Exhibit 1
STOCK PURCHASE AND OPTION AGREEMENT
THIS STOCK PURCHASE AND OPTION AGREEMENT (the "Agreement")
dated as of June 25, 1997 is made by and between GLENGATE APPAREL, INC., a New
Jersey corporation (the "Company"), and AMERICAN MARKETING INDUSTRIES INC., a
Delaware corporation (the "Investor").
WHEREAS, the Investor desires to make a capital investment in
the Company on the terms and conditions set forth in this Agreement; and
WHEREAS, the Company is desirous of the Investor making such a
capital investment on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Purchase of Shares/Grant of Options.
a. Subscription. On the terms and subject to the conditions set forth
herein the Investor, intending to be legally bound, hereby subscribes for
2,500,000 shares of Common Stock of the Company (the "Shares") at $1.00 per
share, and the Company hereby accepts Investor's subscription for the
Shares. The purchase price for the Shares shall be paid by the Investor in
immediately available funds by wire transfer or at the option of Investor
by cancellation of debt on the Closing Date (the "Purchase Price") to the
Company or to third parties as designated by the Company.
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b. Issuance of Certificate. On the Closing Date, as defined in Section
8 hereof, the Company shall cause to be issued and delivered to Investor a
certificate evidencing the Shares on the form of certificate approved by
the Company.
c. Option for Common Shares. In consideration of One ($1.00) Dollar
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the Company hereby grants to Investor (subject to the
satisfaction by the Company of the conditions set forth in Section 8
herein) the right and option (i) during the "First Option Period" as that
term is defined in Section 1d. below (the "First Option"), to purchase up
to an additional 1,000,000 shares of common stock in the Company (the
"First Option Shares") against payment therefor of the First Option Price
as provided in Section 1e. below, and (ii) during the "Second Option
Period" as that term is defined in Section 1d. below (the "Second Option";
together with the First Option hereafter collectively referred to as the
"Options") to purchase up to an additional 1,500,000 shares of common stock
in the Company (the "Second Option Shares"; together with the First Option
Shares hereafter collectively referred to as the "Option Shares") against
payment therefor of the Second Option Price as provided in Section 1e.
below. If there is any change in the number of outstanding shares of common
stock of the Company without the receipt of consideration by the Company by
reason of any stock dividend, stock split, recapitalization, combination,
exchange of shares, merger, consolidation, liquidation, split-up, spin-off
or other similar
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change in capitalization, any distribution to common shareholders,
including a rights offering, other than cash dividends, or any like change,
then the number of shares subject to these Options and the exercise price
shall be proportionately adjusted to reflect such change or distribution.
d. Option Periods. The First Option may be exercised by Investor at
any time and from time to time on and after the Closing Date through and
including the date that is three (3) years from the Closing Date (the
"First Option Period"). The First Option may be exercised by delivering
written notice in the form attached hereto as Exhibit "A" to the Company no
later than 5:00 p.m. New York Time on the last day of the First Option
Period (or if that date falls on a weekend or official holiday then on the
next succeeding business day), together with payment of the First Option
Price in immediately available funds by wire transfer to an account
designated by the Company.
The Second Option may be exercised by Investor at any time and from
time to time commencing on the earlier of (i) the date that is one (1) year
from the Closing Date or (ii) the date on which a change in ownership of
fifty (50%) percent or more of the voting capital stock in the Company
occurs in a single transaction, and terminating on the date that is three
(3) years from the Closing Date (the "Second Option Period"). The Second
Option may be exercised by written notice in the form attached hereto as
Exhibit "A" to the Company no later than 5:00 p.m. New York Time on the
last day of the Second Option Period (or if that date falls on
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a weekend or official holiday then on the next succeeding business
day), together with payment of the Second Option Price in immediately
available funds by wire transfer to an account designated by the Company.
e. Option Prices. On the timely exercise of the First Option and/or
Second Option (collectively the "Options") by Investor, Investor agrees to
pay to the Company (i) $1.50 per First Option Share purchased (the "First
Option Price"), (ii) $1.00 for each of the first 240,000 Second Option
Shares purchased and $2.00 for each of the remaining 1,260,000 per Second
Option Shares purchased (as applicable the "Second Option Price"),
respectively, in immediately available funds by wire transfer to the
account of the Company in the manner designated by the Company.
f. Issuance of Certificate for Option Shares. Upon its timely receipt
of the notices referred to in Section 1d above and payment of the Option
Price referred to in Section 1e above, the Company shall cause to be issued
and delivered to Investor certificates evidencing the First Option Shares
and Second Option Shares, as the case may be, on the form of certificate
approved by the Company.
