SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______________ to _______________
Commission File No. 1-2782
SIGNAL APPAREL COMPANY, INC.
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(Exact name of Registrant as specified in its charter)
Indiana 62-0641635
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(State of Incorporation) (I.R.S. Employer Identification Number)
200 Manufacturers Road, Chattanooga, Tennessee 37405
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (615) 266-2175
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock: Par value $.01 a share New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirement for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[ ]
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant: $14,901,243 calculated by using
the closing price on the New York Stock Exchange on March 14,
1994 of the Company's Common Stock, and excluding common shares
owned beneficially by directors and officers of the Company, and
by certain other entities, who may be deemed to be "affiliates",
certain of whom disclaim such status.
Indicate the number of shares outstanding of each of the issuer's
classes of Common Stock, as of the latest practicable date.
Class Outstanding as of March 14, 1995
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Common Stock, $.01 par value 10,377,826 shares
DOCUMENTS INCORPORATED BY REFERENCE
Part of Documents from Which Portions are
Form 10-K Incorporated by Reference
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Part III Proxy Statement for Annual Meeting of Shareholders
SIGNAL APPAREL COMPANY, INC.
ANNUAL REPORT ON
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1994
INDEX
Item
- ----
PART I
1. Business
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
PART II
5. Market for the Registrant's Common Equity and
Related Stockholder Matters
6. Selected Financial Data
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
8. Financial Statements and Supplementary Data
9. Disagreements on Accounting and Financial Disclosure
PART III
10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners
and Management
13. Certain Relationships and Related Transactions
PART IV
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
PART I
Item 1. BUSINESS
(a) Signal Apparel Company, Inc. ("Signal" or the "Company") is
engaged in the manufacture and marketing of apparel and
accessories within the following product lines: knit
sportswear and activewear, women's knit apparel and
screenprinted knit apparel.
In November 1994, the Company purchased all the outstanding
capital stock of American Marketing Works, Inc. ("AMW"), a
branded licenses apparel company. The Company operates AMW
as a wholly owned subsidiary.
(b) The Company is engaged in the single line of business of
apparel manufacturing and marketing.
For financial information about the Company, see the
information discussed in Item 8 below.
(c) GENERAL
Founded in 1891 as Wayne Knitting Mills, a women's hosiery
company, in Fort Wayne, Indiana, the Company merged with the
H. W. Gossard Co. of Chicago, Illinois in 1967 and became
Wayne-Gossard Corporation. The Company's name was changed
to Signal Apparel Company, Inc. in February 1987. As a
result of a merger in July 1991, The Shirt Shed, Inc. became
a wholly-owned subsidiary of the Company. During 1993, The
Shirt Shed, Inc. began doing business under the name Signal
Artwear. In November 1994, the Company purchased all the
outstanding capital stock of American Marketing Works, Inc.
("AMW"), a branded licenses apparel company. The Company
operates AMW as a wholly owned subsidiary. During the fourth
quarter of 1994, the Company began operating under the name
"Signal American Marketing".
The Company is a vertically integrated manufacturing company
which manufactures and markets activewear in juvenile, youth
and adult size ranges and upscale knit apparel for the
ladies' market. The Company's products are sold to
wholesalers, screen printers and retail accounts with the
Signal Sport, Signal Artwear, Riddell Athletic, or a
customer's label or with the label of designers for whom the
Company produces goods under license. Currently, a major
portion of the products manufactured by the Company consists
of products generally similar in design and composition to
those produced by the Company's competition. The Company's
business is therefore highly subject to competitive
pressures.
From July 1993 to November 1994, the Board of Directors
retained Grisanti, Galef and Goldress, Inc., a firm that
specializes in assisting companies in turnaround situations,
and named Marvin A. Davis as Chairman and Chief Executive
Officer, and Lee N. Katz as President of Signal.
Davis and Katz are partners of Grisanti, Galef and Goldress.
Subsequent to this managment change, the Company implemented
a plan inteded to reverse the trend of significant losses of
the previous three years. Actions taken included, but were
not limited to, replacing the divisional management
structure with a "one company" structure (while the various
division names have been retained for sales and marketing
purposes, the coordination of sales, manufacturing and
administrative functions are now coordinated on a corporate
basis), discontinuing the Keds Apparel division, closing the
Griffin, Georgia cutting and sewing plant, entering into
contract printing programs at the Signal Artwear division,
and identifying and correcting sales forecasting/production
planning problems that contributed to poor on-time delivery
performance and to excess and obsolete inventories.
Pursuant to the acquisition of AMW, the Company named Marvin
J. Winkler as Chairman and Chief Executive Officer. Mr.
Winkler had held the same offices with AMW previous to the
acquisition thereof, and has extensive licensing
experience. The Company named Leon Ruchlamer as
President and William H. Watts as Chief Financial Officer
in February 1995. The addition of Messrs. Ruchlamer and
Watts was made to more effectively manage the Company's cash
flow problems and streamline and more efficiently manage
the Company's manufacturing operations.
The Company's product lines and operating business units
are:
ACTIVE SPORTSWEAR
SIGNAL KNITWEAR DIVISION:
Signal Knitwear manufactures fabric from which it produces
T-shirts, fleece garments, and other sportswear. The
products of the division are sold primarily to wholesalers,
distributors, screenprinters and to certain retail accounts.
In addition to sales to its own customers, Signal Knitwear
is a source of products for the Riddell Athletic division,
Signal Artwear and American Marketing Works.
RIDDELL ATHLETIC DIVISION:
Riddell Athletic was created in the Fall of 1992 to market
and sell active sportswear under the Riddell label. The
Company obtained license rights to use the Riddell name and
logo on apparel products from Riddell, Inc. during 1992.
The division operated in a start-up mode in early 1992 as
Signal Athletic and continued in a start-up mode throughout
1992 as the transition was made to Riddell Athletic. The
activities of this division reflect the marketing strategy
of the Company away from the production of standard,
commodity products toward new fashion products of authentic
athletic apparel and licensed designs which compete on the
basis of styling.
The division currently has a license agreement with National
Football Properties, Inc. to produce activewear bearing NFL
logos and trademarks for sale in upscale specialty stores,
department stores and specialty catalog houses. The
division also has license agreements with certain major
colleges to produce activewear with their college logos.
The goods marketed by this division are manufactured
primarily by the Signal Knitwear division.
SCREENPRINTED APPAREL
AMERICAN MARKETING WORKS, INC.:
American Marketing Works, Inc. ("AMW"), a wholly-owned
subsidiary, is a screenprinting company engaged in selling
to mid-mass and mass merchants, chain stores, sporting goods
and sport specialty stores, a line of popularly priced
sportswear, ranging from children to adult sizes. AMW
purchases unprinted shirts and tops from the Signal Knitwear
division and other suppliers and produces its finished
products through the addition of a variety of silkscreened
graphics derived under license from popular cartoons,
colleges and professional sports leagues, as well as from
licensed brands such as Skechers, Ocean Pacific, Magic
Johnson Tees and Pure Magic.
SIGNAL ARTWEAR:
The Shirt Shed, Inc., a wholly-owned subsidiary doing
business as Signal Artwear, is a screenprinting company
engaged in selling to mass merchants and chain stores a line
of popularly priced sportswear, ranging from children to
adult sizes. Signal Artwear purchases unprinted shirts and
tops from the Signal Knitwear division and other suppliers
and produces its finished products through the addition of a
variety of silkscreened and embroidered graphics derived
under license from popular cartoons, movies, and television
shows, as well as original concepts produced by an internal
art staff. In addition, Signal Artwear provides
screenprinting services on a contract basis.
WOMEN'S KNIT APPAREL
HERITAGE SPORTSWEAR DIVISION:
Heritage Sportswear produces a designer line of tailored
knits designed primarily by Joan Vass using the "joan vass,
u.s.a." label. The designer line is sold to fine specialty
stores, department stores, and Joan Vass stores. The
Company's strategy for the division includes expansion of
its participation in the ladies' fashion market. The
division also produces knit shirts, sweaters and fashion
fleece products which are marketed by other divisions of the
Company.
SALES BY PRODUCT LINE
The following table reflects the percentage of net sales
contributed by the Company's product lines to consolidated
net sales during 1994, 1993 and 1992:
Percentage of
Product Line Net Sales
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1994 1993 1992
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Active sportswear 48% 45% 40%
Screenprinted apparel 31% 33% 43%
Women's knit apparel 21% 20% 15%
In 1994 no one customer accounted for as much as 10% of
consolidated sales. One customer, Kmart Corporation,
accounted for 21% of sales in 1993 and 18% in 1992.
GENERAL MATTERS
The primary raw material used by the Company is yarn made
from both synthetic and natural fibers which it purchases
from several different suppliers. The Company also
purchases sewing thread, dyes and chemicals, inks, elastic,
hangers, cartons and printed bags. Supplies of synthetic
fibers are dependent upon the availability of petroleum,
while supplies of natural fibers are dependent upon
worldwide crop conditions. These factors generally have had
a greater effect on price than on availability.
Although the Company does not have formal arrangements
extending beyond one year with its suppliers, the Company
has not experienced any significant difficulty obtaining
yarn or any other raw materials from its current sources and
believes that, in any event, adequate alternative sources of
supply are available.
"Signal", "Signal Artwear", "Signal Sport" and "American
Marketing Works" are registered trademarks of the Company.
In addition to the license to use the "Riddell" trademark
and logo described above, the Company is licensed through
May 1996 to use the registered trademark "joan vass, u.s.a."
in connection with machine-knit women's apparel and is
licensed to use various trademarks of the National Football
League and various colleges in connection with collections
of activewear. The Company's subsidiary, Signal Artwear, is
licensed by several companies to print various cartoon,
movie and celebrity characters and other graphics on
garments. The Company's recently acquired subsidiary,
American Marketing Works, Inc., is licensed to use a variety
of brands including Skechers, Ocean Pacific and Magic
Johnson Tees. American Marketing Works is also licensed to
use various trademarks of the National Basketball
Association, the National Football League and the National
Hockey League. The ability to use the foregoing trademarks
is important to the implementation of the Company's strategy
of expanding sales to the retail market. Sales under the
license to use the "joan vass, u.s.a." trademark have
represented a significant portion of the sales of the
Company's Heritage Sportswear Division.
The business of the Company tends to be seasonal with peak
shipping months varying from product line to product line.
To meet the demands of peak shipping months, it is necessary
to build inventories of some products well in advance of
expected shipping dates. The Company believes that its
credit practices and merchandise return policy are customary
in the industry. Borrowings are used to the extent
necessary to finance seasonal inventories and receivables.
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition".
During 1994, the Company sold its products to over 2,600
customers, including department stores, mass merchandisers,
other retailers and specialty stores, wholesalers,
distributors, screenprinters, and other manufacturers.
Products are shipped directly from the Company's
manufacturing facilities and warehouses.
On December 31, 1994, Signal Knitwear, Heritage Sportswear,
Signal Artwear and American Marketing Works had scheduled
order backlogs of approximately $7,050,000, $2,322,000,
$8,250,000 and $4,265,000, respectively. On December 31,
1993, Signal Knitwear, Heritage Sportswear, and Signal
Artwear had scheduled order backlogs of approximately
$15,700,000, $3,800,000 and $10,300,000, respectively. On
December 31, 1992, Signal Knitwear, Heritage Sportswear, and
Signal Artwear had scheduled order backlogs of approximately
$41,000,000, $5,600,000 and $13,000,000, respectively.
Scheduled order backlogs consist of orders received from
customers and entered into the Company's order entry system,
at which point the orders are scheduled for production. The
Company expects to ship substantially all of its December
31, 1994 backlog of unfilled orders by December 31, 1995;
however, orders are subject to cancellation, generally
without penalty, by customers prior to shipment. The
Company's backlog of orders on December 31, 1994 is not
necessarily indicative of actual shipments or sales for any
future period, and period-to-period comparisons from 1993 to
1994 may not be meaningful.
The apparel industry as a whole, including the part of the
industry engaged in by the Company, is highly competitive.
The Company believes that the principal methods of
competition in the markets in which it competes are design
and styling, price and quality. The designer and brand name
markets are influenced by fashion, design, color, consistent
quality and consumer loyalty. Imports offer competition to
the sweater and knit shirt product lines. The industry is
very fragmented, and the Company's relative position in the
industry is not known.
Compliance with federal, state and local provisions which
have been enacted regulating the discharge of materials into
the environment, or otherwise relating to the protection of
the environment, have not had, and are not expected to have,
any material effect upon the capital expenditures, operating
results, or the competitive position of the Company;
however, in 1992 and 1993, the Company accrued $400,000 and
$55,000, respectively, for the estimated cost to clean-up an
oil spill at its LaGrange facility.
The Company had approximately 1,750 employees at March 1,
1995, compared to 1,850 employees at March 1, 1994, and
2,400 at March 1, 1993. The 1995 employee count includes
approximately 225 employees at AMW not included in previous
years. The reduction of 325 employees (excluding AMW) since
March 1, 1994 is the result of actions taken to reduce costs
as well as a response to lower manufacturing volume.
(d) All of the Company's manufacturing facilities are located in
the United States. Substantially all (over 95%) of the
Company's sales are domestic.
Item 2. PROPERTIES
The Company operates owned and leased facilities, aggregating
approximately 1,241,400 square feet of usable space. The
following table sets forth certain information concerning each of
these facilities:
Facility Square Owned/ Products/
Location Feet Leased Operations
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SIGNAL KNITWEAR:
Chattanooga, TN 192,200 Owned Sportswear - warehouse,
distribution and
offices
New Tazewell, TN 91,300 Owned Sportswear - cut and
sew, warehouse and
distribution
20,000 Leased Storage
Rutledge, TN 59,700 Owned Sportswear - sew
12,500 Leased Sportswear - warehouse
and distribution
LaGrange, GA 134,500 Owned Sportswear - knitting,
dyeing and finishing,
warehouse and
distribution
53,600 Leased Sportswear - warehouse
Marion, SC 29,200 Owned Sportswear - sew
HERITAGE SPORTSWEAR:
Marion, SC 164,600 Owned Women's apparel, knit
sweaters and skirts -
knitting, cut and sew,
and offices
Lakeview, SC 85,100 Owned Women's apparel, knit
sweaters and skirts -
warehouse and
distribution
New York, NY 3,900 Leased Showroom and offices
SIGNAL ARTWEAR:
Wabash, IN 69,000 Owned Screen printing -
printing, warehouse and
offices
3,900 Leased Storage
Marion, IN 223,700 Leased Screen printing -
warehouse and printing
New York, NY 4,200 Leased Showroom and offices
AMERICAN MARKETING WORKS:
Gardena, CA 90,200 Leased Screenprinting -
printing, warehouse and
offices
Charlotte, NC 3,800 Leased Offices
The buildings at all facilities set forth in the table above and
the machinery and equipment contained therein are well maintained
and are suitable for the Company's needs. Substantially all of
the buildings are protected by sprinkler systems and automatic
alarm systems, and all are insured for amounts which the Company
considers adequate. The plant in Rutledge, Tennessee is subject
to mortgage liens incurred in connection with industrial
development financing. The plants in New Tazewell, Tennessee,
LaGrange, Georgia and Wabash, Indiana are subject to mortgage
liens incurred in connection with financing with the senior
lender.
As part of its strategic plan, the Company uses independent
contractors to supplement the productive capacities of its own
manufacturing facilities. The Company believes the production of
its own facilities plus the contracted production will support
the expected level of business in 1995.
Item 3. Legal Proceedings
The Company is unaware of any material pending legal proceeding
other than ordinary, routine litigation incidental to its
business.
Item 4. Submission of Matters To A Vote of Security Holders
No matters were submitted to a vote of security holders in the
fourth quarter of 1994.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
MARKET PRICES AND DIVIDENDS
(Unaudited) Quarter Ended
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March 31 June 30 September 30 December 31
1994 1993 1994 1993 1994 1993 1994 1993
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Common Stock:(1)
High $7.50 $14.75 $8.00 $13.00 $8.13 $9.88 $8.00 $8.38
Low 5.13 9.13 6.50 8.38 6.50 6.75 4.00 6.63
Cash dividends -- -- -- -- -- -- -- --
- -------------------------------------------------------------------------------
(1) Classes A and B Common Stock were redesignated as Common
Stock on June 22, 1993. Prior to that date, market prices
are quoted for Class A Common.
The Company's loan agreements contain provisions which currently
restrict the Company's ability to pay dividends (see Note 4 of
Notes to Consolidated Financial Statements). No Common Stock
dividends were declared during the five-year period ended
December 31, 1994.
Shareholders of record as of March 24, 1995:
Common 1,097
The Company's Common Stock is listed on the New York Stock
Exchange.
Item 6. Selected Financial Data
SUMMARY OF SELECTED FINANCIAL DATA
Dollars in Thousands (Except Per Share Data)
1994(c) 1993 1992 1991(b) 1990
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Net Sales $95,818 $131,000 $172,194 $90,137 $76,819
================================================================================
Net loss (a) (53,304) (34,878) (20,210) (31,771) (6,669)
================================================================================
Net loss per common
share (a) (6.88) (4.17) (2.41) (6.59) (2.23)
================================================================================
Total assets 69,448 87,914 121,280 113,732 53,217
================================================================================
Long-term obligations 49,258 26,748 72,126 54,869 15,955
================================================================================
(a) Effective January 1, 1994, the Company elected to
retroactively change its method of inventory valuation from
the LIFO method which was used for all inventories except
those of Signal Artwear to the FIFO method. The Company
believes the FIFO method will produce a better matching of
current costs and current revenues due to changes in its
existing product lines and the continuous introduction of
new products. The Company has also applied to the Internal
Revenue Service to change to the FIFO method of inventory
valuation for income tax reporting purposes.
As required by generally accepted accounting principles, the
Company has retroactively restated the prior period
financial statements for this change. See the Consolidated
Financial Statements where the impact of this change is
further discussed.
(b) The data includes amounts applicable to Shirt Shed from date
of acquisition, July 22, 1991.
(c) The data includes amounts applicable to American Marketing
Works from date of acquisition, November 22, 1994.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1994 COMPARED WITH 1993
Net sales of $95.8 million for 1994 represent a decrease of 26.9%
or $35.2 million when compared to the $131.0 million in net sales
for 1993. This decrease is comprised of a $13.2 million
reduction for screenprinted products, a $12.5 million reduction
for active sportswear, a $5.2 million reduction for women's
fashion knitwear and a $4.3 million reduction for discontinued
lines. The inclusion of AMW's operations since the date of
acquisition increased sales by $1.8 million.
Signal Artwear's sales were $28.2 million in 1994 versus $42.6
million in 1993. Of the $14.4 million reduction, $14.7 million
is a result of reduced sales to a large customer. On a license
basis, team sports were down $6.0 million while sales of licensed
products under three movie themes accounted for a $7.9 million
reduction. Closeout sales were up $3.1 million while first
quality sales were down by $17.5 million. Total dozens sold were
down 20% in 1994 from 1993 with a 91% increase of dozens in
closeout sales and a 42% reduction of dozens in first quality
sales. Decreased dozens accounted for 58% of the total sales
dollar reduction while product mix change accounted for the
balance of the reduction. Orders for printed sportswear and
licensed apparel for Signal Artwear were approximately $8.3,
$10.3 and $13.0 million at year-end 1994, 1993 and 1992,
respectively. Orders for printed sportswear and license apparel
for AMW were approximately $4.3 million at December 31, 1994.
Manufacturing difficulties encountered during 1994 impacted the
Company's sales. Management believes that steps currently
being taken to improve the Company's financial condition will
enable it to improve its ability to perform under its licenses,
and fill customers' orders on a timely basis at acceptable
quality levels. In turn, management believes this will enhance
the Company's ability to obtain new and renew current licenses.
Furthermore, the Company continues to actively consider
opportunities to acquire new licenses to add to its license
portfolio through the acquisition of companies holding desirable
licenses. The Company's ability to implement its strategy will
depend on solving its liquidity problems and improving its
manufacturing processes.
Sales of active sportswear decreased 22% to $45.9 million in 1994
as compared to $59.0 million in 1993. Of the $13.2 million
reduction, $5.7 million is a result of reduced sales to a large
customer. In 1994, there was a 24% reduction in the dozens of
active sportswear sold which accounted for a $13.9 million
decrease in sales dollars. The sales price per dozen increased
1% ($.7 million) in 1994 over 1993 due to sales mix.
Sales of women's fashion knitwear excluding discontinued lines,
decreased $5.2 million to $19.9 million in 1994 as compared to
$25.1 million in 1993. The 21% sales reduction was primarily due
to competition from garments selling at lower retail prices.
Unit volume accounted for 32% of the decrease. Reduction in
average selling price accounted for 68% of the decrease and was
due to a combination of product mix and unit selling price
changes.
Gross profit was $8.4 million (8.7% of sales) in 1994 compared to
$12.4 million (9.5% of sales) in 1993. The $4.1 million
reduction in gross profit in 1994 compared to 1993 was the result
of decreased sales volume excluding closeouts ($9.2 million),
increased losses on closeouts ($1.6 million), offset by more
favorable sales mix ($2.0 million), increased manufacturing
efficiencies ($2.2 million), reduced favorable raw material
prices and contractor purchase price variances ($.8 million) and
a favorable inventory reserve adjustment ($3.3 million). The
1994 gross profit includes a $7.7 million charge for inventory
writedowns which compares to a $9.6 million charge for inventory
writedowns in 1993.
Royalty expense related to license product sales was 3.5% and
3.6% for the years ended December 31, 1994 and 1993,
respectively. Royalty expense declined $1.4 million in 1994
versus 1993 due to decreased sales of license apparel.
Selling, general and administrative ("SG&A") expenses were 28%
and 24% of sales for the years ended December 31, 1994 and 1993,
respectively. SG&A expenses decreased $4.7 million in 1994
compared to 1993. Closing of the Keds division, Joan Vass
Sporting and certain outlet stores accounted for a $3.0 million
reduction. Reduction in legal and professional expense ($2.0
million) and in shipping expense ($.8 million) offset by the
addition of AMW ($1.0 million) were the primary elements of the
remaining reduction.
Interest expense decreased $1.8 million from 1994 to 1993.
Average debt outstanding in 1994 was $31.9 million compared to
$59.2 million in 1993. A significant portion of the Company's
subordinated debt was converted to Preferred Stock in 1993
resulting in the lower average debt outstanding in 1994. Average
interest rates were 9.4% and 7.6% for 1994 and 1993,
respectively.
The primary elements making up the 1994 other expense amount of
$2.0 million are $1.0 million amortization of goodwill, and $.2
million in factor charges for customer late payments. The
primary elements making up the 1993 other expense amount of $1.4
million are $1.0 million for amortization of goodwill and $.3
million in factor charges for customer late payments.
Signal Artwear has incurred losses each year since its
acquisition in 1991 and the Company's projections for future
operating results for Artwear indicate an impairment of the
goodwill. Accordingly, the Company deemed it appropriate to
write off the goodwill arising from the acquisition. The write-
off resulted in a charge of $26.5 million in 1994.
Pursuant to the acquisition of AMW, the Company named Marvin
Winkler, the Chairman and Chief Executive Officer of AMW, as
Chairman and Chief Executive Officer of Signal. Subsequent to
year-end, the Company named Leon Ruchlamer as President and
William H. Watts as Chief Financial Officer. These changes in
management were undertaken to assist the Company to effect its
plans to improve sales and operating results.
1993 COMPARED WITH 1992
Net sales of $131.0 million for 1993 decreased of 23.9%, or $41.2
million, when compared to the $172.2 million in net sales for
1992. This decrease was comprised of a $31.6 million reduction
for screenprinted products and a $9.6 million reduction for
active sportswear. Net sales for women's fashion knitwear
remained constant for the two years.
Signal Artwear's sales were $42.6 million in 1993 versus $74.2
million in 1992. Signal Artwear's total dozens sold were down
52% in 1993 from 1992, primarily as a result of a decrease in the
sale of licensed products under two movie themes. This decrease
was partially offset by a product mix change resulting in a 20%
higher sales price per dozen. In 1992, sales of Batman licensed
products accounted for $33.3 million of Artwear's sales. Orders
for printed sportswear and licensed apparel for Signal Artwear
were approximately $10.3 and $13.0 million at year-end 1993 and
1992, respectively.
Sales of active sportswear products decreased 14% to $59.0
million in 1993 as compared to $68.7 million in 1992. Sales of
closeout active sportswear products increased 43% to $7.2 million
in 1993 from 1992. Sales of active sportswear excluding
closeouts decreased 18% in 1993. In 1993, there was a 23%
reduction in the dozens of active sportswear sold excluding
closeouts as compared to 1992. The sales price per dozen
increased 5% in 1993 over 1992 due to sales mix. Orders for
active sportswear were $15.7 and $41.0 million at year-end 1993
and 1992, respectively.
Sales of women's fashion knitwear remained constant at $26.4
million in both 1993 and 1992. However, there was a 2.6% drop in
sales volume that was offset by an improvement in sales mix and
price. The discontinuance of the Keds division in July 1993 was
offset by increased sales of the Heritage Sportswear division.
Orders for women's fashion knitwear were $3.8 and $5.6 million at
year-end 1993 and 1992, respectively.
Gross profit was $12.4 million (9.5% of sales) in 1993 compared
to $31.8 million (18.4% of sales) in 1992. The $19.3 million
reduction in gross profit in 1993 compared to 1992 was the result
of increased losses on closeout sales ($5.0 million), decreased
sales volume excluding closeouts ($12.0 million), less favorable
sales mix ($2.2 million), decreased manufacturing efficiencies
primarily due to under absorption of overhead ($5.0 million),
offset by favorable reduced raw material prices and contractor
purchase price variances of $4.9 million. The 1993 gross profit
includes a $9.6 million charge for inventory writedowns. Of the
$9.6 million, $1.5 million relates to closeouts of new products
(Riddell and Joan Vass Sporting), while the remaining $8.1
million related to disposal of closeouts & obsolete inventory.
In 1992 gross profit was negatively impacted by a $6.7 million
inventory write-down, $1.8 million of which related to closeouts
of new products (Keds, Riddell and Joan Vass Sporting) while the
remaining $4.9 million related to disposal of closeout and
obsolete inventory that was created by disappointing sales of
licensed products and other marketing programs.
Royalty expense related to licensed product sales was 4% and 6%
of sales in 1993 and 1992, respectively. Royalty expense
decreased $6.2 million in 1993 from 1992 primarily due to
decreased sales of licensed products in 1993 and a $2.4 million
charge in 1992 for unearned royalties under a minimum guarantee
agreement on a product license.
Selling, general and administrative ("SG&A") expenses were 24%
and 20% of sales in 1993 and 1992, respectively. Actual SG&A
expense decreased $2.3 million in 1993 compared to 1992. Closing
of the Keds division resulted in a $2.6 million reduction of
expenses while reduced volume at Artwear resulted in a $2.5
million reduction, primarily sales commissions and factoring
charges. These reductions were partially offset by increased
start-up expense in the Riddell division ($1.5 million) and
increased bad debt expense for the Knitwear division ($1.0
million).
During the first half of 1993, the Company experienced an erosion
of sales and margins. In response, the Board of Directors
retained the consulting firm of Grisanti, Galef, and Goldress,
Inc. ("Grisanti"), to assess the Company's operations, including
its marketing direction, products, manufacturing and management
structure. The restructuring by Grisanti resulted in costs of
$4.8 million being charged to operations during the second, third
and fourth quarters of 1993, at the amounts of $1.5, $3.0 and $.3
million, respectively. The primary elements of the $4.8 million
were $1.7 million for the elimination of the Keds Apparel
division, $.7 million for closing the Griffin plant and $1.9
million for employee severance and related costs. Of the $4.8
million, $.6 million was for non-cash write-offs and
approximately $2.1 million was for charges that will impact
future cash flows.
The primary elements making up the 1993 other expense amount of
$1.4 million are $1.0 million amortization of goodwill and $.3
million in factor charges for customer late payments.
The primary elements making up the 1992 other expense amount of
$1.5 million are $1.0 million amortization of goodwill, $.5
million factor charges for customer late payments, and $.3
million related to discontinuance of the Company's pension plan.
These expenses were offset by income of $.3 million from
sublicenses for the Batman program.
Shirt Shed was a partner in a joint venture which resulted in
income of $.4 million during 1992. The joint venture ceased
operating in May 1992 and was terminated prior to December 31,
1992.
Interest expense decreased $1.3 million in 1993 from 1992.
Average outstanding debt in 1993 was $59.2 million compared to
$71.5 million in 1992. Average interest rates during 1993 and
1992 were 7.6% and 7.4%, respectively.
In 1992, Signal accrued $.4 million for clean-up of an oil spill
at the LaGrange facility and an additional $.1 million was
accrued in 1993. It is estimated that this amount will be
adequate to complete the clean-up of the contaminated area.
The net loss for 1993 was $34.9 million or $4.17 per share
compared to a net loss of $20.2 million or $2.41 per share for
1992.
