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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) August 4, 1999
----------------------
McNAUGHTON APPAREL GROUP 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
<PAGE>
Item 5. Other Events
Early Extinguishment of Portion of Miss Erika, Inc. Earn-Out
In September 1997, McNaughton Apparel Group Inc. (the "Company") acquired Miss
Erika, Inc. ("Miss Erika"), a New York-based apparel manufacturer of moderate
women's casual separates, for an initial purchase price of $24.0 million. In
connection with the Company's acquisition of Miss Erika, the Company is required
to pay an additional contingent payment in cash and/or the Company's common
stock in the event that certain earnings targets are achieved by Miss Erika for
the two fiscal years ending November 6, 1999. The aggregate contingent payment
payable by the Company is equal to the amount by which four times the average of
Miss Erika's earnings before interest expense, income taxes, depreciation and
amortization, as defined in the Miss Erika purchase agreement, for the two
fiscal years ending November 6, 1999, exceeds $24.0 million. At the Company's
discretion, the Company may, subject to a maximum number of shares, pay all or
any portion of such contingent payment in shares of common stock. The Miss
Erika purchase agreement limits the number of shares of common stock payable by
the Company to a number of shares which, after giving effect to their issuance,
does not exceed 12% of the aggregate number of outstanding shares of common
stock at the time of payment. The Company is required to make the contingent
payment in February 2000.
On August 4, 1999, the Company retired 64.3% of the earn-out obligation payable
to the sellers of Miss Erika for $10.0 million in cash. The portion of the earn-
out obligation which was retired was owned by two investment funds and their
affiliates who were interested in monetizing their portion of the contingent
earn-out payment due to closure of the funds in which these investments were
held. In connection with such retirement, the parties agreed: (a) the payment
had to be all cash, therefore the Company would forego its ability to pay a
portion of the payment in stock, and (b) the payment had to be made no later
than August 6, 1999. The remaining earn-out obligation, representing 35.7%,
continues to be governed by the original earn-out provisions. This remaining
interest is held substantially by members of the current Miss Erika management
team, none of whom desired to exercise the option of receiving a potentially
discounted early payment of the contingent earn-out.
In order to effectuate the transaction, the Company was required to amend the
Miss Erika purchase agreement dated as of August 29, 1997, the Indenture dated
as of June 18, 1998 (the "Indenture") and the Amended and Restated Financing
Agreement dated as of June 18, 1998, as amended (the "Financing Agreement").
On August 3, 1999, the Company executed the Amendment to the Miss Erika purchase
agreement to provide for the early extinguishment of 64.3% of the earn-out
obligation payable to the sellers of Miss Erika for $10.0 million in cash.
On August 3, 1999, the Company executed the First Supplemental Indenture, which
amended the Indenture to provide for, among other matters, the early
extinguishment of a portion
<PAGE>
of the outstanding earn-out obligation payable to certain of the sellers of Miss
Erika and to restrict the amount of cash that may be paid with respect to the
Company's earn-out obligation incurred in connection with its acquisition of
Jeri-Jo Knitwear, Inc.
On July 29, 1999, the Company executed the Fourth Amendment to Amended and
Restated Financing Agreement, to amend the Financing Agreement to permit the
Company, among other matters, to make the early payment of the Miss Erika earn-
out obligation and to settle the Company's lawsuit with Railroad Enterprises,
Inc. ("Railroad") and Cutting Edge Services, Inc. ("Cutting Edge") in the manner
described below.
Agreement with Railroad Enterprises, Inc. and Cutting Edge Services, Inc. and
Settlement of Litigation
On August 9, 1999, the Company and Norton McNaughton of Squire, Inc ("Squire")
settled the lawsuit commenced against them by Railroad Enterprises, Inc.,
Squire's finished goods distribution contractor, and Cutting Edge Services,
Inc., Squire's domestic cutting contractor.
As part of the agreement that settled the lawsuit, Squire purchased certain
assets of Railroad and Cutting Edge, including fixed assets, machinery and
equipment at their facilities, and Railroad's and Cutting Edge's rights under
their existing agreements with Squire. The purchase price was $5.5 million
payable as follows: $3.0 million at closing; thereafter, $108,333.33 per month,
payable at month-end from July 31, 1999 through March 31, 2000, and $508,333.33
per month payable at month-end from April 30, 2000 through May 31, 2000,
$408,333.33 payable on June 30, 2000, and $100,000 payable on December 31, 2000.
As part of the same agreement, Squire's existing long-term agreements with
Railroad and Cutting Edge were terminated. Squire has no further obligation to
use Cutting Edge for its domestic cutting requirements. Railroad has agreed to
manage the assets Squire purchased, to continue performing all receiving,
warehousing and distribution services from Railroad's New Jersey facilities
until Squire relocates such operations to South Carolina in the summer of 2000,
and to bear all of the costs in connection therewith. Squire will receive a
significant reduction in the warehousing and distribution rates charged by
Railroad through June 2000. Squire has also retained Railroad to provide
consulting services relating to the relocation of its warehouse and distribution
facilities to South Carolina for a fee of $500,000 payable on a monthly basis
over a one-year period.
In addition, as part of the same transaction, Cutting Edge and Railroad have
agreed to obtain releases from their landlords of Squire's limited guarantees of
Cutting Edge's and Railroad's warehouse leases. The purchase price will be
reduced by the amount potentially due under the guarantees, which totals
approximately $800,000, to the extent that those releases are not obtained.
Squire's East Rutherford, New Jersey piece goods warehouse sublease from Cutting
Edge will terminate no later than December 31, 1999, and Squire will have no
further obligations thereunder.
Reference is made to the press releases issued on August 6, 1999 and August 11,
1999, attached hereto as Exhibit 99.1 and Exhibit 99.2, respectively, and
incorporated herein by reference.
3
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(c) Exhibit Index
2.1 Amendment to Agreement of Purchase and Sale dated as of June 30, 1999 to
the Agreement of Purchase and Sale dated as of August 29, 1997 by and
among Miss Erika, Inc., a Delaware corporation now known as Old ME Corp.,
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 II, L.P., a Delaware
limited partnership, Stuart Bregman, Howard Zwilling, Sidney Goldstein,
Christian Baillet, ME Acquisition Corp., a Delaware corporation now known
as Miss Erika, Inc., and Norton McNaughton, Inc., a Delaware corporation
now known as McNaughton Apparel Group Inc. 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.
2.2 Amendment dated as of June 17, 1999 to Agreement of Purchase and Sale
dated as of April 15, 1998 by and among JJ Acquisition Corp., a Delaware
corporation now known as Jeri-Jo Knitwear, Inc., Norton McNaughton, Inc.,
a Delaware corporation now known as McNaughton Apparel Group Inc., Jeri-
Jo Knitwear, Inc. a New York corporation now known as JJK II, Inc., Jamie
Scott, Inc., a New York corporation now known as JJK III, Inc. and the
stockholders of Jamie Scott, Inc.
4.1 First Supplemental Indenture dated as of August 3, 1999 by and between
McNaughton Apparel Group Inc., a Delaware corporation . formerly known as
Norton McNaughton, Inc., Norton McNaughton of Squire, Inc., a New York
corporation, Miss Erika, Inc., a Delaware corporation, Jeri-Jo Knitwear,
Inc., a Delaware corporation formerly known as JJ Acquisition Corp.,
Norty's, Inc., a Delaware corporation, and United States Trust Company of
New York, a New York banking corporation, as Trustee.
10.1 Fourth Amendment dated as of July 29, 1999 to Amended and Restated
Financing Agreement dated as of June 18, 1999, as amended (the "Financing
Agreement") by and among McNaughton Apparel Group Inc., a Delaware
corporation formerly known as Norton McNaughton, Inc., Norton McNaughton
of Squire, Inc., a New York corporation, Miss Erika, Inc., a Delaware
corporation, Jeri-Jo Knitwear, Inc., a Delaware corporation formerly
known as JJ Acquisition Corp., the Lenders form time to time party
thereto, NationsBanc Commercial Corporation, as Collateral Agent for the
Lenders , The CIT Group/Commercial Services, Inc., as Administrative
Agent for the Lenders and Fleet Bank N.A., as Documentation Agent for the
Lenders.
10.2 Guarantor Security Agreement dated as of July 29, 1999 by McNaughton
Apparel Holdings Inc., a South Carolina corporation, in favor of
NationsBanc Commercial Corporation, as Collateral Agent under the
Financing Agreement.
4
<PAGE>
10.3 Subsidiary Guaranty dated as of July 29, 1999 by McNaughton Apparel
Holdings Inc., a South Carolina corporation, in favor of each of the
Lenders from time to time party to the Financing Agreement and
NationsBanc Commercial Corporation, as Collateral Agent under the
Financing Agreement.
10.4 Agreement dated as of July 5, 1999 by and among Norton McNaughton of
Squire, Inc., a New York corporation, Railroad Enterprises, Inc. a New
Jersey corporation, and Cutting Edge Services, Inc., a New Jersey
corporation.
99.1 Press Release dated August 5, 1999.
99.2 Press Release dated August 11, 1999.
5
<PAGE>
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.
McNAUGHTON APAREL GROUP INC.
----------------------------
(Registrant)
Date: August 12, 1999 By:/s/ Peter Boneparth
-------------------------------
Peter Boneparth
Chief Executive Officer and Chief
Operating Officer
(Principal Executive and Operating
Officer)
6
<PAGE>
EXHIBIT 2.1
AMENDMENT TO
AGREEMENT OF PURCHASE AND SALE
THIS AMENDMENT made as of June 30, 1999 (this "Amendment") to that
certain Agreement of Purchase and Sale made as of the 29th day of August, 1997,
as amended, (the "Original Agreement") 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, TCR International Partners
L.P., a Delaware limited partnership, Triumph Capital II, L.P., a Delaware
limited partnership, Stuart Bregman, Howard Zwilling, Sidney Goldstein,
Christian Baillet, ME Acquisition Corp. (now known as Miss Erika, Inc.), a
Delaware corporation, and Norton McNaughton, Inc. (now known as McNaughton
Apparel Group Inc.), a Delaware corporation. Capitalized terms used herein and
not otherwise herein, shall have the meanings assigned to such terms in the
Original Agreement.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the parties hereto are parties to the Original Agreement;
WHEREAS, the Company has been liquidated and in connection with such
liquidation the Company has assigned its rights under the Original Agreement to
a Liquidating Trust, established pursuant to an Agreement dated as of August 31,
1998, with Michael E. Nugent, as Trustee (the "Trust"), which assignment was
affected in accordance with the terms of Section 13.10 of the Original
Agreement, including without limitation, in accordance with the condition set
forth in such Section regarding Norton's right, which right has been exercised,
to require up to 50% of the portion of the Earn Out Payment payable to each of
the Management Stockholders and to Sidney Goldstein to be paid in shares of
Norton Common Stock;
WHEREAS, the Stockholders agree that the entitlement to the Earn Out
Payment on the Closing Date under the Original Agreement was as set forth on
Schedule I hereto;
WHEREAS, those Persons designated as Group A Stockholders
(collectively, the "Group A Stockholders") and the Group B Stockholder (the
"Group B Stockholder") on Schedule I hereto have determined to accept an early
and discounted pay out of the Earn Out Payment under the Original Agreement, all
in accordance with the terms and conditions of this Amendment, and all in
complete and full satisfaction of the Purchaser's and Norton's obligations under
the Original Agreement to make any Earn Out Payment to the Company (or the
Trust) in respect of the Group A Stockholders and the Group B Stockholder and/or
directly to the Group A Stockholders and the Group B Stockholder;
WHEREAS, the parties hereto agree that, but for this Amendment, the
aggregate percentage of the Earn Out Payment to which the Trust (as the
successor to the Company) would be entitled under the Original Agreement on
behalf of the Group A Stockholders and the Group B Stockholder is 64.338% and,
accordingly, that the aggregate percentage of the Earn Out Payment to which the
Trust (as the successor to the Company) will be entitled under the Original
<PAGE>
2
Agreement on behalf of the remaining Stockholders (after giving effect to this
Amendment) is 35.662%; and
WHEREAS, the parties hereto desire to amend the Original Agreement as
set forth herein.
NOW THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein and intending to be legally bound, the
parties hereto hereby agree as follows:
1. The parties hereto agree with and to the recitals set forth
herein.
2. Each of the Group A Stockholders agrees that upon payment by the
Purchaser of (i) $5,000,000, if paid after the date hereof and on or before the
close of business on August 6, 1999 or (ii) $5,250,000, if paid after the close
of business on August 6, 1999 and on or before the close of business on August
31, 1999, in either case, by bank wire transfer as set forth on Exhibit A
hereto, the Purchaser and Norton shall have fully and completely satisfied and
discharged any and all obligations under the Original Agreement to pay the Earn
Out Payment to the Company or the Trust (as the successor to the Company) in
respect of the Group A Stockholders (and each of them) and/or directly to the
Group A Stockholders (and each of them) under Section 2.02 of the Original
Agreement or otherwise.
3. The Group B Stockholder agrees that upon payment of $5,000,000 by
bank wire transfer as set forth on Exhibit B hereto, by the Purchaser, the
Purchaser and Norton shall have fully and completely satisfied and discharged
any and all obligations under the Original Agreement to pay the Earn Out Payment
to the Company or the Trust (as successor to the Company) in respect of the
Group B Stockholder and/or directly to the Group B Stockholder under Section
2.02 of the Original Agreement or otherwise.
4. The definition of "Earn Out Payment" set forth in Section 14.01 of
the Original Agreement is hereby amended to read in its entirety as follows:
"Earn Out Payment" shall mean an aggregate amount determined by
multiplying (1) 35.662% by (2) the amount by which (x) the product
of (a) four (4) multiplied by (b) the 1998/1999 EBITDA exceeds (y)
$24,000,000." The reference to "12%" in the definition of "Stock
Earn Out Cap" set forth in Section 14.01 of the Original Agreement
is hereby amended to be a reference to "2.822%."
5. The parties hereto agree that the Earn Out Payment (after giving
effect to the provisions set forth in Sections 1 through 5 of this Amendment)
payable under Section 2.02 of the Original Agreement shall be payable to the
Trust in accordance with the terms and conditions of Section 2.02 of the
Original Agreement and, upon such payment, the Purchaser and Norton shall have
fully and completely satisfied and discharged any and all obligations to pay the
Earn Out Payment under Section 2.02 of the Original Agreement or otherwise.
<PAGE>
3
6. The Stockholders Representative shall be Stuart Bregman.
7. The parties hereto agree that the references to the term
"Stockholders" and "Management Stockholders" contained in Sections 11.01(a),
11.01(b) and 11.02 shall, on the date of the Effectiveness Notice (as defined
below), be deemed not to include the Group A Stockholders (or any of them), the
Group B Stockholder, or except with respect to Section 11.02(a), Stuart Bregman,
Howard Zwilling or Sidney Goldstein.
8. Notwithstanding anything to the contrary contained herein, the
parties hereto understand and agree that the terms and provision of the
Amendment shall become effective only upon delivery to the Stockholders
Representative on or prior to August 31, 1999 of a notice (the "Effectiveness
Notice") from the Purchaser that the Purchaser and Norton have received consent
to this Amendment and the transactions contemplated hereby (in form and
substance satisfactory to the Purchaser and Norton in their sole discretion)
under (i) the Amended and Restated Financing Agreement dated as of June 18,
1998, as amended, by and among Norton McNaughton, Inc., Norton McNaughton of
Squire, Inc., Miss Erika, Inc., JJ Acquisition Corp., the Financial Institutions
from time to time party thereto, NationsBanc Commercial Corporation, as
Collateral Agent, The CIT Group/Commercial Services, Inc., as Administrative
Agent, and Fleet Bank NA, as Documentation Agent, and (ii) the Indenture dated
as of June 18, 1998, as amended, providing for Norton's $125,000,000 12 1/2%
Senior Notes Due 2005, among Norton McNaughton, Inc., the Subsidiary Guarantors
named therein, and United States Trust Company of New York, as Trustee. The
Purchaser shall make the payments contemplated by Sections 2 and 3 of this
Amendment on the first Business Day following the date of the Effectiveness
Notice. The Amendment shall terminate and have no force or effect if such
payments are not made on or before August 31, 1999.
9. Each of the Group A Stockholders and the Group B Stockholder 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 failure by
any of them to comply with and abide by their respective covenants and
agreements set forth in this Amendment.
10. The validity of this Amendment and of any of its terms or
conditions, as well as the rights and duties of the parties under this
Amendment, shall be construed pursuant to and in accordance with the laws of the
State of New York without regard to conflict of laws principles.
11. This Amendment may be signed in counterparts, including by
telecopy, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same Amendment.
12. Nothing hereby expressed or implied is intended or shall be
construed to confer upon any Persons other than the parties hereto any rights or
remedies under or by reason of this Amendment.
* * *
<PAGE>
4
IN WITNESS WHEREOF, this Amendment has been duly executed by the parties
hereto as of the date first above written.
LIQUIDATING TRUST pursuant to an Agreement dated as of
August 31, 1998, Michael E. Nugent, as Trustee
By: /s/ Michael E. Nugent
-----------------------
Name: Michael E. Nugent
Title: Trustee
ME ACQUISITION CORP.(now known as
as Miss Erika, Inc.)