g. Assignability of Options. The Options granted herein to Investor
are non-assignable and any attempted assignment of all or any part of the
Options by Investor shall be null and void and shall cause the Options to
terminate automatically without notice except that Investor shall have the
right, upon written notice to the Company, to assign this Agreement to (i)
an entity
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owned or controlled by Investor which was formed to own the Swingster
business, (ii) a successor of all or substantially all of the Swingster or
AMI business, provided, that such business remains in substantially the
same business as it is as of the date hereof, (iii) an entity formed by the
merger with or sale of Swingster or AMI to another party, provided, that
such business remains in substantially the same business as it is as of the
date hereof, or (iv) the assignment is to a subsidiary or affiliate of a
party described in (i) (ii) or (iii) above; provided, however, that in such
event Investor agrees to guarantee the performance and obligations of such
corporation or affiliate under this Agreement. 2. Representations and
Warranties of the Company. The Company represents and warrants to the
Investor as follows:
a. Due Organization and Qualification; Business. The Company is a
duly organized and validly existing corporation in good standing under
the laws of the State of New Jersey, has the power and authority to
own or hold under lease the properties it purports to own or so hold
and to carry on its business as now being conducted and presently
proposed to be conducted, and has the power and authority to enter
into this Agreement and to carry out the transactions contemplated
hereby. The Company is duly qualified as a foreign corporation in
each jurisdiction where the nature of the business transacted by it or
the properties owned or leased by it requires the Company to be so
qualified except for jurisdictions wherein the failure to be so
qualified will not have a material adverse effect on the business,
operations, properties or
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assets or on the condition, financial or other, of the Company.
The Company has paid all corporation taxes and franchise taxes payable
to the State of New Jersey and in each other jurisdiction where it is
qualified. The Company has no subsidiaries.
b. Due Authorization of Agreement. This Agreement and the
transactions herein contemplated, have been duly authorized by the
Company. This Agreement has been duly executed and delivered by the
Company enforceable against the Company in accordance with its terms.
No shareholder approval is required in connection with this Agreement,
other than to satisfy the conditions set forth in Section 8 herein.
c. Litigation; Compliance with Rules, Regulations, Decrees, etc.
Except as set forth on Schedule 2(c) attached hereto, there are no
actions, suits or proceedings (whether or not purportedly on behalf of
the Company) pending or, to the knowledge of the Company, threatened
against the Company or any of its properties or assets at law, in
equity or before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, or before any arbitrator of any
kind; and the Company is not in default with respect to any judgment,
order, writ, injunction, decree or award of any court, arbitrator or
federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign, or in violation of any rule or regulation of any thereof, or
in violation of any law, which violation would have a material adverse
effect on the business
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or properties of the Company. The Company has all permits,
licenses and franchises necessary in order to conduct its business as
presently conducted and to own and operate its property and assets.
d. Compliance with Other Instruments. Neither the execution and
delivery of this Agreement, the consummation of the transactions
herein contemplated, nor compliance with the terms, conditions and
provisions hereof will conflict with or result in a breach or
violation of the certificate of incorporation or bylaws of the Company
or of any material term, condition or provision of any agreement or
instrument to which the Company is now a party or by which it or any
of its properties or assets may be bound, or constitute a default
thereunder, or result in the creation or imposition of any lien upon
any of the properties or assets of the Company.
e. Financial Statements. The balance sheet of the Company as at
September 30 in each of the years 1995 and 1996 and the related
statements of operations, stockholder's equity and cash flows for the
fiscal years then ended, accompanied in each case by the opinion of
independent public accountants previously delivered to the Investor,
as well as the unaudited financial statements (as set forth in the
Form 10-QSB's set forth below) previously delivered to the Investor
were complete and correct in all material respects as of their
respective filing dates and fairly presented the financial condition
of the Company and the results of the operations and changes in
financial position of the Company for the
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respective fiscal periods described therein, subject, in the case
of the unaudited interim financial statements, to normal year-end
adjustments, all in conformity with generally accepted accounting
principles applied on a consistent basis (except as otherwise therein
or in the notes thereto stated) throughout the fiscal periods
involved.
f. Business and Properties; No Misleading Statement or
Omissions. The annual report of the Company on Form 10-KSB for the
fiscal year ended September 30, 1996 including all exhibits and
material incorporated by reference (the "Form 10-K") and the quarterly
reports on Form 10-QSB relating to the three-month period ended
December 31, 1996, and six month period ended March 31, 1997
(collectively with the Form 10-K, the "Reports"), as filed with the
Securities and Exchange Commission (copies of which have been
furnished to the Investor) as of their respective filing dates
correctly described the general nature of the business conducted by
the Company during the fiscal year ended September 30, 1996 and the
three-month period ended December 31, 1996, and the six month period
ended March 31, 1997, respectively, and the information therein with
respect to the principal properties then owned or leased by the
Company was correct in all material respects as of their respective
filing dates. Since March 31, 1997, there has been no material change
in the general nature of the business conducted, or in the principal
properties owned or leased, by the Company. The Reports were accurate
as of their respective dates in all material respects and did not
contain any untrue statement of
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a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. Except as stated on Schedule
2(f) attached hereto, there is no fact or circumstance now in
existence and currently known by the Company which does now, or with
the passage of time would be reasonably anticipated to, have a
material adverse affect on the Company, its business, prospects,
financial condition or operations.
g. Title to Properties. The Company has good and marketable title
to, or valid and enforceable leasehold estates in, its properties and
assets (including leasehold improvements) reflected in the balance
sheet as at March 31, 1997 referred to in Section 2(e) above, subject
only to such defects or irregularities of title which do not in the
aggregate interfere with the operation, value or use of such
properties and assets considered as a whole and subject to liens in
favor of Xxxxxxx Factors, Inc., The Xxxxxxx Group, Inc., Lyonshare
Venture Capital, Xxxxxx Xxxxxx, Xxxxxxx Xxxxxxx and Xxxxxx Xxxxxxx and
notice liens in favor of equipment lessors, except for properties and
assets sold or otherwise disposed of subsequent to said date in the
ordinary course of business. The Company owns, or has a valid
leasehold in, all properties or assets reasonably necessary to operate
and conduct its business as presently conducted.