FINANCIAL CONDITION
Additional working capital was required by the Company in 1994 to
fund losses the Company incurred. Some of this need was funded
through a reduction in raw materials and finished goods
inventories. Also, a portion of this need was met by the
Company's principal shareholders and senior lender. In February
1994, an investor exchanged $7.0 million of collateral on deposit
with the Company's senior lender for 70 shares of Series C
Preferred Stock. Additionally, the Company issued $3.0 million
of subordinated debt to a related party in March 1994. In August
1994, the Company's senior lender increased the total senior term
note outstanding to approximately $5.6 million from $3.5 based on
appraisals of machinery and equipment and real estate. In August
1994, two principal shareholders pledged collateral of $4.0
million to the senior lender in connection with such lender's
agreement to lend, on a discretionary basis, up to $4.0 million
in excess of the borrowing base. Additionally, the senior lender
agreed to a mid-month overadvance of $2.0 million. In connection
with the acquisition of AMW, the senior lender agreed to an
additional discretionary overformula accommodation not to exceed
$5.0 million.
Working capital at December 31, 1994 decreased $16.9 million or
64% over the prior year (after retroactively restating the prior
period financial statements for the change in the Company's
method of inventory valuation from the LIFO method to the FIFO
method -- see Note 3 of notes to consolidated financial
statements). The decrease in working capital was primarily due
to a significant increase in the current portion of long-term
debt resulting from the discretionary overadvances with the
senior lender ($10.8 million), a decrease in inventories ($2.6
million) and an increase in accounts payable and accrued
liabilities ($4.5 million), which were partially offset by higher
accounts receivable ($1.0 million).
Due to the seasonality of the business, trade accounts receivable
normally peak from February to May and August to October and are
lower in the other months as cash is collected and as shipments
decrease. A significant portion of accounts receivable due from
customers is carried at the risk of the factor and is not
reflected in the accompanying balance sheets.
Inventories decreased $2.6 million or 7% compared to last year-
end (after retroactively restating the prior period financial
statements for the change in the Company's method of inventory
valuation from the LIFO method to the FIFO method -- see Note 3
of notes to consolidated financial statements). Inventories
increased $3.9 million as a result of the acquisition of AMW and
decreased $6.5 million as a result of the Company's ongoing
efforts to improve inventory turns and to sell closeout and
obsolete inventory during the year.
Total current liabilities increased $15.4 million or 93% over
year-end 1993 primarily due to the classification of the
discretionary overadvances of $10.8 million with the senior
lender as short-term. Additionally, accounts payable and accrued
liabilities increased $4.5 million including an increase of $3.2
million related to the acquisition of AMW.
Cash used in operations was $11.2 million in 1994, compared to
$3.8 million used in operating activities in 1993. The net loss
of $53.3 million and decreases in accounts payable and accrued
expenses of $1.8 million were the primary uses of funds. These
items were partially offset by depreciation and amortization
($4.7 million), write-off of goodwill ($26.5 million)
significantly lower inventory levels ($6.9 million) and a
decrease in accounts receivable ($5.3 million).
Cash used in investing activities of $3.5 million included $2.2
million for purchases of property and equipment, including
dyeing, sewing and screenprinting equipment primarily to improve
manufacturing efficiencies. Commitments to purchase equipment
totaled approximately $.1 million at December 31, 1994. During
1995, the Company anticipates capital expenditures of
approximately $.8 million. Cash used in investing activities
also included $1.3 million related to the acquisition of AMW.
Cash provided by financing activities was $14.6 million in 1994.
The Company borrowed $3.0 million in subordinated debt with a
related party, FS Signal Associates I, during the first quarter
of 1994. Additionally, the Company exchanged collateral of $7.0
million pledged to the senior lender by a related party, Walsh
Greenwood, for Preferred Stock, which decreased the revolving
advance account with the senior lender. Cash provided by
financing activities also included a net increase in the
revolving advance account primarily in the form of guaranteed and
discretionary overadvances with the Company's senior lender of
$8.9 million during 1994.
The revolving advance account increased $9.3 million from $19.7
million at year-end 1993 to $28.9 million at December 31, 1994.
Committed credit lines with the company's senior lender
aggregated a maximum of $40.0 million at December 31, 1994. At
year-end, approximately $10.8 million was overadvanced under its
revolving advance account, which is classified as short-term in
the consolidated balance sheets at December 31, 1994 (see later
paragraphs for a discussion of overadvance arrangements totalling
$11.0 million).
In August 1994, in response to the Company's liquidity needs, two
principal shareholders, FS Signal Associates II and Walsh
Greenwood, pledged collateral of $4.0 million to the senior
lender in connection with such lender's agreement to lend, on a
discretionary basis, funds up to $4.0 million in excess of the
borrowing base. As of December 31, 1994, the Company had
received the entire $4.0 million from the lender committed under
this arrangement. The Company may reduce the outstanding debt
under this special overadvance only after repayment of its mid-
month overadvance facility and any other overadvance facilities.
On November 22, 1994, the Company acquired AMW by issuance of
1,400,000 restricted shares of the Company's Common Stock.
300,000 of the shares are contingent on future events and are
not included as outstanding for financial reporting purposes.
Simultaneously with the acquisition, AMW entered into a financing
arrangement with the Company's senior lender. Under the
agreement with the combined companies, the senior lender will
advance up to a maximum of $40.0 million in accordance with a
formula based on the values of accounts receivable, inventory and
term notes, plus a discretionary overadvance of $4.0 million
(secured by the collateral pledged by two principal shareholders)
plus a discretionary over-formula accommodation not to exceed
$5.0 million and a mid-month overadvance of $2.0 million.
Total outstanding debt averaged $31.9 million and $59.2 million
for 1994 and 1993, respectively, with average interest rates of
9.4% and 7.6%. Although the Company continued to sustain losses
in 1994, average outstanding debt decreased primarily due to the
exchange of debt and collateral pledged by related parties for
Preferred Stock and the reduction in inventory.
The Company also uses letters of credit to support foreign and
some domestic sourcing of inventory and certain other
obligations. Outstanding letters of credit were $2.5 million at
December 31, 1994 (excluding collateral of $2.0 million pledged
to the senior lender in the form of a standby letter of credit).
Total shareholders' equity decreased $45.2 million compared to
year-end 1993. The Company sustained losses of $53.3 million
during 1994 (including the write-off of goodwill of $26.5 million
- -- see previous paragraph for a further discussion), which were
partially offset by a $7.0 million investment in Preferred Stock
by a principal shareholder and by the issuance of 1,100,000
restricted shares of Common Stock in conjunction with the
acquisition of AMW.
LIQUIDITY AND CAPITAL RESOURCES
As a result of continued losses, the Company has been unable to
fund its cash needs through cash generated by operations over the
last year and during the first quarter of 1995. The Company's
liquidity shortfalls from operations were resolved through
several transactions with related parties and the Company's
senior lender. In January 1994, the Company issued a
subordinated promissory note of $3.0 million to FS Signal
Associates I. The senior lender provided discretionary
overadvances of $11.0 million during 1994 and into the first
quarter of 1995. In addition, the senior lender waived all loan
covenant violations at December 31, 1994 and amended the
covenants for 1995 (Note 4). In January 1995, the Company sold
$3.0 million in Series C Preferred Stock to Walsh Greenwood and
affiliated entities. Subsequent to December 31, 1994, the
Company was advanced $7.0 million under the terms of a $15.0
million (net of discount) senior subordinated debt facility (Note
4).
The Company's continued existence is dependent upon its ability
to substantially improve its operating results during 1995. The
board of directors installed a new president and chief financial
officer during January 1995 to effect an improvement in
operations and liquidity. Since year-end, the Company has taken
actions to improve its operations and liquidity. On March 31,
1995, the Company closed on the $15.0 million (net of discount)
senior subordinated debt facility, such funds will be utilized
for working capital purposes. The Company instituted an
extensive cost reduction program that is expected to
substantially reduce general and administrative expenses, and the
Company is considering the sale of certain assets. In addition,
the Company sold excess and closeout inventory of approximately
$4.5 million since year-end and implemented an inventory control
program in order to eliminate the manufacture of excess goods.
Also, the senior lender extended the maturity dates of the senior
notes totalling $6.5 million (Note 4).
The Company believes the execution of the above steps will
provide sufficient liquidity for it to continue as a going
concern in its present form. Accordingly, the consolidated
financial statements do not include any adjustments relating to
recoverability and classification of recorded asset amounts or
the amount and classificiation of liabilities or any other
adjustments that might become necessary should the Company be
unable to continue as a going concern in its present form.
However, there can be no assurances that all of these steps, if
successfully completed, can return the Company's operations to
profitability.
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1994 and
December 31, 1993
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1993, and 1992
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1994, 1993, and 1992
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1993, and 1992
Notes to Consolidated Financial Statements
Financial Statement Schedules:
See Part IV, Item 14 (a) 2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Signal Apparel Company, Inc.:
We have audited the accompanying consolidated balance sheets of
SIGNAL APPAREL COMPANY, INC. (an Indiana corporation) AND
SUBSIDIARIES as of December 31, 1994 and 1993 and the related
consolidated statements of operations, shareholders' equity and
cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits. The consolidated
financial statements of the Company for the year ended
December 31, 1992 were audited by other auditors whose report
dated March 29, 1993, expressed an unqualified opinion on those
statements.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Signal Apparel Company, Inc. and subsidiaries as of
December 31, 1994 and 1993 and the results of their operations
and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements,
the Company has given retroactive effect to the change in
accounting for inventories from the last-in, first-out method to
the first-in, first-out method.
The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern.
As discussed in Note 1 to the consolidated financial statements,
the liquidity of the Company has been adversely affected by
recurring losses from operations, which raises substantial doubt
about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described
in Note 1. The financial statements do not include any
adjustments to reflect the possible future effects on the
recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result
should the Company be unable to continue as a going concern.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chattanooga, Tennessee
March 31, 1995
CONSOLIDATED BALANCE SHEETS
Signal Apparel Company, Inc.
and Subsidiaries
December 31, 1994 and 1993
(Dollars in thousands)
1994 1993
--------- --------
Assets
Current assets:
Cash $ 303 $ 444
Receivables, less allowance for doubtful
accounts of $1,787 in 1994 and
$1,060 in 1993 6,713 5,699
Inventories 33,350 35,956
Prepaid expenses and other 1,135 893
--------- --------
Total current assets 41,501 42,992
--------- --------
Property, plant and equipment, at cost:
Land 505 560
Buildings and improvements 12,437 10,845
Machinery and equipment 38,684 36,405
--------- --------
Total property, plant and equipment 51,626 47,810
Less accumulated depreciation 34,816 30,425
--------- --------
Net property, plant and equipment 16,810 17,385
--------- --------
Goodwill, less accumulated amortization
of $41 in 1994 and $2,346 in 1993 10,786 27,465
Other assets 351 72
--------- --------
Total assets $ 69,448 $ 87,914
========= ========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 8,663 $ 5,295
Accrued liabilities 11,356 10,184
Current portion of long-term debt 1,144 1,126
Discretionary overadvances from bank 10,849 --
--------- --------
Total current liabilities 32,012 16,605
--------- --------
Long-term debt (less current portion):
Senior obligations 30,217 23,846
Subordinated debt to related parties 5,434 --
--------- --------
Total long-term debt 35,651 23,846
--------- --------
Multiemployer pension plan withdrawal
liability 1,084 1,558
--------- --------
Commitments and Contingencies (Notes 1,
2, 4, 5 and 8)
Shareholders' equity:
Series A Preferred Stock, $100,000 stated
value per share, 400 shares authorized,
327.087 shares issued and outstanding in
1994 and 1993 (liquidation preference of
$100,000 per share plus cumulative unpaid
dividends of $6,875 in 1994 and $1,455 in
1993) 39,584 34,164
Series B Preferred Stock, $100,000 stated
value per share, 250 shares authorized,
217.678 shares issued in 1993
(liquidation preference of $100,000
per share, plus cumulative unpaid
dividends of $1,046 in 1993); exchanged
for Series C in 1994 -- 22,814
Series C Preferred Stock, $100,000 stated
value per share, 1,000 shares
authorized, 287.678 shares issued
in 1994 (liquidation preference of
$100,000 per share plus cumulative
unpaid dividends of $4,850 in 1994) 33,618 --
Common Stock, 20,000,000 shares
authorized, $.01 par value per share,
10,204,296 shares issued in 1994 and
9,104,296 shares issued in 1993 102 91
Additional paid-in capital 69,721 68,632
Accumulated deficit (141,207) (78,679)
--------- --------
Subtotal 1,818 47,022
Less cost of common treasury shares
(140,220 shares) (1,117) (1,117)
--------- --------
Total shareholders' equity 701 45,905
--------- --------
Total liabilities and
shareholders' equity $ 69,448 $ 87,914
========= ========
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
Signal Apparel Company, Inc.
and Subsidiaries
Years ended December 31, 1994, 1993 and 1992
(In thousands, except per share data)
1994 1993 1992
- ------------------------------------------------------------------------
Net sales $ 95,818 $ 131,000 $ 172,194
Cost of sales 87,450 118,562 140,479
- ------------------------------------------------------------------------
Gross profit 8,368 12,438 31,715
Royalty expense (3,342) (4,702) (10,918)
Selling, general and administrative
expenses (26,803) (31,549) (33,827)
Interest expense (3,002) (4,855) (6,131)
Other expense, net (2,044) (1,425) (1,482)
Write-off of goodwill (26,481) -- --
Restructuring costs -- (4,785) --
Income (loss) associated with joint
venture -- -- 433
- ------------------------------------------------------------------------
Loss before income taxes (53,304) (34,878) (20,210)
Income taxes -- -- --
- ------------------------------------------------------------------------
Net loss (53,304) (34,878) (20,210)
Less Preferred Stock dividends (9,224) (2,501) (92)
- ------------------------------------------------------------------------
Net loss applicable to Common Stock $ (62,528) $ (37,379) $ (20,302)
========================================================================
Weighted average common and common
equivalent shares outstanding 9,082 8,963 8,428
========================================================================
Net loss per common share (6.88) (4.17) (2.41)
========================================================================
See accompanying notes to consolidated financial statements.
<TABLE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Signal Apparel Company, Inc.
and Subsidiaries
Years ended December 31, 1994, 1993 and 1992
(Dollars in thousands, except share data)
<CAPTION>
Preferred Stock Senior Addt'l
------------------------ Preferred Common Class A Class B Paid-In Accum. Treasury
Series A Series B Series C Stock Stock Common Common Capital Deficit Stock Total
---------------------------- -------- -------- -------- -------- ---------------- ---------------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991,
as previously reported $ - $ - $ - $ 420 $ - $ 66 $ 7 $53,718 ($24,991) ($1,106) $28,114
Restatement for change in
inventory pricing method
from LIFO to FIFO (Note 3) - - - - - - - - 4,466 - 4,466
---------------------------- -------- -------- -------- -------- ------- --------- ---------------- --------- -------- --------
Balance, December 31, 1991,
as restated $ - $ - $ - $ 420 $ - $ 66 $ 7 $53,718 ($20,525) ($1,106) $32,580
Net loss - - - - - - - - (20,210) - (20,210)
Cash dividends:
Preferred ($1.60 per share) - - - - - - - - (92) - (92)
Conversion of 6,745 shares of
Class B Common Stock into
Class A Common Stock - - - - - - - - - - -
Conversion of 105,236 shares
of Senior Preferred into
Class A and Class B Common
Stock - - - (351) - 2 2 347 - - -
Exercise of employee stock
options - - - - - 2 - 767 - (153) 616
Issuance of 1,150,000 shares
of Class A Common Stock
upon exercise of warrants - - - - - 12 - 13,788 - - 13,800
Redemption of Preferred Stock - - - (69) - - - - (473) 142 (400)
---------------------------- -------- -------- -------- -------- -------- -------- ---------------- --------- -------- --------
Balance, December 31, 1992 $ - $ - $ - $ - $ - $ 82 $ 9 $68,620 ($41,300) ($1,117) $26,294
Net loss - - - - - - - - (34,878) - (34,878)
Redesignation of Common Stock - - - - 91 (82) (9) - - - -
Exercise of employee stock
options - - - - - - - 12 - - 12
Issuance of 544.765 shares
of Preferred Stock 32,709 21,768 - - - - - - - - 54,477
Cumulative accrued dividends
on Preferred Stock 1,455 1,046 - - - - - - (2,501) - -
---------------------------- -------- -------- -------- -------- ---------------- ---------------- --------- -------- --------
Balance, December 31, 1993 $34,164 $22,814 $ - $ - $ 91 $ - $ - $68,632 ($78,679) ($1,117) $45,905
Net loss - - - - - - - - (53,304) - (53,304)
Issuance of 70 shares of
Series C Preferred Stock - - 7,000 - - - - - - - 7,000
Exchange of 287.678 shares
of Series B Preferred Stock
for 287.678 shares of Series C
Preferred Stock - (22,814) 22,814 - - - - - - - -
Cumulative accrued dividends
on Preferred Stock 5,420 - 3,804 - - - - - (9,224) - -
Issuance of 1,100,000 shares
of restricted Common Stock
in connection with the
acquisition of American
Marketing Works, Inc. - - - - 11 - - 1,089 - - 1,100
---------------------------- -------- -------- -------- -------- ---------------- ---------------- --------- -------- --------
Balance, December 31, 1994 $39,584 $ - $33,618 $ - $ 102 $ - $ - $69,721 ($141,207) ($1,117) $ 701
============================= ======== ======== ======== ======== ================ ================ ========= ======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Signal Apparel Company, Inc.
and Subsidiaries
Years ended December 31, 1994, 1993, and 1992
(Dollars in thousands)
1994 1993 1992
-------- -------- --------
Operating Activities:
Net loss $(53,304)$ (34,878)$ (20,210)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 4,653 5,338 5,529
Loss on disposal of property,
plant and equipment 251 732 38
Write-off of goodwill 26,481 -- --
Changes in operating assets and
liabilities, net of effects of
business acquired:
Decrease in receivables 5,273 3,319 4,375
(Increase) decrease in inventories 6,858 25,209 (7,040)
Decrease in other assets -- -- 426
Decrease in prepaid expenses and
other 330 345 297
Decrease in accounts payable
and accrued liabilities (1,790) (3,867) (7,384)
-------- -------- --------
Net cash used in operating
activities (11,248) (3,802) (23,969)
-------- -------- --------
Investing activities:
Purchases of property, plant and
equipment (2,168) (1,838) (4,676)
Proceeds from the sale of property,
plant and equipment 20 25 50
Acquisition of business, less
cash acquired (1,343) -- --
-------- -------- --------
Net cash used in investing
activities (3,491) (1,813) (4,626)
-------- -------- --------
Financing activities:
Net increase (decrease) in revolving
advance account 8,918 (16,354) 12,993
Proceeds from subordinated notes 3,000 7,500 17,000
Principal payments on borrowings (4,102) (718) (14,705)
Principal payments on multiemployer
withdrawal liability (218) (206) (277)
Proceeds from issuance of Preferred
Stock 7,000 15,000 --
Proceeds from exercise of stock warrants -- -- 13,800
Proceeds from exercise of stock options -- 12 616
Dividends paid -- -- (140)
Redemption of Preferred Stock -- -- (400)
-------- -------- --------
Net cash provided by
financing activities 14,598 5,234 28,887
-------- -------- --------
Increase (decrease) in cash (141) (381) 292
Cash at beginning of year 444 825 533
-------- -------- --------
Cash at end of year $ 303 $ 444 $ 825
======== ======== ========
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Signal Apparel Company, Inc. and Subsidiaries
1. Summary of Significant Accounting Policies
Basis of Presentation
The Company's consolidated financial statements have been
presented on a going concern basis which contemplates the
realization of assets and the satisfaction of liabilities in the
normal course of business. The Company reported a net loss
applicable to Common Stock of $62,528,000 for the year ended
December 31, 1994, and cumulative losses for the past three years
of $120,209,000. The 1994 loss includes a write-down of goodwill
of approximately $26,481,000 related to the acquisition of The
Shirt Shed, Inc. (see "Goodwill"). As a result of these losses,
shareholders' equity has declined to $701,000, at December 31,
1994, and tangible net worth is a negative $10,085,000.
Over the last year and during the first quarter of 1995, the
Company has experienced liquidity shortfalls from operations that
were resolved through (i) the issuance of a subordinated
promissory note of $3,000,000 to FS Signal Associates I, a
principal shareholder (see Note 4) in January 1994 and the sale
of $3,000,000 of Series C Preferred Stock to Walsh Greenwood, a
principal shareholder (see Note 4) in January 1995, (ii) the
advance to the Company of $7,000,000 subsequent to December 31,
1994 under the terms of a $15,000,000 (net of discount) senior
subordinated debt facility (Note 4), (iii) the waiver by the
senior lender of all loan covenant violations at December 31,
1994 and the amendment of the covenants for 1995, and (iv) the
provision by the senior lender of discretionary overadvances of
$11,000,000 during 1994 and into the first quarter of 1995 (Note
4).
The Company's continued existence is dependent upon its ability
to substantially improve its operating results during 1995. The
board of directors installed a new president and chief financial
officer during January 1995 to effect an improvement in
operations and liquidity. Actions taken by the Company since
year-end to improve its operations and liquidity include (i) the
$15,000,000 (net of discount) senior subordinated debt facility
closed on March 31, 1995, (ii) the institution of an extensive
cost reduction program that is expected to substantially reduce
general and administrative expenses, (iii) the sale of excess and
closeout inventories of approximately $4,500,000 since year-end
and the implementation of an inventory control program in order
to eliminate the manufacture of excess goods, (iv) the extension
of the maturity dates of senior notes of $6,500,000 (Note 4), and
(v) the consideration by the Company of the sale of certain
assets. The Company believes it can improve its operating
margins as a result of certain of the actions being taken.
The Company believes the execution of the above steps and other
planned improvements in operations will provide sufficient
liquidity for it to continue as a going concern in its present
form. Accordingly, the consolidated financial statements do not
include any adjustments relating to recoverability and
classification of recorded asset amounts or the amount and
classification of liabilities or any other adjustments that
might become necessary should the Company be unable to continue
as a going concern in its present form. However, there can be no
assurances that all of these steps, if successfully completed,
can return the Company's operations to profitability.
Principles of Consolidation
The consolidated financial statements include the accounts of
Signal Apparel Company, Inc. ("Signal") and its wholly-owned
subsidiaries (collectively, the "Company"). All significant
intercompany balances and transactions have been eliminated in
consolidation.
Inventories
Inventories are stated at the lower of first-in, first-out (FIFO)
cost or market for all inventories (Note 3). For discontinued
and closeout inventories, the Company evaluates the need for
write-downs on an item by item basis. Market for finished goods
and blank (unprinted) goods is net realizable value.
Property, Plant and Equipment
Depreciation of property, plant and equipment is provided over
the estimated useful lives of the assets principally using
accelerated methods. Assets under capital leases are included in
property, plant and equipment, and amortization of such assets is
included with depreciation expense. The estimated useful lives
of the assets range from 4 to 32 years for buildings and
improvements and 3 to 10 years for machinery and equipment.
Expenditures for maintenance and repairs are charged to expense
as incurred. Depreciation and amortization of property, plant
and equipment for financial statement purposes amounted to
$3,635,000 in 1994, $4,355,000 in 1993 and $4,556,000 in 1992.
Net Loss Per Common Share
The net loss per common share is based on the weighted average
number of common shares outstanding during each year after giving
effect to dividend requirements of the Preferred Stock. Effects
of the Company's Common Stock equivalents have been excluded from
the per share computations as they are anti-dilutive for all
periods presented.
Line of Business
Apparel manufacturing and distribution is the Company's one line
of business. In 1994, no one customer accounted for more than
10% of total sales. One customer accounted for 21% of net sales
in 1993 and 18% of net sales in 1992.
Credit and Market Risk
The Company sells products to a wide variety of customers
servicing the ultimate consumer. Pursuant to the terms of a
factoring agreement with its senior lender, the Company sells
substantially all accounts receivable, except cash in advance or
cash on delivery sales, to the factor on a preapproved basis.
The Company pays a factoring commission as compensation for the
credit risk and other services provided by the factor.
With regard to credit-approved sales, the factor accepts the
credit risk for nonpayment due to financial inability to pay.
With regard to noncredit approved sales, the Company accepts all
credit risk of nonpayment for any reason. A portion of accounts
receivable due from customers (approximately 49% and 62% at
December 31, 1994 and 1993, respectively) is carried at the risk
of the factor. The Company performs ongoing credit evaluations
of those customers carried at its own risk and generally does not
require collateral for such receivables. The Company maintains
an allowance for doubtful accounts at a level which management
believes is sufficient to cover potential credit losses.
Goodwill
During November 1994, the Company acquired American Marketing
Works, Inc. ("AMW"). The acquisition of AMW resulted in goodwill
of $10,827,000 being recorded due to the excess of cost over the
net assets acquired (Note 2). The goodwill related to the AMW
acquisition is being amortized on straight-line basis over 30
years.
In connection with the acquisition of The Shirt Shed, Inc.
("Shirt Shed") in 1991, the Company recorded goodwill for the
excess of the cost over the net assets acquired ("goodwill").
The goodwill was being amortized on a straight-line basis over 30
years. The Company continually evaluates whether later events
and circumstances have occurred that indicate the remaining
estimated useful life of goodwill may warrant revision or that
the remaining balance may not be recoverable. When factors
indicate that goodwill should be evaluated for possible
impairment, the Company uses an estimate of the related business
segment's undiscounted net income over the remaining life of the
goodwill in measuring whether the goodwill is recoverable.
During the fourth quarter of 1994, the Company determined that
the goodwill related to the acquisition of Shirt Shed had been
impaired. This impairment was due to continued operating losses
by Shirt Shed along with the uncertainty about its return to
profitability. As a result, the unamortized balance of the Shirt
Shed goodwill was written off. The charge for the goodwill
write-off was $26,481,000 and has been separately presented in
the accompanying statement of operations for the year ended
December 31, 1994.
2. Acquisition of American Marketing Works
Pursuant to a stock purchase agreement dated October 6, 1994, as
subsequently amended (as so amended, the "Purchase Agreement"),
the Company acquired, as of November 22, 1994, all of the
outstanding capital stock of AMW, from Kidd, Kamm Equity
Partners, L.P., a Delaware limited partnership ("KKEP"), MW
Holdings, L.P., a California limited partnership ("MWH"), Marvin
Winkler, Sherri Winkler and certain investment companies
(collectively, the "AMW Shareholders"), in exchange for 1,400,000
shares of the Company's Common Stock, $.01 par value per share
(the "AMW Acquisition"). Included in the 1,400,000 shares are
150,000 unvested shares and 150,000 shares subject to being
returned to the Company. AMW is a branded licenses apparel
company which designs, prints and markets silkscreen printable
sportswear, principally T-shirts and sweatshirts, with tangible
assets of approximately $8,643,000 at December 31, 1994 and
calendar 1994 net sales (unaudited) of approximately $34,000,000.
AMW has a broad portfolio of licenses, cross licenses and brand
names backed by well-known products or endorsers. AMW's
distribution channels include department stores, specialty
stores, mass merchants, gift shops and souvenir shops. The
Company intends to continue the operation of AMW's business as a
wholly-owned subsidiary.
Pursuant to the terms of a registration rights agreement (the
"Registration Rights Agreement") executed in connection with the
AMW Acquisition, 150,000 of the shares are designated as
"unvested" as of the date of the AMW Acquisition, which shares
will vest (if at all) only in accordance with the Registration
Rights Agreement (as described below). An additional 150,000 (or
the proceeds therefrom, if sold) shares which are designated as
"vested" shares under the Registration Rights Agreement are
nonetheless, under the terms of the Purchase Agreement, subject
to being returned to the Company in the event that KKEP's
guaranty of certain pre-AMW Acquisition indebtedness of AMW
terminates in accordance with its terms without KKEP having
received any demand to make payments as guarantor thereunder.
Such indebtedness is secured by the fixed assets of AMW and is
also subject to separate guaranties given by the Company and by
certain of the Company's principal shareholders. The additional
300,000 common shares which are considered "vested" and
"nonvested" have not been reflected as issued in the accompanying
consolidated financial statements due to the contingencies
related to their issue.
The shares of the Company's Common Stock issued in connection
with the AMW Acquisition were issued as unregistered, restricted
shares pursuant to the rules and regulations of the Securities
and Exchange Commission. As an additional inducement to the AMW
Shareholders to enter into the Purchase Agreement, the Company
entered into a Registration Rights Agreement dated November 22,
1994 with KKEP as "nominee" for all of the AMW Shareholders
(other than Marvin Winkler and Sherri Winkler, who did not
receive any shares) under a separate agreement between KKEP and
such shareholders. The Registration Rights Agreement effectively
grants KKEP (as "Holder," as defined therein, of a majority of
the "Registrable Securities" issued in the AMW Acquisition) the
right to require the Company, upon written notice given anytime
within two years after November 22, 1994, to effect one
registration of all "Registrable Securities" issued in the AMW
Acquisition for sale under the Securities Act of 1933, as
amended. The Registration Rights Agreement defines the term
"Registrable Securities" to include all 1,250,000 "vested" shares
issued in connection with the AMW Acquisition (including the
150,000 shares subject to being returned to the Company as
described above), plus any "unvested" shares which may become
"vested" pursuant to the Registration Rights Agreement. The
"unvested" shares will only become "vested," however, in the
event that the Company exercises its rights under the
Registration Rights Agreement to require certain delays or
suspensions in the registration of shares to which the AMW
Shareholders are otherwise entitled under the terms of the
agreement.
