURY TRIAL
This Agreement embodies our entire agreement as to the subject matter
and supersedes all prior agreements as to the subject matter. EACH OF US HEREBY
WAIVES ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO
TRANSACTIONS UNDER THIS AGREEMENT.
SECTION 14. TRADE STYLES
Receivables under this Agreement shall include those created by our
doing business under the following trade styles, all of which have been duly and
properly registered:
Alyssa Brooke Erika
Erika Dimensions Private Party
Return to Nature Ricki
Sugar Blues Sugar Co. Ltd.
White Mountain College
Miss Erika, Inc.
By: /s/ Sanford Greenberg
--------------------------
Title: Chairman of the Board
ACCEPTANCE
The foregoing Factoring Agreement is accepted in Atlanta, Georgia as of
the _________ day of ___________ , 19__ .
NationsBanc Commercial Corporation
By: /s/ Stewart M. Long
--------------------
Title: President
8
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EXHIBIT 10.3
NationsBank
NationsBanc Commercial Corporation
Amended and Restated
Factoring Agreement
entered into between
NORTON MCNAUGHTON OF SQUIRE, INC.
and
NationsBanc Commercial Corporation
NationsBanc Commercial Corporation
P.O. Box 4095
Atlanta, Georgia 30302
Gentlemen:
We are pleased to confirm the following agreement by which you are to
act as sole factor for sales made by us:
SECTION 1. DEFINITIONS
1.1 "Banking Day" shall mean a day for dealings by and between banks,
excluding Saturday, Sunday and any day which shall be a legal holiday in the
City of Atlanta, Georgia, and any other day on which banking institutions are
authorized to close in the City of Atlanta, Georgia.
1.2 "Credit Risk" shall mean the risk of loss resulting solely and
exclusively from a Customer's failure to pay at maturity because of its
financial inability.
1.3 "Customer Dispute" shall mean any cause for nonpayment of
Receivables, other than the financial inability of the Customer, including,
without limitation, any alleged defense, offset, or counterclaim.
1.4 "Customers" shall mean the account debtors obligated on the
Receivables.
1.5 "Default" shall mean the occurrence of any of the following events:
(a) nonpayment when due of any amount payable on any of the Obligations or
failure to perform in any material respect any material agreement or meet any
obligation of ours contained herein or in any agreement out of which any of the
Obligations arose; (b) default by us in repayment when due of any indebtedness
now or hereafter owed for monies borrowed from any one other than you unless
cured within any applicable grace period; (c) any material statement,
representation, or warranty of ours made orally or in writing herein or in any
other writing or statement at any time furnished or made by us to you is untrue
in any material respect as of the date furnished or made; (d) suspension of the
operation of our present business; (e) any Obligor becomes insolvent or unable
to pay debts as they mature, makes an assignment
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for the benefit of creditors, or a proceeding is instituted by or against any
Obligor alleging that such Obligor is insolvent or unable to pay debts as they
mature, or a petition under any provision of Title 11 of the United States Code
(entitled "Bankruptcy"), as amended is brought by or against any Obligor and if
such proceeding or petition is against us, it is either consented to or not
dismissed within sixty (60) days after the filing thereof; (f) dissolution,
merger, or consolidation of any Obligor which is a corporation except a merger
of Norton McNaughton of Squire, Inc. into Norton McNaughton, Inc. or a
dissolution of Norty's Inc.; (g) sale, transfer or exchange, either directly or
indirectly, of a controlling stock interest of any Obligor which is a
corporation; (h) appointment of a receiver for any collateral pledged for the
Obligations or for any property in which we have an interest unless dismissed
within thirty (30) days; (i) the Pension Benefit Guaranty Corporation shall
commence proceedings under Section 4042 of the Employee Retirement Income
Security Act of 1974 (ERISA) to terminate any employee pension benefit plan of
Debtor; or (j) you in good faith deem the prospect of our payment or performance
of the Obligations to have been materially impaired.
1.6 "Ledger Debt" shall mean all sums owing to you and, during the term
of the Participation Agreement between you and The CIT Group/Commercial
Services, Inc. ("CIT") of even date herewith, to CIT for goods and/or services
purchased from any other firm factored by you or CIT.
1.7 "Loan Documents" shall mean the Financing Agreement by and among
Norton McNaughton, Inc., us, Miss Erika, Inc., you, as collateral agent, CIT, as
administrative agent and certain lenders from time to time party thereto of even
date herewith, the Notes, the Guaranties, the Security Agreements, the
Assignment Agreement, the Letter of Credit Applications and all other
instruments, agreements and other documents executed and delivered pursuant
hereto or thereto.
1.8 "Net Amount" of Receivables shall mean the gross amount of
Receivables, less discounts as shown on Customer invoices, less returns and
deductions by Customers, less credits or allowances of any nature at any time
issued by us, owing, granted or outstanding, and less also your commission as
set forth herein.
1.9 "Obligations" shall mean all of our obligations to you hereunder,
including without limitation, all obligations of ours to you under any note,
contract of surety, guaranty, or accommodation, or with respect to letters of
credit or acceptances, Ledger Debt, and all other obligations of ours to you,
however and whenever created, arising or evidenced, whether direct or indirect,
through assignment from third parties in the ordinary course of your business,
absolute, contingent or otherwise, now or hereafter existing or due or to become
due.
1.10 "Obligor" shall mean: us and each other party primarily or
secondarily, directly or indirectly liable on any of the Obligations.
1.11 "Payment Date" shall mean: (a) for each credit-approved Receivable
for which you retain the Credit Risk, the date of deposit of Customer payment by
you plus one (1) Banking Day for collection and clearance of checks or, if such
Receivable is not paid, one hundred twenty (120) days after the due date of the
Receivable or, if such day is not a Banking Day, the next Banking Day; and (b)
for each Receivable for which you do not bear the Credit Risk, the date of
deposit of Customer payment
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by you plus one (1) Banking Day for collection and clearance of checks. You will
use your best efforts to make deposits promptly. Payment Date may be delayed to
the next Banking Day following the day of application of remittances to
Receivables.
1.12 "Prime Rate" shall mean the rate of interest announced by
NationsBank, N.A. from time to time as its Prime Rate.
1.13 "Receivables" shall mean all accounts arising from our Sales, the
proceeds thereof, and all instruments, contract rights, chattel paper,
documents, and general intangibles relating directly thereto and all security
and guaranties therefor, whether now existing or hereafter created.
1.14 "Sales" shall mean the sale of goods and/or the rendition of
services by us in the ordinary course of our business to Customers in the United
States of America and Puerto Rico.
SECTION 2. SALE AND APPROVAL; PURCHASE PRICE; COMMISSION; ADVANCES; RESERVE
2.1 We hereby assign and sell to you as absolute owner, without
recourse, except as hereinafter set forth, our entire interest in all of our
present and future Receivables specifically assigned to you.
2.2 Notwithstanding any other provision of this Agreement, each of our
Receivables in a gross amount of One Hundred Dollars ($100) or less is assigned
and sold to you under this Agreement with full recourse.
2.3 All orders for Sales shall be submitted to you for credit approval
prior to shipment of the goods or rendition of the services so ordered, and each
approved Sale shall be made only in accordance with such approval. All credit
approvals must be in writing. Receivables arising from orders not so approved by
you, in whole or in part, shall be with full recourse to us to the extent and in
the respects not so approved. A credit approval shall not be effective if (a)
the approved terms of sale are changed in any material respect, (b) delivery of
the goods to the Customer is not made by us within forty-five (45) days after
the shipping date specified in our request for credit approval, or if no such
date is specified, within forty-five (45) days of the credit approval, or (c)
the invoice representing the Sale is not delivered to you within twenty (20)
days after the shipment date. Credit approval may be by credit line. While a
credit line remains in force, Receivables (or parts thereof) in excess of such
line will succeed amounts within the line which are paid by or credited to the
Customer; the succession of Receivables (or parts thereof) shall take place in
the order of maturity and shall be limited to amounts then so paid or credited.
The right of succession ceases when the line is canceled. Except as hereinafter
provided otherwise, on all credit-approved Sales you assume the Credit Risk up
to the amount so approved and will bear the credit loss on the amount of the
uncollected Receivables if a Customer, after delivery/rendition and acceptance
of the goods/services, fails on due date to pay in full solely because of
financial inability, but you are not to be responsible where nonpayment results
from any Customer Dispute, acts of God, war, civil strife, currency
restrictions, or foreign political impediments, because we assume all other
risks. In each contract year credit-approved Sales shall be with full recourse
to us until you have, by charge-off,
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established US One Hundred Thousand Dollars (US$100,000.00) of gross credit
losses for credit-approved sales. "Gross Credit Losses" shall mean the amounts
charged-off. Any recoveries with respect to such charged-off Receivables will be
credited to our account. "Contract year" means the 12-month period commencing
on the date hereof and each succeeding 12-month period thereafter. Should there
exist for any Customer other credit-approved Receivables, recoveries shall be
shared on a pro rata basis. Credit approvals, once granted, may be withdrawn by
you prior to shipment/rendition of the goods/services by written notice received
by us prior to such shipment/rendition. Notwithstanding the provisions hereof,
with respect to written credit approval of orders from customers listed on
Schedule A annexed hereto for which our credit inquiries specify in writing that
such orders cover merchandise prepared specifically for such Customer ("Special
Goods"), should you withdraw such a credit approval for any reason, it is agreed
that we shall use our best efforts to sell such Special Goods at the highest
price then attainable, subject to your approval. Immediately upon such sale by
us, or if we are unable to sell such Special Goods immediately after notice by
us to you to that effect, you will pay us the difference or credit our account
with the difference between such sale price and the cost to us of such Special
Goods; provided, however, that in no event can the cost used exceed the amount
of the original selling price, and further provided, however, that in the event,
for whatever reason, you fail to approve any such sale or we are unable to sell
such Special Goods, then for purposes of the foregoing "such sale price" for
such Special Goods shall be deemed to be $0.00.
With regard to Sales without credit approval or in excess of any
approved amount of credit, as to any given Customer, we agree that any payments
or credits on any Receivables owing from such Customer may be applied first to
any credit-approved Receivables which may at any time be unpaid, regardless of
the respective dates such Sales occurred and regardless of any notations on
payment items, or may be applied in such other manner as you in your sole
discretion shall deem appropriate.
2.4 We will provide you with listings of Receivables in form reasonably
satisfactory to you, together with Customers' invoices, shipping documents, and
such other documents and proof of delivery/rendition as you may at any time
reasonably require. Billing on invoices by whomever done shall be conclusive
evidence of assignment and sale hereunder of such Receivables whether or not we
execute any other instrument with regard thereto. All invoices to Customers
shall state plainly on the face thereof that the Receivables represented by such
invoices have been assigned, sold, and are payable to you only. All remittances
obtained by us against Receivables will be received in trust for you, and we
will turn over to you the identical remittances as speedily as possible;
provided, however, that nothing herein authorizes us to collect Receivables.
2.5 The purchase price of Receivables is to be the Net Amount thereof,
which, less any charges made to our account under and in accordance with the
express terms of this Agreement and reserves, will be due and payable on Payment
Date. We shall pay you a commission in an amount equal to four tenths of one
percent (.4%) of the gross amount of such Receivables less applicable discounts
as shown on customer invoices. You may retain from sums payable to us a reserve,
which reserve shall be, at your discretion, exercised in good faith, in order to
provide for Customer Disputes. A discount, credit, or allowance after issuance
or granting may not be claimed by us, but may be claimed solely by the Customer;
provided, however, that at our request and if approved by you, you will credit
to us any Customer credits which have not been applied to specific invoices and
simultaneously you will charge
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back to us any Receivable related thereto; no third party beneficiary rights are
created hereby. We will indemnify, defend and hold you harmless from and against
any and all claims which may thereafter be asserted against you for a refund or
recovery of such monies credited to our account or otherwise paid to us or our
order.
2.6 You will render a statement of account monthly, and such statement
shall be binding upon us absent manifest error and except for specific matters
for which you are notified in writing to the contrary within sixty (60) days
after the date of such statement.
SECTION 3. INTEREST
Interest shall be charged for the number of days that charges to our
account remain outstanding at the Prime Rate less three quarters of one percent
(3/4%) per annum. Interest shall be computed on the basis of a year of three
hundred sixty (360) days, for actual days elapsed. Changes in the rate shall be
effected monthly to reflect changes in the Prime Rate, as follows: The rate
shall be adjusted on the first day of each month based on the Prime Rate in
effect at the close of business on the last Banking Day of the immediately
preceding month. After termination, we shall pay interest on our obligations
hereunder at the rates hereinbefore provided. For the purpose of interest
calculation, commissions earned during each month shall be deemed charged to our
account on the fifteenth (15th) day of each month.
SECTION 4. POWER OF ATTORNEY
We hereby appoint you as our attorney-in-fact to receive, open, and
dispose of all mail addressed to us pertaining to Receivables; to endorse our
name upon any notes, acceptances, checks, drafts, money orders, and other
evidences of payment of Receivables that may come into your possession and to
deposit or otherwise collect the same; and following our failure to do so to do
all other acts and things necessary to carry out the terms of this Agreement.
This power, being coupled with an interest, is irrevocable while any Receivable
shall remain unpaid. You, as attorney-in-fact, shall not be liable for any
errors of judgment or mistake of fact excluding, however, acts of omission or
willful misconduct or gross negligence.
SECTION 5. SECURITY INTEREST
We hereby grant you a security interest in all of our present and
future Receivables (whether arising before or after termination of this
Agreement) and all returned, repossessed, and reclaimed goods, and books and
records relating thereto, to secure all of the Obligations. We further sell and
assign to you all our title and/or interest in the goods (unless released by
you) represented by Receivables as well as goods returned by or repossessed from
Customers, all of our rights as an unpaid vendor or lienor, all or our rights of
stoppage in transit, replevin and reclamation relating thereto, and all of our
rights against third parties with respect thereto; we will reasonably cooperate
with you in exercising any rights with respect to the goods. In addition, we
hereby grant you a security interest in the reserve established pursuant to
Section 2.5 hereof, to secure all of the Obligations.
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SECTION 6. REPRESENTATIONS, WARRANTIES AND COVENANTS
The following representations and warranties are made as of the date of
execution and delivery hereof:
6.1 We represent and warrant that we are fully authorized to enter into
this Agreement and perform hereunder and covenant that we will continue to be so
for the duration of this Agreement.
6.2 We represent and warrant that we are solvent.
6.3 We represent and warrant that our Receivables are, and covenant
that they shall be, at the time of their creation, bona fide and existing
obligations of our Customers arising out of our Sales, free and clear of all
security interests, liens, and claims whatsoever other than the security
interest granted pursuant to the Loan Documents provided that you have entered
into an intercreditor agreement in form and substance satisfactory to you.
6.4 We represent and warrant that our inventory is not subject to any
security interest, lien or encumbrance whatsoever, other than the security
interest granted pursuant to the Loan Documents and we covenant that we shall
not permit it to become so encumbered without your prior written consent.
6.5 We represent and warrant with respect to each Receivable as it
arises:
(a) We will have made delivery of the goods or will have rendered
the services ordered;
(b) To the best of our knowledge, the Customer will accept the
goods and/or services;
(c) To the best of our knowledge, no Customer Dispute will exist in
any respect;
(d) We will have preserved and will continue to preserve any liens
and any rights to liens available by virtue of Sales; and
(e) With respect to all assigned Receivables the Customer will not
be our affiliate.
SECTION 7. CUSTOMER DISPUTES, CHARGEBACKS AND RETURNS
We will notify you promptly and will settle all Customer Disputes in
accordance with prudent business judgment. Upon the occurrence and continuation
of Default, you shall have the right to settle Customer Disputes directly and to
compromise, adjust, or litigate all such Customer Disputes. If a Customer
Dispute exists or is asserted with regard to any Receivable, or if we breach any
representation, warranty or covenant with respect to any Receivable, you may
charge back to our account the Net Amount of such Receivable. You may charge
back to our account at any time any unapproved Receivable, whether before or
after its due date. A chargeback shall not be deemed a reassignment of the
Receivable, and title thereto and to the goods represented thereby shall remain
in you until you execute a reassignment. All returned, replevied, and reclaimed
goods coming into our possession shall be held in trust by us for you.
SECTION 8. BOOKS AND RECORDS; FINANCIAL STATEMENTS
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You and your representatives shall at all reasonable times and upon
reasonable prior notice have the right to examine all of our books and records.
We agree to prepare and furnish you within forty-five (45) days after the close
of each of the first three quarters, consolidated financial statements unaudited
and in such form and detail as you may reasonably require. We also agree to have
prepared, and to furnish you within one hundred twenty (120) days after the
close of our fiscal year, consolidated financial statements which have been
audited and certified by an independent certified public accountant suitable to
you.
SECTION 9. INDEMNITY
We shall indemnify you for all losses, reasonable costs and expenses
incurred by you in connection with Receivables for which credit approval has not
been given and in connection with Receivables which are unpaid at maturity for
reasons other than financial inability. Further, we shall indemnify you for any
liability for duties, forwarder's fees, storage, shipping charges, sales or
excise taxes or other expenses in connection with the Receivables and for any
losses occasioned by claims of Customers under Receivables. This indemnity shall
survive the termination of this Agreement.
SECTION 10. APPLICABLE LAW
This Agreement shall be governed by, construed and enforced according
to the laws of the State of New York.
SECTION 11. EFFECTIVE DATE; TERMINATION; BINDING EFFECT
If accepted by you, this Agreement shall be effective on the 25th day
of September, 1997, and shall continue in full force and effect until: three (3)
years from such effective date and from year to year thereafter until terminated
by either party at any time giving to the other not less than sixty (60) days
prior written notice. This Agreement may be terminated at any time by you
without notice to us should any Default occur and be continuing. Upon
termination, we will pay all of our Obligations to you, and in any event we will
remain liable to you for any deficiency remaining after determination of our
liability hereunder and liquidation of any collateral. Also, upon termination
you may withhold any payment to us unless supplied with an indemnity
satisfactory to you. This Agreement shall bind us, our successors and assigns
and shall inure to the benefit of you, your successors and assigns; we agree
that you may delegate your duties hereunder.
SECTION 12. EXPENSES; ATTORNEYS' FEES; NO WAIVER; SEVERABILITY; NOTICES;
HEADINGS
We shall pay all reasonable expenses incurred by you in connection with
the execution of this Agreement, including expenses incurred in connection with
the filing of financing statements, continuation statements, record searches and
reasonable attorneys' fees. We shall also pay you such reasonable wire transfer
and similar fees as you charge from time to time. Upon liquidation of any
collateral, settlement or prosecution of Customer Disputes, or enforcement of
any obligation of ours hereunder, you may charge to our account all costs and
expenses incurred including reasonable
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attorneys' fees, if collection is by or through an attorney and such costs,
expenses and fees shall constitute amounts owed hereunder. No delay or failure
on your part in exercising any right, privilege, or option hereunder shall
operate as a waiver of such or of any other right, privilege, or option, and no
waiver, amendment, or modification of any provision of this Agreement shall be
valid, unless in writing signed by you and then only to the extent therein
stated. Should any provision of this Agreement be prohibited by or invalid under
applicable law, the validity of the remaining provisions shall not be affected
thereby. Any notices, requests, demands or other communications given by you
under this Agreement may be sent by mail, telex, telegraph, delivery or telecopy
to our most current address as reflected in your records. The headings used
herein are intended to be for convenience of reference only and shall not define
or limit the scope, extent or intent or otherwise affect the meaning of any
portion hereof.
SECTION 13. ENTIRE AGREEMENT; WAIVER OF JURY TRIAL
This Agreement embodies our entire agreement as to the subject matter
and amends and restates our Agreement of March 1, 1994. EACH OF US HEREBY WAIVES
ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO
TRANSACTIONS UNDER THIS AGREEMENT.
SECTION 14. TRADE STYLES
Receivables under this Agreement shall include those created by our
doing business under the following trade styles, all of which have been duly and
properly registered:
Norton McNaughton Pant-Her Woman
Norton McNaughton Petites Pant-Her Petites
McNaughton Wear Modiano
McNaughton Wear Petites Modiano Woman
McNaughton Wear Woman Maggie McNaughton
Pant-Her Maggie McNaughton Petites
Modiano Petite Danielle Paige
D.P.S. D.P.S. Woman
Norton Studio Norton Studio Woman
Katherine Marie Katherine Marie Petite
Katherine Marie Woman Lauren Alexandra
Lauren Alexandra Woman
Norton McNaughton of Squire, Inc.
By: /s/ Sanford Greenberg
----------------------
Title: Chairman of the Board
and CEO
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ACCEPTANCE
The foregoing Factoring Agreement is accepted in Atlanta, Georgia as of
the ______ day of ______, 19__ .
NationsBanc Commercial Corporation
By: /s/ Stewart M. Long
---------------------
Title: President
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EXHIBIT 10.4
EMPLOYMENT AGREEMENT
AGREEMENT dated as of the 29th day of August 1997 by and
between ME ACQUISITION CORP., a Delaware corporation (the "Company"), and Stuart
Bregman (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company, a wholly owned subsidiary of Norton
McNaughton, Inc., a Delaware corporation ("Norton"), and certain other parties
(which parties include the Employee) simultaneously herewith are entering into
an Agreement of Purchase and Sale dated as of August 29, 1997 (the "Purchase
Agreement"), providing, inter alia, for the purchase by the Company of
substantially all of the assets of Miss Erika, Inc., a Delaware corporation
("Miss Erika"); and
WHEREAS, the Employee desires to continue in the employ of the
Company subsequent to the consummation of the transactions contemplated by the
Purchase Agreement; and
WHEREAS, in order to induce the Company to enter into, and to
consummate the transactions contemplated by, the Purchase Agreement, the
Employee desires to enter into this Agreement; and
WHEREAS, the Company desires to secure the employment of the
Employee with the Company subsequent to the consummation of the transactions
contemplated by the Purchase Agreement, and to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements hereinafter set forth, the parties hereto hereby agree as
follows:
15. Employment, Term.
15.1 The Company agrees to employ the Employee, and the
Employee agrees to serve in the employ of the Company, for the term set forth in
Section 1.2, in the positions and with the responsibilities, duties and
authority set forth in Section 2 and on the other terms and conditions set forth
in this Agreement.
15.2 The term of the Employee's employment under this
Agreement (the "Term") shall commence on the Closing Date (as defined in the
Purchase Agreement) and, unless sooner terminated in accordance with this
Agreement, shall expire (a) if the Company does not attain EBITDA (as defined in
the Executive Bonus Plan, as defined in Section 3.2 below, except that EBITDA
for purposes of this Section 1.2 shall be determined after reduction for the
Bonus Pool (as defined in the Executive Bonus Plan) for the applicable fiscal
year) averaged for the fiscal years ending October 31, 1998 and November 6, 1999
of $5,500,000 or more (the "EBITDA 2-Year Target"), on such date (the "Notice
Date"), not earlier than November 6, 1999, on which the Chairman of the Board,
the President or the Chief Financial Officer of Norton delivers to the Employee
a written statement that the EBITDA 2-Year Target has not been achieved (the
Closing Date through the Notice Date, hereinafter the "Initial Term"); or (b) if
the Company attains the EBITDA 2-Year Target, on October 31, 2001 (November 7,
1999 through October 31, 2001, hereinafter the "Extended Term").