h. Trademarks, Patents, etc. The Company possesses such
trademarks, trade names, copyrights, patents, licenses, or rights in
any thereof as are adequate in the opinion of the Company
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for the conduct of its business as now conducted, without known
conflict with the rights of others except for conflicts which if
adversely determined would not, singly or in the aggregate, result in
any material adverse change in the business, operations, properties
or assets or in the condition, financial or other, of the Company.
i. Tax Liability. The Company has, to the knowledge of its
respective officers, properly prepared and filed all tax returns
required to be filed with taxing authorities prior to the date hereof
or has duly obtained extensions of time for the filing thereof and has
paid all taxes shown as due on such returns as have been filed. The
Company has properly withheld all taxes required to be withheld,
including, without limitation all federal, state and local withholding
taxes and FICA payments, and, to the Company's knowledge, there are no
pending audits or investigations relating to tax matters affecting the
Company.
j. Governmental Action. Except as otherwise contemplated by this
Agreement and as may be required in connection or compliance with
applicable provisions of federal securities laws and blue sky or other
state securities laws, no action, authorization or approval of, or
registration, declaration or filing with, any governmental or public
body or authority is required to authorize, or is otherwise required
in connection with, the execution, delivery and performance by the
Company of this Agreement, other than any post-event informational
filing.
k. ERISA.
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(1) The Company is in compliance in all material respects
with the applicable provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA").
(2) No "employee benefit plan" as defined in ERISA,
maintained by the Company, as from time to time in effect (herein
called "Benefit Plans" or, individually, a "Benefit Plan") nor
any trusts created thereunder, nor any trustee or administrator
thereof, has engaged in a "prohibited transaction," as defined in
ERISA, which could subject the Company, or any Benefit Plan or
any such trust, or any trustee or administrator thereof, or any
party dealing with any Benefit Plan, or any such trust to any tax
or penalty on prohibited transactions. Neither any of the Benefit
Plans nor any such trusts have been terminated, or are liable for
the tax or penalty on prohibited transactions, nor has there been
any "reportable event" as defined in ERISA or any "accumulated
funding deficiency." The Company has not incurred any liability
to the Pension Benefit Guaranty Corporation.
l. Environmental Issues.
(1) The real property owned or leased by the Company
("Premises") and the present and contemplated use and occupancy
thereof are in compliance in all material respects with all
applicable federal, state and local laws, ordinances, building
codes, rules and regulations pertaining to zoning, parking,
construction, building, land use and environmental matters,
including, without limitation, the provisions of the Federal
Occupation Safety and Health Act and the Environmental Protection
Act, and all
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applicable rules and regulations thereunder and all similar
state and local laws, rules and regulations; there are no current
citations, notices or orders of non-compliance issued to the
Company or relating to its business, assets, property (leased or
owned), leaseholds or equipment under any such laws, rules and
regulations. The Company has been issued all required federal,
state and local licenses, certificates and permits material to
the business, assets, property (leased or owned) leaseholds and
equipment, and is in compliance in all material respects with all
applicable federal, state and local laws, rules and regulations
relating to air emissions, water discharge, noise emissions,
solid or liquid disposal, hazardous waste or materials, or other
environmental, health or safety matters.
(2) (a) No hazardous or toxic substance or material or other
waste ("Hazardous Substance") as defined in or regulated under
the comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended (42 U.S.C. '9601 et. seq.), the
Resource Conservation and Recovery Act (42 U.S.C. '6901 et.
seq.), the Oil Pollution Act of 1990 (33 U.S.C. '2701 et. seq.),
or any other federal, state or local law, order or regulation
pertaining to health, safety, or the environment (the
"Environmental Laws") has been unlawfully disposed, released,
discharged or spilled on or under any part of the Premises, (b)
the Premises has never been used as a dump or landfill, (c) no
litigation or administrative action or proceeding has been
commenced or, to the Company's knowledge, threatened against the
Company alleging a
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violation of any Environmental Laws, and (d) no underground
storage tank, equipment containing polycholorinated biophenyle,
asbestos, or urea formaldehyde is located on or under the
Premises; the Premises are free from any contamination by any
Hazardous Substance and the Company is in compliance in all
material respects with all Environmental Laws affecting the
Company or the Premises.
(3) There is not present in the Premises any friable
asbestos or any substance containing asbestos and deemed
hazardous by federal, state or local laws, rules, regulations or
orders respecting such material.
m. Validity of Shares. The Shares sold pursuant to the terms of
this Agreement will be duly and validly authorized as of the Closing
Date and, when issued and payment is received therefor pursuant to the
terms of this Agreement, will be duly and validly issued, fully paid
and non-assessable. Schedule 2 (m) hereto sets forth the Company's
outstanding stock options, exercise price, expiration date and option
holders.
n. No Defaults. The Company is presently, and at all times in the
past twelve (12) months has been, in compliance and not in any
violation or default under its lending agreements with its lenders,
and the Company has been in compliance with, and not in default under,
any other material contract, lease, mortgage or agreement. Except as
stated on Schedule 2(f), no event, fact or circumstance exists which,
with the passage of time or the giving of the notice, would create an
event of default under any of the
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above instruments. The Company is in compliance with its
certificate of incorporation and its bylaws.
