AGREEMENT AND PLAN OF MERGER
EVERLAST WORLD'S BOXING HEADQUARTERS CORP.
EVERLAST HOLDING CORP.
EVERLAST WORLDWIDE INC.
(f/k/a Active Apparel Group, Inc.)
ACTIVE APPAREL NEW CORP.
AND THE
STOCKHOLDERS LISTED ON SCHEDULE I HERETO
As of August 21, 2000
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TABLE OF CONTENTS
Page
ARTICLE I TRANSACTIONS AND TERMS OF THE MERGER; EXCHANGE OF SHARES............1
Section 1.1 Merger......................................................2
Section 1.2 Time and Place of Closing...................................2
Section 1.3 Effective Time..............................................2
Section 1.4 Charter.....................................................2
Section 1.5 Bylaws......................................................2
Section 1.6 Directors and Officers......................................2
Section 1.7 Consideration...............................................2
Section 1.8 Exchange Procedures.........................................3
Section 1.9 Rights of Former Stockholders of Everlast...................3
Section 1.10 Make-Whole Adjustment......................................4
ARTICLE II REPRESENTATIONS AND WARRANTIES OF EVERLAST,
EVERLAST HOLDING AND BEN NADORF..........................................5
Section 2.1 Corporate Existence..........................................5
Section 2.2 Authorization; Validity......................................5
Section 2.3 No Breach of Statute or Contract.............................6
Section 2.4 Subsidiaries.................................................6
Section 2.5 Capitalization...............................................6
Section 2.6 Financial Statements.........................................6
Section 2.7 Absence of Certain Changes or Events.........................7
Section 2.8 Liabilities..................................................9
Section 2.9 Taxes........................................................9
Section 2.10 Proprietary Rights..........................................10
Section 2.11 Insurance...................................................11
Section 2.12 Litigation..................................................11
Section 2.13 Compliance with Laws........................................11
Section 2.14 Employee Benefit Plans......................................12
Section 2.15 Labor Matters...............................................15
Section 2.16 Environmental Matters.......................................16
Section 2.17 Illegal Payments............................................17
Section 2.18 Business Relationships......................................18
Section 2.19 Suppliers and Customers.....................................18
Section 2.20 Restrictive Documents or Laws...............................18
Section 2.21 Properties..................................................18
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Section 2.22 Contracts and Commitments...................................20
Section 2.23 Accounts Receivable.........................................20
Section 2.24 Officers, Employees and Compensation........................20
Section 2.25 Banks; Safe Deposit Boxes...................................21
Section 2.26 Books of Account; Records...................................21
Section 2.27 Complete Disclosure.........................................21
Section 2.28 Formation and Authority of Everlast Holding.................21
ARTICLE III REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS...................22
Section 3.1 Shares.......................................................22
Section 3.2 Stockholder's Addresses, Access to Information,
Experience, Etc..............................................22
Section 3.3 Purchase Entirely for Own Account............................22
Section 3.4 Restricted Securities........................................22
Section 3.5 Legends......................................................23
Section 3.6 Brokers......................................................24
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF AAGP AND
NEW CORP.................................................................24
Section 4.1 Corporate Existence..........................................24
Section 4.2 Authorization; Validity......................................24
Section 4.3 Capitalization...............................................25
Section 4.4 Litigation 25
Section 4.5 No Breach of Statute or Contract.............................25
Section 4.6 SEC Reports and Financial Statements.........................26
Section 4.7 Absence of Undisclosed Liabilities...........................26
Section 4.8 Complete Disclosure..........................................26
Section 4.9 Formation and Authority of New Corp..........................26
Section 4.10 Filings.....................................................27
ARTICLE V COVENANTS..........................................................27
Section 5.1 Covenant Against Distribution................................27
Section 5.2 Covenant Against Disclosure..................................28
Section 5.3 Covenant Against Hiring......................................29
Section 5.4 Injunctive Relief............................................29
Section 5.5 Severability.................................................30
Section 5.6 Further Assurances...........................................30
Section 5.7 Announcements................................................30
Section 5.8 Consents.....................................................30
Section 5.9 George Horowitz Agreements...................................30
Section 5.10 Ben Nadorf Employment Agreement.............................30
Section 5.11 David Shechet Consulting Agreement..........................31
Section 5.12 Wayne Nadorf Employment Agreement...........................31
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Section 5.13 George Horowitz Option Agreement............................31
Section 5.14 Registration Rights Agreement...............................31
Section 5.15 Title Documents Agreements..................................31
Section 5.16 Life Insurance..............................................31
Section 5.17 Substance Constitute........................................31
Section 5.18 Health Insurance............................................32
ARTICLE VI CLOSING DOCUMENTS.................................................32
Section 6.1 Deliveries by Stockholders...................................32
Section 6.2 Deliveries by AAGP and New Corp..............................33
ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS..............................34
Section 7.1 Conditions to Obligations of AAGP and New Corp...............34
Section 7.2 Conditions to Obligations of Stockholders and Everlast.......36
ARTICLE VIII INDEMNIFICATION.................................................37
Section 8.1 Survival of Representations, Warranties and Agreements.......37
Section 8.2 Indemnification..............................................38
Section 8.3 Limitations on Indemnification...............................39
Section 8.4 Procedure for Indemnification with
Respect to Third-Party Claims................................40
Section 8.5 Procedure For Indemnification with
Respect to Non-Third-Party Claims............................41
ARTICLE IX MISCELLANEOUS PROVISIONS..........................................41
Section 9.1 Notices 41
Section 9.2 Entire Agreement.............................................42
Section 9.3 Binding Effect; Assignment...................................42
Section 9.4 Captions 42
Section 9.5 Expenses of Transaction......................................42
Section 9.6 Waiver; Consent..............................................43
Section 9.7 No Third Party Beneficiaries.................................43
Section 9.8 Counterparts.................................................43
Section 9.9 Gender 43
Section 9.10 Governing Law and Jurisdiction..............................43
Section 9.11 Termination.................................................44
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Index of Schedules and Exhibits (OMITTED)
Schedules
Description
Schedule I (List of Stockholders - Stockholders)
Schedule 2.2 (Necessary Third Party Approvals)
Schedule 2.3 (Potentially Conflicting Agreements)
Schedule 2.4 (Subsidiaries)
Schedule 2.6 (Other Liabilities Not Reflected in Financial Statements)
Schedule 2.7 (Certain Changes)
Schedule 2.8 (Material Liabilities)
Schedule 2.9 (Audits and Other Tax Matters)
Schedule 2.10 (Intellectual Property)
Schedule 2.11 (Insurance Policies)
Schedule 2.12 (Litigation)
Schedule 2.13(b) (Permits)
Schedule 2.14 (Employee Plans)
Schedule 2.14(a) (Pension Plans)
Schedule 2.14(b) (Employee Benefit Plans and Benefit Trusts)
Schedule 2.14(h) (Pension Plan Reportable Events)
Schedule 2.14(i) (Certain Payments Due to Employees)
Schedule 2.14(j) (Presence of Stock in Certain Plans)
Schedule 2.14(k) (Deficiencies)
Schedule 2.14(l) (Pension Benefit Guaranty Corporation Payments)
Schedule 2.14(m) (Investigations or Suits Against Certain Plans)
Schedule 2.14(n) (Benefits Due to Employees)
Schedule 2.14(o) (Liabilities for Failure to Provide Health Care)
Schedule 2.15 (Labor Matters)
Schedule 2.16 (Environmental Matters)
Schedule 2.18 (Changes to Business Relationships)
Schedule 2.19 (Cancellations of Supplier or Customer Relationships)
Schedule 2.20 (Restrictive Documents or Laws)
Schedule 2.21(a) (Leases and Defaults Thereof)
Schedule 2.21(b) (Permitted Liens)
Schedule 2.21(e) (Financing Statements)
Schedule 2.21(f) (Personal Property Valued Above $10,000)
Schedule 2.22 (Contracts and Encumbrances Thereof)
Schedule 2.24 (Employee Compensation)
Schedule 2.25 (Bank Accounts)
Schedule 3.1 (Restrictions on Shares)
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Schedule 4.3 (List of Option Holders)
Schedule 4.10 (Government Consents Required)
Exhibits
Exhibit A (Certificate of Designation of Redeemable Participating
Preferred Stock)
Exhibit B (Form of Ben Nadorf Employment Agreement)
Exhibit C (Form of Wayne Nadorf Employment Agreement)
Exhibit D (Form of David Shechet Consulting Agreement)
Exhibit E (Form of George Horowitz Option Agreement)
Exhibit F (Form of Registration Rights Agreement)
Exhibit G (Form of Legal Opinion of Counsel to Everlast, Everlast
Holding and Stockholders)
Exhibit H (Form of Legal Opinion of Counsel to Active Apparel
Group, Inc. and Active Apparel New Corp.)
Exhibit I (Environmental Matters Representations and Warranties
Definitions)
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated as of August 21,
2000, is by and among Everlast World's Boxing Headquarters Corp., a New York
corporation ("Everlast"), Everlast Holding Corp., a Delaware corporation and
parent corporation of Everlast ("Everlast Holding"), each of the stockholders
listed on Schedule I hereto (each a "Stockholder" and collectively,
"Stockholders"), Everlast Worldwide Inc. (f/k/a Active Apparel Group, Inc.), a
Delaware corporation ("AAGP"), and Active Apparel New Corp., a Delaware
corporation and a wholly-owned subsidiary of AAGP ("New Corp.").
W I T N E S S E T H:
- - - - - - - - - -
PREAMBLE
The Boards of Directors of Everlast, Everlast Holding,
AAGP and New Corp. are of the opinion that the transactions described herein are
in the best interests of the parties and their respective stockholders. This
Agreement provides for the acquisition of Everlast Holding, and indirectly its
wholly-owned subsidiary Everlast, by AAGP pursuant to a merger whereby Everlast
Holding merges with and into New Corp. At the effective time of the Merger (as
hereinafter defined), the outstanding shares of the capital stock of Everlast
Holding, no par value per share (the "Everlast Common Stock") shall be converted
into (i) the shares of Common Stock, $ .002 par value per share, of AAGP (the
"AAGP Common Stock"), and (ii) shares of Redeemable Participating Preferred
Stock of AAGP. As a result, Stockholders shall become shareholders of AAGP,
Everlast Holding shall be merged into New Corp. and shall cease to exist, and
New Corp. shall continue to conduct the business and operations of Everlast as a
wholly-owned subsidiary of AAGP.
The transactions described in this Agreement have been
approved by Stockholders, who constitute all of the stockholders of Everlast
Holding, and the satisfaction of certain other conditions described in this
Agreement.
It is the intention of the parties to this Agreement
that the Merger shall qualify for federal income tax purposes as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code, as amended (the "Code").
NOW, THEREFORE, in consideration of the above and the
mutual warranties, representations, covenants, and agreements set forth herein,
the parties agree as follows:
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ARTICLE I
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TRANSACTIONS AND TERMS OF THE MERGER; EXCHANGE OF SHARES
--------------------------------------------------------
Section 1.1 Merger. Subject to the terms and conditions
of this Agreement, at the Effective Time (as hereinafter defined), Everlast
Holding shall be merged with and into New Corp. in accordance with the
provisions of Section 251 of the Delaware General Corporation Law (the "DGCL")
and with the effect provided in Sections 259 and 261 of the DGCL (the "Merger").
New Corp. shall be the surviving corporation of the Merger (the "Surviving
Corporation"), shall continue to be a wholly-owned subsidiary of AAGP and
governed by the laws of the State of Delaware. The Merger shall be consummated
pursuant to the terms of this Agreement, which has been approved and adopted by
the respective Boards of Directors of Everlast, Everlast Holding, AAGP and New
Corp. and approved by each Stockholder.
Section 1.2 Time and Place of Closing. The closing of
the transactions contemplated hereby (the "Closing") will take place on the date
that the Effective Time occurs but in no event later than, or at such other time
as the parties, acting through their authorized officers, may mutually agree
(the date on which such closing occurs being hereinafter referred to as the
"Closing Date"). The Closing shall be held at the office of AAGP's counsel,
Olshan Grundman Frome Rosenzweig & Wolosky LLP, 505 Park Avenue, New York, New
York 10022-1170.
Section 1.3 Effective Time. The Merger and other
transactions contemplated by this Agreement shall become effective on the date
and at the time the Certificate of Merger reflecting the Merger (the
"Certificate of Merger") shall become effective with the Secretary of State of
the State of Delaware (the "Effective Time").
Section 1.4 Charter. The Certificate of Incorporation of
New Corp. in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation until otherwise
amended or repealed.
Section 1.5 Bylaws. The Bylaws of New Corp. in effect
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Corporation until otherwise amended or repealed.
Section 1.6 Directors and Officers. The directors and
officers of New Corp. in office immediately prior to the Effective Time,
together with such additional persons as may thereafter be elected, shall serve
as the respective directors and officers of the Surviving Corporation from and
after the Effective Time in accordance with the Bylaws of the Surviving
Corporation.
Section 1.7 Consideration. Subject to the provisions of
this Section 1.7 through Section 1.9 hereof, at the Effective Time, by virtue of
the Merger and without any action on the part of Everlast, Everlast Holding,
AAGP, New Corp. or the stockholders of any of the foregoing, the shares of the
constituent corporations to the Merger shall be converted as follows:
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(a) Each share of AAGP Common Stock issued and
outstanding immediately prior to the Effective Time shall remain issued and
outstanding from and after the Effective Time.
(b) Each share of common stock, $.01 par value of New
Corp. (the "New Corp Common Stock") issued and outstanding immediately prior to
the Effective Time shall remain issued and outstanding from and after the
Effective Time.
(c) All of the shares of Everlast Common Stock issued
and outstanding at the Effective Time shall cease to be outstanding. The
Stockholders will then be issued or delivered, as the case may be, the following
consideration for the Everlast Common Stock:
(i) 125,000 shares of AAGP Common Stock (the
"Payment Shares") to be issued and delivered by
AAGP to each Stockholder as set forth next to each
such Stockholder's name on Schedule I hereto.
(ii) 380,000 Shares of additional Common Stock (the
"Additional Shares") to be issued and delivered by
AAGP to each Stockholder as set forth next to each
such Stockholder's name on Schedule I hereto.
(iii) 45,000 Shares of Redeemable Participating
Preferred Stock of AAGP in the form set forth as
Exhibit A hereto (the "Redeemable Preferred Stock")
and having an aggregate redemption value of $45
million. AAGP shall issue and deliver to each
Stockholder such number of shares of Redeemable
Preferred Stock as set forth next to each such
Stockholder's name on Schedule I hereto.
(iv) $10 million in cash. AAGP shall pay to each
Stockholder such amount as set forth next to each
such Stockholder's name on Schedule I hereto.
