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PURCHASE AGREEMENT
DATED: DECEMBER 8, 1997
AMONG
STAGE II APPAREL CORP. ("Stage II"), with its principal place of
business at: 000 Xxxxx Xxxxxx, Xxx Xxxx, XX 00000;
and
SHOREBREAK GROUP, INC. ("Shorebreak") and its shareholders: XXXXXXX
XXXXX, XXXXXXX XXXXXXX, XXX XXXXXXX, AND XXXXXXX XXXXXXX (the
"Shorebreak Shareholders"), with their principal place of business at
0000 Xxxxxxxx, Xxx Xxxx, XX 00000.
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TABLE OF CONTENTS
1 PURCHASE AND SALES OF SHARES AND EXCHANGE OF STOCK 2
1.1 Stage II Receipt of Shares 2
1.2 Special Releases; Consideration 2
1.3 Shorebreak Share Transfer 2
1.4 Stage II Share Issuance 2
2 REPRESENTATIONS AND WARRANTIES OF SHOREBREAK AND
SHOREBREAK SHAREHOLDERS 2
2.1 Beneficial Owners 2
2.2 Subsidiaries 3
2.3 Legal Rights in the Shorebreak Shares 3
2.4 Legal Proceedings 3
2.5 Liens 3
2.6 Legal Organization 3
2.7 Title to Assets, Leases 4
2.8 Trademarks, Trade names, Licenses 4
2.9 Patents, Inventions 4
2.10 Financial Statements 4
2.11 No Material Adverse Changes 5
2.12 No Other Businesses 5
2.13 Filings of Governmental Reports 5
2.14 Timely Filing of All Tax Returns 5
2.15 No Breach 5
2.16 Full Legal Authority to Contract 6
2.17 Minute Books 6
2.18 Contracts 6
2.20 Oral Agreements 7
2.21 Certain Actions Not Taken 7
2.22 No Misleading Statements 8
2.23 Pension Plans and Payments 8
2.24 Adequate Insurance Coverage 9
2.25 Powers Of Attorney 9
2.26 No Finders' Fees Earned 9
2.27 Environmental Law Compliance 9
2.28 All Necessary Governmental Permits Obtained 10
2.29 Investment Representations 10
3 REPRESENTATIONS AND WARRANTIES OF STAGE II 10
3.1 Subsidiaries: Encumbrance on Subsidiaries Shares 11
3.3 Legal Proceedings 11
3.4 Liens 12
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3.5 Legal Organization: Stage II 12
3.6 Title to Assets: Leases 12
3.7 Trademarks, Trade names; Licenses 12
3.8 Patents, Inventions 12
3.9 Financial Statements 13
3.10 No Material Adverse Changes 13
3.11 No Other Business 13
3.12 Filing of Governmental Reports 13
3.13 Timely Filing Of All Tax Returns 13
3.14 No Breach 14
3.15 Full Legal Authority to Contract 14
3.16 Minute Books 14
3.17 Contracts 15
3.19 Oral Agreements 16
3.20 Certain Actions Not Taken 16
3.21 No Misleading Statements 17
3.22 Pension Plans and Payments 17
3.23 Adequate Insurance Coverage 18
3.24 Powers Of Attorney 18
3.25 No Finders' Fees Earned 18
3.26 Environmental Law Compliance 18
3.27 All Necessary Governmental Permits Obtained 19
3.28 Public Company; Periodic Report 19
3.29 American Stock Exchange Listing 19
3.30 Vendor and Customer Contracts 19
4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION 20
4.1 Survival of Representations 20
4.2 Shorebreak Shareholders' Indemnifications 20
4.3 Notifications by Stage II 20
4.4 Stage II Indemnification 21
4.5 Notification by the Shorebreak Shareholder 21
4.6 Indemnification Survival Date 21
5 CONDUCT OF STAGE II BUSINESS PENDING CLOSING 22
5.1 Conduct of Operations 22
5.2 Internal Controls 22
5.3 Stand Still on Obligations 22
5.4 Preservation of Representations 23
5.5 Continuing Investigation 23
5.6 Procuring Approvals 23
5.7 Preservation of Business and Customer Relations 23
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5.8 Adjustment in Shares 24
5.9 Corporate Access 24
5.10 Delivery of Periodic Reports. 24
5.11 Maintenance of Exchange Listing. 24
5.12 Proxy Statement and Special Meeting 24
6 CONDUCT OF SHOREBREAK BUSINESS PENDING CLOSING 25
6.1 Conduct of Operations 25
6.2 Internal Controls 25
6.3 Stand Still on Obligations 25
6.4 Preservation of Representations 26
6.5 Continuing Investigation 26
6.6 Procuring Approvals 27
6.7 Preservation of Business and Customer Relations 27
7 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SHOREBREAK AND
THE SHOREBREAK SHAREHOLDERS 27
7.1 No Material Breaches 27
7.2 Compliance with Entire Agreement 27
7.3 Certification of Compliance 27
7.4 Certain Consents Obtained 27
7.5 Reconstitution of Stage II Board 28
7.6 Certification of Corporate Existence 28
7.7 Physical Inventory; Interim Financial Statements 28
7.8 Board Approval of the Transaction 28
7.9 AMEX Consent 29
7.10 Purchase Orders 29
7.11 Shareholder Notice and Approval 29
7.12 Repurchase Agreement 29
8 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF STAGE II 29
8.1 No Material Breaches 29
8.2 Compliance with Entire Agreement 29
8.3 Certification of Compliance 29
8.4 Certain Consents Obtained 29
8.5 Certificates of Corporate Existence 30
8.6 Physical Inventory 30
8.7 Stage II Shareholders Employment Agreements 30
8.8 Options 30
8.9 Blue Sky Laws 30
8.10 Purchase Orders 30
8.11 New Credit Facility 30
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9 OTHER OBLIGATIONS OF THE PARTIES AT THE CLOSING 31
9.1 Other Shorebreak Shareholders' Obligations 31
9.2 Other Stage II Obligations 31
9.3 Press Releases 31
10.1 Shorebreak Termination Event 32
10.2 Stage II Termination Event 32
10.3 Other Termination Events 32
10.4 Notice of Termination 32
10.5 Effects of Termination 32
11 POST CLOSING 33
11.1 Standstill Obligations 33
11.2 Access 33
11.3 Delivery of Periodic Reports, Maintenance of Exchange Listing, and
Notice of Annual Meetings. 33
11.4 No Derogation 34
11.5 Further Instruments 34
12 MISCELLANEOUS 34
12.1 Benefit 34
12.2 Entire Agreement. 34
12.3 Governing Law; Consent to Jurisdiction. 34
12.4 Expenses. 34
12.5 Assignment. 34
12.6 Severability. 35
12.7 Notices 35
12.8 Non-waivers 36
12.9 Headings 36
12.10 Closing 36
12.11 Counterparts 36
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PURCHASE AGREEMENT
DATED: DECEMBER 8, 1997
AMONG
STAGE II APPAREL CORP. ("Stage II"), with its principal place of business at:
000 Xxxxx Xxxxxx, Xxx Xxxx, XX 00000;
and
SHOREBREAK GROUP, INC. ("Shorebreak") and its shareholders: XXXXXXX XXXXX,
XXXXXXX XXXXXXX, XXX XXXXXXX, AND XXXXXXX XXXXXXX (the "Shorebreak
Shareholders"), with their principal place of business at 0000 Xxxxxxxx, Xxx
Xxxx, XX 00000.
RECITALS
A. Stage II, a public corporation organized under the laws of the State of New
York, wishes to acquire all the outstanding shares of Shorebreak, a corporation
organized under the laws of the State of New York.
B. The Shorebreak Shareholders, constituting all of the shareholders of
Shorebreak, wish to sell their respective shares of common stock of Shorebreak
to Stage II in exchange for shares of common stock of Stage II.
C. Stage II and the Shorebreak Shareholders intend that for federal income tax
purposes the exchange of shares between them shall be a exchange in which
neither party will recognize gain or loss.
D. Stage II shall repurchase a total of 1,900,000 shares (the "Repurchase
Shares") of the issued and outstanding common stock of Stage II ("Stage II
Common Stock") from Xxxx Xxxxx, Xxxxxx Xxxxxxx and Xxxxxx X. Xxxxx (the "Stage
II Shareholders") in consideration of their release from guarantees of certain
indebtedness of Stage II, and the issuance to the Stage II Shareholders of
options to purchase 1,500,000 shares of Stage II Common Stock (the "Options");
and
E. Certain other agreements are to be entered into between Stage II and the
Stage II Shareholders.
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NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants set forth in this Agreement, the parties agree as follows:
1 PURCHASE AND SALES OF SHARES AND EXCHANGE OF STOCK
Upon the terms and subject to the conditions set forth in this Agreement, at the
Closing (as hereinafter defined) the parties shall consummate the following
transactions:
1.1 Stage II Receipt of Shares Pursuant to the Repurchase Agreement in
the form of Exhibit 1.1 (the "Repurchase Agreement"), Stage II shall repurchase
the Repurchase Shares from the Stage II Shareholders in the proportions set
forth on Schedule 1.1.
1.2 Special Releases; Consideration In consideration for the repurchase
of their Repurchase Shares under the Repurchase Agreement, the Stage II
Shareholders shall receive releases, in the form of Exhibit 1.2a, of their
guarantees for the debts identified on Schedule 1.2, and the issuance of Options
pursuant to a Stock Option Plan in the form of Exhibit 1.2b (the "Option Plan").
1.3 Shorebreak Share Transfer The Shorebreak Shareholders shall sell,
transfer and deliver to Stage II, all and not a part of the 200 shares of the
common stock, no par value, of Shorebreak issued and outstanding (collectively,
the "Shorebreak Shares") , free and clear of all liens, mortgages, deeds of
trust, security interests, pledges, charges, encumbrances, liabilities and
claims of every kind.
1.4 Stage II Share Issuance Stage II shall sell, issue and transfer to
the Shorebreak Shareholders, in the proportions set forth on Schedule 1.4, all
and not a part of 4,008,654 shares of Stage II Common Stock (the "Stage II
Shares"), free and clear of all liens, mortgages, deeds of trust, security
interests, pledges, charges, encumbrances, liabilities and claims of every kind,
except those which may be imposed by the federal securities law or arise from
acts or omissions of the Shorebreak Shareholders.
2 REPRESENTATIONS AND WARRANTIES OF SHOREBREAK AND SHOREBREAK
SHAREHOLDERS
Shorebreak and the Shorebreak Shareholders warrant and represent to
Stage II (it being understood that any Schedules or amended Schedules referred
to in this Article 2 that are delivered to Stage II within five (5) business
days after the date hereof shall be deemed a part hereof):
2.1 Beneficial Owners The Shorebreak Shareholders are the lawful
beneficial owners of the Shorebreak Shares, as listed on Schedule 4, all of
which are registered on the
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records of Shorebreak in their respective names and which constitute all of the
issued and outstanding shares of capital stock of the Shorebreak.
2.2 Subsidiaries Shorebreak has no subsidiaries and does not own the
stock of any other corporation.
2.3 Legal Rights in the Shorebreak Shares The Shorebreak Shares are
duly authorized, validly issued, fully paid and non-assessable. The Shorebreak
Shares have not been pledged, mortgaged or otherwise encumbered in any way and
there is no lien, charge, claim, liability, or encumbrance of any nature against
the Shorebreak Shares. Except for the sale of the Shorebreak Shares contemplated
hereby, there are no options, warrants, rights of subscription or conversion,
calls, commitments, agreements, arrangements, understandings, plans, contracts,
proxies, voting trusts, voting agreements or instruments of any kind or
character, oral or written, to which any of the Shorebreak Shareholders or
Shorebreak is a party, or by which any of the Shorebreak Shareholders or
Shorebreak is bound, relating to the issuance, voting or sale of the Shorebreak
Shares, or any authorized but unissued shares of capital stock of Shorebreak, or
of any securities representing the right to purchase or otherwise receive any
such shares of capital stock. The Shorebreak Shareholders have good and
marketable title to the Shorebreak Shares and have full right to transfer title
to the Shorebreak Shares free and clear of all liens, mortgages, charges,
encumbrances, liabilities and claims of every type whatsoever. At the Closing,
the Shorebreak Shareholders shall have good and marketable title to the Shares
and full right to transfer title to the Shorebreak Shares free and clear of all
liens, mortgages, charges, liabilities, encumbrances and claims of every type
whatsoever. The sale, conveyance, transfer and delivery of the Shorebreak Shares
by the Shorebreak Shareholders to Stage II pursuant to this Agreement will
transfer full legal and equitable right, title and interest in the Shorebreak
Shares to Stage II, free and clear of all liens, charges, claims, liabilities
and encumbrances of any nature whatsoever.