o. Capitalization. The authorized and outstanding shares of
capital stock, warrants or rights to convert into or receive capital
stock of the Company (other than options which are set forth on
Schedule 2(m)), are stated on Schedule 2(o) attached hereto. All of
the issued and outstanding shares of capital stock of the Company are
duly and validly issued and outstanding, are fully paid and
non-assessable. Except as stated on such Schedule 2(o), there are no
outstanding, options, warrants, or rights to convert into or receive
capital stock of the Company or securities exchangeable for, or
convertible into, capital stock of the Company. Except as stated on
Schedule 2(o), no person or entity other than the Investor has demand
or "piggyback" registration rights as to any security issued or
issuable by the Company.
p. Undisclosed Liabilities; Material Changes. Except for such
claims, debts and liabilities as are reflected in the financial
statements referred to in Section 2(e) hereto and borrowings under the
Company's credit facilities with Xxxxxxx Factors, Inc. and The Xxxxxxx
Group, Inc., Lyonshare Venture Capital, Xxxxxx Xxxxxx, Xxxxxxx Xxxxxxx
and Xxxxxx Xxxxxxx, the Company does not have any outstanding
indebtedness for money borrowed and is not subject to any claims or
liabilities (whether matured or unmatured, liquidated or unliquidated,
accrued, fixed, contingent or otherwise), other than trade or business
obligations incurred in the ordinary course of business since the date
of such
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financial statements, in amounts usual and normal, both
individually and in the aggregate, for the Company; accounting
procedures and methods have been maintained in a manner consistent
with prior periods there has been no lease, sale (other than inventory
in the ordinary course of business), or abandonment of any property or
assets of the Company, nor has there been any labor strife, strike or
lockout. Since the date of such financial statements, other than as
disclosed to the Investor, there has not been any material increase in
the compensation payable or to become payable by the Company to any of
its officers, employees or agents, or any bonus payment or arrangement
made to or with any of them, other than in the ordinary course and
consistent with past practices. Except as stated on Schedule 2(p)
attached hereto, since the date of such financial statements, there
has not been any payment by the Company of any dividends or any
distribution by the Company to any of its shareholders in redemption
or as a purchase price of any indebtedness (whether in payment of
principal, interest or otherwise) owing to any of them nor has there
been any mortgage, pledge or subjection to a lien, charge or
encumbrance of any material kind of any of the Company's assets,
tangible or intangible.
q. Insurance. The Company maintains insurance adequate and
reasonable for its needs and consistent with industry standards. All
such insurance is in full force and effect and the company has
received no notices of cancellation or indication of any intention on
the part of any insurance company not to renew.
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r. Employment Contracts. Except as set forth on Schedule 2(r)
attached hereto, the Company is not a party to, or otherwise subject
to, any oral or written (i) collective bargaining agreement, (ii)
contract or other agreement for the employment of any officer or
employee, (iii) profit-sharing, bonus, deferred compensation, stock
option, severance pay, pension, retirement or similar plan or
agreement (including individual agreements) providing employee
benefits.
s. Future Agreements. Except as set forth on Schedule 2(s)
attached hereto, the Company is not a party to or otherwise subject to
any oral or written (i) guarantee of any obligations for the borrowing
of money or otherwise, or any other agreement or guarantee of the
obligations of another person or entity, (ii) agreement or arrangement
for the purchase or sale of any assets of the Company other than in
the ordinary course of business or for the grant of any preferential
rights to purchase any of the Company's assets, properties or rights,
(iii) agreement, contract or commitment containing any covenant
limiting the freedom of the company to engage in any line of business
in any area of the world or to compete with any person or entity, (iv)
agreement, contract or commitment relating to the acquisition of
assets or capital stock of any business enterprise, (v) contract,
agreement or other instrument not entered at arms length and in the
ordinary course of business.
3. Representations and Warranties of the Investor. The Investor hereby
represents and warrants to the Company as follows:
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a. Due Organization and Qualification. The Investor is a duly
organized and validly existing corporation in good standing under the
laws of the State of [Delaware], and has the power and authority to
enter into this Agreement and to carry out the transactions
contemplated hereby.
b. Due Authorization of Agreement. The execution and delivery of
this Agreement and the performance of Investor's obligations hereunder
have been duly authorized by all necessary corporate action. This
Agreement has been duly executed and delivered by the Investor and is
a valid and binding agreement enforceable against Investor in
accordance with its terms.
c. Litigation. There are no legal, administrative, arbitration or
other proceedings or governmental investigations pending or, to the
knowledge of the Investor, threatened against the Investor which would
give any third party the right to enjoin or rescind the transactions
contemplated by this Agreement or otherwise prevent the Investor from
complying with the terms and provisions of this Agreement.
d. Experience. Investor has such knowledge and experience in
financial and business matters that it is capable of evaluating the
merits and risks of an investment in the Shares, the Options and
Option Shares and has determined that the securities are a suitable
investment for it. Investor has not been organized for the purpose of
acquiring the Shares, the Options or the Option Shares.