Section 1.8 Exchange Procedures. At the Closing, each
holder of shares of Everlast Common Stock issued and outstanding at the
Effective Time shall surrender the certificate or certificates representing such
shares to AAGP and shall promptly upon surrender thereof receive in exchange
therefor the consideration provided in Section 1.7(c) of this Agreement. The
certificate or certificates of Everlast Common Stock so surrendered shall be
duly endorsed in blank for transfer or accompanied by separate stock powers duly
executed in blank.
Section 1.9 Rights of Former Stockholders of Everlast.
At the Effective Time, the stock transfer book of Everlast Holding shall be
closed as to holders of Everlast Common Stock immediately prior to the Effective
Time and no transfer of Everlast Common Stock by any such holder shall
thereafter be made or recognized. Until surrendered for exchange in accordance
with the provisions of Section 1.8 of this Agreement, each certificate
theretofore representing shares of
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Everlast Common Stock shall from and after the Effective Time represent for all
purposes only the right to receive the consideration provided in Sections 1.7(c)
of this Agreement in exchange therefor, subject, however, to Everlast Holding's
obligation to pay any dividends or make any other distributions with a record
date prior to the Effective Time which have been declared or made by Everlast
Holding in respect of its shares of Everlast Common Stock in accordance with the
terms of this Agreement and which remain unpaid at the Effective Time. Whenever
a dividend or other distribution is declared by AAGP on the AAGP Common Stock,
the record date for which is at or after the Effective Time, the declaration
shall include dividends or other distributions on all AAGP Common Stock issuable
pursuant to this Agreement, but no dividend or other distribution payable to the
holders of record of AAGP Common Stock as of any time subsequent to the
Effective Time shall be delivered to the holder of any certificate representing
shares of Everlast Common Stock issued and outstanding at the Effective Time
until such holder surrenders such certificate for exchange as provided in
Section 1.8 of this Agreement. However, upon surrender of such certificate, the
AAGP Common Stock certificate (together with all such undelivered dividends or
other distributions without interest), any undelivered dividends and cash
payments payable hereunder (without interest), and the Redeemable Preferred
Stock shall be delivered with respect to each share represented by such
certificate.
Section 1.10 Make-Whole Adjustment. (a) In the event
that, on the fifth anniversary of the Closing Date, the sum of (i) the Gross
Proceeds (as defined herein) received by the Stockholders from the sale of the
Additional Shares, and (ii) the Market Value (as defined herein) of any
remaining Additional Shares then held by the Stockholders, is less than $5
million (the "Deficit"), AAGP shall issue pro-rata to the Stockholders a number
of additional shares of AAGP Common Stock (the "Make-Whole Shares") equal to the
Deficit divided by the Market Value; provided, however, that if such issuance
results in the Stockholders holding in excess of 20% of the outstanding shares
of AAGP Common Stock, AAGP may satisfy all or any portion of the Deficit through
a cash payment made within sixty (60) days after the fifth anniversary of the
Closing Date. For purposes of this Section 1.10, Gross Proceeds shall be the
aggregate sales price received by the Stockholders from the sale of Additional
Shares (prior to any deduction of sales commissions or similar charges). Market
Value means (i) if shares of the Common Stock are listed or admitted for trading
on a national securities exchange, the average of the bid and ask prices at the
close of each trading day of a share of Common Stock on the Nasdaq Small Cap
Market, or the Corporation's then principal trading market, for the 10
consecutive trading days ending on the second business day prior to the fifth
year anniversary of the Closing Date or (ii) if no such quotations are available
for such 10-day period, as determined in good faith by the Board of AAGP. Also
for purposes of this Section 1.10, any sales by the Stockholders of AAGP Common
Stock shall be deemed to be sales of Additional Shares.
(b) If AAGP agrees to merge or consolidate with another entity and
AAGP is not the surviving entity upon consummation of such merger or
consolidation, and the closing of such transaction occurs prior to the five year
anniversary of the Closing Date, the entity surviving such transaction shall
have the obligation to issue to the Stockholders, at its option and on the five
year anniversary of the Closing Date, additional shares of the surviving entity
whose aggregate market
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value is equal to what the Stockholders would have received if the merger or
consolidation transaction did not occur, or cash in an amount equal to the
Deficit.
ARTICLE II
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REPRESENTATIONS AND WARRANTIES OF EVERLAST HOLDING,
---------------------------------------------------
EVERLAST AND BEN NADORF
-----------------------
Everlast Holding, Everlast, and Ben Nadorf hereby,
jointly and severally, represent and warrant to AAGP and New Corp. as of the
date hereof as follows:
Section 2.1 Corporate Existence. Everlast Holding,
Everlast and the subsidiaries set forth on Schedule 2.4 (each a "Subsidiary" and
collectively, the "Subsidiaries") are corporations duly organized, validly
existing and in good standing under the laws of their jurisdiction of
incorporation and have the corporate power to own, operate or lease their
properties and to carry on their businesses as now being conducted. Complete and
correct copies of the Certificates of Incorporation of Everlast Holding,
Everlast and the Subsidiaries, and all amendments thereto, certified by the
Secretary of State of their respective States of incorporation, and of the
By-Laws of Everlast Holding, Everlast and the Subsidiaries, and all amendments
thereto, certified by the Secretaries of Everlast Holding, Everlast and the
Subsidiaries, respectively, have been heretofore delivered to AAGP and New Corp.
Section 2.2 Authorization; Validity. Everlast, Everlast
Holding, and the Stockholders have all requisite corporate power and authority
to enter into this Agreement, perform its obligations hereunder and to
consummate the transactions contemplated hereby without the approval of any
third party except as listed on Schedule 2.2 hereto. All necessary corporate
action has been taken by Everlast, Everlast Holding and the Stockholders with
respect to the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby. The execution and delivery
of this Agreement and the performance by Everlast Holding and Everlast of its
obligations hereunder have been duly authorized by their Boards of Directors and
no further authorization on the part of Everlast Holding and Everlast is
necessary to authorize the execution and delivery by them of, and the
performance of their obligations under, this Agreement. Except as set forth on
Schedule 2.2 hereto, there are no corporate, contractual, statutory or other
restrictions of any kind upon the power and authority of Everlast Holding and
Everlast to execute and deliver this Agreement and to consummate the
transactions contemplated hereunder and no action, waiver or consent by any
foreign, Federal, state, municipal or other governmental department, commission
or agency ("Governmental Authority") is necessary to make this Agreement an
instrument binding upon Everlast Holding, Everlast and the Stockholders in
accordance with its terms. This Agreement has been duly executed and delivered
by Everlast Holding , Everlast and the Stockholders and constitutes, legal,
valid and binding obligations of Everlast Holding, Everlast and the
Stockholders, enforceable in accordance with their terms, except (i) as such
enforceability may be limited by or subject to any bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally, (ii) as such obligations are subject to general principles of
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equity and (iii) as rights to indemnity may be limited by federal or state
securities laws or by public policy.
Section 2.3 No Breach of Statute or Contract. Neither
the execution and delivery of any of this Agreement nor the consummation by
Everlast Holding, Everlast or the Stockholders of the transactions contemplated
hereby, nor compliance by Everlast Holding, Everlast or the Stockholders with
any of the provisions hereof, will violate or cause a default under any statute
(domestic or foreign), judgment, order, writ, decree, rule or regulation of any
court or Governmental Authority applicable to Everlast Holding, Everlast or any
Subsidiary, or any of their properties; breach or conflict with any of the
terms, provisions or conditions of the Certificates of Incorporation or By-Laws
of Everlast Holding, Everlast or any Subsidiary; or, except as provided on
Schedule 2.3 hereto, violate, conflict with or breach any agreement, contract,
mortgage, instrument, indenture or license to which Everlast Holding, Everlast
or any Subsidiary is a party or by which Everlast Holding, Everlast or any
Subsidiary is or may be bound, or constitute a default (in and of itself or with
the giving of notice, passage of time or both) thereunder, or result in the
creation or imposition of any encumbrance upon, or give to any other party or
parties any claim, interest or right, including rights of termination or
cancellation in, or with respect to, any of Everlast Holding's, Everlast's, or
any Subsidiary's properties or the shares of Everlast Common Stock.
Section 2.4 Subsidiaries. Everlast is a wholly-owned
subsidiary of Everlast Holding. Except as set forth on Schedule 2.4 hereto,
neither Everlast Holding nor Everlast has any other subsidiaries or equity
investments in any other corporation, association, partnership, joint venture or
other entity.
Section 2.5 Capitalization. Everlast authorized capital
stock consists of 100 shares, of which 62 shares are issued and outstanding,
included in which are 31 shares held in the treasury as shown in the Financial
Statements (as defined hereafter). All issued and outstanding shares of Everlast
capital stock are duly authorized and issued, fully paid and non-assessable.
Everlast Holding authorized capital stock consists of 31 shares, all of which
shares are issued and outstanding. No shares of Everlast Holding capital stock
are owned directly or indirectly by Everlast Holding. All issued and outstanding
shares of Everlast Holding capital stock are duly authorized and issued, fully
paid and non-assessable. There are no subscriptions, options, warrants, calls,
rights, contracts, commitments, understandings, restrictions or arrangements of
any kind relating to the issuance, sale or transfer of any shares of Everlast
Holding and Everlast capital stock including, without limitation, any rights of
conversion or exchange under any outstanding securities or other instruments.
There are no voting trusts or other agreements or understandings of any kind
with respect to Everlast Holding's and Everlast's outstanding capital stock.
Section 2.6 Financial Statements. The following
consolidated financial statements, together with the notes thereto, prepared by
Weinick, Sanders, Leventhal & Co., L.L.P., independent public accountants, will
have been previously delivered (or in the case of the compiled unaudited balance
sheet as of June 30, 2000 and the compiled unaudited consolidated statement of
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income and retained earnings for the six month ended June 30, 2000, will be
delivered) to AAGP and New Corp. (collectively the "Financial Statements"):
(a) audited consolidated balance sheets of Everlast and
its Subsidiaries as of December 31, 1999, 1998 and 1997
and compiled unaudited consolidated balance sheet of
Everlast and its Subsidiaries as of June 30, 2000 (the
"Balance Sheets");
(b) audited consolidated statements of income and
retained earnings of Everlast and its Subsidiaries for
the 12 month periods ended December 31, 1999, 1998 and
1997 and compiled unaudited consolidated statement of
income and retained earning of Everlast and its
Subsidiaries for the six month period ended June 30,
2000 (the "Income Statements"); and
(c) audited consolidated statements of cash flows of
Everlast and its Subsidiaries for the 12 month periods
ended December 31, 1999, 1998 and 1997 (the "Cash Flow
Statements").
The consolidated statements of Everlast World's Boxing Headquarters
and its Subsidiaries as of December 31, 1999, 1998, 1997 and for the years then
ended were prepared in accordance with generally accepted accounting principles
("GAAP") consistently applied. Except as disclosed by management on Schedule 2.6
hereto, Everlast and its Subsidiaries had at December 31, 1999 no liability or
obligation of any kind or manner, either liquidated, unliquidated, direct
accrued, absolute, contigent or otherwise, whether due or to become due, except
as incurred in the ordinary course of business , which required to be reflected
by GAAP in the financial statements and which were not accurately reflected in
the consolidated financial statements.
The compiled consolidated financial statements as of
June 30, 2000 and for the six months and three months then ended will be the
representations of management. Weinick Sanders Leventhal & Co., Everlast's
independent public accountants, has neither audited nor reviewed those
consolidated financial statements and supplementary information and,
accordingly, do not express an opinion or any other form of assurance on them.
The consolidated balance sheet at June 30, 2000 will show a cash balance of not
less than $14 million and Net Cash (as hereinafter defined) of not less than
$12.5 million. Net Cash shall mean total Cash minus Accounts Payable.
Section 2.7 Absence of Certain Changes or Events. Except
as set forth on Schedule 2.7 hereto, since December 31, 1999 there has not been
with respect to Everlast:
(a) Any change in its business operations (as now
conducted or as presently proposed to be conducted), assets,
properties or rights, prospects or condition (financial or
otherwise), or combination thereof (collectively, the "Business")
which reasonably could be expected to have a material adverse effect
on the Business as presently conducted, properties, assets,
liabilities, financial condition or operations of Everlast(a
"Material Adverse Effect").
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(b) Any transaction entered into or carried out other
than in the ordinary and usual course of its business including,
without limitation, any such transaction resulting in the incurrence
of liabilities or obligations;
(c) Any material change made in the methods of doing
business or in the accounting principles or practices or the method
of application of such principles or practices;
(d) Any mortgage, pledge, lien, security interest,
hypothecation, charge or other encumbrance imposed or agreed to be
imposed on or with respect to any of its properties which will not
be discharged prior to the Closing Date except for financing
statements filed by personal property lessors as a matter of
notification only or liens for taxes, assessments, governmental
charges or levies that are not yet due and payable, liens with
respect to the non-material claims of contractors, materialmen,
mechanics and similar persons, any liens or imperfections of title
which are matters of record which do not render title unmarketable
(collectively, "Permitted Liens");
(e) Except in the ordinary course of business and in a
manner consistent with past practice, any sale, lease or other
disposition of, or any agreement to sell, lease or otherwise dispose
of any of its properties, assets, individually or in the aggregate
in excess of $100,000 or any agreement to provide services for
consideration greater than $50,000;
(f) Except in the ordinary course of business and in a
manner consistent with past practice, any purchase of or any
agreement to purchase capital assets or any lease or any agreement
to lease, as lessee, any capital assets, individually or in the
aggregate in excess of $100,000;
(g) Any modification, waiver, change, amendment,
release, rescission or termination of, or accord and satisfaction
with respect to any term, condition or provision of any contract,
agreement, license or other instrument to which Everlast is a party,
other than any satisfaction by performance in accordance with the
terms thereof in the usual and ordinary course of its business;
(h) The execution of any contract, agreement, license or
other instrument by Everlast or the commitment to do any of the
foregoing;
(i) Any declaration of, or dividend or other
distribution to Everlast's stockholders, purchase, redemption or
reclassification of any of Everlast's capital stock or stock split,
stock dividend, exchange or recapitalization or execution of any
agreement in respect of the foregoing;
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(j) Any change in any assets, licenses, permits or
franchises (which change is material and adverse to the business),
financial condition, results of operations or prospects of Everlast,
or any change in the nature of the business, or manner of conducting
the business, of Everlast which has had, or may reasonably be
expected to have, a material adverse effect on its business,
financial condition, results of operations, prospects, assets,
licenses or permits;
(k) Any damage, destruction or similar loss, whether or
not covered by insurance, adversely affecting the Business;
(l) Any increase in the rate of compensation or in the
benefits payable or to become payable by Everlast to any of its
employees over the level in effect at December 31, 1999 other than
increases required by contracts disclosed pursuant hereto.