2.4 Legal Proceedings Neither Shorebreak nor any of the Shorebreak
Shareholders is a party to any pending litigation, arbitration or administrative
proceeding or investigation, and, to the best knowledge of the Shorebreak
Shareholders no such litigation, arbitration or administrative proceeding or
investigation that might result in any material and adverse change in the
financial condition, business or properties of Shorebreak has been, or is
threatened.
2.5 Liens There are no liens, mortgages, deeds of trust, claims,
charges, security interests or other encumbrances or liabilities of any type
whatsoever to which any of the assets of Shorebreak are subject, except as
described in Schedule 2.5 or in the financial statements referred to in Section
2.10.
2.6 Legal Organization Shorebreak is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York.
Shorebreak has corporate power and authority to carry on its business as now
conducted and to own, lease or operate the properties and assets now used by it
in connection therewith. Shorebreak is not qualified to transact business in any
other jurisdiction, nor is Shorebreak required to be so qualified.
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2.7 Title to Assets, Leases Shorebreak has good and marketable title to
it real and personal property reflected in the financial statements referred to
in Section 2.10, free and clear of all liens, mortgages, deeds of trust, claims,
security interests, liabilities, encumbrances and charges, except as reflected
in such financial statements and except for liens, encumbrances and charges, if
any, which do not materially detract from the value of or interfere with the use
of any property subject thereto or affected thereby, except as disclosed in
Schedule 2.5. Schedule 2.7 contains an accurate list of all leases and other
agreements under which Shorebreak is lessee of any real or personal property.
Each of such leases and agreements is in full force and effect and constitutes
the legal, valid and binding obligation of the parties thereto.
2.8 Trademarks, Trade names, Licenses Shorebreak owns the trademarks,
trade names, and registrations therefor listed in Schedule 2.8a, and is the
licensee of the licenses of the trademarks, trade names, and registrations
listed in Schedule 2.8b. Shorebreak has not granted, and will not grant prior to
the Closing, licenses or other rights to use such trademarks or trade names to
anyone. No other trademarks or trade names are either owned or used by
Shorebreak. To the best knowledge of the Shorebreak Shareholders, the operations
of Shorebreak's business do not infringe on the trademarks and trade names of
any third party, and no claim has been made or threatened that there is any such
infringement.
2.9 Patents, Inventions Shorebreak owns, or has licenses to utilize,
the inventions, letters patent, applications for letters patent and patent
license rights specified as belonging to it in Schedule 2.9 and has not granted,
and will not grant prior to the Closing, licenses or other rights to use such
inventions, letters patent, application for letters patent or patent license
rights, except as specified in Schedule 2.9. No other inventions, letters
patent, applications for letters patent or patent license rights are owned or
used by Shorebreak. To the best knowledge of the Shorebreak Shareholders, the
operations of Shorebreak's business does not infringe on the inventions, letters
patent, applications for letters patent or patent license rights of any third
party, and no claim has been made or threatened that there is any such
infringement.
2.10 Financial Statements Shorebreak has delivered to Stage II its
balance sheet as at September 30, 1997 ("Shorebreak Balance Sheet") and its
statements of income and cash flows for the nine month period then ended
(collectively "Shorebreak Financial Statements".) True, correct and complete
copies of the Shorebreak Financial Statements are attached as Schedule 2.10. The
Shorebreak Financial Statements have been prepared in accordance with generally
accepted accounting principles consistently applied ("GAAP") and are accompanied
by a report from Shorebreak's accountants showing that they have reviewed those
statements. All items included in the inventories reflected in the Shorebreak
Financial Statements are owned by Shorebreak, except for items sold in the
ordinary course of business since September 30, 1997; its inventory is not
subject to any security interest except as described in Schedule 2.5. Schedule
2.10 contains a list of all prepaid expenses (including pre-paid tickets to
sports and entertainment events) showing to whom money was paid and the contract
or other obligation pursuant to which it was paid.
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2.11 No Material Adverse Changes There has been no material adverse
change in the financial position of Shorebreak since September 30, 1997, other
than the changes referred to in Schedule 2.11a. The Shorebreak Balance Sheet
reflects the liabilities and obligations of Shorebreak, direct and contingent,
as at September 30, 1997, and Shorebreak as of the date hereof, does not have
any material liabilities of any nature whatsoever, direct or contingent, that
have not been reflected in the Shorebreak Balance Sheet except such current
liabilities as have been incurred since September 30, 1997 in the ordinary
course of business, and except for possible rejections by customers of
manufactured goods (which rejections in the aggregate will not exceed $10,000).
A "material adverse change in financial condition" shall mean a decrease in
total assets or an increase in total liabilities of greater than 5% of the total
assets or total liabilities reflected on the September 30, 1997 Balance Sheet.
As of September 30, 1997, there was no asset used by Shorebreak in its
operations that has not been reflected thereon, and except as set forth on
Schedule 2.11b, no assets have been acquired by Shorebreak since such date
except in the ordinary course of business.
2.12 No Other Businesses Shorebreak does not own all or any part of or
control, directly or indirectly, any other business, joint venture, partnership
or proprietorship not reflected in the Shorebreak Financial Statements and the
notes thereto.
2.13 Filings of Governmental Reports To the best knowledge of the
Shorebreak Shareholders, Shorebreak has filed all reports and returns required
by all governments or governmental agencies and has complied with all applicable
material federal, state, and local laws, and the Shorebreak Shareholders know of
no claim that the Shorebreak has failed to do so.
2.14 Timely Filing of All Tax Returns Shorebreak has timely filed all
federal and state income tax returns and has filed with all other appropriate
governmental agencies all tax, franchise, license, gross receipts and other
similar returns and reports required to be filed by Shorebreak. All tax
liabilities of Shorebreak which it was required to pay for its first fiscal year
have been paid or adequately disclosed and reserved for on the Shorebreak
Financial Statements. For purposes of this Section 2.14, the word "timely" shall
mean that such returns were filed within the time prescribed by law for the
filing thereof, including the time permitted under any applicable extensions.
2.15 No Breach The execution and delivery of this Agreement does not,
and the consummation of the transactions contemplated by this Agreement will
not, result in the breach of any term or provision of the certificate of
incorporation or by-laws of Shorebreak or constitute a material breach of any
term or provision of or constitute a default under any law, rule, regulation,
indenture, mortgage, deed of trust or other agreement or instrument to which
either Shorebreak or any of the Shorebreak Shareholders is a party or by which
any of them is bound, and no consent or other approval of any other person is
required to be obtained by either Shorebreak or any of the Shorebreak
Shareholders in connection with the transactions contemplated hereby.
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2.16 Full Legal Authority to Contract Shorebreak and each of the
Shorebreak Shareholders has the full legal right and capacity to execute,
deliver and perform this Agreement on behalf of itself, him or herself, and each
of them is and shall be bound by such actions. No governmental license, permit
or authorization, and no registration or filing with any court, governmental
authority or regulatory agency, is required in connection with the execution,
delivery or performance of this Agreement by Shorebreak or the Shorebreak
Shareholders. This Agreement has been duly executed and delivered by Shorebreak
and the Shorebreak Shareholders and constitutes the legal, valid and binding
obligation of Shorebreak and the Shorebreak Shareholders, enforceable against
Shorebreak and the Shorebreak Shareholders in accordance with its terms, except
to the extent that such enforceability may be limited by general principles of
equity or bankruptcy, insolvency and other similar laws affecting the
enforcement of creditors' rights generally.
2.17 Minute Books True and complete copies of the certificate of
incorporation and by-laws of Shorebreak and all amendments thereto and copies of
all minutes of Shorebreak are contained in its minute books, true and correct
copies of which have been provided to Stage II.
2.18 Contracts Except as disclosed in Schedule 2.18 or in the other
Schedules under this Article 2, Shorebreak is not a party to any written:
2.18.1 employment contract, or contract with any officer,
director or consultant;
2.18.2 contract with any labor union or other labor
organization;
2.18.3 bonus, pension, profit-sharing, retirement, stock
purchase, severance, vacation, sick day, hospitalization, insurance or other
plan or arrangement providing employee benefits;
2.18.4 lease with respect to any property, whether as lessor
or lessee;
2.18.5 contract either continuing over a period of more than
ninety (90) days from the date hereof or involving more than $25,000;
2.18.6 contract for borrowed money or guaranties for borrowed
money;
2.18.7 license, sublicense, franchise or royalty agreement;
2.18.8 distribution, advertising or similar contract;
2.18.9 contract for the warehousing, storage, handling,
shipping, importing, entry or customs clearance of products or supplies;
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2.18.10 contract or license agreement that cannot be
terminated on not more than sixty (60) days' notice and without liability or
penalty in excess of $25,000 in the aggregate in connection with all such
contracts, except contracts and commitments for the purchase or sale of goods,
materials, supplies or services entered into in the ordinary course of business.
2.19 Contracts are Enforceable in Accordance with their Terms Except as
set forth in Schedule 2.19, all agreements, contracts or other instruments of
Shorebreak listed or required to be listed in the Schedules under this Article 2
(collectively, the "Shorebreak Contracts") are valid, binding and in full force
and effect and are enforceable by Shorebreak in accordance with their respective
terms. Except as set forth in Schedule 2.19, Shorebreak has performed all
material obligations required to be performed by it to date under the Shorebreak
Contracts and it is not in breach or default in any material respect thereunder
(with or without the lapse of time or the giving of notice, or both) nor has any
other party to any of the Shorebreak Contracts notified Shorebreak of that
party's belief that Shorebreak is or is likely to become in breach or default in
any material respect thereunder or of that party's intention to accelerate or
modify in a manner adverse to Shorebreak any of its obligations or rights
thereunder and, to the knowledge of the Shorebreak Shareholders, no other party
to any of the Shorebreak Contracts is in breach or default in any material
respect thereunder (with or without the lapse of time or the giving of notice,
or both). Shorebreak has delivered to Stage II true and correct copies of all
Shorebreak Contracts.
2.20 Oral Agreements Shorebreak is not a party to any oral contracts of
the types described in Sections 2.18.
2.21 Certain Actions Not Taken Except as disclosed in the Shorebreak
Financial Statements or in the other Schedules under this Article 2, since
September 30, 1997, Shorebreak has not:
2.21.1 issued, purchased or redeemed any stock, bonds or other
corporate securities of Shorebreak, consummated any merger, business
combination, reclassification of it capital stock or other substantial business
reorganization, or declared, set aside or paid any dividend or distribution in
respect of any shares of capital stock;
2.21.2 incurred any obligation (absolute or contingent) except
current liabilities incurred in the ordinary course of business and obligations
under Shorebreak Contracts;
2.21.3 mortgaged, pledged or knowingly subjected to lien,
charge or any other encumbrance, any of its assets, tangible or intangible;
2.21.4 sold or transferred any of its tangible or intangible
assets, except in the ordinary course of business;
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2.21.5 canceled any material debts or claims or waived any
material right;
2.21.6 paid or discharged any liabilities of others;
2.21.7 sold, assigned or transferred any trademarks, trade
names, copyrights, licenses, royalty agreements, patents, patent applications,
proprietary registrations, know-how, trade secrets or other intangible assets,
or granted any licenses with respect to any of the foregoing, except as
disclosed in the Schedules under this Article 2;
2.21.8 suffered or incurred any extraordinary expenses or
losses;
2.21.9 discharged or satisfied any material lien or
encumbrance;
2.21.10 paid or discharged any material obligation or
liability, absolute or contingent, other than:
2.21.10.1 obligations and liabilities the payment or
discharge of which is reflected on Schedule 2.10 to this Agreement; and
2.21.10.2 current liabilities incurred since the date
the Financial Statements in the ordinary course of business;
2.21.11 made any material change in the individual or
aggregate compensation in any form payable to Shorebreak's employees, directors,
officers or consultants, except as set forth on Schedule 2.21;
2.21.12 entered into any material transaction of any kind
except in the ordinary course of business, or entered into any transaction or
agreement whatsoever with a party that controls or is under common control with
Shorebreak;
2.21.13 made any material changes in its accounting principles
or methods; or
2.21.14 agreed in writing or, to the best knowledge of
Shorebreak Shareholders, orally, to take any of the actions specified in this
Section 2.21.