In connection with the AMW Acquisition, the Company agreed with
the other parties to the Purchase Agreement that (i) a
subordinated promissory note of AMW in the principal amount of
$1,560,000 from MWH and (ii) a subordinated promissory note of
AMW in the principal amount of $750,000 from Marvin Winkler
(president of the general partner of MWH as well as former
Chairman and CEO of AMW and current chairman and CEO of the
Company) and his wife, Sherri Winkler (collectively, the
"Subordinated Notes") would be amended and restated in principal
amounts equal to the outstanding principal plus accrued and
unpaid interest on each of the Subordinated Notes as of November
22, 1994 (totalling $1,635,400 and $798,300, respectively) (said
amended and restated notes, collectively, the "Purchase Notes").
Each of the Purchase Notes bears interest at a rate of 11% per
annum (payable monthly) and will mature on November 22, 1999
(Note 4). The Purchase Notes are subject to a separate Put/Call
Agreement dated November 22, 1994 among the Company, MWH and
Marvin and Sherri Winkler (the "Winklers"), pursuant to which:
(i) MWH and the Winklers have the right, exercisable at any time
prior to the earlier of the maturity of the Purchase Notes or any
call of the Purchase Notes by the Company, to require the Company
to purchase either of the respective Purchase Notes in exchange
for a number of shares of the Company's Series D Preferred Stock,
$100,000 stated value per share (the "Series D Preferred Stock")
equal in stated value to the then outstanding principal plus
accrued and unpaid interest with respect to such note; and (ii)
the Company has the right, exercisable at any time (A) after any
acceleration of the senior debt of either the Company or AMW by
either lender pursuant to the terms of such debt and (B) prior to
the first to occur of (x) an exercise of the above-described put
option by either MWH or the Winklers with respect to each
Purchase Note or (y) the maturity of each such note, to require
each of MWH and the Winklers to sell their respective Purchase
Notes to the Company in exchange for a number of shares of the
Company's Series D Preferred Stock determined as described above.
Subsequent to year-end, the Company entered into an agreement
with MWH and the Winklers whereby the Purchase Notes would be
canceled in exchange for 1,000,000 shares of Common Stock to be
issued to Marvin Winkler.
On November 30, 1994, KKEP, in its capacity as nominee for the
AMW Shareholders who received shares of the Company's stock in
the AMW Acquisitions, notified the Company of its exercise of the
demand registration rights granted in the Registration Rights
Agreement. In accordance with the terms of the Registration
Rights Agreement, the Company has requested, and KKEP has agreed
to, a six month delay in the registration of shares pursuant to
such notice. As a result of the delay, the unvested shares will
vest in 1995, in accordance with the terms of the Registration
Rights Agreement.
The AMW acquisition was accounted for as a purchase in accordance
with Accounting Principles Board Opinion No. 16, and accordingly,
the purchase price has been allocated to the assets acquired and
liabilities assumed based on the estimated fair values as of the
acquisition date. The net excess of the cost over the estimated
fair values of the acquired net assets as a result of the AMW
Acquisition has been allocated to goodwill. The purchase price
allocation will be finalized in 1995.
The results of operations of AMW are included in the accompanying
consolidated financial statements from the date of acquisition.
The following summarized unaudited pro forma financial
information gives effect to the acquisition as if it had occurred
on January 1 of each period and has been prepared for comparative
purposes only. The information does not purport to be indicative
of the results of operations had the transaction been in effect
on the date indicated or which may occur in the future:
Year Ended
Dollars in Thousands December 31,
(except per share data) 1994 1993
---- ----
(unaudited)
Net sales $125,603 $169,018
Net loss applicable to
common shareholders 71,407 38,770
Net loss per common share 6.99 3.80
3. Inventories
Inventories consisted of the following at December 31, 1994 and
1993:
(Dollars in thousands) 1994 1993
- -----------------------------------------------------------------
At current cost:
Raw materials $ 963 $ 1,965
Work in process 5,639 7,629
Finished goods 25,392 24,267
Supplies 1,356 2,095
- -----------------------------------------------------------------
$33,350 $35,956
=================================================================
Effective January 1, 1994, the Company elected to retroactively
change its method of inventory valuation from the last in, first
out ("LIFO") method, which was used for all divisions except the
Artwear division, to the first in, first out ("FIFO") method.
The Company believes the FIFO method will produce a better
matching of current costs and current revenues due to changes in
its existing product lines and the continuous introduction of new
products. The Company has also applied to the Internal Revenue
Service to change to the FIFO method of inventory valuation for
income tax reporting purposes.
As required by generally accepted accounting principles, the
Company has retroactively restated the prior period financial
statements for this change. The effect of the restatement was to
reduce the accumulated deficit at December 31, 1991 by
$4,466,000.
The impact of this change in accounting method on the net loss
for each subsequent period was as follows (dollars in thousands,
except per share date):
Fiscal Years
------------
1993 1992
---- ----
Increase (decrease) in:
Net loss $1,016 $(316)
====== ======
Net loss per common and
common equivalent share $.11 $(.04)
====== ======
4. Long-Term Debt
Long-term debt consisted of the following at December 31, 1994
and 1993:
(Dollars in thousands) 1994 1993
- -----------------------------------------------------------------
Senior obligations:
Revolving advance account under
credit facility -- interest payable
monthly at the alternate base rate
(as defined) plus 1.25% (9.75% at
December 31, 1994); secured by
accounts receivable, inventories
and certain machinery and equipment $28,924 $19,673
Senior term note -- interest payable
monthly at the alternate base rate
(as defined) plus 1.5% (10.0% at
December 31, 1994); secured by real
estate; payable in equal monthly
installments of $17,600 over a
period through July 1999 with a
balloon payment due August 1999 1,422 --
Senior term note -- interest payable
monthly at the alternate base rate
(as defined) plus 1.5% (10.0% at
December 31, 1994); secured by
accounts receivable, inventories,
and machinery and equipment; payable
in equal monthly installments of
$49,500 over a period through
July 1999 with a balloon payment
due August 1999 3,993 4,000
Tranche A note -- interest payable
monthly at the commercial paper rate
(as defined) plus 4.75% (10.8% at
December 31, 1994); secured by certain
machinery and equipment and certain
issued and outstanding stock, payable
on December 31, 1996 4,750 --
Tranche B note -- interest payable
monthly at the commercial paper rate
(as defined) plus 7.65% (13.7% at
December 31, 1994); secured by certain
machinery and equipment and certain
issued and outstanding stock, payable
on December 31, 1996 1,750 --
Obligations under capital leases 293 764
Mortgage notes payable 396 432
Other 682 103
- -----------------------------------------------------------------
Total 42,210 24,972
Less: Current portion of long-term debt 1,144 1,126
Discretionary overadvances
from bank 10,849 --
- -----------------------------------------------------------------
Senior obligations, excluding current
portion 30,217 23,846
Subordinated debt to related parties
(Notes 2 and 5) 5,434 --
- -----------------------------------------------------------------
Total excluding current portion $35,651 $23,846
=================================================================
On March 31, 1994, the financing arrangement with the Company's
senior lender was extended through March 31, 1997. Under the
current financing arrangement, the Company's total outstanding
obligations (including the revolving advance account and senior
term notes) at any month-end cannot exceed the lower of
$40,000,000 or the borrowing base as defined in the agreement.
The borrowing base is generally equal to the sum of 85% of
eligible receivables (as defined), plus the lower of the
inventory cap (presently $16,000,000, subject to adjustment) or
50% of eligible inventory (as defined), less certain reserves,
plus the discretionary overadvances of $11,000,000.
In August 1994, the Company's senior lender agreed to a mid-month
overadvance (unsecured advance in excess of the borrowing base)
up to a maximum of $2,000,000. These mid-month overadvances must
be repaid by and during the first week of the following
accounting month. In order to provide additional funding to the
Company, two principal shareholders, FS Signal Associates II and
Walsh Greenwood, pledged collateral of $4,000,000 to the senior
lender in August 1994 in connection with the senior lender's
agreement to lend, on a discretionary basis, funds up to
$4,000,000 in excess of the borrowing base. At December 31,
1994, the Company had received the entire $4,000,000 from the
senior lender committed under this arrangement. The Company may
reduce the outstanding debt under this special overadvance only
after repayment of its mid-month overadvance facility and any
other overadvance facilities. In connection with the acquisition
of AMW in November 1994, the senior lender agreed to an
additional discretionary over-formula accommodation not to
exceed $5,000,000 plus the mid-month overadvance of $2,000,000
described above. The Company will incur premium rates and
penalty rates on over-formula advances under certain conditions
and time periods. At December 31, 1994, $10,849,000 was
overadvanced against the overadvance arrangements of $11,000,000
under its financing arrangement. Such overadvances were
classified as current in the consolidated balance sheet at
December 31, 1994. Subsequent to year-end the senior lender
reduced the $11,000,000 overadvances described above to $10,000,000.
Under the revolving advance account, interest is at the alternate
base rate plus 1.25%. The alternate base rate is a fluctuating
rate equal to the higher of the prime rate (as defined) or the
federal funds rate plus .5%, and is payable monthly. In addition
to the amounts due to the senior lender for interest, the Company
is obligated to pay a quarterly fee of .25% per annum on the
difference between $40,000,000 and the average amount of
obligations outstanding, as defined, to such lender.
In August 1994, the senior lender increased the amount
outstanding under the senior term notes based on appraisals of
machinery and equipment and real estate. The revised notes
totaling $5,415,000 at December 31, 1994 will be repaid in equal
monthly principal payments of $67,100, which started September 1,
1994, and ending with a balloon payment of $1,677,000 on
August 1, 1999.
In connection with the AMW Acquisition, the senior lender amended
its respective factoring agreements with the Company and its
wholly owned subsidiary, Shirt Shed, to permit the AMW
Acquisition. Simultaneously with the AMW Acquisition, AMW
entered into a factoring agreement (the "AMW Factoring
Agreement") with BNY Financial Corporation ("BNY" or the "senior
lender") pursuant to which BNY will provide AMW with financing up
to a maximum principal amount of $14,000,000 on substantially the
same terms as the pre-AMW Acquisition factoring agreements with
the Company and Shirt Shed (and subject to the same overall
limitation of $40,000,000 regarding the aggregate indebtedness of
the Company, Shirt Shed and AMW). In connection with the
amendments of the pre-AMW Acquisition factoring agreements of the
Company and Shirt Shed and the execution of the AMW Factoring
Agreement: (i) AMW (A) granted security interests in all of its
inventory, equipment and trademarks to BNY with respect to AMW's
obligations under the AMW Factoring Agreement and (B) executed a
guaranty agreement with BNY guaranteeing the obligations of the
Company and Shirt Shed under their respective factoring
agreements with BNY; (ii) the Company (A) executed a guaranty
agreement with BNY guaranteeing the obligations of AMW under the
AMW Factoring Agreement, (B) pledged all the issued and
outstanding stock of both AMW and Shirt Shed to BNY to secure the
obligations of the Company, Shirt Shed and AMW under their
respective factoring agreements and (C) issued a warrant to BNY
to purchase 100,000 shares of the Company's Common Stock at an
exercise price of $7.06 per share with an expiration date of
November 18, 1997; (iii) Shirt Shed executed a guaranty agreement
with BNY guaranteeing the obligations of AMW under the AMW
Factoring Agreement; (iv) Walsh Greenwood and affiliates,
principal shareholders of the Company, guaranteed up to $250,000
of the obligations of AMW to BNY and to AMW's prior fixed assets
lender (in addition to the guarantees of such AMW debt by the
Company and KKEP, as discussed above); and (v) FS Signal
Associates II, L. P. another of the Company's principal
shareholders, pledged 500,000 shares of the Company's Common
Stock to BNY to secure the obligations of AMW to BNY.
The current financing arrangement requires, among other things,
the maintenance of minimum amounts of working capital, cumulative
pretax operating results and net worth, and also limits the
Company's ability to pay dividends and limits the amount of
indebtedness the Company may incur. As of December 31, 1994, the
Company was not in compliance with various covenants of the
credit facility, including all of the financial covenants.
Subsequent to year-end, the lender waived the loan covenant
violations and amended the financing arrangement.
In connection with the acquisition of AMW, the Company amended
and restated a credit agreement with AMW's former lender. The
amended and restated credit agreement includes two promissory
notes ("Tranche A" and "Tranche B"). The Tranche A note
totalling $4,750,000 is due on June 30, 1995, and interest is
payable monthly at the commercial paper rate (as defined) plus
4.75%. The Tranche B note totalling $1,750,000 is due on June
30, 1995, and interest is payable monthly at the commercial paper
rate (as defined) plus 7.65%. The commercial paper rate is
defined as the rate of interest equivalent to the money market
yield on the one month Commercial Paper Rate for dealer-placed
commercial paper of issuers whose corporate bonds are rated "AA"
or its equivalent. The notes are secured by a first lien on
AMW's machinery and equipment. Additionally, the Company pledged
all of the issued and outstanding stock of AMW to this lender as
collateral. A principal shareholder, FS Signal Associates II,
pledged 500,000 shares of the Company's Common Stock to this
lender to secure AMW's obligations. Another shareholder, KKEP
pledged 1,400,000 shares of the Company's Common Stock to this
lender, also. This credit agreement limits the amount of
indebtedness AMW may incur. Subsequent to year-end, the due date
of the notes was extended from June 30, 1995 to December 31,
1996. Consequently, the Tranche A note of $4,750,000 and the
Tranche B note of $1,750,000 are classified as long-term in the
accompanying balance sheet at December 31, 1994.
In March 1992, FS Signal and Walsh Greenwood exercised warrants
permitting them to purchase shares of Common Stock. Such
purchase resulted in the addition of $13,800,000 of shareholders'
equity, the proceeds of which were used to reduce the total long-
term borrowings from the related parties to $20,200,000. In June
1992, the Company negotiated a revolving credit agreement with FS
Signal providing for a credit facility of $5,000,000. The full
amount of the available facility was borrowed in June 1992. In
July 1992, the Company and FS Signal amended the revolving credit
agreement to increase the facility from $5,000,000 to
$10,000,000. Borrowings under the facility were increased
concurrently to $10,000,000. Additional funds of $7,500,000 were
borrowed from FS Signal during the first quarter of 1993 under
terms essentially identical to the terms of the revolving credit
agreement referred to above.
On August 13, 1993, the Company entered into a restructuring
agreement (the "Restructuring Agreement") with FS Signal and
Walsh Greenwood to facilitate additional equity investment in the
Company and to exchange shares of two newly-created series of
Preferred Stock for outstanding revolving and subordinated debt
held by such shareholders. The Company exchanged all outstanding
debt, related accrued interest, and unpaid fees owed to these
related parties for Preferred Stock at the rate of $100,000 per
share. The revolving credit facility of $17,500,000 with FS
Signal, together with accrued interest of approximately $158,700,
was converted into 176.587 shares of the Company's newly-created
Series A Preferred Stock. FS Signal received 130.334 shares of
newly-created Series B Preferred Stock in exchange for
subordinated debt of $12,700,000 plus accrued interest of
approximately $333,400. The subordinated debt of $7,500,000 and
related accrued interest of approximately $196,900 with Walsh
Greenwood was converted into 76.969 shares of Series B Preferred
Stock. The Company owed additional amounts to Walsh Greenwood in
the aggregate amount of $1,037,500. In exchange for the
cancellation of these fees, Walsh Greenwood received 10.375
shares of Series B Preferred Stock. In July and August 1993, the
Company received a total of $5,000,000 in additional funding from
FS Signal. The Company issued 50.5 shares of Series A Preferred
Stock for this additional funding which also included accrued
interest of $50,000. In October and November 1993, FS Signal
made an additional equity investment in the Company of
$10,000,000 for which they received 100 shares of Series A
Preferred Stock. These investments were used to fund the
Company's operating losses and working capital needs. (See Note
5 for discussion of warrants issued in conjunction with these
transactions.)
On February 9, 1994, the Company exchanged 70 shares of its
Series C Preferred Stock for the collateral of $7,000,000 pledged
to the senior lender by Walsh Greenwood. The proceeds from this
exchange were used to reduce the outstanding revolving advance
account with the senior lender.
Effective March 31, 1994, the Company signed a promissory note
for $3,000,000 with a related party, FS Signal Associates I. The
promissory note is due on April 30, 1997, subject to the terms of
the subordination agreement with the Company's senior lender.
Interest is payable at maturity at the prime rate, as defined,
plus 3%. (See Note 5 for discussion of warrants issued in
conjunction with this transaction.)
Subsequent to December 31, 1994, the Company negotiated a Senior
Secured Subordinated Note (the "Note") with a face amount of
$19,175,000, with net proceeds of $15,000,000 through Walsh
Greenwood and affiliates. (The consideration received represents
78.24% of the face amount, creating a total rate of 25%.) Interest
is at a fixed rate of 15% on the face amount. Interest from the
date of issuance will not be due until December 31, 1995, and
thereafter, interest is payable quarterly. The Company may draw
down funds as needed in increments of $1,000,000 up to $15,000,000.
Funds prepaid cannot be redrawn. To date, the Company has drawn
down $7,000,000 under this Note. The Note matures in three years
at the $19,175,000 face amount. The discount on the note will be
amortized to interest expense over the maturity period. The Note
may be prepaid in whole or in part at any time. The Note is secured
by a security interest immediately after the security interest of
the Company's senior lender and a first lien on any acquisition.
The funds received from the Note may only be used for working
capital requirements and may not be used to repay any principal
on bank debt. The funds may also be used for acquisitions.
There is no loan generation fee. The Note requires, among other
things, a minimum interest coverage ratio and prohibits the
payment of cash dividends to any class of Preferred Stock or
Common Stock.
In conjunction with this Note, the holders will receive warrants
to purchase 1,500,000 shares of Common Stock at an exercise price
of $2.25 per share, expiring in three years. Such warrants will
vest as funds are drawn. Additionally, the holders will receive
a second warrant to purchase 1,500,000 shares with an exercise
price at a 25% discount to the 20 day average trading price in
December 1996. These warrants vest upon commitment of the funds
and are exercisable for three years. The warrants will be
adjusted for dilution caused by the conversion of Preferred
Stock. The issuance of the warrants is subject to shareholder
approval.
The Company has the right, after repayment of this
note and other senior notes of $6,500,000, to redeem the
outstanding Preferred Stock with the Company's Common Stock, such
shares being valued at $8.00 per share for the purpose of
conversion. Such redemption must take place before June 30,
1998.
Interest expense in the Consolidated Statements of Operations
includes interest to related parties of $298,000, $1,557,000, and
$1,999,000 for 1994, 1993 and 1992, respectively.
The Company made cash payments for interest of $2,674,000,
$4,245,000 and $6,122,000 during 1994, 1993 and 1992,
respectively. The aggregate future maturities of long-term debt
for the five years subsequent to December 31, 1994, after giving
consideration to the debt extension in March 1995, and excluding
the discretionary overadvances from bank in the amount of
$10,849,000, are as follows: 1995 - $1,144,000; 1996 -
$7,646,000; 1997 - $22,046,000; 1998 - $929,000; 1999 -
$5,030,000.
5. Capital Stock
On June 22, 1993, the shareholders approved amendments to the
Restated Articles of Incorporation to reclassify all outstanding
shares of Class B Common Stock as Class A Common Stock and to
redesignate the Class A Common Stock as Common Stock.
Accordingly, the differences which had previously existed between
Class A Common Stock and Class B Common Stock as to voting rights
and dividend rights were eliminated.
The Company's amended and restated 1985 stock option plan
provides for the grant of up to 1,160,000 common shares. The
options have a term of 10 years and vest over periods from one to
four years from date of grant. At December 31, 1994, stock
options available for grant totalled 503,000 shares. A summary
of stock option activity is as follows:
Shares Price Range
------ -----------
Outstanding at December 31, 1991 448,000 $4.50 - $10.25
Granted 201,000 $14.75 - $19.13
Exercised (96,000) $4.50 - $10.25
Canceled or Expired (50,000) $18.57 - $19.13
----------
Outstanding at December 31, 1992 503,000 $4.63 - $19.13
Granted 526,500 $7.06 - $7.50
Exercised (2,000) $4.63
Canceled or Expired (529,000) $8.50 - $19.13
----------
Outstanding at December 31, 1993 498,500 $7.06 - $7.50
Granted 150,000 $4.00 - $5.50
Exercised --
Canceled or Expired (165,000) $7.06 - $7.50
----------
Outstanding at December 31, 1994 483,500 $4.00 - $7.06
==========
Under the Restated Articles of Incorporation, the Company has the
authority to issue 1,600,000 shares of Preferred Stock having no
par value, issuable in series, with the designation, powers,
preferences, rights, qualifications and restrictions to be
established by the board of directors. At December 31, 1994, the
Company had authorized 400 shares of Series A Preferred Stock,
250 shares of Series B Preferred Stock, 1,000 shares of Series C
Preferred Stock and 100 shares of Series D Preferred Stock.
The Series A Preferred Stock bears a 15% cumulative, undeclared
dividend, compounded quarterly, and is senior to all other
classes or series of the Company's equity securities in all
regards, including dividends, distributions and redemptions. The
Series B Preferred Stock bears a 12.5% cumulative, undeclared
dividend, compounded quarterly, and is junior to the Company's
Series A Preferred Stock, but senior to all other equity of the
Company in all regards, including dividends, distributions and
redemptions. The Series C Preferred Stock bears a 12.5%
cumulative, undeclared dividend, compounded quarterly; is junior
to the Company's Series A Preferred Stock and is equivalent with
the Company's Series B Preferred Stock, but senior to all other
equity of the Company in all regards, including dividends,
distributions and redemptions. The Series A, B and C Preferred
Stock have a par value of $100,000 per share and a liquidation
preference of $100,000 per share, plus cumulative unpaid
dividends. The Series A, B and C shareholders' voting rights are
limited to certain consent actions as defined in the Preferred
Stock certificates.
The Series D Preferred Stock is junior to all other series of
outstanding Preferred Stock of the Company; bears a cumulative
dividend at an annual rate equal to ten percent (10%) of the
stated value of such stock, compounded quarterly; and is required
to be redeemed by the Company on November 22, 1999 at a
redemption price equal to the stated value per share for such
stock plus accrued and unpaid dividends, subject to the rights of
the holders of the company's other outstanding series of
Preferred Stock which are senior to the Series D Preferred Stock.
At December 31, 1994, there are no shares of the Series B and D
Preferred Stock outstanding.
Pursuant to a license agreement between the Company and an
affiliate of Time Warner, Inc., the Company canceled a warrant
previously issued to an affiliate of Time Warner to purchase
171.173 shares of Common Stock at an exercise price of $12.61 per
share and issued two new warrants to the same affiliate, one to
purchase 193,386 shares of Common Stock at $11.61 per share and
expiring July 22, 2001, and the other to purchase 38,674 shares
of Common Stock at $8.52 per share and expiring April 30, 2003.
Both of these new warrants were exercisble as of the date of
issuance.
In connection with financing provided to the Company by related
parties, the Company issued warrants, effective October 23, 1991,
to purchase shares of Common Stock to Walsh Greenwood
and to FS Signal. Walsh Greenwood received 500,000 warrant
shares, and FS Signal received an aggregate of 650,000 warrant
shares. In March 1992, Walsh Greenwood and FS Signal exercised
these warrants and purchased 1,150,000 shares of Common Stock.
Such purchase resulted in the addition of $13,800,000 to
shareholders' equity, the proceeds of which were used to reduce
the outstanding borrowings from such parties. In connection with
financing provided by related parties in March 1992, the Company
issued supplemental warrants, effective March 28, 1992, to
purchase shares of its Common Stock to Walsh Greenwood and FS
Signal. The Walsh Greenwood warrants were for an aggregate of
675,000 shares and the FS Signal warrants were for an aggregate
of 735,000 shares. These warrants were exercisable at $20.875
per share and were to expire on March 23, 1997. In connection
with financing provided by the revolving credit agreement with FS
Signal in June 1992 (Note 4), the Company issued warrants,
effective June 12, 1992, to purchase up to 375,000 shares of
Common Stock at $18.25 per share, expiring on June 12, 1997. In
connection with an amendment to this agreement in July 1992, the
Company issued additional warrants, effective July 21, 1992, to
purchase up to 375,000 shares of its Common Stock at $16.25 per
share, expiring on July 21, 1997. During the first quarter of
1993, FS Signal amended the revolving credit agreement and
provided additional funding to the Company. In conjunction with
this funding, the Company issued warrants, effective February 3,
1993, to purchase up to 375,000 shares at an exercise price of
$12.00 per share, and effective March 1, 1993, to purchase up to
187,500 shares at $11.25 per share. These warrants were to
expire on February 3, 1998 and March 1, 1998, respectively.
Effective August 13, 1993, the Company, FS Signal and Walsh
Greenwood entered into a Restructuring Agreement pursuant to
which the subordinated debt outstanding under the credit
agreements was canceled and extinguished, the subordinated debt
outstanding under the revolving credit agreement was canceled and
extinguished, the fees owed to Walsh Greenwood were canceled and
extinguished and the outstanding warrants issued in connection
with all such subordinated debt were canceled. In consideration
of the cancellation of the subordinated debt under the credit
agreements, the revolving credit agreement and the unpaid fees,
the Company issued shares of Preferred Stock at the rate of one
share of Series A Preferred Stock per $100,000 principal amount
of debt extinguished under the revolving credit facility and one
share of Series B Preferred Stock per $100,000 principal amount
of debt extinguished under the credit agreements, together with
fractional shares of such stock in consideration of accrued
interest which was extinguished. This resulted in the issuance
of an aggregate of 176.587 shares of Series A Preferred Stock and
217.678 shares of Series B Preferred Stock. As an inducement to
Walsh Greenwood and FS Signal to enter into the Restructuring
Agreement and accept shares of Series A and Series B Preferred
Stock in exchange for all of the subordinated debt described
above, the Company issued warrants to acquire 675,000 shares of
Common Stock at a price of $7.06 per share to Walsh Greenwood and
issued warrants to acquire an aggregate of 2,047,500 shares of
Common Stock at a price of $7.06 per share to FS Signal. The
Company also agreed to make available, by private placement, up
to 200 additional shares of Series A Preferred Stock at a price
of $100,000 per share. As an inducement to purchase such
Preferred Stock, the Company granted FS Signal a warrant to
acquire up to 2,000,000 additional shares of Common Stock at
$7.06 per share, which vests at the rate of 100,000 warrant
shares per $1,000,000 invested in Preferred Stock. As of
December 31, 1994 and 1993, FS Signal had invested an additional
$15,050,000 in the Company in the form of purchases of 150.5
shares of such Series A Preferred Stock, and warrants to acquire
1,500,000 shares of Common Stock had vested.
In February 1994, the Company exchanged 70 shares of the newly
created Series C Preferred Stock for $7,000,000 of collateral
pledged by Walsh Greenwood to the senior lender at the rate of
$100,000 per share. Such exchange resulted in additional
stockholders' equity of $7,000,000, and the proceeds were used to
reduce the outstanding revolving advance account with the senior
lender.
In conjunction with financing provided to the Company in March
1994 (Note 4), the Company issued warrants to FS Signal
Associates I to purchase 300,000 shares of the Company's Common
Stock at an exercise price of $7.06 per share, such warrants
expire on April 30, 1999.
In June 1994, the Company issued 130.334 shares of Series C
Preferred Stock to FS Signal Associates I and 9.375 shares to FS
Signal Associates II, and 77.969 shares of Series C Preferred
Stock to Walsh Greenwood in exchange for 217.678 shares of Series
B Preferred Stock previously issued to these related parties.
In consideration of funding provided by the senior lender to AMW
(Note 4), the Company issued warrants, effective November 18,
1994, to BNY Financial Corporation to purchase 100,000 shares of
Common Stock at $7.06 per share, expiring November 18, 1997.
Pursuant to the engagement of Grisanti, Galef and Goldress, Inc.
as interim manager of the Company in July 1993, the Company
issued warrants, effective August 13, 1993, to purchase up to
200,000 shares of the Company's Common Stock at an exercise price
of $7.06 per share, expiring on September 1, 1998. In October
1994, the Company amended this warrant by decreasing the warrant
shares outstanding to 100,000 and immediately vesting the 50,000
shares not previously vested.