16. Positions, Duties. The Employee shall serve in the
position of Chief Executive Officer of the Company. As such, subject to the
ultimate control of the Chairman of the Board of the Company, the Vice Chairman
of the Board of the Company, and the Board of Directors of the Company, the
Employee, together with the Chief Operating Officer of the Company, shall have
day-to-day management control over the Company's business and
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operations, including without limitation, sales practices, price of merchandise,
inventory matters, mark-down allowances, customer discounts, and the hiring,
firing and compensation (including levels of participation by employees of the
Company in any profit sharing plan established by the Company) of other
employees of the Company, all with authority and discretion consistent with past
practices of Miss Erika. The Employee shall perform, faithfully and diligently,
such duties, and, subject to the prior sentence, shall have such other
responsibilities, appropriate to said position, as shall be assigned to him from
time to time by the Chairman, the Vice Chairman or the Board of Directors of the
Company. The Employee shall report to the Chairman and the Vice Chairman of the
Company. The Employee shall devote his complete and undivided attention to the
performance of his duties and responsibilities hereunder during the normal
working hours of executive employees of Norton. As of the Closing Date and
during the Term, the Company shall use its best efforts to cause the Employee to
be elected to the Board of Directors of Norton and to be included in the
management slate of directors for election as a director of Norton at each
stockholder's meeting of Norton at which his term as a director of Norton would
expire during the Term.
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17. Compensation.
17.1 Salary. During the Term, in consideration of the performance by
the Employee of the services set forth in Section 2 and his observance of the
other covenants set forth herein, the Company shall pay the Employee, and the
Employee shall accept, a salary at a rate of $425,000 per annum, payable in
accordance with the standard payroll practices of the Company. If the Company
attains EBITDA for any full fiscal year ending during the Term of $6,000,000 or
more (the "EBITDA Target"), the salary beginning on the first day of the
immediately succeeding fiscal year during the Term, if any, shall be increased
to $460,000 per annum, and if the Company attains an average EBITDA for any two
consecutive full fiscal years ending during the Term of $6,000,000 or more, the
salary beginning on the first day of the immediately succeeding fiscal year
during the Term, if any, shall be increased to $500,000 per annum.
17.2 Bonus. During the Term, in addition to the salary provided for in
Section 3.1, (i) the Employee shall be eligible to participate in the ME
Acquisition Corp. Bonus Plan for Senior Executives (the "Executive Bonus Plan"),
a copy of which is attached hereto as Exhibit A and the terms of which are
incorporated herein by reference, (ii) the Employee shall be allocated a
percentage of the Bonus Pool (as defined in the Executive Bonus Plan), which
percentage shall be not less than 33.335% of the Bonus Pool, subject to the
terms and conditions of the Executive Bonus Plan and this Agreement; provided,
however, that the Employee may, upon written notice to the Company, elect to
transfer all or a portion of his allocation of the Bonus Pool to the other
participants in the Executive Bonus Plan, and the Company agrees to pay such
transferred allocation to the other participants in the Executive Bonus Plan in
accordance with the written direction of the Employee and otherwise in
accordance with terms and conditions of the Executive Bonus Plan, and (iii)
either (a) the Employee shall receive a cash bonus in an amount which, net of
taxes payable by the Employee in respect of such amount, shall be equal to the
amount which would have been contributed on behalf of the Employee with respect
to the Miss Erika, Inc. Profit Sharing Plan (the "Miss Erika Plan"), as in
effect on the date hereof and as administered in accordance with the past
practices of Miss Erika, which cash bonus shall be payable within 120 days
following the close of each full fiscal year of the Company ending during the
Term or (b) the Employee shall be eligible to participate in a tax-advantaged
profit sharing plan of the Company established on substantially similar terms
and conditions (including levels of contributions) as the Miss Erika Plan. It is
understood and agreed by the parties that, during the Term, the percentage
referred to in Sections 4.1 and 4.2 of the Executive Bonus Plan shall be fifteen
percent (15%).
17.3 Stock Options.
(a) Grant. On the Closing Date, the Company shall cause to be
granted to the Employee by the Board of Directors of Norton as of the Closing
Date, options to purchase an aggregate of 50,000 shares of common stock, par
value $.01 per share (the "Common Stock"), of Norton, at an exercise price per
share equal to the fair market value of the Common Stock on the Closing Date
(the "Options"). The Options shall be fully vested and exercisable on and after
the Closing Date.
(b) Term of Options. Except as provided below, the term of the
Options shall be ten years.
(i) If the Employee's employment with the Company terminates
pursuant to Section 6.1, is terminated by the Company or the Employee pursuant
to Section 6.2, is terminated by the Company pursuant to Section 6.4, is
terminated by the Employee pursuant to Section 6.6, or terminates for any other
reason (except as provided in clause (ii) below) the Options may be exercised by
the Employee (or his estate or legal representative) within one year after such
termination; and
(ii) In the event of termination of the employment of the Employee
with the Company (a) by the Company pursuant to Section 6.3 or (b) by the
Employee other than pursuant to Sections 6.1, 6.2 or 6.6, no Options shall be
exercisable.
(c) Adjustments. In the event of any dividend or other
distribution (whether in the form of cash, Common Stock, other securities or
other property), recapitalization, stock split, reverse stock split,
reorganization,
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merger, consolidation, split-up, spin-off, combination, repurchase or exchange
of Common Stock or other securities of Norton, issuance of warrants or other
rights to purchase Common Stock, the Board of Directors shall, in such manner as
it may deem equitable, adjust the number of shares of Common Stock (or other
securities or property) subject to the Options, the exercise price with respect
to any Options, or all of the foregoing.
(d) Registration of Shares. Norton shall, as promptly as
practicable following the commencement of the Employee's employment hereunder,
file a registration statement on Form S-8, or any successor to such Form, with
respect to the shares of Common Stock covered by the Options.
17.4
Bonus Options. During the Term, in addition to the salary provided for
in Section 3.1, the Employee shall be eligible to receive Bonus Options (as
defined in the Executive Bonus Plan) in accordance with the terms set forth in
the Executive Bonus Plan.
18. Expense Reimbursement. During the Term, (i) the Company shall
reimburse the Employee for all reasonable and necessary out-of-pocket expenses
incurred by him in connection with the performance of his duties hereunder, upon
the presentation of proper accounts therefor in accordance with Norton's
policies and (ii) the Company shall pay for the benefit of the Employee all
reasonable and necessary expenses incurred by him in the ordinary and usual
course of business and in accordance with Norton's policies (in any case, as
such policies are adopted from time to time by the Compensation Committee of
Norton).
19. Benefits.
19.1
Benefit Plans. During the Term, the Employee shall be entitled to
participate in all employee benefit plans and programs offered by Norton,
subject to the provisions of such plans and programs as in effect from time to
time.
19.2
Life Insurance. During the Term, provided that such is available on
commercially reasonable terms, the Company will provide the Employee with $1
million term life insurance coverage. The beneficiary of such coverage shall be
the Employee's estate or other beneficiary designated by the Employee.
19.3
Disability Insurance. During the Term, the Company shall provide the
Employee with disability insurance providing the same monthly disability benefit
as provided to the Employee by Miss Erika.
19.4
Medical Insurance. For the period commencing on the termination of the
Term (other than as a result of the termination of the Term by the Company
pursuant to Section 6.3 and other than as a result of the termination of the
Term by the Employee other than pursuant to Sections 6.1, 6.2 or 6.6) until the
death of the Employee, the Company agrees to provide the Employee and the
Employee's wife with coverage under the medical plan of the Company on the same
terms and conditions that coverage is generally available to employees of the
Company.
19.5
Vacation. During the Term, the Employee shall be entitled to paid
vacation in accordance with Norton's policy for its executive employees.
20. Termination of Employment.
20.1
Death. In the event of the death of the Employee during the Term, the
Company shall pay to the estate or other legal representative of the Employee
(a) the salary provided for in Section 3.1 accrued to the date of the
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Employee's death and not theretofore paid to the Employee and (b) any bonus
payable in accordance with the terms of the Executive Bonus Plan. Rights and
benefits of the estate or other legal representative of the Employee (a) with
respect to the Options or the Bonus Options shall be determined in accordance
with Section 3.3(b) or the Executive Bonus Plan, as applicable and (b) under the
benefit plans and programs of the Company shall be determined in accordance with
the provisions of such plans and programs. Neither the estate or other legal
representative of the Employee nor the Company shall have any further rights or
obligations under this Agreement.
20.2
Disability. If during the Term the Employee shall become incapacitated
by reason of physical or mental disability and shall be unable to perform his
normal duties hereunder for a cumulative period of six (6) months in any period
of twelve (12) consecutive months, the employment of the Employee hereunder may
be terminated by the Company or the Employee upon notice to the other. In the
event of such termination, the Company shall pay to the Employee (a) the salary
provided for in Section 3.1 accrued to the date of such termination and not
theretofore paid to the Employee and (b) any bonus payable in accordance with
the terms of the Executive Bonus Plan. Rights and benefits of the Employee (a)
with respect to the Options or the Bonus Options shall be determined in
accordance with Section 3.3(b) or the Executive Bonus Plan, as applicable and
(b) under the benefit plans and programs of the Company shall be determined in
accordance with the provisions of such plans and programs. Neither the Employee
nor the Company shall have any further rights or obligations under this
Agreement, except as provided in Sections 7, 8, 9 and 10.
20.3
Due Cause. The employment of the Employee hereunder may be terminated
by the Company at any time during the Term for Due Cause (as hereinafter
defined). In the event of such termination, the Company shall pay to the
Employee the salary provided for in Section 3.1 accrued to the date of such
termination and not theretofore paid to the Employee and no bonus. Rights and
benefits of the Employee (a) with respect to the Options or the Bonus Options
shall be determined in accordance with Section 3.3(b) or the Executive Bonus
Plan, as applicable and (b) under the benefit plans and programs of the Company
shall be determined in accordance with the provisions of such plans and
programs. After the satisfaction of any claim of the Company against the
Employee incidental to such Due Cause, neither the Employee nor the Company
shall have any further rights or obligations under this Agreement, except as
provided in Sections 7, 8, 9 and 10. For purposes hereof, "Due Cause" shall mean
(a) the Employee's gross negligence or willful misconduct in bad faith in the
discharge of his duties and responsibilities to Norton, the Company and any of
their respective parent, subsidiary or affiliate corporations (collectively, the
"Norton Group"), as determined by the Board of Directors of the Company, (b) the
Employee's material and repeated failure to obey appropriate directions from the
Chairman, Vice Chairman or Board of Directors of the Company, (c) any willful or
purposeful act or omission of the Employee taken or omitted in bad faith and
intended to materially injure, and which had the effect of materially injuring,
the business or business relationships of any member of the Norton Group or (d)
the Employee's conviction or other adjudication of (1) a felony or (2) any crime
or offense involving fraud; provided, however, that the Employee shall be given
written notice by a majority of the Board of Directors of the Company that it
intends to terminate the Employee's employment for Due Cause under this Section,
which written notice shall specify the act or acts upon the basis of which the
majority of the Board of Directors of the Company intends so to terminate the
Employee's employment, and the Employee shall then be given the opportunity,
within fifteen (15) days of his receipt of such notice, to have a meeting with
the Board of Directors of the Company to discuss such act or acts.
20.4
Other Termination by the Company. The Company may terminate the
Employee's employment at any time during the Term for whatever reason it deems
appropriate or without reason; provided, however, that in the event that such
termination is not pursuant to Section 6.1, 6.2, 6.3 or 6.5, the Company shall,
except as provided in Section 9(c), (a) pay to the Employee the Severance Amount
(as hereinafter defined) in equal installments on a monthly basis over the
Severance Term (as hereinafter defined), (b) pay to the Employee any bonus
payable in accordance with the terms of the Executive Bonus Plan and (c) provide
the Employee for the Severance Term with the same benefits then in effect under
Section 5. The Employee shall not be required to seek subsequent employment.
Rights and benefits of the Employee with respect to the Options or the Bonus
Options shall be determined in accordance with Section 3.3(b) or the Executive
Bonus Plan, as applicable. Neither the Employee nor the Company shall have any
further rights or
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obligations under this Agreement, except as provided in Sections 7, 8, 9 and 10.
Any termination of this Agreement by the Company after the date hereof and prior
to the Closing Date shall be treated as a termination of employment pursuant to
this Section 6.4 as of the day following the Closing Date, provided that the
Closing (as defined in the Purchase Agreement) shall have occurred.
For purposes hereof, Severance Amount shall mean an amount equal to the
sum of (i) the annual salary then in effect under Section 3.1 and (ii) the
Average Bonus (as hereinafter defined), multiplied by the Severance Factor.
Average Bonus shall mean the average of the bonuses, if any, paid to the
Employee by the Company and/or Miss Erika in the two (2) full fiscal years of
the Company and/or Miss Erika, as applicable, prior to the date of termination
of employment of the Employee. Severance Factor shall mean a fraction, the
numerator of which is the number of days remaining in the then-current Term plus
365, and the denominator of which is 365. Severance Term shall mean the number
of days remaining in the then-current Term plus 365 days. For purposes of the
foregoing, in determining the number of days remaining in the then-current Term,
if termination under this Section 6.4 occurs during (i) the Initial Term, the
then-current Term shall be determined without regard to the Extended Term;
provided, however, that if following such termination the Company attains the
EBITDA 2-Year Target for the fiscal years ending October 31, 1998 and November
6, 1999, the then-current Term shall be determined with regard to the Extended
Term and appropriate adjustments shall be made in the then remaining monthly
installments of the Severance Amount to be paid over the extended Severance Term
to take into account such determination or (ii) the Extended Term, the
then-current Term shall be the remaining number of days in the Extended Term.
20.5
Non-Extension. If (A) the Initial Term is not extended for the Extended
Term as a result of the failure to achieve the EBITDA 2-Year Target or if (B)
the Initial Term is extended for the Extended Term pursuant to Section 1.2 and,
upon the expiration of such Extended Term, the Company shall fail to offer
employment to the Employee in the same position and with the same salary then in
effect under Section 3.1 and participation in the Executive Bonus Plan on the
same terms then in effect for an additional period of one year, in either case,
the Company shall, except as provided in Section 9(c), (a) continue to pay to
the Employee the salary then in effect under Section 3.1 for one year from the
date of expiration of the Extended Term, (b) pay to the Employee the Average
Bonus in equal monthly installments over such one year period (the amounts set
forth in clauses (a) and (b), the "Section 6.5 Amount") and (c) provide the
Employee with the same Benefits then in effect under Section 5 for such one year
period. The Employee shall not be required to seek subsequent employment. Rights
and benefits of the Employee (a) with respect to the Options or the Bonus
Options shall be determined in accordance with Section 3.3(b) or the Executive
Bonus Plan, as applicable and (b) subject to this Section 6.5, under the benefit
plans and programs of the Company shall be determined in accordance with the
provisions of such plans and programs. Neither the Employee nor the Company
shall have any further rights or obligations under this Agreement, except as
provided in Sections 7, 8, 9 and 10.
20.6
Termination by the Employee with Good Reason. The Employee may at any
time terminate his employment with the Company with Good Reason (as hereinafter
defined) and may treat such as a termination of employment pursuant to and with
the effects set forth in Section 6.4. For purposes hereof, Good Reason shall
mean (i) the continued breach by the Company of a material provision of this
Agreement for a period of 30 days after written notice of such breach by the
Employee to the Company or (ii) a material and adverse diminution in the
Employee's title or scope of duties as set forth in Section 2, which diminution
shall continue for a period of 30 days after written notice thereof by the
Employee to the Company.
20.7
Termination by the Employee without Good Reason. The Employee may at
any time upon at least 120 days prior written notice to the Company terminate
his employment with the Company without Good Reason. Such termination shall be
treated as a termination of employment pursuant to, including with the effects
set forth in, Section 6.3; provided, however, that the Company hereby waives any
claim it may have against the Employee incidental to the Employee's termination
of his employment pursuant to this Section 6.7.
21. Confidential Information.
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21.1
The Employee shall, during the Term and at all times thereafter, treat
as confidential and, except as required in the performance of his duties and
responsibilities under this Agreement, not disclose, publish or otherwise make
available to the public or to any individual, firm or corporation any
confidential material (as hereinafter defined), except, on a need to know basis,
to the Employee's attorney, accountant or personal advisor. The Employee agrees
that all confidential material, together with all notes and records of the
Employee relating thereto, and all copies or facsimiles thereof in the
possession of the Employee, are the exclusive property of the Company and the
Employee agrees to return such material to the Company promptly upon the
termination of the Employee's employment with the Company.
21.2
For the purposes hereof, the term "confidential material" shall mean
all information acquired by the Employee in the course of the Employee's prior
employment with Miss Erika and in the course of the Employee's employment with
the Company in any way concerning the products, projects, activities, business
or affairs of the Company or any member of the Norton Group or the customers,
suppliers or agents of the Company or any member of the Norton 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
Norton Group and/or any improvements therein, all sales and financial
information concerning the Company or any member of the Norton 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 Norton Group which
is furnished to the Employee 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 or the apparel industry in general other than
as a result of a disclosure by the Employee, (b) was available to the Employee
on a non-confidential basis prior to his employment with the Company or (c)
becomes available to the Employee 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 the Employee has no knowledge that
such source is not bound by a confidentiality agreement with the Company or any
of such agents or customers.
22. Inventions. Any and all inventions, innovations or
improvements ("inventions") made, developed or created by the Employee (whether
at the request or suggestion of the Company or otherwise, whether alone or in
conjunction with others, and whether during regular hours of work or otherwise)
during the period of his employment with the Company which may be directly or
indirectly useful in, or relate to, the business of the Company, shall be
promptly and fully disclosed by the Employee to the Board of Directors of the
Company and shall be the Company's exclusive property as against the Employee,
and the Employee shall promptly deliver to an appropriate representative of the
Company as designated by the Board of Directors all papers, drawings, models,
data and other material relating to any inventions made, developed or created by
him as aforesaid. The Employee shall, at the request of the Company and without
any payment therefor, execute any documents necessary or advisable in the
opinion of the Company's counsel to direct issuance of patents or copyrights to
the Company with respect to such inventions as are to be the Company's exclusive
property as against the Employee or to vest in the Company title to such
inventions as against the Employee. The expense of securing any such patent or
copyright shall be borne by the Company.
23. Non-Competition. (a) The Employee acknowledges that the
services to be rendered by him to the Company are of a special and unique
character.
(b) In consideration of his employment hereunder, the Employee
agrees, for the benefit of the Company, that he will not, during the period of
his employment with the Company and thereafter for a period (A) of one (1) year
commencing on the date of termination of his employment with the Company
pursuant to Section 6.2 or 6.3, (B) of the greater of one (1) year commencing on
the date of termination of his employment with the Company pursuant to Section
6.7 or the remainder of the then-current Term (without regard to the Extended
Term if such termination occurs during the Initial Term), (C) during which the
Employee receives payments of the Severance Amount pursuant to Section 9(c)(i)
(in the case of a termination under Section 6.4 or 6.6) or (D) during which the
Employee receives
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payments of the Section 6.5 Amount pursuant to Section 9(c)(ii) or 9(c)(iii) (in
the case of a termination under Section 6.5), (1) 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) one percent (1%) 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
and any of its subsidiaries, (2) solicit or entice or endeavor to solicit or
entice away from any member of the Norton Group any person who was an officer,
employee, agent or consultant of any member of the Norton Group, either for his
own account or for any individual, firm or corporation, and, if applicable,
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 Norton Group, and the
Employee agrees not to employ, directly or indirectly, any person who was an
officer or employee of any member of the Norton 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 Norton Group, or (3) solicit or entice or endeavor to solicit or
entice away from any member of the Norton Group any customer or prospective
customer of any member of the Norton Group, either for his own account or for
any individual, firm or corporation (the activities set forth in clauses (1),
(2) and (3) above, the "Non-Competition Activities").
(c) In the event of termination of the employment of the Employee,
(i) pursuant to Section 6.4 or 6.6, the Company shall pay to
the Employee the Severance Amount and other benefits set forth in Section 6.4 or
6.6 in which event the Employee shall not engage in the Non-Competition
Activities for the Severance Term; provided, however, if the Employee engages in
the Non-Competition Activities during the Severance Term, the Employee shall
immediately notify the Company that he is engaging in the Non-Competition
Activities, and the Company's obligation to pay the Severance Amount shall
immediately cease. From and after the date on which the Employee engages in the
Non-Competition Activities, the Company shall continue to pay to the Employee
the salary in effect on the date of termination of the employment of the
Employee under Section 3.1 for the remainder of the Severance Term and shall
offset any amounts earned as a result of the Employee's engaging in the
Non-Competition Activities (whether as an employee, consultant or otherwise)
against such salary continuation by the Company which becomes payable after the
first date on which the Employee engages in the Non-Competition Activities.
(ii) pursuant to clause (A) of the first sentence of Section
6.5, the Company shall pay to the Employee the Section 6.5 Amount and other
benefits set forth in Section 6.5 in which event the Employee shall not engage
in the Non-Competition Activities for one year; provided, however, if the
Employee engages in the Non-Competition Activities during such one year period,
the Employee shall immediately notify the Company that he is engaging in the
Non-Competition Activities, and the Company's obligation to pay the Section 6.5
Amount shall immediately cease.
(iii) pursuant to clause (B) of the first sentence of Section
6.5, the Company shall pay to the Employee or the Section 6.5 Amount and other
benefits set forth in Section 6.5 in which event the Employee shall not engage
in the Non-Competition Activities for one year; provided, however, if the
Employee engages in the Non-Competition Activities during such one year period,
the Employee shall immediately notify the Company that he is engaging in the
Non-Competition Activities, and the Company's obligation to pay the Section 6.5
Amount shall immediately cease. From and after the date on which the Employee
engages in the Non-Competition Activities, the Company shall continue to pay to
the Employee the salary in effect on the date of termination of the employment
of the Employee under Section 3.1 for the remainder of such one year period and
shall offset any amounts earned as a result of the Employee's engaging in the
Non-Competition Activities (whether as an employee, consultant or otherwise)
against such salary continuation by the Company which becomes payable after the
first date on which the Employee engages in the Non-Competition Activities.
24. Equitable Relief, Etc.
24.1 In the event of a breach or threatened breach by the Employee
of any of the provisions of Sections
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7, 8 or 9, the Employee hereby consents and agrees that the Company shall be
entitled to an injunction or similar equitable relief from any court of
competent jurisdiction restraining the Employee from committing or continuing
any such breach or threatened breach or granting specific performance of any act
required to be performed by the Employee 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. Nothing herein shall be construed as prohibiting the Company from
pursuing any other remedies at law or in equity which it may have with respect
to any such breach or threatened breach.
24.2 The Company and the Employee understand and agree that in any
lawsuit or other proceeding between any of them with respect to Sections 7, 8 or
9 hereof, the prevailing party in such lawsuit or proceeding shall be entitled
to recover from the other party in such lawsuit or proceeding, and such other
party hereby agrees to pay such prevailing party, for all costs and expenses,
including attorneys' fees, incurred by such prevailing party in the defense,
prosecution or investigation of the matters which are the subject of such
lawsuit or proceeding.