By: /s/ Peter Boneparth
---------------------
Name: Peter Boneparth
Title: Chief Executive Officer
NORTON MCNAUGHTON, INC. (now known
as McNaughton Apparel Group Inc.)
By: /s/ Peter Boneparth
---------------------
Name:
Title: Chief Executive Officer
TRIUMPH CAPITAL, L.P. II
By Triumph Management, L.P., its general partner
By: Michael E. Nugent
-------------------
Name:
Title: General Partner
TERBEM LIMITED
By: William R. Wright
-------------------
Name:
Title: Attorney-in-Fact
<PAGE>
5
BOBST INVESTMENT CORP.
By: William R. Wright
-------------------------
Name:
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
By: William R. Wright
-------------------------
Name:
Title: Partner
TCR INTERNATIONAL PARTNERS L.P.
By Three Cities Management Partners, L.P., its general
partner
By Three Cities Research, Inc., its general partner
By: William R. Wright
-------------------------
Name:
Title: Partner
/s/ Stuart Bregman
-------------------------
Stuart Bregman
<PAGE>
6
/s/ Howard Zwilling
---------------------------
Howard Zwilling
/s/ Sidney Goldstein
---------------------------
Sidney Goldstein
/s/ William R. Wright
---------------------------
Christian Baillet
By William R. Wright
Attorney-in-Fact
<PAGE>
EXHIBIT 2.2
Jeri-Jo Knitwear, Inc.
(formerly known as JJ Acquisition Corp.)
McNaughton Apparel Group Inc.
(formerly known as Norton McNaughton, Inc.)
463 Seventh Avenue
New York, New York 10018
June 17, 1999
Susan Schneider
Leslie Schneider
Scott Schneider
c/o Currants
1407 Broadway
Suite 2909
New York, New York 10018
Re: Amendment to Agreement of Purchase and Sale dated
as of April 15, 1998, as amended, (the "Agreement") by
and among JJ Acquisition Corp., Norton McNaughton,
Inc., Jeri-Jo Knitwear Inc., Jamie Scott, Inc. and
the Stockholders of Jamie Scott, Inc.
-------------------------------------------------------
Ladies and Gentlemen:
Reference is made to the Agreement; capitalized terms used herein and
not defined herein shall have the meanings assigned to such terms in the
Agreement. For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby amend the Agreement as
set forth herein.
1. The parties to the Agreement have agreed to amend the Certificate
attached as Exhibit B (the "Exhibit B Certificate") to the Earn Out Letter of
Credit delivered to the Stockholder Representative at the Closing (the "Closing
Earn Out Letter of Credit") and accordingly, the parties to the Agreement agree
that the Exhibit B Certificate to the Earn Out Letter of Credit shall be as set
forth on Exhibit I to this amendment (the "Replacement Exhibit B Certificate").
The Stockholders understand and agree that, in order to effectuate the
foregoing, an amendment to the Earn Out Letter of Credit (replacing the Exhibit
B Certificate with the Replacement Exhibit B Certificate, but otherwise leaving
the Closing Earn Out Letter of Credit unchanged) (the "Earn Out Letter of Credit
Amendment") is to be issued to the Stockholder Representative by NationsBank,
N.A. The Stockholders agree, simultaneously with the issuance and delivery to
the Stockholder Representative of the Earn Out Letter of Credit Amendment, to
deliver the Closing Earn Out Letter of Credit to the Purchaser, Norton or
NationsBank, N.A. in order to attach such amendment thereto. Following the
completion of the foregoing, the Closing Earn Out Letter of Credit, as amended
by the Earn Out Letter of Credit Amendment, shall, for all
<PAGE>
2
purposes of the Agreement, be deemed to be the "Earn Out Letter of Credit" under
the Agreement.
2. The second sentence of Section 5.01 of the Agreement is hereby
amended to add to the beginning thereof the following phrase:
"Except as disclosed in writing to the Stockholders and the
Companies, and"
3. The definition of "Earn Out Payment Date" set forth in Section
14.01 of the Agreement is hereby amended to read in its entirety as follows:
"Earn Out Payment Date" shall mean the date which is
60 days after the 2000 Month End Date or if an Acceleration Event
occurs, 60 days after the Acceleration Date, unless there is a
default in the timely delivery of (i) the applicable EBITDA Notice
and EBITDA Statement under Section 2.02(b)(i) and/or (ii) the
Accountants' Statement and Audited Statements under Section
2.02(b)(ii), in which case, the Earn Out Payment Date shall be
extended to a date which is 15 days after delivery of the last to
be delivered of the applicable EBITDA Notice, the EBITDA
Statement, the Accountants' Statement and the Audited Statements
to Norton and the Companies. In the event that the Earn Out
Payment Date is not a Business Day, the Earn Out Payment Date
shall be the next succeeding Business Day.
4. The Stockholders represent and warrant to Norton and the Purchaser
that JJK II, Inc. (formerly known as Jeri-Jo Knitwear, Inc.) and JJK III, Inc.
(formerly known as Jamie Scott, Inc.), heretofore parties to the Agreement, have
been liquidated and are no longer in existence. Accordingly, the Stockholders
agree that the execution of this amendment by the Companies is not necessary.
5. Except as amended hereby, the Agreement is ratified and confirmed
in all respects by the parties hereto. Nothing herein shall confer or be deemed
to confer any right, remedy, benefit or entitlement on any third-party. This
amendment shall be construed pursuant to and in accordance with the laws of the
State of New York, without regard to conflict of laws principles, and may be
executed in counterparts, including by telecopy, each of which shall be deemed
an original, all of which taken together shall constitute one and the same
amendment.
* * *
<PAGE>
3
Very truly yours,
MCNAUGHTON APPAREL GROUP INC.
JERI-JO KNITWEAR INC.
By /s/ Peter Boneparth
------------------------------
Name: Peter Boneparth
Agreed as of the date
above written:
/s/ Susan Schneider
-----------------------------------
Susan Schneider
/s/ Leslie Schneider
-----------------------------------
Leslie Schneider
/s/ Scott Schneider
-----------------------------------
Scott Schneider
<PAGE>
EXHIBIT 4.1
FIRST SUPPLEMENTAL INDENTURE dated as of the 3rd day of August, 1999,
between McNaughton Apparel Group Inc. (formerly known as Norton McNaughton,
Inc.), a Delaware corporation (the "Company"), and Norton McNaughton of Squire,
Inc., a New York corporation, Miss Erika, Inc., a Delaware corporation, Jeri-Jo
Knitwear, Inc. (formerly known as JJ Acquisition Corp.), a Delaware corporation,
and Norty's, Inc., a Delaware corporation (each a "Subsidiary Guarantor" and
collectively, the "Subsidiary Guarantors") and United States Trust Company of
New York, a New York banking corporation, as Trustee (the "Trustee").
The Company, the Subsidiary Guarantors and the Trustee have entered
into an Indenture dated as of June 18, 1998 (the "Indenture"), pursuant to which
the Company issued $125,000,000 aggregate principal amount of 12 1/2% Senior
Notes Due 2005 (the "Securities").
Section 9.2 of the Indenture provides that the Company, the Subsidiary
Guarantors and the Trustee may amend or supplement the Indenture with the
written consent of the Holder or Holders of at least a majority in aggregate
principal amount of the outstanding Securities.
All acts and things prescribed by the Indenture, by law and by the
Certificate of Incorporation and the bylaws of the Company, of the Subsidiary
Guarantors and of the Trustee necessary to make this First Supplemental
Indenture a valid instrument legally binding on the Company, the Subsidiary
Guarantors and the Trustee, in accordance with its terms, have been duly done
and performed.
The written consents to the amendments or supplements to the Indenture
have been obtained from not less than a majority of the Holders in the aggregate
principal amount of the outstanding Securities.
All conditions precedent to amend or supplement the Indenture have
been met.
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company, the Subsidiary Guarantors and the Trustee agree as
follows for the benefit of each other and for the equal and ratable benefit of
the Holders of the Securities (as each such term is defined in the Indenture).
<PAGE>
2
SECTION I
1.1 The definition of "Existing Cash Earn-out Obligation" set forth
in Section 1.1 of the Indenture is hereby amended to read in its entirety as
follows:
"Existing Cash Earn-out Obligation" means the amount of the Company's
and the applicable Subsidiary Guarantor's obligations to make an Earn-out
Payment in cash (i) under the Agreement of Purchase and Sale dated as of October
29, 1997, as amended, by and among the Company, Miss Erika, Inc., f/k/a ME
Acquisition Corp., Old ME Corp., f/k/a Miss Erika, Inc. and the stockholders of
Old Miss Erika Corp., after giving effect to the Amendment to the Agreement of
Purchase and Sale dated as of June 30, 1999, and (ii) under the Agreement of
Purchase and Sale dated as of April 15, 1998, as amended, by and among the
Company, JJ Acquisition Corp., Jeri-Jo Knitwear Inc., Jamie Scott, Inc., and the
stockholders of Jamie Scott, Inc. as in effect on the Closing Date (the "Jeri-Jo
Agreement"), provided that the amount that the Company and the applicable
Subsidiary Guarantor may pay in cash shall not exceed 75% of the Earn-out
Payment payable under the Jeri-Jo Agreement.
1.2 Section 1.2 The Indenture is hereby amended mutandis mutadis to
----------------
reflect the amendment of the definitional term set forth in the Indenture
pursuant to Section 1.1 hereof.
SECTION II
Section 4.4 (vi) of the Indenture is hereby amended to read in its
entirety as follows:
(vi) the payment of (1) any Existing Cash Earn-out Obligation; and (2)
any other Earn-out Payment in connection with the Miss Erika Acquisition
provided that the aggregate amount of such other Earn-out Payment does not
exceed $10.0 million in the aggregate and at the time of such other Earn-out
Payment it would be permitted under clause (b) of the preceding paragraph.
SECTION III
Except as amended and supplemented hereby, the Indenture is hereby
ratified and confirmed in all respects and shall remain in full force and
effect.
SECTION IV
This Supplemental Indenture shall be governed by and construed in
accordance with, the laws of the State of New York but without giving effect to
applicable principles of conflicts of law to the extent that the application of
the laws of another jurisdiction would be required thereby.
<PAGE>
3
SECTION V
The parties may sign any number of copies of this Supplemental
Indenture and may sign such in counterparts. Each signed counterpart copy shall
be an original, but all of them together represent the signed agreement. One
signed copy is enough to prove this Supplemental Indenture.
* * *
<PAGE>
4
IN WITNESS WHEREOF, the parties have caused this First Supplemental
Indenture to be duly executed as of the dated first above written.
MCNAUGHTON APPAREL GROUP INC.
By: /s/ Peter Boneparth
---------------------
Name: Peter Boneparth
Title: Chief Executive Officer
NORTON MCNAUGHTON OF SQUIRE, INC.
By: /s/ Peter Boneparth
---------------------
Name: Peter Boneparth
Title: Chief Executive Officer
MISS ERIKA, INC.
By: /s/ Peter Boneparth
---------------------
Name: Peter Boneparth
Title: Vice Chairman of the Board
JERI-JO KNITWEAR, INC.
By: /s/ Peter Boneparth
---------------------
Name: Peter Boneparth
Title: Vice Chairman of the Board
NORTY'S, INC.
By: /s/ Peter Boneparth
---------------------
Name: Peter Boneparth
Title: Chief Executive Officer
UNITED STATES TRUST COMPANY OF NEW YORK
By: /s/ Louis Young
-----------------
Name: Louis Young
Title: Vice President
<PAGE>
EXHIBIT 10.1
FOURTH AMENDMENT
TO
AMENDED AND RESTATED FINANCING AGREEMENT
Fourth Amendment, dated as of July 29, 1999 to the Amended and
Restated Financing Agreement, dated as of June 18, 1998, as amended through the
date hereof (the "Financing Agreement"), by and among McNaughton Apparel Group
Inc., a Delaware corporation, formerly known as Norton McNaughton, Inc. (the
"Company"), Norton McNaughton of Squire, Inc., a New York corporation
("Squire"), Miss Erika, Inc., a Delaware corporation ("Miss Erika"), Jeri-Jo
Knitwear, Inc., a Delaware corporation formerly known as JJ Acquisition Corp.
("Jeri-Jo" and together with Squire and Miss Erika, each a "Borrower" and
collectively, the "Borrowers"), the lenders party thereto (each a "Lender" and
collectively the "Lenders"), NationsBanc Commercial Corporation, as collateral
agent for the Lenders (in such capacity, the "Collateral Agent"), The CIT
Group/Commercial Services, Inc., as administrative agent for the Lenders (in
such capacity, the "Administrative Agent") and Fleet Bank NA, as documentation
agent for the Lenders (in such capacity, the "Documentation Agent" and together
with the Collateral Agent and the Administrative Agent, each an "Agent" and
collectively, the "Agents").
The Company and the Borrowers have advised the Lenders and the Agent
that (i) the Company has formed McNaughton Apparel Holdings Inc., a South
Carolina corporation and a wholly-owned Subsidiary of the Company, (ii) the
Company and Miss Erika propose to enter into the Amendment to Agreement of
Purchase and Sale dated as of June 30, 1999 (the "Miss Erika Amendment") by and
among Old ME Corp., 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 II, L.P., a Delaware limited
partnership, Stuart Bregman, Howard Zwilling, Sidney Goldstein, Christian
Baillet, Miss Erika and the Company, and (iii) the Company and Jeri-Jo have
entered into the Amendment to the Agreement of Purchase and Sale dated as of
June 17, 1999 (the "Jeri-Jo Amendment"), by and among Susan Schneider, Leslie
Schneider, Scott Schneider, Jeri-Jo and the Company.
The Company, the Borrowers, the Lenders and the Agents desire to amend
certain terms and conditions in the Financing Agreement as hereafter set forth.
Accordingly, the Company, the Borrowers, the Agents and the Lenders hereby agree
as follows:
1. Definitions. All capitalized terms used herein and not otherwise
-----------
defined herein are used herein as defined in the Financing Agreement.
<PAGE>
2. Amendments to Definitions. (a) The definition of the term "Miss
-------------------------
Erika Acquisition Agreement" in Section 1.01 of the Financing Agreement is
hereby amended in its entirety to read as follows:
"'Miss Erika Acquisition Agreement' means the Agreement of
--------------------------------
Purchase and Sale dated as of the 29th day of August, 1997, as
amended through September 25, 1997 by and among Old ME Corp.,
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 II, L.P., a Delaware limited partnership, Stuart
Bregman, Howard Zwilling, Sidney Goldstein, Christian Baillet,
Miss Erika and the Company, provided that, on and after the Miss
Erika Effective Date, Miss Erika Acquisition Agreement shall
include the Amendment to the Agreement of Purchase and Sale dated
as of June 30, 1999."
(b) The definition of the term "Jeri-Jo Purchase Agreement" in Section
1.01 of the Financing Agreement is hereby amended in its entirety to read as
follows:
"'Jeri-Jo Purchase Agreement' means the Agreement of Purchase and
--------------------------
Sale dated as of the 15th day of April, 1998, as amended through
June 18, 1998 and by the Amendment to the Agreement of Purchase
and Sale dated as of June 17, 1999, by and among Susan Schneider,
Leslie Schneider, Scott Schneider, Jeri-Jo and the Company."
(c) The definition of the term "Indenture" in Section 1.01 of the
Financing Agreement is hereby amended in its entirety to read as follows:
"'Indenture' means the Indenture, dated as of June 18, 1998 as
---------
supplemented by the second supplemental indenture entered into by
reason of the joinder of Apparel Holdings to the Indenture, among
the Company, the Borrowers, Norty's Inc., Apparel Holdings and
United States Trust Company of New York, as trustee, provided
that, on and after the Indenture Effective Date, Indenture shall
include the first supplemental indenture entered into by reason
of the Miss Erika Amendment (as defined in the Fourth Amendment)
and the limitation on the cash amount of the Jeri-Jo Earnout
Payment."
(d) Section 1.01 of the Financing Agreement is hereby amended by
adding the following new defined terms, in the correct alphabetical order
thereof, each of which shall read in its entirety as follows:
2
<PAGE>
"'Apparel Holdings' means McNaughton Apparel Holdings Inc., a
----------------
South Carolina corporation and a wholly-owned Subsidiary of the
Company."
"'Consent Solicitation' means the revised consent solicitation
--------------------
statement dated July 20, 1999.
"'Fourth Amendment' means the Fourth Amendment to the Agreement
----------------
dated as of July 29, 1999 by and among the Company, the
Borrowers, the Lenders, the Collateral Agent, the Administration
Agent and the Documentation Agent."
"'Indenture Effective Date' means the date on which the Agents
------------------------
shall have received a fully executed copy of the first supplement
to the Indenture referred to in Section 8(d)(ii) hereof the terms
of which shall be consistent with those set forth in the Consent
Solicitation or otherwise in form and substance reasonably
satisfactory to the Required Lenders."
"'Miss Erika Effective Date' means the date on which the Agents
-------------------------
shall have received a fully executed copy of the Miss Erika
Amendment the terms of which shall be consistent with those set
forth in the Consent Solicitation or otherwise in form and
substance reasonably satisfactory to the Required Lenders.