At December 31, 1994, the Company had issued 327.087 shares of
Series A Preferred Stock and 287.678 shares of Series C Preferred
Stock. The Company has accrued cumulative, undeclared dividends
of $6,874,700 ($21,017.96 per share) for Series A Preferred Stock
and $4,850,400 ($16,860.52 per share) for Series C Preferred
Stock. These accrued dividend amounts are included in the
balance of the Series A and C Preferred Stock in the accompanying
financial statements at December 31, 1994.
A summary of warrant activity is as follows:
Shares Price Range
----------- -----------
Outstanding at December 31, 1991 1,321,173 $12.00 - $16.00
Issued 2,160,000 $16.25 - $20.875
Exercised (1,150,000) $12.00 - $16.00
Canceled or Expired --
----------
Outstanding at December 31, 1992 2,331,173 $12.61 - $20.875
Issued 5,485,000 $7.06 - $12.00
Exercised --
Canceled or Expired (2,722,500) $11.25 - $20.875
----------
Outstanding at December 31, 1993 5,093,673 $7.06 - $12.61
Issued 632,060 $7.06 - $11.16
Exercised --
Canceled or Expired (271,173) $7.06 - $12.61
----------
Outstanding at December 31, 1994 5,454,560 $7.06 - $11.16
==========
Warrants to purchase 4,954,560 shares had vested at December 31,
1994. The exercise price per the warrant agreements was $7.06 to
$11.16 per share. The exercise price per the warrant agreements
equaled fair value at the time of grant.
6. Income Taxes
Effective January 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS No. 109"). SFAS No. 109 requires
recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based
on the differences between the financial reporting and income tax
bases using enacted tax rates in effect for the year in which the
differences are expected to reverse. In prior years, the Company
accounted for income taxes using the deferral method in
accordance with Accounting Principles Board Opinion No. 11. The
adoption of SFAS No. 109 did not have any impact on the Company's
financial position or results of operations.
There was no income tax provision or benefit recorded during the
years ended December 31, 1994, 1993 and 1992 due to the losses
sustained by the Company.
Deferred income tax assets and liabilities for 1994 and 1993
reflect the impact of temporary differences between the amount of
assets and liabilities for financial reporting and income tax
reporting purposes. The Company has established a valuation
allowance for the entire amount of the net deferred tax
asset due to the uncertainty regarding the realizability
of these assets. Temporary differences and carryforwards
which give rise to deferred tax assets at December 31, 1994
and 1993 are as follows (in thousands):
1994 1993
---- ----
Deferred tax assets:
Tax loss carryforwards $52,399 $37,800
Inventory reserves 2,253 2,946
Other reserves 1,351 1,255
Multi-employer withdrawal liability 614 728
Other 2,181 716
-------- --------
Total deferred tax assets 58,798 43,445
Valuation allowance (57,605) (42,014)
Deferred tax liabilities:
LIFO to FIFO change (1,193) (1,431)
-------- --------
Net deferred tax asset $ 0 $ 0
======== =========
The Company and its subsidiaries file a consolidated federal
income tax return. At December 31, 1994, the Company had tax
loss carryforwards of $137,900,000 which expire in years 1999
through 2009 if not utilized earlier. At the time Shirt Shed and
AMW were acquired (Note 2), they had tax loss carryforwards of
approximately $17,400,000 and $14,000,000, respectively, which
are included above. These tax loss carryforwards are subject
to annual limitations imposed for the change in ownership (as
defined in Section 382 of the Internal Revenue Code) and
application of the consolidated income tax return rules.
The Company did not pay any income taxes in 1994 and 1993 and
received refunds of $46,000 in 1992.
7. Pension and Retirement Plans
Effective October 1, 1992, Signal terminated a defined benefit
plan for nonsalaried production employees not covered by a
collective bargaining agreement and benefits were distributed to
participants. No plan assets reverted to the Company. Benefits
for employees participating in the plan were based on years of
service during the period of participation. Signal funded the
plan to meet all obligations to participants and to comply with
the minimum funding requirements of the Employee Retirement
Income Security Act of 1974.
A summary of the components of net pension cost for the defined
benefit plan follows:
(Dollars in thousands) 1992
----
Single-employer plan:
Service cost-benefits earned during the period $ 33
Interest cost on projected benefit obligation 67
Actual return on plan assets (25)
Net amortization and deferral (104)
-----
Net pension credit - single-employer plan (29)
Settlement loss 332
-----
Net pension cost $303
=====
The Company sponsors defined contribution plans for employees.
The Company makes contributions to the plans equal to a
percentage of the participants' contributions within certain
limitations. The Company recognized expense related to these
plans of $154,000 in 1994, $261,000 in 1993 and $274,000 in 1992.
The Company's policy is to fund amounts accrued annually.
Certain former employees of Signal participate in a defined
benefit pension plan negotiated with a union (multi-employer
plan) that no longer represents the Company. In 1990, Signal
accrued an estimated withdrawal liability related to the
multiemployer plan of $2,500,000, which was payable in quarterly
installments of approximately $104,000, including interest,
beginning November, 1991.
In December 1993, the Company negotiated a revised payment
schedule with the union, whereby the quarterly payment for August
1993, along with additional accrued interest at 8%, was deferred
until December of 1993 and the quarterly payment for November
1993, along with additional accrued interest at 8%, was deferred
until July 1994. Also, one-half of the quarterly payments for
February 1994, May 1994, August 1994, November 1994 and February
1995, along with additional accrued interest at 6.5%, will be
paid in 15 equal quarterly installments beginning in May 1995.
All remaining future payments are due in accordance with the
original schedule.
At December 31, 1994 and 1993, the total multi-employer
withdrawal liability was $1,613,000 and $1,776,000, respectively.
Of these amounts, the current portion included in accrued
liabilities was $529,000 and $218,000 at December 31, 1994 and
1993, respectively.
8. Commitments and Contingencies
Operating Leases
The Company occupies certain manufacturing facilities, sales and
administrative offices and uses certain equipment under operating
lease arrangements. Rent expense aggregated approximately
$2,205,000 in 1994, $2,137,000 in 1993, and $2,406,000 in 1992.
Approximate future minimum rental commitments for all
noncancelable operating leases as of December 31, 1994 are as
follows (dollars in thousands):
1995 $1,450
1996 630
1997 290
1998 80
------
$2,450
======
Real estate taxes, insurance, and maintenance expense are
generally obligations of the Company.
Royalty and Other Commitments
Pursuant to the terms of various license agreements, the Company
is obligated to pay future minimum royalties of $9,052,000 of
which $397,000 was accrued as of December 31, 1994.
Legal Proceedings
The Company is a party to various legal proceedings incidental to
its business. The ultimate disposition of these matters is not
presently determinable but will not, in the opinion of
management, have a material adverse effect on the Company's
financial condition or results of operations.
9. Related Party Transactions
Walsh Greenwood is a shareholder of the Company and its managing
and general partners are directors of the Company. On
October 29, 1990, the Company entered into a consulting agreement
with Walsh Greenwood pursuant to which Walsh Greenwood agreed to
assist the Company in effectuating the acquisition of Shirt Shed.
This agreement included certain indemnification provisions for
the benefit of Walsh Greenwood. For its services, Walsh
Greenwood was entitled to a fee in the amount of $875,000. Under
the Restructuring Agreement effective August 13, 1993, fees due
Walsh Greenwood were exchanged for Series B Preferred Stock (see
Notes 4 and 5).
The Company acquired Shirt Shed in July, 1991. Prior to the
acquisition, Walsh Greenwood and FS Signal owned a controlling
interest in Shirt Shed. FS Signal is a shareholder of the
Company.
10. Restructuring Costs
During 1993, the Company recorded restructuring costs of
$4,785,000 (or $.53 per share). The restructuring costs
primarily relate to the Company's attempts to reduce the overhead
costs, improve manufacturing efficiencies and eliminate an
unprofitable product line. The restructuring costs include a
$1,700,000 charge for elimination of the Keds Apparel division,
$700,000 for a plant closing in Griffin, Georgia, $1,900,000 for
employee severance and related costs, and $500,000 in other
nonrecurring charges.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not Applicable
PART III
Those portions of the Company's Proxy Statement for its 1994
Annual Meeting of Shareholders described below are incorporated
herein by reference.
Item 10. Directors and Executive Officers of the Registrant
Election of Directors and Executive Officers
Item 11. Executive Compensation
Executive Compensation and Employment Agreements
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Security Ownership of Certain Beneficial Owners and Management
Election of Directors
Item 13. Certain Relationships and Related Transactions
Compensation Committee Interlocks and Insider Participation
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) 1 Financial Statements and Schedules
The financial statements are incorporated by reference under
Part II, Item 8 and are set forth in the Index to Financial
Statements and Schedules found in Part II, Item 8.
(a) 2 Financial Statement Schedules:
Schedule VIII -- Valuation and Qualifying Accounts
All other schedules are omitted as the required
information is inapplicable or the information is
presented in the consolidated financial statements or
related notes.
SIGNAL APPAREL COMPANY, INC.
AND SUBSIDIARIES
<TABLE>
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
<CAPTIONS>
Additions
-----------------
Balance at Charged to Balance
Beginning Costs and at End
of Period Expense Other Deductions of Period
--------- ------- ----- ---------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994
Deducted from asset accounts:
Allowance to reduce inventories
to net realizable value $ 7,886 $ 7,675 $ $ 9,628 $ 5,933
Allowance for doubtful accounts 1,060 710 256(2) 239(1) 1,787
------- ------- ------- ------- -------
$ 8,946 $ 8,385 $ 256 $ 9,867 $ 7,720
======= ======= ======= ======= =======
Year ended December 31, 1993
Deducted from asset accounts:
Allowance to reduce inventories
to net realizable value $ 6,691 $10,082 $ $ 8,887 $ 7,886
Allowance for doubtful accounts 313 1,191 444(1) 1,060
------- ------- ------- ------- -------
$ 7,004 $11,273 $ $ 9,331 $ 8,946
======= ======= ======= ======= =======
Year ended December 31, 1992
Deducted from asset accounts:
Allowance to reduce inventories
to net realizable value $ 1,726 $ 6,691 $ $ 1,726 $ 6,691
Allowance for doubtful accounts 1,003 426 1,116(1) 313
------- ------- ------- ------- -------
$ 2,729 $ 7,117 $ $ 2,842 $ 7,004
======= ======= ======= ======= =======
<FN>
<F1>
(1) Uncollectible accounts written off, net of recoveries.
</FN>
<FN>
<F2>
(2) Represents allowance for doubtful accounts acquired in
acquisition of AMW. Report of Independent Auditors
</F2>
</TABLE>
Shareholders and Board of Directors
Signal Apparel Company, Inc.
We have audited the consolidated statements of operations,
shareholders' equity, and cash flows of Signal Apparel Company,
Inc. and subsidiaries for the year ended December 31, 1992
included in Part II, Item 8. Our audit also included the
financial statement schedule for the year ended December 31,
1992, listed in the Index to Consolidated Financial Statements
and Schedules at Part II, Item 8. These financial statements and
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material aspects, the consolidated
results of operations and cash flows of Signal Apparel Company,
Inc. and subsidiaries for the year ended December 31, 1992, in
conformity with generally accepted accounting principles. Also,
in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information
set forth therein.
\s\Ernst & Young LLP
---------------------
ERNST & YOUNG LLP
Chattanooga, Tennessee
March 29, 1993, except for Note 3,
as to which the date is March 29, 1995
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) 3. Exhibits:
Exhibits (10.48), (10.51), (10.52) and (10.53) listed
below omit certain schedules and exhibits, which are
listed therein. The Registrant hereby agrees to
furnish a copy of any such omitted schedule or exhibit
supplementally upon request of the Commission's Staff.
(2.1) Stock Purchase Agreement dated October 6, 1994,
by and among the Company, Kidd, Kamm Equity Partners,
L.P., MW Holdings, L.P., and the additional parties
listed on the signature pages thereto. Incorporated by
reference to Exhibit 2-1 to current report on Form 8-K
dated November 22, 1994.
(2.2) Amendment, dated November 1, 1994, to Stock
Purchase Agreement dated October 6, 1994. Incorporated
by reference to Exhibit 2-2 to current report on Form
8-K dated November 22, 1994.
(2.3) Amendment No. 2, dated November 21, 1994, to
Stock Purchase Agreement dated October 6, 1994.
Incorporated by reference to Exhibit 2-3 to current
report on Form 8-K dated November 22, 1994.
(3.1) Copy of Restated Articles of Incorporation, as
amended November 28, 1994.
(3.2) Copy of Bylaws as amended March 23, 1992.
Incorporated by reference to Exhibit 3-2 to Form 10-K
for the year ended December 31, 1991.
(4.1) Certificate of the voting powers, designations,
preferences and relative, participating, optional or
other special rights, and qualifications, limitations
or restrictions thereof of the Series A Preferred
Stock. Incorporated by reference to Exhibit 2-1 to
Form 10-Q for the quarter ended September 30, 1993.
(4.2) Certificate of the voting powers, designations,
preferences and relative, participating, optional or
other special rights, and qualifications, limitations
or restriction 3 thereof of the Series B Preferred
Stock. Incorporated by reference to Exhibit 2-2 to
Form 10-Q for the quarter ended September 30, 1993.
(4.3) Certificate of the voting powers, designations,
preferences and relative, participating, optional or
other special rights, and qualifications, limitations
or restrictions thereof of the Series C Preferred Stock
of Signal Apparel Company, Inc. Incorporated by
reference to Exhibit 4-1 to Form 10-Q for the quarter
ended June 30, 1994.
(4.4) Certificate of the voting powers, designations,
preferences and relative, participating, optional or
other special rights, and qualifications, limitations
or restrictions thereof of the Series D Preferred Stock
of Signal Apparel Company, Inc. Incorporated by
reference to Exhibit 4-1 to current report on Form 8-K
dated November 22, 1994.
(10.1) License Agreement, dated June 1, 1992, between
the Company and Joan Vass, Inc. Incorporated by
reference to Exhibit 10-1 to Form 10-K for the year
ended December 31, 1992.
(10.2) Factoring Agreement dated as of May 23, 1991
between the Company and BNY Financial Corporation,
together with BNY Financial Corporation General
Security Agreement, Inventory Security Agreement,
Equipment Security Agreement, and related documents,
all dated as of May 23, 1991 relating to a $60,000,00)
credit facility. Incorporated by reference to Exhibit
10.10 to Form S-4 Registration Statement filed with the
Commission on May 28, 1991.
(10.3) Factoring Agreement dated as of July 25, 1991
between The Shirt Shed, Inc. and BNY Financial
Corporation. Incorporated by reference to Exhibit 10.1
to Current Report on Form 8-K dated July 22, 1991.
(10.4) General Security Agreement, Inventory Security
Agreement Equipment Security Agreement, and related
documents, all dated as of July 25, 1991 between The
Shirt Shed, Inc. and BNY Financial Corporation.
Incorporated by reference to Exhibit 10-10 to Form 10-K
for the year ended December 31, 1991.
(10.5) Promissory Note of Signal Apparel Company, Inc.,
for $5,000,00 dated as of November 12, 1992, and
payable to BNY Financial Corporation and related letter
dated October 15, 1992, canceling the Promissory Note
for $3,500,000 payable to BNY Financial Corporation.
Incorporated by reference to Exhibit 10-8 to Form 10-K
for the year ended December 31, 1992.
(10.6) June 12, 1991 Letter Amendment to Factoring
Agreement dated as of May 23, 1991, between the Company
and BNY Financial Corporation. Incorporated by
reference to Exhibit 10-12 to Form 10-K for the year
ended December 31, 1991.
(10.7) Letter Amendments, dated as of July 22, 1991, to
Factoring Agreements dated as of (i) May 23, 1991,
between the Company and BNY Financial Corporation, and
(ii) July 25, 1991 between The Shirt Shed, Inc. and BNY
Financial Corporation. Incorporated by reference to
Exhibit 10-13 to Form 10-K for the year ended
December 31, 1991.
(10.8) July 25, 1991 Letter Amendments to Factoring
Agreement dated as of July 25, 1991, between The Shirt
Shed, Inc. and BNY Financial Corporation. Incorporated
by reference to Exhibit 10-14 to Form 10-K for the year
ended December 31, 1991.
(10.9) July 25, 1991 Letter Amendments to Factoring
Agreements dated as of (i) May 23, 1991, between the
Company and BNY Financial Corporation, and (ii)
July 25, 1991, between The Shirt Shed, Inc. and BNY
Financial Corporation. Incorporated by reference to
Exhibit 10-15 to Form 10-K for the year ended
December 31, 1991.
(10.10) Letter Amendment dated as of October 23, 1991,
to prior Letter Amendment, dated July 25, 1991, to
factoring Agreements dated (i) May 23, 1991, between
the Company and BNY Financial Corporation, and (ii)
July 25, 1991, between The Shirt Shed, Inc. and BNY
Financial Corporation. Incorporated by reference to
Exhibit 10-16 to Form 10-K for the year ended
December 31, 1991.
(10.11) January 24, 1992 Letter Amendment to Factoring
Agreements dated as of (i) May 23, 1991 between the
Company and BNY Financial Corporation and (ii) July 25,
1991, between The Shirt Shed, Inc. and BNY Financial
Corporation. Incorporated by reference to Exhibit
10-14 to Form 10-K for the year ended December 31,
1992.
(10.12) January 31, 1992 Letter Amendment to Factoring
Agreement dated as of May 23, 1991, between the Company
and BNY Financial Corporation. Incorporated by
reference to Exhibit 10-18 to Form 10-K for the year
ended December 31, 1991.
(10.13) February 21, 1992 Letter Amendments to
Factoring Agreements dated as of (i) May 23, 1991,
between the Company and BNY Financial Corporation, and
(ii) July 25, 1991, between The Shirt Shed, Inc. and
BNY Financial Corporation. Incorporated by reference
to Exhibit 10-19 to Form 10-K for the year ended
December 31, 1991.
(10.14) Guaranty by the Company of obligations of The
Shirt Shed, Inc. to BNY Financial Corporation, dated
July 25, 1991. Incorporated by reference to Exhibit
10-21 to Form 10-K for the year ended December 31,
1991.
(10.15) Guaranty by The Shirt Shed, Inc. of obligations
of the Company to BNY Financial Corporation, dated
July 25, 1991. Incorporated by reference to Exhibit
10-23 to Form 10-K for the year ended December 31,
1992.
(10.16) Execution version (March 27, 1992) of Letter
Amendment dated as of January 24, 1992 to Factoring
Agreements dated as of (i) May 23, 1991, between the
Company and BNY Financial Corporation, and (ii) July
25, 1991, between The Shirt Shed, Inc. and BNY
Financial Corporation. Incorporated by reference to
Exhibit 10-1 to Form 10-Q for the quarter ended
March 31, 1992.
(10.17) March 20, l992 Letter Amendment to Factoring
Agreements dated as of (i) May 23, 1991, between the
Company and BNY Financial Corporation, and (ii)
July 25, 1991, between The Shirt Shed, Inc. and BNY
Financial Corporation. Incorporated by reference to
Exhibit 10-2 to Form 10-Q for the quarter ended
March 31, 1992.
(10.18) March 28, 1992 Letter Amendment to Factoring
Agreements dated as of (i) May 23, 1991, between the
Company and BNY Financial Corporation, and (ii)
July 25, 1991, between the Company and The Shirt Shed,
Inc. Incorporated by reference to Exhibit 10-3 to Form
10-Q for the quarter ended March 31, 1992.
(10.19) July 3l, 1992 Letter concerning Factoring
Agreements dated as of (i) May 23, 1991, between the
Company and BNY Financial Corporation and (ii) July 25,
1991, between The Shirt Shed, Inc. and BNY Financial
Corporation. Incorporated by reference to Exhibit 10-4
to Form 10-Q for the quarter ended September 30, 1992.
(10.20) November 12, 1992 Letter Amendment to Factoring
Agreements dated as of (i) May 23, 1991, between the
Company and BNY Financial Corporation and (ii) July 25,
1991, between The Shirt Shed, Inc. and BNY Financial
Corporation. Incorporated by reference to Exhibit
10-24 to Form 10-K for the year ended December 31,
1992.
(10.21) March 29, 1993 Letter Amendment to Factoring
Agreements dated as of (i) May 23, 1991, between the
Company and BNY Financial Corporation, and (ii)
July 25, 1591, between The Shirt Shed, Inc. and BNY
Financial Corporation. Incorporated by reference to
Exhibit 10-25 to Form 10-K for the year ended
December 31, 1992.
(10.22) March 1, 1993 Letter concerning Factoring
Agreements dated as of (i) May 23, l991, between the
Company and BNY Financial Corporation and (ii) July 25,
1991, between The Shirt Shed, Inc. and BNY Financial
Corporation. Incorporated by reference to Exhibit
10-26 to Form 10-K for the year ended December 31,
1992.
(10.23) May 14, 1993 Letter Amendment to Factoring
Agreements dated as of (i) May 23, 1991, between the
Company and BNY Financial Corporation, and (ii)
July 25, 1991, between The Shirt Shed, Inc. and BNY
Financial Corporation. Incorporated by reference to
Exhibit 10-1 to Form 10-Q for the quarter ended
March 31, 1993.
(10.24) August 12, 1993 Letter Amendment to Factoring
Agreements dated as of (i) May 23, 1991, between the
Company and BNY Financial Corporation, and (ii)
July 25, 1991, between The Shirt Shed, Inc. and BNY
Financial Corporation. Incorporated by reference to
Exhibit 10-5 to Form 10-Q for the quarter ended
June 30, 1993.
(10.25) November 8, 1993 Waiver concerning Factoring
Agreements dated as of (i) May 23, 1991, between the
Company and BNY Financial Corporation, and (ii)
July 25, 1991, between The Shirt Shed, Inc. and BNY
Financial Corporation. Incorporated by reference to
Exhibit 10-7 to Form 10-Q for the quarter ended
September 30, 1993.
(10.26) Letter Amendment dated as of March 31, 1994 to
Factoring Agreements dated as of (i) May 23, 1991,
between the Company and BNY Financial Corporation, and
(ii) July 25, 1991, between The Shirt Shed, Inc. and
BNY Financial Corporation. Incorporated by reference
to Exhibit 10-28 to Form 10-K for the year ended
December 31, 1993.
(10.27) Subordination Agreement, dated March 31, 1994
between the Company, FS Signal Associates I and BNY
Financial Corporation. Incorporated by reference to
Exhibit 10-3 to Form 10-Q for the quarter ended
March 31, 1994.
(10.28) July 14, 1994 Letter Amendment to Factoring
Agreements dated as of (i) May 23, 1991 between the
Company and BNY Financial Corporation and (ii) July 25,
1991, between The Shirt Shed, Inc., and BNY Financial
Corporation. Incorporated by reference to Exhibit 10-2
to Form 10-Q for the quarter ended June 30, 1994.
(10.29) July 29, 1994 Letter Amendment to Factoring
Agreement, dated May 23, 1991 between the Company and
BNY Financial Corporation, and The Shirt Shed, Inc. as
guarantor. Incorporated by reference to Exhibit 10-3
to the Form 10-Q for the quarter ended June 30, 1994.
(10.30) Promissory Note of the Company for $4,157,000
dated July 29, 1994 and payable to BNY Financial
Corporation. Incorporated by reference to Exhibit 10-4
to the Form 10-Q for the quarter ended June 30, 1994.
(10.31) Promissory Note of the Company for $1,480,000
dated July 29, 1994 and payable to BNY Financial
Corporation. Incorporated by reference to Exhibit 10-5
to the Form 10-Q for the quarter ended June 30, 1994.
(10.32) Guaranty by The Shirt Shed, Inc. of the
obligations of the Company to pay a Promissory Note in
the amount of $1,480,000 to BNY Financial Corporation.
Incorporated by reference to Exhibit 10-6 to the Form
10-Q for the quarter ended June 30, 1994.
(10.33) Deed to Secure Debt and Security Agreement
dated July 29, 1994 between the Company and BNY
Financial Corporation. Incorporated by reference to
Exhibit 10-7 to the Form 10-Q for the quarter ended
June 30, 1994.
(10.34) Real Estate Mortgage, Security Agreement,
Assignment of Leases and Rents, and Fixture Filing
dated July 29, 1994 between The Shirt Shed, Inc. and
BNY Financial Corporation. Incorporated by reference to
Exhibit 10-8 to the Form 10-Q for the quarter ended
June 30, 1994.
(10.35) Deed of Trust, Assignment of Leases and
Security Agreement dated July 29, 1994 between the
Company and BNY Financial Corporation. Incorporated by
reference to Exhibit 10-9 to the Form 10-Q for the
quarter ended June 30, 1994.
(10.36) Letter Agreement dated September 1, 1994
between the Company, BNY Financial Corporation, FS
Signal Associates II and WG Trading Co. Incorporated
by reference to Exhibit 10-4 to the Form 10-Q for the
quarter ended September 30, 1994.
(10.37) November 14, 1994 Letter Amendment to Factoring
Agreements dated as of (i) May 23, 1991 between the
Company and BNY Financial Corporation and (ii) July 25,
1991 between The Shirt Shed, Inc. and BNY Financial
Corporation. Incorporated by reference to Exhibit 10-3
to current report on Form 8-K dated November 22, 1994.
(10.38) November 22, 1994 Letter Amendments to
Factoring Agreements dated as of (i) May 23, 1991
between the Company and BNY Financial Corporation and
(ii) July 25, 1991 between The Shirt Shed, Inc. and BNY
Financial Corporation. Incorporated by reference to
Exhibit 10-4 to current report on Form 8-K dated
November 22, 1994.
(10.39) Factoring Agreement dated as of November 22,
1994 between American Marketing Works, Inc. and BNY
Financial Corporation, together with Equipment Security
Agreement, Inventory Security Agreement and Trademark
Assignment of Security related thereto, all dated as of
November 22, 1994 relating to a $14,000,000 credit
facility. Incorporated by reference to Exhibit 10-5 to
current report on Form 8-K dated November 22, 1994.
(10.40) November 22, 1994 Letter Amendment to Factoring
Agreement dated as of November 22, 1994 between
American Marketing Works, Inc. and BNY Financial
Corporation. Incorporated by reference to Exhibit 10-6
to current report on Form 8-K dated November 22, 1994.
(10.41) November 22, 1994 Letter Amendments to
Factoring Agreements dated as of (i) May 23, 1991
between the Company and BNY Financial Corporation; (ii)
July 25, 1991 between The Shirt Shed, Inc. and BNY
Financial Corporation; and (iii) November 22, 1994
between American Marketing Works, Inc. and BNY
Financial Corporation. Incorporated by reference to
Exhibit 10-7 to current report on Form 8-K dated
November 22, 1994.
(10.42) Guaranty by the Company of obligations of
American Marketing Works, Inc. to BNY Financial
Corporation, dated November 22, 1994. Incorporated by
reference to Exhibit 10-8 to current report on Form 8-K
dated November 22, 1994.
(10.43) Guaranty by The Shirt Shed, Inc. of obligations
of American Marketing Works, Inc. to BNY Financial
Corporation, dated November 22, 1994. Incorporated by
reference to Exhibit 10-9 to current report on Form 8-K
dated November 22, 1994.
(10.44) Guaranty by American Marketing Works, Inc. of
obligations of the Company to BNY Financial
Corporation, dated November 22, 1994. Incorporated by
reference to Exhibit 10-10 to current report on Form
8-K dated November 22, 1994.
(10.45) Guaranty by American Marketing Works, Inc. of
obligations of The Shirt Shed, Inc. to BNY Financial
Corporation, dated November 22, 1994. Incorporated by
reference to Exhibit 10-11 to current report on Form
8-K dated November 22, 1994.
(10.46) Pledge Agreement, dated November 22, 1994,
between the Company and BNY Financial Corporation re:
capital stock of The Shirt Shed, Inc. and American
Marketing Works, Inc. Incorporated by reference to
Exhibit 10-12 to current report on Form 8-K dated
November 22, 1994.
(10.47) Warrant Certificate covering 100,000 shares of
Common Stock of the Company, issued to BNY Financial
Corporation in connection with transactions related to
the Company's acquisition of American Marketing Works,
Inc. Incorporated by reference to Exhibit 10-13 to
current report on Form 8-K dated November 22, 1994.
(10.48) Amended and Restated Credit Agreement dated as
of February 16, 1995 among American Marketing Works,
Inc., certain Lenders and Greyrock Capital Group, Inc.
(10.49) Tranche A Note of American Marketing Works,
Inc. for $4,750,000 to Greyrock Capital Group, Inc.
dated February 16, 1993.
(10.50) Tranche B Note of American Marketing Works,
Inc. for $1,750,000 to Greyrock Capital Group, Inc.
dated February 16, 1993.
(10.51) Security Agreement dated February 16, 1993
between American Marketing Works, Inc. and Greyrock
Capital Group, Inc.
(10.52) Guaranty and Security Agreement dated as of
November 22, 1994 between the Company and Greyrock
Capital Group, Inc. guarantying the obligations of
American Marketing Works, Inc. to Greyrock Capital
Group, Inc.