25. Successors and Assigns.
25.1 Assignment by the Company. The Company shall require any
successors (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform if no such
succession had taken place. As used in this Section, the "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law and this Agreement shall be
binding upon, and inure to the benefit of, the Company, as so defined.
25.2 Assignment by the Employee. The Employee 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 (other than the Employee if he is a member
of such Board at the time); provided, however, that nothing herein shall
preclude one or more beneficiaries of the Employee from receiving any amount
that may be payable following the occurrence of his legal incompetency or his
death and shall not preclude the legal representative of his estate from
receiving such amount 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 intestacy applicable to his
estate. The term "beneficiaries", as used in this Agreement, shall mean a
beneficiary or beneficiaries so designated to receive any such amount or, if no
beneficiary has been so designated, the legal representative of the Employee (in
the event of his incompetency) or the Employee's estate.
26. 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.
27. Entire Agreement. This Agreement contains all the
understandings and representations between the parties hereto pertaining to the
subject matter hereof. This Agreement supersedes all understandings and
agreements, whether oral or in writing, if any, previously entered into by the
Company with the Employee in any way relating to the employment of the Employee
by the Company, including without limitation, the Purchase Agreement, all of
which agreements and understandings are hereby terminated and all rights and
entitlements thereunder are hereby waived and released.
28. Amendment, Modification, Waiver. No provision of this
Agreement may be amended or modified unless such amendment or modification is
agreed to in writing and signed by the Employee and by a representative of the
Company (other than the Employee) who have been duly authorized by the Board of
Directors of the Company to do so (other than the Employee if he is a member of
such Board at the time). Except as otherwise specifically provided in this
Agreement, no waiver by either party hereto of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of a similar or dissimilar provision or
condition at the same or any prior or subsequent time, nor shall the failure of
or delay by either party
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hereto in exercising any right, power or privilege hereunder operate as a waiver
thereof to preclude any other or further exercise thereof or the exercise of any
other such right, power or privilege.
29. Notices. Any notice to be given hereunder shall be in writing
and delivered personally or sent by certified mail, postage prepaid, return
receipt requested, addressed to the party concerned at the address indicated
below or at such other address as such party may subsequently designate by like
notice:
If to the Company:
c/o Norton McNaughton, Inc.
463 Seventh Avenue
New York, New York 10018
Attention: Chief Executive Officer
If to the Employee:
Stuart Bregman
30 West 86th Street
New York, New York 10024
30. Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or any breach thereof, shall, except as provided in
Section 10, be settled by binding arbitration in accordance with the rules of
the American Arbitration Association then in effect and judgment upon such award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitration shall be held in New York, New York. The arbitration
award shall include an award of attorneys' fees and costs to the prevailing
party as determined by the arbitrator.
31. Severability. Should any provision of this Agreement be held
by a court or arbitration panel 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 or arbitration panel 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 or arbitration panel 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.
32. Authority. The Company represents and warrants to the Employee
that the execution and delivery of this Agreement by the Company and the
performance by the Company of its covenants and agreements hereunder have been
duly authorized by all necessary corporate action and that this Agreement has
been duly executed and delivered on behalf of the Company.
33. Withholding. Anything to the contrary notwithstanding, all
payments required to be made by the Company hereunder to the Employee or his
beneficiaries, including his estate, shall be subject to withholding of such
amounts relating to taxes as the Company may reasonably determine it should
withhold pursuant to any applicable law or regulation. In lieu of withholding
such amounts, in whole or in part, the Company, may, in its sole discretion,
accept other provision for payment of taxes as permitted by law, provided it is
satisfied in its sole discretion that all requirements of law affecting its
responsibilities to withhold such taxes have been satisfied.
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34. Subsidiaries, etc. The Employee shall be deemed to resign
as an officer and director of the Company or of any parent, subsidiary or
affiliate of the Company upon termination of his employment with the Company for
any or no reason.
35. Survivorship. The respective rights and obligations of the
Employee and the Company hereunder shall survive any termination of this
Agreement to the extent necessary to the intended preservation of such rights
and obligations.
36. 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.
37. Counterparts. This Agreement may be executed in two or
more counterpart copies, each of which shall be deemed to be an original and all
of which taken together shall be deemed one document.
* * *
11
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
ME ACQUISITION CORP.
By: /s/ Sanford Greenberg
---------------------------
Title: Chairman of the Board
EMPLOYEE:
/s/ Stuart Bregman
-------------------
Stuart Bregman
<PAGE> 1
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EXHIBIT 10.5
EMPLOYMENT AGREEMENT
AGREEMENT dated as of the 29th day of August 1997 by and between
ME ACQUISITION CORP., a Delaware corporation (the "Company"), and Howard
Zwilling (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company, a wholly owned subsidiary of Norton
McNaughton, Inc., a Delaware corporation ("Norton"), and certain other parties
(which parties include the Employee) simultaneously herewith are entering into
an Agreement of Purchase and Sale dated as of August 29, 1997 (the "Purchase
Agreement"), providing, inter alia, for the purchase by the Company of
substantially all of the assets of Miss Erika, Inc., a Delaware corporation
("Miss Erika"); and
WHEREAS, the Employee desires to continue in the employ of the
Company subsequent to the consummation of the transactions contemplated by the
Purchase Agreement; and
WHEREAS, in order to induce the Company to enter into, and to
consummate the transactions contemplated by, the Purchase Agreement, the
Employee desires to enter into this Agreement; and
WHEREAS, the Company desires to secure the employment of the
Employee with the Company subsequent to the consummation of the transactions
contemplated by the Purchase Agreement, and to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto hereby agree as follows:
1. Employment, Term.
1.1 The Company agrees to employ the Employee, and the Employee
agrees to serve in the employ of the Company, for the term set forth in Section
1.2, in the positions and with the responsibilities, duties and authority set
forth in Section 2 and on the other terms and conditions set forth in this
Agreement.
1.2 The term of the Employee's employment under this Agreement
(the "Term") shall commence on the Closing Date (as defined in the Purchase
Agreement) and, unless sooner terminated in accordance with this Agreement,
shall expire (a) if the Company does not attain EBITDA (as defined in the
Executive Bonus Plan, as defined in Section 3.2 below, except that EBITDA for
purposes of this Section 1.2 shall be determined after reduction for the Bonus
Pool (as defined in the Executive Bonus Plan) for the applicable fiscal year)
averaged for the fiscal years ending October 31, 1998 and November 6, 1999 of
$5,500,000 or more (the "EBITDA 2-Year Target"), on such date (the "Notice
Date"), not earlier than November 6, 1999, on which the Chairman of the Board,
the President or the Chief Financial Officer of Norton delivers to the Employee
a written statement that the EBITDA 2-Year Target has not been achieved (the
Closing Date through the Notice Date, hereinafter the "Initial Term"); or (b) if
the Company attains the EBITDA 2- Year Target, on October 31, 2001 (November 7,
1999 through October 31, 2001, hereinafter the "Extended Term").
2. Positions, Duties. The Employee shall serve in the position of
President and Chief Operating Officer of the Company. As such, subject to the
ultimate control of the Chairman of the Board of the Company, the Vice Chairman
of the Board of the Company, and the Board of Directors of the Company, the
Employee, together with the Chief Executive Officer of the Company, shall have
day-to-day management control over the Company's business and operations,
including without limitation, sales practices, price of merchandise, inventory
matters, mark-down allowances, customer discounts, and the hiring, firing and
compensation (including levels of participation by employees of the Company in
any profit sharing plan established by the Company) of other employees of the
Company, all with authority and discretion consistent with past practices of
Miss Erika. The Employee shall perform, faithfully and
<PAGE> 2
14
diligently, such duties, and, subject to the prior sentence, shall have such
other responsibilities, appropriate to said position, as shall be assigned to
him from time to time by the Chairman, the Vice Chairman or the Board of
Directors of the Company. The Employee shall report to the Chairman and the Vice
Chairman of the Company. The Employee shall devote his complete and undivided
attention to the performance of his duties and responsibilities hereunder during
the normal working hours of executive employees of Norton.
3. Compensation.
3.1 Salary. During the Term, in consideration of the performance
by the Employee of the services set forth in Section 2 and his observance of the
other covenants set forth herein, the Company shall pay the Employee, and the
Employee shall accept, a salary at a rate of $425,000 per annum, payable in
accordance with the standard payroll practices of the Company. If the Company
attains EBITDA for any full fiscal year ending during the Term of $6,000,000 or
more (the "EBITDA Target"), the salary beginning on the first day of the
immediately succeeding fiscal year during the Term, if any, shall be increased
to $460,000 per annum, and if the Company attains an average EBITDA for any two
consecutive full fiscal years ending during the Term of $6,000,000 or more, the
salary beginning on the first day of the immediately succeeding fiscal year
during the Term, if any, shall be increased to $500,000 per annum.
3.2 Bonus. During the Term, in addition to the salary provided for
in Section 3.1, (i) the Employee shall be eligible to participate in the ME
Acquisition Corp. Bonus Plan for Senior Executives (the "Executive Bonus Plan"),
a copy of which is attached hereto as Exhibit A and the terms of which are
incorporated herein by reference, (ii) the Employee shall be allocated a
percentage of the Bonus Pool (as defined in the Executive Bonus Plan), which
percentage shall be not less than 33.335% of the Bonus Pool, subject to the
terms and conditions of the Executive Bonus Plan and this Agreement; provided,
however, that the Employee may, upon written notice to the Company, elect to
transfer all or a portion of his allocation of the Bonus Pool to the other
participants in the Executive Bonus Plan, and the Company agrees to pay such
transferred allocation to the other participants in the Executive Bonus Plan in
accordance with the written direction of the Employee and otherwise in
accordance with terms and conditions of the Executive Bonus Plan, and (iii)
either (a) the Employee shall receive a cash bonus in an amount which, net of
taxes payable by the Employee in respect of such amount, shall be equal to the
amount which would have been contributed on behalf of the Employee with respect
to the Miss Erika, Inc. Profit Sharing Plan (the "Miss Erika Plan"), as in
effect on the date hereof and as administered in accordance with the past
practices of Miss Erika, which cash bonus shall be payable within 120 days
following the close of each full fiscal year of the Company ending during the
Term or (b) the Employee shall be eligible to participate in a tax-advantaged
profit sharing plan of the Company established on substantially similar terms
and conditions (including levels of contributions) as the Miss Erika Plan. It is
understood and agreed by the parties that, during the Term, the percentage
referred to in Sections 4.1 and 4.2 of the Executive Bonus Plan shall be fifteen
percent (15%).
3.3 Stock Options.
(a) Grant. On the Closing Date, the Company shall cause to be
granted to the Employee by the Board of Directors of Norton as of the Closing
Date, options to purchase an aggregate of 50,000 shares of common stock, par
value $.01 per share (the "Common Stock"), of Norton, at an exercise price per
share equal to the fair market value of the Common Stock on the Closing Date
(the "Options"). The Options shall be fully vested and exercisable on and after
the Closing Date.
(b) Term of Options. Except as provided below, the term of the
Options shall be ten years.
(I) If the Employee's employment with the Company terminates
pursuant to Section 6.1, is terminated by the Company or the Employee pursuant
to Section 6.2, is terminated by the Company pursuant to Section 6.4, is
terminated by the Employee pursuant to Section 6.6, or terminates for any other
reason (except as provided in clause (ii) below) the Options may be exercised by
the Employee (or his estate or legal representative) within one year after such
termination; and
(ii) In the event of termination of the employment of the
Employee with the Company (a) by the
<PAGE> 3
15
Company pursuant to Section 6.3 or (b) by the Employee other than pursuant to
Sections 6.1, 6.2 or 6.6, no Options shall be exercisable.
(c) Adjustments. In the event of any dividend or other
distribution (whether in the form of cash, Common Stock, other securities or
other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Common Stock or other securities of Norton, issuance
of warrants or other rights to purchase Common Stock, the Board of Directors
shall, in such manner as it may deem equitable, adjust the number of shares of
Common Stock (or other securities or property) subject to the Options, the
exercise price with respect to any Options, or all of the foregoing.
(d) Registration of Shares. Norton shall, as promptly as
practicable following the commencement of the Employee's employment hereunder,
file a registration statement on Form S-8, or any successor to such Form, with
respect to the shares of Common Stock covered by the Options.
3.4 Bonus Options. During the Term, in addition to the salary
provided for in Section 3.1, the Employee shall be eligible to receive Bonus
Options (as defined in the Executive Bonus Plan) in accordance with the terms
set forth in the Executive Bonus Plan.
4. Expense Reimbursement. During the Term, (i) the Company shall
reimburse the Employee for all reasonable and necessary out-of-pocket expenses
incurred by him in connection with the performance of his duties hereunder, upon
the presentation of proper accounts therefor in accordance with Norton's
policies and (ii) the Company shall pay for the benefit of the Employee all
reasonable and necessary expenses incurred by him in the ordinary and usual
course of business and in accordance with Norton's policies (in any case, as
such policies are adopted from time to time by the Compensation Committee of
Norton).
5. Benefits.
5.1 Benefit Plans. During the Term, the Employee shall be entitled
to participate in all employee benefit plans and programs offered by Norton,
subject to the provisions of such plans and programs as in effect from time to
time.
5.2 Life Insurance. During the Term, provided that such is
available on commercially reasonable terms, the Company will provide the
Employee with $1 million term life insurance coverage. The beneficiary of such
coverage shall be the Employee's estate or other beneficiary designated by the
Employee.
5.3 Disability Insurance. During the Term, the Company shall
provide the Employee with disability insurance providing the same monthly
disability benefit as provided to the Chief Executive Officer of Norton;
notwithstanding the foregoing, the annual expenditure by the Company for
disability insurance premiums for the Employee shall not exceed the annual
expenditure by Norton for disability insurance premiums for the Chief Executive
Officer of Norton.
5.4 Medical Insurance. For the period commencing on the
termination of the Term (other than as a result of the termination of the Term
by the Company pursuant to Section 6.3 and other than as a result of the
termination of the Term by the Employee other than pursuant to Sections 6.1, 6.2
or 6.6) until the death of the Employee, the Company agrees to provide the
Employee and the Employee's wife with coverage under the medical plan of the
Company on the same terms and conditions that coverage is generally available to
employees of the Company.
5.5 Vacation. During the Term, the Employee shall be entitled to
paid vacation in accordance with Norton's policy for its executive employees.
6. Termination of Employment.
6.1 Death. In the event of the death of the Employee during the
Term, the Company shall pay to the estate or other legal representative of the
Employee (a) the salary provided for in Section 3.1 accrued to the date of the
<PAGE> 4
16
Employee's death and not theretofore paid to the Employee and (b) any bonus
payable in accordance with the terms of the Executive Bonus Plan. Rights and
benefits of the estate or other legal representative of the Employee (a) with
respect to the Options or the Bonus Options shall be determined in accordance
with Section 3.3(b) or the Executive Bonus Plan, as applicable and (b) under the
benefit plans and programs of the Company shall be determined in accordance with
the provisions of such plans and programs. Neither the estate or other legal
representative of the Employee nor the Company shall have any further rights or
obligations under this Agreement.
6.2 Disability. If during the Term the Employee shall become
incapacitated by reason of physical or mental disability and shall be unable to
perform his normal duties hereunder for a cumulative period of six (6) months
in any period of twelve (12) consecutive months, the employment of the Employee
hereunder may be terminated by the Company or the Employee upon notice to the
other. In the event of such termination, the Company shall pay to the Employee
(a) the salary provided for in Section 3.1 accrued to the date of such
termination and not theretofore paid to the Employee and (b) any bonus payable
in accordance with the terms of the Executive Bonus Plan. Rights and benefits of
the Employee (a) with respect to the Options or the Bonus Options shall be
determined in accordance with Section 3.3(b) or the Executive Bonus Plan, as
applicable and (b) under the benefit plans and programs of the Company shall be
determined in accordance with the provisions of such plans and programs. Neither
the Employee nor the Company shall have any further rights or obligations under
this Agreement, except as provided in Sections 7, 8, 9 and 10.
6.3 Due Cause. The employment of the Employee hereunder may be
terminated by the Company at any time during the Term for Due Cause (as
hereinafter defined). In the event of such termination, the Company shall pay to
the Employee the salary provided for in Section 3.1 accrued to the date of such
termination and not theretofore paid to the Employee and no bonus. Rights and
benefits of the Employee (a) with respect to the Options or the Bonus Options
shall be determined in accordance with Section 3.3(b) or the Executive Bonus
Plan, as applicable and (b) under the benefit plans and programs of the Company
shall be determined in accordance with the provisions of such plans and
programs. After the satisfaction of any claim of the Company against the
Employee incidental to such Due Cause, neither the Employee nor the Company
shall have any further rights or obligations under this Agreement, except as
provided in Sections 7, 8, 9 and 10. For purposes hereof, "Due Cause" shall mean
(a) the Employee's gross negligence or willful misconduct in bad faith in the
discharge of his duties and responsibilities to Norton, the Company and any of
their respective parent, subsidiary or affiliate corporations (collectively, the
"Norton Group"), as determined by the Board of Directors of the Company, (b) the
Employee's material and repeated failure to obey appropriate directions from the
Chairman, Vice Chairman or Board of Directors of the Company, (c) any willful or
purposeful act or omission of the Employee taken or omitted in bad faith and
intended to materially injure, and which had the effect of materially injuring,
the business or business relationships of any member of the Norton Group or (d)
the Employee's conviction or other adjudication of (1) a felony or (2) any crime
or offense involving fraud; provided, however, that the Employee shall be given
written notice by a majority of the Board of Directors of the Company that it
intends to terminate the Employee's employment for Due Cause under this Section,
which written notice shall specify the act or acts upon the basis of which the
majority of the Board of Directors of the Company intends so to terminate the
Employee's employment, and the Employee shall then be given the opportunity,
within fifteen (15) days of his receipt of such notice, to have a meeting with
the Board of Directors of the Company to discuss such act or acts.
6.4 Other Termination by the Company. The Company may terminate
the Employee's employment at any time during the Term for whatever reason it
deems appropriate or without reason; provided, however, that in the event that
such termination is not pursuant to Section 6.1, 6.2, 6.3 or 6.5, the Company
shall, except as provided in Section 9(c), (a) pay to the Employee the Severance
Amount (as hereinafter defined) in equal installments on a monthly basis over
the Severance Term (as hereinafter defined), (b) pay to the Employee any bonus
payable in accordance with the terms of the Executive Bonus Plan and (c) provide
the Employee for the Severance Term with the same benefits then in effect under
Section 5. The Employee shall not be required to seek subsequent employment.
Rights and benefits of the Employee with respect to the Options or the Bonus
Options shall be determined in accordance with Section 3.3(b) or the Executive
Bonus Plan, as applicable. Neither the Employee nor the Company shall have any
further rights or obligations under this Agreement, except as provided in
Sections 7, 8, 9 and 10. Any termination of this Agreement by the Company after
the date hereof and prior to the Closing Date shall be treated as a termination
of employment pursuant to this Section 6.4 as of the day following the Closing
Date, provided that the Closing (as defined in the Purchase Agreement) shall
have occurred.
<PAGE> 5
17
For purposes hereof, Severance Amount shall mean an amount equal
to the sum of (i) the annual salary then in effect under Section 3.1 and (ii)
the Average Bonus (as hereinafter defined), multiplied by the Severance Factor.
Average Bonus shall mean the average of the bonuses, if any, paid to the
Employee by the Company and/or Miss Erika in the two (2) full fiscal years of
the Company and/or Miss Erika, as applicable, prior to the date of termination
of employment of the Employee. Severance Factor shall mean a fraction, the
numerator of which is the number of days remaining in the then-current Term plus
365, and the denominator of which is 365. Severance Term shall mean the number
of days remaining in the then-current Term plus 365 days. For purposes of the
foregoing, in determining the number of days remaining in the then-current Term,
if termination under this Section 6.4 occurs during (i) the Initial Term, the
then-current Term shall be determined without regard to the Extended Term;
provided, however, that if following such termination the Company attains the
EBITDA 2-Year Target for the fiscal years ending October 31, 1998 and November
6, 1999, the then-current Term shall be determined with regard to the Extended
Term and appropriate adjustments shall be made in the then remaining monthly
installments of the Severance Amount to be paid over the extended Severance Term
to take into account such determination or (ii) the Extended Term, the
then-current Term shall be the remaining number of days in the Extended Term.
6.5 Non-Extension. If (A) the Initial Term is not extended for the
Extended Term as a result of the failure to achieve the EBITDA 2-Year Target or
if (B) the Initial Term is extended for the Extended Term pursuant to Section
1.2 and, upon the expiration of such Extended Term, the Company shall fail to
offer employment to the Employee in the same position and with the same salary
then in effect under Section 3.1 and participation in the Executive Bonus Plan
on the same terms then in effect for an additional period of one year, in either
case, the Company shall, except as provided in Section 9(c), (a) continue to pay
to the Employee the salary then in effect under Section 3.1 for one year from
the date of expiration of the Extended Term, (b) pay to the Employee the Average
Bonus in equal monthly installments over such one year period (the amounts set
forth in clauses (a) and (b), the "Section 6.5 Amount") and (c) provide the
Employee with the same Benefits then in effect under Section 5 for such one year
period. The Employee shall not be required to seek subsequent employment. Rights
and benefits of the Employee (a) with respect to the Options or the Bonus
Options shall be determined in accordance with Section 3.3(b) or the Executive
Bonus Plan, as applicable and (b) subject to this Section 6.5, under the benefit
plans and programs of the Company shall be determined in accordance with the
provisions of such plans and programs. Neither the Employee nor the Company
shall have any further rights or obligations under this Agreement, except as
provided in Sections 7, 8, 9 and 10.
6.6 Termination by the Employee with Good Reason. The Employee may
at any time terminate his employment with the Company with Good Reason (as
hereinafter defined) and may treat such as a termination of employment pursuant
to and with the effects set forth in Section 6.4. For purposes hereof, Good
Reason shall mean (i) the continued breach by the Company of a material
provision of this Agreement for a period of 30 days after written notice of such
breach by the Employee to the Company or (ii) a material and adverse diminution
in the Employee's title or scope of duties as set forth in Section 2, which
diminution shall continue for a period of 30 days after written notice thereof
by the Employee to the Company.
6.7 Termination by the Employee without Good Reason. The Employee
may at any time upon at least 120 days prior written notice to the Company
terminate his employment with the Company without Good Reason. Such termination
shall be treated as a termination of employment pursuant to, including with the
effects set forth in, Section 6.3; provided, however, that the Company hereby
waives any claim it may have against the Employee incidental to the Employee's
termination of his employment pursuant to this Section 6.7.
7. Confidential Information.
7.1 The Employee shall, during the Term and at all times
thereafter, treat as confidential and, except as required in the performance of
his duties and responsibilities under this Agreement, not disclose, publish or
otherwise make available to the public or to any individual, firm or corporation
any confidential material (as hereinafter defined), except, on a need to know
basis, to the Employee's attorney, accountant or personal advisor. The Employee
agrees that all confidential material, together with all notes and records of
the Employee relating thereto, and all copies or facsimiles thereof in the
possession of the Employee, are the exclusive property of the Company and the
Employee agrees to return such material to the Company promptly upon the
termination of the Employee's employment with the Company.