Section 2.8 Liabilities. Except as reflected on the
Financial Statements of Everlast as of December 31, 1999 or set forth on
Schedule 2.8 hereto, Everlast has no material liability or obligation of any
nature (whether liquidated, unliquidated, accrued, absolute, contingent or
otherwise and whether due or to become due).
Section 2.9 Taxes. Except as set forth on Schedule 2.9
hereto:
(a) Everlast and the Subsidiaries have duly filed all
federal, state, local and foreign tax returns and tax reports
required to be filed by them for all periods up to and including
December 31 1998 and is not beneficiary of any extension of time
within which to file such returns, all such returns and reports are
true, correct and complete, none of such returns and reports has
been amended, and all taxes, assessments, fees and other
governmental charges shown to be due under such returns and reports
have been fully paid for all periods up to, and including, December
31, 1998 or will be timely paid and all estimated tax payments for
the calendar year 2000 have been or will be timely paid; and with
respect to the tax returns for the year ended December 31, 1999, all
such returns will have been filed and payments shown to be due
therein will have been paid by Everlast by September 15, 2000
pursuant to a valid extension.
(b) As disclosed on Schedule 2.9, Everlast and the
Subsidiaries have pending federal tax audits and has not concluded
any agreement with any federal, state, local or foreign tax
authority that may affect the subsequent tax liabilities of Everlast
or any Subsidiary. To the extent such audits have been completed,
Schedule 2.9 hereto sets forth the dates and results of any and all
audits of federal, state, local and foreign tax returns of Everlast
and its Subsidiaries performed by federal, state, local or foreign
taxing authorities. No waivers of any applicable statutes of
limitations are outstanding. All deficiencies proposed as a result
of any completed audits have been paid or settled;
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(c) Neither Everlast nor any Subsidiary has any
liabilities for state or federal taxes based on income other than as
reflected on the Financial Statements or arising in the ordinary
course of business since December 31, 1999 except for possible
assessment that may arise as a result of ongoing or future audits.
(d) Everlast and the Subsidiaries have withheld and paid
all Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party;
(e) The Stockholders have delivered to AAGP correct and
complete copies of all federal and state income tax returns,
examination reports, and statements of deficiencies assessed against
or agreed to by Everlast and its Subsidiaries since January 1, 1996;
(f) Everlast and its Subsidiaries have not filed a
consent under Code ss.345(f) concerning collapsible corporations.
Everlast and its Subsidiaries have not made any payments, are not
obligated to make any payments, or are not parties to any agreement
that under certain circumstances could obligate them to make any
payments that will not be deductible under Code ss.280G. Neither
Everlast nor any of its Subsidiaries are parties to any tax
allocation or sharing agreement. Everlast and its Subsidiaries have
(a) not been members of an affiliated group filing a consolidated
federal income tax return (other than a group the common parent of
which was Everlast) or (b) any liability for the taxes of any other
person under Reg. ss.1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract,
or otherwise;
(g) Without limiting the foregoing, (i) the books and
records of Everlast and its Subsidiaries include adequate provision
(in accordance with GAAP) for all taxes and assessments and
governmental charges that have been assessed against Everlast and
its Subsidiaries for all periods ending on or prior to the Closing
Date, and (ii) Neither Everlast nor its Subsidiaries are, as of the
Closing Date, and will not be as of the Closing Date, liable for
taxes, assessments, fees or governmental charges for which Everlast
and its Subsidiaries have not made adequate provision on its books
and records except possible taxes and other charges resulting from
tax audits; and
(h) The Merger will not give rise to any New York City
or New York State real property transfer taxes.
Section 2.10 Proprietary Rights. Schedule 2.10 hereto
sets forth all patents, inventions, trade secrets, processes, proprietary
rights, proprietary knowledge, know-how, computer software, trademarks, names,
service marks, trade names, registered copyrights, symbols, logos, franchises
and permits of Everlast or any Subsidiary and all applications therefor,
registrations thereof and licenses, sublicenses or agreements in respect thereof
which Everlast or any Subsidiary own or has the right to use or to which
Everlast or any Subsidiary is a party and all filings, registrations or
issuances of any of the foregoing with or by any federal, state, local or
foreign
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regulatory, administrative or governmental office or offices (collectively, the
"Proprietary Rights"). Except as set forth on Schedule 2.10 hereto, Everlast or
any Subsidiary is the sole and exclusive owner of all right, title and interest
in and to all Proprietary Rights free and clear of all liens, claims, charges,
equities, rights of use, encumbrances and restrictions whatsoever. The Business
as conducted prior to the Closing Date was not, is not and will not be in
contravention of any patent, trademark, copyright or other Proprietary Right of
any third party.
Except as set forth on Schedule 2.10 hereto, none of the
Proprietary Rights has been hypothecated, sold, assigned or licensed by
Everlast, any of its Subsidiaries or any other person, corporation, firm or
other legal entity and none of the Proprietary Rights infringe upon or violate
the rights of any person, firm, corporation, or other legal entity. Everlast or
any Subsidiary has not given any indemnification against patent, trademark or
copyright infringement as to any equipment, materials, products, services or
supplies that Everlast or any Subsidiary uses, licenses or sells; there is not
pending or threatened any claim to sell, engage in or employ any such product,
process, method or operation.
Section 2.11 Insurance. Schedule 2.11 hereto lists all
policies of life, fidelity bonds, casualty, liability and other forms hereto of
insurance owned or held by Everlast, or owned and held by the licensees of
Everlast for the benefit of Everlast, true and complete copies of which have
been heretofore delivered to AAGP, and all such policies are currently in full
force and effect. Everlast and the Stockholders have not received any notice
from any insurer thereunder with respect to the cancellation of any such
insurance. All premiums due and payable on such policies have been paid. Other
than with respect to customary deductible amounts (which is $10,000 for product
liability claims), Everlast is not a co-insurer under any term of any insurance
policy. Everlast will use its best efforts to keep such policies duly in force
with all premiums paid through a date not less than 10 days after the Closing
Date.
Section 2.12 Litigation. Except as set forth on Schedule
2.12 hereto, there are no claims, actions, suits or proceedings pending or
threatened against or affecting Everlast Holding or Everlast (or any officer or
director of Everlast Holding or Everlast) or any of Everlast's properties,
before any federal, state, local or foreign court or other governmental body.
Everlast Holding or Everlast is not subject to or in default with respect to any
judgment, order, writ, injunction or decree or any governmental restriction.
Section 2.13 Compliance with Laws.
(a) Everlast Holding and Everlast is in compliance in
all material respects with all laws including, without limitation,
all Environmental Laws (as hereinafter defined), ordinances, rules,
codes, regulations and orders applicable to it, the Business and the
Properties (as hereinafter defined) and has no notice or knowledge
of any violations, whether actual, claimed or alleged, thereof.
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(b) Schedule 2.13(b) hereto lists all franchises,
licenses, permits, Environmental Permits (as hereinafter defined)
consents, authorizations, approvals and certificates of any
Governmental Authority or body used in conducting the Business or in
occupying and using each of the Properties (collectively, the
"Permits"). Each of the Permits is currently valid and in full force
and effect and the Permits constitute all franchises, licenses,
permits, consents, authorizations, approvals and certificates of any
regulatory, administrative or other governmental agency or body
necessary to the conduct of the Business or in occupying and using
each of the Properties. Everlast Holding and Everlast is not in
violation of any of the Permits and there is no pending or
threatened proceeding which could result in the revocation or
cancellation of, or inability of Everlast Holding and Everlast to
renew, any Permit. There are no Permits that are nontransferable or
require consent or other action to remain in full force and effect
following the consummation of the transactions contemplated hereby.
Section 2.14 Employee Benefit Plans. Schedule 2.14
hereto comprises a listing of each bonus, stock option, stock purchase, benefit,
profit sharing, savings, retirement, liability, insurance, incentive, deferred
compensation, and other similar fringe or employee benefit plans, programs or
arrangements for the benefit of or relating to, any employee of, or independent
contractor or consultant to, and all other compensation practices, policies,
terms or conditions, whether written or unwritten (the "Employee Plans") which
Everlast presently maintains, to which Everlast presently contributes or under
which Everlast has any liability and which relate to employees or independent
contractors of Everlast. The Employee Plans administered by Everlast have been
administered in all material respects in accordance with all requirements of
applicable law and terms of each such plan. Each Employee Plan that is required
or intended to be qualified under applicable law or registered or approved by a
governmental agency or authority, has been so qualified, registered or approved
by the appropriate governmental agency or authority and, to the best of
Everlast's or Stockholders' knowledge, nothing has occurred since the date of
the last qualification, registration or approval to adversely affect, or cause,
the appropriate governmental agency or authority to revoke such qualification,
registration or approval. All contributions (including premiums) in material
amounts required by law or contract to have been made or accrued by Everlast
under or with respect to any Employee Plan have been paid or accrued by
Everlast, as the case may be. Without limiting the foregoing, there are no
material unfunded liabilities under any Employee Plan. Neither Everlast nor the
Stockholders have received notice of any investigation, litigation or other
enforcement action against Everlast with respect to any of the Employee Plans.
There are no pending actions, suits or claims by former or present employees of
Everlast (or their beneficiaries) with respect to Employee Plans or the assets
or fiduciaries thereof (other than routine claims for benefits).
(a) Each "employee pension benefit plan," as defined in
section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), maintained by Everlast or any trade or business (whether or not
incorporated) which is under common control, or which is treated as a single
employer, with Everlast ("ERISA Affiliate") under section 414(b), (c), (m) or
(o) of the Internal Revenue Code of 1986, as amended (the "Code") or to which
Everlast or any ERISA
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Affiliate contributed or is obligated to contribute thereunder (the "Pension
Plans"), is listed on Schedule 2.14(a). All such plans that are intended to
qualify under section 401 et seq. of the Code do so qualify, the trusts
maintained pursuant thereto (the "Pension Trusts") that are intended to be
exempt from federal income taxation under section 501 of the Code are so exempt,
and Everlast has received a determination letter from the Internal Revenue
Service (the "IRS") with respect to each such Pension Plan and each such Pension
Trust to the effect that such Pension Plan is qualified and such Pension Trust
is exempt. No such determination letter has been revoked, no revocation has been
threatened and nothing has occurred with respect to the operation of any Pension
Plan that could reasonably be expected to cause such revocation. Except as
described on Schedule 2.14 (a), none of the Pension Plans or Pension Trusts have
been amended since the effective date of each respective determination letter.
(b) Each "employee welfare benefit plan," as defined in
section 3(1) of ERISA, each other employee benefit arrangement or payroll
practice, including, without limitation, all severance pay, sick leave, vacation
pay, salary continuation for disability, retirement, deferred compensation,
bonus, long-term incentive, stock option, stock purchase, hospitalization,
medical insurance, life insurance, and scholarship plans or programs maintained
by Everlast or to which Everlast contributed or is obligated to contribute
thereunder (all such plans being hereinafter referred to as the "Employee
Benefit Plans") and each trust maintained pursuant to an Employee Benefit Plan
(the "Benefit Trusts") is listed on Schedule 2.14(b). Everlast has received a
determination letter from the IRS with respect to each Employee Benefit Trust
that is intended to be exempt from federal taxation under section 501 of the
Code. No such determination letter has been revoked, no revocation has been
threatened, and nothing has occurred with respect to the operation of any
Employee Benefit Trust that could reasonably be expected to cause such
revocation. Except as described on Schedule 2.14(b), none of the Employee
Benefit Trusts have been amended since the effective date of each respective
determination letter.
(c) Everlast has delivered to AAGP (i) a true, correct,
and complete copy of each Pension Plan, including copies of all amendments made
since the most recent favorable determination letter, or Employee Benefit Plan,
or, in the case of any unwritten Employee Benefit Plan, descriptions thereof;
(ii) copies of the three most recent annual reports (Form 5500 series) filed
with the IRS with respect to each Pension Plan or Employee Benefit Plan for
which such report is required by applicable law, including, without limitation,
all schedules thereto and all financial statements with attached opinions of
independent accountants; (iii) the most recent summary plan description for each
Pension Plan or Employee Benefit Plan for which such a summary plan description
is required by applicable Law; (iv) each trust agreement and insurance or
annuity contract relating to any Pension Plan or Employee Benefit Plan; and (v)
each service agreement and other administrative contract relating to any Pension
Plan or Employee Benefit Plan.
(d) Everlast and any ERISA Affiliate have not incurred
any liability on account of a "partial withdrawal" or a "complete withdrawal"
(within the meaning of ERISA ss.ss.4205 and 4203, respectively) from any
multi-employer plan, no such liability has been asserted, and there are no
events or circumstances which could result in any such partial or complete
withdrawal; and
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Everlast and any ERISA Affiliate are not bound by any contract or agreement or
has any obligation or liability described in ERISA ss.4204. Each multi-employer
plan complies in form and has been administered in accordance with the
requirements of ERISA and, where applicable, the Code, and each multi-employer
plan is qualified under Code ss.401(a).
(e) There is no violation of ERISA, the Code or other
applicable law with respect to the filing of reports, returns, and other similar
documents required to be filed with any governmental agency with respect to any
Pension Plan or Employee Benefit Plan. All reports, returns or similar documents
required to be distributed to any Pension Plan or Employee Benefit Plan
participant have been timely distributed.
(f) The Pension Plans and Employee Benefit Plans have
been maintained and administered in accordance with their terms and with all
provisions of ERISA, the Code and other applicable Law, and neither Everlast or
any "party-in-interest" or "disqualified person" with respect to the Pension
Plans and the Employee Benefit Plans has engaged in a "prohibited transaction"
within the meaning of section 4975 of the Code or section 406 of ERISA. Everlast
and each ERISA Affiliate has performed all of its obligations currently required
to have been performed under all Pension Plans and Employee Benefit Plans. No
event has occurred that could subject Everlast, any ERISA Affiliate or any
Pension Trust or Employee Benefit Trust, as applicable, to any tax liability
arising under section 511 of the Code that has not been timely paid. Everlast
and all ERISA Affiliates have complied with all obligations imposed by section
4980B of the Code.
(g) None of Everlast, any trustee, administrator or
other fiduciary has engaged in any transaction or acted in a manner that could,
or failed to act so as to, subject Everlast or any fiduciary to any liability
for breach of fiduciary duty under ERISA or other applicable Law. With respect
to any Pension Plan and Employee Benefit Plan, Pension Trust or Employee Benefit
Trust, no insurance contract, annuity contract, or other agreement or
arrangement will impose a penalty, discount, sales charge, or other reduction on
account of the withdrawal of assets from such organization or the change in
investment or such assets.