"'Railroad Effective Date' means the date on which the Agents
-----------------------
shall have received a fully executed copy of the Railroad
Enterprises Agreement the terms of which shall be consistent with
those set forth in the July 6, 1996 memorandum from Amanda J.
Bokman of the Company to the Lenders or otherwise in form and
substance reasonably satisfactory to the Required Lenders."
"'Railroad Enterprises Agreement' means the Agreement by and
------------------------------
among Squire, Railroad Enterprises, Inc. and Cutting Edge
Services, Inc."
"'Railroad Enterprises Assets' has the meaning specified for the
---------------------------
term "Assets" in the Railroad Enterprises Agreement."
"'Railroad Enterprises Purchase' means the purchase by Squire of
-----------------------------
the Railroad Enterprises Assets from Railroad Enterprises, Inc.
and Cutting Edge Services, Inc. pursuant to the Railroad
Enterprise Agreement."
3. Key Man Life Insurance. The second sentence of Section 7.01(k)
----------------------
of the Financing Agreement is hereby amended in its entirety to read as follows:
3
<PAGE>
"Maintain at all times such key man or other life insurance
policies on the lives of Peter Boneparth, Howard Zwilling and
Susan Schneider 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 $3,000,000, $1,500,000
and $1,500,000, respectively, together with an assignment of such
life insurance policies to the Collateral Agent for the benefit
of the Lenders."
4. Liens. Section 7.02(a) of the Financing Agreement is hereby
-----
amended to (a) delete the word "and" at the end of clause (x) thereof, (b)
delete the period at the end of clause (xi) thereof and replace it with "; and"
and (c) add a new clause (xii) thereto to read in its entirety as follows:
"(xii) on and after the Railroad Effective Date, Liens granted by
Squire in favor of Railroad Enterprises, Inc. and Cutting Edge Services, Inc.
solely on funds not to exceed $2,500,000 held by Squire or in escrow in
connection with the purchase price payments for the Railroad Enterprises Assets
and in respect of other amounts owed to Railroad Enterprises, Inc., in each
case, pursuant to the terms of the Railroad Enterprises Agreement."
5. Indebtedness. Section 7.02(b) of the Financing Agreement is
------------
hereby amended to (a) delete the word "and" at the end of clause (x) thereof,
(b) renumber clause (xi) thereof as clause (xii) thereof, (c) replace the
reference to clause "(x)" in renumbered clause (xii) thereof with "(xi)", and
(d) add a new clause (xi) thereto to read in its entirety as follows:
"(xi) on and after the Railroad Effective Date, Indebtedness of
Squire owed to Railroad Enterprises, Inc. and Cutting Edge Services, Inc. in
connection with the purchase price payments due for the Railroad Enterprises
Assets and in respect of other amounts owed to Railroad Enterprises, Inc., in
each case, pursuant to the terms of the Railroad Enterprises Agreement; and"
6. Sale of Assets. Section 7.02(d)(ii) of the Financing Agreement
--------------
is hereby amended to (a) delete the word "and" before clause (F) thereof and (b)
add the following at the end of such Section (ii) "and (G) the Borrowers may
transfer all of their right, title and interest in the registered trademarks
that they own to Apparel Holdings.", provided that (x) Apparel Holdings has
taken all action requested by the Collateral Agent to grant the Collateral Agent
a perfected, first priority security interest in such trademarks and (y) the
Collateral Agent's rights in such trademarks, including, without limitation, the
existence, perfection and priority of the security interests created in favor of
the Collateral Agent in such trademarks are not adversely affected thereby and
(z) the terms of any such transfer and any licenses of the trademarks have to be
reasonably satisfactory to the Collateral Agent and its counsel.
4
<PAGE>
7. Investments. (a) Section 7.02(f)(ii) of the Financing Agreement
-----------
is hereby amended by adding the phrase ", and investments in Apparel Holdings"
at the end of the first clause thereof.
(b) Section 7.02(f) of the Financing Agreement is hereby further
amended to (i) delete the word "and" at the end of the first of clause (xi)
thereof, (ii) renumber the second of clause (xi) thereof as clause (xiii)
thereof, and (iii) add a new clause (xii) thereto to read in its entirety as
follows:
"(xii) on and after the Railroad Effective Date, the Railroad
Enterprises Purchase; and"
8. Waivers and Consents.
--------------------
(a) Effective on the Miss Erika Effective Date, the Required Lenders
hereby consent to the terms of the Miss Erika Amendment, pursuant to which,
among other things, the parties thereto will modify the terms of the earn out
obligation under the Miss Erika Acquisition Agreement, such that 64.3% of the
earn out obligation shall be discounted and paid in cash on or about August 6,
1999, as more fully described in the revised consent solicitation statement
dated July 20, 1999 (the "Consent Solicitation").
(b) The Required Lenders hereby consent to the terms of the Jeri-Jo
Amendment, pursuant to which, among other things, the parties thereto have
agreed to permit the full face value of the Letter of Credit ($30,000,000) which
secures the payment of the earnout obligations under the Jeri-Jo Purchase
Agreement to be available for all drawings under the Letter of Credit.
(c) Pursuant to Section 12.03 of the Financing Agreement and in
reliance on the representations and warranties set forth in Section 10, the
Required Lenders hereby waive any Event of Default that would otherwise arise
under Section 10.01(c) of the Financing Agreement from any non-compliance by the
Company and the Borrowers with the provisions of Section 7.01(b) of the
Financing Agreement by reason of the failure of the Loan Parties to execute and
deliver to the Collateral Agent, in respect of Apparel Holdings, within 15 days
after its formation (i) a guaranty, (ii) a security agreement, (iii) a written
opinion of counsel in form and substance reasonably satisfactory to the
Collateral Agent, and (iv) an amendment to the Pledge Agreement with respect to
the pledge of the stock of such new Subsidiary together with stock
certificate(s) representing all of the outstanding capital stock of such new
Subsidiary and an executed and undated stock power; provided, that, all of the
-------- ----
items listed in clauses (i), (ii) and (iv) are executed and delivered, as
appropriate, to the Collateral Agent on or prior to the Amendment Effective Date
(as defined in Section 9 below) and the items listed in clause (iii) above are
delivered to the Collateral Agent, within 30 days after the date hereof.
(d) Pursuant to Section 12.03 of the Financing Agreement and in
reliance on the representations set forth in Section 10, the Required Lenders
hereby waive any Event of Default that would otherwise arise under Section
10.01(c) of the
5
<PAGE>
Financing Agreement, in the case of clause (ii) below effective on the Indenture
Effective Date, from any non-compliance by the Company and the Borrowers with
the provisions of (i) Section 7.02(f) of the Financing Agreement by reason of
the Company's formation of and initial capital contribution in Apparel Holdings;
provided that, as of the Amendment Effective Date, such initial contribution did
not exceed $10,000 and (ii) Section 7.02(r) of the Financing Agreement by reason
of the first supplemental indenture to be entered into by and among the Company,
the Borrowers, Norty's Inc., and United States Trust Company of New York, as
trustee, by reason of the Miss Erika Amendment and the limitation on the cash
amount of the Jeri-Jo Earn Out Payment.
(e) The Waivers and Consents in this Section 8 shall be effective only
in this specific instance and do not allow any other or further departure from
the terms of the Financing Agreement or the other Loan Documents, which terms
shall continue in full force and effect.
9. Conditions to Effectiveness. This Amendment shall be effective
---------------------------
as of the date hereof provided that the following conditions have been satisfied
in full (the "Amendment Effective Date").
(a) The representations and warranties contained in this Amendment and
in Article VI of the Financing Agreement shall be true and correct in all
material respects on and as of the Amendment Effective Date and the date hereof
as though made on and as of each of such dates (except where such
representations and warranties relate to an earlier date in which case such
representations and warranties shall be true and correct as of such earlier
date); no Event of Default or Default shall have occurred and be continuing on
the Amendment Effective Date or on the date hereof, or result from this
Amendment becoming effective in accordance with its terms.
(b) The Agents shall have received counterparts of this Amendment
which bear the signatures of the Company, the Borrowers and each of the Required
Lenders.
(c) The Collateral Agent shall have received a fully executed copy of
the items referred to in clauses (i), (ii) and (iv) of Section 8(c) hereof.
(d) The Agents shall have received a fully executed copy of the Jeri-
Jo Amendment certified as a true and correct copy thereof by an authorized
officer of the Company.
(e) The Administrative Agent shall have received in immediately
available funds, for the ratable benefit of the Lenders in accordance with their
Pro Rata Shares, a non-refundable amendment fee equal to $110,000.
(f) All legal matters incident to this Amendment shall be satisfactory
to the Agents and their counsel.
6
<PAGE>
10. Representations and Warranties. Each of the Company and the
------------------------------
Borrowers represents and warrants to the Lenders as follows:
(a) The Company and each Borrower (i) is duly organized, validly
existing and in good standing under the laws of the state of its organization
and (ii) has all requisite power, authority and legal right to execute, deliver
and perform this Amendment, all other documents executed by it in connection
with this Amendment, and to perform the Financing Agreement, as amended hereby.
(b) The execution, delivery and performance by each of the Company and
the Borrowers of this Amendment and all other documents executed by each of them
in connection with this Amendment and the performance by the Company and the
Borrowers of the Financing Agreement as amended hereby (i) have been duly
authorized by all necessary action, (ii) do not and will not violate or create a
default under the Company's or any Borrower's organizational documents, any
applicable law or any contractual restriction binding on or otherwise affecting
the Company or any Borrower or any of the Company's or such Borrower's
properties, and (iii) except as provided in the Loan Documents, do not and will
not result in or require the creation of any Lien upon or with respect to the
Company's or any Borrower's property.
(c) 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 the Company or
any of the Borrowers of this Amendment and all other documents executed by it in
connection with this Amendment and the performance by the Company and the
Borrowers of the Financing Agreement as amended hereby.
(d) This Amendment and the Financing Agreement, as amended hereby, and
all other documents executed in connection with this Amendment constitute the
legal, valid and binding obligations of the Company and the Borrowers party
thereto, enforceable against such Persons in accordance with their 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) The representations and warranties contained in Article VI of the
Financing Agreement are true and correct on and as of the Amendment Effective
Date and as of the date hereof as though made on and as of the Amendment
Effective Date and the date hereof (except to the extent such representations
and warranties expressly relate to an earlier date), and no Event of Default or
Default has occurred and is continuing on and as of the Amendment Effective Date
or on the date hereof after giving effect to this Amendment.
(f) As of the Amendment Effective Date, the aggregate amount of the
capital contribution made by the Company in Apparel Holdings did not exceed
$10,000.
7
<PAGE>
11. Continued Effectiveness of Financing Agreement. Each of the
----------------------------------------------
Company and the Borrowers hereby (i) confirms and agrees that each Loan Document
to which it is a party is, and shall continue to be, in full force and effect
and is hereby ratified and confirmed in all respects except that on and after
the Amendment Effective Date of this Amendment all references in any such Loan
Document to "the Financing Agreement", "thereto", "thereof", "thereunder" or
words of like import referring to the Financing Agreement shall mean the
Financing Agreement as amended by this Amendment, and (ii) confirms and agrees
that to the extent that any such Loan Document purports to assign or pledge to
the Collateral Agent, or to grant to the Collateral Agent a Lien on any
collateral as security for the Obligations of the Company and the Borrowers from
time to time existing in respect of the Financing Agreement and the Loan
Documents, such pledge, assignment and/or grant of a Lien is hereby ratified and
confirmed in all respects.
12. Miscellaneous.
-------------
(a) This Amendment 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.
(b) Section and paragraph headings herein are included for convenience
of reference only and shall not constitute a part of this Amendment for any
other purpose.
(c) This Amendment shall be governed by, and construed in accordance
with, the laws of the State of New York.
(d) The Borrowers will pay on demand all reasonable out-of-pocket
costs and expenses of the Agents in connection with the preparation, execution
and delivery of this Amendment, including, without limitation, the reasonable
fees, disbursements and other charges of Schulte Roth & Zabel LLP, counsel to
the Agents.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized as of the day
and year first above written.
MCNAUGHTON APPAREL GROUP INC.
By: __________________________________
Title: _______________________________
NORTON MCNAUGHTON OF SQUIRE, INC.
By: __________________________________
Title: _______________________________
MISS ERIKA, INC.
By: __________________________________
Title: _______________________________
JERI-JO KNITWEAR, INC.
By: __________________________________
Title: _______________________________
AGENTS AND LENDERS
------------------
THE CIT GROUP/COMMERCIAL SERVICES,
INC., as Administrative Agent
By: __________________________________
Title: _______________________________
NATIONSBANC COMMERCIAL
CORPORATION, as Collateral Agent
By: __________________________________
9
<PAGE>
Title: _______________________________
FLEET BANK NA, as Documentation Agent
By: __________________________________
Title: _______________________________
FLEET BUSINESS CREDIT CORPORATION
By: __________________________________
Title: _______________________________
ISRAEL DISCOUNT BANK OF NEW YORK
By: __________________________________
Title: _______________________________
SUNROCK CAPITAL CORP.
By: __________________________________
Title: _______________________________
PNC BANK, NATIONAL ASSOCIATION
By: __________________________________
Title: _______________________________
HELLER FINANCIAL, INC.
By: __________________________________
Title: _______________________________
10
<PAGE>
ACKNOWLEDGED AND AGREED:
NORTY'S INC.
By: __________________________________
Title: _______________________________
MCNAUGHTON APPAREL HOLDINGS INC.
By: __________________________________
Title:
11
<PAGE>
EXHIBIT 10.2
GUARANTOR SECURITY AGREEMENT
----------------------------
SECURITY AGREEMENT, dated as of July 29, 1999, made by McNaughton
Apparel Holdings Inc. a South Carolina corporation (the "Grantor"), in favor of
-------
NATIONSBANC COMMERCIAL CORPORATION, as collateral agent for the Lenders parties
to the Amended and Restated Financing Agreement referred to below (in such
capacity, the "Collateral Agent").
----------------
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, McNaughton Apparel Group Inc., a Delaware corporation f/k/a
Norton McNaughton, Inc. (the "Company"), Norton McNaughton of Squire, Inc., a
-------
New York corporation ("Squire"), Miss Erika, Inc. a Delaware corporation ("Miss
------ ----
Erika"), Jeri-Jo Knitwear, Inc., a Delaware corporation f/k/a JJ Acquisition
- -----
Corp. ("Jeri-Jo"), the financial institutions from time to time party to the
-------
Amended and Restated Financing Agreement (the "Lenders"), NationsBanc Commercial
-------
Corporation, as collateral agent (the "Collateral Agent"), The CIT
----------------
Group/Commercial Services, Inc., as administrative agent (the "Administrative
--------------
Agent") and Fleet Bank NA, as documentation agent (the "Documentation Agent")
- ----- -------------------
are parties to an Amended and Restated Financing Agreement, dated as of June 18,
1998, as amended through the date hereof (such agreement, as amended, restated
or otherwise modified from time to time, being hereinafter referred to as the
"Amended and Restated Financing Agreement");
- -----------------------------------------
WHEREAS, the Company directly owns all of the issued and outstanding
shares of capital stock of the Grantor; and
WHEREAS, pursuant to Section 7.01(b) of the Amended and Restated
Financing Agreement, the Grantor is required to execute and deliver 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 Amended and Restated Financing Agreement, the Grantor hereby agrees with the
Collateral Agent as follows:
SECTION 1. Definitions. Reference is hereby made to the Amended and
-----------
Restated Financing Agreement for a statement of the terms thereof. All terms
used in this Agreement which are defined in the Amended and Restated 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 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
<PAGE>
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); 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 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
2
<PAGE>
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 "Copyright Licenses" and together with the Trademark
------------------
Licenses and the Patent Licenses, the
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<PAGE>
"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; (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 included, all
payments under insurance (whether or not the Collateral Agent is the loss payee
4
<PAGE>
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, dated as
of July __, 1999 (as amended or otherwise modified 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 which it is a party; and
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<PAGE>
(b) the due performance and observance by the Grantor of all of its
other obligations from time to time existing in respect of 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 Amended and Restated 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
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 counterclaim exist thereunder in favor of any such
party.
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<PAGE>
(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
Amended and Restated Financing Agreement and (iii) sales of assets permitted by
the terms of the Amended and Restated 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 Amended and Restated 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
7
<PAGE>
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 Amended and Restated 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.
8
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(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 Amended and
Restated 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 Amended
and Restated Financing Agreement.
(e) Insurance.
---------
(i) The Grantor will, at its own expense, maintain insurance on
its property as required by Section 7.01(h) of the Amended and Restated
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 in
respect of the Grantor's property shall provide for all losses (except for
losses of less than $500,000 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
9
<PAGE>
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 $500,000
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 Amended and Restated 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
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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 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,
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
Amended and Restated Financing Agreement, subject to the obligation of the
Borrowers to make payments pursuant to Section 2.07(g) of the Amended and
Restated Financing Agreement.
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(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 Amended and Restated Financing Agreement.
(h) Trademarks, Patents and Copyrights.