<PAGE> 6
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7.2 For the purposes hereof, the term "confidential material"
shall mean all information acquired by the Employee in the course of the
Employee's prior employment with Miss Erika and in the course of the Employee's
employment with the Company in any way concerning the products, projects,
activities, business or affairs of the Company or any member of the Norton Group
or the customers, suppliers or agents of the Company or any member of the Norton
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 Norton Group and/or any improvements therein, all sales and
financial information concerning the Company or any member of the Norton 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 Norton Group which
is furnished to the Employee 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 or the apparel industry in general other than
as a result of a disclosure by the Employee, (b) was available to the Employee
on a non-confidential basis prior to his employment with the Company or (c)
becomes available to the Employee 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 the Employee has no knowledge that
such source is not bound by a confidentiality agreement with the Company or any
of such agents or customers.
8. Inventions. Any and all inventions, innovations or improvements
("inventions") made, developed or created by the Employee (whether at the
request or suggestion of the Company or otherwise, whether alone or in
conjunction with others, and whether during regular hours of work or otherwise)
during the period of his employment with the Company which may be directly or
indirectly useful in, or relate to, the business of the Company, shall be
promptly and fully disclosed by the Employee to the Board of Directors of the
Company and shall be the Company's exclusive property as against the Employee,
and the Employee shall promptly deliver to an appropriate representative of the
Company as designated by the Board of Directors all papers, drawings, models,
data and other material relating to any inventions made, developed or created by
him as aforesaid. The Employee shall, at the request of the Company and without
any payment therefor, execute any documents necessary or advisable in the
opinion of the Company's counsel to direct issuance of patents or copyrights to
the Company with respect to such inventions as are to be the Company's exclusive
property as against the Employee or to vest in the Company title to such
inventions as against the Employee. The expense of securing any such patent or
copyright shall be borne by the Company.
9. Non-Competition. (a) The Employee acknowledges that the
services to be rendered by him to the Company are of a special and unique
character.
(b) In consideration of his employment hereunder, the Employee
agrees, for the benefit of the Company, that he will not, during the period of
his employment with the Company and thereafter for a period (A) of one (1) year
commencing on the date of termination of his employment with the Company
pursuant to Section 6.2 or 6.3, (B) of the greater of one (1) year commencing on
the date of termination of his employment with the Company pursuant to Section
6.7 or the remainder of the then-current Term (without regard to the Extended
Term if such termination occurs during the Initial Term), (C) during which the
Employee receives payments of the Severance Amount pursuant to Section 9(c)(i)
(in the case of a termination under Section 6.4 or 6.6) or (D) during which the
Employee receives payments of the Section 6.5 Amount pursuant to Section
9(c)(ii) or 9(c)(iii) (in the case of a termination under Section 6.5), (1)
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) one percent (1%)
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 and any of its subsidiaries, (2) solicit or entice or
endeavor to solicit or entice away from any member of the Norton Group any
person who was an officer, employee, agent or consultant of any member of the
Norton Group, either for his own account or for any individual, firm or
corporation, and, if applicable, 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 Norton Group, and the Employee agrees not to employ, directly or
indirectly, any person who was an officer or employee of any member of the
Norton 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
<PAGE> 7
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trade secrets relating to the businesses or products of any member of the Norton
Group, or (3) solicit or entice or endeavor to solicit or entice away from any
member of the Norton Group any customer or prospective customer of any member of
the Norton Group, either for his own account or for any individual, firm or
corporation (the activities set forth in clauses (1), (2) and (3) above, the
"Non-Competition Activities").
(c) In the event of termination of the employment of the Employee,
(i) pursuant to Section 6.4 or 6.6, the Company shall pay to
the Employee the Severance Amount and other benefits set forth in Section 6.4 or
6.6 in which event the Employee shall not engage in the Non-Competition
Activities for the Severance Term; provided, however, if the Employee engages in
the Non-Competition Activities during the Severance Term, the Employee shall
immediately notify the Company that he is engaging in the Non-Competition
Activities, and the Company's obligation to pay the Severance Amount shall
immediately cease. From and after the date on which the Employee engages in the
Non-Competition Activities, the Company shall continue to pay to the Employee
the salary in effect on the date of termination of the employment of the
Employee under Section 3.1 for the remainder of the Severance Term and shall
offset any amounts earned as a result of the Employee's engaging in the
Non-Competition Activities (whether as an employee, consultant or otherwise)
against such salary continuation by the Company which becomes payable after the
first date on which the Employee engages in the Non-Competition Activities.
(ii) pursuant to clause (A) of the first sentence of Section
6.5, the Company shall pay to the Employee the Section 6.5 Amount and other
benefits set forth in Section 6.5 in which event the Employee shall not engage
in the Non-Competition Activities for one year; provided, however, if the
Employee engages in the Non-Competition Activities during such one year period,
the Employee shall immediately notify the Company that he is engaging in the
Non-Competition Activities, and the Company's obligation to pay the Section 6.5
Amount shall immediately cease.
(iii) pursuant to clause (B) of the first sentence of Section
6.5, the Company shall pay to the Employee or the Section 6.5 Amount and other
benefits set forth in Section 6.5 in which event the Employee shall not engage
in the Non-Competition Activities for one year; provided, however, if the
Employee engages in the Non-Competition Activities during such one year period,
the Employee shall immediately notify the Company that he is engaging in the
Non-Competition Activities, and the Company's obligation to pay the Section 6.5
Amount shall immediately cease. From and after the date on which the Employee
engages in the Non-Competition Activities, the Company shall continue to pay to
the Employee the salary in effect on the date of termination of the employment
of the Employee under Section 3.1 for the remainder of such one year period and
shall offset any amounts earned as a result of the Employee's engaging in the
Non-Competition Activities (whether as an employee, consultant or otherwise)
against such salary continuation by the Company which becomes payable after the
first date on which the Employee engages in the Non-Competition Activities.
10. Equitable Relief, Etc.
10.1 In the event of a breach or threatened breach by the Employee
of any of the provisions of Sections 7, 8 or 9, the Employee hereby consents and
agrees that the Company shall be entitled to an injunction or similar equitable
relief from any court of competent jurisdiction restraining the Employee from
committing or continuing any such breach or threatened breach or granting
specific performance of any act required to be performed by the Employee 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. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies at law or in equity
which it may have with respect to any such breach or threatened breach.
10.2 The Company and the Employee understand and agree that in any
lawsuit or other proceeding between any of them with respect to Sections 7, 8 or
9 hereof, the prevailing party in such lawsuit or proceeding shall be entitled
to recover from the other party in such lawsuit or proceeding, and such other
party hereby agrees to pay such prevailing party, for all costs and expenses,
including attorneys' fees, incurred by such prevailing party in the defense,
prosecution or investigation of the matters which are the subject of such
lawsuit or proceeding.
<PAGE> 8
20
11. Successors and Assigns.
11.1 Assignment by the Company. The Company shall require any
successors (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform if no such
succession had taken place. As used in this Section, the "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law and this Agreement shall be
binding upon, and inure to the benefit of, the Company, as so defined.
11.2 Assignment by the Employee. The Employee 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 (other than the Employee if he is a member
of such Board at the time); provided, however, that nothing herein shall
preclude one or more beneficiaries of the Employee from receiving any amount
that may be payable following the occurrence of his legal incompetency or his
death and shall not preclude the legal representative of his estate from
receiving such amount 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 intestacy applicable to his
estate. The term "beneficiaries", as used in this Agreement, shall mean a
beneficiary or beneficiaries so designated to receive any such amount or, if no
beneficiary has been so designated, the legal representative of the Employee (in
the event of his incompetency) or the Employee's estate.
12. 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.
13. Entire Agreement. This Agreement contains all the
understandings and representations between the parties hereto pertaining to the
subject matter hereof. This Agreement supersedes all understandings and
agreements, whether oral or in writing, if any, previously entered into by the
Company with the Employee in any way relating to the employment of the Employee
by the Company, including without limitation, the Purchase Agreement, all of
which agreements and understandings are hereby terminated and all rights and
entitlements thereunder are hereby waived and released.
14. Amendment, Modification, Waiver. No provision of this
Agreement may be amended or modified unless such amendment or modification is
agreed to in writing and signed by the Employee and by a representative of the
Company (other than the Employee) who have been duly authorized by the Board of
Directors of the Company to do so (other than the Employee if he is a member of
such Board at the time). Except as otherwise specifically provided in this
Agreement, no waiver by either party hereto of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of a similar or dissimilar provision or
condition at the same or any prior or subsequent time, nor shall the failure of
or delay by either party hereto in exercising any right, power or privilege
hereunder operate as a waiver thereof to preclude any other or further exercise
thereof or the exercise of any other such right, power or privilege.
15. Notices. Any notice to be given hereunder shall be in writing
and delivered personally or sent by certified mail, postage prepaid, return
receipt requested, addressed to the party concerned at the address indicated
below or at such other address as such party may subsequently designate by like
notice:
If to the Company:
c/o Norton McNaughton, Inc.
463 Seventh Avenue
New York, New York 10018
Attention: Chief Executive Officer
If to the Employee:
<PAGE> 9
21
Howard Zwilling
11 Wenwood Drive
Brookville, New York 11545
16. Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or any breach thereof, shall, except as provided in
Section 10, be settled by binding arbitration in accordance with the rules of
the American Arbitration Association then in effect and judgment upon such award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitration shall be held in New York, New York. The arbitration
award shall include an award of attorneys' fees and costs to the prevailing
party as determined by the arbitrator.
17. Severability. Should any provision of this Agreement be held
by a court or arbitration panel 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 or arbitration panel 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 or arbitration panel 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.
18. Authority. The Company represents and warrants to the Employee
that the execution and delivery of this Agreement by the Company and the
performance by the Company of its covenants and agreements hereunder have been
duly authorized by all necessary corporate action and that this Agreement has
been duly executed and delivered on behalf of the Company.
19. Withholding. Anything to the contrary notwithstanding, all
payments required to be made by the Company hereunder to the Employee or his
beneficiaries, including his estate, shall be subject to withholding of such
amounts relating to taxes as the Company may reasonably determine it should
withhold pursuant to any applicable law or regulation. In lieu of withholding
such amounts, in whole or in part, the Company, may, in its sole discretion,
accept other provision for payment of taxes as permitted by law, provided it is
satisfied in its sole discretion that all requirements of law affecting its
responsibilities to withhold such taxes have been satisfied.
20. Subsidiaries, etc. The Employee shall be deemed to resign as
an officer and director of the Company or of any parent, subsidiary or affiliate
of the Company upon termination of his employment with the Company for any or no
reason.
21. Survivorship. The respective rights and obligations of the
Employee and the Company hereunder shall survive any termination of this
Agreement to the extent necessary to the intended preservation of such rights
and obligations.
22. 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.
23. Counterparts. This Agreement may be executed in two or more
counterpart copies, each of which shall be deemed to be an original and all of
which taken together shall be deemed one document.
* * *
<PAGE> 10
22
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
ME ACQUISITION CORP.
By: /s/ Sanford Greenberg
------------------------
Title: Chairman of the Board
EMPLOYEE:
/s/ Howard Zwilling
--------------------
Howard Zwilling
<PAGE> 1
23
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
AGREEMENT dated as of the 29th day of August, 1997 by and between
ME ACQUISITION CORP., a Delaware corporation (the "Company"), and Roberta Ciacci
(the "Employee").
W I T N E S S E T H:
WHEREAS, the Company, a wholly owned subsidiary of Norton
McNaughton, Inc., a Delaware corporation ("Norton"), and certain other parties
(which parties include the Employee) simultaneously herewith are entering into
an Agreement of Purchase and Sale dated as of August 29, 1997 (the "Purchase
Agreement"), providing, inter alia, for the purchase by the Company of
substantially all of the assets of Miss Erika, Inc., a Delaware corporation
("Miss Erika"); and
WHEREAS, the Employee desires to continue in the employ of the
Company subsequent to the consummation of the transactions contemplated by the
Purchase Agreement; and
WHEREAS, in order to induce the Company to enter into, and to
consummate the transactions contemplated by, the Purchase Agreement, the
Employee desires to enter into this Agreement; and
WHEREAS, the Company desires to secure the employment of the
Employee with the Company subsequent to the consummation of the transactions
contemplated by the Purchase Agreement, and to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto hereby agree as follows:
1. Employment, Term.
1.1 The Company agrees to employ the Employee, and the Employee
agrees to serve in the employ of the Company, for the term set forth in Section
1.2, in the positions and with the responsibilities, duties and authority set
forth in Section 2 and on the other terms and conditions set forth in this
Agreement.
1.2 The term of the Employee's employment under this Agreement
(the "Term") shall commence on the Closing Date (as defined in the Purchase
Agreement) and, unless sooner terminated in accordance with this Agreement,
shall expire (a) if the Company does not attain EBITDA (as defined in the
Executive Bonus Plan, as defined in Section 3.2 below, except that EBITDA for
purposes of this Section 1.2 shall be determined after reduction for the Bonus
Pool (as defined in the Executive Bonus Plan) for the applicable fiscal year)
averaged for the fiscal years ending October 31, 1998 and November 6, 1999 of
$5,500,000 or more (the "EBITDA 2-Year Target"), on such date (the "Notice
Date"), not earlier than November 6, 1999, on which the Chairman of the Board,
the President or the Chief Financial Officer of Norton delivers to the Employee
a written statement that the EBITDA 2-Year Target has not been achieved (the
Closing Date through the Notice Date, hereinafter the "Initial Term"); or (b) if
the Company attains the EBITDA 2- Year Target, on October 31, 2001 (November 7,
1999 through October 31, 2001, hereinafter the "Extended Term").
2. Positions, Duties. The Employee shall serve in the position of
Executive Vice President - Design of the Company. The Employee shall perform,
faithfully and diligently, such duties, and shall have such responsibilities,
appropriate to said position, as shall be assigned to her from time to time by
the Chief Executive Officer or Chief Operating Officer of the Company. The
Employee shall report to the Chief Executive Officer or the Chief Operating
Officer of the Company. The Employee shall devote her complete and undivided
attention to the performance of her duties and responsibilities hereunder during
the normal working hours of executive employees of Norton.
3. Compensation.
3.1 Salary. During the Term, in consideration of the performance
by the Employee of the services set forth in Section 2 and her observance of the
other covenants set forth herein, the Company shall pay the Employee, and the
Employee shall accept, a salary at a rate of $280,000 per annum, payable in
accordance with the standard payroll
<PAGE> 2
24
practices of the Company. The salary set forth in this Section 3.1 shall be
reviewed annually during the Term by the Board of Directors of the Company in
consultation with the Chief Executive Officer and Chief Operating Officer of the
Company and shall be subject to upward adjustments, if any, as determined by the
Board of Directors of the Company in its discretion, in consultation with the
Chief Executive Officer and Chief Operating Officer of the Company.
3.2 Bonus. During the Term, in addition to the salary provided for
in Section 3.1, (i) the Employee shall be eligible to participate in the ME
Acquisition Corp. Bonus Plan for Senior Executives (the "Executive Bonus Plan"),
a copy of which is attached hereto as Exhibit A and the terms of which are
incorporated herein by reference, (ii) the Employee shall be allocated a
percentage of the Bonus Pool (as defined in the Executive Bonus Plan) as shall
be determined by the Board in consultation with the Chief Executive Officer and
Chief Operating Officer of the Company, subject to the terms and conditions of
the Executive Bonus Plan and this Agreement and (iii) either (a) the Employee
shall receive a cash bonus in an amount which, net of taxes payable by the
Employee in respect of such amount, shall be equal to the amount which would
have been contributed on behalf of the Employee with respect to the Miss Erika,
Inc. Profit Sharing Plan (the "Miss Erika Plan"), as in effect on the date
hereof and as administered in accordance with the past practices of Miss Erika,
which cash bonus shall be payable within 120 days following the close of each
full fiscal year of the Company ending during the Term or (b) the Employee shall
be eligible to participate in a tax-advantaged profit sharing plan of the
Company established on similar terms and conditions (including levels of
contributions) as the Miss Erika Plan.
3.3 Stock Options.
(a) Grant. On the Closing Date, the Company shall cause to be
granted to the Employee by the Board of Directors of Norton as of the Closing
Date, options to purchase an aggregate of 15,000 shares of common stock, par
value $.01 per share (the "Common Stock"), of Norton, at an exercise price per
share equal to the fair market value of the Common Stock on the Closing Date
(the "Options"). The Options shall be fully vested and exercisable on and after
the Closing Date.
(b) Term of Options. Except as provided below, the term of the
Options shall be ten years.
(i) If the Employee's employment with the Company terminates
pursuant to Section 6.1, is terminated by the Company or the Employee pursuant
to Section 6.2, is terminated by the Company pursuant to Section 6.4, is
terminated by the Employee pursuant to Section 6.6, or terminates for any other
reason (except as provided in clause (ii) below) the Options may be exercised by
the Employee (or her estate or legal representative) within one year after such
termination; and
(ii) In the event of termination of the employment of the
Employee with the Company (a) by the Company pursuant to Section 6.3 or (b) by
the Employee other than pursuant to Sections 6.1, 6.2 or 6.6, no Options shall
be exercisable.
(c) Adjustments. In the event of any dividend or other
distribution (whether in the form of cash, Common Stock, other securities or
other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Common Stock or other securities of Norton, issuance
of warrants or other rights to purchase Common Stock, the Board of Directors
shall, in such manner as it may deem equitable, adjust the number of shares of
Common Stock (or other securities or property) subject to the Options, the
exercise price with respect to any Options, or all of the foregoing.
(d) Registration of Shares. Norton shall, as promptly as
practicable following the commencement of the Employee's employment hereunder,
file a registration statement on Form S-8, or any successor to such Form, with
respect to the shares of Common Stock covered by the Options.
3.4 Bonus Options. During the Term, in addition to the salary
provided for in Section 3.1, the Employee shall be eligible to receive Bonus
Options (as defined in the Executive Bonus Plan) in accordance with the terms
set forth in the Executive Bonus Plan.
<PAGE> 3
25
4. Expense Reimbursement. During the Term, (i) the Company shall
reimburse the Employee for all reasonable and necessary out-of-pocket expenses
incurred by her in connection with the performance of her duties hereunder, upon
the presentation of proper accounts therefor in accordance with Norton's
policies and (ii) the Company shall pay for the benefit of the Employee all
reasonable and necessary expenses incurred by her in the ordinary and usual
course of business and in accordance with Norton's policies (in any case, as
such policies are adopted from time to time by the Compensation Committee of
Norton).
5. Benefits.
5.1 Benefit Plans. During the Term, the Employee will be entitled
to participate in all employee benefit plans and programs offered by Norton,
subject to the provisions of such plans and programs as in effect from time to
time.
5.2 Vacation. During the Term, the Employee shall be entitled to
paid vacation in accordance with Norton's policy for its executive employees.
6. Termination of Employment.
6.1 Death. In the event of the death of the Employee during the
Term, the Company shall pay to the estate or other legal representative of the
Employee (a) the salary provided for in Section 3.1 accrued to the date of the
Employee's death and not theretofore paid to the Employee and (b) any bonus
payable in accordance with the terms of the Executive Bonus Plan. Rights and
benefits of the estate or other legal representative of the Employee (a) with
respect to the Options or the Bonus Options shall be determined in accordance
with Section 3.3(b) or the Executive Bonus Plan, as applicable and (b) under the
benefit plans and programs of the Company shall be determined in accordance with
the provisions of such plans and programs. Neither the estate or other legal
representative of the Employee nor the Company shall have any further rights or
obligations under this Agreement.
6.2 Disability. If during the Term the Employee shall become
incapacitated by reason of physical or mental disability and shall be unable to
perform her normal duties hereunder for a cumulative period of six (6) months in
any period of twelve (12) consecutive months, the employment of the Employee
hereunder may be terminated by the Company or the Employee upon notice to the
other. In the event of such termination, the Company shall pay to the Employee
(a) the salary provided for in Section 3.1 accrued to the date of such
termination and not theretofore paid to the Employee and (b) any bonus payable
in accordance with the terms of the Executive Bonus Plan. Rights and benefits of
the Employee (a) with respect to the Options or the Bonus Options shall be
determined in accordance with Section 3.3(b) or the Executive Bonus Plan, as
applicable and (b) under the benefit plans and programs of the Company shall be
determined in accordance with the provisions of such plans and programs. Neither
the Employee nor the Company shall have any further rights or obligations under
this Agreement, except as provided in Sections 7, 8, 9 and 10.
6.3 Due Cause. The employment of the Employee hereunder may be
terminated by the Company at any time during the Term for Due Cause (as
hereinafter defined). In the event of such termination, the Company shall pay to
the Employee the salary provided for in Section 3.1 accrued to the date of such
termination and not theretofore paid to the Employee and no bonus. Rights and
benefits of the Employee (a) with respect to the Options or the Bonus Options
shall be determined in accordance with Section 3.3(b) or the Executive Bonus
Plan, as applicable and (b) under the benefit plans and programs of the Company
shall be determined in accordance with the provisions of such plans and
programs. After the satisfaction of any claim of the Company against the
Employee incidental to such Due Cause, neither the Employee nor the Company
shall have any further rights or obligations under this Agreement, except as
provided in Sections 7, 8, 9 and 10. For purposes hereof, "Due Cause" shall mean
(a) the Employee's gross negligence or willful misconduct in bad faith in the
discharge of her duties and responsibilities to Norton, the Company and any of
their respective parent, subsidiary or affiliate corporations (collectively, the
"Norton Group"), as determined by the Board of Directors of the Company, (b) the
Employee's material and repeated failure to obey appropriate directions from the
Chief Executive Officer or Chief Operating Officer the Company, (c) any willful
or purposeful act or omission of the Employee taken or omitted in bad faith and
intended to materially injure, and which had the effect of materially injuring,
the business or business relationships of any member of the Norton Group or (d)
the Employee's conviction or other adjudication of (1) a felony or (2) any crime
or offense involving fraud; provided, however, that the Employee
<PAGE> 4
26
shall be given written notice by a majority of the Board of Directors of the
Company that it intends to terminate the Employee's employment for Due Cause
under this Section, which written notice shall specify the act or acts upon the
basis of which the majority of the Board of Directors of the Company intends so
to terminate the Employee's employment, and the Employee shall then be given the
opportunity, within fifteen (15) days of her receipt of such notice, to have a
meeting with the Board of Directors of the Company to discuss such act or acts.
6.4 Other Termination by the Company. The Company may terminate
the Employee's employment at any time during the Term for whatever reason it
deems appropriate or without reason; provided, however, that in the event that
such termination is not pursuant to Section 6.1, 6.2, 6.3 or 6.5, the Company
shall, except as provided in Section 9(c), (a) pay to the Employee the Severance
Amount (as hereinafter defined) in equal installments on a monthly basis over
the Severance Term (as hereinafter defined), (b) pay to the Employee any bonus
payable in accordance with the terms of the Executive Bonus Plan and (c) provide
the Employee for the Severance Term with the same benefits then in effect under
Section 5. The Employee shall not be required to seek subsequent employment.