(h) Except as disclosed on Schedule 2.14(h), there has
been no "reportable event" as that term is defined in section 4043 of ERISA and
the regulations thereunder with respect to the Pension Plans subject to Title IV
of ERISA that would require the giving of notice or any event requiring
disclosure under section 404(c)(3)(C) or 4063(a) of ERISA.
(i) Except as disclosed on Schedule 2.14(i), neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment becoming due to
any employee or group of employees; (ii) increase any benefits otherwise payable
under any Employee Benefit Plan or Pension Plan; or (iii) result in the
acceleration of the time of payment or vesting of any such benefits. Except as
disclosed on Schedule 2.14(i), there are no severance agreements, employment
agreements, or consulting agreements between Everlast and any employee or any
individual which provide for payments over a period in excess of one year or
which when aggregated with all such agreements or arrangements
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provides for total payments in excess of $100,000. True, correct and complete
copies of all such severance agreements, employment agreements and consulting
agreements have been provided to AAGP.
(j) Except as disclosed on Schedule 2.14(j) hereto, no
stock or other security issued by Everlast or any of its subsidiaries forms or
has formed a part of the assets of any Pension Plan or Employee Benefit Plan
within the last five years.
(k) Except as disclosed on Schedule 2.14(k), all
contributions to, and payments from, each Pension Plan and Employee Benefit Plan
that have been required to be made in accordance with the terms of such plans
and, when applicable, section 302 of ERISA or section 412 of the Code, have been
timely made; (ii) there has been no application for or waiver of the minimum
funding standards of section 412 of the Code with respect to the Pension Plan;
and (iii) none of the Pension Plans has an "accumulated funding deficiency"
within the meaning of section 412(a) of the Code as of the end of the most
recently completed plan year. As of the most recent valuation date for each
Pension Plan that is a "defined benefit pension plan," as defined in section
3(35) of ERISA (hereinafter a "Defined Benefit Plan"), there was not any amount
of "unfunded benefit liability." None of Stockholder nor Everlast is not aware
of any facts or circumstances that could change the funded status of any such
Defined Benefit Plan. Everlast has furnished AAGP with the most recent actuarial
report or valuation with respect to each Defined Benefit Plan.
(l) Except as disclosed on Schedule 2.14(l), all premium
payments due to the Pension Benefit Guaranty Corporation pursuant to section
4007 of ERISA prior to the date hereof have been timely paid.
(m) Except as disclosed on Schedule 2.14(m), there are
no investigations by any Governmental Authority, other claims, suits or
proceedings against or involving any Pension Plan or Employee Benefit Plan, and
no events of default that could give rise to liability to Everlast or any ERISA
Affiliate.
(n) Except as disclosed on Schedule 2.14(n), no employee
or former employee of Everlast or any ERISA Affiliate is, by reason of such
employee's or former employee's employment, entitled to receive any benefits,
including without limitation, death or medical benefits (whether or not insured)
beyond retirement or other termination of employment, other than (i) death or
retirement benefits under an Pension Plan; or (ii) continuation coverage
pursuant to section 4980B of the Code.
(o) Except as disclosed on Schedule 2.14(o), Everlast
has not incurred, nor, after the Closing, will Everlast or AAGP incur, any
liability under Section 4980B of the Code with respect to any failure to comply
by Everlast with the continuation health care coverage requirements of Section
4980B of the Code and Sections 601 and 608 of ERISA, which failure occurs with
respect to any person who is or was a qualified beneficiary of an Employee (as
defined in Section 4980B(g)(1) of the Code).
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Section 2.15 Labor Matters. Except as set forth on
Schedule 2.15 hereto, none of Everlast's employees is represented by any labor
union, association or other organization. Neither Everlast nor the Stockholders
have received any notice from any labor union, association or other
organization, other than those labor unions, association or other organizations
set forth in Schedule 2.15 hereto, that it represents or intends to represent
Everlast's employees. Everlast has complied with all applicable laws affecting
employment and employment practices, terms and conditions of employment and
wages and hours. Neither Everlast nor the Stockholders have received any notice
of and there is no complaint alleging unfair labor practices against Everlast
pending, or to the knowledge of Everlast or the Stockholders, threatened before
the National Labor Relations Board or any other charges or complaints pending,
or to the knowledge of Everlast or the Stockholders, threatened before the Equal
Employment Opportunity Commission, any state or local Human Rights Commission or
any other state or local agency in respect of labor or employment matters. No
labor strike, material dispute, slowdown or stoppage has occurred with respect
to Everlast's employees and there is no labor strike, material dispute, slowdown
or stoppage pending or, to the knowledge of Everlast, threatened with respect to
Everlast's employees. Schedule 2.15 hereto sets forth all pending grievances or
arbitration proceedings against Everlast with respect to Everlast' operation of
the Business.
Section 2.16 Environmental Matters. (a) The defined
terms used herein have meanings set forth on Exhibit I For purposes of this
Section 2.16, Everlast and Everlast Holding include any entity which is, in
whole or in part, a predecessor of Everlast or Everlast Holding, respectively.
(b) Except as disclosed on Schedule 2.16:
(i) no notice, notification, demand, request
for information, citation, summons,
complaint or order has been issued, no
complaint has been filed, no penalty has
been assessed and to Everlast's, Everlast
Holding's or Stockholder's knowledge, no
investigation, proceeding or review is
pending, or threatened by any governmental
entity or other person or entity with
respect to any (A) alleged violation by
Everlast or Everlast Holding, or to
Everlast's, Everlast Holdings's or
Stockholder's knowledge, any previous
occupants ("Previous Occupants") of any
property (individually, a "Property" and
collectively, the "Properties"), including,
without limitation, the Leased Real Property
and the Owned Real Property, now or
previously leased, owned or operated by
Everlast or Everlast Holding, of any
Environmental Law or liability thereunder,
(B) alleged failure by Everlast or Everlast
Holding, or to Everlast's , Everlast
Holding's or Stockholder's knowledge, by any
of the Previous Occupants, to have any
Environmental Permits, (C) Regulated
Activity on any of the Properties; (D)
Hazardous Substances Released on any of the
Properties; (E) condition which would give
rise to any liability of Everlast or
Everlast Holding under any Environmental
Laws;
(ii) (A) neither Everlast nor Everlast
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Holding or to Everlast's, Everlast
Holdings's or Stockholder's knowledge, any
Previous Occupants, has engaged in any
Regulated Activity and (B) no Regulated
Activity has occurred at or on any of the
Properties;
(iii) no polychlorinated biphenyls,
radioactive material, urea formaldehyde,
lead, asbestos, asbestos-containing material
or underground storage tank (active or
abandoned) is or has been present at any of
the Properties;
(iv) no Hazardous Substance has been
Released (and no notification of such
Release has been filed or made) or is
present (whether or not in a reportable or
threshold planning quantity) at, on or under
any of the Properties;
(v) neither Everlast nor Everlast Holding or
Stockholder have received any notice that it
is or may be liable under Environmental Laws
at any of the Properties or any property to
which Everlast or Everlast Holding has,
directly or indirectly, transported or
arranged for the transportation of, any
Hazardous Substances which is listed or, to
Everlast's, Everlast Holding's or
Stockholder's knowledge, proposed for
listing, on the National Priorities List
promulgated pursuant to CERCLA, on CERCLIS
(as defined in CERCLA) or on any similar
federal, state or foreign list of sites
requiring investigation or clean-up; and
(vi) there are no liens under Environmental
Laws on any of the Properties; no government
actions have been taken or are, to the
knowledge of Everlast, Everlast Holding or
Stockholder, in process, which could subject
any of such properties to such liens and
neither Everlast nor Everlast Holding are
now required to place any notice or
restriction relating to Hazardous Substances
on any deed to the Properties.
(c) AAGP may have an environmental audit of the Properties
conducted, which audit shall be conducted by a firm selected by AAGP at AAGP's
expense. Everlast Holding, Everlast and Stockholders shall cooperate in
connection therewith, including without limitation granting AAGP reasonable
access to any of the Properties.
(d) Except as identified on Schedule 2.16 hereto, there have been no
environmental studies, reports, investigations, audits, tests, reviews or other
analyses made or prepared relating to the current or prior business of Everlast
Holding or Everlast or any of the Properties which has not been delivered to
AAGP at least ten business days prior to the date hereof.
Section 2.17 Illegal Payments. Everlast has not, nor
have any of the Stockholders, directly or indirectly, paid or delivered any fee,
commission or other sum of money or item of
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property, however characterized, to any finder, agent, government official or
other party, in the United States or any other country, which is in any manner
related to the business or operations of Everlast, which Everlast or any of the
Stockholders know or have reason to believe to have been illegal under any
federal, state or local laws or the laws of any other country having
jurisdiction. Everlast and the Stockholders have not participated, jointly or
individually, directly or indirectly, in any boycotts affecting any of its
actual or potential customers.
Section 2.18 Business Relationships. Although there can
be no assurance that such relationships or arrangements will continue, except as
set forth on Schedule 2.18 hereto, Everlast and the Stockholders do not have
material business relationships or arrangements of any nature whatsoever which
they know or have reason to believe will not be available to the Surviving
Corporation, following the consummation of the transactions contemplated hereby,
on substantially the same terms or conditions as they are currently available to
Everlast.
Section 2.19 Suppliers and Customers. Except as set
forth on Schedule 2.19 hereto, no material supplier or customer of Everlast has
during the past twelve months canceled or otherwise terminated its services or
supplies to Everlast or its use or purchase of Everlast's products and services,
or has communicated any threat to Everlast's management to do so. Except as set
forth on Schedule 2.19 hereto, Everlast and Ben Nadorf do not have any knowledge
that any material supplier or customer intends to cancel or otherwise terminate
their relationship with Everlast or the usage or purchase of the products and
services of Everlast or that the transactions contemplated by this Agreement
will result in any such termination.
Section 2.20 Restrictive Documents or Laws. Except as
set forth on Schedule 2.20 hereto, neither Everlast Holding nor Everlast is a
party to or is bound under any, and there is no pending, proposed or, to the
best of Everlast Holding's, Everlast's and Ben Nadorf's knowledge, threatened
certificate, mortgage, lien, lease, agreement, contract, instrument, order,
judgment or decree, or any similar restriction which has, or reasonably could be
expected to have, a Material Adverse Effect with respect to Everlast.
Section 2.21 Properties.
(a) Schedule 2.21(a) hereto contains a correct and
complete schedule of all leases, subleases, easements, licenses and
other agreements of like kind, as amended, modified or supplemented
to date (collectively, the "Leases"), under which Everlast occupies
or has the right to occupy any real property (the land, buildings
and other improvements covered by the Leases being referred to
hereinafter as the "Leased Real Property.") Copies of all Leases
have been delivered to AAGP. Each Lease is valid, binding and in
full force and effect and enforceable against the parties thereto in
accordance with its respective terms; all rent and other sums and
charges payable by or to Everlast, as appropriate, as tenant,
sublessor or sublessee thereunder are current. Except as listed on
Schedule 2.21(a) hereto, no notice of default or termination under
any Lease is outstanding, no termination event or condition or
uncured default on the part of Everlast or, to Everlast's and Ben
Nadorf's
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knowledge, on the part of the counterparty, exists under any Lease,
and no event has occurred and no condition exists, and the
consummation of the transactions contemplated by this Agreement will
not create or result in an event or condition, which with the giving
of notice or the lapse of time (or both) would constitute such a
default or termination event or condition. Neither Ben Nadorf nor
Everlast has any ownership interest in the landlord under any Lease.
Everlast holds valid leasehold title to the properties identified on
Schedule 2.21(a).
(b) Everlast is owner of valid fee title to the real
property listed on Schedule 2.21(b) hereto (such real properties
being referred to hereinafter as the "Owned Real Property"), which
Schedule contains a complete legal description of each such parcel
of real property. Except for Permitted Liens and as listed on
Schedule 2.21(b) hereto, all real property and leasehold interests
of Everlast are held free and clear of all mortgages, liens,
security interests, covenants, restrictions or encumbrances of any
nature whatsoever and Everlast has furnished AAGP copies of all
title, engineering, geologic and environmental reports and surveys
prepared by or for Stockholders or Everlast in respect of such real
property or Leased Real Property.
(c) Neither Stockholders nor Everlast have received
notice, and Everlast has no knowledge of any pending or threatened
condemnation proceeding affecting any real property of Everlast or
any sale or other disposition of the real property of Everlast in
lieu of condemnation.
(d) Except as provided in the Leases, Everlast does not
own or hold, and is not obligated under or a party to, any option,
right of first refusal or any other contractual right to purchase,
acquire, sell or dispose of the real property of Everlast or any
portion thereof or interest therein.
(e) Except as listed on Schedule 2.21(e) hereto, no
financing statement under the Uniform Commercial Code or similar law
naming Everlast as debtor has been filed in any jurisdiction in
respect of any of its properties, and Everlast is not a party to or
bound under any agreement or legal obligation authorizing any party
to file any such financing statement.
(f) Schedule 2.21(f) hereto contains a complete and
accurate list of all machinery, equipment, inventory, tooling,
parts, furniture, supplies and other tangible personal property
owned or used by Everlast valued at $100,000 or above, including,
without limitation, the equipment capitalized for financial
statement reporting purposes on the Financial Statements. It is
understood that a disposition of any single item of tangible
personal property with a net value on Everlast's books of more than
$100,000 shall not be deemed to be a disposition in the ordinary
course of business. The assets of Everlast are being maintained at
normal levels adequate for the conduct of the business of Everlast
as currently conducted and include all proprietary rights and other
properties and assets applicable to or used in connection with the
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business of Everlast All assets of Everlast are in suitable
condition and repair, except for ordinary wear and tear.
(g) The inventory of Everlast is being maintained at
normal levels adequate for the continuation of its business as
presently being conducted. The inventory shown on the books of
Everlast at the close of business on the day before the Closing
Date, will be, in the aggregate, substantially useable and saleable
in the ordinary course of business of Everlast in accordance with
the customary past practice and as valued by Everlast. Such
valuation and physical inventory shall be delivered to AAGP.
Section 2.22 Contracts and Commitments. Schedule 2.22
hereto lists all personal property leases, contracts, agreements, contract
rights, license agreements, franchise rights and agreements, policies, purchase
and sales orders, quotations and executory commitments, instruments, third party
guaranties, indemnifications, arrangements, obligations and understandings,
whether oral or written, to which Everlast is a party (whether or not legally
bound thereby) (collectively, the "Contracts"), other than purchase and sale
orders, quotations and executory commitments incurred in the ordinary course of
business of Everlast that are currently in effect and are not reasonably
expected to exceed $50,000, if relating to capital expenditures or acquisition,
or $10,000, if relating to rental or use of equipment, other personal property
or fixtures. Each of the Contracts is valid and binding, in full force and
effect and enforceable against Everlast and the other entities that are parties
thereto in accordance with its provisions. Other than as set forth on Schedule
2.22, Everlast has not assigned, mortgaged, pledged, encumbered, or otherwise
hypothecated any of its right, title or interest under any of the Contracts.