2.22 No Misleading Statements No representation, warranty, covenant or
statement by Shorebreak or the Shorebreak Shareholders in this Agreement
(including the Schedules) contains or will contain any untrue statement of a
material fact, or omits or will omit a material fact, the omission of which will
make the statements contained therein materially misleading.
2.23 Pension Plans and Payments Shorebreak has made all payments and
performed all material acts, if any, required to be complied with and has
complied in all material respects
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with the applicable provisions, if any, of the Employee Retirement Income
Security Act of 1974 ("ERISA") and the related provisions of the Internal
Revenue Code of 1966 (the "Code"), each as amended. Shorebreak has no unfunded
liability nor accumulated funding deficiency (within the meaning of ERISA and
the Code), whether or not waived, with respect to any employee plan previously
maintained by Shorebreak or to which either has previously contributed. All
benefits payable under any terminated employee pension benefit plan (as such
term is defined in Section 3 (2) (A) of ERISA) previously maintained by either
Shorebreak or to which it previously contributed has been paid in full and
Shorebreak does not have any unfunded liability in respect of any such plan to
the Pension Benefit Guaranty Fund, or to the participants in such plan or to the
beneficiaries of such participants. Each such terminated plan was terminated in
accordance with the applicable provisions of law and all agreements and
contracts relating to any such plan have been terminated without liability to
Shorebreak. Shorebreak does not currently maintain a profit-sharing plan for its
employees, which is qualified under Section 401(k) of the Code. All
contributions to health plans required to be made by employees of Shorebreak
have been paid to Shorebreak or the health plan as required by the policies of
Shorebreak. During 1997, no contributions were made or required to be made by
Shorebreak to any such plan.
2.24 Adequate Insurance Coverage Shorebreak maintains adequate
insurance coverage with respect to its properties, including product liability,
property damage, workers' compensation and general liability insurance, in
respect of liabilities and risks prudently insured against by comparable
businesses and as may be required pursuant to any franchise, license, agreement
or permit to which Shorebreak is a party. Schedule 2.24 contains a correct and
complete description of all such policies of insurance held by or on behalf of
Shorebreak, true and correct copies of which have been delivered to Stage II.
The policies described in Schedule 2.24 are outstanding and in force as of the
date hereof, and there is no default, notice of cancellation or non-renewal with
respect to any such policy.
2.25 Powers Of Attorney There are no persons, firms, associations, or
business organizations holding general or special powers of attorney from
Shorebreak.
2.26 No Finders' Fees Earned No agent, broker, investment banker,
person or firm acting on behalf of the Shorebreak Shareholders or Shorebreak, or
under their authority is or will be entitled to any brokers' or finders' fee or
any other commission or similar fee directly or indirectly from Stage II,
Shorebreak, or any entity affiliated with them in connection with any of the
transactions contemplated hereby.
2.27 Environmental Law Compliance Except as set forth in Schedule 2.27,
Shorebreak is not in violation of any statute, code, ordinance, rule,
regulation, permit, judgment, order, writ, decree or injunction, as in effect on
the date of this Agreement and applicable to their respective businesses and
assets and relating to environmental or waste disposal standards or controls,
other than violations, if any, which individually or in the aggregate have not
had, or, insofar as reasonably can be foreseen, in the future will not have, a
material adverse effect on their respective business and assets taken as a
whole. To the best knowledge of the Shorebreak
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Shareholders and except as set forth in as Schedule 2.27, no underground storage
tanks and no electrical transformers containing PCB's have been or are located
on any real property owned or leased by Shorebreak or the Subsidiary, and, to
the best knowledge of the Shorebreak Shareholders and except as set forth in
Schedule 2.27, no asbestos construction or insulation materials have been
incorporated in or installed at any structure, improvement, fixture, boiler,
furnace or distribution system or equipment at any real property owned or leased
by Shorebreak or the Subsidiary, nor have any such materials been disposed of on
such sites. Except as set forth in Schedule 2.27, no portion of any real
property owned or leased by Shorebreak is being used or has been used for the
generation, storage, treatment, processing, disposal or other handling of toxic
or hazardous substances, materials or wastes (including materials to be
recycled, reconditioned or reclaimed) that constitute a "hazardous substance" as
defined in Section 101 of the Comprehensive Environmental Response Compensation
and Liability Act of 1960, as amended, or that are designated as a "hazardous
substance" thereunder, nor are there on the date of this Agreement any toxic or
hazardous substances, materials or wastes, buried or located on any real
property owned or leased by Shorebreak.
2.28 All Necessary Governmental Permits Obtained All material
governmental licenses, permits, certificates of inspection, other
authorizations, filings and registrations which are necessary for Shorebreak to
own it's respective assets and operate its business as presently conducted have
been obtained by Shorebreak and are in full force and effect in accordance with
their respective terms. There is not any proceeding pending to revoke any such
license, permit, certificate, authorization, filing or registration.
2.29 Investment Representations Each of the Shorebreak Shareholders (a)
either is an "accredited investor," as defined in Rule 501 under the Securities
Act of 1933, as amended (the "Securities Act"), or has such knowledge and
experience in financial and business matters that he is capable of evaluating
the merits and risks of the investments in Stage II Shares, (b) has received,
reviewed and considered all information deemed relevant in making an informed
decision about the investment in Stage II Shares, (c) is acquiring Stage II
Shares for investment and with no present intention of distributing or reselling
them except in accordance with the Securities Act, and (d) is aware that the
Stage II Shares (i) have not been registered with the Securities and Exchange
Commission (the "SEC") or any state securities commission, (ii) will be deemed
to be "restricted securities" for purpose of the Securities Act and (iii) may
not be sold or otherwise transferred in the absence of an exemption from the
registration requirements of the Securities Act and applicable state securities
laws.
3 REPRESENTATIONS AND WARRANTIES OF STAGE II
Stage II hereby represents and warrants to Shorebreak and the
Shorebreak Shareholders as follows (it being understood that any Schedules or
amended Schedules referred to in this Article 3 that are delivered to Shorebreak
within five (5) business days after the date hereof shall be deemed a part
hereof):
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3.1 Subsidiaries: Encumbrance on Subsidiaries Shares Stage II has good
and marketable title to all of the outstanding capital stock of each of its
subsidiaries, a list of which, with their names, jurisdictions of incorporation
and principal places of business is set forth is Schedule 3.1a (the
"Subsidiaries"). All of the outstanding capital stock of the Subsidiaries
("Subsidiary Shares") are duly authorized, validly issued, fully paid and
non-assessable, have not been pledged, mortgaged or otherwise encumbered in any
way and are not subject to any lien, charge, claim, liability, or encumbrance of
any nature, except as set forth in Schedule 3.1b. Except as set forth in
Schedule 3.1b, there are no options, warrants, rights of subscription or
conversion, calls, commitments, agreements, arrangements, understandings, plans,
contracts, proxies, voting trusts, voting agreements or instruments of any kind
or character, oral or written, to which, Stage II or the Subsidiaries is a
party, or by which, Stage II or the Subsidiaries is bound, relating to the
issuance, voting or sale of the Subsidiary Shares or any authorized but unissued
shares of capital stock of the Subsidiaries or of any securities representing
the right to purchase or otherwise receive any such shares of capital stock. The
Subsidiaries are corporations duly organized, validly existing and in good
standing under the laws of the jurisdictions noted on Schedule 3.1a. The
Subsidiaries have the corporate power and authority to carry their businesses as
now conducted and to own, lease or operate the properties and assets now used by
them in connection therewith. The Subsidiaries are not qualified to transact
business in any other jurisdiction other than the jurisdictions listed on
Schedule 3.1a, nor is any Subsidiary required to be so qualified.
3.2 Stage II Shares The Stage II Shares have been duly authorized by
all requisite corporate action of Stage II and shall, upon issuance, be validly
issued, fully paid and nonassessable. Stage II has taken or shall take by the
date of the Closing all action necessary to approve the issuance of the Stage II
Shares pursuant to this Agreement, including the listing of the Stage II Shares
on the American Stock Exchange (the "AMEX"). No anti-takeover or similar statute
or regulation applies or purports to apply to the transactions contemplated by
this Agreement. Upon delivery to the Shorebreak Shareholders of certificates
representing the Stage II Shares, they will acquire good and valid title to
their Stage II Shares, free and clear of any liens, claims, encumbrances,
security interests, options, charges and restrictions of any kind, other than
those arising under the Securities Act or from their own acts or omissions.
Other than this Agreement, the Stage II Shares are not subject to any agreement,
arrangement, commitment or understanding, including any restriction relating to
the voting, dividend rights or, except as provided under the Securities Act,
disposition of the Stage II Shares. No stock transfer taxes will be due to the
State of New York as a result of the issuance of the Stage II Shares.
3.3 Legal Proceedings Except as set forth in Schedule 3.3, neither
Stage II nor any Subsidiary is a party to any pending litigation, arbitration or
administrative proceeding or investigation, and, to the best knowledge of Stage
II, no such litigation, arbitration or administrative proceeding or
investigation that might result in any material and adverse change in the
financial condition, business or properties of Stage II or the Subsidiaries has
been threatened.
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3.4 Liens There are no liens, mortgages, deeds of trust, claims,
charges, security interests or other encumbrances or liabilities of any type
whatsoever to which any of the assets of Stage II or the Subsidiaries are
subject, except as described in Schedule 3.4 or in the financial statements
referred to in Section 3.9.
3.5 Legal Organization: Stage II Stage II is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York. Stage II has corporate power and authority to carry on its business as
now conducted and to own, lease or operate the properties and assets now used by
it in connection therewith. Stage II is not qualified to transact business in
any other jurisdiction, nor is Stage II required to be so qualified.
3.6 Title to Assets: Leases Stage II and the Subsidiaries each has good
and marketable title to their respective real and personal property reflected in
the financial statements referred to in Section 3.9, free and clear of all
liens, mortgages, deeds of trust, claims, security interests, liabilities,
encumbrances and charges, except as reflected in such financial statements and
except for liens, encumbrances and charges, if any, which do not materially
detract from the value of or interfere with the use of any property subject
thereto or affected thereby, except as disclosed in Schedule 3.4. Schedule 3.6
contains an accurate list of all leases and other agreements under which Stage
II or any Subsidiary is lessee of any real or personal property. Each of such
leases and agreements is in full force and effect and constitutes the legal,
valid and binding obligation of the parties thereto.
3.7 Trademarks, Trade names; Licenses Stage II and the Subsidiaries own
the trademarks, trade names, and registrations therefor specified in Schedule
3.7a, and is the licensee of the licenses of the trademarks, trade names and
registrations listed on Schedule 3.7b. Stage II and the Subsidiaries have not
granted, and will not grant prior to the Closing, licenses or other rights to
use such trademarks, trade names, or registrations. No other trademarks, trade
names, or registrations are either owned or used by the Stage II or any
Subsidiary. To the best knowledge of Stage II, the operations of Stage II's and
the Subsidiaries' respective businesses do not infringe on the trademarks and
trade names of any third party, and no pending or threatened claim has been made
that there is any such infringement.
3.8 Patents, Inventions Stage II and the Subsidiaries own the
inventions, letters patent, applications for letters patent and patent license
rights specified as belonging to them in Schedule 3.8 and have not granted, and
will not grant prior to the Closing, licenses or other rights to use such
inventions, letters patent, application for letters patent or patent license
rights, except as specified in Schedule 3.8. No other inventions, letters
patent, applications for letters patent or patent license rights are owned or
used by Stage II or any Subsidiary. To the best knowledge of Stage II, the
operations of Stage II's and the Subsidiary's respective businesses do not
infringe on the inventions, letters patent, applications for letters patent or
patent license rights of any third party and no pending or threatened claim has
been made that there is any such infringement.