----------------------------------
(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,
12
<PAGE>
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 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 Amended and Restated 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
13
<PAGE>
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 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 Amended and Restated 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 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
14
<PAGE>
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 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
15
<PAGE>
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 Guaranteed
Obligations as provided in Section 4.04(b) of the Amended and Restated 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.
16
<PAGE>
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; to it at its address at c/o McNaughton Apparel Group Inc., 463
Seventh Avenue, 9th Floor, New York, NY 10018; if to the Collateral Agent, to it
at its address specified in the Amended and Restated 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 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.
(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 Amended and Restated 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
17
<PAGE>
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 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.
18
<PAGE>
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.
MCNAUGHTON APPAREL HOLDINGS INC.
By: _________________________
Name: _________________________
Title: _________________________
19
<PAGE>
SCHEDULE I TO GUARANTOR SECURITY AGREEMENT
RELATED CONTRACTS
Agreement of Lease dated as of May 14, 1999 by and between North Point
Park, LLC, as Landlord, and McNaughton Apparel Holdings Inc., as Tenant
Letter Agreement dated as of May 14, 1999 by and between North Point Park,
LLC and McNaughton Apparel Holdings Inc.
<PAGE>
SCHEDULE II TO GUARANTOR SECURITY AGREEMENT
TRADEMARKS AND TRADEMARK LICENSES
None.
<PAGE>
SCHEDULE III TO GUARANTOR SECURITY AGREEMENT
PATENTS AND PATENT LICENSES
None.
<PAGE>
SCHEDULE IV TO GUARANTOR SECURITY AGREEMENT
COPYRIGHTS AND COPYRIGHT LICENSES
None.
<PAGE>
SCHEDULE V TO GUARANTOR SECURITY AGREEMENT
(i) Locations of Equipment and Inventory:
c/o McNaughton Apparel Group Inc.
463 Seventh Avenue, 9th Floor
New York, New York 10018
(ii) Grantor's chief place of business, chief executive office and location of
books and records:
c/o McNaughton Apparel Group Inc.
463 Seventh Avenue, 9th Floor
New York, New York 10018
<PAGE>
SCHEDULE VI TO GUARANTOR SECURITY AGREEMENT
TRADE NAMES
None.
<PAGE>
SCHEDULE VII TO GURANTOR SECURITY AGREEMENT
UCC-1 FINANCING STATEMENTS
UCC-1 Financing Statements to be filed in the following jurisdictions:
o Secretary of State of New York
o New York Co., New York
o Secretary of State of South Carolina
<PAGE>
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
____ __, 1998 (the "Security Agreement") in favor of NATIONSBANC COMMERCIAL
------------------
CORPORATION., as collateral agent for certain lenders (the "Assignee"); and
--------
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:______________________
<PAGE>
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.
<PAGE>
SCHEDULE 1A TO ASSIGNMENT FOR SECURITY
--------------------------------------
(TRADEMARKS AND TRADEMARK APPLICATIONS)
---------------------------------------
<PAGE>
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
____ __, 1998 (the "Security Agreement") in favor of NATIONSBANC COMMERCIAL
------------------
CORPORATION, as collateral agent for certain lenders (the "Assignee"); and
--------
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:______________________
<PAGE>
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.
_____________________________
<PAGE>
SCHEDULE 1B TO ASSIGNMENT FOR SECURITY
(PATENTS AND PATENT APPLICATIONS)
-------------------------------
<PAGE>
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
______ __, 1998 (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:______________________
<PAGE>
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.
_____________________________
<PAGE>
SCHEDULE 1C TO ASSIGNMENT FOR SECURITY
(COPYRIGHTS AND COPYRIGHT APPLICATIONS)
-------------------------------------
<PAGE>
EXHIBIT 10.3
SUBSIDIARY GUARANTY
GUARANTY, dated as of July 29, 1999, made by McNaughton Apparel
Holdings Inc. a South Carolina 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
----------------
Amended and Restated Financing Agreement referred to below.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, McNaughton Apparel Group Inc., a Delaware corporation f/k/a
Norton McNaughton, Inc. (the "Company"), Norton McNaughton of Squire, Inc., a
-------
New York corporation ("Squire"), Miss Erika, Inc. a Delaware corporation ("Miss
------ ----
Erika"), Jeri-Jo Knitwear, Inc., a Delaware corporation f/k/a JJ Acquisition
- -----
Corp. ("Jeri-Jo"), the financial institutions from time to time party to the
-------
Amended and Restated Financing Agreement (the "Lenders"), NationsBanc Commercial
-------
Corporation, as collateral agent (the "Collateral Agent"), The CIT
----------------
Group/Commercial Services, Inc., as administrative agent (the "Administrative
--------------
Agent") and Fleet Bank NA, as documentation agent (the "Documentation Agent")
- ----- -------------------
are parties to an Amended and Restated Financing Agreement, dated as of June 18,
1998, as amended through the date hereof (such agreement, as amended, restated
or otherwise modified from time to time, being hereinafter referred to as the
"Amended and Restated 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 7.01(b) of the Amended and Restated
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 Amended and Restated Financing Agreement) and all other
obligations under the Amended and Restated 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 Amended and Restated Financing Agreement, the Guarantor hereby agrees with
the Lenders and the Collateral Agent as follows:
SECTION 1. Definitions. Reference is hereby made to the Amended and
-----------
Restated 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.
<PAGE>
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 Amended and Restated 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 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 Amended and Restated 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
2
<PAGE>
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
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 Amended and Restated 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
3
<PAGE>
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, 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
4
<PAGE>
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 c/o McNaughton Apparel Group,, Inc.,
463 Seventh Avenue, 9th Floor, New York, NY 10018; if to the Collateral Agent,
to it at its address set forth in the Amended and Restated 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.
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 Haythe & Curley, Attn: Bradley P. Cost, Esq. (the
"Process Agent"), with an office on the date hereof at 237 Park Avenue, New
- --------------
York, NY 10017, 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
5
<PAGE>
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.
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
Administrative Agent, for the benefit of the Lenders, at such address specified
by the Administrative 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
6
<PAGE>
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 12.08 of the Amended and Restated
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.
7
<PAGE>
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.
MCNAUGHTON APPAREL HOLDINGS INC.
By: _________________________
Name:
Title:
8
<PAGE>
EXHIBIT 10.4
AGREEMENT
AGREEMENT dated as of July 5, 1999 by and among Norton McNaughton of
Squire, Inc., a New York corporation ("Squire"), Railroad Enterprises, Inc., a
New Jersey corporation ("Railroad") and Cutting Edge Services, Inc., a New
Jersey corporation ("Cutting Edge").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the parties intend to set forth by this Agreement their mutual
understandings and covenants.
NOW THEREFORE, in consideration of the promises and mutual covenants and
agreements hereinafter set forth, and intending to be legally bound, the parties
hereto hereby agree as follows:
SECTION I
---------
Assets
------
1.01 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 (as hereinafter defined), each of Railroad and Cutting
Edge shall sell, assign, convey and deliver to Squire, and Squire shall
purchase, acquire and accept from each of
<PAGE>
Railroad and Cutting Edge, all of Railroad's and Cutting Edge's right, title and
interest in and to the following assets and properties (collectively, the
"Assets"):
(i) All of the fixed assets and other tangible personal property,
including without limitation, machinery, tools, equipment, furniture,
leasehold improvements, materials and supplies (collectively, the
"Property"), other than Property which is Excluded Property (as
defined in Section 1.02 below), (a) of Railroad and/or Cutting Edge
presently located at 5 Empire Boulevard, South Hackensack, New Jersey,
on the one hand, and (b) of Railroad and/or Cutting Edge presently
located at 3349 Whelan Road, East Rutherford, New Jersey, on the other
hand, including without limitation the Property set forth in Exhibit A
hereto;
(ii) All of Railroad's rights and entitlements under the
Agreement dated January 7, 1993, as amended or modified in any manner,
between Squire and Railroad and under any and all other agreements
(other than this Agreement) between or among Railroad, on the one
hand, and Squire, Squire's corporate parent and/or any present or
former subsidiaries, affiliates or related entities of Squire or of
Squire's corporate parent (collectively, the "Railroad Agreements"),
and all of Cutting Edge's rights and entitlements under the Agreement
dated March 17, 1993, as amended or modified in any manner, between
Squire and Cutting Edge (as the successor to Toni-Linda Productions,
Inc.) and under any and
<PAGE>
all other agreements (other than this Agreement and the Sublease (as
hereinafter defined)) between or among Cutting Edge, on the one hand,
and Squire, Squire's corporate parent and/or any present or former
subsidiaries, affiliates or related entities of Squire or Squire's
corporate parent (collectively, the "Cutting Edge Agreements");
(iii) All rights, remedies and benefits of each of Railroad and
Cutting Edge arising under or relating to any of the Assets, and all
causes of action and claims, known or unknown, arising therefrom,
including without limitation, rights, remedies and benefits arising
out of expressed or implied warranties from manufacturers or suppliers
of the Property; and
(iv) All products and proceeds of any of the foregoing.
1.02 It is understood and agreed that, except for the Assets, neither
Railroad nor Cutting Edge is selling, assigning or conveying to Squire, and
Squire is not purchasing, and the Assets shall not include, any of Railroad's or
Cutting Edge's right, title or interest in or to any other assets or properties
of any kind or nature, whether real, personal or mixed, or whether tangible or
intangible (the "Excluded Property").
1.03 It is understood and agreed that Squire shall not assume or be
deemed to assume and shall have no responsibility, liability or obligation with
respect to any liabilities or obligations (including but not limited to debts,
liabilities and obligations incurred by Railroad as the manager or operator of
the Assets or the provider of the
<PAGE>
Services (as hereinafter defined)) of, or claim against, either or both of
Railroad or Cutting Edge, or of or against any present, former or future
predecessor, successor, director, officer, employee, agent, stockholder or other
affiliate of either or both of Railroad or Cutting Edge, 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 Railroad and Cutting
Edge hereby agree to retain, remain solely responsible for, perform, pay and
discharge promptly as and when due (collectively, the "Excluded Liabilities").
1.04 The purchase price for the Assets shall be $5,500,000 (the
"Purchase Price"). At the Closing, Squire shall pay $3,000,000 of the Purchase
Price (the "Closing Purchase Price") in cash in immediately available funds by
bank wire transfer to an account designated by Railroad and Cutting Edge. The
balance of the Purchase Price (the "Post Closing Purchase Price") shall be paid
by Squire as follows: (i) $108,333.33 per month, payable on the last day of
each month, for nine (9) months, commencing on July 31, 1999 and ending on March
31, 2000, (ii) $508,333.33 per month, payable on the last day of each month, for
two (2) months, commencing on April 30, 2000 and ending on May 31, 2000, (iii)
$408,333.33 on June 30, 2000 and (iv) $100,000 on December 31, 2000, all in cash
in immediately available funds by bank wire transfer to an account designated by
Railroad and Cutting Edge.
1.05 The Closing of the purchase and sale of the Assets as set forth
herein (the "Closing") shall be held at the offices of Haythe & Curley, 237 Park
Avenue, New York, New York 10017 on the first business day following delivery to
Railroad by
<PAGE>
Squire of the Effectiveness Notice (as defined in Section 5.16 hereof) or at
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"). At
the Closing, (i) against payment of the Closing Purchase Price, each of Railroad
and Cutting Edge shall execute and deliver to Squire a bill of sale in the form
of Exhibit B hereto, (ii) Railroad, Cutting Edge and GAGU Inc., on the one hand,
and Squire, on the other hand, shall execute and deliver to each other the
general releases in the form of Exhibit C hereto, which releases shall be made
effective as of Effective Date hereof and (iii) Railroad's and Cutting Edge's
counsel, on the one hand, and Squire's counsel, on the other hand, shall execute
the stipulations of discontinuance with prejudice of all actions commenced by
Railroad and Cutting Edge in the New York Supreme Court for New York County in
the form of Exhibit D hereto and those stipulations shall be delivered to Haythe
& Curley for immediate filing with the Court.
SECTION II
----------
Management Arrangement
----------------------
2.01 Subject to the terms and conditions of this Agreement, (i) Squire
hereby engages Railroad to manage and operate the Assets identified in Section
1.01(i)(a) hereof, all in the conduct of the services contemplated by clause
(ii) below, and (ii) in connection with the services contemplated by clause (i)
above, Squire hereby engages
<PAGE>
Railroad to provide to Squire storage, warehousing, receiving, shipping and
distribution services at the facilities presently operated by Railroad located
at 5 Empire Boulevard, South Hackensack, New Jersey (the "South Hackensack
Facility") and, for so long as Railroad determines to continue to provide
Services (as defined below) at such location, at 3349 Whelan Road, East
Rutherford, New Jersey (or such other or different sites as shall be mutually
agreed to in writing between Squire and Railroad) (collectively, the
"Facilities"), which services shall consist of those storage, warehousing,
receiving, shipping, distribution and other services presently being provided to
Squire by Railroad at the Facilities, and, shall include, but shall not be
limited to, receiving, storing, sorting, packaging and otherwise readying
garments for shipment to Squire's customers, and inventory maintenance and
control activities (such as cycle counting and year-end audit procedures on a
basis consistent with those activities previously provided by Railroad to
Squire) (the services set forth in clauses (i) and (ii) above, hereinafter,
collectively, the "Services"). Railroad hereby accepts such engagement, and
agrees to perform all management and other services and do all things necessary
or customarily performed by managers of similar assets and providers of similar
services. It is understood and agreed that Railroad shall provide the Services
to Squire in accordance with the operating procedures now in effect between
Railroad and Squire.
2.02 (a) The term of Railroad's engagement under this Section II shall
commence on the Effective Date (as defined in Section 5.16 hereof) and shall
continue through and including June 30, 2000 (the "Term"), unless extended by
Squire, at its option by notice in writing to Railroad given, if at all, on or
before April 1, 2000, for the
<PAGE>
months of July and August 2000 or any portion thereof (the "Extended Term"). In
the event that, after January 31, 2000, but prior to April 1, 2000, (i) Railroad
proposes, pursuant to a firm offer, to sublease to an unrelated entity the South
Hackensack Facility or (ii) Railroad proposes, pursuant to a binding agreement
with the landlord, to vacate the South Hackensack Facility upon a surrender of
the lease, in either case, it shall so notify Squire, which notice (a "Lease
Notice") shall include information in reasonable detail concerning the proposed
sublessee and the offer to sublease or the proposed surrender of lease and the
agreement with the landlord, as the case may be. Upon receipt of a Lease Notice,
Squire shall, on or before the fifth business day after the receipt of a Lease
Notice, send a notice (an "Extension Notice") to Railroad as to whether Squire
shall extend the Term to the Extended Term and the length of the Extended Term,
which extension shall be either for the month of July 2000 or the months of July
and August 2000, as selected by Squire. The failure by Squire to send an
Extension Notice within such five business day period shall constitute a waiver
by Squire of its right to extend the Term to the Extended Term.
(b) During any Extended Term, Squire agrees to ship at least 450,000
garments through Railroad per month.
2.03 In consideration for the Services, during the Term Squire shall
pay Railroad $0.34 per garment shipped by Railroad on behalf of Squire, and
during any Extended Term Squire shall pay Railroad $0.51 per garment shipped by
Railroad on behalf of Squire. Squire and Railroad understand and agree that the
price of $0.34 per
<PAGE>
garment shipped by Railroad on behalf of Squire during the Term is based upon
Squire shipping through Railroad (or paying Railroad for the shipment of) at
least 14,000,000 garments during the period commencing on July 5, 1999 (whether
or not the Effective Date shall have occurred by such date) and ending on June
30, 2000. In order to give effect to the matters set forth in the immediately
preceding sentence and in order to provide Railroad with a predictable cash flow
during the Term, Squire and Railroad agree that, during the Term,
notwithstanding the number of garments actually shipped by Railroad on behalf of
Squire during a particular month, but prior to the point in time that Railroad
ships an aggregate of 14,000,000 garments on behalf of Squire during the period
commencing on July 5, 1999 and ending on June 30, 2000, Squire shall pay
Railroad the following aggregate fiscal monthly amounts for Services (in
addition to any other amounts payable by Squire to Railroad under and in
accordance with the express terms of this Section II) rendered during the
following fiscal months of Squire (regardless of when the Effective Date occurs,
but subject to the provisions hereof, including Sections 2.05 and 2.06 hereof):
Fiscal Month Amount
- ------------ ------
July, 1999 $ 408,000*
August, 1999 $ 442,000*
September, 1999 $ 442,000*
October, 1999 $ 442,000*
November, 1999 $ 352,000
<PAGE>
December, 1999 $ 352,000
January, 2000 $ 352,000
February, 2000 $ 464,000
March, 2000 $ 464,000
April, 2000 $ 464,000
May, 2000 $ 289,000
June, 2000 $ 289,000
----------
Total $4,760,000*
_______________
* Payments pursuant to this Section 2.03 shall be made net of all payments made
by Squire to Railroad during July, August, September and October 1999, but prior
to the Effective Date.