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e. Financial Resources. Investor is able to bear the economic
risk of the investment in the Shares, the Options and Option Shares
and is able to afford a complete loss of such investment.
f. Purpose of Investment. Investor is purchasing the Shares and
the Options and intends to purchase the Option Shares for its own
account, not as nominee or agent, for investment purposes only, and
not with a view to, or for the resale, distribution or
fractionalization thereof in whole or in part and no other person has
a direct or indirect beneficial interest in such shares. The Investor
does not have any agreement or arrangement with any person to, and has
no present intention to, sell, transfer or grant participations to
such person or to any third person, with respect to any of the Shares,
the Options or the Option Shares.
g. Access to Information. Investor has received all the
information it considers necessary or appropriate in deciding whether
to purchase the Shares and the Options. Investor has been provided
access to the Company's books and records and all other documents
requested by Investor relating to the Company's business, and has been
given an opportunity to review such records and ask questions of the
Company, its managerial employees and professionals with respect
thereto in order to evaluate the merits and risks of an investment in
the Company.
h. Restrictions on Transfer. Investor understands that the
Shares, the Options and the Option Shares are characterized as
"restricted securities" under the federal securities laws
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inasmuch as they have not been registered under the Securities
Act of 1933 (the "Securities Act") by reason of a specific exemption
from the registration provisions of the Securities Act. Investor
further understands that it can not sell or otherwise transfer the
Shares, the Option or the Option Shares without registration under the
Securities Act or an exemption therefrom.
i. Transfer Restriction Legend. Investor understands that each
certificate for the Shares purchased pursuant to this Agreement and
for the Option Shares acquired upon exercise of the Options shall bear
the following legend on the face thereof:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS AND MAY NOT BE TRANSFERRED EXCEPT PURSUANT TO EFFECTIVE
REGISTRATION UNDER SAID ACT OR SUCH STATE SECURITIES LAWS OR
IN A TRANSACTION WHICH, IN THE OPINION OF COUNSEL REASONABLY
SATISFACTORY TO GLENGATE APPAREL, INC., QUALIFIES AS AN EXEMPT
TRANSACTION UNDER SAID ACT AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER OR SUCH STATE SECURITIES LAWS."
j. Finders' Fee. No broker, finder or investment banker is
entitled to a fee based upon the transactions contemplated by this
Agreement.
k. Accredited Investor. Investor is an "accredited investor"
within the meaning of Rule 501 of Regulation D under the Securities
Act.
l. Reliance. Neither the Company nor any of its agents or
employees has represented or guaranteed or warranted to Investor,
expressly or by implication, the profits or losses, if any, to be
realized as a result of an investment in the Company and
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Investor acknowledges that the past performance of the Company in
no way indicates or reflects the predictable results, financial or
otherwise, of an investment in the Company. Investor is relying
exclusively on the representations made herein by the Company and upon
its own due diligence, knowledge, skill and experience in making an
investment in the Company.
4. Appointment of Directors.
a. The Company represents and warrants that the current Board of
Directors of the Company is comprised of five (5) members with two (2)
vacancies. As of the Closing Date, the Company shall appoint Xxxxx X.
Xxxxxxx and Xxxxxx X. Xxxx to fill the additional two positions.
Thereafter, so long as the Investor shall own in the aggregate at
least 1,500,000 shares of Common Stock of the Company, (i) the Company
shall use its best efforts to maintain these two individuals (or other
individuals designated by Investor) on the Board of Directors,
including, without limitation, the nomination and inclusion in proxy
material sent to shareholders of the Company's nomination of such two
individuals and (ii) the Board of Directors shall not be changed from
seven (7) directors without the prior written consent of Investor.
With the Board of Directors consent, Xxxxx Xxxxxxx and Xxxxxx Xxxx may
request that a guest be invited to attend a Board of Director meeting.
b. The Company represents and warrants that such action set forth
in Section 4a above is consistent with the Company's Certificate of
Incorporation and Bylaws and when such action is taken by the Board of
Directors (in the first instance), the above named individuals shall
be duly appointed and acting directors of the Company.
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5. Use of Proceeds. The Company shall use the proceeds from sale of
the Shares for (i) the repayment of a $750,000 loan made to the Company by
The Xxxxxxx Group, Inc., Lyonshare Venture Capital and Xxxxxx Xxxxxx, (ii)
the payment of $150,000 to or for the benefit of Lyonshare Venture Capital,
Xxxxxxx Xxxxxxx and Xxxxxx Xxxxxxx in substitution of the collateral
provided by them for the Company under a certain Letter of Credit, (iii)
approximately $200,000 in capital expenditures as and when approved by the
Board of Directors of the Company, and (iv) the remaining balance to be
used for working capital and other general corporate purposes (including
the payment in full of any past due amounts due to Sun Ice, Ltd. and/or Sun
Ice USA, Inc.). The Company shall not use such proceeds for the purpose of
making any special bonus or similar distribution to any of the Company's
officers or directors or the repurchase, redeem, or otherwise acquire
outstanding securities.
6. Survival of Representations, Warranties and Agreements. All
representations, warranties, covenants and agreements made by any party
hereto in this Agreement or in any document or certificate delivered
pursuant hereto shall survive the purchase of the Shares, the Options and
Option Shares and shall be unaffected by any investigation made by or on
behalf of any party hereto. Investor hereby covenants and agrees that the
representations made
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by it in Section 3f shall be true and accurate as of the Closing Date.