(10.53) Guaranty and Security Agreement dated as of
November 22, 1994 between Shirt Shed and Greyrock
Capital Group, Inc. guaranteeing the obligations of
American Marketing Works, Inc. to Greyrock Capital
Group, Inc.
(10.54) License Agreement between the Company, The
Shirt Shed, Inc. and LCA Entertainment (as agent for DC
Comics, Inc.), dated as of February 1, 1991, regarding
exclusive rights to use certain elements from "BATMAN
II" sequel motion picture, "BATMAN" comic books and
planned "BATMAN" television series in connection with
certain categories of apparel products. Incorporated
by reference to Exhibit 10-4 to Form 10-K for the year
ended December 31, 1991.
(10.55) Warrant Purchase Agreement, dated as of March
1, 1991, between the Company, The Shirt Shed, Inc. and
Licensing Corporation of America. Incorporated by
reference to Exhibit 10-25 to Form 10-K for the year
ended December 31, 1991.
(10.56) Warrant No. 002 issued to Licensing Corporation
of America, covering 193,386 shares of the Company's
Common Stock, dated as of July 27, 1991 and expiring
July 22, 2001. Incorporated by reference to Exhibit
10-1 to the Form 10-Q for the quarter ended
September 30, 1994.
(10.57) Warrant No. 003 issued to Licensing Corporation
of America, covering 38,674 shares of the Company's
Common Stock, dated as of April 30, 1993 and expiring
April 30, 2003. Incorporated by reference to Exhibit
10-2 to the Form 10-Q for the quarter ended
September 30, 1994.
(10.58) Restructuring Agreement, dated as of August 13,
1993 by and among the Company, FS Signal Associates,
and Walsh Greenwood & Co. Incorporated by reference to
Exhibit 10-3 to Form 10-Q for the quarter ended
September 30, 1993.
(10.59) Waiver Letter, dated as of June l2, 1992,
pertaining to Credit Agreement dated as of October 23,
1991, as amended, between the Company and FS Signal
Associates. Incorporated by reference to Exhibit 10-1
to Form 10-Q for the quarter ended September 30, 1992.
(10.60) Waiver Letter, dated as of June l2, 1992,
pertaining to Credit Agreement dated as of October 23,
1991, as amended, between the Company and WG Partners,
L.P. Incorporated by reference to Exhibit 10-2 to Form
10-Q for the quarter ended September 30, 1992.
(10.61) Subordination Agreement, dated as of June 12,
1992, between the Company, FS Signal Associates and BNY
Financial Corporation. Incorporated by reference to
Exhibit 10-3 to Form 10-Q for the quarter ended
September 30, 1992.
(10.62) Subordination Agreement, dated March 30, 1994,
between the Company, FS Signal Associates and BNY
Financial Corporation. Incorporated by reference to
Exhibit 10-47 to Form 10-K for the year ended
December 31, 1993.
(10.63) Promissory Note dated March 31, 1994 between
the Company and FS Signal Associates I. Incorporated by
reference to Exhibit 10-2 to Form 10-Q for the quarter
ended March 31, 1994.
(10.64) Warrant Certificate covering 2,047,500 shares
of Common Stock of the Company, issued to FS Signal
Associates in connection with the Restructuring
Agreement dated as of August 13, 1993. Incorporated by
reference to Exhibit 10-4 to Form 10-Q for the quarter
ended September 30, 1993.
(10.65) Warrant Certificate covering 2,000,000 shares
of Common Stock of the Company, issued to FS Signal
Associates in connection with the Restructuring
Agreement dated as of August 13, 1993. Incorporated by
reference to Exhibit 10-5 to Form 10-Q for the quarter
ended September 30, 1993.
(10.66) Warrant Certificate dated April 1, 1994 to
purchase 300,000 shares of Common Stock of the Company,
issued to FS Signal Associates I in connection with the
promissory note dated March 31, 1994. Incorporated by
reference to Exhibit 10-4 to Form 10-Q for the quarter
ended March 31, 1994.
(10.67) Warrant Certificate covering 675,000 shares of
Common Stock of the Company, issued to Walsh Greenwood
in connection with the Restructuring Agreement dated as
of August 13, 1993. Incorporated by reference to
Exhibit 10-6 to Form 10-Q for the quarter ended
September 30, 1993.
(10.68) License Agreement between the Company and RHC
Licensing Corporation dated June 2, 1992. Incorporated
by reference to Exhibit 10-52 to Form 10-K for the year
ended December 31, 1992.
(10.69) Warrant Certificate covering 200,000 shares of
Common Stock of the Company issued to Grisanti, Galef &
Goldress, Inc. in connection with their engagement.
Incorporated by reference to Exhibit 10-1 to Form 10-Q
for the quarter ended September 30, 1993.
(10.70) Amendment to Warrant Certificate dated October
18, 1994 reducing the shares issuable from 200,000 to
100,000 to Grisanti, Galef & Goldress, Inc.
Incorporated by reference to Exhibit 10-3 to Form 10-Q
for the quarter ended September 30, 1994.
(10.71) Agreement dated June 21, 1994 by and among the
Company, FS Signal Associates I, and Walsh Greenwood &
Co. exchanging all outstanding shares of the Company's
Series B Preferred Stock on a one-per-one basis for
shares of the Company's Series C Preferred Stock.
Incorporated by reference to Exhibit 10-1 to Form 10-Q
for the quarter ended June 30, 1994.
(10.72) Put/Call Agreement dated November 22, 1994,
among the Company, MW Holdings, L.P., Marvin Winkler
and Sherri Winkler. Incorporated by reference to
Exhibit 10-1 to current report on Form 8-K dated
November 22, 1994.
(10.73) Registration Rights Agreement dated
November 22, 1994, between the Company and Kidd, Kamm
Equity Partners, Inc. Incorporated by reference to
Exhibit 10-2 to current report on Form 8-K dated
November 22, 1994.
(10.74) Letter Agreement of employment with Buddy
Pilgrim dated August 4, 1993. Incorporated by reference
to Exhibit 10-5 to Form 10-Q for the quarter ended
March 31, 1994.
(10.75) Letter Agreement of employment with Daniel J.
Cox dated March 4, 1994. Incorporated by reference to
Exhibit 10-6 to Form 10-Q for the quarter ended
March 31, 1994.
(10.76) Amendment to Employment Agreement with Robert
J. Powell dated as of April 1, 1994. Incorporated by
reference to Exhibit 10-7 to Form 10-Q for the quarter
ended March 31, 1994.
(10.77) Amendment to Employment Agreement with Glenn M.
Grandin dated as of April 1, 1994. Incorporated by
reference to Exhibit 10-8 to Form 10-Q for the quarter
ended March 31, 1994.
(21) List of subsidiaries of the Registrant.
(23.1) Consent of Arthur Andersen LLP, Independent
Public Accountants.
(23.2) Consent of Ernst & Young LLP, Independent
Auditors.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
The Company filed two Current Reports on Form 8-K dated
October 6, 1994 and November 22, 1994 to report the
acquisition of all the outstanding stock of American
Marketing Works, Inc. The Company filed Financial
Statements and Pro Forma Financial Information as
amendments to the latter Current Report on Form 8-K.
(d) Report of Independent Auditors on 1992 Financial
Statements
Other financial statement schedules in response to this
portion of Item 14 are included in Part IV, Item 14(a)2
of this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SIGNAL APPAREL COMPANY, INC.
By /s/ Marvin Winkler
------------------------------
Marvin Winkler
Chairman of the Board and
Chief Executive Officer
Date: March 31, 1995
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below or on counterparts
thereof by the following persons on behalf of the registrant in
the capacities and on the dates indicated.
Name Capacity Date
- ---- -------- ----
\s\Marvin Winkler Chairman of the Board March 31, 1995
- --------------------- and Chief Executive --------------
Marvin Winkler Officer
\s\Leon Ruchlamer President March 31, 1995
- --------------------- --------------
Leon Ruchlamer
\s\William H. Watts Executive Vice President March 31, 1995
- --------------------- and Chief Financial --------------
William H. Watts Officer
\s\James V. Elkins Controller March 31, 1995
- --------------------- --------------
James V. Elkins
\s\Jacob I. Feigenbaum Director March 29, 1995
- --------------------- --------------
Jacob I. Feigenbaum
\s\Guido Goldman Director March 28, 1995
- --------------------- --------------
Guido Goldman
\s\Paul R. Greenwood Director March 31, 1995
- --------------------- --------------
Paul R. Greenwood
\s\B. Lance Sauerteig Director March 28, 1995
- --------------------- --------------
B. Lance Sauerteig
\s\Stephen Walsh Director March 31, 1995
- --------------------- --------------
Stephen Walsh
EXHIBIT INDEX
Exhibit No.
per Item 601
of Reg. S-K Description of Exhibit
(3.1) Copy of Restated Articles of
Incorporation, as amended November
28, 1994.
(10.48) Amended and Restated Credit
Agreement dated as of February 16,
1995 among American Marketing
Works, Inc., certain Lenders and
Greyrock Capital Group, Inc.
(10.49) Tranche A Note of American
Marketing Works, Inc. for
$4,750,000 to Greyrock Capital
Group, Inc. dated February 16,
1993.
(10.50) Tranche B Note of American
Marketing Works, Inc. for
$1,750,000 to Greyrock Capital
Group, Inc. dated February 16,
1993.
(10.51) Security Agreement dated February
16, 1993 between American Marketing
Works, Inc. and Greyrock Capital
Group, Inc.
(10.52) Guaranty and Security Agreement
dated as of November 22, 1994
between the Company and Greyrock
Capital Group, Inc. guarantying the
obligations of American Marketing
Works, Inc. to Greyrock Capital
Group, Inc..
(10.53) Guaranty and Security Agreement
dated as of November 22, 1994
between Shirt Shed and Greyrock
Capital Group, Inc. guaranteeing
the obligations of American
Marketing Works, Inc. to Greyrock
Capital Group, Inc.
(21) List of Subsidiaries
(23.1) Consent of Arthur Andersen LLP,
Independent Public Accountants
(23.2) Consent of Ernst & Young LLP,
Independent Auditors.
(27) Financial Data Schedule.
RESTATED ARTICLES OF INCORPORATION
OF
SIGNAL APPAREL COMPANY, INC.
(formerly Wayne-Gossard Corporation)
FIRST: The name of the Corporation is Signal Apparel
Company, Inc.
SECOND: The address of the registered office of the
Corporation in the State of Indiana is 1 North Capitol Avenue in
Indianapolis, Indiana 46204. The name of the registered agent
of the Corporation at such address is The Corporation Trust
Company.
THIRD: The purpose of the corporation is to engage in any
lawful act or activity for which corporations may now or
hereafter be organized under the Business Corporation Law of the
State of Indiana.
FOURTH: The total number of shares of capital stock of all
classifications which the Corporation shall have authority to
issue is Twenty-One Million Six Hundred Thousand (21,600,000)
shares, divided into two classes, as follows: Twenty Million
(20,000,000) shares of Common Stock having a par value of $.01
per share, One Million Six Hundred Thousand (1,600,000) shares of
Preferred Stock having no par value.
A. Authorized and unissued shares of the Common Stock may
be issued from time to time as additional shares of the Common
Stock outstanding at the date of these Restated Articles or, as
provided in Division B, shares of Common Stock or Preferred Stock
may be issued in one or more additional series, all for such
consideration as the Board of Directors may determine. All
shares of any one series shall be of equal rank and identical in
all respects.
B. Authority is hereby expressly granted to the Board of
Directors by the affirmative vote of 75% of the Directors from
time to time to create additional series of Common Stock and
Preferred Stock and, in connection with the creation of each such
series, to fix by the resolution or resolutions providing for the
issuance of shares thereof, the number of shares of such series,
and the designations, powers, preferences and rights and the
qualifications, limitations or restrictions thereof.
FIFTH: The business and affairs of the Corporation shall be
managed by the Board of Directors consisting of not less than 5
nor more than 10 persons. The exact number of Directors within
the limitations specified in the preceding sentence shall be
fixed from time to time by the Board of Directors pursuant to a
resolution adopted by a majority of the entire Board of
Directors. The Directors need not be elected by ballot unless
required by the Bylaws of the Corporation.
Subject to the rights of the holders of any series of
Preferred Stock then outstanding to elect directors pursuant to
any resolution adopted by the Board of Directors pursuant to the
authority granted thereby, newly created directorships resulting
from any increase in the authorized number of directors or any
vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or
other cause shall be filled by a majority vote of the directors
then in office, and any director so chosen shall hold office for
a term expiring at the next annual meeting of stockholders. No
decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
Meetings of the Board of Directors may be conducted through
the use of any means of communication by which all the Directors
participating may simultaneously hear each other during the
meeting, including telephone conference calls. A director
participating in a meeting by such means is deemed to be present
in person at the meeting.
Whenever these Restated Articles require the affirmative
vote 75% of the members of the Board of Directors to take any
action, if 75% of the number of members of the Board of Directors
is not a whole number, then the number of votes required shall be
determined in accordance with the following sentence. If 75% of
the number of members of the Board of Directors is greater than a
whole number but less than such whole number plus .5, then the
number of votes required shall be such whole number. If 75% of
the number of members of the Board of Directors is greater than
or equal to .5 plus such whole number, then the number of
affirmative votes required shall be the next higher whole number.
SIXTH: In furtherance and not in limitation of the powers
conferred by the laws of the State of Indiana, the Board of
Directors is expressly authorized to adopt, amend or repeal the
Bylaws of the Corporation by majority vote.
SEVENTH: Special Meetings of stockholders of the
Corporation may be called upon not less than 10 nor more than 60
days' written notice by the Board of Directors pursuant to a
resolution approved by 75% of the entire Board of Directors.
EIGHTH: Indemnification and Insurance.
(a) Right to Indemnification. Each person who was or is
made a party or threatened to be made a party to or was or is
involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a
director or officer, of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee
or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest
extent authorized by the Indiana Business Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than
said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of his or her heirs, executors and
administrators; provided, however, that, except as provided in
paragraph (b) hereof, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding
(or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation. The right to indemnification
conferred in this Article shall be a contract right and shall
include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final
disposition: provided, however, that, if the Indiana Business
Corporation Law requires, the payment of such expenses incurred
by a director or officer in his or her capacity as a director or
officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including,
without limitation, service to an employee benefit plan) in
advance of the final disposition of a proceeding, shall be made
only upon delivery to the Corporation of an undertaking, by or on
behalf of such director or officer, to repay all amounts so
advanced if it shall ultimately be determined that such director
or officer is not entitled to be indemnified under this Article
or otherwise. The Corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the
Corporation with the same scope and effect as the foregoing
indemnification of directors and officers.
(b) Right of Claimant to Bring Suit. If a claim under
paragraph (a) of this Section is not paid in full by the
Corporation within thirty days after a written claim has been
received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the
unpaid amount of the claim, and if successful in whole or in
part, the claimant shall be entitled to be paid also the expense
of prosecuting such claim. It shall be a defense to any such
action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its
final disposition where the required undertaking, if any is
required, has been tendered to the Corporation) that the claimant
has not met the standards of conduct which make it permissible
under the Indiana Business Corporation Law for the Corporation to
indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set
forth in the Indiana Business Corporation Law, nor an actual
determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that
the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
(c) Non-Exclusivity of Rights. The right to
indemnification and the right to the payment of expenses incurred
in defending a proceeding in advance of its final disposition
conferred in this Section shall not be exclusive of any other
right which any person may have or hereafter acquire under any
statute, provision of the Restated Articles, Bylaws, agreement,
vote of stockholders or disinterested directors or otherwise.
(d) Insurance. The Corporation may maintain insurance, at
its expense, to protect itself and any director, officer,
employee or agent of the Corporation or another corporation,
partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such
expense, liability or loss under the Indiana Business Corporation
Law.
ANNEX 1
- -------
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES AND
RELATIVE , PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF,
OF THE
SERIES A PREFERRED STOCK
OF
SIGNAL APPAREL COMPANY, INC.
_____________________________
[Pursuant to Section 23-1-25-2 of the
Business Corporation Law of the State of Indiana]
___________________________
RESOLVED that, pursuant to authority conferred upon the
Board of Directors by the Restated Articles of Incorporation, the
Board of Directors hereby provides for the issuance of a series
of Non-Convertible Preferred Stock of the Corporation to consist
of
400 shares, and hereby fixes the voting powers, designations,
references and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof,
of the shares of such series, in addition to those set forth in
the Certificate of Incorporation, as follows:
SECTION 1
DESIGNATION AND RANK
1.1. Designation. This certificate authorizes a
single Series of Non-Convertible Preferred Stock designated
"Series A Preferred Stock" (hereinafter called the "Series A
Preferred"). The number of authorized shares constituting the
Series A Preferred is 400. Shares of the Series A Preferred
shall be issued at a stated value of $100,000.00 per share (the
"Stated Value"). The number of authorized shares of the Series A
Preferred shall not be increased.
1.2. Rank. With respect to the payment of dividends
and other distributions with respect to the capital stock of the
Corporation, including the distribution of the assets of the
Corporation upon liquidation, the Series A Preferred shall be
senior to all other series and classes of preferred stock of the
Corporation, whether such series and classes are now existing or
are created in the future, and shall be senior to all other
series and classes of capital stock of the Corporation, whether
such series and classes are now existing or are created in the
future.
SECTION 2
DIVIDEND RIGHTS
2.1. Dividend Rate. From the date of issuance,
dividends shall accrue on each share of Series A Preferred at an
annual rate equal to fifteen percent (15%) multiplied by the
Stated Value, compounded quarterly. The annual rate at which
such dividends shall accrue is hereinafter referred to as the
"Dividend Rate."
2.2. Accrual and Payment. Dividends on each share of
Series A Preferred shall be payable in cash, shall be cumulative
and compounded quarterly and shall accrue from the date of
original issuance of such share, whether or not declared by the
Board of Directors or a committee thereof, and except as
otherwise provided herein, dividends on the Series A Preferred
shall be payable, when and as declared by the Board of Directors
or a committee thereof, on December 31, March 31, June 30 and
September 30 (or, if such day is not a Business Day, on the next
Business Day thereafter) of each year, commencing on September
30, 1993 (each such date being hereinafter referred to as a
"Dividend Payment Date"), to holders of record as they appear on
the books of the Corporation on such record date, not exceeding
60 days preceding the relevant Dividend Payment Date, as may be
determined by the Board of Directors or a committee thereof in
advance of the payment of the particular dividend. Dividends
shall be paid on each Dividend Payment Date with respect to the
quarterly period ending on such Dividend Payment Date. Dividends
in arrears may be declared and paid at any time, without
reference to any regular Dividend Payment Date, to holders of
record on such date, not exceeding 60 days preceding the payment
date thereof, as may be fixed by the Board of Directors or a
committee thereof. Dividends payable on the Series A Preferred
for any period less than a full quarterly period shall be
computed at the Dividend Rate per annum based on a 360-day year
of twelve 30-day months. "Business Day" shall mean any day
excluding Saturday, Sunday and any day which shall be, in the
State of New York, a legal holiday or a day on which banking
institutions are authorized by law to close. In the event that
the Corporation fails to declare and pay full quarterly dividends
on any given Dividend Payment Date, such dividends shall be
compounded as follows: additional dividends, in an amount equal
to the accrued and unpaid dividends on such share of Series A
Preferred multiplied by the Dividend Rate, shall accrue with
respect to each share of Series A Preferred until all accrued and
unpaid dividends shall have been paid. Any reference herein to
accrued dividends shall include the additional dividends payable
with respect to the Series A Preferred pursuant to the preceding
sentence.
2.3. Dividends or Distributions to Junior Stock. So
long as any shares of Series A Preferred are outstanding, no
dividend or distribution shall be declared or paid or set aside
for payment on the common stock of the Corporation or on any
other stock of the Corporation ranking junior to the Series A
Preferred as to dividends, nor shall any common stock or any
other stock of the Corporation ranking junior to the Series A
Preferred be redeemed, purchased or otherwise acquired for any
consideration (or any moneys paid to or made available for a
sinking fund for the redemption of any shares of any such stock)
by the Corporation (except by conversion into or exchange for
shares of common stock or other stock of the Corporation ranking
junior to the Series A Preferred as to dividends) unless, in each
case, full cumulative dividends on all outstanding shares of the
Series A Preferred shall have been declared and paid through and
including the most recent Dividend Payment Date.
SECTION 3
LIQUIDATION RIGHTS
3.1. Preferences of Series A Shares on Winding-up of
the Corporation. In the event of any voluntary or involuntary
liquidation, dissolution, winding-up of affairs of the
Corporation or other similar event, before any distribution is
made upon any class of stock of the Corporation ranking junior to
the Series A Preferred, the holders of shares of Series A
Preferred shall be entitled to be paid, out of the assets of the
Corporation available for distribution to its shareholders, an
amount per share equal to the Stated Value, plus all accrued and
unpaid dividends (the Stated Value plus such accrued and unpaid
dividends constituting the "Liquidated Value"). Neither the
consolidation nor merger of the Corporation with or into any
other corporation or corporations, nor the sale or lease of all
or substantially all of the assets of the Corporation, shall
itself be deemed to be a liquidation, dissolution or winding-up
of the affairs of the Corporation within the meaning of any of
the provisions of this Section 3.
3.2. Pro Rata Distribution. If, upon distribution of
the Corporation's assets in liquidation, dissolution, winding-up
or other similar event, the net assets of the corporation to be
distributed among the holders of shares of Series A Preferred and
any other class or series of stock of the Corporation ranking on
a parity with the Series A Preferred as to distributions upon
liquidation are insufficient to permit payment in full to such
holders of the preferential amounts to which they are entitled,
then the entire net assets of the Corporation shall be
distributed among the holders of shares of Series A Preferred and
such other class or series of stock ratably in proportion to the
full amounts to which they would otherwise be respectively
entitled and such distributions may be made in cash or in
property taken at its fair value (as determined in good faith by
the Board of Directors), or both, at the election of the Board of
Directors.
3.3. Priority. All of the preferential amounts to be
paid to the holders of the Series A Preferred and the holders of
any other class or series of stock of the Corporation ranking on
a parity with the Series A Preferred as to distributions upon
liquidation shall be paid or set apart for payment before the
payment or setting apart for payment of any amount for, or the
distribution of any assets of the Corporation to, the holders of
the common stock of the Corporation and any other class or series
of stock of the Corporation which is junior to the Series A
Preferred as to distributions upon liquidation.
SECTION 4
VOTING RIGHTS
4.1. General. The holders of shares of Series A
Preferred shall have only such voting rights as are expressly set
forth herein or otherwise provided by law.
4.2. Consent for Certain Actions. So long as any of
the shares of the Series A Preferred are outstanding, except
where the vote or written consent of the holders of a greater
number of shares of the Corporation is required by law or by the
Restated Articles of Incorporation, and in addition to any other
vote required by law, without the prior consent of the holders of
two-thirds (2/3) of the outstanding shares of Series A Preferred,
given in person or by proxy, either in writing or at a special
meeting called for that purpose, neither the Corporation nor any
of the Corporation's direct or indirect subsidiaries shall take
any of the following actions:
(a) the amendment or repeal of any provision of, or
the addition of any provision to, the Restated Articles of
Incorporation or By-Laws of the Corporation if such action would
alter or change the preferences, rights, privileges or powers of,
or the restrictions provided for the benefit of, the Series A
Preferred;
(b) the reclassification of any common stock into
shares having any preference or priority as to dividends or the
distribution of assets upon liquidation superior to or on a
parity with any such preference or priority of the Series A
Preferred;
(c) the application of any of its assets (in excess of
one percent (1%) of its net worth on an annual basis) to the
redemption, retirement, purchase or other acquisition directly or
indirectly, through subsidiaries or otherwise, of any shares of
common stock, except for purchases of the Corporation's Common
Stock on the open market or purchases from employees of the
Corporation upon termination of employment or pursuant to any
rights of first refusal held by the Corporation; or
(d) the creation, authorization or issuance, directly
or indirectly, of any equity security having any preference or
priority as to dividends or the distribution of assets upon
liquidation superior to any such preference or priority of the
Series A Preferred.
The holders of the Series A Preferred shall be entitled to notice
of any meeting of the stockholders of the Corporation.
SECTION 5
MISCELLANEOUS
5.1. Heading of Subdivisions. The headings of the
various Sections and subdivisions hereof are for convenience of
reference only and shall not affect the interpretation of any of
the provisions hereof.
5.2. Severability of Provisions. If any right,
preference or limitation of the Series A Preferred set forth in
this resolution (as such resolution may be amended from time to
time) is invalid, unlawful or incapable of being enforced by
reason of any rule of law or public policy, all other rights,
preferences and limitations set forth in this resolution (as so
amended) which can be given effect without the invalid, unlawful
or unenforceable right, preference or limitation shall,
nevertheless, remain in full force and effect, and no right,
preference or limitation herein set forth shall be deemed
dependent upon any other such right, preference or limitation
unless so expressed herein.
ANNEX 2
- -------
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF,
OF THE
SERIES B PREFERRED STOCK
OF
SIGNAL APPAREL COMPANY, INC.
________________________________
[Pursuant to Section 23-1-25-2 of the
Business Corporation Law of the State of Indiana]
________________________________
RESOLVED that, pursuant to authority conferred upon the
Board of Directors by the Restated Articles of Incorporation, the
Board of Directors hereby provides for the issuance of a series
of Junior Non-Convertible Preferred Stock of the Corporation to
consist of 250 shares, and hereby fixes the voting powers,
designations, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or
restrictions thereof, of the shares of such class, as follows:
SECTION 1
DESIGNATION AND RANK
1.1. Designation. This certificate authorizes a
single Series of Non-Convertible Preferred Stock designated
"Series B Preferred Stock" (hereinafter called the "Series B
Preferred"). The number of authorized shares constituting the
Series B Preferred is 250. Shares of the Series B Preferred
shall be issued at a stated value of $100,000.00 per share (the
"Stated Value"). The number of authorized shares of the Series B
Preferred shall not be increased.
1.2. Rank. With respect to the payment of dividends
and other distributions with respect to the capital stock of the
Corporation, including the distribution of the assets of the
Corporation upon liquidation, the Series B Preferred shall be
junior to the Company's Series A Preferred Stock, but senior to
all other series and classes of preferred stock of the
Corporation, whether such series and classes are now existing or
are created in the future, and shall be senior to all other
series and classes of capital stock of the Corporation, whether
such series and classes are now existing or are created in the
future.
SECTION 2
DIVIDEND RIGHTS
2.1. Dividend Rate. From the date of issuance
dividends shall accrue on each share of Series B Preferred at an
annual rate equal to twelve and one-half percent (12.5%)
multiplied by the Stated Value, compounded quarterly. The annual
rate at which such dividends shall accrue is hereinafter referred
to as the "Dividend Rate."
2.2. Accrual and Payment. Dividends on each share of
Series B Preferred shall be payable in cash, shall be cumulative,
compounded quarterly and shall accrue from the date of original
issuance of such share, whether or not declared by the Board of
Directors or a committee thereof, and except as otherwise
provided herein, dividends on the Series B Preferred shall be
payable, when and as declared by the Board of Directors or a
committee thereof, on December 31, March 31, June 30 and
September 30 (or, if such day is not a Business Day, on the next
Business Day thereafter) of each year, commencing on September
30, 1993 (each such date being hereinafter referred to as a
"Dividend Payment Date"), to holders of record as they appear on
the books of the Corporation on such record date, not exceeding
60 days preceding the relevant Dividend Payment Date, as may be
determined by the Board of Directors or a committee thereof in
advance of the payment of the particular dividend. Dividends
shall be paid on each Dividend Payment Date with respect to the
quarterly period ending on such Dividend Payment Date. Dividends
in arrears may be declared and paid at any time, without
reference to any regular Dividend Payment Date, to holders of
record on such date, not exceeding 60 days preceding the payment
date thereof, as may be fixed by the Board of Directors or a
committee thereof. Dividends payable on the Series B Preferred
for any period less than a full quarterly period shall be
computed at the Dividend Rate per annum based on a 360-day year
of twelve 30-day months. "Business Day" shall mean any day
excluding Saturday, Sunday and any day which shall be, in the
State of New York, a legal holiday or a day on which banking
institutions are authorized by law to close. In the event that
the Corporation fails to declare and pay full quarterly dividends
on any given Dividend Payment Date, such dividends shall be
compounded quarterly, as follows: additional dividends, in an
amount equal to the accrued and unpaid dividends on such share of
Series B Preferred multiplied by the Dividend Rate, shall accrue
with respect to each share of Series B Preferred until all
accrued and unpaid dividends shall have been paid. Any reference
herein to accrued dividends shall include the additional
dividends payable with respect to the Series B Preferred pursuant
to the preceding sentence.