Squire and Railroad understand and agree that from and after the point in time,
if any, at which Railroad has shipped an aggregate of 14,000,000 garments on
behalf of Squire during the period commencing on July 5, 1999 and ending on
June 30, 2000, payments for Services rendered by Railroad to Squire shall no
longer be made by Squire to Railroad in accordance with the table set forth
above, but rather, from and after such point in time (and prior to July 1, 2000)
shall be made in an amount equal to the actual number of garments shipped by
Railroad on behalf of Squire from and after such point in time (and prior to
July 1, 2000) multiplied by $0.34 per garment. Subject to the foregoing
provisions of this Section 2.03, all amounts payable by Squire to Railroad in
accordance with the terms of this Section 2.03 shall be paid within five
business days after receipt by Squire of the applicable invoice therefor and
Squire understands that Railroad may invoice Squire therefor on a weekly basis.
<PAGE>
2.04 Railroad is acting under this Section II as an independent
contractor and this Agreement shall not be deemed to create an agency, joint
venture, partnership, fiduciary or an employer-employee relationship, whether
expressed or implied, between Railroad and Squire. It is understood and agreed
that Railroad shall inform all third parties that it may deal with that it is
acting solely on its own behalf hereunder and does not intend to bind or
otherwise have the power or authority to bind or obligate Squire in any manner.
Squire shall not have any liability or obligation for any debts, liabilities or
obligations of Railroad, whether or not incurred by Railroad as the manager or
operator of the Assets or the provider of the Services, all of which shall be
retained and discharged promptly as and when due by Railroad.
2.05 It is understood and agreed by Squire and Railroad that in the
event that the Effective Date is after July 5, 1999, Squire shall pay Railroad
$0.49 per garment shipped, plus a 2% box surcharge, until the Effective Date
occurs. Thereafter, following the occurrence of the Effective Date,
notwithstanding anything to the contrary contained herein (including without
limitation, Section 2.03 hereof), Railroad agrees that Squire shall be entitled
to credit against amounts otherwise owing to Railroad under this Section II an
amount equal to the product of (x) $0.17 and (y) the number of garments shipped
by Railroad on behalf of Squire subsequent to July 5, 1999 and prior to the
Effective Date, which credit shall be taken by Squire starting with the payments
first made by Squire to Railroad under this Section II following the Effective
Date.
<PAGE>
2.06 Railroad and Squire agree that the $72,000 of unused credits
remaining as of the date hereof under the letter from Railroad to Squire dated
October 11, 1996 shall be used by Squire as credits against amounts otherwise
owing to Railroad at the rate of $6,000 per month during the 12 month period
starting July 1, 1999 and ending June 30, 2000, regardless of when the Effective
Date occurs.
2.07 It is understood and agreed by Railroad that (i) except for the
Assets identified in Section 1.01(i)(a) hereof, any and all other assets,
properties, personnel (whether hourly, salaried or independent contractor),
services (including without limitation, those of employees), materials,
supplies, machinery, equipment and space (either leased or owned) which are
necessary to the provision by Railroad of the Services to Squire, shall be
provided by, and at the sole cost and expense of, Railroad and (ii) except as
expressly provided in this Section II, Railroad shall be responsible to pay, and
hereby agrees to pay in a timely manner, all of the costs and expenses
associated with, arising out of or that are necessary to provide the Services to
Squire, which costs and expenses shall include, but shall not be limited to,
lease payments, payroll, fringe benefits and payroll taxes, real estate and all
other taxes, insurance, security services, utilities, the costs of necessary
licenses and permits, and the costs of all necessary, consistent with prior
practice, supplies, materials and other personal property. Without limiting the
generality of the foregoing, Railroad agrees to use its reasonable efforts to
maintain the services (in the provision of the Services to Squire hereunder) of
Nelson Munoz and James Harrison during the Term and any Extended Term.
<PAGE>
2.08 (a) Except as expressly set forth in Sections 2.03 and 2.09
hereof and in this Section 2.08, Squire and Railroad agree that Squire shall not
be obligated to pay Railroad or any other person, corporation or entity any
amounts for the Services and Railroad shall not charge Squire or any other
person, corporation or entity for Services. Without limiting the generality of
the foregoing, during the Term and/or the Extended Term, it is understood and
agreed that Squire shall not pay to Railroad and Railroad shall not charge
Squire (i) to remove plastic bags in which knits and sweaters are received, to
place such knits and sweaters on hangers, and to replace the plastic bag
coverings for such hung knits and sweaters, in all cases, for knits and sweaters
shipped by Railroad on behalf of Squire to Sears (collectively, the "Sears
Services"), and/or (ii) to place hangers in cartons ("seeding") for garments
shipped to members in the Federated Department Stores group and to Sak's Inc.
(b) For purposes of this Section 2.08(b), removing plastic bags,
placing knits and sweaters on hangers, replacing plastic bag coverings for knits
and sweaters, and placing hangers in cartons, are hereinafter collectively
referred to as the "Special Services." Notwithstanding the provisions of
subsection (a) of this Section 2.08, Squire shall pay to Railroad additional
charges for Special Services (i) if, after the Effective Date, an existing
customer or a new customer of Squire requires Special Services not provided by
Railroad to such customer prior to the date hereof and (ii) for shipment of
knits and sweaters to Sears, but only in the event that the number of knit and
sweater garments shipped by Railroad on behalf of Squire to Sears during the
period July 5, 1999 through June 30, 2000 (and in respect of which such Sears
Services are rendered)
<PAGE>
exceeds 800,000 garments. The charges for Special Services rendered in
accordance with the immediately preceding sentence shall be those amounts as
heretofore in effect for such Special Services and paid by Squire to Railroad
currently, that is, $0.05 per garment for "seeding" and $0.15 per garment for
removing plastic bags, placing knits and sweaters on hangers and replacing
plastic bag coverings. It is understood and agreed that Squire shall provide to
Railroad or shall otherwise pay for the costs of the hangers and plastic bags
used by Railroad in the provision of Special Services and Sears Services.
(c) Notwithstanding the provisions of subsection (a) of this Section
2.08, in the event that Sears, May Company or the United States Army require
garments to be packed and shipped in boxes and cartons, rather than shipped on
hangers (the method of shipment presently employed by Railroad on behalf of
Squire for such customers), Squire shall pay to Railroad an additional $0.07 per
garment packed and shipped in boxes and cartons to Sears, May Company and/or the
United States Army.
2.09 In the event that, in connection with the provision of receiving
services hereunder, Railroad receives damaged or improperly loaded containers of
garments, Railroad may request Squire to consent to the provision of additional
services in respect thereof as set forth in this Section 2.09. In the event
that Squire consents to the provision by Railroad of such additional services,
Railroad shall provide such services and shall charge Squire $0.05 per garment
contained in the damaged or improperly loaded container (the "2.09 Charges").
In connection with 2.09 Charges, (i) Squire shall use its reasonable efforts to
obtain full reimbursement for such charges on behalf of
<PAGE>
Railroad and (ii) to the extent that Squire is unable to obtain reimbursement on
behalf of Railroad within 90 days of receipt of Railroad's invoice (the "90 Day
Period") to Squire for the applicable 2.09 Charges (which invoiced 2.09 Charges
shall not exceed $0.05 per garment contained in the damaged or improperly loaded
container, and which invoice must be rendered by Railroad, if at all, within 30
days of the receipt of such container), then Squire shall pay Railroad the
greater of (the "2.09 Payment") (a) one-half of such invoiced 2.09 Charges and
(b) the amount of reimbursement, if any, actually received by Squire in respect
of the applicable 2.09 Charges (and upon any such payment, the balance of such
invoiced 2.09 Charges (after deduction of the applicable 2.09 Payment) shall no
longer be due and owing by Squire to Railroad under any circumstances). However,
it is understood and agreed by Squire and Railroad that if Squire receives
reimbursement of the applicable 2.09 Charges after it has paid one-half of the
applicable invoiced 2.09 Charges to Railroad, then Squire will promptly pay one-
half of such reimbursed amounts received to Railroad (but in any event, not in
excess of $0.05 per garment).
2.10 (a)(i) Without limiting the generality of Section 2.07, Railroad
agrees to maintain, at its sole cost and expense, the service of employees and
other service providers at levels sufficient to timely and professionally
receive, ship and otherwise provide Services on behalf of Squire on a 14,000,000
unit per annum basis. Railroad agrees that the minimum employee/service
provider base necessary to accomplish the foregoing would be Railroad's
historical employee/service provider levels for periods during which Railroad
shipped on behalf of Squire on a 14,000,000 unit per annum basis. In the event
that, notwithstanding the foregoing, (1) Railroad shall notify
<PAGE>
Squire in writing that it will need to incur the overtime services of
employee/service providers in order to timely and professionally perform its
Services hereunder as required by Squire, or (2) Squire's representatives at the
Facilities determine that Railroad should incur overtime services of
employee/service providers in order to timely and professionally perform its
services hereunder as required by Squire, Squire agrees to reimburse Railroad
for such overtime charges which exceed $350,000 in the aggregate during the Term
and which are incurred after approval in writing by Squire (the "$350,000
Amount"). In the event that Railroad fails to maintain employee/service provider
levels consistent with the foregoing, and as a result incurs overtime charges,
or in the event that Railroad fails to obtain Squire's prior written approval
for overtime, in either such event, such overtime charges shall not count toward
the $350,000 Amount and shall not be reimbursable by Squire. In the event that
Railroad maintains employee/service provider levels consistent with the
foregoing and Squire fails to approve the incurrence of overtime charges
reasonably requested by Railroad in a specific instance, then, in such instance,
Railroad shall not be responsible for any shipping related delays in shipments
to Squire's customers.
(ii) Squire and Railroad understand and agree that the provision of
Services on Sunday and/or holidays require Railroad to incur overtime charges at
a "double time" rate as compared to overtime charges incurred on other than
Sundays or holidays which are incurred at a "time and one-half" rate.
Accordingly, for purposes of subsection (a)(i) above, and subject at all times
to subsection (a)(i) above and subsection (b) below, it is understood and agreed
by Squire and Railroad that Sunday and holiday
<PAGE>
overtime charges shall be treated as follows: 25% of such charges shall, in all
events, be reimbursed by Squire to Railroad and 75% of such charges shall,
first, count toward the $350,000 Amount (and shall not be reimbursable or
otherwise payable by Squire) and once the $350,000 Amount is exceeded (whether
or not exceeded as a result of Sunday or holiday overtime or as a result of
other overtime, or a combination thereof), all Saturday, Sunday and holiday
overtime charges shall be reimbursed by Squire to Railroad. Squire agrees to use
its reasonable efforts to schedule order shipment start and cancel dates which
are not on Sundays or holidays.
(b) Notwithstanding the provisions of subsection (a) above or (c)
below, Squire agrees to reimburse Railroad for overtime charges which are
incurred after approval in writing by Squire in the event that Railroad is
required to incur overtime to render Services hereunder as a result of (i) the
failure by Squire to notify Railroad at least 48 hours in advance (or 72 hours
in advance if Special Services are required) of Squire's requirement to process
purchase orders, (ii) the failure of merchandise to arrive at or otherwise to be
available at the Facilities for shipment prior to the foregoing 48 hour period
(or 72 hour period in the case of Special Services requirements), or (iii) the
failure by Squire to deliver to Railroad pack-slips prior to the foregoing 48
hour period (or 72 hour period in the case of Special Services requirements).
(c) Railroad shall use its best efforts to ship garments covered by a
particular purchase order as close as possible to the date (the "start date") on
which the particular purchase order permits such garments to be shipped,
provided that Railroad
<PAGE>
shall not be responsible to Squire in the event that, despite the use of its
best efforts as aforesaid, all of the garments which are the subject of the
particular purchase order are not shipped by Railroad as close as possible to
the applicable start date.
(d) It is understood and agreed by Railroad and Squire that it is
their intention to minimize overtime charges in the conduct of the Services
hereunder. In furtherance of the foregoing, Squire and Railroad agree to
consult in good faith with each other concerning the proposed incurrence by
Railroad of overtime, all in order to minimize the incurrence by Railroad of
overtime.
2.11 Squire agrees to use its reasonable efforts, consistent with its
existing procedures, to obtain reimbursement in a timely manner from customers
for all contested (by Squire) shipping or distribution related deductions or
chargebacks from Squire customer payments (the "Squire Contested Chargebacks"),
and to notify Railroad, on a weekly basis, of all shipping and distribution
related deductions or chargebacks which are in excess of $2,500. Subject to the
next sentence of this Section 2.11, in the event of (i) Squire Contested
Chargebacks where Squire is unable to obtain such reimbursement from the
applicable customer within a period of four months following its first attempt
to do so ("Written Off Squire Contested Chargebacks") and (ii) uncontested (by
Squire) shipping or distribution related deductions or chargebacks (the "Squire
Uncontested Chargebacks"), then, in either event, Railroad shall pay Squire for
one-half of all such shipping or distribution related deductions or chargebacks
(whether Written Off Squire Contested Chargebacks or Squire Uncontested
<PAGE>
Chargebacks), all within 20 days of receipt of a request therefor from Squire (a
"Request"). Notwithstanding the foregoing, Squire shall not seek payment from
Railroad during the term of this Agreement in excess of $450,000 of Written Off
Squire Contested Chargebacks and Squire Uncontested Chargebacks (that is
$225,000 of potentially reimbursable amounts from Railroad), and of this amount
(a) Railroad shall not be required to pay Squire in respect of the first $80,000
(that is, but for this clause (a), Railroad would be required to reimburse
$40,000 to Squire) of Written Off Squire Contested Chargebacks and Squire
Uncontested Chargebacks and (b) with respect to the next $370,000 (that is, in
respect of the next $185,000 of reimbursable amounts by Railroad) of Written Off
Squire Contested Chargebacks and Squire Uncontested Chargebacks, Railroad shall
pay Squire for one-half of all such shipping or distribution related deductions
or chargebacks within 20 days of a receipt of a Request, provided that Railroad
shall have the right, by notice ( a "Dispute Notice") to Squire, given, if at
all, within 20 days of receipt by Railroad of the applicable Request, to require
Squire to contest any Uncontested Squire Chargeback which is in excess of
$5,000, which Dispute Notice shall be accompanied by information that such
Uncontested Squire Chargeback was, in fact, not the result of action or inaction
by Railroad in the provision of Services hereunder (which information must
include more supporting evidence with respect to the particular deduction or
chargeback in question than an assertion by Railroad that such Uncontested
Squire Chargeback was not caused by action or inaction of Railroad), whereupon
Squire shall, at its option, either (1) use its best efforts to obtain
reimbursement from customers for such Uncontested Squire Chargebacks (and
failing such reimbursement within the four-month period as aforesaid, Railroad
shall pay Squire
<PAGE>
for one-half of all such Uncontested Squire Chargebacks within 20 days of
receipt of a Request) or (2) waive its right under this Section 2.11 to require
Railroad to pay Squire for one-half of such Uncontested Squire Chargebacks (and
thereupon Squire shall not be required to use its reasonable efforts to obtain
reimbursement from customers), and in the event of such a waiver it is
understood that Squire is not seeking reimbursement of such an Uncontested
Chargeback from Railroad and the amount of such Uncontested Chargeback shall not
be included in the $450,000 cap. The failure by Railroad to send a Dispute
Notice within the aforementioned 20-day period after receipt of a Request shall
constitute a waiver by Railroad of its right to require Squire to contest the
Uncontested Squire Chargebacks which are the subject of such Request.
Notwithstanding the foregoing, the foregoing provisions of this Section 2.11
shall not be applicable in the event that the shipping and distribution related
deductions or chargebacks result from Railroad's reckless or willful misconduct
in the provision of Services hereunder, and rather, in such case, Railroad shall
reimburse Squire for all of such shipping or distribution related deductions or
chargebacks within 20 days of receipt of a Request in respect thereof. For
purposes hereof, shipping or distribution related deductions or distribution
related chargebacks include, but are not limited to, Advanced Shipping Notice
("ASN") integrity violations or discrepancies, concealed shortages, concealed
overages, unauthorized color, style or size substitutions, packing slip errors,
and carton labeling errors.
2.12 (a) During the period of Railroad's engagement under this
Section II, (i) Railroad shall (1) at any time during normal business hours and
during any other
<PAGE>
time during which Railroad is providing Services at a facility(s),and without
prior notice or approval of visitors and (2) at any time other than during
normal business hours and other than during any time at which Railroad is
providing Services at a facility(s), without approval of visitors and upon
reasonable prior notice (which may be telephonic), in either case, provide to
Squire, its employees and consultants unrestricted access to all facilities
(including the Facilities) at which Railroad is conducting the Services, (ii)
except commencing on May 1, 2000, Railroad shall not perform services similar to
the Services for any other person, corporation or entity, (iii) Railroad shall
not subcontract with any other person, corporation or entity to render all or
any portion of the Services to Squire and (iv) Squire may engage other persons,
corporations or entities to render Services (or similar services) to it.