Rights and benefits of the Employee with respect to the Options or the Bonus
Options shall be determined in accordance with Section 3.3(b) or the Executive
Bonus Plan, as applicable. Neither the Employee nor the Company shall have any
further rights or obligations under this Agreement, except as provided in
Sections 7, 8, 9 and 10. Any termination of this Agreement by the Company after
the date hereof and prior to the Closing Date shall be treated as a termination
of employment pursuant to this Section 6.4 as of the day following the Closing
Date, provided that the Closing (as defined in the Purchase Agreement) shall
have occurred.
For purposes hereof, Severance Amount shall mean an amount equal
to the sum of (i) the annual salary then in effect under Section 3.1 and (ii)
the Average Bonus (as hereinafter defined), multiplied by the Severance Factor.
Average Bonus shall mean the average of the bonuses, if any, paid to the
Employee by the Company and/or Miss Erika in the two (2) full fiscal years of
the Company and/or Miss Erika, as applicable, prior to the date of termination
of employment of the Employee. Severance Factor shall mean a fraction, the
numerator of which is the number of days remaining in the then-current Term plus
365, and the denominator of which is 365. Severance Term shall mean the number
of days remaining in the then-current Term plus 365 days. For purposes of the
foregoing, in determining the number of days remaining in the then-current Term,
if termination under this Section 6.4 occurs during (i) the Initial Term, the
then-current Term shall be determined without regard to the Extended Term;
provided, however, that if following such termination the Company attains the
EBITDA 2-Year Target for the fiscal years ending October 31, 1998 and November
6, 1999, the then-current Term shall be determined with regard to the Extended
Term and appropriate adjustments shall be made in the then remaining monthly
installments of the Severance Amount to be paid over the extended Severance Term
to take into account such determination or (ii) the Extended Term, the
then-current Term shall be the remaining number of days in the Extended Term.
6.5 Non-Extension by the Company. If (A) the Initial Term is not
extended for the Extended Term as a result of the failure to achieve the EBITDA
2-Year Target or if (B) the Initial Term is extended for the Extended Term
pursuant to Section 1.2 and, upon the expiration of such Extended Term, the
Company shall fail to offer employment to the Employee in the same position and
with the same salary then in effect under Section 3.1 and participation in the
Executive Bonus Plan on the same terms then in effect for an additional period
of one year, in either case, the Company shall, except as provided in Section
9(c), (a) continue to pay to the Employee the salary then in effect under
Section 3.1 for one year from the date of expiration of the Extended Term, (b)
pay to the Employee the Average Bonus in equal monthly installments over such
one year period (the amounts set forth in clauses (a) and (b), the "Section 6.5
Amounts") and (c) provide the Employee with the same Benefits then in effect
under Section 5 for such one year period. The Employee shall not be required to
seek subsequent employment. Rights and benefits of the Employee (a) with respect
to the Options or the Bonus Options shall be determined in accordance with
Section 3.3(b) or the Executive Bonus Plan, as applicable and (b) subject to
this Section 6.5, under the benefit plans and programs of the Company shall be
determined in accordance with the provisions of such plans and programs. Neither
the Employee nor the Company shall have any further rights or obligations under
this Agreement, except as provided in Sections 7, 8, 9 and 10.
6.6 Termination by the Employee with Good Reason. The Employee may
at any time terminate her employment with the Company with Good Reason (as
hereinafter defined) and may treat such as a termination of employment pursuant
to and with the effects set forth in Section 6.4. For purposes hereof, Good
Reason shall mean (i)
<PAGE> 5
27
the continued breach by the Company of a material provision of this Agreement
for a period of 30 days after written notice of such breach by the Employee to
the Company or (ii) a material and adverse diminution in the Employee's title or
scope of duties as set forth in Section 2, which diminution shall continue for a
period of 30 days after written notice thereof by the Employee to the Company.
6.7 Termination by the Employee without Good Reason. The Employee
may at any time upon at least 120 days prior written notice to the Company
terminate her employment with the Company without Good Reason. Such termination
shall be treated as a termination of employment pursuant to, including with the
effect set forth in, Section 6.3; provided, however, that the Company hereby
waives any claim it may have against the Employee incidental to the Employee's
termination of her employment pursuant to this Section 6.7.
7. Confidential Information.
7.1 The Employee shall, during the Term and at all times
thereafter, treat as confidential and, except as required in the performance of
her duties and responsibilities under this Agreement, not disclose, publish or
otherwise make available to the public or to any individual, firm or corporation
any confidential material (as hereinafter defined), except, on a need to know
basis, to the Employee's attorney, accountant or personal advisor. The Employee
agrees that all confidential material, together with all notes and records of
the Employee relating thereto, and all copies or facsimiles thereof in the
possession of the Employee, are the exclusive property of the Company and the
Employee agrees to return such material to the Company promptly upon the
termination of the Employee's employment with the Company.
7.2 For the purposes hereof, the term "confidential material"
shall mean all information acquired by the Employee in the course of the
Employee's prior employment with Miss Erika and in the course of the Employee's
employment with the Company in any way concerning the products, projects,
activities, business or affairs of the Company or any member of the Norton Group
or the customers, suppliers or agents of the Company or any member of the Norton
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 Norton Group and/or any improvements therein, all sales and
financial information concerning the Company or any member of the Norton 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 Norton Group which
is furnished to the Employee 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 or the apparel industry in general other than
as a result of a disclosure by the Employee, (b) was available to the Employee
on a non-confidential basis prior to her employment with the Company or (c)
becomes available to the Employee 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 the Employee has no knowledge that
such source is not bound by a confidentiality agreement with the Company or any
of such agents or customers.
8. Inventions. Any and all inventions, innovations or improvements
("inventions") made, developed or created by the Employee (whether at the
request or suggestion of the Company or otherwise, whether alone or in
conjunction with others, and whether during regular hours of work or otherwise)
during the period of her employment with the Company which may be directly or
indirectly useful in, or relate to, the business of the Company, shall be
promptly and fully disclosed by the Employee to the Board of Directors of the
Company and shall be the Company's exclusive property as against the Employee,
and the Employee shall promptly deliver to an appropriate representative of the
Company as designated by the Board of Directors all papers, drawings, models,
data and other material relating to any inventions made, developed or created by
her as aforesaid. The Employee shall, at the request of the Company and without
any payment therefor, execute any documents necessary or advisable in the
opinion of the Company's counsel to direct issuance of patents or copyrights to
the Company with respect to such inventions as are to be the Company's exclusive
property as against the Employee or to vest in the Company title to such
inventions as against the Employee. The expense of securing any such patent or
copyright shall be borne by the Company.
<PAGE> 6
28
9. Non-Competition. (a) The Employee acknowledges that the
services to be rendered by her to the Company are of a special and unique
character.
(b) In consideration of her employment hereunder, the Employee
agrees, for the benefit of the Company, that she will not, during the period of
her employment with the Company and thereafter for a period (A) of one (1) year
commencing on the date of termination of her employment with the Company
pursuant to Section 6.2 or 6.3, (B) of the greater of one (1) year commencing on
the date of termination of her employment with the Company pursuant to Section
6.7 or the remainder of the then-current Term (without regard to the Extended
Term if such termination occurs during the Initial Term) or (C) during which the
Employee receives payments of the Severance Amount pursuant to Section 9(c) (in
the case of a termination under Section 6.4 or 6.6), (1) 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) one percent (1%) 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
and any of its subsidiaries, (2) solicit or entice or endeavor to solicit or
entice away from any member of the Norton Group any person who was an officer,
employee, agent or consultant of any member of the Norton Group, either for her
own account or for any individual, firm or corporation, and, if applicable,
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 Norton Group, and the
Employee agrees not to employ, directly or indirectly, any person who was an
officer or employee of any member of the Norton 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 Norton Group, or (3) solicit or entice or endeavor to solicit or
entice away from any member of the Norton Group any customer or prospective
customer of any member of the Norton Group, either for her own account or for
any individual, firm or corporation (the activities set forth in clauses (1),
(2) and (3) above, the "Non-Competition Activities").
(c) In the event of termination of the employment of the Employee,
pursuant to Section 6.4 or 6.6, the Company shall pay to the Employee the
Severance Amount and other benefits set forth in Section 6.4 or 6.6 in which
event the Employee shall not engage in the Non-Competition Activities for the
Severance Term; provided, however, if the Employee engages in the
Non-Competition Activities during the Severance Term, the Employee shall
immediately notify the Company that she is engaging in the Non-Competition
Activities, and the Company's obligation to pay the Severance Amount shall
immediately cease. From and after the date on which the Employee engages in the
Non-Competition Activities, the Company shall continue to pay to the Employee
the salary in effect on the date of termination of the employment of the
Employee under Section 3.1 for the remainder of the Severance Term and shall
offset any amounts earned as a result of the Employee's engaging in the
Non-Competition Activities (whether as an employee, consultant or otherwise)
against such salary continuation by the Company which becomes payable after the
first date on which the Employee engages in the Non-Competition Activities.
(d) Notwithstanding the foregoing, the provisions of this Section
9 shall not be effective on or after November 7, 1999.
10. Equitable Relief, Etc.
10.1 In the event of a breach or threatened breach by the Employee
of any of the provisions of Sections 7, 8 or 9, the Employee hereby consents and
agrees that the Company shall be entitled to an injunction or similar equitable
relief from any court of competent jurisdiction restraining the Employee from
committing or continuing any such breach or threatened breach or granting
specific performance of any act required to be performed by the Employee 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. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies at law or in equity
which it may have with respect to any such breach or threatened breach.
10.2 The Company and the Employee understand and agree that in any
lawsuit or other proceeding between any of them with respect to Sections 7, 8 or
9 hereof, the prevailing party in such lawsuit or proceeding shall
<PAGE> 7
29
be entitled to recover from the other party in such lawsuit or proceeding, and
such other party hereby agrees to pay such prevailing party, for all costs and
expenses, including attorneys' fees, incurred by such prevailing party in the
defense, prosecution or investigation of the matters which are the subject of
such lawsuit or proceeding.
11. Successors and Assigns.
11.1 Assignment by the Company. The Company shall require any
successors (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform if no such
succession had taken place. As used in this Section, the "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law and this Agreement shall be
binding upon, and inure to the benefit of, the Company, as so defined.
11.2 Assignment by the Employee. The Employee 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 (other than the Employee if she is a
member of such Board at the time); provided, however, that nothing herein shall
preclude one or more beneficiaries of the Employee from receiving any amount
that may be payable following the occurrence of her legal incompetency or her
death and shall not preclude the legal representative of her estate from
receiving such amount or from assigning any right hereunder to the person or
persons entitled thereto under her will or, in the case of intestacy, to the
person or persons entitled thereto under the laws of intestacy applicable to her
estate. The term "beneficiaries", as used in this Agreement, shall mean a
beneficiary or beneficiaries so designated to receive any such amount or, if no
beneficiary has been so designated, the legal representative of the Employee (in
the event of her incompetency) or the Employee's estate.
12. 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.
13. Entire Agreement. This Agreement contains all the
understandings and representations between the parties hereto pertaining to the
subject matter hereof. This Agreement supersedes all understandings and
agreements, whether oral or in writing, if any, previously entered into by the
Company with the Employee in any way relating to the employment of the Employee
by the Company, including without limitation, the Purchase Agreement, all of
which agreements and understandings are hereby terminated and all rights and
entitlements thereunder are hereby waived and released.
14. Amendment, Modification, Waiver. No provision of this
Agreement may be amended or modified unless such amendment or modification is
agreed to in writing and signed by the Employee and by a representative of the
Company (other than the Employee) who have been duly authorized by the Board of
Directors of the Company to do so (other than the Employee if she is a member of
such Board at the time). Except as otherwise specifically provided in this
Agreement, no waiver by either party hereto of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of a similar or dissimilar provision or
condition at the same or any prior or subsequent time, nor shall the failure of
or delay by either party hereto in exercising any right, power or privilege
hereunder operate as a waiver thereof to preclude any other or further exercise
thereof or the exercise of any other such right, power or privilege.
15. Notices. Any notice to be given hereunder shall be in writing
and delivered personally or sent by certified mail, postage prepaid, return
receipt requested, addressed to the party concerned at the address indicated
below or at such other address as such party may subsequently designate by like
notice:
If to the Company:
c/o Norton McNaughton, Inc.
463 Seventh Avenue
<PAGE> 8
30
New York, New York 10018
Attention: Chief Executive Officer
If to the Employee:
Roberta Ciacci
1272 East 29th Street
Brooklyn, New York 11201
16. Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or any breach thereof, shall, except as provided in
Section 10, be settled by binding arbitration in accordance with the rules of
the American Arbitration Association then in effect and judgment upon such award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitration shall be held in New York, New York. The arbitration
award shall include an award of attorneys' fees and costs to the prevailing
party as determined by the arbitrator.
17. Severability. Should any provision of this Agreement be held
by a court or arbitration panel 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 or arbitration panel 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 or arbitration panel 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.
18. Authority. The Company represents and warrants to the Employee
that the execution and delivery of this Agreement by the Company and the
performance by the Company of its covenants and agreements hereunder have been
duly authorized by all necessary corporate action and that this Agreement has
been duly executed and delivered on behalf of the Company.
19. Withholding. Anything to the contrary notwithstanding, all
payments required to be made by the Company hereunder to the Employee or her
beneficiaries, including her estate, shall be subject to withholding of such
amounts relating to taxes as the Company may reasonably determine it should
withhold pursuant to any applicable law or regulation. In lieu of withholding
such amounts, in whole or in part, the Company, may, in its sole discretion,
accept other provision for payment of taxes as permitted by law, provided it is
satisfied in its sole discretion that all requirements of law affecting its
responsibilities to withhold such taxes have been satisfied.
20. Subsidiaries, etc. The Employee shall be deemed to resign as
an officer and director of the Company or of any parent, subsidiary or affiliate
of the Company upon termination of her employment with the Company for any or no
reason.
21. Survivorship. The respective rights and obligations of the
Employee and the Company hereunder shall survive any termination of this
Agreement to the extent necessary to the intended preservation of such rights
and obligations.
22. 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.
23. Counterparts. This Agreement may be executed in two or more
counterpart copies, each of which
<PAGE> 9
31
shall be deemed to be an original and all of which taken together shall be
deemed one document.
* * *
<PAGE> 10
32
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
ME ACQUISITION CORP.
By: /s/ Sanford Greenberg
-----------------------
Title: Chairman of the Board
EMPLOYEE:
/s/ Roberta Ciacci
------------------
Roberta Ciacci
<PAGE> 1
33
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
AGREEMENT dated as of the 29th day of August, 1997 by and between
ME ACQUISITION CORP., a Delaware corporation (the "Company"), and Elizabeth
Moser (the "Employee").
W I T N E S S E T H:
WHEREAS, the Company, a wholly owned subsidiary of Norton
McNaughton, Inc., a Delaware corporation ("Norton"), and certain other parties
(which parties include the Employee) simultaneously herewith are entering into
an Agreement of Purchase and Sale dated as of August 29, 1997 (the "Purchase
Agreement"), providing, inter alia, for the purchase by the Company of
substantially all of the assets of Miss Erika, Inc., a Delaware corporation
("Miss Erika"); and
WHEREAS, the Employee desires to continue in the employ of the
Company subsequent to the consummation of the transactions contemplated by the
Purchase Agreement; and
WHEREAS, in order to induce the Company to enter into, and to
consummate the transactions contemplated by, the Purchase Agreement, the
Employee desires to enter into this Agreement; and
WHEREAS, the Company desires to secure the employment of the
Employee with the Company subsequent to the consummation of the transactions
contemplated by the Purchase Agreement, and to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto hereby agree as follows:
1. Employment, Term.
1.1 The Company agrees to employ the Employee, and the Employee
agrees to serve in the employ of the Company, for the term set forth in Section
1.2, in the positions and with the responsibilities, duties and authority set
forth in Section 2 and on the other terms and conditions set forth in this
Agreement.
1.2 The term of the Employee's employment under this Agreement
(the "Term") shall commence on the Closing Date (as defined in the Purchase
Agreement) and, unless sooner terminated in accordance with this Agreement,
shall expire (a) if the Company does not attain EBITDA (as defined in the
Executive Bonus Plan, as defined in Section 3.2 below, except that EBITDA for
purposes of this Section 1.2 shall be determined after reduction for the Bonus
Pool (as defined in the Executive Bonus Plan) for the applicable fiscal year)
averaged for the fiscal years ending October 31, 1998 and November 6, 1999 of
$5,500,000 or more (the "EBITDA 2-Year Target"), on such date (the "Notice
Date"), not earlier than November 6, 1999, on which the Chairman of the Board,
the President or the Chief Financial Officer of Norton delivers to the Employee
a written statement that the EBITDA 2-Year Target has not been achieved (the
Closing Date through the Notice Date, hereinafter the "Initial Term"); or (b) if
the Company attains the EBITDA 2- Year Target, on October 31, 2001 (November 7,
1999 through October 31, 2001, hereinafter the "Extended Term").
2. Positions, Duties. The Employee shall serve in the position of
Executive Vice President - Woven Production of the Company. The Employee shall
perform, faithfully and diligently, such duties, and shall have such
responsibilities, appropriate to said position, as shall be assigned to her from
time to time by the Chief Executive Officer or Chief Operating Officer of the
Company. The Employee shall report to the Chief Executive Officer or Chief
Operating Officer of the Company. The Employee shall devote her complete and
undivided attention to the performance of her duties and responsibilities
hereunder during the normal working hours of executive employees of Norton.
3. Compensation.
3.1 Salary. During the Term, in consideration of the performance
by the Employee of the services set
<PAGE> 2
34
forth in Section 2 and her observance of the other covenants set forth herein,
the Company shall pay the Employee, and the Employee shall accept, a salary at a
rate of $266,000 per annum, payable in accordance with the standard payroll
practices of the Company. The salary set forth in this Section 3.1 shall be
reviewed annually during the Term by the Board of Directors of the Company in
consultation with the Chief Executive Officer and Chief Operating Officer of the
Company and shall be subject to upward adjustments, if any, as determined by the
Board of Directors of the Company in its discretion, in consultation with the
Chief Executive Officer and Chief Operating Officer of the Company.
3.2 Bonus. During the Term, in addition to the salary provided for
in Section 3.1, (i) the Employee shall be eligible to participate in the ME
Acquisition Corp. Bonus Plan for Senior Executives (the "Executive Bonus Plan"),
a copy of which is attached hereto as Exhibit A and the terms of which are
incorporated herein by reference, (ii) the Employee shall be allocated a
percentage of the Bonus Pool (as defined in the Executive Bonus Plan) as shall
be determined by the Board in consultation with the Chief Executive Officer and
Chief Operating Officer of the Company, subject to the terms and conditions of
the Executive Bonus Plan and this Agreement and (iii) either (a) the Employee
shall receive a cash bonus in an amount which, net of taxes payable by the
Employee in respect of such amount, shall be equal to the amount which would
have been contributed on behalf of the Employee with respect to the Miss Erika,
Inc. Profit Sharing Plan (the "Miss Erika Plan"), as in effect on the date
hereof and as administered in accordance with the past practices of Miss Erika,
which cash bonus shall be payable within 120 days following the close of each
full fiscal year of the Company ending during the Term or (b) the Employee shall
be eligible to participate in a tax-advantaged profit sharing plan of the
Company established on similar terms and conditions (including levels of
contributions) as the Miss Erika Plan.
3.3 Stock Options.
(a) Grant. On the Closing Date, the Company shall cause to be
granted to the Employee by the Board of Directors of Norton as of the Closing
Date, options to purchase an aggregate of 10,000 shares of common stock, par
value $.01 per share (the "Common Stock"), of Norton, at an exercise price per
share equal to the fair market value of the Common Stock on the Closing Date
(the "Options"). The Options shall be fully vested and exercisable on and after
the Closing Date.
(b) Term of Options. Except as provided below, the term of
the Options shall be ten years.
(i) If the Employee's employment with the Company terminates
pursuant to Section 6.1, is terminated by the Company or the Employee pursuant
to Section 6.2, is terminated by the Company pursuant to Section 6.4, is
terminated by the Employee pursuant to Section 6.6, or terminates for any other
reason (except as provided in clause (ii) below) the Options may be exercised by
the Employee (or her estate or legal representative) within one year after such
termination; and
(ii) In the event of termination of the employment of the
Employee with the Company (a) by the Company pursuant to Section 6.3 or (b) by
the Employee other than pursuant to Sections 6.1, 6.2 or 6.6, no Options shall
be exercisable.
(c) Adjustments. In the event of any dividend or other
distribution (whether in the form of cash, Common Stock, other securities or
other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Common Stock or other securities of Norton, issuance
of warrants or other rights to purchase Common Stock, the Board of Directors
shall, in such manner as it may deem equitable, adjust the number of shares of
Common Stock (or other securities or property) subject to the Options, the
exercise price with respect to any Options, or all of the foregoing.
(d) Registration of Shares. Norton shall, as promptly as
practicable following the commencement of the Employee's employment hereunder,
file a registration statement on Form S-8, or any successor to such Form, with
respect to the shares of Common Stock covered by the Options.
3.4 Bonus Options. During the Term, in addition to the salary
provided for in Section 3.1, the Employee
<PAGE> 3
35
shall be eligible to receive Bonus Options (as defined in the Executive Bonus
Plan) in accordance with the terms set forth in the Executive Bonus Plan.
4. Expense Reimbursement. During the Term, (i) the Company shall
reimburse the Employee for all reasonable and necessary out-of-pocket expenses
incurred by her in connection with the performance of her duties hereunder, upon
the presentation of proper accounts therefor in accordance with Norton's
policies and (ii) the Company shall pay for the benefit of the Employee all
reasonable and necessary expenses incurred by her in the ordinary and usual
course of business and in accordance with Norton's policies (in any case, as
such policies are adopted from time to time by the Compensation Committee of
Norton).
5. Benefits.
5.1 Benefit Plans. During the Term, the Employee will be entitled
to participate in all employee benefit plans and programs offered by Norton,
subject to the provisions of such plans and programs as in effect from time to
time.
5.2 Vacation. During the Term, the Employee shall be entitled to
paid vacation in accordance with Norton's policy for its executive employees.
6. Termination of Employment.
6.1 Death. In the event of the death of the Employee during the
Term, the Company shall pay to the estate or other legal representative of the
Employee (a) the salary provided for in Section 3.1 accrued to the date of the
Employee's death and not theretofore paid to the Employee and (b) any bonus
payable in accordance with the terms of the Executive Bonus Plan. Rights and
benefits of the estate or other legal representative of the Employee (a) with
respect to the Options or the Bonus Options shall be determined in accordance
with Section 3.3(b) or the Executive Bonus Plan, as applicable and (b) under the
benefit plans and programs of the Company shall be determined in accordance with
the provisions of such plans and programs. Neither the estate or other legal
representative of the Employee nor the Company shall have any further rights or
obligations under this Agreement.