7. Registration Rights.
a. Certain Definitions. As used in this Section 7, the following
terms shall have the following respective meanings:
(1) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering
the Securities Act.
(2) "Registrable Securities" shall mean the Shares sold to
the Investor pursuant to the terms hereof. Registrable Securities
cease to be such when (i) a registration statement has been
declared effective by the Commission and such securities have
been disposed of, or (ii) such securities shall have been
otherwise transferred and the Company shall have delivered new
certificates for them which do not bear a legend.
(3) The terms "register," "registered" and "registration"
shall refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act and
applicable rules and regulations thereunder, and the
effectiveness of such registration statement.
(4) "Registration Expenses" shall mean all expenses incurred
by the Company in compliance with Section 7b hereof other than
Selling Expenses, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses,
22
and the expense of any special audits incident to or
required by any such registration (but excluding the compensation
of regular employees of the Company, which shall be paid in any
event by the Company).
(5) "Selling Expenses" shall mean all underwriting discounts
and selling commissions applicable to the sale of Registrable
Securities, all fees and disbursements of counsel for the
Investor and any blue sky fees and expenses excluded from the
definition of "Registration Expenses."
(6) "Other Shareholders" shall mean holders of securities of
the Company who are entitled by contract with the Company to have
securities included in a registration of the Company's
securities.
b. Company Registration.
(1) Notice of Registration. If the Company shall determine
to register any of its securities either for its own account or
the account of a security holder or holders exercising their
respective demand registration rights, other than a registration
relating solely to employee benefit plans, or a registration
relating solely to a Commission Rule 145 transaction, or a
registration on any registration form which does not permit
secondary sales, the Company will:
(a) promptly give to the Investor written notice
thereof (which shall include a list of the jurisdictions in
which the Company intends to attempt to qualify such
securities under the applicable blue sky or other state
securities laws); and
23
(b) include in such registration (and any related
qualification under blue sky laws or other compliance), and
in any underwriting involved therein, except as set forth in
Section 7b(2) below, all the Registrable Securities
specified in a written request or requests, made by the
Investor within fifteen (15) days after receipt of the
written notice from the Company described in clause (i)
above.
(2) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Investor as part of
the written notice given pursuant to Section 7b(a)(1). In such
event, the right of the Investor to registration pursuant to this
Section 7b shall be conditioned upon the Investor's participation
in such underwriting and the inclusion of the Investor's
Registrable Securities in the underwriting to the extent provided
herein. In the event the Investor proposes to distribute its
securities through such underwriting, the Investor shall
(together with the Company and the Other Shareholders
distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the
underwriter or underwriters selected for underwriting by the
Company.
Notwithstanding any other provision of this Section 7b, if
the underwriter determines that marketing factors require a
limitation on the number of shares to be underwritten, the
underwriter may (subject to the allocation priority set forth
below) exclude from such registration and underwriting some of
the
24
Registrable Securities which would otherwise be underwritten
pursuant hereto. The Company shall so advise all holders of
securities requesting registration, and the number of shares of
securities that are entitled to be included in the registration
and underwriting shall be allocated in the following manner. The
number of shares that may be included in the registration and
underwriting on behalf of the Investor and Other Shareholders
shall be allocated among the Investor and other Shareholders in
proportion, as nearly as practicable, to the respective amounts
of Registrable Securities and other securities which they had
requested to be included in such registration at the time of
filing the registration statement.
If the Investor disapproves of the terms of any such
underwriting, the Investor may elect to withdraw therefrom by
written notice to the Company and the underwriter. Any
Registrable Securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
(3) Demand Registration; Evergreen Registration.
Notwithstanding anything to the contrary set forth above, the
Investor shall also have the unqualified and unconditional right
at any time and from time to time to demand the registration of
Registrable Securities, in which case the Company shall proceed
with such registration as provided in this Section 7, provided,
however, that the Investor shall not have such unqualified and
unconditional right to demand the registration of Registrable
Securities while the Company is registering its securities
pursuant to a registered public offering pursuant to Section
7b(2). The
25
Company shall keep any such Registration Statement effective
(or "evergreen") for the earlier of (i) one hundred twenty (120)
days or (ii) until such time as all Registrable Securities
registered thereunder shall have been sold; provided, however, in
the case of any registration of Registrable Securities on Form
S-3 which are intended to be offered on a continuous or delayed
basis, such one hundred twenty (120) day period shall be extended
if necessary to keep the registration statement effective until
all such Registrable Securities are sold, provided that Rule 415
or any successor rule under the Securities Act permits an
offering on a continuous or delayed basis and provided further
that applicable rules under the Securities Act governing the
obligation to file a post-effective amendment permit, in lieu of
filing a post-effective amendment which (i) includes my
prospectus required by Section 10(a)(3) of the Securities Act or
(ii) reflects facts or events representing a material or
fundamental change in the information set forth in the
registration statement, the incorporation by reference in the
registration statement of information required to be included in
clauses (i) and (ii) above which is contained in periodic reports
filed pursuant to Sections 13 or 15(d) of the Securities Exchange
Act of 1933, as amended.