(b ) During the period of Railroad's engagement under this Section II
and for a period of six months thereafter, at any time during normal business
hours and upon two day's prior notice (which may be telephonic) (i) Railroad
shall provide to Squire, its employees and consultants reasonable access to all
of Railroad's books and records concerning the subject matter of Sections 2.08,
2.09, 2.10 and 2.11 hereof and (ii) Squire shall provide to Railroad, its
employees and consultants reasonable access to all of Squire's books and records
concerning the subject matters of Section 2.11 hereof. In addition to the
foregoing, under the foregoing circumstances, Squire and Railroad may make
copies of the relevant books and records concerning the above-mentioned subject
matters.
<PAGE>
2.13 Effective on the Effective Date, each of the Railroad Agreements
and the Cutting Edge Agreements are hereby irrevocably and unconditionally, and
without the payment of any amount or other act whatsoever, terminated and
superseded by this Agreement, and those Agreements shall be of no further force
or effect. Without limiting the generality of the foregoing, effective on the
Effective Date, no party to any of the Railroad Agreements or the Cutting Edge
Agreements, and no other person, corporation or other entity (including without
limitation, the corporate parent of Squire and each other subsidiary or
affiliate, direct or indirect and whether now existing or hereafter created or
acquired, of such corporate parent), shall have any liability or obligation
under, pursuant to, by reason of, or arising out of the Railroad Agreements or
the Cutting Edge Agreements or any of the services or transactions contemplated
by the Railroad Agreements or the Cutting Edge Agreements.
SECTION III
-----------
Lease Matters
-------------
3.01 Upon 30 days prior notice to Cutting Edge, Squire may terminate
the Sublease dated January 17, 1994 , as amended (the "Sublease"), covering
subleased space at 3349 Whelan Road, East Rutherford, New Jersey, provided that
Cutting Edge and Squire hereby agree that such Sublease shall automatically
terminate and shall be of no further force or effect on December 31, 1999
without further action on the part of
<PAGE>
Squire. Within 30 days of the termination of the Sublease, Cutting Edge shall
return to Squire in cash its $40,000 security deposit (the "Security Deposit").
3.02 (a) On or prior to January 31, 2000, Railroad agrees to obtain
the irrevocable and unconditional release of Squire, in form and substance
reasonably satisfactory to Squire, without payment of any amount by Squire or
penalty to Squire, of the Guaranty (the "Guaranty") dated May 19, 1992 in favor
of 5 Empire Boulevard Associates (the "Railroad Release"). In the event that
the Railroad Release is not obtained prior to such date, Railroad agrees that
Squire shall withhold $500,000 from the Post Closing Purchase Price payments
scheduled to occur after such date, commencing with the Post Closing Purchase
Price payment scheduled to occur on February 28, 2000. In the event that the
Railroad Release is obtained after January 31, 2000, then Squire shall pay
Railroad within five (5) business days of the receipt of the Railroad Release an
amount equal to (i) any and all Post Closing Purchase Price payments (up to
$500,000 in the aggregate) so withheld from Railroad less (ii) any and all
amounts paid by Squire to the landlord that were required to be paid under the
Guaranty. In the event that Squire receives a Lease Arbitration Determination
(as defined in subsection 3.04 below) in respect of the Guaranty and the
Railroad Lease (as defined in subsection 3.04 below), then Squire shall pay
Railroad within five (5) business days of the receipt of such Lease Arbitration
Determination the amount set forth in such Lease Arbitration Determination,
provided that, under no circumstances (and notwithstanding anything to the
contrary contained in such Lease Arbitration Determination), shall such amount
exceed (a) any and all Post Closing Purchase Price Payments (up to $500,000 in
the aggregate) so
<PAGE>
withheld from Railroad less (b) any and all amounts paid by Squire to the
Landlord under the Guaranty. In the event that neither a Railroad Release nor a
Lease Arbitration Determination in respect of the Guaranty and the Railroad
Lease is received by Squire, as and to the extent that the applicable statute of
limitations expires with respect to amounts which, but for such expiration,
would be payable by Squire to the landlord under the Guaranty (the "Railroad
Expiration Amounts"), Squire shall pay Railroad within five (5) business days of
such expiration (1) the applicable Railroad Expiration Amounts (to the extent of
any and all Post Closing Purchase Price Payments so withheld from Railroad, not
to exceed $500,000 in the aggregate), less (2) any and all amounts paid by
Squire to the landlord that were required to be paid under the Guaranty.
(b) In the event that the landlord under the Guaranty commences an
action in a court of competent jurisdiction to require Squire to pay amounts
allegedly owing under the Guaranty, Squire shall notify Railroad of such action
and shall reasonably cooperate, at Railroad's sole cost and expense, with
Railroad and its counsel in connection with such action. In the event that
Squire determines that there is no reasonable likelihood that the entire amount
payable by Squire under the Guaranty could reasonably be the subject of such
action, Squire shall pay to Railroad the amount of any and all Post-Closing
Purchase Price Payments (up to $500,000 in the aggregate) withheld from Railroad
pursuant to subsection (a) above which are in excess of the amounts so
determined by Squire to be (or reasonably could be) the subject of such action.
3.03 (a) On or prior to January 31, 2000, Cutting Edge agrees to
obtain the irrevocable and unconditional release of Squire, in form and
substance reasonably
<PAGE>
satisfactory to Squire, without payment of any amount by Squire or penalty to
Squire, of the Limited Guaranty (the "Limited Guaranty") dated December 30, 1993
in favor of Braun Management Inc. (the "Cutting Edge Release"). In the event
that the Cutting Edge Release is not obtained prior to such date, Cutting Edge
agrees that Squire shall withhold $300,000 from the Post Closing Purchase Price
payments scheduled to occur after such date, commencing with the Post Closing
Purchase Price payment scheduled to occur on February 28, 2000. In the event
that the Cutting Edge Release is obtained after January 31, 2000, then Squire
shall pay Cutting Edge within five (5) business days of the receipt of the
Cutting Edge Release an amount equal to (i) any and all Post Closing Purchase
Price payments (up to $300,000 in the aggregate) so withheld from Cutting Edge
less (ii) any and all amounts paid by Squire to the landlord that were required
to be paid under the Limited Guaranty. In the event that Squire receives a Lease
Arbitration Determination in respect of the Limited Guaranty and the Cutting
Edge Lease (as defined in subsection 3.04 below), then Squire shall pay Cutting
Edge within five (5) business days of the receipt of such Lease Arbitration
Determination the amount set forth in such Lease Arbitration Determination,
provided that, under no circumstances (and notwithstanding anything to the
contrary contained in such Lease Arbitration Determination), shall such amount
exceed (a) any and all Post Closing Purchase Price Payments (up to $300,000 in
the aggregate) so withheld from Cutting Edge less (b) any and all amounts paid
by Squire to the Landlord under the Guaranty. In the event that neither a
Cutting Edge Release nor a Lease Arbitration Determination in respect of the
Limited Guaranty and the Cutting Edge Lease is received by Squire, as and to the
extent that the applicable statute of limitation expires with respect to amounts
which, but for such expiration, would be
<PAGE>
payable by Squire to the Landlord under the above-mentioned Guaranty (the
"Cutting Edge Expiration Amounts"), Squire shall pay Cutting Edge within five
(5) business days of such expiration (1) the applicable Cutting Edge Expiration
Amounts (to the extent of any and all Post Closing Purchase Price Payments so
withheld from Cutting Edge, not to exceed $300,000 in the aggregate), less (2)
any and all amounts paid by Squire to the landlord that were required to be paid
under the Limited Guaranty.
(b) In the event that the landlord under the Limited Guaranty
commences an action in a court of competent jurisdiction to require Squire to
pay amounts allegedly owing under the Limited Guaranty, Squire shall promptly
notify Cutting Edge of such commencement and shall reasonably cooperate, at
Cutting Edge's sole cost and expense, with Cutting Edge and its counsel in
connection with such action. In the event that Squire determines that there is
no reasonable likelihood that the entire amount payable by Squire under the
Limited Guaranty could reasonably be the subject of such action, Squire shall
pay to Cutting Edge the amount of any and all Post-Closing Purchase Price
Payments (up to $300,000 in the aggregate) withheld from Cutting Edge pursuant
to subsection (a) above which are in excess of the amounts so determined by
Squire to be (or reasonably could be) the subject of such action.
3.04 For purposes hereof, a "Lease Arbitration Determination" shall
mean a written determination by the Arbitrator (as defined in Section 5.07
hereof) pursuant to Section 5.07 hereof that (i) Railroad or Cutting Edge, as
applicable, has fully discharged and paid all amounts owing and all obligations
under the Railroad Lease or
<PAGE>
the Cutting Edge Lease, as applicable, (ii) that Railroad or Cutting Edge, as
applicable, has completely vacated the premises which were the subject of the
Railroad Lease or the Cutting Edge Lease, as applicable, (iii) that the
Arbitrator has satisfactorily confirmed with the applicable landlord, or has
otherwise satisfactorily confirmed, that the matters set forth in clauses (i)
and (ii) above have occurred and (iv) there is no reasonable basis upon which
the Arbitrator could conclude that Squire has any remaining liabilities or
obligations to the applicable landlord under the Guaranty or the Limited
Guaranty, as applicable. Also for purposes hereof, the "Railroad Lease" shall
mean the Indenture of Lease dated May 15, 1998 between 5 Empire Boulevard
Associates and Railroad Enterprises, Inc., as amended from time to time,
covering the building located at 5 Empire Boulevard, South Hackensack, New
Jersey and the "Cutting Edge Lease" shall mean the Agreement of Lease dated as
of December 23, 1993 between Braun Management Inc., as agent for 10-26 South
William Street Associates, L.P. and Toni Linda Productions, Inc. (as successor
to Cutting Edge), as amended from time to time, covering the building located at
3349 Whalen Road, East Rutherford, New Jersey.
SECTION IV
----------
Consulting Services
-------------------
4.01 Subject to the terms and conditions of this Agreement, Squire
hereby engages Railroad to provide consulting services, and Railroad hereby
accepts such engagement. The consulting services shall consist of advising
Squire concerning the
<PAGE>
relocation of Squire's warehousing, receiving, shipping and distribution
functions to South Carolina, including, but not limited to, matters concerning
the implementation of management information systems, the layout of material
handling and staging equipment, and storage fixturing. Such consulting services
may be rendered by telephone, shall not require the preparation or submission of
written reports by Railroad and shall not require travel other than to Squire's
offices in New York City, provided that, at Squire's request and at its cost and
expense, one trip to Squire's South Carolina facility may be required by Squire
of the consultant hereunder.
4.02 The term of Railroad's engagement under this Section IV shall
commence on the Effective Date and shall continue through and including June 30,
2000.
4.03 In consideration of the consulting services contemplated by this
Section IV, Squire shall pay to Railroad a monthly consulting fee, for 12
consecutive months, of $41,666.67 (that is, a total of $500,000) on the last day
of each month commencing on July 31, 1999 and terminating on June 30, 2000. In
acting under this Section IV, except as expressly provided in Section 4.01
above, Railroad shall be responsible for all of its own costs and expenses
incurred in rendering the consulting services contemplated hereby and shall be
acting as an independent contractor and this Agreement shall not be deemed to
create an agency, joint venture, partnership, fiduciary or employer-employee
relationship, whether expressed or implied, between Railroad and Squire.
<PAGE>
4.04 It is understood and agreed by Squire that Railroad may assign
the right to receive consulting fees pursuant to Section 4.03 hereof and may
delegate the obligation to perform consulting services pursuant to Section 4.01
hereof, provided that such assignee and/or delegatee (and in the case of a
corporation or other entity, its officers, directors and stockholders or other
owners) are fully disclosed in writing to Squire and are approved in writing by
Squire, which approval shall not be unreasonably withheld. Any purported
assignment or delegation in violation of the foregoing shall be void and of no
force or effect.
SECTION V
---------
Miscellaneous
-------------
5.01 It is understood and agreed by the parties hereto that, in
addition to the setoff rights contemplated by Sections 3.02 and 3.03 hereof, in
the event that (i) Railroad or Cutting Edge, as the case may be, shall fail to
pay and discharge Excluded Liabilities and, as a result thereof, liability,
responsibility or payment therefore is asserted against Squire or any of its
affiliates, (ii) Railroad shall fail to reimburse Squire, from time to time,
under the circumstances set forth in Section 2.11 hereof or (iii) Cutting Edge
shall fail to return the Security Deposit to Squire as contemplated by Section
3.01 hereof, then Squire may (in addition to any other rights or remedies
available to it at law or in equity) setoff any and all of the foregoing amounts
against (a) the Post Closing Purchase Price payments thereafter otherwise due
and owing by Squire, (b) payments otherwise due and owing by Squire under
Section 2.03 hereof and/or (c) payments
<PAGE>
otherwise due and owing by Squire under Section 4.03 hereunder.
5.02 Railroad and Cutting Edge hereby represent and warrant to Squire
and Squire that:
(i) Each of Railroad and Cutting Edge is a corporation duly
authorized, validly existing and in good standing under the laws of
the State of New Jersey;
(ii) The execution and delivery by Railroad and Cutting Edge of
this Agreement (and of the instruments and agreements attached hereto
as Exhibits), the performance by Railroad and Cutting Edge of their
respective covenants and agreement hereunder and thereunder, and the
consummation by Railroad and Cutting Edge of the transactions
contemplated hereby and thereby have been duly authorized by all
necessary corporate action;
(iii) This Agreement constitutes (and upon the execution and
delivery of the instruments and agreements attached hereto as
Exhibits, each such instrument and agreement shall constitute) a valid
and legally binding obligation of each of Railroad and Cutting Edge
only, enforceable against Railroad and Cutting Edge only in accordance
with its terms, subject as to enforceability to applicable bankruptcy,
insolvency, reorganization and similar laws affecting creditors'
rights and to general
<PAGE>
principles of equity;
(iv) The Assets shall be sold to Squire free and clear of all
liens, security interests, mortgages, encumbrances, charges or adverse
claims whatsoever;
(v) Railroad has received a written assurance from the vendor
thereof that the security systems located at the Facilities are or
will be "Year 2000" compliant on or before December 31, 1999, and has
or will timely pay for any and all upgrades to such security systems
recommended by such vendor in order to cause such security systems to
be "Year 2000" compliant on or before such date; and
(vi) The combined net income before taxes of Railroad and Cutting
Edge for the fiscal year ended December 31, 1998 was less than
$388,000.
5.03 Squire hereby represents and warrants to Railroad and Cutting
Edge that:
(i) Squire is a corporation duly authorized, validly existing
and in good standing under the laws of the State of New York;
<PAGE>
(ii) The execution and delivery by Squire of this Agreement (and
of the instruments and agreements attached hereto as Exhibits), the
performance by Squire of its covenants and agreements hereunder and
thereunder, and the consummation by Squire of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate
action; and
(iii) This Agreement constitutes (and upon the execution and
delivery of the instruments and agreements attached hereto as Exhibits,
each such instrument and agreement shall constitute) a valid and legally
binding obligation of Squire only, enforceable against Squire only 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.
5.04 All notices, requests or instructions hereunder shall be in
writing and delivered personally, sent by telecopy, sent by registered or
certified mail, return receipt requested, or sent by Federal Express or any
other nationally recognized overnight courier service, as follows:
(a) If to Railroad or Cutting Edge:
5 Empire Boulevard
South Hackensack, New Jersey 07606
Attention: President
<PAGE>
Telecopy No.: (201) 807-1061
with a copy to:
Parker Duryee Rosoff & Haft
529 Fifth Avenue
New York, New York 10017
Attention: Herbert F. Kozlov, Esq.
Telecopy No.: (212) 972-9487
(b) If to Squire:
463 Seventh Avenue
New York, New York 10018
Attention: Chief Executive Officer
Telecopy No.: (212) 868-1013
with a copy to:
Haythe & Curley
237 Park Avenue
New York, New York 10017
Attention: Bradley P. Cost, Esq.
Telecopy No.: (212) 682-0200
<PAGE>
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 (i) on the date of
delivery, if hand delivered or telecopied, (ii) on the next business day after
sending, if sent by Federal Express or any other recognized overnight courier
service, or (iii) on the third business day after mailing, if mailed by
registered or certified mail, return receipt requested.
5.05 This Agreement (including the Exhibits hereto) contains the
entire agreement among the parties hereto with respect to the matters and
transactions contemplated hereby and supersedes all prior agreements (including
without limitation, the Railroad Agreements and the Cutting Edge Agreements),
promises, understandings, negotiations and discussions, whether written or oral
or implied from any course of dealing, of the parties, and no amendment,
modification or change hereof shall be effective unless in writing and signed by
the parties hereto.
5.06 Except as otherwise expressly provided herein, each of the
parties hereto shall bear such party's own costs and expenses in connection with
this Agreement and the transactions contemplated hereby.
5.07 The parties hereto agree that any controversy or claim by one
party against another party arising out of or relating to this Agreement, or the
performance or the breach thereof, shall be submitted to binding arbitration in
New York City, which arbitration shall be determined in accordance with the
terms, conditions, rules and procedures as set forth in this Section 5.07,
except that the parties are expressly permitted
<PAGE>
to seek injunctive or other equitable relief against another party from any
court of competent jurisdiction to the extent they are entitled to such relief
at law or equity.