6.2 Disability. If during the Term the Employee shall become
incapacitated by reason of physical or mental disability and shall be unable to
perform her normal duties hereunder for a cumulative period of six (6) months in
any period of twelve (12) consecutive months, the employment of the Employee
hereunder may be terminated by the Company or the Employee upon notice to the
other. In the event of such termination, the Company shall pay to the Employee
(a) the salary provided for in Section 3.1 accrued to the date of such
termination and not theretofore paid to the Employee and (b) any bonus payable
in accordance with the terms of the Executive Bonus Plan. Rights and benefits of
the Employee (a) with respect to the Options or the Bonus Options shall be
determined in accordance with Section 3.3(b) or the Executive Bonus Plan, as
applicable and (b) under the benefit plans and programs of the Company shall be
determined in accordance with the provisions of such plans and programs. Neither
the Employee nor the Company shall have any further rights or obligations under
this Agreement, except as provided in Sections 7, 8, 9 and 10.
6.3 Due Cause. The employment of the Employee hereunder may be
terminated by the Company at any time during the Term for Due Cause (as
hereinafter defined). In the event of such termination, the Company shall pay to
the Employee the salary provided for in Section 3.1 accrued to the date of such
termination and not theretofore paid to the Employee and no bonus. Rights and
benefits of the Employee (a) with respect to the Options or the Bonus Options
shall be determined in accordance with Section 3.3(b) or the Executive Bonus
Plan, as applicable and (b) under the benefit plans and programs of the Company
shall be determined in accordance with the provisions of such plans and
programs. After the satisfaction of any claim of the Company against the
Employee incidental to such Due Cause, neither the Employee nor the Company
shall have any further rights or obligations under this Agreement, except as
provided in Sections 7, 8, 9 and 10. For purposes hereof, "Due Cause" shall mean
(a) the Employee's gross negligence or willful misconduct in bad faith in the
discharge of her duties and responsibilities to Norton, the Company and any of
their respective parent, subsidiary or affiliate corporations (collectively, the
"Norton Group"), as determined by the Board of Directors of the Company, (b) the
Employee's material and repeated failure to obey appropriate directions
<PAGE> 4
36
from the Chief Executive Officer or Chief Operating Officer of the Company, (c)
any willful or purposeful act or omission of the Employee taken or omitted in
bad faith and intended to materially injure, and which had the effect of
materially injuring, the business or business relationships of any member of the
Norton Group or (d) the Employee's conviction or other adjudication of (1) a
felony or (2) any crime or offense involving fraud; provided, however, that the
Employee shall be given written notice by a majority of the Board of Directors
of the Company that it intends to terminate the Employee's employment for Due
Cause under this Section, which written notice shall specify the act or acts
upon the basis of which the majority of the Board of Directors of the Company
intends so to terminate the Employee's employment, and the Employee shall then
be given the opportunity, within fifteen (15) days of her receipt of such
notice, to have a meeting with the Board of Directors of the Company to discuss
such act or acts.
6.4 Other Termination by the Company. The Company may terminate
the Employee's employment at any time during the Term for whatever reason it
deems appropriate or without reason; provided, however, that in the event that
such termination is not pursuant to Section 6.1, 6.2, 6.3 or 6.5, the Company
shall, except as provided in Section 9(c), (a) pay to the Employee the Severance
Amount (as hereinafter defined) in equal installments on a monthly basis over
the Severance Term (as hereinafter defined), (b) pay to the Employee any bonus
payable in accordance with the terms of the Executive Bonus Plan and (c) provide
the Employee for the Severance Term with the same benefits then in effect under
Section 5. The Employee shall not be required to seek subsequent employment.
Rights and benefits of the Employee with respect to the Options or the Bonus
Options shall be determined in accordance with Section 3.3(b) or the Executive
Bonus Plan, as applicable. Neither the Employee nor the Company shall have any
further rights or obligations under this Agreement, except as provided in
Sections 7, 8, 9 and 10. Any termination of this Agreement by the Company after
the date hereof and prior to the Closing Date shall be treated as a termination
of employment pursuant to this Section 6.4 as of the day following the Closing
Date, provided that the Closing (as defined in the Purchase Agreement) shall
have occurred.
For purposes hereof, Severance Amount shall mean an amount equal
to the sum of (i) the annual salary then in effect under Section 3.1 and (ii)
the Average Bonus (as hereinafter defined), multiplied by the Severance Factor.
Average Bonus shall mean the average of the bonuses, if any, paid to the
Employee by the Company and/or Miss Erika in the two (2) full fiscal years of
the Company and/or Miss Erika, as applicable, prior to the date of termination
of employment of the Employee. Severance Factor shall mean a fraction, the
numerator of which is the number of days remaining in the then-current Term plus
365, and the denominator of which is 365. Severance Term shall mean the number
of days remaining in the then-current Term plus 365 days. For purposes of the
foregoing, in determining the number of days remaining in the then-current Term,
if termination under this Section 6.4 occurs during (i) the Initial Term, the
then-current Term shall be determined without regard to the Extended Term;
provided, however, that if following such termination the Company attains the
EBITDA 2-Year Target for the fiscal years ending October 31, 1998 and November
6, 1999, the then-current Term shall be determined with regard to the Extended
Term and appropriate adjustments shall be made in the then remaining monthly
installments of the Severance Amount to be paid over the extended Severance Term
to take into account such determination or (ii) the Extended Term, the
then-current Term shall be the remaining number of days in the Extended Term.
6.5 Non-Extension by the Company. If (A) the Initial Term is not
extended for the Extended Term as a result of the failure to achieve the EBITDA
2-Year Target or if (B) the Initial Term is extended for the Extended Term
pursuant to Section 1.2 and, upon the expiration of such Extended Term, the
Company shall fail to offer employment to the Employee in the same position and
with the same salary then in effect under Section 3.1 and participation in the
Executive Bonus Plan on the same terms then in effect for an additional period
of one year, in either case, the Company shall, except as provided in Section
9(c), (a) continue to pay to the Employee the salary then in effect under
Section 3.1 for one year from the date of expiration of the Extended Term, (b)
pay to the Employee the Average Bonus in equal monthly installments over such
one year period (the amounts set forth in clauses (a) and (b), the "Section 6.5
Amounts") and (c) provide the Employee with the same Benefits then in effect
under Section 5 for such one year period. The Employee shall not be required to
seek subsequent employment. Rights and benefits of the Employee (a) with respect
to the Options or the Bonus Options shall be determined in accordance with
Section 3.3(b) or the Executive Bonus Plan, as applicable and (b) subject to
this Section 6.5, under the benefit plans and programs of the Company shall be
determined in accordance with the provisions of such plans and programs. Neither
the Employee nor the Company shall have any further rights or obligations under
this Agreement, except as provided in Sections 7, 8, 9
<PAGE> 5
37
and 10.
6.6 Termination by the Employee with Good Reason. The Employee may
at any time terminate her employment with the Company with Good Reason (as
hereinafter defined) and may treat such as a termination of employment pursuant
to and with the effects set forth in Section 6.4. For purposes hereof, Good
Reason shall mean (i) the continued breach by the Company of a material
provision of this Agreement for a period of 30 days after written notice of such
breach by the Employee to the Company or (ii) a material and adverse diminution
in the Employee's title or scope of duties as set forth in Section 2, which
diminution shall continue for a period of 30 days after written notice thereof
by the Employee to the Company.
6.7 Termination by the Employee without Good Reason. The Employee
may at any time upon at least 120 days prior written notice to the Company
terminate her employment with the Company without Good Reason. Such termination
shall be treated as a termination of employment pursuant to, including with the
effect set forth in, Section 6.3; provided, however, that the Company hereby
waives any claim it may have against the Employee incidental to the Employee's
termination of her employment pursuant to this Section 6.7.
7. Confidential Information.
7.1 The Employee shall, during the Term and at all times
thereafter, treat as confidential and, except as required in the performance of
her duties and responsibilities under this Agreement, not disclose, publish or
otherwise make available to the public or to any individual, firm or corporation
any confidential material (as hereinafter defined), except, on a need to know
basis, to the Employee's attorney, accountant or personal advisor. The Employee
agrees that all confidential material, together with all notes and records of
the Employee relating thereto, and all copies or facsimiles thereof in the
possession of the Employee, are the exclusive property of the Company and the
Employee agrees to return such material to the Company promptly upon the
termination of the Employee's employment with the Company.
7.2 For the purposes hereof, the term "confidential material"
shall mean all information acquired by the Employee in the course of the
Employee's prior employment with Miss Erika and in the course of the Employee's
employment with the Company in any way concerning the products, projects,
activities, business or affairs of the Company or any member of the Norton Group
or the customers, suppliers or agents of the Company or any member of the Norton
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 Norton Group and/or any improvements therein, all sales and
financial information concerning the Company or any member of the Norton 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 Norton Group which
is furnished to the Employee 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 or the apparel industry in general other than
as a result of a disclosure by the Employee, (b) was available to the Employee
on a non-confidential basis prior to her employment with the Company or (c)
becomes available to the Employee 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 the Employee has no knowledge that
such source is not bound by a confidentiality agreement with the Company or any
of such agents or customers.
8. Inventions. Any and all inventions, innovations or improvements
("inventions") made, developed or created by the Employee (whether at the
request or suggestion of the Company or otherwise, whether alone or in
conjunction with others, and whether during regular hours of work or otherwise)
during the period of her employment with the Company which may be directly or
indirectly useful in, or relate to, the business of the Company, shall be
promptly and fully disclosed by the Employee to the Board of Directors of the
Company and shall be the Company's exclusive property as against the Employee,
and the Employee shall promptly deliver to an appropriate representative of the
Company as designated by the Board of Directors all papers, drawings, models,
data and other material relating
<PAGE> 6
38
to any inventions made, developed or created by her as aforesaid. The Employee
shall, at the request of the Company and without any payment therefor, execute
any documents necessary or advisable in the opinion of the Company's counsel to
direct issuance of patents or copyrights to the Company with respect to such
inventions as are to be the Company's exclusive property as against the Employee
or to vest in the Company title to such inventions as against the Employee. The
expense of securing any such patent or copyright shall be borne by the Company.
9. Non-Competition. (a) The Employee acknowledges that the
services to be rendered by her to the Company are of a special and unique
character.
(b) In consideration of her employment hereunder, the Employee
agrees, for the benefit of the Company, that she will not, during the period of
her employment with the Company and thereafter for a period (A) of one (1) year
commencing on the date of termination of her employment with the Company
pursuant to Section 6.2 or 6.3, (B) of the greater of one (1) year commencing on
the date of termination of her employment with the Company pursuant to Section
6.7 or the remainder of the then-current Term (without regard to the Extended
Term if such termination occurs during the Initial Term) or (C) during which the
Employee receives payments of the Severance Amount pursuant to Section 9(c) (in
the case of a termination under Section 6.4 or 6.6), (1) 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) one percent (1%) 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
and any of its subsidiaries, (2) solicit or entice or endeavor to solicit or
entice away from any member of the Norton Group any person who was an officer,
employee, agent or consultant of any member of the Norton Group, either for her
own account or for any individual, firm or corporation, and, if applicable,
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 Norton Group, and the
Employee agrees not to employ, directly or indirectly, any person who was an
officer or employee of any member of the Norton 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 Norton Group, or (3) solicit or entice or endeavor to solicit or
entice away from any member of the Norton Group any customer or prospective
customer of any member of the Norton Group, either for her own account or for
any individual, firm or corporation (the activities set forth in clauses (1),
(2) and (3) above, the "Non-Competition Activities").
(c) In the event of termination of the employment of the Employee
pursuant to Section 6.4 or 6.6, the Company shall pay to the Employee the
Severance Amount and other benefits set forth in Section 6.4 or 6.6 in which
event the Employee shall not engage in the Non-Competition Activities for the
Severance Term; provided, however, if the Employee engages in the
Non-Competition Activities during the Severance Term, the Employee shall
immediately notify the Company that she is engaging in the Non-Competition
Activities, and the Company's obligation to pay the Severance Amount shall
immediately cease. From and after the date on which the Employee engages in the
Non-Competition Activities, the Company shall continue to pay to the Employee
the salary in effect on the date of termination of the employment of the
Employee under Section 3.1 for the remainder of the Severance Term and shall
offset any amounts earned as a result of the Employee's engaging in the
Non-Competition Activities (whether as an employee, consultant or otherwise)
against such salary continuation by the Company which becomes payable after the
first date on which the Employee engages in the Non-Competition Activities.
(d) Notwithstanding the foregoing, the provisions of this Section
9 not be effective on or after November 7, 1999.
10. Equitable Relief, Etc.
10.1 In the event of a breach or threatened breach by the Employee
of any of the provisions of Sections 7, 8 or 9, the Employee hereby consents and
agrees that the Company shall be entitled to an injunction or similar equitable
relief from any court of competent jurisdiction restraining the Employee from
committing or continuing any such breach or threatened breach or granting
specific performance of any act required to be performed by the Employee
<PAGE> 7
39
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. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies at law or
in equity which it may have with respect to any such breach or threatened
breach.
10.2 The Company and the Employee understand and agree that in any
lawsuit or other proceeding between any of them with respect to Sections 7, 8 or
9 hereof, the prevailing party in such lawsuit or proceeding shall be entitled
to recover from the other party in such lawsuit or proceeding, and such other
party hereby agrees to pay such prevailing party, for all costs and expenses,
including attorneys' fees, incurred by such prevailing party in the defense,
prosecution or investigation of the matters which are the subject of such
lawsuit or proceeding.
11. Successors and Assigns.
11.1 Assignment by the Company. The Company shall require any
successors (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform if no such
succession had taken place. As used in this Section, the "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law and this Agreement shall be
binding upon, and inure to the benefit of, the Company, as so defined.
11.2 Assignment by the Employee. The Employee 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 (other than the Employee if she is a
member of such Board at the time); provided, however, that nothing herein shall
preclude one or more beneficiaries of the Employee from receiving any amount
that may be payable following the occurrence of her legal incompetency or her
death and shall not preclude the legal representative of her estate from
receiving such amount or from assigning any right hereunder to the person or
persons entitled thereto under her will or, in the case of intestacy, to the
person or persons entitled thereto under the laws of intestacy applicable to her
estate. The term "beneficiaries", as used in this Agreement, shall mean a
beneficiary or beneficiaries so designated to receive any such amount or, if no
beneficiary has been so designated, the legal representative of the Employee (in
the event of her incompetency) or the Employee's estate.
12. 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.
13. Entire Agreement. This Agreement contains all the
understandings and representations between the parties hereto pertaining to the
subject matter hereof. This Agreement supersedes all understandings and
agreements, whether oral or in writing, if any, previously entered into by the
Company with the Employee in any way relating to the employment of the Employee
by the Company, including without limitation, the Purchase Agreement, all of
which agreements and understandings are hereby terminated and all rights and
entitlements thereunder are hereby waived and released.
14. Amendment, Modification, Waiver. No provision of this
Agreement may be amended or modified unless such amendment or modification is
agreed to in writing and signed by the Employee and by a representative of the
Company (other than the Employee) who have been duly authorized by the Board of
Directors of the Company to do so (other than the Employee if she is a member of
such Board at the time). Except as otherwise specifically provided in this
Agreement, no waiver by either party hereto of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of a similar or dissimilar provision or
condition at the same or any prior or subsequent time, nor shall the failure of
or delay by either party hereto in exercising any right, power or privilege
hereunder operate as a waiver thereof to preclude any other or further exercise
thereof or the exercise of any other such right, power or privilege.
<PAGE> 8
40
15. Notices. Any notice to be given hereunder shall be in writing
and delivered personally or sent by certified mail, postage prepaid, return
receipt requested, addressed to the party concerned at the address indicated
below or at such other address as such party may subsequently designate by like
notice:
If to the Company:
c/o Norton McNaughton, Inc.
463 Seventh Avenue
New York, New York 10018
Attention: Chief Executive Officer
If to the Employee:
Elizabeth Moser
70 Urban Street
Stamford, Connecticut 06905
16. Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or any breach thereof, shall, except as provided in
Section 10, be settled by binding arbitration in accordance with the rules of
the American Arbitration Association then in effect and judgment upon such award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitration shall be held in New York, New York. The arbitration
award shall include an award of attorneys' fees and costs to the prevailing
party as determined by the arbitrator.
17. Severability. Should any provision of this Agreement be held
by a court or arbitration panel 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 or arbitration panel 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 or arbitration panel 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.
18. Authority. The Company represents and warrants to the Employee
that the execution and delivery of this Agreement by the Company and the
performance by the Company of its covenants and agreements hereunder have been
duly authorized by all necessary corporate action and that this Agreement has
been duly executed and delivered on behalf of the Company.
19. Withholding. Anything to the contrary notwithstanding, all
payments required to be made by the Company hereunder to the Employee or her
beneficiaries, including her estate, shall be subject to withholding of such
amounts relating to taxes as the Company may reasonably determine it should
withhold pursuant to any applicable law or regulation. In lieu of withholding
such amounts, in whole or in part, the Company, may, in its sole discretion,
accept other provision for payment of taxes as permitted by law, provided it is
satisfied in its sole discretion that all requirements of law affecting its
responsibilities to withhold such taxes have been satisfied.
20. Subsidiaries, etc. The Employee shall be deemed to resign as
an officer and director of the Company or of any parent, subsidiary or affiliate
of the Company upon termination of her employment with the Company for any or no
reason.
<PAGE> 9
41
21. Survivorship. The respective rights and obligations of the
Employee and the Company hereunder shall survive any termination of this
Agreement to the extent necessary to the intended preservation of such rights
and obligations.
22. 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.
23. Counterparts. This Agreement may be executed in two or more
counterpart copies, each of which shall be deemed to be an original and all of
which taken together shall be deemed one document.
* * *
<PAGE> 10
42
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
ME ACQUISITION CORP.
By: /s/ Sanford Greenberg
-----------------------
Title: Chairman of the Board
EMPLOYEE:
/s/ Elizabeth Moser
--------------------
Elizabeth Moser
<PAGE> 1
43
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
AGREEMENT dated as of the 29th day of August, 1997 by and between
ME ACQUISITION CORP., a Delaware corporation (the "Company"), and Kenny Tse (the
"Employee").
W I T N E S S E T H:
WHEREAS, the Company, a wholly owned subsidiary of Norton
McNaughton, Inc., a Delaware corporation ("Norton"), and certain other parties
(which parties include the Employee) simultaneously herewith are entering into
an Agreement of Purchase and Sale dated as of August 29, 1997 (the "Purchase
Agreement"), providing, inter alia, for the purchase by the Company of
substantially all of the assets of Miss Erika, Inc., a Delaware corporation
("Miss Erika"); and
WHEREAS, the Employee desires to continue in the employ of the
Company subsequent to the consummation of the transactions contemplated by the
Purchase Agreement; and
WHEREAS, in order to induce the Company to enter into, and to
consummate the transactions contemplated by, the Purchase Agreement, the
Employee desires to enter into this Agreement; and
WHEREAS, the Company desires to secure the employment of the
Employee with the Company subsequent to the consummation of the transactions
contemplated by the Purchase Agreement, and to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto hereby agree as follows:
1. Employment, Term.
1.1 The Company agrees to employ the Employee, and the Employee
agrees to serve in the employ of the Company, for the term set forth in Section
1.2, in the positions and with the responsibilities, duties and authority set
forth in Section 2 and on the other terms and conditions set forth in this
Agreement.
1.2 The term of the Employee's employment under this Agreement
(the "Term") shall commence on the Closing Date (as defined in the Purchase
Agreement) and, unless sooner terminated in accordance with this Agreement,
shall expire (a) if the Company does not attain EBITDA (as defined in the
Executive Bonus Plan, as defined in Section 3.2 below, except that EBITDA for
purposes of this Section 1.2 shall be determined after reduction for the Bonus
Pool (as defined in the Executive Bonus Plan) for the applicable fiscal year)
averaged for the fiscal years ending October 31, 1998 and November 6, 1999 of
$5,500,000 or more (the "EBITDA 2-Year Target"), on such date (the "Notice
Date"), not earlier than November 6, 1999, on which the Chairman of the Board,
the President or the Chief Financial Officer of Norton delivers to the Employee
a written statement that the EBITDA 2-Year Target has not been achieved (the
Closing Date through the Notice Date, hereinafter the "Initial Term"); or (b) if
the Company attains the EBITDA 2-Year Target, on October 31, 2001 (November 7,
1999 through October 31, 2001, hereinafter the "Extended Term").
2. Positions, Duties. The Employee shall serve in the position of
Executive Vice President - Knit Production of the Company. The Employee shall
perform, faithfully and diligently, such duties, and shall have such
responsibilities, appropriate to said position, as shall be assigned to him from
time to time by the Chief Executive Officer or Chief Operating Officer of the
Company. The Employee shall report to the Chief Executive Officer or Chief
<PAGE> 2
44
Operating Officer of the Company. The Employee shall devote his complete and
undivided attention to the performance of his duties and responsibilities
hereunder during the normal working hours of executive employees of Norton.
3. Compensation.
3.1 Salary. During the Term, in consideration of the performance
by the Employee of the services set forth in Section 2 and his observance of the
other covenants set forth herein, the Company shall pay the Employee, and the
Employee shall accept, a salary at a rate of $187,000 per annum, payable in
accordance with the standard payroll practices of the Company. The salary set
forth in this Section 3.1 shall be reviewed annually during the Term by the
Board of Directors of the Company in consultation with the Chief Executive
Officer and Chief Operating Officer of the Company and shall be subject to
upward adjustments, if any, as determined by the Board of Directors of the
Company in its discretion, in consultation with the Chief Executive Officer and
Chief Operating Officer of the Company.
3.2 Bonus. During the Term, in addition to the salary provided for
in Section 3.1, (i) the Employee shall be eligible to participate in the ME
Acquisition Corp. Bonus Plan for Senior Executives (the "Executive Bonus Plan"),
a copy of which is attached hereto as Exhibit A and the terms of which are
incorporated herein by reference, (ii) the Employee shall be allocated a
percentage of the Bonus Pool (as defined in the Executive Bonus Plan) as shall
be determined by the Board in consultation with the Chief Executive Officer and
Chief Operating Officer of the Company, subject to the terms and conditions of
the Executive Bonus Plan and this Agreement and (iii) either (a) the Employee
shall receive a cash bonus in an amount which, net of taxes payable by the
Employee in respect of such amount, shall be equal to the amount which would
have been contributed on behalf of the Employee with respect to the Miss Erika,
Inc. Profit Sharing Plan (the "Miss Erika Plan"), as in effect on the date
hereof and as administered in accordance with the past practices of Miss Erika,
which cash bonus shall be payable within 120 days following the close of each
full fiscal year of the Company ending during the Term or (b) the Employee shall
be eligible to participate in a tax-advantaged profit sharing plan of the
Company established on similar terms and conditions (including levels of
contributions) as the Miss Erika Plan.
3.3 Stock Options.
(a) Grant. On the Closing Date, the Company shall cause to be
granted to the Employee by the Board of Directors of Norton as of the Closing
Date, options to purchase an aggregate of 10,000 shares of common stock, par
value $.01 per share (the "Common Stock"), of Norton, at an exercise price per
share equal to the fair market value of the Common Stock on the Closing Date
(the "Options"). The Options shall be fully vested and exercisable on and after
the Closing Date.
(b) Term of Options. Except as provided below, the term of
the Options shall be ten years.