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3.9 Financial Statements The consolidated balance sheet of Stage II and
the Subsidiaries as at December 31, 1996, and the consolidated statements of
income and cash flows for the fiscal year then ended (true, correct and complete
copies of which are annexed as Schedule 3.9a) have been prepared in accordance
with GAAP. Stage II has delivered to Shorebreak a consolidated balance sheet
("Stage II Balance Sheet") and related consolidated statements of income and
cash flows of Stage II and the Subsidiaries as at, and for the nine month period
ended September 30, 1997, (the "Stage II Financial Statements") true and correct
copies of which are annexed as a part of Schedule 3.9, and which were prepared
in accordance with GAAP. All items included in the inventories reflected in the
Stage II Financial Statements are owned by Stage II or the Subsidiaries, except
for items sold in the ordinary course of business since September 30, 1997, and
are not subject to any security interest except as described in Schedule 3.4.
Schedule 3.9b contains a list of all prepaid expenses (including pre-paid
tickets to sports and entertainment events) showing to whom money was paid and
the contract or other obligation pursuant to which it was paid.
3.10 No Material Adverse Changes There has been no material adverse
change in the consolidated financial position of Stage II and the Subsidiaries
since September 30, 1997, other than the changes referred to in Schedules 3.10a.
The Stage II Balance Sheet reflects the liabilities and obligations of Stage II
and the Subsidiaries, direct and contingent, as at September 30, 1997, and
neither Stage II nor the Subsidiaries has, as of the date hereof, any material
liabilities of any nature whatsoever, direct or contingent, that have not been
reflected in the Stage II Balance Sheet except such current liabilities as have
been incurred since September 31, 1997, in the ordinary course of business and
except for possible rejections by customers of manufactured goods (which
rejections in the aggregate will not exceed $50,000). A "material adverse change
in financial condition" shall mean a decrease in total assets or an increase in
total liabilities of greater than 5% of the total assets or total liabilities
reflected on the September 30, 1997 Balance Sheet. As of the date of the Stage
II Balance Sheet, there was no asset used by Stage II or the Subsidiaries in its
operations that has not been reflected thereon, and except as set forth on
Schedules 3.10b, no assets have been acquired by Stage II or the Subsidiaries
since such date except in the ordinary course of business.
3.11 No Other Business Stage II does not own all or any part of or
control, directly or indirectly, any other business, corporation, joint venture,
partnership or proprietorship, other than the Subsidiaries.
3.12 Filing of Governmental Reports To the best knowledge of Stage II,
each of Stage II and the Subsidiaries has filed all reports and returns required
by all governments or governmental agencies and has complied with all applicable
material federal, state, and local laws, and Stage II knows of no claim that
Stage II or the Subsidiaries has failed to do so.
3.13 Timely Filing Of All Tax Returns To the best knowledge of Stage
II, each of Stage II and the Subsidiaries has timely filed all federal and state
income tax returns and has filed with all other appropriate governmental
agencies all tax, franchise, license, gross receipts and
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other similar returns and reports required to be filed by Stage II or the
Subsidiaries, as the case may be. The filing of the federal and New York State
tax returns for the taxable year of Stage II ended December 31, 1996 are not on
extension. Attached hereto as Schedule 3.13 are true and complete copies of the
consolidated federal income tax returns filed by Stage II (on behalf of itself
and the Subsidiaries) for its taxable years ended December 31, 1995, and 1996.
All tax liabilities of Stage II and the Subsidiaries arising through the end of
the taxable period ended September 30, 1997, have been paid or adequately
disclosed and reserved for on the Stage II Financial Statements except as set
forth on Schedule 3.13. Except as set forth on Schedule 3.13, no federal or New
York State income tax return of Stage II or the Subsidiaries for any year has
been or is currently under audit by the Internal Revenue Service or the New York
State tax authorities. For purposes of this Section 3.13, the word "timely"
shall mean that such returns were filed within the time prescribed by law for
the filing thereof, including the time permitted under any applicable
extensions.
3.14 No Breach Execution and delivery of this Agreement does not, and
the consummation of the transactions contemplated by this Agreement will not,
result in the breach of any term or provision of the certificate of
incorporation or by-laws of Stage II or any Subsidiary or constitute a material
breach of any term or provision of or constitute a default under any law, rule,
regulation, indenture, mortgage, deed of trust or other agreement or instrument
to which Stage II, or any Subsidiary is a party or by which any of them is
bound, and no consent or other approval of any other party is required to be
obtained by either Stage II or any Subsidiary in connection with the
transactions contemplated hereby, other than approval of the issuance of the
Stage II Shares by the requisite vote of Stage II's shareholders and the listing
of the Stage II Shares on the AMEX, each of which shall be obtained by the Stage
II as a condition precedent to Closing.
3.15 Full Legal Authority to Contract Stage II has the full legal right
and capacity to execute, deliver and perform this Agreement. No governmental
license, permit or authorization, and no registration or filing with any court,
governmental authority or regulatory agency, is required in connection with the
Stage II's execution, delivery or performance of this Agreement, except the AMEX
listing referral to in Section 3.15 and the Proxy Statement filing with the SEC
referred to in Section 5.12. This Agreement has been duly executed and delivered
by Stage II and constitutes the legal, valid and binding obligation of Stage II,
enforceable against it in accordance with its terms, except to the extent that
such enforceability may be limited by general principles of equity or
bankruptcy, insolvency and other similar laws affecting the enforcement of
creditors' rights generally.
3.16 Minute Books True and complete copies of the certificate of
incorporation and by-laws of Stage II and each of the Subsidiaries and all
amendments thereto and copies of all minutes of Stage II and the Subsidiaries
are contained in the minute books that have been made available to Shorebreak
for inspection.
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3.17 Contracts Except as disclosed in Schedule 3.17 or in the other
Schedules under this Article 3, neither Stage II nor any the Subsidiary is a
party to any written:
3.17.1 employment contract, or contract with any officer,
director or consultant;
3.17.2 contract with any labor union or other labor
organization;
3.17.3 bonus, pension, profit-sharing, retirement, stock
purchase, severance, vacation, sick day, hospitalization, insurance or other
plan or arrangement providing employee benefits;
3.17.4 lease with respect to any property, whether as lessor
or lessee;
3.17.5 contract other than purchase orders it issued for
apparel or purchase orders it received for the sale of goods, either continuing
over a period of more than ninety (90) days from the date hereof or involving at
least $10,000;
3.17.6 contract for borrowed money or guaranties for borrowed
money;
3.17.7 license, sublicense, franchise or royalty agreement;
3.17.8 distribution, advertising or similar contract;
3.17.9 contract for the warehousing, storage, handling,
shipping, importing, entry or customs clearance of products or supplies;
3.17.10 contract or license agreement that cannot be
terminated on not more than sixty (60) days' notice and without liability or
penalty in excess of $10,000 in the aggregate in connection with all such
contracts, except contracts and commitments for the purchase or sale of goods,
materials, supplies or services entered into in the ordinary course of business.
3.18 Contracts are Enforceable in Accordance with their Terms Except as
set forth in Schedule 3.18, all agreements, contracts or other instruments of
Stage II listed or required to be listed in the Schedules under this Article 3
(collectively, the "Stage II Contracts") are valid, binding and in full force
and effect and are enforceable by Stage II in accordance with their respective
terms. Except as set forth in Schedule 3.18, Stage II has performed all material
obligations required to be performed by it to date under the Stage II Contracts
and it is not in breach or default in any material respect thereunder (with or
without the lapse of time or the giving of notice, or both) nor has any other
party to any of the Stage II Contracts notified Stage II of that party's belief
that Stage II is or is likely to become in breach or default in any material
respect thereunder or of the party's intention to accelerate or modify in a
manner adverse to Stage II any of its obligations or rights thereunder and, to
the knowledge of Stage II, no other party to
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any of the Stage II Contracts is in breach or default in any material respect
thereunder (with or without the lapse of time or the giving of notice, or both).
Stage II has delivered to Shorebreak true and correct copies of all Stage II
Contracts.
3.19 Oral Agreements Neither Stage II nor any Subsidiary is a party to
any oral instruments of the types described in Section 3.17.
3.20 Certain Actions Not Taken Except as disclosed in the Stage II
Financial Statements, or in the other Schedules under this Article 3, since
September 30, 1997, neither Stage II nor any Subsidiary has:
3.20.1 issued, purchased or redeemed any stock, bonds or other
corporate securities of Stage II or any Subsidiary, consummated any merger,
business combination , reclassification of its capital stock or other
substantial business reorganization, or declared, set aside or paid any dividend
or distribution in respect of any shares of capital stock;
3.20.2 incurred any obligation (absolute or contingent) except
current liabilities incurred in the ordinary course of business and obligations
under Stage II Contracts;
3.20.3 mortgaged, pledged or knowingly subjected to lien,
charge or any other encumbrance, any of its assets, tangible or intangible;
3.20.4 sold or transferred any of its tangible or intangible
assets, except in the ordinary course of business;
3.20.5 canceled any material debts or claims or waived any
material right;
3.20.6 paid or discharged any liabilities of others;
3.20.7 sold, assigned or transferred any trademarks, trade
names, copyrights, licenses, royalty agreements, patents, patent applications,
proprietary registrations, know-how, trade secrets or other intangible assets,
or granted any licenses with respect to any of the foregoing, except as
disclosed in the Schedules under this Article 3;
3.20.8 suffered or incurred any extraordinary expenses or
losses;
3.20.9 discharged or satisfied any material lien or
encumbrance;
3.20.10 paid or discharged any material obligation or
liability, absolute or contingent, other than:
3.20.10.1 obligations and liabilities the payment or discharge
of which is reflected on Schedule 3.9; and
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3.20.10.2 current liabilities incurred since the date
thereof in the ordinary course of business;
3.20.11 made any material change in the individual or
aggregate compensation in any form payable to any Subsidiary's or Stage II's
employees, directors, officers and/or consultants, except as set forth on
Schedule 3.20;
3.20.12 entered into any material transaction of any kind
except in the ordinary course of business, or entered into any transaction or
agreement whatsoever with a party that controls or is under common control with
Stage II and any Subsidiary, including the Stage II Shareholders;
3.20.13 made any material changes in its accounting principles
or methods; or
3.20.14 agreed in writing or, to the best knowledge of Stage
II, orally to take any of the actions specified in this section.
3.21 No Misleading Statements No representation, warranty, covenant or
statement by the Stage II in this Agreement (including the Schedules) contains
or will contain any untrue statement of a material fact, or omits or will omit a
material fact, the omission of which will make the statements contained therein
materially misleading.
3.22 Pension Plans and Payments Stage II and the Subsidiaries,
respectively, each has made all payments and performed all material acts, if
any, required to be complied with and has complied in all material respects with
the applicable provisions, if any, of ERISA and the related provisions of the
Code. Neither Stage II nor any Subsidiary has any unfunded liability nor
accumulated funding deficiency (within the meaning of ERISA and the Code),
whether or not waived, with respect to any employee plan previously maintained
by either Stage II or any Subsidiary or to which either has previously
contributed. All benefits payable under any terminated employee pension benefit
plan (as such term is defined in Section 3 (2) (A) of ERISA) previously
maintained by either Stage II or the Subsidiary or to which either has
previously contributed have been paid in full and neither Stage II nor any
Subsidiary has any unfunded liability in respect of any such plan to the Pension
Benefit Guaranty Corporation or to the participants in such plan or to the
beneficiaries of such participants. Each such terminated plan was terminated in
accordance with the applicable provisions of law and all agreements and
contracts relating to any such plan have been terminated without liability to
either Stage II or the Subsidiary. Stage II and the Subsidiaries currently
maintain a profit sharing plan for their employees, which plan is qualified
under Section 401(k) of the Code. Stage II and the Subsidiaries have made all
contributions required to be made under their profit-sharing plan and has
invested all funds in the profit-sharing plan in accordance with the terms of
said plan. During 1997, no contributions were made, or required to be made by
Stage II or its Subsidiaries to any such plan. Such plan has been administered
and operated in accordance with the
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applicable provisions of ERISA and the Code. The copies of the following
delivered to the Shorebreak Shareholders are true and correct copies of (a) the
plan document setting forth the terms and conditions of such plan, (b) the trust
agreement established under such plan, (c) any investment or insurance
contracts, if any, under such trust, (d) the latest determination letter or an
opinion from the Internal Revenue Service as to the qualified status of such
plan under the Code, and (e) the annual reports on Form 5500 series for the last
three completed plan years. All contributions to health plans required to be
made by employees of Stage II or the Subsidiaries have been paid to Stage II or
the Subsidiaries or the health plan as required by the policies of Stage II or
the Subsidiaries.