(a) The parties shall cooperate in good faith to designate a person by
mutual agreement to act as the sole arbitrator of any controversy or claim
submitted for arbitration under this Agreement (the "Arbitrator"). That
designation, if any, shall be confirmed in writing signed by the parties or
counsel on behalf of the parties. If the parties do not designate such a
person, the Arbitrator shall be selected as provided in subsection (u) below.
(b) Any party may initiate an arbitration of any dispute arising out
of or relating to this Agreement as provided in this Section 5.07. Arbitration
under this Section 5.07 shall be initiated in the following manner:
(i) The initiating party or its authorized representative (the
"Claimant") shall give written notice to the Arbitrator and the other party (the
"Respondent") of its intention to arbitrate (the "Demand"), which notice shall,
with reasonable particularity, describe the matter to be arbitrated, including
the nature of the dispute, the amount involved, if any, and the remedy sought.
(ii) The Respondent shall then, within five (5) business days from the
receipt of the Demand, submit a written answering statement to the Arbitrator
and the Claimant, unless the parties agree in writing, or the Arbitrator
determines, to give the Respondent additional time to respond to the Demand. If
no answering statement is submitted within the stated time, the Arbitrator will
deem the claims in the Demand as denied by the Respondent.
(iii) If Respondent's answering statement asserts a counterclaim,
that
<PAGE>
statement shall set forth with reasonable particularity the nature of the
counterclaim, the amount involved, if any, and the remedy sought. The Claimant
shall then, within five (5) business days from the receipt of the answering
statement with counterclaim, submit to the Arbitrator and the Respondent a
written statement answering the counterclaim, unless the parties agree in
writing, or the Arbitrator determines, to give the Claimant additional time to
respond to the counterclaim. If no response to the counterclaim is submitted
within the stated time, the Arbitrator will deem the counterclaim to be denied
by the Claimant.
(iv) The Demand, Respondent's answering statement, and Claimant's
response to counterclaims (if any), are collectively referred to herein as "the
Pleadings." Upon the later of (1) the receipt by the Arbitrator of all the
applicable Pleadings; or (2) the last date by which a party was to respond to
the Demand or answering statement with counterclaim, as the case may be, and no
response was timely submitted, then the Arbitrator shall deem the Pleadings
closed and the claim or controversy submitted (the "Submission Date").
(c) The parties agree that an arbitration Demand may be made at any time
and that multiple Demands may be made relating to separate controversies or
claims that arise between the parties. The fact that a particular controversy or
claim has been initiated, submitted or is awaiting decision by the Arbitrator
shall not preclude the initiation of any additional controversy or claim for
arbitration. The Arbitrator shall try to combine all Demands and claims into a
single proceeding, if possible.
(d) In arbitration under this Section 5.07, any party may be represented by
counsel or other authorized representative.
<PAGE>
(e) After the Submission Date, the Arbitrator shall have sole discretion to
determine whether or not a hearing shall be scheduled to determine the issue(s)
submitted for arbitration, require an appearance by the parties and/or the
presentation of evidence and witnesses, or whether the parties shall be required
to submit to the Arbitrator any additional materials. The Arbitrator shall
inform the parties in writing whether or not a hearing will be scheduled.
(f) In connection with a hearing scheduled by the Arbitrator:
(i) The Arbitrator will schedule such a hearing as expeditiously as
possible after the Submission Date.
(ii) At least seven (7) days prior to the hearing date, the parties
will exchange the names of all individuals and/or experts whom they expect to
call as witnesses at the hearing. With respect to any expert witnesses, the
parties will further identify the area of expertise of each such expert and the
substance of the expert's anticipated testimony.
(iii) At least seven (7) days prior to the hearing date, the parties,
if they so elect, may submit a pre-hearing memorandum to the Arbitrator. A party
submitting a pre-hearing memorandum shall submit the original of such memorandum
to the Arbitrator and simultaneously serve a copy by hand on the adverse party
or its representative.
(iv) At least seven (7) days prior to the hearing date, the parties
shall send to each other and to the Arbitrator a list of documents to be
submitted at the hearing, together with a copy of any listed document not
previously provided.
(v) All testimony at the hearing shall be given under oath, as
<PAGE>
administered by the Arbitrator.
(g) Prior to any scheduled hearing date, the parties shall have the right
to take depositions and to request documents on a reasonable, limited and
expedited basis, subject to the approval of the Arbitrator.
(h) The parties may offer such evidence as they consider relevant and
material to the dispute and shall produce such evidence as the Arbitrator may
deem necessary to an understanding and determination of the dispute.
(i) The Arbitrator shall have the following powers:
(i) To request any information from the parties or from third parties
to the extent to which the Arbitrator deems it necessary and/or relevant to the
determination of the dispute.
(ii) To subpoena witnesses or documents to the extent to which the
Arbitrator deems it necessary and/or relevant to the determination of the
dispute.
(iii) To rule on the admissibility of evidence. The Federal Rules of
Evidence shall be used as guidelines for the admissibility of evidence, but at
the Arbitrator's sole discretion the Arbitrator shall not be required to
strictly adhere to the Federal Rules of Evidence.
(iv) To determine whether to require the attendance of a particular
witness to testify at a hearing and be subject to cross-examination, or to
otherwise provide information to the Arbitrator to assist in the determination
of the controversy or claim to be decided.
(v) To require witnesses to testify under oath.
(vi) To make rulings on any motion and to issue such orders for
interim
<PAGE>
relief as may be deemed necessary to safeguard the property that is the subject
matter of the arbitration, without prejudice to the rights of the parties in the
final determination of the dispute.
(vii) To determine jurisdictional and arbitrability disputes between
the parties to this Agreement only, including disputes over the existence,
validity, interpretation or scope of this subsection under which arbitration is
sought and/or how it is conducted, except that it is expressly agreed that the
Arbitrator is prohibited from limiting in any way the rights to seek injunctive
or equitable relief from any court as provided in this Section or from
permitting the joinder of any entity to the arbitration that is not a signatory
to this Agreement.
(viii) To resolve disputes about the interpretation and applicability
of the rules and procedures set forth in this arbitration section, including
disputes relating to the duties of the Arbitrator, the conduct of pre-hearing
activities and the conduct of the hearing.
(ix) To schedule, at any juncture of the proceedings, a conference
with the parties to the extent that the Arbitrator determines it will help
facilitate and expedite the disposition of the action. At such a conference, if
the Arbitrator so elects, the Arbitrator may have conferences with each party
separately and, to that end, attempt to mediate the dispute.
(j) If a matter is called for a hearing and either party appears but the
other does not, the Arbitrator shall either hear the case and enter an award or
grant a continuance.
(k) Any controversy or claim submitted for arbitration may be dismissed,
<PAGE>
without prejudice, before final adjudication, by a stipulation of dismissal
signed by all parties.
(l) A decision or award issued by the Arbitrator shall be in writing,
signed by the Arbitrator, and may be rendered in a conclusory fashion without
written, detailed explanation of the reasons for the Arbitrator's decision or
award, if the Arbitrator so elects.
(m) The Arbitrator is authorized to award any remedy or relief that the
Arbitrator deems just and equitable and within the scope of the Agreement,
including, but not limited to, specific performance of the Agreement and pre- or
post-judgment interest. The Arbitrator may also award attorneys' fees and
expenses to the prevailing party in the event the Arbitrator concludes that a
party did not act in good faith.
(n) The award of the Arbitrator shall be final, binding and enforceable on
its own terms.
(o) The Arbitrator will issue the award, determining the matters submitted
to the Arbitrator, as expeditiously as possible, but in no event more than ten
(10) days after the later of (i) the Submission Date; (ii) the last date upon
which any party or third party is required to respond to any request from the
Arbitrator for further information; or (iii) the conclusion of all hearings
before the Arbitrator.
(p) If the parties settle their dispute during the course of the
arbitration, the Arbitrator shall set forth the terms of the agreed settlement
in an award.
(q) Any judgment on the award rendered by the Arbitrator may be entered in
any court having jurisdiction thereof, including but not limited to the United
States District Court for the Southern District of New York or the New York
Supreme Court for
<PAGE>
New York County. Proceedings to enforce, confirm, modify or vacate an award will
be controlled by and conducted in conformity with the Federal Arbitration Act, 9
U.S.C. section 1 et seq., or applicable state law.
(r) The Arbitrator, upon good cause shown, or at the Arbitrator's
discretion only when necessary to facilitate the arbitration and ensure fairness
and justice, may extend any deadlines stated in this Section.
(s) Any initial costs incurred by the parties to engage the Arbitrator will
be shared by the parties, with Squire to share 50% of the costs, and Railroad
and Cutting Edge to share 50% of the costs.
(t) While it is the intent of the parties that in submitting to arbitration
each party will bear its own expenses, the losing party may be required to pay
the costs of the arbitration if the Arbitrator so determines, otherwise such
expenses will be allocated among the parties as the Arbitrator sees fit.
(u) If the Arbitrator becomes temporarily or permanently unavailable at any
time, the Arbitrator shall have discretion to appoint his or her own successor,
who must be independent and impartial. If the Arbitrator fails or is unable to
appoint a successor within five (5) days of the time the Arbitrator becomes
unavailable or the person appointed is not independent and impartial, or if the
parties fail to designate the Arbitrator by mutual agreement as provided in
subsection (a) above, then JAMS/Endispute, 45 Broadway, New York, New York 10006
shall appoint the Arbitrator or successor Arbitrator. In the event that
JAMS/Endispute fails or is unable to appoint an independent and impartial
Arbitrator or successor Arbitrator within five (5) days thereafter, then either
party may request that the American Arbitration Association
<PAGE>
appoint an Arbitrator to determine the dispute, which Arbitrator shall be bound
by the rules for the arbitration as set forth in this Section. Upon appointment,
the Arbitrator or successor Arbitrator shall affirm his or her independence and
impartiality, and agreement to adhere to the procedures, rules, terms and
condition of this Section in writing to the parties.
5.08 Should any provision of this Agreement be held by a court of
competent jurisdiction to be enforceable only if modified, such holding shall
not affect the validity of the remainder of this Agreement, the balance of which
shall continue to be binding upon the parties hereto with any such modification
to become a part hereof and treated as though originally set forth in this
Agreement. The parties further agree that any such court is expressly
authorized to modify any such unenforceable provision of this Agreement in lieu
of severing such unenforceable provision from this Agreement in its entirety,
whether by rewriting the offending provision, deleting any or all of the
offending provision, adding additional language to this Agreement, or by making
such other modifications as it deems warranted to carry out the intent and
agreement of the parties as embodied herein to the maximum extent permitted by
law. The parties expressly agree that this Agreement as modified by the court
shall be binding upon and enforceable against each of them. In any event,
should one or more of the provisions of this Agreement be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions hereof, and if such
provision or provisions are not modified as provided above, this Agreement shall
be
<PAGE>
construed as if such invalid, illegal or unenforceable provisions had never been
set forth herein.
5.09 This Agreement shall be binding upon and inure to the benefit of
Railroad, Cutting Edge and Squire and their successors and permitted assigns
only. Any purported assignment hereunder by any party without the prior written
consent of other parties shall be void and of no force or effect. Without
limiting the generality of the foregoing, no other person, corporation or other
entity (including without limitation, the corporate parent of Squire (that is,
McNaughton Apparel Group Inc., a Delaware corporation) and each other subsidiary
or affiliate, direct or indirect or whether now existing or hereafter created or
acquired, of such corporate parent, including without limitation, Miss Erika,
Inc., a Delaware corporation, Jeri-Jo Knitwear Inc., a Delaware corporation, and
McNaughton Apparel Holdings Inc., a South Carolina corporation), shall have any
liability or obligation under, pursuant to, by reason of, or arising out of,
this Agreement or the transactions contemplated hereby.
5.10 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.
5.11 This Agreement may be executed in counterparts, including by
telecopy, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
<PAGE>
5.12 The parties hereto agree that this Agreement is the product of
negotiations between sophisticated parties, 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.
------------------
5.13 Except as expressly set forth herein, nothing herein expressed
or implied is intended or shall be construed to confer upon any person,
corporation or other entity, other than the parties hereto and their successors
or permitted assigns, any rights or remedies under or by reason of this
Agreement or the transactions contemplated hereby.
5.14 Railroad and Cutting Edge covenant and agree that any and all
publications (whether written or oral) and notices to or other communications
with third parties concerning this Agreement and the transactions contemplated
hereby shall be subject to the prior written approval of Squire.
5.15 Railroad, Cutting Edge and Squire, at the request of the
applicable party, severally, shall use its reasonable efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all things reasonably
necessary to give effect to the transactions contemplated by this Agreement.
<PAGE>
5.16 Notwithstanding anything to the contrary contained herein, the
parties hereto understand and agree that the terms and provisions of this
Agreement shall become effective only upon delivery by Squire to Railroad and
Cutting Edge of a written notice (the "Effectiveness Notice", and the date of
the delivery of the Effectiveness Notice, hereinafter, the "Effective Date")
that Squire has received consent to this Agreement and the transactions
contemplated hereby (in form and substance satisfactory to Squire in its sole
discretion) (a "Consent"), and Squire agrees to send such Effectiveness Notice
in the event Squire receives a Consent, under (i) the Amended and Restated
Financing Agreement dated as of June 18, 1998, as amended, by and among Norton
McNaughton, Inc., Norton McNaughton of Squire, Inc., Miss Erika, Inc., JJ
Acquisition Corp., the Financial Institutions from time to time party thereto,
NationsBanc Commercial Corporation, as Collateral Agent, The CIT
Group/Commercial Services, Inc., as Administrative Agent, and Fleet Bank NA, as
Documentation Agent, and, if necessary, (ii) the Indenture dated as of June 18,
1998, as amended, providing for Norton's $125,000,000 12 1/2% Senior Notes Due
2005, among Norton McNaughton, Inc., the Subsidiary Guarantors named therein,
and United States Trust Company of New York, as Trustee. In the event that the
Effectiveness Notice is not delivered by Squire to Railroad and Cutting Edge on
or before October 31, 1999, this Agreement (and the Exhibits hereto) shall
automatically terminate and shall be of no further force or effect.
* * *
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first above written.
NORTON MCNAUGHTON OF SQUIRE, INC.
By: /s/ Amanda J. Bokman
-----------------------------------
Name: Amanda J. Bokman
Title: Chief Financial Officer, Vice
President, Secretary and Treasurer
RAILROAD ENTERPRISES, INC.
By: /s/ Richard Gallo
-----------------------------------
Name: Richard Gallo
Title: President
CUTTING EDGE SERVICES, INC.
By: /s/ Salvatore Cusumano
-----------------------------------
Name: Salvatore Cusumano
Title: President
<PAGE>
EXHIBIT A
<PAGE>
EXHIBIT B
BILL OF SALE AND ASSIGNMENT
---------------------------
THIS BILL OF SALE AND ASSIGNMENT (this "Bill of Sale and Assignment")
is made, executed and delivered on August 9, 1999, by and among Norton
McNaughton of Squire, Inc., a New York corporation (the "Transferee"), Railroad
Enterprises, Inc., a New Jersey corporation ("Railroad") and Cutting Edge
Services, Inc., a New Jersey corporation ("Cutting Edge"; and together with
Railroad collectively, the "Transferors"). All capitalized terms used herein
and not otherwise defined herein shall have the meanings ascribed to them in the
Agreement (as defined below).
W I T N E S S E T H :
-------------------
WHEREAS, the Transferors and the Transferee have executed and
delivered the Agreement dated as of July 5, 1999 (the "Agreement"), pursuant to
which, among other things, the Transferors have agreed to sell, assign, convey
and deliver to the Transferee the Assets (as hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing premises, the
consideration set forth in the Agreement and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound hereby, agree as follows:
1. The Transferors do hereby sell, assign, convey and deliver to the
Transferee, and the Transferee hereby purchases, acquires and accepts from the
Transferors, all of the Transferors' right, title and interest in and to the
following and properties (collectively, the "Assets"), except to the extent that
any of the following are Excluded Property:
(i) All of the fixed assets and other tangible personal property,
including without limitation, machinery, tools, equipment, furniture,
leasehold improvements, materials and supplies (collectively, the
"Property"), other than Property which is Excluded Property (as
defined in Section 1.02 of the Agreement), (a) of Railroad and/or
Cutting Edge presently located at 5 Empire Boulevard, South
Hackensack, New Jersey, on the one hand, and (b) of Railroad and/or
Cutting Edge presently located at 3349 Whelan Road, East Rutherford,
New Jersey, on the other hand, including without limitation the
Property set forth in Exhibit A to the Agreement;
(ii) All of Railroad's rights and entitlements under the
Agreement dated January 7, 1993, as amended or modified in any manner,
between Squire and Railroad and under any and all other agreements
(other than the Agreement) between or among Railroad, on the one hand,
<PAGE>
and Squire, Squire's corporate parent and/or any present or former
subsidiaries, affiliates or related entities of Squire or of Squire's
corporate parent (collectively, the "Railroad Agreements"), and all of
Cutting Edge's rights and entitlements under the Agreement dated March
17, 1993, as amended or modified in any manner, between Squire and
Cutting Edge (as the successor to Toni-Linda Productions, Inc.) and
under any and all other agreements (other than this Agreement and the
Sublease (as hereinafter defined)) between or among Cutting Edge, on
the one hand, and Squire, Squire's corporate parent and/or any present
or former subsidiaries, affiliates or related entities of Squire or
Squire's corporate parent (collectively, the "Cutting Edge
Agreements");
(iii) All rights, remedies and benefits of each of Railroad and
Cutting Edge arising under or relating to any of the Assets, and all
causes of action and claims, known or unknown, arising therefrom,
including without limitation, rights, remedies and benefits arising
out of expressed or implied warranties from manufacturers or suppliers
of the Property; and
(iv) All products and proceeds of any of the foregoing.
