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Exhibit 10.1
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.
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 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;
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(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.
(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,
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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 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
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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 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).
(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
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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).
"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.
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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 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:
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Name: Peter Boneparth
Agreed as of the date first
above written:
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Susan Schneider
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Leslie Schneider
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Scott Schneider