2.3. Dividends or Distributions to Junior Stock. So
long as any shares of Series B Preferred are outstanding, no
dividend or distribution shall be declared or paid or set aside
for payment on the common stock of the Corporation or on any
other stock of the Corporation ranking junior to the Series B
Preferred as to dividends, nor shall any common stock or any
other stock of the Corporation ranking junior to the Series B
Preferred be redeemed, purchased or otherwise acquired for any
consideration (or any moneys paid to or made available for a
sinking fund for the redemption of any shares of any such stock)
by the Corporation (except by conversion into or exchange for
shares of common stock or other stock of the Corporation ranking
junior to the Series B Preferred as to dividends) unless, in each
case, full cumulative dividends on all outstanding shares of the
Series B Preferred shall have been declared and paid through and
including the most recent Dividend Payment Date.
SECTION 3
LIQUIDATION RIGHTS
3.1. Preferences of Series B Shares on Winding-up of
the Corporation. In the event of any voluntary or involuntary
liquidation, dissolution, winding-up of affairs of the
Corporation or other similar event, before any distribution is
made upon any class of stock of the Corporation ranking junior to
the Series B Preferred, the holders of shares of Series B
Preferred shall be entitled to be paid, out of the assets of the
Corporation available for distribution to its shareholders, an
amount per share equal to the Stated Value, plus all accrued and
unpaid dividends (the Stated Value plus such accrued and unpaid
dividends constituting the "Liquidation Value"). Neither the
consolidation nor merger of the Corporation with or into any
other corporation or corporations, nor the sale or lease of all
or substantially all of the assets of the Corporation, shall
itself be deemed to be a liquidation, dissolution or winding-up
of the affairs of the Corporation within the meaning of any of
the provisions of this Section 3.
3.2. Pro Rata Distribution. If, upon distribution of
the Corporation's assets in liquidation, dissolution, winding-up
or other similar event, the net assets of the Corporation to be
distributed among the holders of shares of Series B Preferred and
any other class or series of stock of the Corporation ranking on
a parity with the Series B Preferred as to distributions upon
liquidation are insufficient to permit payment in full to such
holders of the preferential amounts to which they are entitled,
then the entire net assets of the Corporation remaining after all
required distributions have been made to holders of shares of
Series A Preferred Stock and of any other class or series of
Stock of the Corporation ranking senior to the Series B Preferred
Stock shall be distributed among the holders of shares of Series
B Preferred and any other class or series of stock ranking on a
parity with the Series B Preferred Stock ratably, in proportion
to the full amounts to which they would otherwise be respectively
entitled and such distributions may be made in cash or in
property taken at its fair value (as determined in good faith by
the Board of Directors), or both, at the election of the Board of
Directors.
3.3. Priority. All of the preferential amounts to be
paid to the holders of the Series B Preferred and the holders of
any other class or series of stock of the Corporation ranking on
a parity with the Series B Preferred as to distributions upon
liquidation shall be paid or set apart for payment before the
payment or setting apart for payment of any amount for, or the
distribution of any assets of the Corporation to, the holders of
the common stock of the Corporation and any other class or series
of stock of the Corporation which is junior to the Series B
Preferred as to distributions upon liquidation.
SECTION 4
VOTING RIGHTS
4.1. General. The holders of shares of Series B
Preferred shall have only such voting rights as are expressly set
forth herein or otherwise provided by law.
4.2. Consent for Certain Actions. So long as any of
the shares of the Series B Preferred are outstanding, except
where the vote or written consent of the holders of a greater
number of shares of the Corporation is required by law or by the
Restated Articles of Incorporation, and in addition to any other
vote required by law, without the prior consent of the holders of
two-thirds (2/3) of the outstanding shares of Series B Preferred,
given in person or by proxy, either in writing or at a special
meeting called for that purpose, neither the Corporation nor any
of the Corporation's direct or indirect subsidiaries shall take
any of the following actions:
(a) the amendment or repeal of any provision of, or
the addition of any provision to, the Restated Articles of
Incorporation or By-Laws of the Corporation if such action would
alter or change the preferences, rights, privileges or powers of,
or the restrictions provided for the benefit of, the Series B
Preferred;
(b) the reclassification of any common stock into
shares having any preference or priority as to dividends or the
distribution of assets upon liquidation superior to or on a
parity with any such preference or priority of the Series B
Preferred;
(c) the application of any of its assets (in excess of
one percent (1%) of its net worth on an annual basis) to the
redemption, retirement, purchase or other acquisition directly or
indirectly, through subsidiaries or otherwise, of any shares of
common stock, except for purchase of the Corporation's Common
Stock on the open market or purchases from employees of the
Corporation upon termination of employment or pursuant to any
rights of first refusal held by the Corporation; or
(d) the creation, authorization of issuance, directly
or indirectly, of any equity security having any preference or
priority as to dividends or the distribution of assets upon
liquidation superior to any such preference or priority of the
Series B Preferred, other than any such creation, authorization
or issuance of shares of the Company's Series A Preferred.
The holders of Series B Preferred shall be entitled to notice of
any meeting of the stockholders of the Corporation.
SECTION 5
MISCELLANEOUS
5.1. Headings of Subdivisions. The headings of the
various Sections and subdivisions hereof are for convenience of
reference only and shall not affect the interpretation of any of
the provisions hereof.
5.2. Severability of Provisions. If any right,
preference or limitation of the Series B Preferred set forth in
this resolution (as such resolution may be amended from time to
time) is invalid, unlawful or incapable of being enforced by
reason of any rule of law or public policy, all other rights,
preferences and limitations set forth in this resolution (as so
amended) which can be given effect without the invalid, unlawful
or unenforceable right, preference or limitation shall,
nevertheless, remain in full force and effect, and no right,
preference or limitation herein set forth shall be deemed
dependent upon any other such right, preference or limitation
unless so expressed herein.
ANNEX 3
- -------
VOTING POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF,
OF THE
SERIES C PREFERRED STOCK
OF
SIGNAL APPAREL COMPANY, INC.
________________________________
SECTION 1
DESIGNATION AND RANK
1.1. Designation. The number of authorized shares
constituting the "Series C Preferred Stock" (hereinafter called
the "Series C Preferred") is 1,000. Shares of the Series C
Preferred shall be issued at a stated value of $100,000.00 per
share (the "Stated Value"). The number of authorized shares of
the Series C Preferred may be increased by the affirmative vote
of 75% of the Board of Directors.
1.2. Rank. With respect to the payment of dividends
and other distributions with respect to the capital stock of the
Corporation, including the distribution of the assets of the
Corporation upon liquidation, the Series C Preferred shall be
junior to the Corporation's Series A Preferred Stock and the
Corporation's Series B Preferred Stock, but senior to all other
series and classes of preferred stock of the Corporation, whether
such series and classes are now existing or are created in the
future, and shall be senior to all other series and classes of
capital stock of the Corporation, whether such series and classes
are now existing or are created in the future.
SECTION 2
DIVIDEND RIGHTS
2.1. Dividend Rate. From the date of issuance
dividends shall accrue on each share of Series C Preferred at an
annual rate equal to twelve and one-half percent (12.5%)
multiplied by the Stated Value, compounded quarterly. The annual
rate at which such dividends shall accrue is hereinafter referred
to as the "Dividend Rate."
2.2. Accrual and Payment. Dividends on each share of
Series C Preferred shall be payable in cash, shall be cumulative,
compounded quarterly and shall accrue from the date of original
issuance of such share, whether or not declared by the Board of
Directors or a committee thereof, and except as otherwise
provided herein, dividends on the Series C Preferred shall be
payable, when and as declared by the Board of Directors or a
committee thereof, on December 31, March 31, June 30 and
September 30 (or, if such day is not a Business Day, on the next
Business Day thereafter) of each year, commencing on June 30,
1994 (each such date being hereinafter referred to as a "Dividend
Payment Date"), to holders of record as they appear on the books
of the Corporation on such record date, not exceeding 60 days
preceding the relevant Dividend Payment Date, as may be
determined by the Board of Directors or a committee thereof in
advance of the payment of the particular dividend. Dividends
shall be paid on each Dividend Payment Date with respect to the
quarterly period ending on such Dividend Payment Date. Dividends
in arrears may be declared and paid at any time, without
reference to any regular Dividend Payment Date, to holders of
record on such date, not exceeding 60 days preceding the payment
date thereof, as may be fixed by the Board of Directors or a
committee thereof. Dividends payable on the Series C Preferred
for any period less than a full quarterly period shall be
computed at the Dividend Rate per annum based on a 360-day year
of twelve 30-day months. "Business Day" shall mean any day
excluding Saturday, Sunday and any day which shall be, in the
State of New York, a legal holiday or a day on which banking
institutions are authorized by law to close. In the event that
the Corporation fails to declare and pay full quarterly dividends
on any given Dividend Payment Date, such dividends shall be
compounded quarterly, as follows: additional dividends, in an
amount equal to the accrued and unpaid dividends on such share of
Series C Preferred multiplied by the Dividend Rate, shall accrue
with respect to each share of Series C Preferred until all
accrued and unpaid dividends shall have been paid. Any reference
herein to accrued dividends shall include the additional
dividends payable with respect to the Series C Preferred pursuant
to the preceding sentence.
2.3. Dividends or Distributions to Junior Stock. So
long as any shares of Series C Preferred are outstanding, no
dividend or distribution shall be declared or paid or set aside
for payment on the common stock of the Corporation or on any
other stock of the Corporation ranking junior to the Series C
Preferred as to dividends, nor shall any Common Stock or any
other stock of the Corporation ranking junior to the Series C
Preferred be redeemed, purchased or otherwise acquired for any
consideration (or any moneys paid to or made available for a
sinking fund for the redemption of any shares of any such stock)
by the Corporation (except by conversion into or exchange for
shares of common stock or other stock of the Corporation ranking
junior to the Series C Preferred as to dividends) unless, in each
case, full cumulative dividends on all outstanding shares of the
Series C Preferred shall have been declared and paid through and
including the most recent Dividend Payment Date.
SECTION 3
LIQUIDATION RIGHTS
3.1. Preferences of Series C Shares on Winding-up of
the Corporation. In the event of any voluntary or involuntary
liquidation, dissolution, winding-up of affairs of the
Corporation or other similar event, before any distribution is
made upon any class of stock of the Corporation ranking junior to
the Series C Preferred, the holders of shares of Series C
Preferred shall be entitled to be paid, out of the assets of the
Corporation available for distribution to its shareholders, an
amount per share equal to the Stated Value, plus all accrued and
unpaid dividends (the Stated Value plus such accrued and unpaid
dividends constituting the "Liquidation Value"). Neither the
consolidation nor merger of the Corporation with or into any
other corporation or corporations, nor the sale or lease of all
or substantially all of the assets of the Corporation, shall
itself be deemed to be a liquidation, dissolution or winding-up
of the affairs of the Corporation within the meaning of any of
the provisions of this Section 3.
3.2. Pro Rata Distribution. If, upon distribution of
the Corporation's assets in liquidation, dissolution, winding-up
or other similar event, the net assets of the Corporation to be
distributed among the holders of shares of Series C Preferred and
any other class or series of stock of the Corporation ranking on
a parity with the Series C Preferred as to distributions upon
liquidation are insufficient to permit payment in full to such
holders of the preferential amounts to which they are entitled,
then the entire net assets of the Corporation remaining after all
required distributions have been made to holders of shares of
Series A Preferred Stock, Series B Preferred Stock and of any
other class or series of Stock of the Corporation ranking senior
to the Series C Preferred shall be distributed among the holders
of shares of Series C Preferred and any other class or series of
stock ranking on a parity with the Series C Preferred ratably, in
proportion to the full amounts to which they would otherwise be
respectively entitled and such distributions may be made in cash
or in property taken at its fair value (as determined in good
faith by the Board of Directors), or both, at the election of the
Board of Directors.
3.3. Priority. All of the preferential amounts to be
paid to the holders of the Series C Preferred and the holders of
any other class or series of stock of the Corporation ranking on
a parity with the Series C Preferred as to distributions upon
liquidation shall be paid or set apart for payment before the
payment or setting apart for payment of any amount for, or the
distribution of any assets of the Corporation to, the holders of
the common stock of the Corporation and any other class or series
of stock of the Corporation which is junior to the Series C
Preferred as to distributions upon liquidation.
SECTION 4
VOTING RIGHTS
4.1. General. The holders of shares of Series C
Preferred shall have only such voting rights as are expressly set
forth herein or otherwise provided by law.
4.2. Consent for Certain Actions. So long as any of
the shares of the Series C Preferred are outstanding, except
where the vote or written consent of the holders of a greater
number of shares of the Corporation is required by law or by the
Restated Articles of Incorporation, and in addition to any other
vote required by law, without the prior consent of the holders of
two-thirds (2/3) of the outstanding shares of Series C Preferred,
given in person or by proxy, either in writing or at a special
meeting called for that purpose, neither the Corporation nor any
of the Corporation's direct or indirect subsidiaries shall take
any of the following actions:
(a) the amendment or repeal of any provision of, or
the addition of any provision to, the Restated Articles of
Incorporation or By-Laws of the Corporation if such action would
alter or change the preferences, rights, privileges or powers of,
or the restrictions provided for the benefit of, the Series C
Preferred;
(b) the reclassification of any common stock into
shares having any preference or priority as to dividends or the
distribution of assets upon liquidation superior to or on a
parity with any such preference or priority of the Series C
Preferred;
(c) the application of any of its assets (in excess of
one percent (1%) of its net worth on an annual basis) to the
redemption, retirement, purchase or other acquisition directly or
indirectly, through subsidiaries or otherwise, of any shares of
common stock, except for purchase of the Corporation's Common
Stock on the open market or purchases from employees of the
Corporation upon termination of employment or pursuant to any
rights of first refusal held by the Corporation; or
(d) the creation, authorization or issuance, directly
or indirectly, of any equity security having any preference or
priority as to dividends or the distribution of assets upon
liquidation superior to any such preference or priority of the
Series C Preferred, other than any such creation, authorization
or issuance of shares of the Corporation's Series A Preferred
Stock or Series B Preferred Stock.
The holders of Series C Preferred shall be entitled to notice of
any meeting of the stockholders of the Corporation.
ANNEX 4
- -------
FORM OF
CERTIFICATE OF THE VOTING POWERS, DESIGNATIONS, PREFERENCES AND
RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF,
OF THE
SERIES D PREFERRED STOCK
OF
SIGNAL APPAREL COMPANY, INC.
______________________________
[Pursuant to Section 23-1-25-2 of the
Business Corporation Law of the State of Indiana]
______________________________
RESOLVED, that, pursuant to authority conferred upon
the Board of Directors by the Restated Articles of Incorporation,
the Board of Directors hereby provides for the issuance of a
series of Redeemable Preferred Stock of the Corporation to
consist of 100 shares, and hereby fixes the voting powers,
designations, preferences and relative, participating, optional
or other special rights, and qualifications, limitation or
restrictions thereof, of the shares of such series, in addition
to those set forth in the Certificate of Incorporation, as
follows:
SECTION 1
DESIGNATION AND RANK
1.1. Designation. This certificate authorizes a
single series of redeemable Preferred Stock designated "Series D
Preferred Stock" (hereinafter called the "Series D Preferred").
The number of authorized shares constituting the Series D
Preferred Stock is 100. Shares of the Series D Preferred shall
be issued at a stated value of $100,000.00 per share (the "Stated
Value"). The number of authorized shares of the Series D
Preferred may be increased by the affirmative vote of 75% of the
Board of Directors.
1.2. Rank. With respect to the payment of dividends
and other distributions with respect to the capital stock of the
Corporation, including the distribution of the assets of the
Corporation upon liquidation, the Series D Preferred shall be
junior to the Corporation's Series A Preferred Stock, the
Corporation's Series B Preferred Stock and the Corporation's
Series C Preferred Stock and senior to all other series and
classes of preferred stock of the Corporation, whether such
series and classes are now existing or are created in the future,
and shall be senior to all other series and classes of capital
stock of the Corporation, whether such series and classes are now
existing or are created in the future.
SECTION 2
DIVIDEND RIGHTS
2.1. Dividend Rate. From the date of issuance,
dividends shall accrue on each share of Series D Preferred at an
annual rate equal to ten percent (10%) multiplied by the Stated
Value, compounded quarterly. The annual rate at which such
dividends shall accrue is hereinafter referred to as the
"Dividend Rate".
2.2. Accrual and Payment. Dividends on each share of
Series D Preferred shall be payable in cash, shall be cumulative,
compounded quarterly and shall accrue from the date of original
issuance of such share, whether or not declared by the Board of
Directors, or a committee thereof, and except as otherwise
provided herein, dividends on the Series D Preferred shall be
payable, when and as declared by the Board of Directors, or a
committee thereof, on December 31, March 31, June 30 and
September 30 (or, if such day is not a Business Day, on the next
Business Day thereafter) of each year, commencing on December 31,
1994 (each such date being hereinafter referred to as a "Dividend
Payment Date"), to holders of record as they appear on the books
of the Corporation on such record date, not exceeding 60 days
preceding the relevant Dividend Payment Date, as may be
determined by the Board of Directors or a committee thereof in
advance of the payment of the particular dividend. Dividends
shall be paid on each Dividend Payment Date with respect to the
quarterly period ending on such Dividend Payment Date. Dividends
in arrears may be declared and paid at any time, without
reference to any regular Dividend Payment Date, to holders of
record on such date, not exceeding 60 days preceding the payment
date thereof, as may be fixed by the Board of Directors or a
committee thereof. Dividends payable on the Series D Preferred
for any period less than a full quarterly period shall be
computed at the Dividend Rate per annum based on a 360-day year
of twelve 30-day months. "Business Day" shall mean any day
excluding Saturday, Sunday and any day which shall be, in the
State of New York, a legal holiday or a day on which banking
institutions are authorized by law to close. In the Event that
the Corporation fails to declare and pay full quarterly dividends
on any given Dividend Payment Date, such dividends shall be
compounded quarterly, as follows: additional dividends, in an
amount equal to the accrued and unpaid dividends on such share of
Series D Preferred multiplied by the Dividend Rate, shall accrue
with respect to each share of Series D Preferred until all
accrued and unpaid dividends shall have been paid. Any reference
herein to accrued dividends shall include the additional
dividends payable with respect to the Series D Preferred pursuant
to the preceding sentence.
2.3. Dividends or Distributions to Junior Stock. So
long as any shares of Series D Preferred are outstanding, no
dividend or distribution shall be declared or paid or set aside
for payment on the common stock of the Corporation or on any
other stock of the Corporation ranking junior to the Series D
Preferred as to dividends, nor shall any Common Stock or any
other stock of the Corporation ranking junior to the Series D
Preferred be redeemed, purchased or otherwise acquired for any
consideration (or any moneys paid to or made available for a
sinking fund for the redemption of any shares of any such stock)
by the Corporation (except by conversion into or exchange for
shares of common stock or other stock of the Corporation ranking
junior to the Series D Preferred as to dividends) unless, in each
case, full cumulative dividends on all outstanding shares of the
Series D Preferred shall have been declared and paid through and
including the most recent Dividend Payment Date.
SECTION 3
LIQUIDATION RIGHTS
3.1. Preferences of Series D Shares on Winding-up of
the Corporation. In the event of any voluntary or involuntary
liquidation, dissolution, winding-up of affairs of the
Corporation or other similar event, before any distribution is
made upon any class of stock of the Corporation ranking junior to
the Series D Preferred, the holders of shares of Series D
Preferred shall be entitled to be paid, out of the assets of the
Corporation available for distribution to its shareholders, an
amount per share equal to the Stated Value, plus all accrued and
unpaid dividends (the Stated Value plus such accrued and unpaid
dividends constituting the "Liquidation Value"). Neither the
consolidation nor merger of the Corporation with or into any
other corporation or corporations, nor the sale or lease of all
or substantially all of the assets of the Corporation, shall
itself be deemed to be a liquidation, dissolution or winding-up
of the affairs of the Corporation within the meaning of any of
the provisions of this Section 3.
3.2. Pro Rata Distribution. If, upon distribution of
the Corporation's assets in liquidation, dissolution, winding-up
or other similar event, the net assets of the Corporation to be
distributed among the holders of shares of Series D Preferred and
any other class or series of stock of the Corporation ranking on
a parity with the Series D Preferred as to distributions upon
liquidation are insufficient to permit payment in full to such
holders of the preferential amounts to which they are entitled,
then the entire net assets of the Corporation remaining after all
required distributions have been made to holders of shares of
Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and of any other class or series of stock of the
Corporation ranking senior to the Series D Preferred shall be
distributed among the holders of shares of Series D Preferred and
any other class or series of stock ranking on a parity with the
Series D Preferred ratably, in proportion to the full amounts to
which they would otherwise be respectively entitled and such
distributions may be made in cash or in property taken at its
fair value (as determined in good faith by the Board of
Directors), or both, at the election of the Board of Directors.
3.3. Priority. All of the preferential amounts to be
paid to the holders of the Series D Preferred and the holders of
any other class or series of stock of the Corporation ranking on
a parity with the Series D Preferred as to distributions upon
liquidation shall be paid or set apart for payment before the
payment or setting apart for payment of any amount for, or the
distribution of any assets of the Corporation to, the holders of
the common stock of the Corporation and any other class or series
of stock of the Corporation which is junior to the Series D
Preferred as to distributions upon liquidation.
SECTION 4
VOTING RIGHTS
4.1. General. The holders of shares of Series D
Preferred shall have only such voting rights as are expressly set
forth herein or otherwise provided by law.
4.2. Consent for Certain Actions. So long as any of
the shares of the Series D Preferred are outstanding, except
where the vote or written consent of the holders of a greater
number of shares of the Corporation is required by law or by the
Restated Articles of Incorporation, and in addition to any other
vote required by law, without the prior consent of the holders of
two-thirds (2/3) of the outstanding shares of Series D Preferred,
given in person or by proxy, either in writing or at a special
meeting called for that purpose, neither the Corporation nor any
of the Corporation's direct or indirect subsidiaries shall take
any of the following actions:
(a) the amendment or repeal of any provision of, or the
addition of any provision to, the Restated Articles of
Incorporation or By-Laws of the Corporation if such action would
alter or change the preferences, rights, privileges or powers of,
or the restrictions provided for the benefit of, the Series D
Preferred;
(b) the reclassification of any common stock into shares
having any preference or priority as to dividends or the
distribution of assets upon liquidation superior to or on a
parity with any such preference or priority of the Series D
Preferred;
(c) the application of any of its assets (in excess of one
percent (1%) of its net worth on an annual basis) to the
redemption, retirement, purchase or other acquisition directly or
indirectly, through subsidiaries or otherwise, of any shares of
common stock, except for purchase of the Corporation's Common
Stock on the open market or purchases from employees of the
Corporation upon termination of employment or pursuant to any
rights of first refusal held by the Corporation; or
(d) the creation, authorization or issuance, directly or
indirectly, of any equity security having any preference or
priority as to dividends or the distribution of assets upon
liquidation superior to any such preference or priority of the
Series D Preferred, other than any such creation, authorization
or issuance of shares of the Corporation's Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock.
The holders of Series D Preferred shall be entitled to notice of
any meeting of the stockholders of the Corporation.
SECTION 5
REDEMPTION RIGHTS
5.1. Mandatory Redemption. Each outstanding share of
Series D Preferred shall be redeemed by the Corporation on the
date which is the fifth-year anniversary of the Closing Date (as
such term is defined in that certain Put/Call Agreement, dated
November 14, 1994, by and among the Corporation, MW Holdings,
L.P., Marvin Winkler and Sherri Winkler) (the "Redemption Date"),
at a redemption price equal to the Stated Value per share,
together with accrued and unpaid dividends thereon to the date
fixed for redemption, without interest (the "Redemption Price"),
to the extent the Corporation shall have funds legally available
for such payment and subject to the rights of the holders of the
Corporation's Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock.
5.2. Status of Purchased or Redeemed Series D
Preferred. Shares of Series D Preferred which have been issued
and reacquired in any manner, including shares purchased or
redeemed, shall (upon compliance with any applicable provisions
of the laws of the State of Indiana) have the status of
authorized and unissued shares of the class of Preferred Stock
undesignated as to series and may be redesignated and reissued as
part of any series of the Preferred Stock; provided, however,
that no such issued and reacquired shares of Series D Preferred
shall be reissued or sold as Series D Preferred.
5.3. Procedure for Redemption. The Corporation shall
give notice of redemption of the Series D Preferred by first
class mail, postage prepaid, mailed not less than 30 days nor
more than 60 days prior to the Redemption Date, to each holder of
record of the outstanding Series D Preferred at such holder's
address as they appear on the books of the Corporation on such
record date. Each such notice shall state: (a) the Redemption
Date; (b) the number of shares of Series D Preferred to be
redeemed; (c) the Redemption Price; (d) the place or places where
certificates for such shares are to be surrendered for payment of
the Redemption Price; and (e) that dividends on the Series D
Preferred shares to be redeemed will cease to accrue on such
Redemption Date. Notice having been mailed as aforesaid, from
and after the Redemption Date (unless default shall be made by
the Corporation in providing money for the payment of the
Redemption price of the Series D Preferred shares called for
redemption) dividends on the shares of Series D Preferred so
called for redemption shall cease to accrue, and said shares
shall no longer be deemed to be outstanding and shall have the
status of authorized but unissued shares of Preferred Stock,
unclassified as to series, and shall not be reissued as shares of
Series D Preferred, and all rights of the holders thereof as
holders of the Series D Preferred (except the right to receive
from the Corporation the Redemption Price) shall cease. Upon
surrender in accordance with said notice of the certificates for
any shares of Series D Preferred so redeemed (properly endorsed
or assigned for transfer, if the Board of Directors of the
Corporation shall so require and the notice shall so state), such
shares shall be redeemed by the Corporation at the Redemption
Price.
SECTION 6
MISCELLANEOUS
6.1. Headings of Subdivisions. The headings of the
various Sections and subdivisions hereof are for convenience of
reference only and shall not affect the interpretation of any of
the provisions hereof.
6.2. Severability of Provisions. If any right,
preference or limitation of the Series D Preferred set forth in
this resolution (as such resolution may be amended from time to
time) is invalid, unlawful or incapable of being enforced by
reason of any rule of law or public policy, all other rights,
preferences and limitations set forth in this resolution (as so
amended) which can be given effect without the invalid, unlawful
or unenforceable right, preference or limitation shall,
nevertheless, remain in full force and effect, and no right,
preference or limitation herein set forth shall be deemed
dependent upon any other such right, preference or limitation
unless so expressed herein.
EXHIBIT 10.48
AMENDED AND RESTATED
CREDIT AGREEMENT
dated as of February 16, 1993
among
AMERICAN MARKETING WORKS, INC.