(i) If the Employee's employment with the Company terminates
pursuant to Section 6.1, is terminated by the Company or the Employee pursuant
to Section 6.2, is terminated by the Company pursuant to Section 6.4, is
terminated by the Employee pursuant to Section 6.6, or terminates for any other
reason (except as provided in clause (ii) below) the Options may be exercised by
the Employee (or his estate or legal representative) within one year after such
termination; and
(ii) In the event of termination of the employment of the
Employee with the Company (a) by the Company pursuant to Section 6.3 or (b) by
the Employee other than pursuant to Sections 6.1, 6.2 or 6.6, no Options shall
be exercisable.
(c) Adjustments. In the event of any dividend or other
distribution (whether in the form of cash, Common Stock, other securities or
other property), recapitalization, stock split, reverse stock split,
reorganization,
<PAGE> 3
45
merger, consolidation, split-up, spin-off, combination, repurchase or exchange
of Common Stock or other securities of Norton, issuance of warrants or other
rights to purchase Common Stock, the Board of Directors shall, in such manner as
it may deem equitable, adjust the number of shares of Common Stock (or other
securities or property) subject to the Options, the exercise price with respect
to any Options, or all of the foregoing.
(d) Registration of Shares. Norton shall, as promptly as
practicable following the commencement of the Employee's employment hereunder,
file a registration statement on Form S-8, or any successor to such Form, with
respect to the shares of Common Stock covered by the Options.
3.4 Bonus Options. During the Term, in addition to the salary
provided for in Section 3.1, the Employee shall be eligible to receive Bonus
Options (as defined in the Executive Bonus Plan) in accordance with the terms
set forth in the Executive Bonus Plan.
4. Expense Reimbursement. During the Term, (i) the Company shall
reimburse the Employee for all reasonable and necessary out-of-pocket expenses
incurred by him in connection with the performance of his duties hereunder, upon
the presentation of proper accounts therefor in accordance with Norton's
policies and (ii) the Company shall pay for the benefit of the Employee all
reasonable and necessary expenses incurred by him in the ordinary and usual
course of business and in accordance with Norton's policies (in any case, as
such policies are adopted from time to time by the Compensation Committee of
Norton).
5. Benefits.
5.1 Benefit Plans. During the Term, the Employee will be entitled
to participate in all employee benefit plans and programs offered by Norton,
subject to the provisions of such plans and programs as in effect from time to
time.
5.2 Vacation. During the Term, the Employee shall be entitled to
paid vacation in accordance with Norton's policy for its executive employees.
<PAGE> 4
46
6. Termination of Employment.
6.1 Death. In the event of the death of the Employee during the
Term, the Company shall pay to the estate or other legal representative of the
Employee (a) the salary provided for in Section 3.1 accrued to the date of the
Employee's death and not theretofore paid to the Employee and (b) any bonus
payable in accordance with the terms of the Executive Bonus Plan. Rights and
benefits of the estate or other legal representative of the Employee (a) with
respect to the Options or the Bonus Options shall be determined in accordance
with Section 3.3(b) or the Executive Bonus Plan, as applicable and (b) under the
benefit plans and programs of the Company shall be determined in accordance with
the provisions of such plans and programs. Neither the estate or other legal
representative of the Employee nor the Company shall have any further rights or
obligations under this Agreement.
6.2 Disability. If during the Term the Employee shall become
incapacitated by reason of physical or mental disability and shall be unable to
perform his normal duties hereunder for a cumulative period of six (6) months in
any period of twelve (12) consecutive months, the employment of the Employee
hereunder may be terminated by the Company or the Employee upon notice to the
other. In the event of such termination, the Company shall pay to the Employee
(a) the salary provided for in Section 3.1 accrued to the date of such
termination and not theretofore paid to the Employee and (b) any bonus payable
in accordance with the terms of the Executive Bonus Plan. Rights and benefits of
the Employee (a) with respect to the Options or the Bonus Options shall be
determined in accordance with Section 3.3(b) or the Executive Bonus Plan, as
applicable and (b) under the benefit plans and programs of the Company shall be
determined in accordance with the provisions of such plans and programs. Neither
the Employee nor the Company shall have any further rights or obligations under
this Agreement, except as provided in Sections 7, 8, 9 and 10.
6.3 Due Cause. The employment of the Employee hereunder may be
terminated by the Company at any time during the Term for Due Cause (as
hereinafter defined). In the event of such termination, the Company shall pay to
the Employee the salary provided for in Section 3.1 accrued to the date of such
termination and not theretofore paid to the Employee and no bonus. Rights and
benefits of the Employee (a) with respect to the Options or the Bonus Options
shall be determined in accordance with Section 3.3(b) or the Executive Bonus
Plan, as applicable and (b) under the benefit plans and programs of the Company
shall be determined in accordance with the provisions of such plans and
programs. After the satisfaction of any claim of the Company against the
Employee incidental to such Due Cause, neither the Employee nor the Company
shall have any further rights or obligations under this Agreement, except as
provided in Sections 7, 8, 9 and 10. For purposes hereof, "Due Cause" shall mean
(a) the Employee's gross negligence or willful misconduct in bad faith in the
discharge of his duties and responsibilities to Norton, the Company and any of
their respective parent, subsidiary or affiliate corporations (collectively, the
"Norton Group"), as determined by the Board of Directors of the Company, (b) the
Employee's material and repeated failure to obey appropriate directions from the
Chief Executive Officer or the Chief Operating Officer of the Company, (c) any
willful or purposeful act or omission of the Employee taken or omitted in bad
faith and intended to materially injure, and which had the effect of materially
injuring, the business or business relationships of any member of the Norton
Group or (d) the Employee's conviction or other adjudication of (1) a felony or
(2) any crime or offense involving fraud; provided, however, that the Employee
shall be given written notice by a majority of the Board of Directors of the
Company that it intends to terminate the Employee's employment for Due Cause
under this Section, which written notice shall specify the act or acts upon the
basis of which the majority of the Board of Directors of the Company intends so
to terminate the Employee's employment, and the Employee shall then be given the
opportunity, within fifteen (15) days of his receipt of such notice, to have a
meeting with the Board of Directors of the Company to discuss such act or acts.
6.4 Other Termination by the Company. The Company may terminate
the Employee's employment at any time during the Term for whatever reason it
deems appropriate or without reason; provided, however, that in the event that
such termination is not pursuant to Section 6.1, 6.2, 6.3 or 6.5, the Company
shall, except as provided in Section 9(c), (a) pay to the Employee the Severance
Amount (as hereinafter defined) in equal installments on a monthly basis over
the Severance Term (as hereinafter defined), (b) pay to the Employee any bonus
payable in accordance with
<PAGE> 5
47
the terms of the Executive Bonus Plan and (c) provide the Employee for the
Severance Term with the same benefits then in effect under Section 5. The
Employee shall not be required to seek subsequent employment. Rights and
benefits of the Employee with respect to the Options or the Bonus Options shall
be determined in accordance with Section 3.3(b) or the Executive Bonus Plan, as
applicable. Neither the Employee nor the Company shall have any further rights
or obligations under this Agreement, except as provided in Sections 7, 8, 9 and
10. Any termination of this Agreement by the Company after the date hereof and
prior to the Closing Date shall be treated as a termination of employment
pursuant to this Section 6.4 as of the day following the Closing Date, provided
that the Closing (as defined in the Purchase Agreement) shall have occurred.
For purposes hereof, Severance Amount shall mean an amount equal
to the sum of (i) the annual salary then in effect under Section 3.1 and (ii)
the Average Bonus (as hereinafter defined), multiplied by the Severance Factor.
Average Bonus shall mean the average of the bonuses, if any, paid to the
Employee by the Company and/or Miss Erika in the two (2) full fiscal years of
the Company and/or Miss Erika, as applicable, prior to the date of termination
of employment of the Employee. Severance Factor shall mean a fraction, the
numerator of which is the number of days remaining in the then-current Term plus
365, and the denominator of which is 365. Severance Term shall mean the number
of days remaining in the then-current Term plus 365 days. For purposes of the
foregoing, in determining the number of days remaining in the then-current Term,
if termination under this Section 6.4 occurs during (i) the Initial Term, the
then-current Term shall be determined without regard to the Extended Term;
provided, however, that if following such termination the Company attains the
EBITDA 2-Year Target for the fiscal years ending October 31, 1998 and November
6, 1999, the then-current Term shall be determined with regard to the Extended
Term and appropriate adjustments shall be made in the then remaining monthly
installments of the Severance Amount to be paid over the extended Severance Term
to take into account such determination or (ii) the Extended Term, the
then-current Term shall be the remaining number of days in the Extended Term.
6.5 Non-Extension by the Company. If (A) the Initial Term is not
extended for the Extended Term as a result of the failure to achieve the EBITDA
2-Year Target or if (B) the Initial Term is extended for the Extended Term
pursuant to Section 1.2 and, upon the expiration of such Extended Term, the
Company shall fail to offer employment to the Employee in the same position and
with the same salary then in effect under Section 3.1 and participation in the
Executive Bonus Plan on the same terms then in effect for an additional period
of one year, in either case, the Company shall, except as provided in Section
9(c), (a) continue to pay to the Employee the salary then in effect under
Section 3.1 for one year from the date of expiration of the Extended Term, (b)
pay to the Employee the Average Bonus in equal monthly installments over such
one year period (the amounts set forth in clauses (a) and (b), the "Section 6.5
Amounts") and (c) provide the Employee with the same Benefits then in effect
under Section 5 for such one year period. The Employee shall not be required to
seek subsequent employment. Rights and benefits of the Employee (a) with respect
to the Options or the Bonus Options shall be determined in accordance with
Section 3.3(b) or the Executive Bonus Plan, as applicable and (b) subject to
this Section 6.5, under the benefit plans and programs of the Company shall be
determined in accordance with the provisions of such plans and programs. Neither
the Employee nor the Company shall have any further rights or obligations under
this Agreement, except as provided in Sections 7, 8, 9 and 10.
6.6 Termination by the Employee with Good Reason. The Employee may
at any time terminate his employment with the Company with Good Reason (as
hereinafter defined) and may treat such as a termination of employment pursuant
to and with the effects set forth in Section 6.4. For purposes hereof, Good
Reason shall mean (i) the continued breach by the Company of a material
provision of this Agreement for a period of 30 days after written notice of such
breach by the Employee to the Company or (ii) a material and adverse diminution
in the Employee's title or scope of duties as set forth in Section 2, which
diminution shall continue for a period of 30 days after written notice thereof
by the Employee to the Company.
6.7 Termination by the Employee without Good Reason. The Employee
may at any time upon at least 120 days prior written notice to the Company
terminate his employment with the Company without Good Reason.
<PAGE> 6
48
Such termination shall be treated as a termination of employment pursuant to,
including with the effect set forth in, Section 6.3; provided, however, that the
Company hereby waives any claim it may have against the Employee incidental to
the Employee's termination of his employment pursuant to this Section 6.7.
7. Confidential Information.
7.1 The Employee shall, during the Term and at all times
thereafter, treat as confidential and, except as required in the performance of
his duties and responsibilities under this Agreement, not disclose, publish or
otherwise make available to the public or to any individual, firm or corporation
any confidential material (as hereinafter defined), except, on a need to know
basis, to the Employee's attorney, accountant or personal advisor. The Employee
agrees that all confidential material, together with all notes and records of
the Employee relating thereto, and all copies or facsimiles thereof in the
possession of the Employee, are the exclusive property of the Company and the
Employee agrees to return such material to the Company promptly upon the
termination of the Employee's employment with the Company.
7.2 For the purposes hereof, the term "confidential material"
shall mean all information acquired by the Employee in the course of the
Employee's prior employment with Miss Erika and in the course of the Employee's
employment with the Company in any way concerning the products, projects,
activities, business or affairs of the Company or any member of the Norton Group
or the customers, suppliers or agents of the Company or any member of the Norton
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 Norton Group and/or any improvements therein, all sales and
financial information concerning the Company or any member of the Norton 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 Norton Group which
is furnished to the Employee 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 or the apparel industry in general other than
as a result of a disclosure by the Employee, (b) was available to the Employee
on a non-confidential basis prior to his employment with the Company or (c)
becomes available to the Employee 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 the Employee has no knowledge that
such source is not bound by a confidentiality agreement with the Company or any
of such agents or customers.
8. Inventions. Any and all inventions, innovations or improvements
("inventions") made, developed or created by the Employee (whether at the
request or suggestion of the Company or otherwise, whether alone or in
conjunction with others, and whether during regular hours of work or otherwise)
during the period of his employment with the Company which may be directly or
indirectly useful in, or relate to, the business of the Company, shall be
promptly and fully disclosed by the Employee to the Board of Directors of the
Company and shall be the Company's exclusive property as against the Employee,
and the Employee shall promptly deliver to an appropriate representative of the
Company as designated by the Board of Directors all papers, drawings, models,
data and other material relating to any inventions made, developed or created by
him as aforesaid. The Employee shall, at the request of the Company and without
any payment therefor, execute any documents necessary or advisable in the
opinion of the Company's counsel to direct issuance of patents or copyrights to
the Company with respect to such inventions as are to be the Company's exclusive
property as against the Employee or to vest in the Company title to such
inventions as against the Employee. The expense of securing any such patent or
copyright shall be borne by the Company.
9. Non-Competition. (a) The Employee acknowledges that the
services to be rendered by him to the Company are of a special and unique
character.
<PAGE> 7
49
(b) In consideration of his employment hereunder, the Employee
agrees, for the benefit of the Company, that he will not, during the period of
his employment with the Company and thereafter for a period (A) of one (1) year
commencing on the date of termination of his employment with the Company
pursuant to Section 6.2 or 6.3, (B) of the greater of one (1) year commencing on
the date of termination of his employment with the Company pursuant to Section
6.7 or the remainder of the then-current Term (without regard to the Extended
Term if such termination occurs during the Initial Term) or (C) during which the
Employee receives payments of the Severance Amount pursuant to Section 9(c) (in
the case of a termination under Section 6.4 or 6.6), (1) 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) one percent (1%) 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
and any of its subsidiaries, (2) solicit or entice or endeavor to solicit or
entice away from any member of the Norton Group any person who was an officer,
employee, agent or consultant of any member of the Norton Group, either for his
own account or for any individual, firm or corporation, and, if applicable,
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 Norton Group, and the
Employee agrees not to employ, directly or indirectly, any person who was an
officer or employee of any member of the Norton 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 Norton Group, or (3) solicit or entice or endeavor to solicit or
entice away from any member of the Norton Group any customer or prospective
customer of any member of the Norton Group, either for his own account or for
any individual, firm or corporation (the activities set forth in clauses (1),
(2) and (3) above, the "Non-Competition Activities").
(c) In the event of termination of the employment of the Employee
pursuant to Section 6.4 or 6.6, the Company shall pay to the Employee the
Severance Amount and other benefits set forth in Section 6.4 or 6.6 in which
event the Employee shall not engage in the Non-Competition Activities for the
Severance Term; provided, however, if the Employee engages in the
Non-Competition Activities during the Severance Term, the Employee shall
immediately notify the Company that he is engaging in the Non-Competition
Activities, and the Company's obligation to pay the Severance Amount shall
immediately cease. From and after the date on which the Employee engages in the
Non-Competition Activities, the Company shall continue to pay to the Employee
the salary in effect on the date of termination of the employment of the
Employee under Section 3.1 for the remainder of the Severance Term and shall
offset any amounts earned as a result of the Employee's engaging in the
Non-Competition Activities (whether as an employee, consultant or otherwise)
against such salary continuation by the Company which becomes payable after the
first date on which the Employee engages in the Non-Competition Activities.
(d) Notwithstanding the foregoing, the provisions of this Section
9 shall not be effective on or after November 7, 1999.
10. Equitable Relief, Etc.
10.1 In the event of a breach or threatened breach by the Employee
of any of the provisions of Sections 7, 8 or 9, the Employee hereby consents and
agrees that the Company shall be entitled to an injunction or similar equitable
relief from any court of competent jurisdiction restraining the Employee from
committing or continuing any such breach or threatened breach or granting
specific performance of any act required to be performed by the Employee 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. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies at law or in equity
which it may have with respect to any such breach or threatened breach.
10.2 The Company and the Employee understand and agree that in any
lawsuit or other proceeding
<PAGE> 8
50
between any of them with respect to Sections 7, 8 or 9 hereof, the prevailing
party in such lawsuit or proceeding shall be entitled to recover from the other
party in such lawsuit or proceeding, and such other party hereby agrees to pay
such prevailing party, for all costs and expenses, including attorneys' fees,
incurred by such prevailing party in the defense, prosecution or investigation
of the matters which are the subject of such lawsuit or proceeding.
11. Successors and Assigns.
11.1 Assignment by the Company. The Company shall require any
successors (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform if no such
succession had taken place. As used in this Section, the "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law and this Agreement shall be
binding upon, and inure to the benefit of, the Company, as so defined.
11.2 Assignment by the Employee. The Employee 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 (other than the Employee if he is a member
of such Board at the time); provided, however, that nothing herein shall
preclude one or more beneficiaries of the Employee from receiving any amount
that may be payable following the occurrence of his legal incompetency or his
death and shall not preclude the legal representative of his estate from
receiving such amount 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 intestacy applicable to his
estate. The term "beneficiaries", as used in this Agreement, shall mean a
beneficiary or beneficiaries so designated to receive any such amount or, if no
beneficiary has been so designated, the legal representative of the Employee (in
the event of his incompetency) or the Employee's estate.
12. 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.
13. Entire Agreement. This Agreement contains all the
understandings and representations between the parties hereto pertaining to the
subject matter hereof. This Agreement supersedes all understandings and
agreements, whether oral or in writing, if any, previously entered into by the
Company with the Employee in any way relating to the employment of the Employee
by the Company, including without limitation, the Purchase Agreement, all of
which agreements and understandings are hereby terminated and all rights and
entitlements thereunder are hereby waived and released.
14. Amendment, Modification, Waiver. No provision of this
Agreement may be amended or modified unless such amendment or modification is
agreed to in writing and signed by the Employee and by a representative of the
Company (other than the Employee) who have been duly authorized by the Board of
Directors of the Company to do so (other than the Employee if he is a member of
such Board at the time). Except as otherwise specifically provided in this
Agreement, no waiver by either party hereto of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of a similar or dissimilar provision or
condition at the same or any prior or subsequent time, nor shall the failure of
or delay by either party hereto in exercising any right, power or privilege
hereunder operate as a waiver thereof to preclude any other or further exercise
thereof or the exercise of any other such right, power or privilege.
15. Notices. Any notice to be given hereunder shall be in writing
and delivered personally or sent by certified mail, postage prepaid, return
receipt requested, addressed to the party concerned at the address indicated
below or at such other address as such party may subsequently designate by like
notice:
<PAGE> 9
51
If to the Company:
c/o Norton McNaughton, Inc.
463 Seventh Avenue
New York, New York 10018
Attention: Chief Executive Officer
<PAGE> 10
52
If to the Employee:
Kenny Tse
809 Trailing Ridge Road
Franklin Lakes, New Jersey 07417
16. Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or any breach thereof, shall, except as provided in
Section 10, be settled by binding arbitration in accordance with the rules of
the American Arbitration Association then in effect and judgment upon such award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitration shall be held in New York, New York. The arbitration
award shall include an award of attorneys' fees and costs to the prevailing
party as determined by the arbitrator.
17. Severability. Should any provision of this Agreement be held
by a court or arbitration panel 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 or arbitration panel 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 or arbitration panel 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.
18. Authority. The Company represents and warrants to the Employee
that the execution and delivery of this Agreement by the Company and the
performance by the Company of its covenants and agreements hereunder have been
duly authorized by all necessary corporate action and that this Agreement has
been duly executed and delivered on behalf of the Company.
19. Withholding. Anything to the contrary notwithstanding, all
payments required to be made by the Company hereunder to the Employee or his
beneficiaries, including his estate, shall be subject to withholding of such
amounts relating to taxes as the Company may reasonably determine it should
withhold pursuant to any applicable law or regulation. In lieu of withholding
such amounts, in whole or in part, the Company, may, in its sole discretion,
accept other provision for payment of taxes as permitted by law, provided it is
satisfied in its sole discretion that all requirements of law affecting its
responsibilities to withhold such taxes have been satisfied.
20. Subsidiaries, etc. The Employee shall be deemed to resign as
an officer and director of the Company or of any parent, subsidiary or affiliate
of the Company upon termination of his employment with the Company for any or no
reason.
21. Survivorship. The respective rights and obligations of the
Employee and the Company hereunder shall survive any termination of this
Agreement to the extent necessary to the intended preservation of such rights
and obligations.
22. 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.
<PAGE> 11
53
23. Counterparts. This Agreement may be executed in two or more
counterpart copies, each of which shall be deemed to be an original and all of
which taken together shall be deemed one document.
* * *
<PAGE> 12
54
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
ME ACQUISITION CORP.
By: /s/ Sanford Greenberg
--------------------------
Title: Chairman of the Board
EMPLOYEE:
/s/ Kenny Tse
----------------
Kenny Tse
<PAGE> 1
55
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
AGREEMENT dated as of the 29th day of August, 1997 by and between
ME ACQUISITION CORP., a Delaware corporation (the "Company"), and Samuel Glaser
(the "Employee").
W I T N E S S E T H:
WHEREAS, the Company, a wholly owned subsidiary of Norton
McNaughton, Inc., a Delaware corporation ("Norton"), and certain other parties
(which parties include the Employee) simultaneously herewith are entering into
an Agreement of Purchase and Sale dated as of August 29, 1997 (the "Purchase
Agreement"), providing, inter alia, for the purchase by the Company of
substantially all of the assets of Miss Erika, Inc., a Delaware corporation
("Miss Erika"); and
WHEREAS, the Employee desires to continue in the employ of the
Company subsequent to the consummation of the transactions contemplated by the
Purchase Agreement; and
WHEREAS, in order to induce the Company to enter into, and to
consummate the transactions contemplated by, the Purchase Agreement, the
Employee desires to enter into this Agreement; and
WHEREAS, the Company desires to secure the employment of the
Employee with the Company subsequent to the consummation of the transactions
contemplated by the Purchase Agreement, and to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto hereby agree as follows:
1. Employment, Term.
1.1 The Company agrees to employ the Employee, and the Employee
agrees to serve in the employ of the Company, for the term set forth in Section
1.2, in the positions and with the responsibilities, duties and authority set
forth in Section 2 and on the other terms and conditions set forth in this
Agreement.
1.2 The term of the Employee's employment under this Agreement
(the "Term") shall commence on the Closing Date (as defined in the Purchase
Agreement) and shall terminate on November 6, 1999, unless sooner terminated in
accordance with this Agreement. Notwithstanding the foregoing, the Company may,
in its discretion, extend the Term for an additional six (6) month period upon
written notice to the Employee at least thirty (30) days prior to expiration of
the Term.
2. Positions, Duties. The Employee shall serve in the position of
Executive Vice President - Finance of the Company. The Employee shall perform,
faithfully and diligently, such duties, and shall have such responsibilities,
appropriate to said position, as shall be assigned to him from time to time by
the Chief Executive Officer or Chief Operating Officer of the Company. The
Employee shall report to the Chief Executive Officer or Chief Operating Officer
of the Company. The Employee shall devote his complete and undivided attention
to the performance of his duties and responsibilities hereunder during the
normal working hours of executive employees of Norton.