3.23 Adequate Insurance Coverage Stage II and the Subsidiaries maintain
adequate insurance coverage with respect to their respective properties,
including product liability, property damage, workers' compensation and general
liability insurance, in respect of liabilities and risks prudently insured
against by comparable manufacturing businesses and as may be required pursuant
to any franchise, license, agreement or permit to which Stage II or any
Subsidiary is a party. Schedule 3.23 contains a correct and complete description
of all such policies of insurance held by or on behalf of Stage II or the
Subsidiaries, true and correct copies of which have been delivered to
Shorebreak. The policies described in Schedule 3.22 are outstanding and in force
as of the date hereof, and there is no default, notice of cancellation or
non-renewal with respect to any such policy.
3.24 Powers Of Attorney There are no persons, firms, associations,
corporations or business organizations holding general or special powers of
attorney from either Stage II or any Subsidiary.
3.25 No Finders' Fees Earned No agent, broker, investment banker,
person or firm acting on behalf of Stage II Shareholders, Stage II, any
Subsidiary or any firm or corporation affiliated with them or under their
authority is or will be entitled to any brokers' or finders' fee or any other
commission or similar fee directly or indirectly from the Stage II Shareholders,
Stage II, any Subsidiary or any entity affiliated with them in connection with
any of the transactions contemplated hereby, except for the fees payable by
Stage II for services in connection with the fairness opinion referred to in
Section 7.8.
3.26 Environmental Law Compliance Except as set forth in as Schedule
3.27, neither Stage II nor any Subsidiary is in violation of any statute, code,
ordinance, rule, regulation, permit, judgment, order, writ, decree or
injunction, as in effect on the date of this Agreement and applicable to their
respective businesses and assets and relating to environmental or waste disposal
standards or controls, other than violations, if any, which individually or in
the aggregate have not had, or, insofar as reasonably can be foreseen, in the
future will not have, a material adverse effect on their respective business and
assets taken as a whole. To the best knowledge of Stage II, and except as set
forth in the as Schedule 3.26, no underground storage tanks and no electrical
transformers containing PCB have been or are located on any real property owned
or leased by Stage II or any Subsidiary, and, to the best knowledge of Stage II
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Shareholders, and except as set forth in the environmental report attached
hereto as Schedule 3.26, no asbestos construction or insulation materials have
been incorporated in or installed at any structure, improvement, fixture,
boiler, furnace or distribution system or equipment at any real property owned
or leased by Stage II or any Subsidiary, nor have any such materials been
disposed of on such sites. Except as set forth in as Schedule 3.26, no portion
of any real property owned or leased by Stage II or any Subsidiary is being used
or has been used for the generation, storage, treatment, processing, disposal or
other handling of toxic or hazardous substances, materials or wastes (including
materials to be recycled, reconditioned or reclaimed) that constitute a
"hazardous substance" as defined in Section 101 of the Comprehensive
Environmental Response Compensation and Liability Act of 1960, as amended, or
that are designated as a "hazardous substance" thereunder, nor are there on the
date of this Agreement any toxic or hazardous substances, materials or wastes,
buried or located on any real property owned or leased by Stage II or any
Subsidiary.
3.27 All Necessary Governmental Permits Obtained All material
governmental licenses, permits, certificates of inspection, other
authorizations, filings and registrations which are necessary for Stage II or
the Subsidiaries to own their respective assets and operate their respective
businesses as presently conducted have been obtained by Stage II or the
Subsidiary, as appropriate, and are in full force and effect in accordance with
their respective terms. There is not any proceeding pending to revoke any such
license, permit, certificate, authorization, filing or registration.
3.28 Public Company; Periodic Report Stage II is subject to the
periodic reporting requirements of section 12(b) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and except as disclosed in Schedule
3.28 has filed all reports it was required to file with covering the period
January 1, 1995 to the present; and except as set forth in Schedule 3.28, such
reports were filed by the date each such report was required to be filed, unless
an extension in time to file such report was obtained by the timely filing of
form 12(b)25 or its equivalent, and in such event, such report was filed within
the time permitted by the extension afforded by the filing of that form.
3.29 American Stock Exchange Listing The outstanding shares of Stage II
Common Stock is listed for trading on the AMEX and any listing application
required to list the Stage II Shares will have been filed and acted upon by the
AMEX at the time of the Closing. All written communications which Stage II has
received from the AMEX or sent to the AMEX since January 1, 1997 are listed on
Schedule 3.29, and copies of all such communications have been made available to
Shorebreak. Stage II has not received any written communications from the AMEX,
other than may be contained in the communications listed in Schedule 3.29, which
would indicate that the listing of the Stage II Common Stock for trading on the
AMEX was in jeopardy in any way.
3.30 Vendor and Customer Contracts All contracts between Stage II or
its Subsidiaries on the one hand, and vendors and customers on the other hand
for the manufacture
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and sale of goods scheduled for delivered 1998 are in full force and effect. All
such customer contracts are for new goods only and not for goods which are in
inventory or will be in inventory at the Closing.
4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION
4.1 Survival of Representations All representations and warranties made
by the parties hereto in this Agreement shall survive the Closing until and
through the first anniversary of the Closing (the "Survival Date"). Stage II
shall have the continuing obligation until the Closing promptly to supplement or
amend the Schedules hereto delivered by Stage II in accordance with Article 3
with respect to any matter hereafter arising or discovered that, if existing or
known at he date of this Agreement, would have been required to be set forth or
described in such Schedules; provided, however, that no supplement or amendment
to those Schedules following the fifth business day after the date of this
Agreement shall have any effect for the purpose of determining the satisfaction
of the conditions set forth in Section 7.1.
4.2 Shorebreak Shareholders' Indemnifications The Shorebreak
Shareholders shall jointly and severely indemnify and hold harmless Stage II
from and against all losses, liabilities, claims, damages, costs and expenses,
including reasonable attorneys' fees collectively, the "Losses" and
individually, a "Loss"), that Stage II may sustain arising from any breach by
Shorebreak or the Shorebreak Shareholders of any of their representations,
warranties, or covenants in this Agreement, to the extent that such Losses are
not covered by insurance; provided, however, that the maximum amount of
liability of the Shorebreak Shareholders for all breaches of the warranties,
representations, or covenants hereunder in the aggregate shall be limited to
$2,500,000 and, provided, further, that Stage II shall be entitled to assert
claims hereunder only if and to the extent that all Losses shall in the
aggregate exceed $50,000.
4.3 Notifications by Stage II Stage II shall promptly notify the
Shorebreak Shareholders of the existence of any third party claim, demand, or
other matter to which the Shorebreak Shareholders' indemnification obligations
would apply. The Shorebreak Shareholders shall be entitled, at their expense and
with their counsel (which counsel shall be Xxxxx, Xxxxxxxx & Xxxxxx, P.C. or
such other counsel as may be reasonably acceptable to Stage II), to assume and
conduct the defense of the claim. If the Shorebreak Shareholders do not
undertake the defense of the claim, or if they have a conflict of interest with
respect to the claim, Stage II shall be entitled to retain counsel (which
counsel shall be Xxxxx & Zelmanovitz, or such other counsel as may be reasonably
acceptable to Stage II) at the Shorebreak Shareholders' expense to conduct such
defense. In the event that the Shorebreak Shareholders so choose to assume the
defense of such third party claim, Stage II and the Shorebreak Shareholders
shall mutually and reasonably cooperate in such defense (including any
compromise or settlement thereof). In connection therewith: (a) Stage II shall
consent to any compromise or settlement proposed by the Shorebreak Shareholders
where (i) the compromise or settlement involves only monetary damages and (ii)
the Shorebreak Shareholders agree to pay the full amount of such
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monetary damages; and (b) the Shorebreak Shareholders agree to consent to any
compromise or settlement proposed by Stage II where either (i) the compromise or
settlement results in no Losses to Stage II that are required to be indemnified
by the Shorebreak Shareholders or (ii) Stage II agrees to absorb any and all
such Losses.
4.4 Stage II Indemnification Stage II agrees to indemnify and hold
harmless the Shorebreak Shareholders from and against the amount of all Losses
(exclusive of any losses from declines in the market price of the Stage II
common stock) that the Shorebreak Shareholders may sustain arising out of any
breach by Stage II of any of its representations, warranties, or covenants in
this Agreement or in the Repurchase Agreement, to the extent that such Losses
are not covered by insurance, provided however, that the liability of Stage II
for all breaches of the warranties, representations, and covenants hereunder in
the aggregate shall be limited to $2,500,000 and, provided, further, that the
Shorebreak Shareholders shall be entitled to assert a claim hereunder only if
and to the extent that all Losses incurred by the Shorebreak Shareholders shall
in the aggregate exceed $50,000.
4.5 Notification by the Shorebreak Shareholders The Shorebreak
Shareholders shall promptly notify Stage II of the existence of any third party
claim, demand, or other matter to which the indemnification obligations of Stage
II would apply. Stage II shall be entitled, at its expense and with their
counsel (which counsel shall be Xxxxx & Xxxxxxxxxxx, or such other counsel as
may be reasonably acceptable to the Shorebreak Shareholders), to assume and
conduct the defense of the claim. If Stage II does not undertake the defense of
the claim, or if it has a conflict of interest with respect to the claim, the
Shorebreak Shareholders shall be entitled to retain counsel (which counsel shall
be Xxxxx, Barandes & Xxxxxx, PC, or such other counsel as may be reasonably
acceptable to Stage II) at Stage II's expense to conduct in such defense. In the
event that Stage II chooses to assume the defense of such third party claim, the
Shorebreak Shareholders and Stage II shall mutually and reasonably cooperate in
such defense (including any compromise or settlement thereof). In connection
therewith: (a) the Shorebreak Shareholders agree to consent to any compromise or
settlement proposed by Stage II where (i) the compromise or settlement involves
only monetary damages and (ii) the Stage II agrees to pay the full amount of
such monetary damages; and (b) Stage II agrees to consent to any compromise or
settlement proposed by the Shorebreak Shareholders where either (i) the
compromise or settlement results in no Losses to the Shorebreak Shareholders
that are required to be indemnified by Stage II or (ii) the Shorebreak
Shareholders agree to bear any and all such Losses.
4.6 Indemnification Survival Date Notwithstanding anything contained in
this Article 4 to the contrary, except in the case of fraud, the indemnification
obligations of all parties hereto with respect to the breach of any
representation or warranty contained herein shall terminate on the Survival
Date, unless the party seeking indemnification gives written notice to the party
obligated to provide indemnification of a claim for indemnification, and the
specific nature of such claim, prior to the Survival Date.
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5 CONDUCT OF STAGE II BUSINESS PENDING CLOSING
Stage II covenants and agrees, from the date of this Agreement to the
Closing, and unless otherwise approved in advance in writing by Shorebreak:
5.1 Conduct of Operations Stage II and the Subsidiaries shall conduct
their respective operations according to their respective ordinary and usual
courses of business and shall maintain their respective records and books of
account in a manner that fairly and correctly reflects their respective income,
expenses, assets and liabilities in accordance with GAAP.
5.2 Internal Controls Stage II will maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (a)
transactions are executed in accordance with management's general or specific
authorizations; (b) transactions are recorded as necessary to permit preparation
of financial statements in conformity with GAAP to maintain accountability for
assets; (c) access to assets is permitted only in accordance with management's
general or specific authorization; and (d) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any difference.