Except as set forth on Schedule 2.22 hereto, neither Everlast, nor any other
party thereto is in violation of, in default in respect of nor has there
occurred an event or condition which, with the passage of time or giving of
notice (or both), would constitute a material violation or a default of any
Contract. No notice has been received by Stockholders or Everlast claiming any
such default by Everlast or indicating the desire or intention of any other
party thereto to amend, modify, rescind or terminate the same.
Section 2.23 Accounts Receivable. All accounts
receivable and notes receivable reflected in the Financial Statements and any
account receivable and notes receivable arising between the date of such
Financial Statements and the Closing Date are or will be, to the extent not
collected between the date hereof and the Closing Date, subsisting; arose or
will arise in the ordinary and usual course of business; and except for the
reserves set forth in the Financial Statements and reserves established
thereafter in accordance with Everlast's prior practice, credit experience and
GAAP consistently applied, are not and will not be subject to any counterclaim,
set-off or defense and are not, and will not be, subject to any lien, charge or
encumbrance of any nature.
Section 2.24 Officers, Employees and Compensation.
Schedule 2.24 hereto lists and describes as of the date hereof, the base salary,
fringe benefits and perquisites of any key employee of Everlast (other than
temporary employees) whose total compensation for the fiscal year ending
December 31, 2000 is estimated to exceed $50,000. Except as disclosed on
Schedule 2.24 hereto, there are no other forms of compensation paid by Everlast
to any such officer or key
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employee. Except as disclosed on Schedule 2.24 hereto, the provisions for wages
and salaries accrued on the Financial Statements are and will be adequate to
reflect all obligations for wages and salaries and other compensation to
Everlast's employees through December 31, 1999 including, without limitation,
vacation pay, sick pay, and all commissions and other fees due and payable to
agents, salesmen and other employees of Everlast. Except as listed on Schedule
2.24 hereto, Everlast is not obligated, directly or indirectly, to any director
or shareholder of Everlast or any person related to such person by blood or
marriage, except for current liability for compensation. No shareholder or
director and no "affiliate" or "associate" (as such terms are defined in the
rules and regulations promulgated under the Securities Act of 1933, as amended
(the "Securities Act")) thereof holds any position or office with or has any
material financial interest, direct or indirect, in any supplier, customer or
account of, or other outside business that has material transactions with
Everlast. Schedule 2.24 hereto sets forth any rights of employees under existing
contracts with Everlast in respect of severance arrangements.
Section 2.25 Banks; Safe Deposit Boxes. Schedule 2.25
hereto lists the names and locations of all banks at which Everlast has an
account and/or safe deposit boxes, the numbers of any such accounts and the
names of all persons authorized to draw thereon or to have access thereto.
Section 2.26 Books of Account; Records. The general
ledgers, books of account and other records of Everlast are complete and
correct, have been maintained in accordance with good business practices and the
matters contained therein are appropriately and accurately reflected in the
Financial Statements.
Section 2.27 Complete Disclosure. No representation or
warranty made by Everlast, Everlast Holding or the Stockholders in this
Agreement, and no exhibit, schedule, statement, certificate or other writing
furnished to AAGP or New Corp. by or on behalf of Everlast, Everlast Holding or
the Stockholders pursuant to this Agreement or in connection with the
transactions contemplated hereby, contains or will contain, any untrue statement
of a material fact or omits or will omit to state a material fact necessary to
make the statements contained herein and therein not misleading.
Section 2.28 Formation and Authority of Everlast Holding
Everlast Holding was formed solely for the purposes of the Merger and engaging
in the transactions contemplated hereby. As of the date hereof and the Closing
Date, all issued and outstanding shares of capital stock of Everlast Holding are
and will be directly owned by the Stockholders. There are not as of the date
hereof, and there will not be as of the Closing Date, any outstanding or
authorized options, warrants, calls rights, commitments, or any other agreements
requiring Everlast Holding to issue, transfer, sell, purchase, redeem, or
acquire any shares of its capital stock. As of the date hereof and the Closing
Date, except for the obligations or liabilities incurred in connection with its
incorporation or organization in the transactions contemplated hereby, Everlast
Holding has not or will not have incurred, directly or indirectly, through any
subsidiary or affiliate, any obligations or liabilities, or engaged in any
activities of any kind whatsoever or entered into any agreements or arrangements
with any person or entity.
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ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS
----------------------------------------------
Each Stockholder individually hereby represents and
warrants to the AAGP and New Corp., with respect to such Stockholder, as of the
date hereof as follows:
Section 3.1 Shares. Each Stockholder owns the number of
shares of Everlast Common Stock as set forth next to its name on Schedule I
hereto, free and clear of all liens, claims or encumbrances except as set forth
on Schedule 3.1 hereto. Each Stockholder has full right, power, legal capacity
and authority to transfer and deliver the shares of Everlast Common Stock
pursuant to this Agreement.
Section 3.2 Stockholder's Addresses, Access to
Information, Experience, Etc.
(a) The address set forth on Schedule I hereto is each
Stockholder's true and correct business, residence or domicile address.
Each Stockholder has received and read and is familiar with the terms of this
Agreement. Each Stockholder or his representative has had an opportunity to ask
questions of and receive answers from representatives of AAGP concerning the
terms and conditions of this transaction. Each Stockholder or his representative
has substantial experience in evaluating non-liquid investments, and is capable
of evaluating the merits and risks of an investment in AAGP (or has consulted
with a purchaser representative who has such experience).
(b) Each Stockholder or his representative acknowledges
that it has had an opportunity to evaluate all information regarding AAGP as it
has deemed necessary or desirable in connection with the transactions
contemplated by this Agreement, has independently evaluated the transactions
contemplated by this Agreement and has reached its own decision to enter into
this Agreement.
Section 3.3 Purchase Entirely for Own Account. The
Payment Shares to be received by each Stockholder and the Additional Shares will
be acquired for investment for each Stockholder's own account, not as a nominee
or agent, and not with a view to the resale or distribution of any part thereof.
The Stockholders each have no present plan or arrangement to dispose of the
Payment Shares and the Additional Shares.
Section 3.4 Restricted Securities. Each Stockholder or
his representative understands and acknowledges that the Payment Shares and the
Additional Shares are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act only
in certain limited circumstances. In this regard, each Stockholder represents
that it is familiar with Rule 144 promulgated under the Securities Act ("Rule
144"), as presently in effect, and understands the resale limitations imposed
thereby and by the Securities Act. Each Stockholder further acknowledges that
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the issuance of the Payment Shares and the Additional Shares are intended to be
exempt from registration under the Securities Act, by virtue of Section 4(2) of
the Securities Act. In furtherance thereof, such Stockholder represents and
warrants to AAGP and New Corp. as follows:
(i) Such Stockholder has no need for liquidity with
respect to his investment in AAGP; and
(ii) Such Stockholder (together with such Stockholder's
Stockholder Representative(s) (which term is used herein
with the same meaning as given in Rule 501(h) of
Regulation D promulgated under the Securities Act), if
any), has such knowledge and experience in financial,
and business matters as to be capable of evaluating the
merits and risks of an investment in the Payment Shares
and the Additional Shares. If such Stockholder has
appointed a Stockholder Representative, such Stockholder
has been advised by such Stockholder Representative as
to the merits and risks of an investment in AAGP in
general and the suitability of an investment in the
Payment Shares and the Additional Shares for such
Stockholder in particular.
Section 3.5 Legends. It is understood that the
certificates evidencing the Payment Shares and the Additional Shares may bear a
legend substantially as follows:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS, SUPPORTED BY AN
OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE
COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED.
The legends referred to above shall be removed by AAGP
from any certificate at such time as the holder of the shares represented by
the certificate delivers an opinion of counsel reasonably satisfactory to AAGP
to the effect that such legend is not required in order to establish compliance
with any provisions of the Securities Act, or at such time as the holder of such
shares satisfies the requirements of Rule 144(k) under the Securities Act,
provided that AAGP has received from the holder a written representation that
(i) such holder is not an affiliate of AAGP and has not been an affiliate of
AAGP during the preceding three months, (ii) such holder has beneficially owned
the shares represented by the certificate for a period of at least two years or
such shorter period as required by Rule 144(k), and (iii) such holder otherwise
satisfies the requirements of Rule 144(k) as then in effect with respect to such
shares.
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Section 3.6 Brokers. All negotiations relative to this
Agreement and the transactions contemplated hereby have been carried on by or on
behalf of Stockholders and Everlast in such a manner as not to give rise to any
claim against New Corp. and AAGP.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES OF AAGP AND NEW CORP.
----------------------------------------------------
AAGP and New Corp. represent and warrant to Stockholders
and Everlast as of the date hereof as follows:
Section 4.1 Corporate Existence. Each of AAGP and New
Corp. is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation.
Section 4.2 Authorization; Validity. Each of AAGP and
New Corp. has all requisite corporate power and authority to enter into this
Agreement, the Option Grant Agreement to be entered into by and between New
Corp. and George Q Horowitz substantially in the form of Exhibit E(the "George
Horowitz Option Agreement"), the Consulting Agreement to be entered into by and
between New Corp and David Shechet substantially in the forms of Exhibit D (the
"David Shechet Consulting Agreement"), the Employment Agreements to be entered
into by and between New Corp and each of Ben Nadorf and Wayne Nadorf
substantially in the form of Exhibits B & C, respectively, (the "Ben Nadorf
Employment Agreement" and the "Wayne Nadorf Employment Agreement",
respectively), the Registration Rights Agreement to be entered into by and among
AAGP and the Stockholders substantially in the form of Exhibit F (the
"Registration Rights Agreement," and together with the George Horowitz Option
Agreement, the Ben Nadorf Employment Agreement, the David Shechet Consulting
Agreement and the Wayne Nadorf Employment Agreement, the "Ancillary
Agreements"), perform its obligations hereunder and thereunder and to consummate
the transactions contemplated hereby and thereby. All necessary corporate action
has been taken by each of AAGP and New Corp. with respect to the execution,
delivery and performance by each of AAGP and New Corp. of this Agreement and the
Ancillary Agreements to which it is a party and the consummation of the
transactions contemplated hereby and thereby. Assuming the due execution and
delivery of this Agreement and the Ancillary Agreements by, among others, the
Stockholders, Everlast Holding, Everlast, and the other parties thereto (to the
extent each is a party thereto), each of this Agreement and the Ancillary
Agreements to which it is a party, is a legal, valid and binding obligation of
each of AAGP and New Corp., enforceable against each of AAGP and New Corp. in
accordance with its terms, except (i) as such ability to enforce may be limited
by or subject to any bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors' rights generally, (ii) as such obligations are
subject to general principles of equity and (iii) as rights to indemnity may be
limited by federal or state securities laws of public policy. There does not
exist any circumstances that would operate to terminate, reduce, alter or impair
the obligation of AAGP to redeem the Redeemable Preferred Stock and to issue
Make-Whole Shares or that give rise to any defense to the performance of AAGP's
obligation to redeem the
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Redeemable Preferred Stock and to issue Make-Whole Shares in accordance with the
terms of this Agreement and their respective Certificates of Designation.
Section 4.3 Capitalization. The authorized capital stock
of AAGP consists of (i) 10,000,000 shares of AAGP Common Stock, 2,492,581 of
which were issued and outstanding at March 31, 2000 and (ii) 100,000 shares of
Class A Common Stock, all of which were issued and outstanding at March 31,
2000. Schedule 4.3 hereto provides a list of outstanding options granted as of
the date of this Agreement under AAGP's 1993 Employee Stock Option Plan and 1995
Non-Employee Director Stock Option Plan. No later than the Closing Date, the
authorized capital stock will consist of (i) 19,000,000 shares of AAGP Common
Stock, (ii) 100,000 shares of Class A Common Stock, and (iii) 1,000,000 shares
of Preferred Stock. The capital stock of AAGP is duly authorized and all issued
capital stock has been duly and validly issued and is fully paid and
nonassessable and free of preemptive rights. The Payment Shares are duly
authorized and when issued in accordance with the terms and conditions of this
Agreement, will be validly issued, fully paid and nonassessable. The Payment
Shares are not subject to any preemptive rights or other similar restrictions.
The authorized capital stock of New Corp. consists of 100 shares of common
stock, $.01 par value per share, all of which are issued and outstanding and
owned by AAGP. The capital stock of New Corp. is duly authorized and all issued
capital stock has been duly and validly issued and is fully paid and
nonassessable and free of preemptive rights. The shares of New Corp Common Stock
are duly authorized and when issued in accordance with the terms and conditions
of this Agreement, will be validly issued, fully paid and nonassessable.
Section 4.4 Litigation. There is no claim, litigation,
action, suit, proceeding, investigation or inquiry, administrative or judicial,
pending or, to the knowledge of AAGP, threatened against AAGP or New Corp., at
law or in equity, before any federal, state or local court or regulatory agency,
or other governmental authority, which might have an adverse effect on AAGP's or
New Corp.'s ability to perform any of its respective obligations under this
Agreement or upon the consummation of the transactions contemplated by this
Agreement.
Section 4.5 No Breach of Statute or Contract. Neither
the execution and delivery of this Agreement and the Ancillary Agreements, nor
the consummation by AAGP or New Corp. of the transactions contemplated hereby or
thereby, nor compliance by AAGP or New Corp. with any of the provisions hereof
and thereof, will violate or cause a default under any statute (domestic or
foreign), judgment, order, writ, decree, rule or regulation of any court or
governmental authority applicable to AAGP, New Corp. or any of AAGP's material
properties; breach or conflict with any of the terms, provisions or conditions
of the Certificates of Incorporation or By-laws of AAGP or New Corp.; or
violate, conflict with or breach any agreement, contract, mortgage, instrument,
indenture or license to which AAGP or New Corp. is party or by which AAGP or New
Corp. is or may be bound, or constitute a default (in and of itself or with the
giving of notice, passage of time or both) thereunder, or result in the creation
or imposition of any encumbrance upon, or give to any other party or parties,
any claim, interest or right, including rights of termination or cancellation
in, or with respect to any of AAGP's properties.