3. Compensation.
3.1 Salary. During the Term, in consideration of the performance
by the Employee of the services set forth in Section 2 and his observance of the
other covenants set forth herein, the Company shall pay the Employee, and the
Employee shall accept, a salary at a rate of $115,000 per annum, payable in
accordance with the standard payroll practices of the Company. The salary set
forth in this Section 3.1 shall be reviewed annually during the Term by the
Board of Directors of the Company in consultation with the Chief Executive
Officer and Chief Operating Officer of the Company and shall be subject to
upward adjustments, if any, as determined by the Board of Directors of the
Company in its discretion, in consultation with the Chief Executive Officer and
Chief Operating Officer of the Company.
<PAGE> 2
56
3.2 Bonus. During the Term, in addition to the salary provided for
in Section 3.1, (i) the Employee shall be eligible to participate in the ME
Acquisition Corp. Bonus Plan for Senior Executives (the "Executive Bonus Plan"),
a copy of which is attached hereto as Exhibit A and the terms of which are
incorporated herein by reference and (ii) the Employee shall be allocated a
percentage of the Bonus Pool (as defined in the Executive Bonus Plan) as shall
be determined by the Board in consultation with the Chief Executive Officer and
Chief Operating Officer of the Company, subject to the terms and conditions of
the Executive Bonus Plan and this Agreement.
3.3 Stock Options.
(a) Grant. On the Closing Date, the Company shall cause to be
granted to the Employee by the Board of Directors of Norton as of the Closing
Date, options to purchase an aggregate of 5,000 shares of common stock, par
value $.01 per share (the "Common Stock"), of Norton, at an exercise price per
share equal to the fair market value of the Common Stock on the Closing Date
(the "Options"). The Options shall be fully vested and exercisable on and after
the Closing Date.
(b) Term of Options. Except as provided below, the term of
the Options shall be ten years.
(i) If the Employee's employment with the Company terminates
pursuant to Section 6.1, is terminated by the Company or the Employee pursuant
to Section 6.2, is terminated by the Company pursuant to Section 6.4, is
terminated by the Employee pursuant to Section 6.5, or terminates for any other
reason (except as provided in clause (ii) below) the Options may be exercised by
the Employee (or his estate or legal representative) within one year after such
termination; and
(ii) In the event of termination of the employment of the
Employee with the Company (a) by the Company pursuant to Section 6.3 or (b) by
the Employee other than pursuant to Sections 6.1, 6.2 or 6.5, no Options shall
be exercisable.
(c) Adjustments. In the event of any dividend or other
distribution (whether in the form of cash, Common Stock, other securities or
other property), recapitalization, stock split, reverse stock split,
reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase or exchange of Common Stock or other securities of Norton, issuance
of warrants or other rights to purchase Common Stock, the Board of Directors
shall, in such manner as it may deem equitable, adjust the number of shares of
Common Stock (or other securities or property) subject to the Options, the
exercise price with respect to any Options, or all of the foregoing.
(d) Registration of Shares. Norton shall, as promptly as
practicable following the commencement of the Employee's employment hereunder,
file a registration statement on Form S-8, or any successor to such Form, with
respect to the shares of Common Stock covered by the Options.
3.4 Bonus Options. During the Term, in addition to the salary
provided for in Section 3.1, the Employee shall be eligible to receive Bonus
Options (as defined in the Executive Bonus Plan) in accordance with the terms
set forth in the Executive Bonus Plan.
4. Expense Reimbursement. During the Term, (i) the Company shall
reimburse the Employee for all reasonable and necessary out-of-pocket expenses
incurred by him in connection with the performance of his duties hereunder, upon
the presentation of proper accounts therefor in accordance with Norton's
policies and (ii) the Company shall pay for the benefit of the Employee all
reasonable and necessary expenses incurred by him in the ordinary and usual
course of business and in accordance with Norton's policies (in any case, as
such policies are adopted from time to time by the Compensation Committee of
Norton).
<PAGE> 3
57
5. Benefits.
5.1 Benefit Plans. During the Term, the Employee will be entitled
to participate in all employee benefit plans and programs offered by Norton,
subject to the provisions of such plans and programs as in effect from time to
time.
5.2 Vacation. During the Term, the Employee shall be entitled to
paid vacation in accordance with Norton's policy for its executive employees.
6. Termination of Employment.
6.1 Death. In the event of the death of the Employee during the
Term, the Company shall pay to the estate or other legal representative of the
Employee (a) the salary provided for in Section 3.1 accrued to the date of the
Employee's death and not theretofore paid to the Employee and (b) any bonus
payable in accordance with the terms of the Executive Bonus Plan. Rights and
benefits of the estate or other legal representative of the Employee (a) with
respect to the Options or the Bonus Options shall be determined in accordance
with Section 3.3(b) or the Executive Bonus Plan, as applicable and (b) under the
benefit plans and programs of the Company shall be determined in accordance with
the provisions of such plans and programs. Neither the estate or other legal
representative of the Employee nor the Company shall have any further rights or
obligations under this Agreement.
6.2 Disability. If during the Term the Employee shall become
incapacitated by reason of physical or mental disability and shall be unable to
perform his normal duties hereunder for a cumulative period of six (6) months in
any period of twelve (12) consecutive months, the employment of the Employee
hereunder may be terminated by the Company or the Employee upon notice to the
other. In the event of such termination, the Company shall pay to the Employee
(a) the salary provided for in Section 3.1 accrued to the date of such
termination and not theretofore paid to the Employee and (b) any bonus payable
in accordance with the terms of the Executive Bonus Plan. Rights and benefits of
the Employee (a) with respect to the Options or the Bonus Options shall be
determined in accordance with Section 3.3(b) or the Executive Bonus Plan, as
applicable and (b) under the benefit plans and programs of the Company shall be
determined in accordance with the provisions of such plans and programs. Neither
the Employee nor the Company shall have any further rights or obligations under
this Agreement, except as provided in Sections 7, 8 and 10.
6.3 Due Cause. The employment of the Employee hereunder may be
terminated by the Company at any time during the Term for Due Cause (as
hereinafter defined). In the event of such termination, the Company shall pay to
the Employee the salary provided for in Section 3.1 accrued to the date of such
termination and not theretofore paid to the Employee and no bonus. Rights and
benefits of the Employee (a) with respect to the Options or the Bonus Options
shall be determined in accordance with Section 3.3(b) or the Executive Bonus
Plan, as applicable and (b) under the benefit plans and programs of the Company
shall be determined in accordance with the provisions of such plans and
programs. After the satisfaction of any claim of the Company against the
Employee incidental to such Due Cause, neither the Employee nor the Company
shall have any further rights or obligations under this Agreement, except as
provided in Sections 7, 8 and 10. For purposes hereof, "Due Cause" shall mean
(a) the Employee's gross negligence or willful misconduct in bad faith in the
discharge of his duties and responsibilities to Norton, the Company and any of
their respective parent, subsidiary or affiliate corporations (collectively, the
"Norton Group"), as determined by the Board of Directors of the Company, (b) the
Employee's material and repeated failure to obey appropriate directions from the
Chief Executive Officer or Chief Operating Officer of the Company, (c) any
willful or purposeful act or omission of the Employee taken or omitted in bad
faith and intended to materially injure, and which had the effect of materially
injuring, the business or business relationships of any member of the Norton
Group or (d) the Employee's conviction or other adjudication of (1) a felony or
(2) any crime or offense involving fraud; provided, however, that the Employee
shall be given written notice by a majority of the Board of Directors of the
Company that it intends to terminate the Employee's employment for Due Cause
under this Section, which written notice shall specify the act or acts upon the
basis of which the majority of the Board of Directors of the Company intends so
to terminate the Employee's employment, and the Employee shall then be given the
opportunity, within fifteen (15) days of his receipt
<PAGE> 4
58
of such notice, to have a meeting with the Board of Directors of the Company to
discuss such act or acts.
6.4 Other Termination by the Company. The Company may terminate
the Employee's employment at any time during the Term for whatever reason it
deems appropriate or without reason; provided, however, that in the event that
such termination is not pursuant to Section 6.1, 6.2 or 6.3, the Company shall
(a) continue to pay to the Employee the salary provided for in Section 3.1 for
the remainder of the then-current Term and for one year thereafter and (b) pay
to the Employee any bonus payable in accordance with the terms of the Executive
Bonus Plan. The Employee shall not be required to seek subsequent employment;
provided, however, that if the Employee obtains subsequent employment, the
Employee shall inform the Company that he obtained such employment, and the
Company shall offset any amounts earned from such subsequent employment (whether
as an employee, a consultant or otherwise) against such salary continuation by
the Company which becomes payable after the date the Employee obtains subsequent
employment. If, upon expiration of the Term, the Company shall fail to offer
employment to the Employee in the same position and with the same salary then in
effect under Section 3.1 and participation in the Executive Bonus Plan on the
same terms then in effect for an additional period of six (6) months pursuant to
Section 1.2, the Company shall continue to pay to the Employee the salary then
in effect under Section 3.1 for six (6) months from the date of expiration of
the Term. Rights and benefits of the Employee (a) with respect to the Options or
the Bonus Options shall be determined in accordance with Section 3.3(b) or the
Executive Bonus Plan, as applicable and (b) under the benefit plans and programs
of the Company shall be determined in accordance with the provisions of such
plans and programs. Neither the Employee nor the Company shall have any further
rights or obligations under this Agreement, except as provided in Sections 7, 8
and 10. Any termination of this Agreement by the Company after the date hereof
and prior to the Closing Date shall be treated as a termination of employment
pursuant to this Section 6.4 as of the day following the Closing Date, provided
that the Closing (as defined in the Purchase Agreement) shall have occurred.
6.5 Termination by the Employee with Good Reason. The Employee may
at any time terminate his employment with the Company with Good Reason (as
hereinafter defined) and may treat such as a termination of employment pursuant
to and with the effects set forth in Section 6.4. For purposes hereof, Good
Reason shall mean (i) the continued breach by the Company of a material
provision of this Agreement for a period of 30 days after written notice of such
breach by the Employee to the Company or (ii) a material and adverse diminution
in the Employee's title or scope of duties as set forth in Section 2, which
diminution shall continue for a period of 30 days after written notice thereof
by the Employee to the Company.
6.6 Termination by the Employee without Good Reason. The Employee
may at any time upon at least 120 days prior written notice to the Company
terminate his employment with the Company without Good Reason. Such termination
shall be treated as a termination of employment pursuant to, including with the
effects set forth in, Section 6.3; provided, however, that the Company hereby
waives any claim it may have against the Employee incidental to the Employee's
termination of his employment pursuant to this Section 6.6.
<PAGE> 5
59
7. Confidential Information.
7.1 The Employee shall, during the Term and at all times
thereafter, treat as confidential and, except as required in the performance of
his duties and responsibilities under this Agreement, not disclose, publish or
otherwise make available to the public or to any individual, firm or corporation
any confidential material (as hereinafter defined), except, on a need to know
basis, to the Employee's attorney, accountant or personal advisor. The Employee
agrees that all confidential material, together with all notes and records of
the Employee relating thereto, and all copies or facsimiles thereof in the
possession of the Employee, are the exclusive property of the Company and the
Employee agrees to return such material to the Company promptly upon the
termination of the Employee's employment with the Company.
7.2 For the purposes hereof, the term "confidential material"
shall mean all information acquired by the Employee in the course of the
Employee's prior employment with Miss Erika and in the course of the Employee's
employment with the Company in any way concerning the products, projects,
activities, business or affairs of the Company or any member of the Norton Group
or the customers, suppliers or agents of the Company or any member of the Norton
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 Norton Group and/or any improvements therein, all sales and
financial information concerning the Company or any member of the Norton 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 Norton Group which
is furnished to the Employee 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 or the apparel industry in general other than
as a result of a disclosure by the Employee, (b) was available to the Employee
on a non-confidential basis prior to his employment with the Company or (c)
becomes available to the Employee 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 the Employee has no knowledge that
such source is not bound by a confidentiality agreement with the Company or any
of such agents or customers.
8. Inventions. Any and all inventions, innovations or improvements
("inventions") made, developed or created by the Employee (whether at the
request or suggestion of the Company or otherwise, whether alone or in
conjunction with others, and whether during regular hours of work or otherwise)
during the period of his employment with the Company which may be directly or
indirectly useful in, or relate to, the business of the Company, shall be
promptly and fully disclosed by the Employee to the Board of Directors of the
Company and shall be the Company's exclusive property as against the Employee,
and the Employee shall promptly deliver to an appropriate representative of the
Company as designated by the Board of Directors all papers, drawings, models,
data and other material relating to any inventions made, developed or created by
him as aforesaid. The Employee shall, at the request of the Company and without
any payment therefor, execute any documents necessary or advisable in the
opinion of the Company's counsel to direct issuance of patents or copyrights to
the Company with respect to such inventions as are to be the Company's exclusive
property as against the Employee or to vest in the Company title to such
inventions as against the Employee. The expense of securing any such patent or
copyright shall be borne by the Company.
9. Equitable Relief, Etc.
9.1 In the event of a breach or threatened breach by the Employee
of any of the provisions of Sections 7 or 8, the Employee hereby consents and
agrees that the Company shall be entitled to an injunction or similar equitable
relief from any court of competent jurisdiction restraining the Employee from
committing or continuing any such breach or threatened breach or granting
specific performance of any act required to be performed by the Employee 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. Nothing herein shall be construed as
prohibiting the Company from pursuing any other remedies at law or in equity
which it may have with
<PAGE> 6
60
respect to any such breach or threatened breach.
9.2 The Company and the Employee understand and agree that in any
lawsuit or other proceeding between any of them with respect to Sections 7 or 8
hereof, the prevailing party in such lawsuit or proceeding shall be entitled to
recover from the other party in such lawsuit or proceeding, and such other party
hereby agrees to pay such prevailing party, for all costs and expenses,
including attorneys' fees, incurred by such prevailing party in the defense,
prosecution or investigation of the matters which are the subject of such
lawsuit or proceeding.
<PAGE> 7
61
10. Successors and Assigns.
10.1 Assignment by the Company. The Company shall require any
successors (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform if no such
succession had taken place. As used in this Section, the "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law and this Agreement shall be
binding upon, and inure to the benefit of, the Company, as so defined.
10.2 Assignment by the Employee. The Employee 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 (other than the Employee if he is a member
of such Board at the time); provided, however, that nothing herein shall
preclude one or more beneficiaries of the Employee from receiving any amount
that may be payable following the occurrence of his legal incompetency or his
death and shall not preclude the legal representative of his estate from
receiving such amount 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 intestacy applicable to his
estate. The term "beneficiaries", as used in this Agreement, shall mean a
beneficiary or beneficiaries so designated to receive any such amount or, if no
beneficiary has been so designated, the legal representative of the Employee (in
the event of his incompetency) or the Employee's estate.
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. This Agreement supersedes all understandings and
agreements, whether oral or in writing, if any, previously entered into by the
Company with the Employee in any way relating to the employment of the Employee
by the Company, including without limitation, the Purchase Agreement, all of
which agreements and understandings are hereby terminated and all rights and
entitlements thereunder are hereby waived and released.
13. Amendment, Modification, Waiver. No provision of this
Agreement may be amended or modified unless such amendment or modification is
agreed to in writing and signed by the Employee and by a representative of the
Company (other than the Employee) who have been duly authorized by the Board of
Directors of the Company to do so (other than the Employee if he is a member of
such Board at the time). Except as otherwise specifically provided in this
Agreement, no waiver by either party hereto of any breach by the other party
hereto of any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of a similar or dissimilar provision or
condition at the same or any prior or subsequent time, nor shall the failure of
or delay by either party hereto in exercising any right, power or privilege
hereunder operate as a waiver thereof to preclude any other or further exercise
thereof or the exercise of any other such right, power or privilege.
14. Notices. Any notice to be given hereunder shall be in writing
and delivered personally or sent by certified mail, postage prepaid, return
receipt requested, addressed to the party concerned at the address indicated
below or at such other address as such party may subsequently designate by like
notice:
If to the Company:
c/o Norton McNaughton, Inc.
463 Seventh Avenue
New York, New York 10018
Attention: Chief Executive Officer
<PAGE> 8
62
If to the Employee:
Samuel Glaser
98 Cooper Avenue
Montclair, New Jersey 07043
15. Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or any breach thereof, shall, except as provided in
Section 9, be settled by binding arbitration in accordance with the rules of the
American Arbitration Association then in effect and judgment upon such award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitration shall be held in New York, New York. The arbitration
award shall include an award of attorneys' fees and costs to the prevailing
party as determined by the arbitrator.
16. Severability. Should any provision of this Agreement be held
by a court or arbitration panel 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 or arbitration panel 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 or arbitration panel 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.
17. Authority. The Company represents and warrants to the Employee
that the execution and delivery of this Agreement by the Company and the
performance by the Company of its covenants and agreements hereunder have been
duly authorized by all necessary corporate action and that this Agreement has
been duly executed and delivered on behalf of the Company.
18. Withholding. Anything to the contrary notwithstanding, all
payments required to be made by the Company hereunder to the Employee or his
beneficiaries, including his estate, shall be subject to withholding of such
amounts relating to taxes as the Company may reasonably determine it should
withhold pursuant to any applicable law or regulation. In lieu of withholding
such amounts, in whole or in part, the Company, may, in its sole discretion,
accept other provision for payment of taxes as permitted by law, provided it is
satisfied in its sole discretion that all requirements of law affecting its
responsibilities to withhold such taxes have been satisfied.
19. Subsidiaries, etc. The Employee shall be deemed to resign as
an officer and director of the Company or of any parent, subsidiary or affiliate
of the Company upon termination of his employment with the Company for any or no
reason.
20. Survivorship. The respective rights and obligations of the
Employee and the Company hereunder shall survive any termination of this
Agreement to the extent necessary to the intended preservation of such rights
and obligations.
21. 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.
22. Counterparts. This Agreement may be executed in two or more
counterpart copies, each of which shall be deemed to be an original and all of
which taken together shall be deemed one document.
<PAGE> 9
63
* * *
<PAGE> 10
64
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
ME ACQUISITION CORP.
By: /s/ Sanford Greenberg
-------------------------
Title: Chairman of the Board
EMPLOYEE:
/s/ Samuel Glaser
-----------------
Samuel Glaser
<PAGE> 11
65
Norton McNaughton, Inc.
463 Seventh Avenue
New York, NY 10018
212-947-2960
<PAGE> 1
EXHIBIT 99
FOR: Norton McNaughton, Inc.
APPROVED BY: Peter Boneparth
Chief Operating Officer
Amanda Bokman
Chief Financial Officer
(212) 947-2960
FOR IMMEDIATE RELEASE
CONTACT: Investor Relations:
Howard Zar/Shannon Moody
Press: Michael McMullan
Morgen-Walke Associates
(212) 850-5600
NORTON MCNAUGHTON, INC. COMPLETES ACQUISITION OF MISS ERIKA, INC.
New York, New York, October 1, 1997 - Norton McNaughton, Inc.
(Nasdaq:NRTY) today announced that it has completed the acquisition of Miss
Erika, Inc., acquiring substantially all the assets and assuming substantially
all the liabilities of the privately-held manufacturer of women's moderate
apparel. Miss Erika recorded sales of approximately $90 million for fiscal year
ended January 31, 1997.
The terms of the transaction provided for the payment of approximately
$24 million in cash, with additional consideration payable at the Company's
option in cash or Company common stock based on the profitability of Miss Erika
in fiscal years 1998 and 1999.
In connection with the acquisition, the Company has entered into a $140
million secured term loan and revolving credit facility with NationsBank
Commercial Corporation and The CIT Group/Commercial Services, Inc. The proceeds
will be used to finance the acquisition and for ongoing working capital
requirements of the combined entity. Pursuant to the new financing arrangement,
the Company will continue to factor its accounts receivable, as well as the
accounts receivable of Miss Erika.
Peter Boneparth, President and Chief Operating Officer of Norton
McNaughton, commented, "This transaction highlights our strategy of acquiring
companies that are accretive to earnings, have strong management teams in place,
and broaden our existing channels of distribution. We look forward to realizing
Miss Erika's potential as we continue to service the moderate customer."
- more -
<PAGE> 2
NORTON MCNAUGHTON, INC. COMPLETES ACQUISITION OF MISS ERIKA, INC.
PAGE: 2
Miss Erika will operate as a separate subsidiary under the direction of
Stuart Bregman, Chairman and Chief Executive Officer of Miss Erika, as well as
Howard Zwilling, President and Chief Operating Officer of Miss Erika. Mr.
Bregman will also serve as a member of Norton McNaughton's Board of Directors.
The Company noted that, following the closing of the transaction, it
will take several planned steps to focus its efforts on improving profitability.
First, the Company will focus its efforts on its largest brand groups, including
the Norton McNaughton(R) line of career-oriented related separates, the Norton
Studio(R) collection of knit-based apparel and the product offerings under the
Erika(R) label. The Company will discontinue production of its Modiano(R) and
Lauren Alexandra(R) lines, close its catalog division and liquidate inventory
from the previously announced closure of its Norty's retail stores. The Company
estimates that the impact on revenues resulting from the discontinuation of
these operations will be approximately $12 million on an annual basis.
Additionally, the Company anticipates terminating its exclusive domestic piece
goods cutting contract, reflecting an ongoing planned shift of the majority of
the Company's production business to off-shore facilities. As a result of these
initiatives, the Company expects to incur a one-time charge of approximately $5
million, or $0.40 per share on an after tax basis, during its fourth fiscal
quarter ending November 1, 1997.
Mr. Boneparth concluded, "After careful evaluation of the profit
contribution from our operating units, we chose to focus our efforts on the
largest and most profitable divisions and the future drivers of Norton
McNaughton's growth. We are optimistic that these recent initiatives will help
streamline operations and improve profitability going forward."
Norton McNaughton, Inc. designs, contracts for the manufacture of and
markets a broad line of brand name, moderately priced women's career and casual
clothing. The Company's product lines include collections of related separates
coordinated by color and style, as well as casual weekend wear and related
knitwear separates. Founded in 1981, the Company markets its products under its
nationally known labels, including Norton McNaughton(R), Norton Studio(R) and
Erika(R), through its subsidiary Miss Erika, Inc.
This press release contains forward-looking information about the
Company's anticipated operating results, including following the acquisition of
Miss Erika. The Company's ability, including following the acquisition of Miss
Erika, to achieve its
<PAGE> 3
projected results is dependent on many factors which are outside of management's
control. Some of the most significant factors, including following the
acquisition of Miss Erika, would be a further deterioration in retailing
conditions for women's apparel, a further increase in price pressures and other
competitive factors, any of which could result in an unanticipated decrease in
gross profit margins, unanticipated problems arising with Miss Erika's business
or the integration of Miss Erika's business with that of the Company, the
unanticipated loss of a major customer, the unanticipated loss of a major
contractor or supplier, and weather conditions which could impact retail traffic
and the Company's ability, including following the acquisition of Miss Erika, to
ship on a timely basis. Accordingly, there can be no assurance that the Company,
including following the acquisition of Miss Erika, will achieve its anticipated
operating results.
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