5.3 Stand Still on Obligations Since September 30, 1997, Stage II and
the Subsidiaries have not, and prior to the Closing shall not, (a) pay or incur
any material obligation or liability, absolute or contingent, other than current
liabilities incurred in the ordinary and usual course of business; (b) incur any
indebtedness for borrowed money (except for endorsement, for collection or for
deposit, of negotiable instruments received in the ordinary and usual course of
business and except for borrowing in the ordinary course of business against
Stage II's credit line with Xxxxxxx (the "Credit Line")), or assume, guarantee,
endorse or otherwise as accommodation become responsible for material
obligations of any other individual or firm; (c) declare or pay any dividends,
make any payment or distribution to shareholders, issue any capital stock or
grant options, warrants or rights to purchase any shares of their respective
capital stock except on provided in this Agreement; (d) mortgage, pledge or
subject to lien or other encumbrances any of their respective properties or
assets; (e) pay any loans to or from Stage II shareholders; (f) sell or transfer
any of their respective properties or assets except in the ordinary and usual
course of business or cancel, release or assign any material indebtedness owed
to either Stage II or the Subsidiaries or any material claims held by either
Stage II or the Subsidiaries; (g) make any investment of a capital nature either
by the purchase of stock or securities (other than securities of the United
States federal government), contributions to capital, property transfers or
otherwise, or by the purchase of any property or assets of any other individual
or firm; (h) make any material change in their respective insurance, advertising
or franchise commitments or arrangements, or enter into any contract for the
purchase or sale of any materials, products or supplies other than such
contracts incurred in the ordinary and usual course of business; (i) increase in
any manner the compensation of any of their respective officers, directors,
consultants, shareholders or employees, except or listed on Schedule 3.20, or
pay or agree to pay any pension or retirement allowance not required by any
existing plan to any of their respective officers or employees, or commit itself
to any additional pension, retirement or profit-sharing
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plan or agreement, other benefit or perquisite or employment agreement with or
for the benefit of any officer, director, shareholder, employee or other person;
or (j) enter into any agreement or transaction whatsoever with a party that
controls or is under common control with Stage II and the Subsidiaries except or
provided in this Agreement.
5.4 Preservation of Representations Stage II shall not, nor shall it
allow the Subsidiaries to, take any action that (a) if taken on or before the
date hereof, would make untrue any of the representations and warranties
contained in Article 3 or (b) would interfere with the ability of Shorebreak or
the Shorebreak Shareholders' to perform this Agreement.
5.5 Continuing Investigation Shorebreak and the Shorebreak Shareholders
may, through its own representatives, make such investigations and audits of the
financial condition, business, operations, properties and assets of Stage II and
the Subsidiaries (including, without limitation, the confirmation of cash,
inventories, receivables and liabilities) as the Shorebreak Shareholders
reasonably deem necessary or advisable, but such investigations shall not negate
the effect of Stage II's representations, warranties and covenants hereunder. In
connection with such investigation, Stage II and the Subsidiaries shall furnish
to the Shorebreak Shareholders copies of all such documents, records, books of
account and supporting records, and information relating to the properties,
assets and business of the Stage II and the Subsidiaries, as the Shorebreak
Shareholders may from time to time reasonably request. The Shorebreak
Shareholders shall keep all documents, books, records and information obtained
from or disclosed by Stage II or the Subsidiaries strictly confidential and
shall not disclose any of it to any third party, other than to its attorneys,
accountants and other advisers, or as required by law, without the prior written
consent of Stage II and shall not use any of the foregoing prior to the Closing
except for the purposes of consummating the transactions provided for in this
Agreement.
5.6 Procuring Approvals Stage II shall use its best efforts to obtain
all licenses, consents or other approvals required to be obtained by Stage II or
the Subsidiaries from any governmental agency or authority or financial
institution (including the listing of the Stage II Shares with the AMEX) or
other person in connection with the consummation of the transactions
contemplated by this Agreement.
5.7 Preservation of Business and Customer Relations Except as otherwise
requested by the Shorebreak Shareholders, Stage II shall use its best efforts to
preserve the business of Stage II and the Subsidiaries intact and to preserve
for Stage II the good will of Stage II and the Subsidiaries' customers and
suppliers and of others having business relations with Stage II and the
Subsidiaries. Stage II recognizes that the Shorebreak Shareholders have
requested that the following actions be taken prior to the Closing: (a) Stage II
obtain an amendment to its license from Dunlop to provide that (i) its license
from Dunlop will be renewed automatically from year to year unless notice is
given by Stage II that it does not wish to renew, and (ii) the license will be
deemed to cover the use of the licensed intellectual property upon tee shirts
and upon fleece materials; (b) Stage II will renegotiate the employment
contracts listed on Schedule 5.7 in a manner satisfactory to the Shorebreak
Shareholders; and (c) the Xxxxx Xxxxxx
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litigation will have been settled on terms reasonably satisfactory to the
Shorebreak Shareholders. Stage II shall use its best efforts to accomplish the
foregoing requests but shall have no obligation to do so, nor shall any failure
to do so give rise to rights of the Shorebreak Shareholders hereunder.
5.8 Adjustment in Shares In the event that the shares of Stage II
Common Stock shall be changed to or exchanged for a different number or kind of
shares of stock, or other securities, whether by reason of merger,
consolidation, recapitalization, reclassification, split-up, combination of
shares or otherwise, or exchanged for shares of another corporation, or if the
number of issued and outstanding shares of Stage II Common Stock shall be
increased through the payment of a stock dividend, then there shall be
substituted for or added to the number and kind of shares of stock or other
securities into which the Stage II Common Stock shall have been so changed, or
for which the Stage II Common Stock shall be exchanged or to which the stock
shall be entitled, as the case may be.
5.9 Corporate Access Stage II will make its Chief Executive Officer and
the Chief Financial Officer reasonably available by telephone or in person, to
the Shorebreak Shareholders during normal business hours.
5.10 Delivery of Periodic Reports. Stage II will promptly deliver to
the Shorebreak Shareholders upon release or filing, copies of all its press
releases, copies of its reports of any nature sent to its shareholders, filings
made by it pursuant to section 12 of the Exchange Act and any other filings made
by it with the SEC or the AMEX.
5.11 Maintenance of Exchange Listing. Stage II will use its best
efforts to maintain the listing of the Stage II Common Stock on the AMEX and
will file, on time, all reports required to be filed with the AMEX, pursuant to
section 12 of the Exchange Act.
5.12 Proxy Statement and Special Meeting Stage II shall use all
reasonable efforts to obtain, at a special meeting of its shareholders to be
held as promptly as practicable after the date hereof (the "Special Meeting"),
all shareholder approvals necessary to effectuate the issuance of the Stage II
Shares pursuant to Section 1.4. In that regard, Stage II shall, as promptly as
practicable after the date hereof, prepare, file with the SEC and transmit to
holders of record of Stage II Common Stock a proxy and information statement
(the "Proxy Statement") containing the information required by Sections 14(a)
and 14(f) of the Exchange Act and Rules 14a-1 and 14f-1 thereunder with respect
to the approval of the issuance of the Stage II Shares pursuant to Section 1.4
and the reconstitution of the board of directors of Stage II (the "Stage II
Board") pursuant to Section 7.5. Stage II covenants that on the date the Proxy
Statement is filed with the SEC and on the date it is first sent or given to
shareholders, the information about Stage II contained in the Proxy Statement
shall not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were made not
misleading. Shorebreak shall cooperate with Stage II in the preparation of the
portions of the Proxy Statement
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containing information with respect to Shorebreak and its affiliates as is
reasonably necessary for the Proxy Statement (a) to comply as to form in all
material respects with the relevant provisions of the Exchange Act and (b) not
to contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading,
in each case, solely with respect to Shorebreak and its affiliates. The
Shorebreak Shareholders covenant that on the date the Proxy Statements filed
with the SEC and on the date it is first given or sent to shareholders, the
information provided in writing by Shorebreak or its affiliates for use therein
shall not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements related thereto contained in such information statement, in light of
the circumstances in which they were made, not misleading. Stage II and
Shorebreak, as the case may be, shall each promptly correct any information
provided by it or any of its affiliates for use in the Proxy Statement, if and
to the extent that information shall have become false or misleading in any
material respect, and Stage II further agrees to amend or supplement the Proxy
Statement and to cause the Proxy Statement as so amended or supplemented to be
filed with the SEC and disseminated to Stage II's shareholders, in each case as
and to the extent required by the Exchange Act. Shorebreak and its counsel shall
be given a reasonable opportunity to review and comment upon the Proxy Statement
and all amendments and supplements thereto prior to their filing with the SEC or
dissemination to Stage II's shareholders. Stage II shall provide Shorebreak and
its counsel in writing with any comments (written or oral) Stage II or its
counsel may receive from the SEC or its staff with respect to the Proxy
Statement promptly after the receipt thereof.
6 CONDUCT OF SHOREBREAK BUSINESS PENDING CLOSING
Shorebreak covenants and agrees that, from the date of this Agreement
to the Closing, and unless otherwise approved in advance in writing by Stage II:
6.1 Conduct of Operations Shorebreak shall conduct its operations
according to its ordinary and usual courses of business and shall maintain its
records and books of account in a manner that fairly and correctly reflects
their respective income, expenses, assets and liabilities in accordance with
GAAP.
6.2 Internal Controls Shorebreak will maintain a system of internal
accounting controls sufficient to provide reasonable assurances that (a)
transactions are executed in accordance with management's general or specific
authorizations; (b) transactions are recorded as necessary to permit preparation
of financial statements in conformity with GAAP to maintain accountability for
assets; (c) access to assets is permitted only in accordance with management's
general or specific authorization; and (d) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any difference.
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6.3 Stand Still on Obligations Since September 30, 1997, Shorebreak has
not, and hereafter shall not: (a) pay or incur any material obligation or
liability, absolute or contingent, other than current liabilities incurred in
the ordinary and usual course of business; (b) incur any indebtedness for
borrowed money (except for endorsement, for collection or for deposit, of
negotiable instruments received in the ordinary and usual course of business and
except for borrowing in the ordinary course of business against Shorebreak's
credit line with C.I.T. Factors (the "Shorebreak Credit Line")), or assume,
guarantee, endorse or otherwise as accommodation become responsible for material
obligations of any other individual, firm (c) declare or pay any dividends, make
any payment or distribution to shareholders, issue any capital stock or grant
options, warrants or rights to purchase any shares of their respective capital
stock except as provided in this Agreement; (d) mortgage, pledge or subject to
lien or other encumbrances any of their respective properties or assets; (e)
sell or transfer any of their respective properties or assets except in the
ordinary and usual course of business or cancel, release or assign any material
indebtedness owed to Shorebreak or any material claims held by Shorebreak; (f)
make any investment of a capital nature either by the purchase of stock or
securities (other than securities of the United States federal government),
contributions to capital, property transfers or otherwise, or by the purchase of
any property or assets of any other individual or firm; (g) make any material
change in their respective insurance, advertising or franchise commitments or
arrangements, or enter into any contract for the purchase or sale of any
materials, products or supplies other than such contracts incurred in the
ordinary and usual course of business; (h) increase in any manner the
compensation of any of their respective officers, directors, consultants,
shareholders or employees, except as listed on Schedule 3.20, or pay or agree to
pay any pension or retirement allowance not required by any existing plan to any
of their respective officers or employees, or commit itself to any additional
pension, retirement or profit-sharing plan or agreement, other benefit or
perquisite or employment agreement with or for the benefit of any officer,
director, shareholder, employee or other person; or (i) enter into any agreement
or transaction whatsoever with a party that controls or is under common control
with Shorebreak.
6.4 Preservation of Representations Shorebreak shall not, take any
action that (a) if taken on or before the date hereof, would make untrue any of
the representations and warranties contained in Article 3 or (b) would interfere
with the ability of Stage II to perform this Agreement.
6.5 Continuing Investigation Stage II may, through its own
representatives, make such investigations and audits of the financial condition,
business, operations, properties and assets of Shorebreak (including, without
limitation, the confirmation of cash, inventories, receivables and liabilities)
as Stage II reasonably deems necessary or advisable, but such investigations
shall not negate the effect of Shorebreak's representations, warranties and
covenants hereunder. In connection with such investigation, Shorebreak shall
furnish to Stage II copies of all such documents, records, books of account and
supporting records, and information relating to the properties, assets and
business of Shorebreak as Stage II may from time to time reasonably request.