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Section 4.6 SEC Reports and Financial Statements. Since
January 1, 1998, AAGP has filed with the Securities and Exchange Commission (the
"SEC") all forms, reports, schedules, statements and other documents required to
be filed by it under the Securities Act and the Exchange Act (as such documents
have been amended or supplemented since the time of their filing, collectively,
the "SEC Reports"). As of their respective dates, the SEC Reports (including
without limitation, any financial statements or schedules included therein) (a)
did 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 therein, in light of the circumstances under which they were made,
not misleading, and (b) complied in all material respects with the applicable
requirements of the Securities Act and Exchange Act (as the case may be) and all
applicable rules and regulations of the SEC promulgated thereunder. Each of the
consolidated financial statements included in the SEC Reports has been prepared
from, and are in accordance with, the books and records of AAGP, comply in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with GAAP applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present in all
material respects the consolidated results of operations and cash flows (and
changes in financial position, if any) of AAGP as at the dates thereof or for
the periods presented therein. Since June 30, 2000 (the end of the period
covered by the last quarterly report on Form 10-Q filed by AAGP with the SEC),
there has been no material adverse change in the business, financial condition
and results of operations of AAGP and AAGP has not entered into an agreement or
contract which is not in the ordinary course of business.
Section 4.7 Absence of Undisclosed Liabilities. Except
as disclosed in the SEC Reports or as incurred in the ordinary course of
business, AAGP has no material debts, liabilities or obligations of any kind,
whether accrued, absolute, contingent or other, whether due or to become due,
that would have a Material Adverse Effect.
Section 4.8 Complete Disclosure. No representation or
warranty made by AAGP or New Corp. in this Agreement, and no exhibit, schedule,
statement, certificate or other writing furnished to Everlast or Stockholders by
or on behalf of AAGP or New Corp. pursuant to this Agreement or in connection
with the transactions contemplated hereby, contains or will contain, any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements contained herein and therein not misleading.
Section 4.9 Formation and Authority of New Corp. New
Corp. was formed solely for the purposes of the Merger and engaging in the
transactions contemplated hereby. As of the date hereof and the Closing Date,
all issued and outstanding shares of capital stock of New Corp. are and will be
directly owned by AAGP. There are not as of the date hereof, and there will not
be as of the Closing Date, any outstanding or authorized options, warrants,
calls rights, commitments, or any other agreements requiring New Corp. to issue,
transfer, sell, purchase, redeem, or acquire any shares of its capital stock. As
of the date hereof and the Closing Date, except for the obligations or
liabilities incurred in connection with its incorporation or organization in the
transactions contemplated hereby, New Corp. has not or will not have incurred,
directly or indirectly, through
26
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any subsidiary or affiliate, any obligations or liabilities, or engaged in any
activities of any kind whatsoever or entered into any agreements or arrangements
with any person or entity.
Section 4.10 Filings. Except (a) for the filing of the
Certificate of Merger with the Secretary of the State of Delaware and any other
appropriate documents with the relevant authorities of other states in which New
Corp. or Everlast is qualified to do business, and (b) as described on Schedule
4.10 hereto, no consent, approval, or action of, filing with, or notice to any
Governmental Authority of other public or private third party is necessary or
required under any of the terms, conditions, or provisions of any law or order
of any Governmental Authority or any contract to which AAGP or New Corp. or any
of their respective assets or properties is bound for the execution and delivery
of this Agreement by AAGP or New Corp., the performance by AAGP and New Corp. of
their respective obligations hereunder, or the consummation of the transactions
contemplated hereby.
ARTICLE V
---------
COVENANTS
---------
Section 5.1 Covenants of Everlast Regarding Conduct of
Business Operations Pending the Closing. Everlast covenants and agrees that
between the date of this Agreement and the Closing Date, Everlast will carry on
its business in the ordinary course and consistent with past practice, will use
its best efforts to (a) preserve its respective business organization intact,
(b) retain the services of its respective present employees, and (c) preserve
the good will of its respective suppliers and customers, and will not, except in
the ordinary course of business, purchase, sell, lease or dispose of any
property or assets or incur any liability or enter into any other extraordinary
transaction. By way of amplification and not limitation, Everlast shall not,
between the date of this Agreement and the Closing Date, directly or indirectly,
do any of the following without the prior written consent of the AAGP:
(i) execute any contract, agreement, license (as to
which written consent may not be unreasonably withheld) or other instrument
which is material for the Business;
(ii) make any distribution, bonus or loan to its
shareholders or family members of its shareholders from the date hereof until
the Closing Date;
(iii) (a) issue, sell, pledge, dispose of, encumber,
authorize, or propose the issuance, sale, pledge, disposition, encumbrance or
authorization of any shares of its capital stock of any class, or any options,
warrants, convertible securities or other rights of any kind to acquire any
shares of its capital stock, or any other ownership interest; (b) amend or
propose to amend its Articles of Incorporation; (c) split, combine or reclassify
any of its outstanding shares, or declare, set aside or pay any dividend or
other distribution payable in cash, stock, property or otherwise with respect
thereto; or (d) redeem, purchase or otherwise acquire any shares of its capital
stock;
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(iv) (a) make any acquisition (by merger, consolidation,
or acquisition of stock or assets) of any corporation, partnership or other
business organization or division thereof; (b) except in the ordinary course of
business and in a manner consistent with past practice, sell, pledge, dispose
of, or encumber or authorize or propose the sale, pledge, disposition or
encumbrance of any of its assets; (c) other than under any existing credit
facility, incur any indebtedness for borrowed money, assume, guarantee, endorse
or otherwise become responsible for the obligations of any other individual,
partnership, firm or corporation, or make any loans or advances to any
individual, partnership, firm, or corporation, or enter into any contract or
agreement to do so, except in the ordinary course of business and consistent
with past practice; (d) authorize any single capital expenditure or series of
related capital expenditures each of which is in excess of $10,000; or (e)
release or assign any indebtedness owed to it or any claims held by it, except
in the ordinary course of business and consistent with past practice;
(v) take any action other than in the ordinary course of
business and in a manner consistent with past practice with respect to the grant
of any severance or termination pay (otherwise than pursuant to its policies in
effect on the date hereof) or with respect to any increase of benefits payable
under its severance or termination pay policies in effect on the date hereof;
(vi) make any payments (except in the ordinary course of
business and in amounts and in a manner consistent with past practice) under any
Employee Benefit Plan to any employee, independent contractor or consultant,
enter into any new Employee Benefit Plan or any new consulting agreement, grant
or establish any awards under such Employee Benefit Plan or agreement, in any
such case providing for payments or awards having a fair market value of more
than, $10,000, or adopt or otherwise amend any of the foregoing;
(vii) change any accounting policies or procedures
(including without limitation its procedures with respect to the payment of
accounts payable), other than such changes deemed necessary to comply with U.S.
GAAP or required as a result of a change in law;
(viii) take, or agree in writing or otherwise to take,
any of the foregoing actions or any action which would make any of its
representations or warranties contained in this Agreement untrue or incorrect in
any material respect as of the date when made.
Section 5.2 Covenant Against Disclosure. (a) Everlast,
Everlast Holding and each of the Stockholders each agree not to (i) disclose to
any person, association, firm, corporation or other entity (other than AAGP, New
Corp. or those designated in writing by AAGP and New Corp.) in any manner,
directly or indirectly, any confidential information or data relevant to AAGP,
whether of a technical or commercial nature, or (ii) use, or permit or assist,
by acquiescence or otherwise, any person, association, firm, corporation or
other entity (other than AAGP, New Corp. or those designated in writing by AAGP
and New Corp.) to use, in any manner, directly or indirectly, any such
information or data, excepting only use of such data or information as is at the
time generally known to the public and which did not become generally known
through any breach by Everlast, Everlast Holding, or any of the Stockholders of
any provision of this Section 5.2(a) and further
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excepting disclosure that is required pursuant to law or the order of a court of
competent jurisdiction, or other legal process or authority, it being
understood, however, that Everlast, Everlast Holding and Stockholders will
provide AAGP and New Corp. with prompt notice of the requirement for such
disclosure as soon as practical after Everlast, Everlast Holding or any
Stockholder is notified thereof and prior to its disclosure thereof so as to
enable AAGP and New Corp., at AAGP's and New Corp.'s sole cost and expense, to
challenge the order compelling such disclosure if AAGP and New Corp. so desire.
(b) AAGP and New Corp. agree not to (i) disclose to any
person, association, firm, corporation or other entity (other than Everlast,
Everlast Holding, each of the Stockholders or those designated in writing by
Everlast, Everlast Holding and the Stockholders) in any manner, directly or
indirectly, any confidential information or data relevant to Everlast, whether
of a technical or commercial nature, or (ii) use, or permit or assist, by
acquiescence or otherwise, any person, association, firm, corporation or other
entity (other than Everlast, Everlast Holding, the Stockholders or those
designated in writing by Everlast, Everlast Holding and the Stockholders) to
use, in any manner, directly or indirectly, any such information or data,
excepting only use of such data or information as is at the time generally known
to the public and which did not become generally known through any breach by
AAGP or New Corp. of any provision of this Section 5.2(b) and further excepting
disclosure that is required pursuant to law or the order of a court of competent
jurisdiction, or other legal process or authority, it being understood, however,
that AAGP and New Corp. will provide Everlast, Everlast Holding and the
Stockholders with prompt notice of the requirement for such disclosure as soon
as practical after AAGP or New Corp. is notified thereof and prior to its
disclosure thereof so as to enable Everlast, Everlast Holding and the
Stockholders, at their cost and expense, to challenge the order compelling such
disclosure if Everlast, Everlast Holding and the Stockholders so desire.
Section 5.3 Covenant Against Hiring. Stockholders each
understand and acknowledge that in AAGP's view, it is essential to the
successful operation of Everlast that AAGP retain substantially unimpaired
Everlast's operating organization. Neither the Stockholders nor Everlast shall
take any action which would induce any employee or representative of Everlast
not to become or continue as an employee or representative of the Surviving
Corporation, other than immediate family members of the Stockholders. Without
limiting the generality of the foregoing, Stockholders shall not, whether
directly or indirectly, through any subsidiary or affiliate, employ, whether as
an employee, officer, agent, consultant or independent contractor, or enter into
any partnership, joint venture or other business association with, any person
who was at any time during the 12 months preceding the Closing Date an employee,
representative or officer of Everlast, for a period of 12 months after the
Closing Date.
Section 5.4 Injunctive Relief. Each of the parties
hereto acknowledge and agree that the remedy at law for any breach of any of
party's obligations under Sections 5.1, 5.2, 5.3, and 5.4 hereof would be
inadequate, and agree and consent that temporary and permanent injunctive relief
may be granted in a proceeding that may be brought to enforce any provision of
Sections 5.1, 5.2, 5.3, and 5.4 without the necessity of proof of actual damage.
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Section 5.5 Severability. With respect to any provision
of this Agreement finally determined by a court of competent jurisdiction to be
unenforceable, such court shall have jurisdiction to reform such provision so
that it is enforceable to the maximum extent permitted by law, and the parties
shall abide by such court's determination. In the event that any provision of
this Agreement cannot be reformed, such provision shall be deemed to be severed
from this Agreement, but every other provision of this Agreement shall remain in
full force and effect.
Section 5.6 Further Assurances. On and after the Closing
Date, Stockholders shall prepare, execute and deliver, at Everlast's expense,
such further instruments or documents, and shall take or cause to be taken such
other or further action as AAGP or New Corp. shall reasonably request at any
time or from time to time in order to consummate the transactions contemplated
by this Agreement. On and after the Closing Date, AAGP shall prepare, execute
and deliver, at AAGP's expense, such further instruments, and shall take or
cause to be taken such other or further action as Stockholders shall reasonably
request at any time or from time to time in order to consummate the transactions
contemplated by this Agreement. On or after the Closing Date, AAGP shall, upon
reasonable notice, make available the books and records of New Corp. to
Stockholders and their representatives during normal business hours for the
purpose of assisting Stockholders in (i) defending litigation instituted by a
third party and (ii) performing their obligations under Article VIII hereof.
Section 5.7 Announcements. None of the parties to this
Agreement shall make any public announcements prior to the Closing Date with
respect to this Agreement or the transactions contemplated hereby without the
written consent of the other parties hereto, except as required by law.
Section 5.8 Consents. Stockholders and Everlast each
shall use their best efforts to take or cause to be taken all actions and do or
cause to be done all things necessary, proper or advisable to consummate the
transactions contemplated by this Agreement including, without limitation, to
obtain all permits, approvals (regulatory, governmental or otherwise),
authorizations and consents of all third parties and to make all filings with
and give all notices to third parties which may be necessary or required in
order to effectuate the transactions contemplated hereby.
Section 5.9 George Horowitz Agreements. The Employment
Agreement dated as of January 1, 2000 between AAGP and George Q Horowitz may not
be amended or otherwise modified without the consent of a majority in interest
of the Redeemable Preferred Stock. Upon consummation of the Merger, Mr. Horowitz
shall be entitled to receive from AAGP a one time bonus resulting in net
after-tax proceeds of $90,000, which Mr. Horowitz is required to use to repay
certain indebtedness owed by Mr. Horowitz to AAGP.
Section 5.10 Ben Nadorf Employment Agreement. AAGP and
Ben Nadorf shall use their commercially reasonable best efforts to enter into
the Ben Nadorf Employment Agreement between AAGP and Ben Nadorf substantially in
the form attached hereto as Exhibit B.
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Section 5.11 David Shechet Consulting Agreement. AAGP
and David Shechet shall use their commercially reasonable best efforts to enter
into the David Shechet Consulting Agreement between AAGP and David Shechet
substantially in the form attached hereto as Exhibit D.
Section 5.12 Wayne Nadorf Employment Agreement. AAGP and
Wayne Nadorf shall use their commercially reasonable best efforts to enter into
the Wayne Nadorf Employment Agreement between AAGP and Wayne Nadorf
substantially in the form attached hereto as Exhibit C.
Section 5.13 George Horowitz Option Agreement. AAGP and
George Q Horowitz shall use their commercially reasonable best efforts to enter
into the George Horowitz Option Agreement between AAGP and George Q Horowitz
substantially in the form attached hereto as Exhibit E.
Section 5.14 Registration Rights Agreement. AAGP and the
Stockholders shall use their commercially reasonable best efforts to enter into
the Registration Rights Agreement by and among AAGP and the Stockholders
substantially in the form attached hereto as Exhibit F.
Section 5.15 Title Documents. Everlast Holding,
Everlast, and Stockholders shall reasonably assist AAGP with respect to AAGP
obtaining an updated survey, updated title commitment and Uniform Commercial
Code search reports (state and local, personal property and fixture) with
respect to Everlast Holding, Everlast and Stockholder, for all counties and
states relating to the Owned Real Property and Leased Real Property. In
connection therewith, Everlast Holding, Everlast and Stockholder shall provide
to AAGP's counsel true and complete photostatic copies of all surveys and title
insurance policies or commitments in Everlast Holding's, Everlast's and
Stockholder's possession and covering the Owned Real Property and Leased Real
Property, ten days after the date hereof.