THE LENDERS REFERRED TO HEREIN
and
GREYROCK CAPITAL GROUP INC.
as Agent
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. . . . . . . . . . . . . 1
SECTION 1.02. Accounting Terms and Determinations. . . . . . 10
SECTION 1.03. Other Definitional Provisions. . . . . . . . . 10
ARTICLE II
TRANCHE A LOANS
SECTION 2.01. Tranche A Loans. . . . . . . . . . . . . . . . 11
SECTION 2.02. Tranche A Notes. . . . . . . . . . . . . . . . 11
SECTION 2.03. Interest on the Tranche A Loans. . . . . . . . 11
SECTION 2.04. Repayments and Prepayments of
Tranche A Notes. . . . . . . . . . . . . . . 11
ARTICLE III
TRANCHE B LOANS
SECTION 3.01. Tranche B Loans. . . . . . . . . . . . . . . . 12
SECTION 3.02. Tranche B Notes. . . . . . . . . . . . . . . . 12
SECTION 3.03. Interest on the Tranche B Loans. . . . . . . . 13
SECTION 3.04. Repayments and Prepayments of
Tranche B Notes. . . . . . . . . . . . . . . 13
ARTICLE IV
CONDITIONS TO EFFECTIVENESS
SECTION 4.01. Conditions to Effectiveness. . . . . . . . . . 13
SECTION 4.02. Consequences of Effectiveness;
Transitional Provisions. . . . . . . . . . . 16
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.01. Corporate Existence and Power. . . . . . . . . 16
SECTION 5.02. Corporate and Governmental
Authorization; No Contravention. . . . . . . 17
SECTION 5.03. Binding Effect; Liens of Security
Documents. . . . . . . . . . . . . . . . . . 17
SECTION 5.04. Financial Information. . . . . . . . . . . . . 17
SECTION 5.05. Litigation . . . . . . . . . . . . . . . . . . 18
SECTION 5.06. Ownership of Property, Liens . . . . . . . . . 18
SECTION 5.07. No Default . . . . . . . . . . . . . . . . . . 19
SECTION 5.08. No Burdensome Restrictions . . . . . . . . . . 19
SECTION 5.09. Labor Matters. . . . . . . . . . . . . . . . . 19
SECTION 5.10. Subsidiaries; Other Equity
Investments. . . . . . . . . . . . . . . . . 19
SECTION 5.11. Investment Company Act . . . . . . . . . . . . 20
SECTION 5.12. Margin Regulations . . . . . . . . . . . . . . 20
SECTION 5.13. Taxes. . . . . . . . . . . . . . . . . . . . . 20
SECTION 5.14. Compliance with ERISA. . . . . . . . . . . . . 20
SECTION 5.15. Related Transactions . . . . . . . . . . . . . 21
SECTION 5.16. Employment, Shareholders and
Subscription Agreements. . . . . . . . . . . 21
SECTION 5.17. Representations and Warranties
Incorporated from Other Operative
Documents. . . . . . . . . . . . . . . . . . 21
SECTION 5.18. Private Offering . . . . . . . . . . . . . . . 21
SECTION 5.19. Compliance with Environmental
Requirements; No Hazardous
Materials. . . . . . . . . . . . . . . . . . 22
ARTICLE VI
AFFIRMATIVE COVENANTS
SECTION 6.01. Financial Statements and Other
Reports. . . . . . . . . . . . . . . . . . . 24
SECTION 6.02. Payment of Obligations . . . . . . . . . . . . 28
SECTION 6.03. Conduct of Business and Maintenance
of Existence . . . . . . . . . . . . . . . . 28
SECTION 6.04. Maintenance of Property; Insurance . . . . . . 28
SECTION 6.05. Compliance with Laws . . . . . . . . . . . . . 29
SECTION 6.06. Inspection of Property, Books and
Records. . . . . . . . . . . . . . . . . . . 30
SECTION 6.07. Use of Proceeds. . . . . . . . . . . . . . . . 30
SECTION 6.08. Further Assurances . . . . . . . . . . . . . . 30
SECTION 6.09. Lenders' Meetings. . . . . . . . . . . . . . . 30
SECTION 6.10. Consummation of the Acquisition. . . . . . . . 31
SECTION 6.11. Hazardous Materials; Remediation . . . . . . . 31
SECTION 6.12. Enforcement of Covenants Not to
Compete. . . . . . . . . . . . . . . . . . . 32
SECTION 6.13. Landlord and Warehouseman Waivers. . . . . . . 32
ARTICLE VII
NEGATIVE COVENANTS
SECTION 7.01. Debt . . . . . . . . . . . . . . . . . . . . . 32
SECTION 7.02. Negative Pledge. . . . . . . . . . . . . . . . 33
SECTION 7.03. Capital Stock. . . . . . . . . . . . . . . . . 34
SECTION 7.04. ERISA. . . . . . . . . . . . . . . . . . . . . 34
SECTION 7.05. Consolidations, Mergers and Sales of
Assets . . . . . . . . . . . . . . . . . . . 35
SECTION 7.06. Purchase of Assets, Investments. . . . . . . . 35
SECTION 7.07. Transactions with Affiliates . . . . . . . . . 35
SECTION 7.08. Amendments or Waivers. . . . . . . . . . . . . 36
SECTION 7.09. Fiscal Year. . . . . . . . . . . . . . . . . . 36
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01. Events of Default. . . . . . . . . . . . . . . 36
ARTICLE IX
FEES, EXPENSES AND INDEMNITIES;
GENERAL PROVISIONS RELATING TO PAYMENTS
SECTION 9.01. Computation of Interest. . . . . . . . . . . . 40
SECTION 9.02. General Provisions Regarding
Payments . . . . . . . . . . . . . . . . . . 40
SECTION 9.03. Expenses . . . . . . . . . . . . . . . . . . . 41
SECTION 9.04. Indemnity. . . . . . . . . . . . . . . . . . . 41
SECTION 9.05. Taxes. . . . . . . . . . . . . . . . . . . . . 42
SECTION 9.06. Maximum Interest . . . . . . . . . . . . . . . 43
ARTICLE X
THE AGENT
SECTION 10.01. Appointment and Authorization. . . . . . . . . 44
SECTION 10.02. Agent and Affiliates . . . . . . . . . . . . . 44
SECTION 10.03. Action by Agent. . . . . . . . . . . . . . . . 44
SECTION 10.04. Consultation with Experts. . . . . . . . . . . 44
SECTION 10.05. Liability of Agent . . . . . . . . . . . . . . 44
SECTION 10.06 Indemnification. . . . . . . . . . . . . . . . 45
SECTION 10.07. Credit Decision. . . . . . . . . . . . . . . . 45
SECTION 10.08. Successor Agent. . . . . . . . . . . . . . . . 45
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Survival . . . . . . . . . . . . . . . . . . . 46
SECTION 11.02. No Waivers . . . . . . . . . . . . . . . . . . 46
SECTION 11.03. Notices. . . . . . . . . . . . . . . . . . . . 46
SECTION 11.04. Severability . . . . . . . . . . . . . . . . . 46
SECTION 11.05. Amendments and Waivers . . . . . . . . . . . . 47
SECTION 11.06. Successors and Assigns;
Registration . . . . . . . . . . . . . . . . 47
SECTION 11.07. Collateral . . . . . . . . . . . . . . . . . . 50
SECTION 11.08. Headings . . . . . . . . . . . . . . . . . . . 50
SECTION 11.09. Governing Law; Submission to
Jurisdiction . . . . . . . . . . . . . . . . 50
SECTION 11.10. Notice of Breach by Agent or Lender. . . . . . 50
SECTION 11.11. WAIVER OF JURY TRIAL . . . . . . . . . . . . . 51
SECTION 11.12. Counterparts; Integration. . . . . . . . . . . 51
EXHIBIT A - Tranche A Note
EXHIBIT B - Tranche B Note
EXHIBIT C - Opinion of counsel to the Company
EXHIBIT D - Opinion of counsel to the Signal
SCHEDULE 1.01 - Security Documents
SCHEDULE 5.02 - Required Consents and
Defaults
SCHEDULE 5.04 (c) - Financial Information
SCHEDULE 5.05 - Legal Proceedings
SCHEDULE 5.07 - Defaults
SCHEDULE 5.10 - Subsidiaries
SCHEDULE 5.13 - Taxes
SCHEDULE 5.16 - Compensation Arrangements
SCHEDULE 5.19 - Environmental Matters
SCHEDULE 6.04 - Required Insurance
SCHEDULE 7.01 - Outstanding Debt
AMENDED AND RESTATED
CREDIT AGREEMENT
CREDIT AGREEMENT dated as of February 16, 1993
among AMERICAN MARKETING WORKS, INC. (as successor to AMW
Acquisition Corp.), the LENDERS listed on the signature
pages hereof and GREYROCK CAPITAL GROUP INC. (as successor
to U S West Financial Services, Inc.), as Agent.
WHEREAS, the Company, the Lenders and the Agent
are party to a Credit Agreement (as heretofore amended, the
"Original Credit Agreement") dated as of February 16, 1993;
WHEREAS, the parties hereto desire to further
amend the Original Credit Agreement to (i) change the
amortization schedule of the Tranche A Loans and the
maturity date of the Tranche A Loans and Tranche B Loans,
(ii) terminate the Working Capital Commitments and the
Market Opportunity Commitments and provide for the payment
in full of all outstanding Working Capital Loans and (iii)
make a number of other changes therein, all as hereinafter
set forth; and
WHEREAS, in order to set forth in one document,
for the convenience of the parties, the text of the Original
Credit Agreement as heretofore amended and as amended by the
amendments to be made upon the effectiveness hereof, the
Original Credit Agreement as heretofore amended will, upon
satisfaction of the conditions set forth in Section 4.01
hereof, be amended and restated to read in full as set forth
herein;
NOW THEREFORE, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Certain Defined Terms. The
following terms have the following meanings:
"Acquisition" means the acquisition by Signal of
all of the capital stock of the Company and all other
transactions contemplated by the Acquisition Documents to be
consummated on or before the Effective Date.
"Acquisition Documents" means the Stock Purchase
Agreement and all agreements, documents and instruments
executed and delivered pursuant thereto or in connection
therewith.
"Affiliate" means (i) any Person that directly, or
indirectly through one or more intermediaries, controls the
Company (a "Controlling Person") or (ii) any Person (other
than the Company or any of its Subsidiaries) which is
controlled by or is under common control with a Controlling
Person. As used herein, the term "control" of a Person
means the possession, directly or indirectly, of the power
to vote 10% or more of any class of voting securities of
such Person or to direct or cause the direction of the
management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Affiliate Transaction" has the meaning specified
in Section 7.08.
"Agent" means Greyrock Capital in its capacity as
agent for the Lenders hereunder, and its successors in such
capacity.
"Agreement" means the Original Credit Agreement,
as amended by this Amended Agreement and as the same may be
further amended from time to time in accordance with the
terms hereof.
"Amended Agreement" means this Amended and
Restated Credit Agreement dated as of February 16, 1993
among the Company, the Lenders listed in the signature pages
hereof and the Agent.
"Benefit Arrangement" means at any time an
employee benefit plan within the meaning of Section 3(3) of
ERISA which is not a Plan or a Multiemployer Plan and which
is maintained or otherwise contributed to by any member of
the ERISA Group.
"Business Day" means any day except a Saturday,
Sunday or other day on which commercial banks in New York
City are authorized by law to close.
"Capital Lease" of any Person means any lease of
any property (whether real, personal or mixed) by such
Person as lessee which would, in accordance with GAAP, be
required to be accounted for as a capital lease on the
balance sheet of such Person.
"Casualty Insurance Policy" means any insurance
policy maintained by the Company or any of its Subsidiaries
covering losses with respect to tangible real or personal
property or improvements or losses from business
interruption.
"CERCLA" means the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (42 U.S.C.
Sections 9601 et seq.), as amended from time to time, and
regulations promulgated thereunder.
"Class" refers, with respect to Loans, to whether
such Loans are Tranche A Loans or Tranche B Loans and, with
respect to Commitments, to whether such Commitments are
Tranche A Commitments or Tranche B Commitments.
"Code" means the Internal Revenue Code of 1986, as
amended from time to time.
"Collateral" means all property mortgaged, pledged
or otherwise purported to be subjected to a Lien pursuant to
the Security Documents.
"Commitment" means a Tranche A Commitment or
Tranche B Commitment or any combination of the foregoing, as
the context may require.
"Company" means American Marketing Works, Inc., a
Delaware corporation, together with its successors.
"Consolidated Subsidiary" means at any date any
Subsidiary or other entity the accounts of which would be
consolidated with those of the Company in its consolidated
financial statements if such statements were prepared as of
such date.
"Debt" of a Person means at any date, without
duplication, (i) all obligations of such Person for borrowed
money, (ii) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person to pay the deferred purchase
price of property or services, except trade accounts payable
arising in the ordinary course of business, (iv) all Capital
Leases of such Person, (v) all obligations of such Person to
purchase securities (or other property) which arise out of
or in connection with the sale of the same or substantially
similar securities (or property), (vi) all non-contingent
obligations of such Person to reimburse any bank or other
Person in respect of amounts paid under a letter of credit
or similar instrument, (vii) all Debt secured by a Lien on
any asset of such Person, whether or not such Debt is
otherwise an obligation of such Person, and (viii) all Debt
of others Guaranteed by such Person.
"Default" means any condition or event which
constitutes an Event of Default or which with the giving of
notice or lapse of time or both would, unless cured or
waived, become an Event of Default.
"Effective Date" means the date on which this
Amended Agreement becomes effective in accordance with
Section 4.01.
"Environmental Laws" means any and all federal,
state, local and foreign statutes, laws, judicial decisions,
regulations, ordinances, rules, judgments, orders, decrees,
codes, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and governmental
restrictions, whether now or hereafter in effect, relating
to human health, the environment or to emissions, discharges
or releases of pollutants, contaminants, Hazardous Materials
or wastes into the environment, including ambient air,
surface water, ground water or land, or otherwise relating
to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of
pollutants, contaminants, Hazardous Materials or wastes or
the clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income
Security Act of 1974, as amended from time to time, or any
successor statute.
"ERISA Group" means the Company, any Subsidiary
and all members of a controlled group of corporations and
all trades or businesses (whether or not incorporated) under
common control which, together with the Company or any
Subsidiary, are treated as a single employer under Section
414 of the Code.
"Event of Default" has the meaning set forth in
Section 8.01.
"Financing Documents" means this Agreement, the
Notes and the Security Documents.
"First Spring" means FS Signal Associates I, a
general partnership and its successors.
"Fiscal Year" means a fiscal year of the Company.
"GAAP" has the meaning set forth in Section 1.02.
"Greyrock Capital" means Greyrock Capital Group,
Inc., a Delaware corporation, and its successors.
"Guarantee" by any Person means any obligation,
contingent or otherwise, of such Person directly or
indirectly guaranteeing any Debt or other obligation of any
other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or
otherwise, of such Person (i) to purchase or pay (or advance
or supply funds for the purchase or payment of) such Debt or
other obligation (whether arising by virtue of partnership
arrangements, by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to
maintain financial statement conditions or otherwise) or
(ii) entered into for the purpose of assuring in any other
manner the obligee of such Debt or other obligation of the
payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part), provided that the
term Guarantee shall not include endorsements for collection
or deposit in the ordinary course of business. The term
"Guarantee" used as a verb has a corresponding meaning.
"Hazardous Materials" means (i) any "hazardous
substance" as defined in CERCLA; (ii) asbestos; (iii)
polychlorinated biphenyls; (iv) petroleum, its derivatives,
by-products and other hydrocarbons; and (v) any other toxic,
radioactive, caustic or otherwise hazardous substance
regulated under Environmental Laws.
"Hazardous Materials Contamination" means levels
of contamination (whether now existing or hereafter
occurring) of the improvements, buildings, facilities,
personalty, soil, groundwater, air or other elements on or
of the relevant property by Hazardous Materials, or any
derivatives thereof, or on or of any other property as a
result of (i) Hazardous Materials, or any derivatives
thereof, disposed of in connection with the relevant
property or (ii) the migration of Hazardous Materials, or
any derivatives thereof, generated on or emanating from the
relevant property onto such other property .
"Indemnitees" has the meaning set forth in Section
9.05.
"Insurance Account" has the meaning set forth in
the Security Agreement.
"Investment" means any investment in any Person,
whether by means of share purchase, capital contribution,
loan, time deposit or otherwise.
"Key-Man Life Insurance Policy" has the meaning
set forth in Section 6.04(c).
"KKE" means Kidd, Kamm Equity Partners, L.P., a
Delaware limited partnership, and its successors.
"Lender" means Greyrock Capital and each other
Person that becomes a registered holder of a Note pursuant
to Section 11.06, and their respective successors, and
"Lenders" means all of the foregoing.
"Lien" means, with respect to any asset, any
mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, or any other type of preferential
arrangement that has the practical effect of creating a
security interest, in respect of such asset. For the
purposes of this Agreement and the other Financing
Documents, the Company or any Subsidiary shall be deemed to
own subject to a Lien any asset which it has acquired or
holds subject to the interest of a vendor or lessor under
any conditional sale agreement, capital lease or other title
retention agreement relating to such asset.
"Loans" means the Tranche A Loans and the Tranche
B Loans, or any combination of the foregoing, as the context
may require.
"Margin Stock" has the meaning assigned thereto in
Regulation G of the Federal Reserve Board, as the same may
be amended, supplemented or modified from time to time.
"Material Plan" means at any time a Plan having
Unfunded Liabilities.
"Multiemployer Plan" means at any time an employee
pension benefit plan within the meaning of Section
4001(a)(3) of ERISA to which any member of the ERISA Group
is then making or accruing an obligation to make
contributions or has within the preceding five plan years
made contributions, including for these purposes any Person
which ceased to be a member of the ERISA Group during such
five year period.
"MW Holdings" means MW Holdings, L.P., a
California limited partnership.
"Notes" means the Tranche A Notes and the Tranche
B Notes or any combination of the foregoing, as the context
may require.
"Officers' Certificate" means a certificate
executed on behalf of a Person by its chairman of the board
(if an officer), chief executive officer or president or one
of its vice presidents and by its chief financial officer or
treasurer.
"Operative Documents" means the Financing
Documents, the Acquisition Documents and the Working Capital
Facility.
"Original Closing Date" means February 16, 1993.
"Original Credit Agreement" has the meaning
specified in the recitals hereto.
"Payment Account" means, with respect to each
Lender, the account specified on the signature pages hereof
into which all payments from the Company shall be made, or
such other account as such Lender shall from time to time
specify by notice to the Company.
"PBGC" means the Pension Benefit Guaranty
Corporation or any entity succeeding to any or all of its
functions under ERISA.
"Permitted Contest" means a contest maintained in
good faith by appropriate proceedings promptly instituted
and diligently conducted and with respect to which such
reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made;
provided that compliance with the obligation that is the
subject of such contest is effectively stayed during such
challenge.
"Permitted Liens" means Liens permitted pursuant
to Section 7.02.
"Person" means any natural person, corporation,
limited partnership, general partnership, joint stock
company, joint venture, association, company, trust, bank,
trust company, land trust, business trust or other
organization, whether or not a legal entity, and any
government agency or political subdivision thereof.
"Plan" means at any time an employee pension
benefit plan (other than a Multiemployer Plan) which is
covered by Title IV of ERISA or subject to the minimum
funding standards under Section 412 of the Code and either
(i) is maintained, or contributed to, by any member of the
ERISA Group for employees of any member of the ERISA Group
or (ii) has at any time within the preceding five years been
maintained, or contributed to, by any Person which was at
such time a member of the ERISA Group for employees of any
Person which was at such time a member of the ERISA Group.
"RCRA" means the Resource Conservation and
Recovery Act of 1976 (42 U.S.C. Sections 6901 et seq.) as
amended from time to time and regulations promulgated
thereunder.
"Required Lenders" means at any time Lenders
holding Notes evidencing at least 51% of the aggregate
unpaid principal amount of the Loans or, if no Loans are
outstanding, having at least 51% of the aggregate amount of
the Commitments.
"Securities Act" means the Securities Act of 1933,
as amended from time to time, and the rules and regulations
promulgated thereunder.
"Security Agreement" has the meaning set forth on
Schedule 1.01.
"Security Documents" means the documents and
agreements listed on Schedule 1.01 hereto and any other
agreement pursuant to which the Company or any of its
Subsidiaries, Affiliates or stockholders provides a Lien on
its assets in favor of the Agent for the benefit of the
Lenders, and all supplementary assignments, security
agreements, pledge agreements, acknowledgments or other
documents delivered or to be delivered pursuant to the terms
hereof or of any other Security Document.
"Shirt Shed Agreement" has the meaning specified
in Section 1.01.
"Signal" means Signal Apparel Company, Inc., an
Indiana corporation, and its successors.
"Stock Purchase Agreement" means the Stock
Purchase Agreement dated as of October 6, 1994 among
the Company, KKE, MW Holdings, the other shareholders of the
Company named therein and Marvin and Sherri Winkler and
Signal.
"Subsidiary" means any corporation or other entity
of which securities or other ownership interests having
ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are
at the time directly or indirectly owned by the Company.
"Temporary Cash Investment" means any Investment
in (i) direct obligations of the United States or any agency
thereof, or obligations guaranteed by the United States or
any agency thereof, (ii) commercial paper rated at least A-1
by Standard & Poor's Corporation and P-1 by Moody's
Investors Service, Inc., (iii) time deposits with, including
certificates of deposit issued by, any office located in the
United States of any bank or trust company which is
organized under the laws of the United States or any State
thereof and has capital, surplus and undivided profits
aggregating at least $500,000,000 and which issues (or the
parent of which issues) certificates of deposit or
commercial paper with a rating described in clause (ii)
above, or (iv) repurchase agreements with respect to
securities described in clause (i) above entered into with
an office of a bank or trust company meeting the criteria
specified in clause (iii) above, provided in each case that
such Investment matures within one year from the date of
acquisition thereof by the Company or any of its
Subsidiaries.
"Tranche A Commitment" means, for Greyrock Capital
as Lender, an amount equal to $6,500,000.
"Tranche A Loan" has the meaning set forth in
Section 2.01.
"Tranche A Note" has the meaning set forth in
Section 2.02.
"Tranche B Commitment" means, for Greyrock Capital
as Lender, an amount equal to $2,750,000.
"Tranche B Loan" has the meaning set forth in
Section 3.01.
"Tranche B Note" has the meaning set forth in
Section 3.02.
"Unfunded Liabilities" means, with respect to any
Plan at any time, the amount (if any) by which (i) the value
of all benefit liabilities under such Plan, determined on a
plan termination basis using the assumptions prescribed by
the PBGC for purposes of Section 4044 of ERISA, exceeds (ii)
the fair market value of all Plan assets allocable to such
liabilities under the Title IV of ERISA (excluding any
accrued but unpaid contributions), all determined as of the
then most recent valuation date for such Plan, but only to
the extent that such excess represents a potential liability
of a member of the ERISA Group to the PBGC or any other
Person under Title IV of ERISA.
"Working Capital Facility" means (a) the Factoring
Agreement dated as of November __, 1994 between the Company
and BNY Financial Corporation or (b) any successor or
replacement factoring agreement or other type of working
capital facility entered into by the Company, in each case
as amended from time to time.
SECTION 1.02. Accounting Terms and
Determinations. Unless otherwise specified herein, all
accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all
financial statements required to be delivered hereunder
shall be prepared in accordance with generally accepted
accounting principles as in effect from time to time
("GAAP"), applied on a basis consistent (except for changes
concurred in by the Company's independent public
accountants) with the most recent audited consolidated
financial statements of the Company and its Consolidated
Subsidiaries delivered to the Lenders; provided that, if the
Company notifies the Lenders that the Company wishes to
amend any covenant in Article VII or any related definition
to eliminate the effect of any change in GAAP on the
operation of such covenant (or if the Agent notifies the
Company that the Required Lenders wish to amend Article VII
or any related definition for such purpose), then the
Company's compliance with such covenant shall be determined
on the basis of GAAP in effect immediately before the
relevant change in GAAP became effective, until either such
notice is withdrawn or such covenant is amended in a manner
satisfactory to the Company and the Required Lenders.
SECTION 1.03. Other Definitional Provisions.
References in this Agreement to "Articles", "Sections",
"Schedules" or "Exhibits" shall be to Articles, Sections,
Schedules or Exhibits of or to this Agreement unless
otherwise specifically provided. Any of the terms defined
in Section 1.01 may, unless the context otherwise requires,
be used in the singular or plural depending on the
reference. "Include", "includes" and "including" shall be
deemed to be followed by "without limitation" whether or not
they are in fact followed by such words or words of like
import. "Writing", "written" and comparable terms refer to
printing, typing and other means of reproducing words in a
visible form. References to any agreement or contract are
to such agreement or contract as amended, modified or
supplemented from time to time in accordance with the terms
hereof and thereof. References to any Person include the
successors and assigns of such Person. References "from" or
"through" any date mean, unless otherwise specified, "from
and including" or "through and including", respectively.
ARTICLE II
TRANCHE A LOANS
SECTION 2.01. Tranche A Loans. Upon the terms
and subject to the conditions set forth in the Original
Credit Agreement, Greyrock Capital made a senior floating
rate loan to the Company on the Original Closing Date
pursuant to this Section 2.01 in a principal amount equal to
its Tranche A Commitment (such loan, or any portion thereof
assigned to any other Lender in accordance with Section
11.06, being referred to as a "Tranche A Loan"). Subsequent
to the Original Closing Date, the Company repaid the Tranche
A Loans in the aggregate principal amount of $1,500,000 and
as a condition to the effectiveness of this Amended
Agreement the Company shall repay the Tranche A Loans in an
aggregate principal amount of $250,000, leaving a balance of
$4,750,000 outstanding. Tranche A Loans are not revolving
in nature and amounts of such Loans repaid or prepaid may
not be reborrowed.
SECTION 2.02. Tranche A Notes. On the Effective
Date, Greyrock Capital shall exchange the "Tranche A Note"
currently outstanding under the Original Credit Agreement
for a new Tranche A Note complying with the terms of this
Section 2.02. From and after the Effective Date, each
Tranche A Loan shall be evidenced by a Tranche A Note of the
Company substantially in the form of Exhibit A (each such
note, a "Tranche A Note"), dated the Original Closing Date,
in a principal amount equal to the outstanding principal
amount of such Tranche A Loan, duly executed and delivered
by the Company and payable to the Lender of such Tranche A
Loan.
SECTION 2.03. Interest on the Tranche A Loans.
Each Tranche A Loan shall bear interest on its principal
amount outstanding from the Original Closing Date at the
rate determined as set forth in the Tranche A Note in
respect thereof. On the Effective Date, the Company shall
pay all unpaid interest that has accrued on the Tranche A
Notes to (but excluding) the Effective Date. From and after
the Effective Date, interest shall be payable monthly in
arrears, commencing December 1, 1994, as set forth in the
Tranche A Note.
SECTION 2.04. Repayments and Prepayments of
Tranche A Notes. (a) Maturity. There shall become due
and payable and the Company shall repay on June 30, 1995 (or
if such day is not a Business Day, on the next succeeding
Business Day), the entire outstanding principal amount of
each Tranche A Note, together with accrued and unpaid
interest on the principal amount being repaid to and
including the date of payment.
(b) Optional Prepayments. The Company may prepay
the Tranche A Notes in whole or in part (in principal
amounts of $100,000 or in any integral multiple of $10,000
in excess thereof) at any time, upon at least 10 days' prior
irrevocable notice to the Lenders (and such amounts
specified in such notice shall become due and payable on the
date so specified), by paying an amount equal to the
aggregate principal amount being prepaid together, in each
case, with accrued and unpaid interest on the principal
amount being prepaid to and including the date of payment.
(c) Application of Payments. Each repayment or
prepayment of less than all the outstanding aggregate
principal amount of the Tranche A Notes shall be applied pro
rata to all the Tranche A Notes according to their
respective outstanding principal amounts.
ARTICLE III
TRANCHE B LOANS
SECTION 3.01. Tranche B Loans. Upon the terms
and subject to the conditions set forth in the Original
Credit Agreement, Greyrock Capital made a floating rate loan
to the Company on the Original Closing Date pursuant to this
Section 3.01 in a principal amount equal to its Tranche B
Commitment (such loan, or any portion thereof assigned to
any other Lender in accordance with Section 13.06, being
referred to as a "Tranche B Loan"). Subsequent to the
Original Closing Date, the Company repaid Tranche B Loans in
the aggregate principal amount of $1,000,000, leaving a
balance of $1,750,000 outstanding. Tranche B Loans are not
revolving in nature and amounts of such Loans repaid or
prepaid may not be reborrowed.
SECTION 3.02. Tranche B Notes. On the Effective
Date, Greyrock Capital shall exchange the "Tranche B Note"
currently outstanding under the Original Credit Agreement
for a new Tranche B Note complying with the terms of this
Section 3.02. From and after the Effective Date, each
Tranche B Loan shall be evidenced by a Tranche B Note of the
Company substantially in the form of Exhibit B (each such
note, a "Tranche B Note"), dated the Original Closing Date,
in a principal amount equal to the outstanding principal
amount of such Tranche B Loan, duly executed and delivered
by the Company and payable to the Lender of such Tranche B
Loan.
SECTION 3.03. Interest on the Tranche B Loans.
Each Tranche B Loan shall bear interest on its principal
amount outstanding from the Original Closing Date at the
rate determined as set forth in the Tranche B Note in
respect thereof. On the Effective Date, the Company shall
pay all unpaid interest that has accrued on the Tranche B
Notes to (but excluding) the Effective Date. From and after
the Effective Date, interest shall be payable monthly in
arrears, commencing December 1, 1994, as set forth in the
Tranche B Notes.
SECTION 3.04. Repayments and Prepayments of
Tranche B Notes. (a) Maturity. There shall become due and
payable and the Company shall repay on June 30, 1995 (or, if
such day is not a Business Day, on the next succeeding
Business Day) the entire outstanding principal amount of
each Tranche B Note, together with accrued and unpaid
interest on the principal amount being repaid to and
including the date of payment.
(b) Optional Prepayments. From and after the
date on which the Company has paid the Tranche A Notes in
full, the Company may prepay the Tranche B Notes in whole or
in part (in principal amounts of $100,000 or in any integral
multiple of $10,000 in excess thereof) at any time, upon at
least 10 days' prior irrevocable notice to the Lenders (and
such amounts specified in such notice shall become due and
payable on the date so specified), by paying an amount equal
to the aggregate principal amount being prepaid together, in
each case, with accrued and unpaid interest on the principal
amount being prepaid to and including the date of payment.
(c) Application of Payments. Each repayment or
prepayment of less than all the outstanding aggregate
principal amount of the Tranche B Notes shall be applied pro
rata to all the Tranche B Notes according to their
respective outstanding principal amounts.