Stage II shall keep all documents, books, records and information obtained from
or disclosed by Shorebreak strictly confidential and shall not disclose any of
it to any third
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party, other than to its attorneys, accountants and other advisers, or as
required by law, without the prior written consent of Shorebreak and shall not
use any of the foregoing prior to the Closing except for the purposes of
consummating the transactions provided for in this Agreement.
6.6 Procuring Approvals Shorebreak shall use its best efforts to obtain
all licenses, consents or other approvals required to be obtained by Shorebreak
from any governmental agency or authority or financial institution or other
person in connection with the consummation of the transactions contemplated by
this Agreement.
6.7 Preservation of Business and Customer Relations Except as otherwise
requested by the Stage II Shareholders, Shorebreak shall use its best efforts,
to preserve the business of Shorebreak intact and to preserve for Shorebreak the
good will of Shorebreak's customers and suppliers and of others having business
relations with Shorebreak.
7 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SHOREBREAK AND
THE SHOREBREAK SHAREHOLDERS
The obligations of the Shorebreak Shareholders and of Shorebreak under
this Agreement are subject to the following conditions (any of which may be
waived in writing in whole or in part by Stage II):
7.1 No Material Breaches There shall not have been any material breach
of the representations, warranties, covenants and agreements of Stage II
contained in this Agreement or the Schedules, and all such representations and
warranties shall be true at all times on or before the Closing, except to the
extent that any such representation or warranty is expressly stated to be true
as of some other time.
7.2 Compliance with Entire Agreement Stage II shall have performed and
complied with all agreements and conditions required by this Agreement to be
performed or complied with by it, and the Stage II Shareholders shall have
entered into the Repurchase Agreement and complied with all agreements and
conditions required thereunder to be performed or complied with by them.
7.3 Certification of Compliance The Shorebreak Shareholders shall have
received a certificate dated the date of the Closing and signed by the Chairman
of Stage II, certifying that the conditions specified in Sections 7.1 and 7.2
have been fulfilled.
7.4 Certain Consents Obtained Stage II shall have obtained any required
written consents of Xxxxxx Xxxxxxx, Xxxxxxxx Ltd., Xxxxxxx and any other third
parties whose consent is required, to the transactions contemplated hereunder
and, subject to Section 8.10, shall have terminated the Credit Line and
delivered to the Shorebreak Shareholders evidence of the release of all liens in
favor of Xxxxxxx.
00
00
7.5 Reconstitution of Stage II Board Stage II shall have received
resignations, effective as of the date of the Closing, of all directors of Stage
II and the Subsidiaries, subject to the reconstitution of the Stage II Board
pursuant to Section 7.8.
7.6 Certification of Corporate Existence The Shorebreak Shareholders
shall have received certified copies of the following documents:
7.6.1 the certificate of incorporation of Stage II, and each
of the Subsidiaries and all amendments thereto, restatements thereof certified
as of a recent date by the Secretary of State of the State of New York;
7.6.2 copies of the by-laws of Stage II and of the
Subsidiaries and all amendments thereto and restatements thereof certified as of
the date of the Closing by an officer of Stage II and the Subsidiaries,
respectively;
7.6.3 long-form good standing certificates of the Secretary of
State of New York certifying as of a recent date that Stage II and of each of
the Subsidiaries are in good standing under the laws of applicable jurisdiction;
and
7.6.4 a written opinion of counsel for the Stage II
Shareholders and Stage II dated as of the date of Closing, in the form of
Exhibit 7.6.4.
7.7 Physical Inventory; Interim Financial Statements In December, 1997,
the Shorebreak Shareholders shall have observed the taking of a physical
inventory of Stage II, it shall have been priced under their observation, and a
copy of that inventory shall have been received by Shorebreak and the Shorebreak
Shareholders. As soon as practicable after the taking of the physical inventory,
but no later than at the Closing, Shorebreak shall have received a copy of the
monthly financial statements of Stage II compiled as in the ordinary course of
business for the month most recently ended.
7.8 Board Approval of the Transaction Prior to the execution hereof,
the Stage II Board shall have resolved, in the form of Exhibit 7.8, and in full
compliance with New York B.C.L. sections 713, 912 and 913 (including the
unanimous vote of the disinterested directors) and the provisions of the
certificate of incorporation of Stage II, that (a) Stage II may enter into this
Agreement and consummate the transactions contemplated hereby and (b) the
designees of the Shorebreak Shareholders listed in Exhibit 7.8 shall be
appointed as directors of Stage II, effective as of the Closing, to fill the
vacancies on the Stage II Board created by the resignations contemplated by
Section 7.5. Furthermore, the Stage II Board shall have retained the services of
an investment banker competent to evaluate the terms of this transaction and
opine to the Stage II Board that the transaction is fair to Stage II and its
shareholders from a financial point of view, as those terms are used in NY BCL
Section 713; and prior to the Closing shall have received from the investment
banker, chosen in compliance with this Section, its written opinion to the Stage
II Board that the transaction is fair and reasonable to Stage II and its
shareholders within the
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meaning of NY BCL 713, and a copy of such opinion shall have been delivered to
the Shorebreak Shareholders.
7.9 AMEX Consent Prior to the Closing, the AMEX shall have determined
that AMEX Rule 341 shall not be applied to the transactions contemplated hereby.
7.10 Purchase Orders Purchase orders granted by or received by Stage II
shall have been made available to Shorebreak.
7.11 Shareholder Notice and Approval Prior to the Closing, Stage II
shall have (a) complied with Rule 14f-1 under the Exchange Act with respect to
the reconstitution of the Stage II Board pursuant to Section 7.5 and (b)
obtained approval for the issuance of the Stage II Shares by the requisite vote
of its shareholders at the Special Meeting pursuant to the solicitation
contemplated by Section 5.12.
7.12 Repurchase Agreement The Stage II shall have entered into the
Repurchase Agreement.
8 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF STAGE II
The obligations of Stage II under this Agreement are subject to the following
conditions (any of which may be waived in writing in whole or in part by the
Shorebreak Shareholders):
8.1 No Material Breaches There shall not have been any material breach
of the representations, warranties, covenants and agreements of Shorebreak or
the Shorebreak Shareholders contained in this Agreement or the Schedules and all
such representations and warranties shall be true at all times on or before the
Closing, except to the extent that any such representation or warranty is
expressly stated to be true as of some other time.
8.2 Compliance with Entire Agreement The Shorebreak Shareholders and
Shorebreak shall have performed and complied with all agreements and conditions
required by this Agreement to be performed or complied with by them.
8.3 Certification of Compliance Stage II shall have received a
certificate dated the date of the Closing and signed by the Shorebreak
Shareholders, certifying that the conditions specified in Sections 8.1 and 8.2
have been fulfilled.
8.4 Certain Consents Obtained Shorebreak and the Shorebreak
Shareholders shall have obtained any required written consent of any third
parties whose consent is required to the transactions contemplated hereunder and
shall have delivered to Stage II evidence of the release of all liens in favor
of any third parties, including factors, affecting outstanding shares of stock
of Shorebreak.
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8.5 Certificates of Corporate Existence Stage II shall have received
certified copies of following documents:
8.5.1 copies of the certificate of incorporation of
Shorebreak, and all amendments thereto, restatements thereof certified as of a
recent date by the Secretary of State of the State of New York;
8.5.2 copies of the by-laws of Shorebreak, and all amendments
thereto and restatements thereof certified as of the date of the Closing by an
officer of Shorebreak;
8.5.3 long-form good standing certificates of the Secretary of
State of New York certifying as of a recent date that Shorebreak is in good
standing under the laws of New York;
8.5.4 a written opinion of counsel for the Shorebreak
Shareholders and Shorebreak dated as of the date of Closing, in the form of
Exhibit 8.5.5 hereto.
8.6 Physical Inventory; Interim Financial Statements In December, 1997,
Stage II and the Stage II Shareholders shall have observed the taking of a
physical inventory of the inventory of Shorebreak, it shall have been priced
under their observation, and a copy of that inventory shall have been received
by Shorebreak and the Shorebreak shareholders. As soon as practicable after the
taking of the physical inventory, but no later than at the Closing, Shorebreak
shall have received a copy of the monthly financial statements of Stage II
compiled as in the ordinary course of business for the month most recently
ended.
8.7 Stage II Shareholders Employment Agreements Stage II shall have
entered into the employment agreement in the form of Exhibit 8.7.
8.8 Options The Stage II Shareholders shall have received option
agreements pursuant to the plan annexed in the form of Exhibit 1.2.
8.9 Blue Sky Laws Stage II shall have complied with all applicable
state securities laws.
8.10 Purchase Orders Purchase orders granted by or received by
Shorebreak shall have been made available to Stage II.
8.11 New Credit Facility Pursuant to arrangements to be implemented by
the Shorebreak Shareholders with a financial institution satisfactory to Stage
II (the "New Factor"), the New Factor shall have entered into agreements and
instruments in form and substance reasonably satisfactory to Stage II providing
for (a) a new credit facility for Stage II to replace the Credit Line on terms
no less favorable to Stage II in regard to interest and other charges than the
Credit Line and with adequate credit available to fund the financing
requirements of the Shorebreak business plan for Stage II (the "New Credit
Line"), (b) the repayment of all
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outstanding obligations of Stage II under the Credit Line with borrowings and
replacement letters of credit under the New Credit Line and (c) the termination
by Xxxxxxx of all guarantees of Stage II's indebtedness under the Credit Line by
the Stage II Shareholders and the complete release by Xxxxxxx of the obligations
of the Stage II Shareholders thereunder. For purposes of this Section, the New
Factor may be Xxxxxxx, and the Credit Line may remain in place after the Closing
as long as the requirements of clause (c) of this Section 8.10 are satisfied.
9 OTHER OBLIGATIONS OF THE PARTIES AT THE CLOSING
9.1 Other Shorebreak Shareholders' Obligations At the Closing, in
addition to fulfilling all of the other conditions to Closing imposed on the
Shorebreak Shareholders under Article 8, the Shorebreak Shareholders shall
deliver to Stage II:
9.1.1 Stock certificates representing the Shorebreak Shares,
properly endorsed to Stage II, or with stock powers executed in blank, with any
and all transfer, stamp or similar taxes upon the transfer of the shares to
Stage II paid in full by the Shorebreak Shareholders;
9.1.2 Resignations of all officers and directors of
Shorebreak; and
9.1.3 Minute books, stock books and seals of Shorebreak;
9.2 Other Stage II Obligations At the Closing, in addition to
performing all the other conditions to Closing imposed on Stage II under Section
8:
9.2.1 Stage II shall deliver to the Shorebreak Shareholders
certificates for the Stage II Shares bearing a restrictive legend under the
Securities Act, and stop orders shall be delivered to its transfer agent.
9.2.2 Stage II Apparel Corp. of Hong Kong, Ltd. (a) will have
become dormant, (b) will have its assets, including those funds pledged to
secure the Credit Line, paid to or returned to Stage II, and (c) its debts,
including any obligations it has for payments due to, or for, the direct or
indirect benefit of present or former employees, to Xxxxxxxx Apparel Ltd., or
Linmark Development settled and paid.
9.3 Press Releases No press releases will be released by Stage II, by
Shorebreak, or their respective officers, directors, or affiliates regarding
this Agreement or any related matter without Xxxx Xxxxx and Xxxxxxx Xxxxxxx
conferring together, and obtaining their mutual express consents to the wording
of the release.
9.4 Further Assurances At the Closing, the parties shall deliver to
each other such additional documents and further assurances as they shall
reasonably request to memorialize the transactions contemplated hereby.
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10 TERMINATION
10.1 Shorebreak Termination Event This Agreement may be terminated by
Shorebreak and the transactions contemplated hereby abandoned at any time prior
to the Closing if any of the following events (each a "Shorebreak Termination
Event") shall have occurred:
10.1.1 Stage II shall have failed to satisfy any of the
conditions set forth in Sections 7.3 through 7.11 or Section 9.2 or any of those
conditions shall have become incapable of fulfillment and shall not have been
waived by Shorebreak; or
10.1.2 Stage II shall have failed to satisfy any of the
conditions set forth in Sections 7.1 or 7.2 or any of those conditions shall
have become incapable of fulfillment and the failure or nonfulfillment
materially reduces the benefits of the transactions contemplated hereby to the
Shorebreak Shareholders.