Section 5.16 Life Insurance. For so long as any share of
Redeemable Preferred Stock remains outstanding, AAGP shall keep in full force
and effect the life insurance currently in effect on the life of Ben Nadorf, and
shall solely use all proceeds realized from such life insurance to redeem any
outstanding shares of Redeemable Preferred Stock on a pro rata basis.
Section 5.17 Substitute Consultant. If David Shechet is
unable to perform services under the David Shechet Consulting Agreement due to
death or disability and as a result AAGP is no longer obligated to make payments
under the David Shechet Employment Agreement, Ben Nadorf or such other majority
holder of outstanding Redeemable Preferred Stock may select another person or
entity to examine the consolidated financial statements of AAGP on a quarterly
basis. AAGP shall reimburse Ben Nadorf or such other majority holder for the
costs of such person or entity up to a maximum of $30,000 per annum.
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Section 5.18 Health Insurance. Until his death, AAGP
shall use its commercially reasonable best efforts to include Ben Nadorf in the
health insurance coverage it provides to members of senior management.
ARTICLE VI
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CLOSING DOCUMENTS
-----------------
Section 6.1 Deliveries by Stockholders. On or prior to
the Closing Date, Stockholders shall deliver to AAGP and New Corp., duly and
properly executed, the following:
(a) A Certificate or Certificates representing the
shares of Everlast Common Stock duly endorsed in blank for transfer
or accompanied by separate stock powers duly executed in blank, with
all necessary documentary stamps evidencing the payment of all
applicable transfer taxes.
(b) Resignation letters, effective immediately, executed
by each incumbent director and officer of Everlast designated by
AAGP.
(c) Resolutions of the Boards of Directors of Everlast
Holding and Everlast authorizing the execution and delivery of this
Agreement by Everlast Holding and Everlast and the performance of
their respective obligations hereunder, certified by their
respective Secretaries.
(d) A Certificate of the Secretary of State of the
States of New York, Delaware and the respective States of
incorporation of each of the Subsidiaries, dated as of a recent date
as to the good standing of Everlast Holding, Everlast, and the
Subsidiaries, respectively, in such jurisdictions, along with
telephonic or facsimile confirmations of such good standing on the
Closing Date.
(e) A Certificate of the Secretary of State of each
state listed on Schedule 2.1, dated as of a recent date as to the
good standing of Everlast Holding, Everlast or any Subsidiary, if
applicable, in each such state, along with telephonic or facsimile
confirmation of such good standing on the Closing Date.
(f) The legal opinion of counsel to Stockholders,
Everlast Holding and Everlast in the form attached hereto as Exhibit
G hereto.
(g) A Certificate of the President and Secretary of
Everlast Holding and Everlast in accordance with Section 7.1(iv)
hereof and the satisfaction of Everlast of the conditions to closing
provided for in Section 5.1 hereof.
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(h) A Certificate of Stockholders in accordance with
Section 7.1(iv) hereof and the satisfaction of Everlast of the
conditions to closing provided for in Section 5.1 hereof.
(i) A Certificate of the Chief Executive Officer and
Chief Financial Officer of Everlast as to the accuracy of the
computation of the Net Current Assets.
(j) Such other separate instruments or documents that
AAGP may reasonably deem necessary or appropriate in order to
consummate the transactions contemplated by this Agreement.
Section 6.2 Deliveries by AAGP and New Corp. On or prior
to the Closing Date, AAGP and New Corp. shall deliver to Stockholders all duly
and properly executed, the following:
(a) Resolutions of the Board of Directors of each of
AAGP and New Corp. authorizing the execution and delivery of this
Agreement and the Ancillary Agreements to which it is a party by
each of AAGP and New Corp. and the performance of its obligations
hereunder and thereunder, certified by the Secretary of each of AAGP
and New Corp., as the case may be.
(b) A Certificate of the Secretary of State of the State
of Delaware dated as of a recent date as to the good standing of
AAGP and New Corp. in the State of Delaware,
(c) The legal opinion of counsel to each of AAGP and New
Corp. in the form attached hereto as Exhibit H hereto.
(d) A Certificate of the President and Secretary of AAGP
and New Corp. in accordance with Section 7.2(iv).
(e) The certificates of Payment Shares to be delivered
at Closing to Stockholders.
(f) The certificates of Additional Shares to be
delivered at Closing to the Stockholders.
(g) The certificates of Redeemable Preferred Stock to be
delivered at Closing to the Stockholders.
(h) Certified checks made to each of the Stockholders in
the amount as shown on Schedule I hereto.
(i) The George Horowitz Option Agreement.
(j) The Ben Nadorf Employment Agreement.
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(k) The David Shechet Consulting Agreement.
(l) The Wayne Nadorf Employment Agreement.
(m) The Registration Rights Agreement.
(n) Such other separate instruments or documents that
Stockholders may reasonably deem necessary or appropriate in order
to consummate the transactions contemplated by this Agreement.
ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS.
----------- ------------------------------------
Section 7.1 Conditions to Obligations of AAGP and New
Corp. Each and every obligation of each of AAGP and New Corp. to be performed on
the Closing Date shall be subject to the satisfaction as of or before the
Closing Date of the following conditions (unless waived in writing by AAGP and
New Corp.):
(a) Representations and Warranties. Stockholders' and
Everlast's representations and warranties set forth in Articles II
and III of this Agreement shall have been true and correct when made
and shall be true and correct at and as of the Closing Date as if
such representations and warranties were made as of the Closing
Date. No representation or warranty of Stockholders contained in
Article III hereof shall be deemed untrue or incorrect for the
purposes of this Section 7.1(i), as a consequence of the existence
of any fact, circumstance or event, unless such fact, circumstance
or event, individually or taken together with all other facts,
circumstances or events inconsistent with any Section of Article III
has or would have a Material Adverse Effect with respect to Everlast
Holding and Everlast or the Business taken as a whole, provided,
however, that as used above "Material Adverse Effect" shall exclude
(a) any change or effect due to general economic or industry wide
conditions, (b) any continuation of an adverse trend disclosed to
AAGP, New Corp. or any affiliate of AAGP on or prior to the date
hereof and (c) any condition described in the Schedules to this
Agreement.
(b) Performance of Agreement. All covenants, conditions
and other obligations under this Agreement which are to be performed
or complied with by Stockholders and Everlast Holding and Everlast
shall have been fully performed and complied with on or prior to the
Closing Date including, without limitation, the delivery of the
fully executed instruments and documents in accordance with Section
6.2.
(c) No Adverse Proceeding. There shall be no pending or
threatened claim, action, litigation or proceeding, judicial or
administrative, or governmental investigation against AAGP, New
Corp., Stockholders, Everlast Holding or Everlast, for the purpose
of
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enjoining or preventing the consummation of this Agreement, or
otherwise claiming that this Agreement or the consummation hereof is
illegal.
(d) Certificates. Each of Everlast Holding and Everlast
and each Stockholder shall have delivered to AAGP and New Corp. its
certificate, dated the Closing Date, executed by Everlast Holding's
President and Secretary, and each Stockholder, respectively, to the
effect that (a) the conditions set forth in subsections (i) and (ii)
and, to the best knowledge of such officers and Stockholders,
respectively, (iii), of this Section 7.1 have been satisfied, and
(b) the Certificates of Incorporation and By-laws of Everlast
Holding and Everlast shall have not been amended since the date upon
which certified copies of each had been delivered to AAGP and New
Corp. and remain in full force and effect.
(e) Operation of the Business. The operation of Everlast
in the ordinary course shall have continued without material adverse
change.
(f) Rights to Acquire Capital Stock. There shall not
exist any rights to acquire capital stock of Everlast Holding and
Everlast other than the rights of AAGP and New Corp. arising under
this Agreement.
(g) AAGP Stockholder Consent. The stockholders of AAGP
shall have affirmatively voted to (i) to amend the certificate of
incorporation of AAGP to provide for the issuance of preferred stock
of AAGP upon such terms as shall be designated by the Board of
Directors of AAGP, (ii) to change the name of AAGP to a name that
includes "Everlast," and (iii) to effect such other matters as may
be necessary to consummate the Merger.
(h) Government Consents and Approvals. All filings and
registrations with, and notifications to, all federal, state, local
and foreign authorities required for consummation of the
transactions contemplated by this Agreement shall have been made,
and all consents, approvals and authorizations of all federal,
state, local and foreign authorities and parties to contracts,
licenses, agreements or instruments required for consummation of the
transactions contemplated by this Agreement shall have been received
and shall be in full force and effect.
(i) Material Adverse Change. Since December 31, 1999
here shall not have been any material adverse change in the
business, operations, financial condition, assets, liabilities,
prospects of Everlast and its subsidiaries, taken as a whole.
Section 7.2 Conditions to Obligations of Stockholders
and Everlast.
Each and every obligation of Stockholders, Everlast
Holding and Everlast to be performed on the Closing Date shall be subject to
the satisfaction as of or before the Closing Date of the following conditions
(unless waived in writing by Stockholders, Everlast Holding and Everlast):
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(a) Representations and Warranties. AAGP's and New
Corp.'s representations and warranties set forth in Article IV of
this Agreement shall have been true and correct when made and shall
be true and correct at and as of the Closing Date as if such
representations and warranties were made as of the Closing Date.
(b) Performance of Agreement. All covenants, conditions
and other obligations under this Agreement which are to be performed
or complied with by AAGP and New Corp. shall have been fully
performed and complied with on or prior to the Closing Date
including the delivery and the fully executed instruments and
documents in accordance with Section 6.2.
(c) No Adverse Proceeding. There shall be no pending or
threatened claim, action, litigation or proceeding, judicial or
administrative, or governmental investigation against AAGP, New
Corp., Stockholders, Everlast Holding or Everlast, for the purpose
of enjoining or preventing the consummation of this Agreement, or
otherwise claiming that this Agreement or the consummation hereof is
illegal.
(d) Certificate. AAGP and New Corp. shall have
delivered to Stockholders a certificate, dated the Closing Date,
executed by each of AAGP's and New Corp.'s President and Secretary
to the effect that (a) the conditions set forth in subsections (i)
and (ii) and, to the best knowledge of such officers, (iii), of this
Section 7.2 have been satisfied and (b) the Certificate of
Incorporation and By-laws of each of AAGP and New Corp. shall have
not been amended since the date upon which certified copies of each
had been delivered to Stockholders and remain in full force and
effect.
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ARTICLE VIII
------------
INDEMNIFICATION
---------------
Section 8.1 Survival of Representations, Warranties and
Agreements.
Subject to the limitations set forth in this Article
VIII and notwithstanding any investigation conducted at any time with regard
thereto by or on behalf of AAGP, New Corp. or Stockholders, Everlast Holding and
Everlast all representations, warranties, covenants and agreements of AAGP and
New Corp. or Stockholders, Everlast Holding and Everlast in this Agreement and
in the Additional Documents (as hereinafter defined) shall survive the
execution, delivery and performance of this Agreement and shall be deemed to
have been made again by AAGP and New Corp. or Stockholders Everlast Holding and
Everlast on and as of the Closing Date. All statements contained in any
Additional Document shall be deemed representations and warranties of AAGP and
New Corp. or Stockholders, Everlast Holding and Everlast as the case may be, set
forth in this Agreement within the meaning of this Article. From and after the
Closing, none of the parties hereto shall be liable or responsible in any manner
whatsoever to any other party, whether for indemnification or otherwise, except
for indemnity as expressly provided in this Article VIII, which provides the
exclusive remedy and cause of action of the parties hereto with respect to any
matter arising out of or in connection with this Agreement or any Schedule
hereto, or any opinion or certificate delivered in connection herewith, provided
that the foregoing shall not restrict each party's right to (i) seek equitable
relief as provided in Section 5.4 hereof or (ii) assert a cause of action
against the other party under Section 10(b) of the Exchange Act and Rule 10b-5
promulgated thereunder, if such other party, with actual knowledge and the
intent to defraud, has (a) made an untrue statement of material fact or (b)
omitted to state a material fact, in either case in connection with the
transaction contemplated by this Agreement.
Section 8.2 Indemnification.
(a) Subject to the limitations set forth in this Article
VIII, Ben Nadorf shall indemnify and hold harmless AAGP and New
Corp. from and against any and all losses, liabilities, damages,
demands, claims, suits, actions, judgments or causes of action,
assessments, costs and expenses including, without limitation,
interest, penalties, reasonable attorneys' fees, any and all
reasonable expenses incurred in investigating, preparing or
defending against any litigation, commenced or threatened, or any
claim whatsoever, and any and all amounts paid in settlement of any
claim or litigation (collectively, "Damages"), asserted against,
resulting to, imposed upon, or incurred or suffered by AAGP or New
Corp., directly or indirectly, as a result of or arising from the
following (individually an "Indemnifiable Claim" and collectively
"Indemnifiable Claims" when used in the context of AAGP or New Corp.
as the Indemnified Party (as defined below)):
(i) Any inaccuracy in or breach of any of
the representations, warranties or agreements made in
this Agreement by Stockholders, Everlast Holding and
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Everlast or the non-performance of any covenant or
obligation to be performed by Stockholders; or
(ii) Any misrepresentation in or any
omission from any certificate, schedule, exhibit or
other material document (collectively, the "Additional
Documents") furnished or to be furnished by or on behalf
of Stockholders, Everlast Holding and Everlast in their
capacity as such under this Agreement.
(b) Subject to the limitations set forth in this Article
VIII, the Stockholders shall indemnify and hold harmless AAGP and
New Corp. from and against any and all Damages, asserted against,
resulting to, imposed upon, or incurred or suffered by AAGP or New
Corp., directly or indirectly, as a result of or arising from the
following (also an "Indemnifiable Claim" and collectively
"Indemnifiable Claims" when used in the context of AAGP or New Corp.
as the Indemnified Party (as defined below)):
(i) Any inaccuracy in or breach of any of
the representations, warranties or agreements made in
this Agreement by Stockholders in Section 2.6, Section
2.9 or Article III hereof; and
(ii) Taxes, fees or penalties that may arise
as a result of ongoing or future audits of any tax
return filed by Everlast prior to the date of Closing by
any federal, state, local foreign tax authority
(provided, however, that the indemnity provided by the
Stockholders shall only be with respect to 50% of the
Damages).
(c) Subject to the limitations set forth in this Article
VIII, AAGP shall indemnify and hold harmless Stockholders from and
against any and all Damages asserted against, resulting to, imposed
upon, or incurred or suffered by Stockholders, directly or
indirectly, as a result of or arising from the following
(individually an "Indemnifiable Claim" and collectively
"Indemnifiable Claims" when used in the context of Stockholders as
the Indemnified Party):
(i) Any inaccuracy in or breach of any of
the representations, warranties or agreements made by
AAGP and New Corp. in this Agreement or the
non-performance of any covenant or obligation to be
performed by AAGP;
(ii) Any misrepresentation in or any
omission from any Additional Document furnished or to be
furnished by or on behalf of AAGP or New Corp.; or
(iii) Any use by AAGP of the name or
likeness of Muhammad Ali.
