EXHIBIT 2
JERI-JO KNITWEAR, INC.
(formerly JJ Acquisition Corp.)
McNAUGHTON APPAREL GROUP INC.
(formerly Norton McNaughton, Inc.)
463 Seventh Avenue
New York, NY 10018
As of August 3, 2000
Susan Schneider
Leslie Schneider
Scott Schneider
c/o Currants
1407 Broadway
Suite 2909
New York, NY 10018
Re: Agreement of Purchase and Sale dated as of April 15, 1998, as
amended (the "Agreement"), by and among JJ Acquisition Corp.
(now Jeri-Jo Knitwear, Inc.), Norton McNaughton, Inc. (now
McNaughton Apparel Group Inc.), Jeri-Jo Knitwear Inc., Jamie
Scott, Inc. and the Stockholders of Jamie Scott, Inc.
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Ladies and Gentlemen:
Reference is made to the Agreement. Capitalized terms used and
not defined below 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 below.
1. Section 2.02 of the Agreement is amended to add thereto a new subsection (d)
as follows:
"(d) Notwithstanding anything to the contrary contained herein,
including without limitation the definition of "Earn Out
Payment" contained herein, the Earn Out Payment otherwise
payable hereunder shall be payable by the Purchaser and Norton
as follows:
(A)(i) At or before 3:00 p.m. on August 29, 2000 (time being
of the essence):
(1) the Purchaser and Norton shall pay
$95,000,000 (the "Initial Payment") to the
Designees by wire transfer of immediately
available funds to a bank account(s)
designated by the Designees;
(2) Norton shall issue the Earn Out Payment
Shares (as defined below) and deliver to the
Designees a certificate(s) representing the
Earn Out
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Payment Shares, which certificate(s) shall
not contain any legends under the Securities
Act of 1933, as amended, or other legends
and which Earn Out Payment Shares shall not
be subject to any stop order issued by
Norton's transfer agent arising out of the
transactions contemplated hereby;
(3) Norton shall issue and deliver the Note (as
defined below) to the Designees;
(4) Norton shall deliver to the Designees the
documents (except in respect of Section 5.03
as to agreements to which Norton or the
Purchaser are a party), in form and
substance reasonably satisfactory to counsel
to the Designees, which satisfy the Bring
Down Obligation; and
(5)(i) Section 7.14 shall terminate and be of no
further force and effect, (ii) the
representations and warranties made in this
Agreement (except in Section 3.28, it being
agreed that clause (v) of Section 3.28 is to
be read in light of Section 7(ii) hereof)
shall expire (notwithstanding the provisions
of Section 11.06(d) hereof) and (iii) the
options to purchase shares of Norton Common
Stock granted pursuant to Section 3.3 of
each of the Employment Agreements shall vest
in full.
(ii) As a condition to the Purchaser's and Norton's
obligations under clause (A)(i) above, simultaneously
with the delivery of the items set forth in clauses
(A)(i)(1) through (A)(i)(4) above, the Stockholder
Representative shall deliver the Earn Out Letter of
Credit to Norton for cancellation.
(B)(i) In the event that the last closing (the "New
Financing Closing") of the New Financing shall occur
on or before November 30, 2000, then the parties
hereto agree that, notwithstanding the dispute
provisions of Section 2.02(b)(iii) hereof (which
shall have no force or effect), the Earn Out Payment
shall be discounted and shall be fully satisfied by
the payment (without claim or offset by Norton or the
Purchaser) to the Designees of an aggregate of (i)
$125,000,000 in cash (the "Cash Payment"), consisting
of the Initial Payment payable as set forth in
subsection (A)(i)(1) above and the balance of the
Cash Payment payable as set forth in subsection
(B)(ii) below, (ii) the issuance of 2,000,000 shares
(valued at $13.00 per share) (the "Earn Out Payment
Shares") of Norton Common Stock as set forth in
subsection (A)(i)(2) above and (iii) the issuance by
Norton of its unsecured subordinated note(s)
(collectively, the "Note") as set forth in subsection
(A)(i)(3) above containing the terms and conditions
set forth in subsection (B)(iii) below.
(ii) In the circumstances set forth in subsection (B)(i)
above, on the date of the New Financing Closing the
Purchaser and Norton shall pay to the Designees by
wire transfer in immediately available funds to a
bank account(s) designated by the Designees the
remaining $30,000,000 of the Cash Payment.