10.2 Stage II Termination Event This Agreement may be terminated by
Stage II and the transactions contemplated hereby abandoned at any time prior to
the Closing if any of the following events (each a "Stage II Termination Event")
shall have occurred:
10.2.1 Shorebreak or the Shorebreak Shareholders shall have
failed to satisfy any of the conditions set forth in Sections 8.3 through 8.11
or Section 9.1 or any of those conditions shall have become incapable of
fulfillment and shall not have been waived by Stage II; or
10.2.2 Shorebreak or the Shorebreak Shareholders shall have
failed to satisfy any of the conditions set forth in Sections 8.1 or 8.2 or any
of those conditions shall have become incapable of fulfillment and the failure
or nonfulfillment materially reduces the benefits of the transactions
contemplated hereby to Stage II.
10.3 Other Termination Events This Agreement may be terminated and the
transactions contemplated hereby abandoned by Stage II or Shorebreak if the
Closing does not occur on or prior to January 31, 1998, provided that the party
seeking termination pursuant to this Section 10.3 is not in breach in any of its
material representations, warranties, covenants or agreements contained in this
Agreement.
10.4 Notice of Termination In the event a party seeks to terminate this
Agreement pursuant to this Article 10, written notice thereof shall forthwith be
given to the other parties, setting forth in reasonable detail the grounds for
termination, whereupon the transactions contemplated by this Agreement shall be
terminated, without further action by any party, subject to the provisions of
Section 10.5.
10.5 Effects of Termination If this Agreement is terminated and the
transactions contemplated hereby are abandoned as provided in this Article 10,
this Agreement shall become void and of no further force or effect, except that
each party shall return all documents and other
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material received from or on behalf of the other party in connection with the
transactions contemplated hereby, whether so obtained before or after the
execution hereof. All confidential information received by a party with respect
to the business of the other party shall be treated in accordance with the
restrictions set forth herein, which shall remain in full force and effect
notwithstanding the termination of this Agreement.
11 POST CLOSING
11.1 Standstill Obligations The Shorebreak Shareholders shall not vote
their Stage II Shares or take any action as directors of Stage II to approve a
merger of consolidation of Stage II with, or a sale of all or substantially all
the assets of Stage II to any affiliate of the Shorebreak Shareholders (other
than a merger, consolidation or sale that does not increase the percentage
ownership of the Shorebreak Shareholders in the surviving entity) unless (a) the
effective consideration per share of Stage II Common Stock to be received by
other holders of Stage II Common Stock in the transaction complies in all
material respects with any applicable requirements of the law of the State of
New York regarding the fairness of transactions between a corporation and any
controlling stockholder, and (b) if the transaction is proposed within three
years after the Closing, the consideration to be received in the transaction on
an equivalent per share basis has a value that is not less than $1.00 per share
of Stage II Common Stock. Notwithstanding the foregoing, this Section 11.1 shall
not apply to any transaction that is approved by holders (other than the
Shorebreak Shareholders and their affiliates) of Stage II Common Stock
representing a majority of the Stage II Common Stock (other than Stage II Common
Stock held by the Shorebreak Shareholders and their affiliates) voted with
respect to the transaction.
11.2 Access For a period of two years after the Closing, Stage II will
make its Chief Executive Officer and its the Chief Financial Officer reasonably
available by telephone and in person to the Stage II Shareholders during normal
business hours in New York, New York.
11.3 Delivery of Periodic Reports, Maintenance of Exchange Listing, and
Notice of Annual Meetings. For a period of three years following the Closing, or
for such shorter period as the Stage II Shareholders shall own more than 1% of
the outstanding shares of Stage II Common Stock:
11.3.1 Stage II will deliver to the Stage II Shareholders
copies of all its press releases, copies of its reports of any nature sent to
its shareholders, filings made by it pursuant to section 12 of the Exchange Act
with the SEC, the AMEX, or any securities exchange on which its securities are
listed. Delivery shall be made by hard copy via two day courier at the same time
it is made to any other recipient.
11.3.2 Stage II will use its best efforts to maintain the
listing of the Stage II Common Stock on the AMEX and will file, on time, all
reports required to be filed with the SEC pursuant to Section 12 of the Exchange
Act.
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11.3.3 Stage II will give notice to the Stage II Shareholders
by two day courier of the date of its annual meeting within three business days
after that date is established.
11.4 No Derogation No party shall make any utterance to any third party
at any time before or after the Closing, or if the transactions do not close, in
derogation of any other party to this transaction or regarding any of their
affiliates, except to the extent necessary in pleadings actually filed in a
court of competent jurisdiction in a proceeding to enforce rights hereunder.
11.5 Further Instruments After the Closing, the parties shall execute
such further instruments and give each other such further assurances as shall be
reasonably requested to carry out the intent of this Agreement.
12 MISCELLANEOUS
12.1 Benefit This Agreement shall be binding upon and shall inure to
the benefit of the parties and their successors and assigns.
12.2 Entire Agreement. This Agreement, including the Schedules and the
Exhibits, contains the entire agreement and understanding among the parties
hereto with respect to the subject matter hereof and shall not be modified or
affected by any offer, proposal, statement or representation, oral or written,
made by or for any party in connection with the negotiation of the terms hereof.
There are no representations, promises, warranties, covenants, undertakings or
assurances (express or implied) other than those expressly set forth or provided
for herein and in the other documents referred to herein. This Agreement may not
be modified or amended orally, but only by a writing signed by all the parties
hereto.
12.3 Governing Law; Consent to Jurisdiction. This Agreement and all
rights and obligations hereunder shall be governed by, and construed in
accordance with, the law of the State of New York, applicable to agreements made
and to be performed wholly within said State, without regard to the conflicts of
laws principles of such State. The parties to this Agreement consent to the
jurisdiction of the federal and state courts located in the County of New York,
State of New York over the parties hereto and over any disputes arising in
connection with this Agreement. Service of process may be made by certified or
registered mail, return receipt requested.
12.4 Expenses. Each party hereto shall pay its own expenses incidental
to the, preparation of this Agreement, the carrying out of the provisions of
this Agreement and the consummation of the transactions contemplated hereby.
12.5 Assignment. This Agreement may not be assigned by any party
without the prior written consent of the other parties.
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12.6 Severability. If any part of this Agreement is held to be
unenforceable or invalid under, or in conflict with, the applicable law of any
jurisdiction, the unenforceable, invalid or conflicting part shall be narrowed
or replaced, to the extent possible, with a judicial construction in such
jurisdiction that effectuates the intent of the parties regarding this Agreement
and such unenforceable, invalid or conflicting part. Notwithstanding the
unenforceability, invalidity or conflict with applicable law of any part of this
Agreement, the remaining parts shall be valid, enforceable and binding on the
parties.
12.7 Notices All notices, requests, consents and demands by the parties
hereunder shall be delivered by hand, by recognized national overnight courier
or by deposit in the United States mail, postage prepaid, by registered or
certified mail, return receipt requested, addressed to the party to be notified
at the addresses set forth below:
(i) if to the Shorebreak Shareholders, or Shorebreak or to
Stage II after the Closing of the transaction of:
X. Xxxxxxx & Company, Inc.
0000 Xxxxxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxxxx Xxxxxxx
with a copy to:
Xxxxx, Barandes & Fertel, PC
000 Xxxx 00xx Xx
Xxx Xxxx, XX 00000
Attn: Xxxxx Xxxxxx, Esq.
(ii) if to Stage II before the Closing of the transaction, to:
Stage II Apparel Corp.
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attn: Xxxx Xxxxx
with a copy to:
Xxxxx and Zelmanovitz
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxxx Xxxxx, Esq.
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12.8 Non-waivers Neither any failure nor any delay on the part of any
party to this Agreement in exercising any right, power or privilege hereunder
shall operate as a waiver of any rights of such party, unless such waiver is
made by a writing executed by the party and delivered to the other parties
hereto, nor shall a single or partial exercise of any right preclude any other
or further exercise of any other right, power or privilege accorded to any party
hereto.
12.9 Headings The headings contained herein are for reference purposes
only and shall not affect the meaning or interpretation of this Agreement.
12.10 Closing The closing of the transactions contemplated hereby (the
"Closing") shall take place at the offices of counsel to the Shorebreak
Shareholders on January 30, 1998 or such other date to which the parties shall
mutually agree.
12.11 Counterparts This agreement may be signed in counterparts, each
of which may be deemed an original.
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IN WITNESS WHEREOF, the undersigned have set their hands and seals on
the date first written above.
STAGE II APPAREL CORP.
By:____________________________________
Xxxx Xxxxx, an authorized officer
SHOREBREAK GROUP, INC.
By:____________________________________
Xxxxxxx Xxxxxxx, an authorized officer,
and individually
By:____________________________________
Xxxxxxx Xxxxx, an authorized officer,
and individually
By:____________________________________
Xxx Xxxxxxx, an authorized officer,
and individually
By:____________________________________
Xxxxxxx Xxxxxxx, an authorized officer,
and individually
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LIST OF SCHEDULES AND EXHIBITS
General Schedules
1.1 Security Ownership of the Stage II Shareholders.
1.2 List of Debts of Stage II the payment of which were guaranteed by the
Stage II Shareholders, and the guarantees of which are to be released.
Shorebreak Schedules
2.1 Security Ownership of the Shorebreak Shareholders.
2.5 List of Liens against Shorebreak Assets other than those shown on the
Shorebreak Financial Statements (which is Schedule 2.10).
2.7 Leases to Shorebreak of Certain specified Assets.
2.8a List of Trademark, Trade names and Registrations thereof owned by
Shorebreak.
2.8b List of Trademark, Trade names and Registrations licensed to
Shorebreak.
2.9 Patents owned by, or licensed to Shorebreak.
2.10 Shorebreak Financial Statements.
2.11a Material Adverse Changes
2.11b Assets Acquired by Shorebreak after September 30, 1997 other than in
the ordinary course of business.
2.18 Other Shorebreak Contracts
2.19 Contested Contracts
2.21 Certain Actions Not Taken: Changes in Employment Compensation
2.24 Insurance Policies.
2.27 Report on Environmental Law Compliance.
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Stage II Schedules
3.1a Identification of all Stage II Subsidiaries, ownership of their shares
and good standing.
3.1b List of Encumbrances to Any Stage II Shares.
3.3 Legal Proceedings Against Stage II or its Subsidiaries.
3.4 Liens Against Stage II Assets other than those shown on Stage II's
financial statements (which are Schedule 3.19).
3.6 Title to Assets and Leases held by Stage II to real or personal
property.
3.7 List of Trademarks, Trade names, and Registrations Owned by or licensed
to Stage II.
3.8 Patents owned by or licensed to Stage II.
3.9 Stage II Financial Statements.
3.11a Material Adverse Changes
3.11b Assets acquired since September 30, 1997 by Stage II and its
Subsidiaries, except in the ordinary course of business.
3.13 Income Tax Returns
3.17 Exceptions to Contract Negation clause.
3.18 Contested Contracts
3.20 Certain Actions Not Taken: Changes in Employment Compensation
3.23 Insurance Policies.
3.26 Report on Environmental Law Compliance.
3.28 Report on Timely filing of Periodic Reports pursuant to SEC and Listing
Requirements.
3.29 AMEX communications List.
5.7 Employment Contracts to be Renegotiated
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Exhibits
1.1 Repurchase Agreement.
1.2a Form of Releases.
1.2b Form of Stock Option Plan with registration rights.
7.6.5 Form of Legal Opinion of counsel to Stage II.
7.11 Board Approval and Compliance with the BCL.
8.5.5 Form of Legal Opinion of counsel to Shorebreak and the Shorebreak
Shareholders.
8.7 Forms of Employment Agreement of Xxxx Xxxxx.
8.8 Registration Rights.
Exhibits are to be attached within five business days after
the date hereof.
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