Section 8.3 Limitations on Indemnification. Rights to
indemnification hereunder are subject to the following limitations:
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(a) Neither AAGP and New Corp. nor Stockholders shall be
entitled to indemnification hereunder with respect to an
Indemnifiable Claim (or, if more than one Indemnifiable Claim is
asserted, with respect to all Indemnifiable Claims) unless the
aggregate amount of Damages with respect to such Indemnifiable Claim
or Claims on behalf of Stockholders on the one hand, and AAGP and
New Corp. on the other hand, exceeds $200,000, in which event the
Indemnified Party shall be entitled to be indemnified for the full
amount of all Indemnifiable Claims in excess of $200,000. The
$200,000 limitation referred to above shall not apply to
Stockholders', Everlast's and Everlast Holding's representations or
agreements set forth in Sections 2.5 and 3.1 hereof or AAGP's
representations set forth in Section 4.3 hereof.
(b) The obligation of indemnity provided herein with
respect to the representations and warranties set forth in Article
II (except Section 2.9) of this Agreement shall terminate one year
after the Closing Date (other than for claims made prior to such
date).
(c) The obligation of indemnity provided herein with
respect to the representations and warranties set forth in Section
2.9 of this Agreement shall terminate on:
(i) the expiration of the periods of
limitations and any extensions thereof applicable to
assessment and collection of federal income taxes under
the Code with respect to the representations as to the
absence of unpaid or undisclosed federal income taxes
(including any interest, penalties or expenses) of
Stockholders, Everlast and Everlast Holding; and
(ii) the expiration of the periods of
limitations and any extensions thereof applicable to
assessment and collection of state taxes, with respect
to the representations as to the absence of unpaid or
undisclosed state income taxes (including any interest,
penalties or expenses) of Stockholders, Everlast and
Everlast Holding.
(d) If, prior to the termination of any obligation to
indemnify as provided for herein, written notice of a claimed breach
is given by the party seeking indemnification including in detail
the basis therefor (the "Indemnified Party") to the party from whom
indemnification is sought (the "Indemnifying Party") or a suit or
action based upon a claimed breach is commenced against the
Indemnified Party, the Indemnified Party shall not be precluded from
pursuing such claimed breach or suit or action, or from recovering
from the Indemnifying Party (whether through the courts or
otherwise) on the claim, suit or action, by reason of the
termination otherwise provided for above.
(e) In calculating the amount of any damage, loss or
claim suffered or incurred by AAGP for which indemnification is
sought hereunder, the amount of indemnification to which AAGP shall
be entitled shall be net of any final reduction, after including
income from
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reimbursement, in AAGP's federal income tax liability attributable
to such damage, loss or claim for the tax year of AAGP in which such
damages, loss or claim is incurred, and for any other future income
tax benefits.
(f) With respect to the indemnity provided in Sections
8.2(a) and (b) hereof, the Stockholders may, at their option,
satisfy the indemnity obligations hereunder by requesting the AAGP
offset from redemption payments required to be made by AAGP pursuant
to the Redeemable Preferred Stock beginning with the next such
redemption payment.
Section 8.4 Procedure for Indemnification with Respect
to Third-Party Claims.
The Indemnified Party will give the Indemnifying Party
prompt written notice of any third party claim, demand, assessment, suit or
proceeding to which the indemnity set forth in Section 8.2 applies, which notice
to be effective must describe said claim in reasonable detail (the
"Indemnification Notice"). Notwithstanding the foregoing, the Indemnified Party
shall not have any obligation to give any notice of any assertion of liability
by a third party unless such assertion is in writing and the rights of the
Indemnified Party to be indemnified hereunder in respect of any third party
claim shall not be adversely affected by its failure to give notice pursuant to
the foregoing unless and, if so, only to the extent that, the Indemnifying Party
is materially prejudiced thereby. The Indemnifying Party will have the right to
control the defense or settlement, including the hiring of counsel, of any such
action subject to the provisions set forth below, but the Indemnified Party may,
at its election, participate in the defense of any action or proceeding at its
sole cost and expense. Should the Indemnifying Party fail to defend any such
action (except for failure resulting from the Indemnified Party's failure to
timely give the Indemnification Notice), then, in addition to any other remedy,
the Indemnified Party may settle or defend such action or proceeding through
counsel of its own choosing and may recover from the Indemnifying Party the
amount of such settlement, demand, or any judgment or decree and all of its
costs and expenses, including reasonable fees and disbursements of counsel. The
Indemnified Party will not compromise or settle any claim without the prior
written consent of the Indemnifying Party which consent shall not be
unreasonably withheld; provided, however, if such approval is unreasonably
withheld, the liability of the Indemnified Party will be limited to the total
sum represented in the amount of the proposed compromise or settlement and the
amount of the Indemnified Party's reasonable counsel fees incurred in defending
such claim, as permitted by the preceding sentence, accrued at the time said
approval is unreasonably withheld. Notwithstanding the preceding sentence, the
foregoing limitation on the liability of the Indemnified Party shall only be
applicable if (i) a complete release of the Indemnifying Party is contemplated
to be part of the proposed compromise or settlement of such third party claim
and (ii) the Indemnifying Party withholds its consent to such compromise or
settlement.
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Section 8.5 Procedure For Indemnification with Respect
to Non-Third-Party Claims.
In the event that the Indemnified Party asserts the
existence of an Indemnifiable Claim (but excluding claims resulting from the
assertion of liability by third parties), it shall give prompt written notice to
the Indemnifying Party specifying the nature and amount of the claim asserted
(the "Non-Third Party Claim Indemnification Notice"). If the Indemnifying Party,
within 30 days (or such greater time as may be necessary for the Indemnifying
Party to investigate such Indemnifiable Claim not to exceed 60 days), after
receiving the Non-Third Party Claim Indemnification Notice from the Indemnified
Party, shall not give written notice to the Indemnified Party announcing their
intent to contest such assertion of the Indemnified Party (the "Contest
Notice"), such assertion shall be deemed accepted and the amount of claim shall
be deemed a valid Indemnifiable Claim. During the time period set forth in the
preceding sentence, the Indemnified Party shall cooperate fully with the
Indemnifying Party in respect of such Indemnifiable Claim. In the event,
however, that the Indemnifying Party contests the assertion of a claim by giving
a Contest Notice to the Indemnified Party within said period.
ARTICLE IX
----------
MISCELLANEOUS PROVISIONS
------------------------
Section 9.1 Notices. All notices and other
communications required or permitted under this Agreement shall be deemed to
have been duly given and made if in writing and if served either by personal
delivery to the party for whom intended (which shall include delivery by Federal
Express or similar nationally recognized service or by facsimile) or three
business days after being deposited, postage prepaid, certified or registered
mail, return receipt requested, in the United States mail bearing the address
shown in this Agreement for, or such other address as may be designated in
writing hereafter by, such party:
If to Stockholders: At their addresses set forth on Schedule I
------------------
with a copies to: David Shechet
110-11 Queens Boulevard, Apartment 20B
Forest Hills, New York 11375
and
Lesser & Harrison
Two West 45th Street
New York, New York 10036
Attention: Stanley C. Lesser, Esq.
If to AAGP or Active Apparel Group, Inc.
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New Corp.: 1350 Broadway, Suite 2300
---------
New York, New York 10018
Attention: Mr. George Q Horowitz
Facsimile Number : (212) 563-0824
with a copies to: Edward Epstein, Esq.
915 Middle River Drive, Suite 419
Fort Lauderdale, Florida 33304
and
Olshan Grundman Frome Rosenzweig
& Wolosky LLP
505 Park Avenue
New York, New York 10022
Attention: Robert H. Friedman, Esq.
Section 9.2 Entire Agreement. This Agreement, the
Additional Documents and the documents referred to herein embody the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof, and supersede all prior and contemporaneous agreements and
understandings, oral or written, relative to said subject matter.
Section 9.3 Binding Effect; Assignment. This Agreement
and the various rights and obligations arising hereunder shall inure to the
benefit of and be binding upon AAGP, New Corp., Stockholders, Everlast Holding
and Everlast and their respective successors and permitted assigns,
beneficiaries or personal representatives. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be transferred or assigned (by
operation of law or otherwise) by any of the parties hereto without the prior
written consent of the other parties except that AAGP shall have the right to
assign its rights but not its obligations hereunder to any affiliate of AAGP.
Any transfer or assignment of any of the rights, interests or obligations
hereunder in violation of the terms hereof shall be void and of no force or
effect.
Section 9.4 Captions. The Article and Section headings
of this Agreement are inserted for convenience only and shall not constitute a
part of this Agreement in construing or interpreting any provision hereof.
Section 9.5 Expenses of Transaction. Everlast Holding
shall pay all reasonable costs and expenses incurred by it and Everlast and
Stockholders in connection with this Agreement and the transactions contemplated
hereby, including, but not limited to, brokerage fees due to Chase Securities
Inc., which payment or accrual of expenses shall be reflected on the Closing
Date Balance Sheet, provided that all expenses related to legal, accounting and
other related fees relating to the sale of Everlast in excess of $100,000, shall
be the responsibility of Stockholders. AAGP shall
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pay all costs and expenses incurred by it and New Corp. in connection with this
Agreement and the transactions contemplated hereby.
Section 9.6 Waiver; Consent. This Agreement may not be
changed, amended, terminated, augmented, rescinded or discharged (other than by
performance), in whole or in part, except by a writing executed by each of the
parties hereto, and no waiver of any of the provisions or conditions of this
Agreement or any of the rights of a party hereto shall be effective or binding
unless such waiver shall be in writing and signed by the party claimed to have
given or consented thereto. Except to the extent that a party hereto may have
otherwise agreed to in writing, no waiver by that party of any condition of this
Agreement or breach by any other party of any of its obligations,
representations or warranties hereunder shall be deemed to be a waiver of any
other condition or subsequent or prior breach of the same or any other
obligation or representation or warranty by such other party, nor shall any
forbearance by the first party to seek a remedy for any noncompliance or breach
by such other party be deemed to be a waiver by the first party of its rights
and remedies with respect to such noncompliance or breach.
Section 9.7 No Third Party Beneficiaries. Subject to
Section 9.3 hereof, nothing herein, expressed or implied, is intended or shall
be construed to confer upon or give to any person, firm, corporation or legal
entity, other than the parties hereto, any rights, remedies or other benefits
under or by reason of this Agreement.
Section 9.8 Counterparts. This Agreement may be executed
in multiple counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument. Facsimile
signatures may be delivered; provided that original signatures follow by mail or
courier.
Section 9.9 Gender. Whenever the context requires,
words used in the singular shall be construed to mean or include the plural and
vice versa, and pronouns of any gender shall be deemed to include and designate
the masculine, feminine or neuter gender.
Section 9.10 Governing Law and Jurisdiction. This
Agreement shall in all respects be construed in accordance with and governed by
the laws of the State of New York, without regard to the principles of conflicts
of laws thereof. The parties hereto agree that any action or proceeding to
enforce any right arising out of this Agreement and the Ancillary Agreements may
be commenced in the Supreme Court of New York or in the United States District
Court for the Southern District of New York, and the parties hereto consent to
such jurisdiction, agree that venue to the extent permitted by applicable law,
will be proper in such courts in any such matter, agree, that New York is the
most convenient forum for litigation in any such suit, action or legal
proceeding, and agree that a summons and complaint commencing an action or
proceeding in any such court shall be properly served and shall confer personal
jurisdiction if served by registered or certified mail to the Surviving
Corporation, or as otherwise provided by the laws of the State of New York or
the United States. The parties hereto agree that a final judgment in any such
action or proceeding shall be conclusive
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and may be enforced in other jurisdictions by suit on the judgment or in any
other manner provided by law.
Section 9.11 Termination. (a) This Agreement may be
terminated and the transactions contemplated by this Agreement abandoned at any
time prior to the Closing:
(i) By mutual written consent of AAGP, New Corp.,
Stockholders, Everlast and Everlast Holdings.
(ii) By either AAGP, New Corp., Stockholders, Everlast
and Everlast Holdings if the transactions contemplated by this
Agreement shall not have been consummated on or before December 31,
2000.
(iii) By AAGP and New Corp. if any condition specified
in Section 7.1 hereto has not been met or waived by the
Stockholders, Everlast Holding and Everlast at such time as such
condition can no longer be satisfied;
(iv) By Stockholders, Everlast and Everlast Holding if
any condition specified in Section 7.2 hereto has not been met or
waived by AAGP and New Corp. at such time as such condition can no
longer be satisfied;
(v) By either Stockholders, Everlast Holding and
Everlast or AAGP and New Corp. if a court of competent jurisdiction
or regulatory authority shall have issued a final, non-appealable
order, decree or ruling or taken any other action (which order,
decree or ruling the parties hereto shall use their best efforts to
lift), in each case permanently restraining, enjoining or otherwise
prohibiting any of the transactions contemplated by this Agreement;
(b) Effect of Termination. In the event of any
termination of this Agreement in accordance with this Section 9.11 hereof, this
Agreement shall forthwith become void and there shall be no liability under this
Agreement on the part of any party hereto or their respective affiliates,
officers, directors, employees or agents by virtue of such termination.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
EVERLAST WORLDWIDE INC.
(f/k/a Active Apparel Group, Inc.)
By: /s/ George Q Horowitz
----------------------------------------
Name: George Q Horowitz
Title: CEO
ACTIVE APPAREL NEW CORP.
By: /s/ George Q Horowitz
----------------------------------------
Name: George Q Horowitz
Title: CEO
EVERLAST WORLD'S BOXING HEADQUARTERS CORP.
By: /s/ Ben Nadorf
----------------------------------------
Name: Ben Nadorf
Title: Pres.
EVERLAST HOLDING CORP.
By: /s/ Ben Nadorf
----------------------------------------
Name: Ben Nadorf
Title: Pres.
STOCKHOLDERS:
/s/ Ben Nadorf
-------------------------------------------
Ben Nadorf
/s/ Arlene Shechet
-------------------------------------------
Arlene Shechet
/s/ Arthur Shechet
-------------------------------------------
Arthur Shechet
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Schedule I
--------------------------------------------------------------------------------
Stockholder Number of
Shares of Number of
AAGP Shares of Number of
Common Redeemable Shares of New
Stock Preferred Stock Common Stock Cash Payment
--------------------------------------------------------------------------------
Ben Nadorf 112,500 40,500 342,000 $9,000,000
--------------------------------------------------------------------------------
Arlene Shechet 6,250 2,250 19,000 500,000
--------------------------------------------------------------------------------
Arthur Shechet 6,250 2.250 19,000 500,000
--------------------------------------------------------------------------------