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3
(iii) The Note shall contain the following terms:
(1) the Note shall be in the aggregate principal
amount of $10,000,000;
(2) the Note shall have the following scheduled
payments: (i) in an amount equal to the
lesser of the principal amount then
outstanding and the Excess Proceeds (as
defined below) on the date of the closing of
an Underwritten Offering (as defined below),
(ii) $2,500,000 (or such lesser amount as
shall at the time be outstanding) on the
first Business Day of each of Norton's
fiscal quarters following the payment in
full of all overadvances/term loans and
(iii) in full on November 30, 2003;
(3) interest on the outstanding principal amount
of the Note shall be payable monthly in
arrears at the same rate per annum in effect
from time to time as the rate payable on
non-overadvance revolving credit borrowings
under the New Financing;
(4) the amounts owing under the Note shall be
unsecured and shall be subordinated to all
of the amounts (including "post petition
interest") owing under (A) the Amended and
Restated Financing Agreement dated as of
June 18, 1998, as heretofore amended and as
further amended from time to time, among
Norton, the Purchaser, Nationsbanc
Commercial Corporation, The CIT
Group/Commercial Services, Inc., Fleet Bank
NA and others, (B) any financing
agreement(s) relating to the New Financing
(other than equity financing) and (C) the
Indenture (the "Indenture") dated as of June
18, 1998, as heretofore supplemented and as
further supplemented from time to time,
among Norton, the Subsidiary Guarantors
named in that Indenture and United States
Trust Company of New York as trustee (the
items referred to in clauses (A), (B) and
(C) above, collectively the "Senior
Indebtedness"); such subordination to be on
normal and customary terms and conditions
reasonably acceptable to the parties hereto
and to the holders of the Senior
Indebtedness, which shall include nonpayment
on the Note during the continuance of an
event of default under any of the Senior
Indebtedness, but which shall permit
interest on the Note to be paid currently in
cash other than during the continuance of an
event of default under any of the Senior
Indebtedness (the foregoing, collectively,
the "Subordination");
(5) Norton may make prepayments on the Note
without premium or penalty at anytime and
from time to time, such prepayments to be
applied first to the amount of accrued and
unpaid interest thereon through the date of
such prepayment and second to outstanding
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4
principal amount of the Note;
(6) in the event that Norton consummates an
underwritten public offering of Norton
Common Stock while amounts under the Note
are outstanding (an "Underwritten
Offering"), the proceeds from that offering,
after payment of all underwriting
commissions and discounts and all expenses
of the offering and after the payment in
full of all overadvances/term loans under
the New Financing (the "Excess Proceeds"),
shall be paid by Norton to the Designees as
a scheduled payment on the Note (to the
extent of amounts owing thereunder), which
scheduled payment shall be applied first to
the amount of accrued and unpaid interest
thereon through the date of such prepayment
and second to outstanding principal of the
Note; as used herein "overadvances/term
loans" shall mean the principal portion of
the New Financing which are term loans
and/or which are in excess of 85% of the
eligible accounts receivable and 60% of the
eligible inventory of Norton and its
subsidiaries;
(7) in the event that all overadvances/term
loans under the New Financing have been
repaid in full, including pursuant to clause
(6) above, Norton shall make scheduled
payments of $2,500,000 on the Note, in the
aggregate, or such lesser amount as may be
owing under the Note, on the first Business
Day of each of Norton's fiscal quarters
following the date on which the
overadvances/term loans were repaid in full,
until all principal owing under the Note has
been repaid in full;
(8) each Designee may declare the entire amount
under the Note held by such person due and
owing after the occurrence and during the
continuance of an Event of Default (as
defined below) under the Note and, following
such declaration (and as the Designees' sole
and exclusive remedy), at the election of
such Designee given within 15 Business Days
after the occurrence of such Event of
Default (A) Norton shall issue a fraction of
a share of Norton Common Stock to the
Designees for each dollar in outstanding
principal amount in default equal to one (1)
divided by the Market Price Factor and, in
such case, the Note shall be deemed paid in
full; provided that in no event shall the
aggregate number of shares of Norton Common
Stock issued to a Designee exceed such
Designee's Percentage Interest multiplied by
2,230,000 shares of Norton Common Stock or
(B) the Note shall remain outstanding and
due and payable, subject to the
Subordination, and no shares of Norton
Common Stock shall be issued by Norton to
the Designees (it being understood and
agreed to by the parties hereto that the
failure by any Designee so to deliver such
election in a timely manner shall terminate
the right of such Designee to make such
election and shall grant Norton the right to
make such election on behalf of such
Designee); the events of
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default (the "Events of Default") under the
Note shall be (a) subject to the terms of
the Subordination, failure by Norton to pay
the principal of or interest on the Note
within five (5) Business Days' after the due
date therefor, (b) bankruptcy and insolvency
events relating to Norton and its
subsidiaries (subject to normal dismissal
periods), (c) acceleration of any of the
Senior Indebtedness and (d) in a single or
series of related transactions, the sale of
all or substantially all of the assets of
Norton or the sale by the holders thereof
(whether by merger or otherwise) of a
majority of the voting capital stock of
Norton (determined on a fully diluted
basis); Norton agrees to notify the
Designees of the occurrence of an Event of
Default; and
(9) the Note shall not contain any covenants of
Norton other than as set forth above and
other than normal and customary affirmative
covenants covering compliance with laws,
preservation of existence, maintenance of
books and records, and maintenance of
insurance.