TO HAVE AND TO HOLD all and singular of the Assets unto the
Transferee, its successors and assigns, to its and their own use forever.
2. It is understood and agreed that, except for the Assets, neither
of the Transferors is selling, assigning or conveying to the Transferee, and the
Transferee is not purchasing, and the Assets shall not include, any of either of
the Transferors' right, title or interest in or to any other assets or
properties of any kind or nature, whether real, personal or mixed, or whether
tangible or intangible.
3. It is understood and agreed that the Transferee shall not assume
or be deemed to assume and shall have no responsibility, liability or obligation
with respect to any liabilities or obligations (including but not limited to
debts, liabilities and obligations incurred by Railroad as the manager or
operator of the Assets or the provider of the Services (as defined in the
Agreement) of, or claim against, either or both of the Transferors, or of or
against any present, former or future predecessor, successor, director, officer,
employee, agent, stockholder or other affiliate of either or both of the
Transferors, 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 Transferors hereby agree to retain, remain solely
responsible for, perform, pay and discharge promptly as and when due.
4. Each of the Transferors for itself and its successors and assigns,
hereby covenants and agrees that, at any time and from time to time after the
date hereof, each of the Transferors will, upon the reasonable request of the
Transferee and without further consideration, do, execute, acknowledge and
deliver or cause to be done, executed, acknowledged and delivered, any and all
such further acts, deeds, instruments,
<PAGE>
documents, transfers and assurance as may be reasonably required for the better
conveyance, transfer and assignment to the Transferee of the Assets conveyed,
transferred, assigned or sold as provided herein or for aiding and assisting in
reducing to the Transferee's possession any and all of the Assets.
5. The validity of this Bill of Sale and Assignment and of any of its
terms or provisions, as well as the rights and duties of the parties under this
Bill of Sale and Assignment, shall be construed pursuant to and in accordance
with the laws of the State of New York, without regard to conflict of laws
principles.
6. Neither the Transferors nor the Transferee may assign any of their
respective rights, interests or obligations under this Bill of Sale and
Assignment except to the extent that such rights, interests or obligations are
assigned pursuant to Section 5.09 of the Agreement. Any attempted assignment in
contravention hereof shall be void.
7. This Bill of Sale and Assignment may be executed in multiple
counterparts, each of which will be deemed an original and all of which taken
together will constitute a single instrument.
* * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Bill of Sale
and Assignment to be executed on the day and year first above written.
NORTON MCNAUGHTON OF SQUIRE, INC.
By:
-----------------------------------
Name: Sanford Greenberg
Title: Chairman
RAILROAD ENTERPRISES, INC.
By:
-----------------------------------
Name:
Title:
CUTTING EDGE SERVICES, INC.
By:
-----------------------------------
Name:
Title:
<PAGE>
EXHIBIT C
RELEASE AND COVENANT NOT TO SUE MADE
EFFECTIVE THIS 9th DAY OF AUGUST, 1999
--------------------------------------
Norton McNaughton of Squire, Inc., a New York corporation ("Squire"),
with principal places of business at 463 Seventh Avenue, New York, New York, and
its predecessors, successors and assigns (collectively the "Releasors"), in
consideration of the sum of One Hundred Dollars ($100.00) received from each of
Railroad Enterprises, Inc. ("Railroad") and Cutting Edge Services, Inc.
("Cutting Edge"), the receipt, sufficiency and adequacy of which is hereby
acknowledged, as of the effective date first written above, hereby jointly and
severally release and discharge each of Cutting Edge, Railroad, their current
and former subsidiaries, affiliates, divisions and related corporate entities,
and the current and former officers, directors, employees, agents,
representatives, attorneys, shareholders, principals, heirs, executors,
administrators, predecessors, successors and assigns of all of the foregoing
(collectively the "Releasees") from all actions, causes of action, suits, debts,
dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants,
contracts, obligations, controversies, agreements, promises, variances,
trespasses, damages, judgments, extents, executions, claims and demands
whatsoever, in law, admiralty or equity, whether known, unknown, foreseen or
unforeseen, contingent, matured, liquidated or unliquidated, which against the
Releasees, the Releasors ever had, now have or hereafter can, shall or may have
for, upon, or by reason of any matter, cause or thing whatsoever from the
beginning of the world to the effective date of this Release, except insofar as
Squire may have any claims against Railroad and Cutting Edge arising after the
effective date of this Release and under the Agreement dated as of July 5, 1999,
by and among Squire, Railroad and Cutting Edge.
<PAGE>
In addition to, and without limiting this Release, Releasors hereby
unconditionally and irrevocably undertake, covenant and agree that Releasors
will never bring any action, proceeding, suit or charge, jointly or severally,
nor will they ever assert, prosecute or file a complaint for any claim or demand
for relief of any kind, in or before any court, tribunal, administrative or
regulatory agency, arbitrator or other forum against the Releasees, regardless
of when such claim or demand for relief allegedly arose, arising out of or in
any way relating to a certain agreement dated January 7, 1993 between Railroad
and Squire and a certain agreement dated March 17, 1993 between Toni-Linda
Productions, Inc. (Cutting Edge's predecessor) and Squire as amended or
modified, including, without limitation, all circumstances or transactions
arising out of or relating thereto.
Releasors acknowledge and agree that this Release shall be construed
in the broadest and most inclusive manner permitted by law to bar, now and
forever, the assertion or prosecution, whether jointly or severally, by
Releasors of any action, proceeding, suit, charge, claim or complaint of any
nature, whether now existing or which may arise in the future, against the
Releasees except as noted above.
The word "Releasors" and "Releasees" includes all releasors and all
releasees under this Release.
This Release may not be changed or terminated orally and shall be
governed by the law of the State of New York without regard for conflict of law
principles.
<PAGE>
NORTON MCNAUGHTON OF SQUIRE, INC.
By: _________________________
Name: Sanford Greenberg
Title: Chairman
<PAGE>
STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the ____ day of _________ 1999, before me personally came Sanford
Greenberg, to me known, who, being duly sworn, did depose and say that he is the
Chairman of Norton McNaughton of Squire, Inc., the corporation described in and
which executed the foregoing Release and Covenant Not to Sue, and that he signed
the foregoing Instrument by order and with the approval of the Board of
Directors of Norton McNaughton of Squire, Inc.
---------------------
Notary Public
<PAGE>
RELEASE AND COVENANT NOT TO SUE MADE
EFFECTIVE THIS DAY OF 1999
----------------------------------------
Railroad Enterprises, Inc. ("Railroad"), Cutting Edge Services, Inc.
("Cutting Edge") and GAGU Inc. ("GAGU"), New Jersey corporations with principal
places of business at 5 Empire Boulevard, South Hackensack, New Jersey, and
their predecessors, successors and assigns (collectively the "Releasors"), in
consideration of the sum of One Hundred Dollars ($100.00) received by each of
them from Norton McNaughton of Squire, Inc. ("Squire"), the receipt, sufficiency
and adequacy of which is hereby acknowledged, as of the effective date first
written above, hereby jointly and severally release and discharge each of
Squire, McNaughton Apparel Group Inc. (formerly known as Norton McNaughton,
Inc.), a Delaware corporation, Miss Erika, Inc., a Delaware corporation, Jeri-Jo
Knitwear, Inc., a Delaware corporation, their current and former subsidiaries,
affiliates, divisions and related corporate entities, and the current and former
officers, directors, employees, agents, representatives, attorneys,
shareholders, principals, heirs, executors, administrators, predecessors,
successors and assigns of all of the foregoing (collectively the "Releasees")
from all actions, causes of action, suits, debts, dues, sums of money, accounts,
reckonings, bonds, bills, specialties, covenants, contracts, obligations,
controversies, agreements, promises, variances, trespasses, damages, judgments,
extents, executions, claims and demands whatsoever, in law, admiralty or equity,
whether known, unknown, foreseen or unforeseen, contingent, matured, liquidated
or unliquidated, which against the Releasees, the Releasors ever had, now have
or hereafter can, shall or may have for, upon, or by reason of any matter, cause
or thing whatsoever from the beginning of the world to the effective date of
this Release, except insofar as Railroad and Cutting Edge may have any claims
against Squire arising
<PAGE>
after the effective date of this Release and under the Agreement dated as of
July 5 1999, by and among Squire, Railroad and Cutting Edge.
In addition to, and without limiting this Release, Releasors hereby
unconditionally and irrevocably undertake, covenant and agree that Releasors
will never bring any action, proceeding, suit or charge, jointly or severally,
nor will they ever assert, prosecute or file a complaint for any claim or demand
for relief of any kind, in or before any court, tribunal, administrative or
regulatory agency, arbitrator or other forum against the Releasees, regardless
of when such claim or demand for relief allegedly arose, arising out of or in
any way relating to a certain agreement dated January 7, 1993 between Railroad
and Squire and a certain agreement dated March 17, 1993 between Toni-Linda
Productions, Inc. (Cutting Edge's predecessor) and Squire as amended or
modified, including, without limitation, all circumstances or transactions
arising out of or relating thereto.
Releasors acknowledge and agree that this Release shall be construed
in the broadest and most inclusive manner permitted by law to bar, now and
forever, the assertion or prosecution, whether jointly or severally, by
Releasors of any action, proceeding, suit, charge, claim or complaint of any
nature, whether now existing or which may arise in the future, against the
Releasees except as noted above.
The word "Releasors" and "Releasees" includes all releasors and all
releasees under this Release.
This Release may not be changed or terminated orally and shall be
governed by the law of the State of New York without regard for conflict of law
principles.
<PAGE>
RAILROAD ENTERPRISES, INC.
By: _________________________
Name: Richard Gallo
Title: President
CUTTING EDGE SERVICES, INC.
By: _________________________
Name: Salvatore Cusumano
Title: President
GAGU INC.
By: _________________________
Name:
Title:
<PAGE>
EXHIBIT D
<PAGE>
Exhibit 99.1
FOR: McNaughton Apparel Group Inc.
APPROVED BY: Peter Boneparth
Chief Executive Officer
Amanda Bokman
Chief Financial Officer
(212) 947-2960
FOR IMMEDIATE RELEASE
- ---------------------
CONTACT: Investor Relations:
David Walke/Shannon Moody
Press: Michael McMullan/David Nugent
Morgen-Walke Associates
(212) 850-5600
MCNAUGHTON APPAREL GROUP INC. ANNOUNCES EARLY RETIREMENT
OF EARN OUT OBLIGATION TO SELLERS OF MISS ERIKA, INC.
New York, New York, August 5, 1999 - McNaughton Apparel Group Inc.
(Nasdaq:MAGI) today announced that it had retired approximately two-thirds of
the earn-out obligation payable to the sellers of Miss Erika, Inc. for $10.0
million in cash. In September 1997, the Company acquired Miss Erika, Inc., a New
York-based apparel manufacturer of moderate women's casual separates, for an
initial purchase price of $24.0 million, with additional consideration payable
based upon the achievement of certain earnings targets in the fiscal years ended
October 31, 1998 and November 6, 1999.
The interests retired were owned by two investment funds who desired to
monetize their portion of the earn-out payment due to closure of the funds in
which these investments were held. The remaining one-third of the earn-out will
be paid in February 2000 in accordance with the terms of the Miss Erika
acquisition agreement, primarily to members of the current executive management
team of Miss Erika, who declined the Company's offer to pay an early and
potentially discounted cash payment.
- more -
<PAGE>
MCNAUGHTON APPAREL GROUP INC. ANNOUNCES EARLY Page: 2
RETIREMENT OF EARN OUT OBLIGATION TO SELLERS OF MISS ERIKA, INC.
Peter Boneparth, Chief Executive Officer of McNaughton Apparel Group Inc.,
commented, "Our Miss Erika acquisition has proven to be an outstanding
investment for the Company. It continues to perform well above our initial
expectations and has contributed significantly to overall operating profits."
Mr. Boneparth concluded, "Given the favorable earnings trends at Miss
Erika, we are extremely excited because we believe that we were able to retire
this portion of the earn-out obligation at a substantial discount."
McNaughton Apparel Group Inc., designs, contracts for the manufacture of
and markets a broad line of brand name, moderately priced women's and juniors'
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. The Company markets its products under its
nationally known labels, including Norton McNaughton(R) and Norton Studio(R),
through its subsidiary Norton McNaughton of Squire, Inc., Erika(R), through its
subsidiary Miss Erika, Inc., and Energie(R), Currants(R) and Jamie Scott(R),
through its subsidiary Jeri-Jo Knitwear, Inc.
This press release contains forward-looking information about the Company's
anticipated operating results. The Company's ability to achieve its projected
results is dependent on many factors which are outside of management's control.
Some of the most significant factors would be a deterioration in retailing
conditions for women's and juniors' apparel, an 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 the
integration of Miss Erika's and Jeri-Jo's businesses, the unanticipated loss of
a major customer, the unanticipated loss of a major contractor or supplier, year
2000 issues, particularly with respect to the Company's vendors and customers,
unanticipated problems arising out of Norton McNaughton of Squire's relocation
of its distribution function to South Carolina where the activities will be
performed "in-house", and weather conditions which could impact retail traffic
and the Company's ability to ship on a timely basis. Accordingly, there can be
no assurance that the Company will achieve its anticipated operating results.
# # #
<PAGE>
Exhibit 99.2
FOR: McNaughton Apparel Group Inc.
APPROVED BY: Peter Boneparth
Chief Executive Officer
Amanda Bokman
Chief Financial Officer
(212) 947-2960
FOR IMMEDIATE RELEASE
- ---------------------
CONTACT: Investor Relations:
David Walke/Shannon Moody
Press: David Nugent/Jamie Kohn
Morgen-Walke Associates
(212) 850-5600
MCNAUGHTON APPAREL GROUP INC. ANNOUNCES SETTLEMENT OF LITIGATION
WITH ITS DISTRIBUTION AND CUTTING CONTRACTORS
New York, New York, August 11, 1999 - McNaughton Apparel Group Inc.
(Nasdaq:MAGI) today announced that it has entered into an agreement with its
distribution and cutting contractors to settle the breach of contract lawsuit
brought by these contractors against the Company and Norton McNaughton of
Squire, Inc., a wholly-owned subsidiary of McNaughton Apparel Group Inc.
As part of the agreement, Norton McNaughton of Squire purchased certain
distribution-related machinery and equipment, and contractual rights from these
contractors. In addition, the distribution contractor agreed to continue
providing distribution services to Squire at the contractor's New Jersey
facility through mid-2000 when, as previously announced, Squire will relocate
its distribution activities to South Carolina and take these activities "in-
house". Finally, in connection with the settlement, Squire's existing
agreements with these contractors were terminated.
Peter Boneparth, Chief Executive Officer of McNaughton Apparel Group Inc.,
commented, "We are delighted to have settled this lawsuit and are glad that we
can now put the matter behind us. The settlement was structured to satisfy the
needs of both parties. Squire will receive a significant reduction in its
warehousing and distribution rates through June 2000, at which time we expect to
have completed the transition to South
-- more --
<PAGE>
MCNAUGHTON APPAREL GROUP INC. ANNOUNCES SETTLEMENT OF Page:2
LITIGATION WITH ITS DISTRIBUTION AND CUTTING CONTRACTORS
Carolina. We believe that the earnings per share impact on the Company will be
neutral, considering the price that we paid for the assets and contract rights,
in comparison with the rate reduction coupled with the amount previously
reserved in connection with the litigation."
McNaughton Apparel Group Inc., designs, contracts for the manufacture of
and markets a broad line of brand name, moderately priced women's and juniors'
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. The Company markets its products under its
nationally known labels, including Norton McNaughton(R) and Norton Studio(R),
through its subsidiary Norton McNaughton of Squire, Inc., Erika(R), through its
subsidiary Miss Erika, Inc., and Energie(R), Currants(R) and Jamie Scott(R),
through its subsidiary Jeri-Jo Knitwear, Inc.
This press release contains forward-looking information about the Company's
anticipated operating results. The Company's ability to achieve its projected
results is dependent on many factors which are outside of management's control.
Some of the most significant factors would be a deterioration in retailing
conditions for women's and juniors' apparel, an 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 the
integration of Miss Erika's and Jeri-Jo's businesses, the unanticipated loss of
a major customer, the unanticipated loss of a major contractor or supplier, year
2000 issues, particularly with respect to the Company's vendors and customers,
unanticipated problems arising out of Norton McNaughton of Squire's relocation
of its distribution function to South Carolina where the activities will be
performed "in-house", and weather conditions which could impact retail traffic
and the Company's ability to ship on a timely basis. Accordingly, there can be
no assurance that the Company will achieve its anticipated operating results.
###