c. Expenses of Registration. The Company shall bear all
Registration Expenses up to $60,000 incurred in connection with any
registration, qualification and compliance by the Company pursuant to
Section 7b(2) and (3) hereof together with all expenses incurred in
connection with keeping such Registration Statement
26
"evergreen"; provided, however, if a demand for registration
shall occur within two (2) years of the Closing Date, the Registration
Expenses shall be borne by the Investor but in such case the Company
shall nevertheless be responsible for all expenses incurred in
connection with keeping such Registration Statement "evergreen." All
Selling Expenses shall be borne by the Investor.
d. Registration Procedures. In the case of each registration
effected by the Company pursuant to this Section 7, the Company will
keep the Investor advised in writing as to the initiation of such
registration and as to the completion thereof. The Company will, at
its expense:
(1) keep such registration effective for a period of one
hundred twenty (120) days (as such period may be extended
pursuant to Section 7b(3)) or until the Investor has completed
the distribution described in the registration statement relating
thereto, whichever first occurs;
(2) furnish such number of prospectuses and other documents
incident thereto as the Investor from time to time may reasonably
request; and
(3) use its best efforts to register or qualify the
Registrable Securities under the securities laws or blue-sky laws
of such jurisdictions as the Investor may reasonably request;
provided, however, that the Company shall not be obligated to
register or qualify such Registrable Securities in any particular
jurisdiction in which the Company would be required to execute a
general consent to service of process in order to effect such
27
registration, qualification or compliance unless the Company
is already subject to service in such jurisdiction and except as
may be required by the Securities Act or applicable rules or
regulations thereunder.
e. Indemnification.
(1) The Company, with respect to each registration,
qualification and compliance effected pursuant to this Section 7,
will indemnify and hold harmless the Investor, each of its
officers, directors and partners, and each party controlling the
Investor against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular or other document
(including any related registration statement, notification or
the like) incident to any such registration, qualification or
compliance or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any
violation by the Company of the Securities Act or any rule or
regulation thereunder applicable to the Company and relating to
any action or inaction required of the Company in connection with
any such registration, qualification or compliance, and will
reimburse the Investor, its officers, directors and partners, and
each party controlling the Investor, for any legal and any other
expenses incurred in connection with investigating or defending
any such claim, loss, damage, liability or action, provided that
the Company will not be liable
28
in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based on any
untrue statement or omission furnished to the Company by the
Investor.
(2) The Investor will, if Registrable Securities held by the
Investor are included in the securities as to which such
registration, qualification or compliance is being effected,
indemnify and hold harmless the Company, each of its directors
and officers, each party who controls the Company, each Other
Shareholder and each of their respective officers, directors and
partners, and each party controlling such Other Shareholder,
against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus,
offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, and will reimburse the Company and such Other
Shareholders, directors, officers, partners, parties, or control
persons for any legal or any other expenses reasonably incurred
in connection with investigating or defending any such claim,
loss, damage, liability or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in
such registration statement, prospectus, offering circular or
other document in reliance upon and in conformity with
information furnished to the Company by the Investor.
29
(3) Each party entitled to indemnification under this
Section 7e (the "Indemnified Party") shall give notice to the
party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual
knowledge of any claim as to which indemnity may be sought, and
shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense
of such claim or any litigation resulting therefrom, shall be
approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may
participate in such defense at such party's expense (unless the
Indemnified Party shall have been advised by counsel that actual
or potential differing interests or defenses exist or may exist
between the Indemnifying Party and the Indemnified Party, in
which case such expense shall be paid by the Indemnifying Party),
and provided further that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying
Party of its obligations under this Section 7. No Indemnifying
Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation.
f. Information by The Investor. The Investor shall furnish to the
Company such information regarding the Investor
30
as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification
or compliance referred to in this Section 7.
g. Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to:
(1) Make and keep current public information concerning the
Company available, as those terms are understood and defined in
Rule 144 under the Securities Act;
(2) Use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the
Company under the Securities Act and the Securities Exchange Act
of 1934, as amended, at any time after it has become subject to
such reporting requirements; and
(3) So long as the Investor owns any Registrable Securities,
furnish to the Investor forthwith upon request a written
statement by the Company as to its compliance with the reporting
requirements of Rule 144 and of the Securities Act and the
Securities Exchange Act of 1934, as amended (at any time after it
has become subject to such reporting requirements), a copy of the
most recent annual or quarterly report of the Company, and such
other reports and documents so filed as the Investor may
reasonably request in availing itself of any rule or regulation
of the Commission allowing the Investor to sell any such
securities without registration.
31
8. Closing/Conditions to Closing. The closing of the transactions
contemplated by this Agreement shall take place at the offices of Xxxxxx,
Xxxxxx & Xxxxxxxx, 0 Xxxxxxxxxxxx Xxxxx, X.X. Xxx 0000, Xxxxxxxxxx, Xxx
Xxxxxx 079621991, or at such other location as shall be mutually agreed
upon by the parties, on or within five (5) business days of the fulfillment
of each of the following conditions precedent to closing (the "Closing
Date"):
a. The Company's Certificate of Incorporation shall have been
amended to increase the authorized shares of common stock in the
Company from 10,000,000 to 17,000,000 shares.
b. The bylaws of the Company shall have been amended to provide
that effective as of the Closing Date the number of directors cannot
be increased without the consent of the Investor for so long as the
Investor owns all of the Shares.
c. The Board of Directors of the Company shall have approved the
appointment to the Board of Directors of the Company of two (2)
members designated by the Investor effective as of the Closing Date.