(C)(i) In the event that the New Financing Closing shall not
have occurred on or before November 30, 2000, then
the parties hereto agree that, notwithstanding the
dispute provisions of Section 2.02(b)(iii) hereof
(which shall have no force or effect), the Earn Out
Payment shall be discounted and shall be fully
satisfied by the payment (without claim or offset by
Norton or the Purchaser) to the Designees of an
aggregate of (i) the Initial Payment as set forth by
subsection (A)(i)(1) above, (ii) the Earn Out Payment
Shares as set forth by subsection (A)(i)(2) above,
(iii) the Note as set forth by subsection (A)(i)(3)
above and (iv) on December 1, 2000, $59,000,000 (the
"Final Payment") in the manner set forth in
subsection (C)(ii) below.
(ii) The Final Payment shall be made by Norton to the
Designees based upon their Percentage Interest and,
at the election of Norton, in cash, shares of Norton
Common Stock (the "Second Shares") and/or unsecured
subordinated note(s) of Norton (collectively, the
"Second Note") (with each Second Note to contain the
same terms and conditions as the Note, except the
principal amount thereof, except that the proviso
contained in subsection (d)(B)(iii)(8)(A) shall not
be applicable and except that the payment of the Note
and the Second Note with Excess Proceeds shall be
made on a pro-rata basis). In connection with the
payment of the Final Payment, each of the Second
Shares shall be valued at the Market Price Factor
determined as of the close of business on November
27, 2000. It is understood and agreed by the parties
hereto that the aggregate amount of the Final Payment
shall be reduced by $1.967 for every $1.00 in cash
paid by the Purchaser and Norton to the Designees
after August 29, 2000 and in payment of the remaining
$59,000,000 balance of the Earn Out Payment in the
circumstances contemplated by this subsection (C).
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(iii) Under the circumstances set forth in this subsection
(C), Norton and the Purchaser hereby agree to
reasonably cooperate with the Designees in connection
with any filings required under the Hart-Scott-Rodino
Antitrust Improvement Act of 1976 or under other
statutes or regulatory provisions, and in the event
that any such filings are required, the parties
hereto understand and agree that any time periods set
forth in this subsection (C) shall be extended in
order to accommodate all applicable waiting periods
and other filing requirements under such statutes and
regulatory provisions.
(iv) In connection with the issuance of Second Shares
under this subsection (C), (a) the certificates
representing such Second Shares shall not contain any
legends under the Securities Act of 1933, as amended,
or other legends and shall not be subject to any stop
order issued by Norton's transfer agent arising out
of the transactions contemplated hereby and (b)
Norton shall deliver to the Designees the documents
(except in respect of Section 5.03 as to agreements
to which Norton or the Purchaser are a party), in
form and substance reasonably satisfactory to counsel
to the Designees, which satisfy the Bring Down
Obligation.
2. Sections 2.04(a), (b) and (c) of the Agreement (other than relevant
definitions contained therein which are later used in the Agreement, except that
the term "Holder" is hereby amended to mean each of the several Designees) are
deleted and replaced with "Intentionally Deleted".
3. Section 2.04(f) is amended by adding the following at the end thereof:
"The Designees and Norton agree that, for the purpose of determining
the reduction and allocation of Supplemental Registration Shares
pursuant to this subsection (f) and the reduction and allocation of
shares of Norton Common Stock otherwise to be included in the subject
registration statement and beneficially owned by Sanford Greenberg, Jay
Greenberg, Norton Sperling, Stuart Bregman, Howard Zwilling and the
other sellers of the Miss Erika business (all being other persons
holding "piggyback" registration rights in respect of Norton Common
Stock) (the "Other Rights Persons"), such reduction and allocation
shall occur pro-rata among Supplemental Registration Investors and
Other Rights Persons and on a basis which takes into account shares of
Norton Common Stock issuable pursuant to then currently exercisable
options held by Supplemental Registration Investors and Other Rights
Persons."
4. Section 2.04(g) of the Agreement is amended by deleting clauses (i) and (ii)
thereof and replacing such clauses with "Intentionally Deleted".
5. Section 14.01 of the Agreement is amended by adding the following definitions
as follows:
"Designees" shall mean each of Leonard Schneider, Susan
Schneider, Leslie Schneider and Scott Schneider (it being
agreed that all references to "Designees" herein shall mean
each of such persons on a several basis).
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"Market Price Factor" shall mean the lower of (i) $13.00 (as
such number shall be adjusted for stock splits, stock
dividends and similar events) and (ii) the Market Value
(determined on the basis of a 20-Business Day average) of a
share of Norton Common Stock on the date of the occurrence of
an event of default under the Note and/or the Second Note (in
the case of Section 2.02(d)(B)(iii)(8)(A)), or on November 27,
2000 (in the case of Section 2.02(d)(C)(ii)).
"New Financing" shall mean bank and/or other debt or equity
financing arrangements to be entered into, if at all, by
Norton and/or its subsidiaries in amounts and on terms and
conditions (acceptable to Norton in its sole discretion) which
enable the Purchaser and Norton to make the Earn Out Payment
in the amount and in the manner described in Section
2.02(d)(B)(i) hereof.
6. The parties hereto understand and agree that whenever herein the Purchaser
and/or Norton are required to deliver the Cash Payment (including the Initial
Payment), the Earn Out Payment Shares, the Note and/or the Final Payment (if
applicable) to the Designees in respect of the separate acquisitions by the
Purchaser of each of the Companies, the Purchaser and/or Norton, as applicable,
shall deliver the Designees' applicable Percentage Interest of the Cash Payment
(including the Initial Payment), the Earn Out Payment Shares, the Note and/or
the Final Payment (if applicable) to Leonard Schneider (the sole shareholder of
Jeri-Jo Knitwear, Inc.), and to Susan Schneider, Leslie Schneider and Scott
Schneider (as the shareholders of Jamie Scott, Inc.), respectively.
7. 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. In
addition, the Designees agree with Norton and the Purchaser that neither they
nor any of their affiliates or immediate family members shall publicly sell or
otherwise publicly transfer any shares of Norton Common Stock until the earlier
to occur of the New Financing Closing or November 30, 2000 (it being understood
and agreed by the Designees that notwithstanding anything to the contrary
contained herein, Norton may instruct its transfer agent to issue appropriate
stop orders in order to give effect to the foregoing agreement by the
Designees).
8. Norton represents and warrants to the Designees that the Board of Directors
of Norton has waived the applicability of its Stockholders Rights Plan (the
"Plan") in respect of the Designees' ownership of Norton Common Stock as a
result of the consummation of the transactions contemplated by the Agreement and
the Employment Agreements, by resolving to amend the Plan to permit the
issuances of Norton Common Stock contemplated under the Agreement and the
Employment Agreements without causing the Plan to become effective with respect
to the Designees and the shares of Norton Common Stock issuable hereunder and
thereunder and issuable pursuant to options to acquire Norton Common Stock held
by the Designees. Norton agrees to use its commercially reasonable efforts to
effect the New Financing.
9. Except as amended by this amendment, the Agreement is ratified and confirmed
in all respects. Nothing in this amendment shall confer or be deemed to confer
any right, remedy, benefit or entitlement on any third party (other than the
Designees). This amendment shall be
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construed pursuant to and in accordance with the laws of the State of New York,
without regard to conflict of law 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.
10. Notwithstanding anything to the contrary contained herein, in the event that
the Purchaser and Norton default under the provisions of Section 2.02(d)(A)(i)
of the Agreement, (i) this amendment shall terminate (except the first sentence
of Section 8 hereof) and be of no force or effect, (ii) the Purchaser and Norton
shall be in default under the Agreement and (iii) the Earn Out Payment shall be
$190,000,000. The parties acknowledge and agree that, in addition to any other
rights of the Designees upon default by the Purchaser and Norton under the
Agreement, (A) the cash amount payable under Section 2.02(d)(A)(i)(1) of the
Agreement shall constitute, and be deemed and construed for all purposes to be,
an "Earn Out Payment in excess of the Stock Earn Out Amount," (B) no dispute
exists with respect thereto (other than any non-payment that may occur as and
when due), (C) in the event of any non-payment of such amount as and when due
the beneficiary under that certain Letter of Credit No. 933394 dated June 18,
1998, as amended, issued by Bank of America, N.A. (formerly known as Nations
Bank, N.A.), shall be entitled to draw thereupon in the overdue amount (subject
to the maximum amount of such Earn Out Letter of Credit), and (D) such
non-payment would be properly described by checking the second certification box
(respecting the "Second Amount") in submitting a drawing Certificate
substantially in the same form as Exhibit B annexed to such Earn Out Letter of
Credit.
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Very truly yours,
JERI-JO KNITWEAR, INC.
MCNAUGHTON APPAREL GROUP INC.
By: /s/ Peter Boneparth
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Name: Peter Boneparth
Agreed as of the date first above written:
/s/ Susan Schneider
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Susan Schneider
/s/ Leslie Schneider
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Leslie Schneider
/s/ Scott Schneider
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Scott Schneider