9. Indemnity; Survival.
a. Indemnification by Investor. The Investor hereby agrees to
indemnify and hold harmless the Company, its officers and directors,
against any and all loss, liability, claim, damage and expense
whatsoever arising after the Closing Date out of or based upon any
false representation or warranty or breach by the Investor, or failure
by the Investor to satisfy any of its covenants or agreements
contained herein.
32
b. Indemnification by Company. The Company hereby agrees to
indemnify and hold harmless the Investor, its officers and directors,
against any an all loss, liability, claim, damage and expense
whatsoever arising after the Closing Date out of or based upon any
false representation or warranty or breach by the Company, or failure
by the Company to satisfy any of its covenants or agreements contained
herein.
10. Miscellaneous.
a. Governing Law. This Agreement shall be construed under the
laws of the State of New Jersey without giving effect to conflict of
laws rules of such State.
b. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors
and assigns.
c. Invalidity. If any provision of this Agreement is held to be
invalid or unenforceable by a court of competent jurisdiction, this
Agreement shall be interpreted and enforceable as if such provision
were severed or limited but only to the extent necessary to render
such provision and this Agreement enforceable.
d. Notices. Notices shall be effective on the day delivered by
hand and receipted, the second business day after delivery to a
recognized overnight courier service or seven days after delivery to
the United States Post Office proper postage prepaid sent registered
or certified mail, return receipt requested, addressed in each case as
follows:
33
If to the Company: GlenGate Apparel, Inc.
000 Xxxxxxxxx Xxxxxx
Xxxxxxxxxxxx, Xxx Xxxxxx 00000
Attn: Xxxxxx X. Xxxxxx, President
Phone: 000-000-0000
Fax: 000-000-0000
With a copy to: Xxxxxx, Xxxxxx & Xxxxxxxx
0 Xxxxxxxxxxxx Xxxxx
X.X. Xxx 0000
Xxxxxxxxxx, Xxx Xxxxxx 00000-0000
Attn: Xxxxxx X. Xxxxxxxx, Esq.
Phone: 000-000-0000
Fax: 000-000-0000
If to the Investor: American Marketing Industries Inc.
00000 Xxxxxx Xxxx
Xxxxxx Xxxx, Xxxxxxxx 00000
Attn: X.X. Xxxxx
Phone: 000-000-0000
Fax: 000-000-0000
With a copy to: Xxxxx Xxxx LLP
3500 One Kansas City Place
0000 Xxxx Xxxxxx
Xxxxxx Xxxx, Xxxxxxxx 000000000
Attn: Xxxxxxx X. Xxxx, Esq.
Phone: 000-000-0000
Fax: 000-000-0000
e. Captions. The headings contained herein are for the sole
purpose of convenience of reference, and shall not in any way limit or
affect the meaning or interpretation of any of the terms or provisions
of this Agreement.
f. Amendments. This Agreement may only be amended by a written
instrument executed by each of the parties hereto.
g. Entire Agreement. This Agreement (together with the other
agreements and documents delivered pursuant to or in connection with
this Agreement) constitute the entire agreement of the parties hereto
with respect to the subject matter hereof; and
34
supersede all prior agreements and understandings of the parties,
oral and written, with respect to the subject matter hereof.
h. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all
of which taken shall constitute one and the same agreement.
i. Monthly Statements. The Company will provide to Investor
monthly reports in such form as Investor may reasonably request within
fifteen (15) days after the end of each calendar month. In addition,
the Company will promptly provide the Investor with any reports or
documents filed with the Commission.
IN WITNESS WHEREOF, the undersigned have executed and delivered the
Agreement as of the date first above written.
GLENGATE APPAREL, INC.
By: /s/ Xxxxxx Xxxxxx, President
----------------------------------------
Name: Xxxxxx Xxxxxx
Title: President
AMERICAN MARKETING INDUSTRIES INC.
By: /s/ Xxxxx X. Xxxxxxx, President
--------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: President
35
EXHIBIT A
[OPTION TO EXERCISE FORM]
To be executed by the registered holder if
such holder desires to exercise the Option
To: GlenGate Apparel, Inc.
000 Xxxxxxxxx Xxxxxx
Xxxxxxxxxxxx, Xxx Xxxxxx 00000
The undersigned hereby irrevocably elects to exercise the
Option to purchase shares of Common Stock issuable upon the exercise of
-----
such Option And requests that Certificate for such shares be issued in the name
of:
--------------------------------------------------------------------------------
(Please print name and address)
--------------------------------------------------------------------------------
(Please insert social security or other identifying number)
--------------------------------------------------------------------------------
(Please insert number of shares exercised)
--------------------------------------------------------------------------------
(Please specify whether payment is in cash or Debentures)
If such number of shares of Common Stock shall not be all the shares of Common
Stock evidenced by the accompanying Option, a new Option for the balance
remaining of such shares of Common Stock shall be registered in the name of and
delivered to:
--------------------------------------------------------------------------------
(Please specify whether payment is in cash or Debentures)
--------------------------------------------------------------------------------
(Please insert social security or other identifying number)
[HOLDER]
By:
------------------------------------------
Dated:
---------------------