ARTICLE IV
CONDITIONS TO EFFECTIVENESS
SECTION 4.01. Conditions to Effectiveness. This
Amended Agreement shall become effective upon the
satisfaction of the following conditions:
(a) receipt by the Agent of counterparts hereof
signed by each of the parties hereto (or, in the case
of any party as to which an executed counterpart shall
not have been received, receipt by the Agent in form
satisfactory to it of telegraphic, telex or other
written confirmation from such party of execution of a
counterpart hereof by such party);
(b) receipt by Greyrock Capital of a duly
executed Tranche A Note and Tranche B Note in exchange
for the "Tranche A Note" and the "Tranche B Note"
currently outstanding under the Original Credit
Agreement, all in accordance with Section 2.02 and 3.02
hereof;
(c) receipt by the Agent of duly executed
counterparts each Security Document listed on Schedule
1.01 (including Amendment No. 2 to the Security
Agreement), together with evidence satisfactory to it
in its sole good faith discretion of the effectiveness
of the security contemplated thereby;
(d) receipt by Greyrock Capital of evidence
satisfactory to it in its sole good faith discretion of
the satisfaction (without waiver) of all conditions to
the closing of the Acquisition on the Effective Date,
and that all transactions contemplated by the Operative
Documents to be consummated on the closing date of the
Acquisition will take place prior to or simultaneously
with the transactions hereunder contemplated to take
place on the Effective Date, and satisfaction of
Greyrock Capital in its sole good faith discretion with
the terms and conditions of the Acquisition Documents;
(e) receipt by Greyrock Capital of evidence
satisfactory to it in its sole good faith discretion of
the effectiveness of all other Operative Documents,
each of which shall be in form and substance
satisfactory to Greyrock Capital in its sole good faith
discretion;
(f) receipt by Greyrock Capital of (i) payment in
full of the principal of all "Working Capital Loans"
outstanding under the Original Credit Agreement,
together with accrued and unpaid interest thereon to
(but excluding) the Effective Date, (ii) payment in
full of all unpaid interest accrued on the Tranche A
Notes and the Tranche B Notes to (but excluding) the
Effective Date, (iii) payment of $250,000 in aggregate
principal amount of Tranche A Loans and (iv)
reimbursement in full for certain consulting fees paid
by Greyrock Capital in an amount equal to $48,075;
(g) receipt by the Agent of opinions of Weil,
Gotshal & Manges, counsel for the Company,
substantially in the form of Exhibit C, and of counsel
for Signal, substantially in the form of Exhibit D, and
covering such additional matters relating to the
transactions contemplated hereby as Greyrock Capital
may reasonably request (by its execution and delivery
of the Operative Documents to which it is a party, the
Company and Signal authorize and direct such counsel to
deliver such opinions to the Agent);
(h) receipt by Greyrock Capital, including in its
capacity as Agent, of all fees and any other amounts
due and payable hereunder of which the Company has
received notice (including the fees of Davis Polk &
Wardwell, special counsel to the Agent);
(i) receipt by Greyrock Capital of any
information it may request concerning the financial
condition, results of operations, liabilities
(contingent and otherwise, including with respect to
environmental liabilities and employee and retiree
benefits) and prospects of, and the financial reporting
and accounting systems and the management information
systems of, the Company; and confirmation satisfactory
to Greyrock Capital, after consultation with management
of the Company, independent public accountants for the
Company, and any independent environmental consultant
or independent accountant retained by Greyrock Capital,
of all such information; and satisfaction of Greyrock
Capital in its sole good faith discretion with all such
information;
(j) satisfaction of Greyrock Capital in its sole
good faith discretion as to the absence of any material
adverse change in any aspect of the business,
operations, properties, prospects or condition
(financial or otherwise) of the Company or of Signal,
or any event or condition which is reasonably likely to
result in such a material adverse change;
(k) receipt by Greyrock Capital of a certificate
signed by the chief financial officer, controller or
treasurer of the Company to the effect that, after
giving effect to the consummation of the Acquisition
and the other transactions contemplated to take place
on the Effective Date, (i) no Default shall have
occurred and be continuing and (ii) the representations
and warranties of the Company made in or pursuant to
the Operative Documents are true;
(l) receipt by Greyrock Capital of evidence
satisfactory to it in its sole good faith discretion
that all outstanding obligations of the Company under
all factoring agreements with Republic Factors Corp. or
its affiliates have been paid, all commitments
thereunder shall have been terminated and all Liens
created thereunder or in connection therewith shall
have been released; and
(m) receipt by the Agent of all documents it may
reasonably request relating to (i) the existence of the
Company, Signal and the other parties to the Operative
Documents, (ii) the corporate or other authority for
and the validity of the Financing Documents and the
other Operative Documents, and (iii) any other matters
relevant hereto, all in form and substance satisfactory
to the Agent in its sole good faith discretion;
The documents referred to in this Section shall be delivered
to the Agent no later than the Effective Date. The
certificates and opinions referred to in this Section shall
be dated the Effective Date.
Section 4.02. Consequences of Effectiveness;
Transitional Provisions. Upon the effectiveness of this
Amended Agreement:
(a) The Original Credit Agreement will be
automatically amended and restated in its entirety to read
as set forth herein. On and after the Effective Date, the
rights and obligations of the parties hereto shall be
governed by this Amended Agreement; provided that rights and
obligations of the parties to the Original Credit Agreement
with respect to the period prior to the Effective Date shall
continue to be governed by the provisions of the Original
Credit Agreement.
(b) The "Working Capital Commitment" and the
"Market Opportunity Commitment" of each Lender under the
Original Credit Agreement shall automatically terminate.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants that:
SECTION 5.01. Corporate Existence and Power. The
Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of
Delaware, and has all corporate powers and all material
governmental licenses, authorizations, consents and
approvals required to carry on its business as now conducted
and as will be conducted after the Acquisition. The Company
is qualified to do business as a foreign corporation in the
State of California.
SECTION 5.02. Corporate and Governmental
Authorization; No Contravention. Except as described in
Schedule 5.02, the execution, delivery and performance by
the Company of the Operative Documents to which it is a
party are within the Company's corporate powers, have been
duly authorized by all necessary corporate action, require
no action by or in respect of, or filing with, any
governmental body, agency or official and do not contravene,
or constitute a default under, any provision of applicable
law or regulation or of the certificate of incorporation or
by-laws of the Company or of any agreement, judgment,
injunction, order, decree or other instrument binding upon
the Company or any of its Subsidiaries or result in the
creation or imposition of any Lien (other than the Liens
created by the Security Documents) on any asset of the
Company or any of its Subsidiaries.
SECTION 5.03. Binding Effect; Liens of Security
Documents. (a) Each of the Operative Documents to which
the Company is a party (other than the Notes) constitutes a
valid and binding agreement of the Company, and each of the
Notes, when executed and delivered in accordance with this
Agreement, will constitute valid and binding obligations of
the Company.
(b) The Security Documents create valid security
interests in the Collateral purported to be covered thereby,
which security interests are and will remain perfected
security interests, prior to all other Liens other than
Permitted Liens. Each of the representations and warranties
made in the Security Documents is true and correct.
SECTION 5.04. Financial Information.
(a) The audited consolidated balance sheet of the
Company and its Consolidated Subsidiaries as of December 31,
1993 and the related consolidated statements of operations,
stockholders' equity and cash flows for the twelve months
then ended, reported on by Deloitte & Touche LLP, copies of
which have been delivered to each of the Lenders, fairly
present, in conformity with GAAP, the consolidated financial
position of the Company and its Consolidated Subsidiaries as
of such date and their consolidated income, stockholders'
accumulated deficit and cash flows for such period.
(b) The unaudited consolidated balance sheet of
the Company and its Consolidated Subsidiaries as of
September 30, 1994 and the related unaudited consolidated
statement of operations for the nine months then ended,
copies of which have been delivered to each of the Lenders,
fairly present, in conformity with GAAP applied on a basis
consistent with the financial statements referred to in
Section 5.04(a), the consolidated financial position of the
Company and its Consolidated Subsidiaries as of such date
and their consolidated results of operations for the nine
months then ended (subject to normal year-end adjustments).
(c) Except as described in Schedule 5.04(c),
since December 31, 1993, there has been no material adverse
change in the business, operations, properties, prospects or
condition (financial or otherwise) of the Company and its
Consolidated Subsidiaries, taken as a whole.
SECTION 5.05. Litigation. Except as described in
Schedule 5.05, there is no action, suit or proceeding
pending against, or to the knowledge of the Company
threatened against or affecting, the Company or any of its
Subsidiaries before any court or arbitrator or any
governmental body, agency or official in which there is a
reasonable possibility of an adverse decision which could
materially adversely affect the business, consolidated
financial position or consolidated results of operations of
the Company and its Consolidated Subsidiaries or which in
any manner draws into question the validity of any of the
Operative Documents. To the knowledge of the Company, there
is no action, suit or proceeding pending against, or
threatened against or affecting, any party to any of the
Operative Documents (other than the Company) before any
court or arbitrator or any governmental body, agency or
official which in any manner draws into question the
validity of any of the Operative Documents.
SECTION 5.06. Ownership of Property, Liens. On
and as of the Effective Date, after giving effect to the
Acquisition, the Company is the lawful owner of, has good
and marketable title to and is in lawful possession of, or
has valid leasehold interests in, all properties and other
assets (real or personal, tangible, intangible or mixed)
purported to be owned or leased (as the case may be) by the
Company on the balance sheet referred to in Section 5.04(a),
and none of its properties and assets is subject to any
Liens, except Permitted Liens. The Company and its
Subsidiaries conduct their business without infringement or
claim of infringement of any material license, patent,
trademark, trade name, service mark, copyright, trade secret
or other intellectual property right of others and there is
no infringement or claim of infringement by others of any
material license, patent, trademark, trade name, service
mark, copyright, trade secret or other intellectual property
right of the Company or any of its Subsidiaries.
SECTION 5.07. No Default. Except as described in
Schedule 5.07 and after giving effect to the effectiveness
of this Amended Agreement, no Default has occurred and is
continuing and neither the Company nor any of its
Subsidiaries is in default under or with respect to any
material contract, agreement, lease or other instrument to
which it is a party or by which its property is bound or
affected.
SECTION 5.08. No Burdensome Restrictions. No
contract, lease, agreement or other instrument to which the
Company or any of its Subsidiaries is a party or by which
any of its property is bound or affected, no charge,
corporate restriction, judgment, decree or order and no
provision of applicable law or governmental regulation is,
in the reasonable good faith judgment of the management of
the Company, reasonably likely to have a material adverse
effect on the business, operations, properties, prospects or
condition (financial or otherwise) of the Company and its
Consolidated Subsidiaries, taken as a whole.
SECTION 5.09. Labor Matters. There are no
strikes or other labor disputes pending or, to the best
knowledge of the Company, threatened, against the Company or
any of its Subsidiaries. Hours worked and payments made to
the employees of the Company and its Subsidiaries have not
been in violation of the Fair Labor Standards Act or any
other applicable law dealing with such matters. All
payments due from the Company or any of its Subsidiaries, or
for which any claim may be made against any of them, on
account of wages and employee health and welfare insurance
and other benefits have been paid or accrued as a liability
on their books, as the case may be. The consummation of the
transactions contemplated by the Financing Documents and the
other Operative Documents will not give rise to a right of
termination or right of renegotiation on the part of any
union under any collective bargaining agreement to which it
is a party or by which it is bound.
SECTION 5.10. Subsidiaries; Other Equity
Investments. Other than the Subsidiaries listed on Schedule
5.10, the Company has no Subsidiaries on the date hereof.
Other than as set forth in Schedule 5.10, each such
Subsidiary is, and, in the case of any additional corporate
Subsidiaries formed after the Effective Date, each of such
additional corporate Subsidiaries will be at each time that
this representation is made or deemed to be made after the
Effective Date, a wholly-owned Subsidiary that is a
corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of
incorporation, and has all corporate powers and all material
governmental licenses, authorizations, consents and
approvals required to carry on its business as now
conducted. Other than as disclosed in Schedule 5.10,
neither the Company nor any of its Subsidiaries is engaged
in any joint venture or partnership with any other Person.
SECTION 5.11. Investment Company Act. The
Company is not an "investment company" as defined in the
Investment Company Act of 1940, as amended. The
consummation of the transactions contemplated by the
Financing Documents do not and will not violate any
provision of such Act or any rule, regulation or order
issued by the Securities and Exchange Commission thereunder.
SECTION 5.12. Margin Regulations. None of the
proceeds from the Loans have been or will be used, directly
or indirectly, for the purpose of purchasing or carrying any
Margin Stock, for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase or
carry any Margin Stock or for any other purpose which might
cause any of the loans under this Agreement to be considered
a "purpose credit" within the meaning of Regulation G, U or
X of the Federal Reserve Board.
SECTION 5.13. Taxes. Except as described in
Schedule 5.13, all Federal, state and local tax returns,
reports and statements required to be filed by the Company
and its Subsidiaries have been filed with the appropriate
governmental agencies in all jurisdictions in which such
returns, reports and statements are required to be filed,
and all taxes (including real property) and other charges
shown to be due and payable have been timely paid prior to
the date on which any fine, penalty, interest, late charge
or loss may be added thereto for nonpayment thereof. All
state and local sales and use taxes required to be paid by
the Company or any of its Subsidiaries have been paid. All
Federal and state returns have been filed by the Company and
its Subsidiaries for all periods for which returns were due
with respect to employee income tax withholding, social
security and unemployment taxes, and the amounts shown
thereon to be due and payable have been paid in full or
adequate provision therefor have been made.
SECTION 5.14. Compliance with ERISA. Each member
of the ERISA Group has fulfilled its obligations under the
minimum funding standards of ERISA and the Code with respect
to each Plan and is in compliance in all material respects
with the presently applicable provisions of ERISA and the
Code with respect to each Plan. No member of the ERISA
Group has (i) sought a waiver of the minimum funding
standard under Section 412 of the Code in respect of any
Plan, (ii) failed to make any contribution or payment to any
Plan or Multiemployer Plan or in respect of any Benefit
Arrangement, or made any amendment to any Plan or Benefit
Arrangement, which has resulted or could result in the
imposition of a Lien or the posting of a bond or other
security under ERISA or the Code or (iii) incurred any
liability under Title IV of ERISA other than a liability to
the PBGC for premiums under Section 4007 of ERISA.
SECTION 5.15. Related Transactions. The closing
of the Acquisition will occur simultaneously with the
effectiveness of this Amended Agreement pursuant to Section
4.01. True and complete copies of all of Acquisition
Documents have been delivered to each of the Lenders,
together with a true and complete copy of each document to
be delivered at the closing of the Acquisition.
SECTION 5.16. Employment, Shareholders and
Subscription Agreements. Except for the Acquisition
Documents and the other agreements described in Schedule
5.17, true and complete copies of which have been delivered
to the Lenders, there are no (i) employment agreements
covering the management of the Company and its Subsidiaries,
(ii) collective bargaining agreements or other labor
agreements covering any employees of the Company, (iii)
agreements for managerial, consulting or similar services to
which the Company is a party or which it is bound or (iv)
agreements regarding the Company, its assets or operations
or any investment therein to which any of its stockholders
is a party or by which it is bound.
SECTION 5.17. Representations and Warranties
Incorporated from Other Operative Documents. As of the
Effective Date, each of the representations and warranties
made in the Operative Documents by the Company, and to the
best of the Company's knowledge, each of the other parties
thereto (other than any, if any, made by the Agent or any
Lender) is true and correct in all material respects, and
such representations and warranties are hereby incorporated
herein by reference with the same effect as though set forth
in their entirety herein, as qualified therein.
SECTION 5.18. Private Offering. Neither the
Company nor any Person acting on its behalf has offered the
Notes or any similar securities for sale to, or solicited
any offer to buy any of the same from, or otherwise
approached or negotiated in respect thereof with, any Person
other than the Lenders and not more than twenty other
institutional investors. Neither the Company nor any Person
acting on its behalf has taken, or will take, any action
which would subject the issuance or sale of the Notes to
Section 5 of the Securities Act.
SECTION 5.19. Compliance with Environmental
Requirements; No Hazardous Materials. After giving effect
to the Acquisition and except as provided on Schedule 5.19:
(a) Other than (i) generation, (ii) use in the
production process and maintenance and cleaning
activities all in the ordinary course of business and
(iii) storage prior to any such generation or use, in
each case in compliance with all applicable Environ-
mental Laws, no Hazardous Materials are located on any
properties now or previously owned, leased or operated
by the Company or any of its Subsidiaries or have been
released into the environment, or deposited, dis-
charged, placed or disposed of at, on or under any of
such properties. No portion of any such property is
being used, or has been used at any previous time, for
the disposal, storage, treatment, processing or other
handling of "hazardous wastes" as defined in RCRA
(other than processing or handling incidental to the
generation of hazardous wastes or storage of such
hazardous wastes for a period of less than 90 days, in
each case in compliance with all applicable Environ-
mental Laws), nor is any such property affected by any
Hazardous Materials Contamination.
(b) No asbestos or asbestos-containing materials
are present on any of the properties now or previously
owned, leased or operated by the Company or any of its
Subsidiaries other than nonfriable asbestos and
asbestos-containing materials in any of the buildings
located on the properties, the retention of which is
permitted by Environmental Laws.
(c) No polychlorinated biphenyls are located on
or in any properties now or previously owned, leased or
operated by the Company or any of its Subsidiaries, in
the form of electrical transformers, fluorescent light
fixtures with ballasts, cooling oils or any other
device or form other than non-leaking polychlorinated
biphenyls within a transformer, capacitor or other
piece of equipment or a fluorescent light fixture, the
retention of which is permitted by Environmental Laws.
(d) No underground storage tanks are located on
any properties now or previously owned, leased or
operated by the Company or any of its Subsidiaries, or
were located on any such property and subsequently
removed or filled.
(e) No notice, notification, demand, request for
information, complaint, citation, summons, investiga-
tion, administrative order, consent order and agree-
ment, litigation or settlement with respect to
Hazardous Materials or Hazardous Materials Contamina-
tion has been received by the Company or any Subsidiary
nor, to the Company's knowledge, is any such notice,
notification, demand, request for information,
complaint, investigation or order proposed, threatened
or anticipated with respect to or in connection with
the operation of any properties now or previously
owned, leased or operated by the Company or any of its
Subsidiaries. All such properties and their existing
and prior uses comply and at all times have complied,
in all material respects, with any applicable
governmental requirements relating to environmental
matters or Hazardous Materials. There is no condition
on any of such properties which is in violation of any
applicable material governmental requirements relating
to Hazardous Materials, and neither the Company nor any
of its Subsidiaries has received any communication from
or on behalf of any governmental authority that any
such condition exists. None of such properties nor any
property to which the Company has, directly or
indirectly, transported or arranged for the transporta-
tion of any material is listed or, to the Company'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 cleanup, nor, to the knowledge of the
Company, is any such property anticipated or threatened
to be placed on any such list.
(f) There has been no environmental investiga-
tion, study, audit, test, review or other analysis
conducted of which the Company has knowledge in
relation to the current or prior business of the
Company or any property or facility now or previously
owned, leased or operated by the Company or any of its
Subsidiaries which has not been delivered to the
Lenders at least five days prior to the date hereof.
(g) For purposes of this Section 5.19, the terms
"Company" and "Subsidiary" shall include any business
or business entity (including a corporation) which is,
in whole or in part, a predecessor of the Company or
any Subsidiary.
(h) For purposes of this Section 5.19, any
representations or warranties made with respect to
properties not presently owned, leased or operated by
the Company or any of its Subsidiaries (other than the
representations and warranties made in the first and
last sentences of clause (e) of this Section 5.19 and
in clause (f) of this Section 5.19) are made only with
respect to conditions existing, activities occurring or
compliance with governmental requirements, as the case
may be, during the period of such ownership, leasing or
operation.
ARTICLE VI
AFFIRMATIVE COVENANTS
The Company agrees that, so long as any Lender has
any Commitment hereunder or any amount payable under any
Note remains unpaid:
SECTION 6.01. Financial Statements and Other
Reports. The Company will maintain a system of accounting
established and administered in accordance with sound
business practices to permit preparation of financial
statements in accordance with GAAP, and will deliver to each
of the Lenders:
(a) as soon as practicable and in any event
within 30 days after the end of each month of the
Company, a consolidated balance sheet of the Company
and its consolidated subsidiaries as at the end of such
month and the related consolidated statements of
operations and cash flows for such month, and for the
portion of the Fiscal Year ended at the end of such
month setting forth in each case in comparative form
the figures for the corresponding periods of the
previous Fiscal Year, all in reasonable detail and
certified by the chief financial officer of the Company
as fairly presenting the financial condition and
results of operations of the Company and its
Consolidated Subsidiaries and as having been prepared
in accordance with GAAP applied on a basis consistent
with the audited financial statements of the Company,
subject to changes resulting from audit and normal
year-end adjustments;
(b) as soon as available and in any event within
120 days after the end of each Fiscal Year, a
consolidated and consolidating balance sheet of Signal
Apparel Company, Inc. and its consolidated subsidiaries
as of the end of such Fiscal Year and the related
consolidated and consolidating statements of
operations, stockholders' equity and cash flows for
such Fiscal Year, setting forth in each case in
comparative form the figures for the previous Fiscal
Year, certified in the case of said consolidated
financial statements without qualification by Deloitte
& Touche LLP, or other independent public accountants
of nationally recognized standing;
(c) (i) together with each delivery of financial
statements pursuant to (a) and (b) above, an Officers'
Certificate of the Company stating that the officers
executing such certificate have reviewed the terms of
this Agreement and have made, or caused to be made
under their supervision, a review in reasonable detail
of the transactions and condition of the Company during
the accounting period covered by such financial
statements and that such review has not disclosed the
existence during or at the end of such accounting
period, and that such officers do not have knowledge of
the existence as at the date of such Officers'
Certificate, of any Default, or, if any such Default
existed or exists, specifying the nature and period of
existence thereof and what action the Company has taken
or is taking or proposes to take with respect thereto;
and (ii) together with each delivery of financial
statements for each month and Fiscal Year, a compliance
certificate of the chief financial officer or treasurer
of the Company (x) providing details of all Affiliate
Transactions during the period covered by such
financial statements and (y) if not specified in the
financial statements delivered pursuant to (a) or (b)
above, as the case may be, specifying the aggregate
amount of interest paid or accrued and the aggregate
amount of depreciation and amortization charged, during
such accounting period;
(d) together with each delivery of financial
statements pursuant to (b) above, a written statement
by the independent public accountants giving the report
thereon stating that in connection with their audit
nothing came to their attention that caused them to
believe that a default existed under Article VIII of
this Agreement, insofar as they relate to financial and
accounting matters;
(e) promptly upon receipt thereof, copies of all
reports submitted to the Company by independent public
accountants in connection with each annual, interim or
special audit of the financial statements of the
Company made by such accountants, including the comment
letter submitted by such accountants to management in
connection with their annual audit;
(f) promptly upon their becoming available,
copies of (i) all financial statements, reports,
notices and proxy statements sent or made available
generally by the Company to its security holders, (ii)
all regular and periodic reports and all registration
statements and prospectuses filed by the Company with
any securities exchange or with the Securities and
Exchange Commission or any governmental authority
succeeding to any of its functions and (iii) all press
releases and other statements made available generally
by the Company to the public concerning material
developments in the business of the Company;
(g) promptly upon any officer of the Company
obtaining knowledge (i) of the existence of any
Default, or becoming aware that the holder of any Debt
of the Company has given any notice or taken any other
action with respect to a claimed default thereunder,
(ii) of any change in the Company's certified
accountant or any resignation, or decision not to stand
for re-election, by any member of the Company's board
of directors, (iii) that any Person has given any
notice to the Company or taken any other action with
respect to a claimed default under any material
agreement or instrument (other than the Financing
Documents) to which the Company or any of its
Subsidiaries is a party or by which any of their assets
are bound or (iv) of the institution of any litigation
or arbitration involving an alleged liability of the
Company or any of its Subsidiaries equal to or greater
than $250,000 or any adverse determination in any
litigation or arbitration involving a potential
liability of the Company or any of its Subsidiaries
equal to or greater than $250,000, an Officers'
Certificate of the Company specifying the nature and
period of existence of any such condition or event, or
specifying the notice given or action taken by such
holder or Person and the nature of such claimed default
(including any Default), event or condition, and what
action the Company has taken, is taking or proposes to
take with respect thereto;
(h) if and when any member of the ERISA Group (i)
gives or is required to give notice to the PBGC of any
"reportable event" (as defined in Section 4043 of
ERISA) with respect to any Plan which might constitute
grounds for a termination of such Plan under Title IV
of ERISA, or knows that the plan administrator of any
Plan has given or is required to give notice of any
such reportable event, a copy of the notice of such
reportable event given or required to be given to the
PBGC; (ii) receives notice of complete or partial
withdrawal liability under Title IV of ERISA or notice
that any Multiemployer Plan is in reorganization, is
insolvent or has been terminated, a copy of such
notice; (iii) receives notice from the PBGC under Title
IV of ERISA of an intent to terminate, impose liability
(other than for premiums under Section 4007 of ERISA)
in respect of, or appoint a trustee to administer any
Plan, a copy of such notice; (iv) applies for a waiver
of the minimum funding standard under Section 412 of
the Code, a copy of such application; (v) gives notice
of intent to terminate any Plan under Section 4041(c)
of ERISA, a copy of such notice and other information
filed with the PBGC; (vi) gives notice of withdrawal
from any Plan pursuant to Section 4063 of ERISA, a copy
of such notice; or (vii) fails to make any payment or
contribution to any Plan or Multiemployer Plan or in
respect of any Benefit Arrangement or makes any
amendment to any Plan or Benefit Arrangement which has
resulted or could result in the imposition of a Lien or
the posting of a bond or other security, a certificate
of the chief financial officer or the chief accounting
officer of the Company setting forth details as to such
occurrence and action, if any, which the Company or
applicable member of the ERISA Group is required or
proposes to take;
(i) simultaneously with the financial statements
referred to in (a) above, amendments, if any, to the
budgets and forecasts most recently delivered pursuant
to Section 6.01(k);
(j) copies of any reports or notices related to
taxes and any other material reports or notices
received by the Company from, or filed by the Company
with, any Federal, state or local governmental agency
or body regulating the activities of the Company;
(k) within 30 days after the start of each Fiscal
Year, the Company's annual operating and capital
expenditure budgets and cash flow forecast for the
following Fiscal Year presented on a monthly basis,
which shall be in a format reasonably consistent with
projections, budgets and forecasts theretofore provided
to the Lenders; and
(l) with reasonable promptness, such other
information and data with respect to the Company as
from time to time may be reasonably requested by any
Lender.
SECTION 6.02. Payment of Obligations. The
Company (i) shall pay and discharge, and will cause each of
its Subsidiaries to pay and discharge, at or before
maturity, all of their respective material obligations and
liabilities, including tax liabilities, except where the
same may be the subject of a Permitted Contest, (ii) shall
maintain, and cause each of its Subsidiaries to maintain, in
accordance with GAAP, appropriate reserves for the accrual
of any of the same and (iii) shall not breach or permit any
of its Subsidiaries to breach, in any material respect, or
permit to exist any material default under, the terms of any
material lease, commitment, contract, instrument or
obligation to which it is a party, or by which its
properties or assets are bound.
SECTION 6.03. Conduct of Business and Maintenance
of Existence. The Company will continue, and will cause
each of its Subsidiaries to continue, to engage in business
of the same general type as now conducted by the Company and
its Subsidiaries, and will preserve, renew and keep in full
force and effect, and will cause each Subsidiary to
preserve, renew and keep in full force and effect their
respective corporate existence and their respective rights,
privileges and franchises necessary or desirable in the
normal conduct of business; provided that nothing herein
shall prevent the merger and dissolution of any Subsidiary
of the Company into the Company so long as the Company is
the surviving corporation.
SECTION 6.04. Maintenance of Property; Insurance.
(a) The Company will keep, and will cause each of its
Subsidiaries to keep, all property useful and necessary in
its business in good working order and condition, ordinary
wear and tear excepted.
(b) The Company will maintain, and will cause
each of its Subsidiaries to maintain, (i) physical damage
insurance on all real and personal property on an all risks
basis, covering the repair and replacement cost of all such
property and consequential loss coverage for business
interruption and extra expense, covering such risks, for
amounts not less than those, and with deductible amounts not
greater than those, set forth in Part I of Schedule 6.04,
(ii) public liability insurance (including
products/completed operations liability coverage) covering
such risks, for amounts not less than those, and with
deductible amounts not greater than those, set forth in Part
II of Schedule 6.04 and (iii) such other insurance coverage
in such amounts and with respect to such risks as the
Required Lenders may reasonably request. All such insurance
shall be provided by insurers having an A.M. Best
policyholders rating of not less than A or such other
insurers as the Required Lenders may approve in writing;
provided that workers' compensation liability insurance may
be provided by Golden Eagle Insurance Company so long as its
A.M. Best policyholders rating is not less than B. On or
prior to the Effective Date, the Company shall cause the
Agent to be named as an insured party and loss payee on each
insurance policy required to be maintained pursuant to this
Section 6.04(b). The Company will deliver to the Lenders
upon the request of any Lender through the Agent from time
to time full information as to the insurance carried,
(i) within five days of receipt of notice from any insurer,
a copy of any notice of cancellation, nonrenewal or material
change in coverage from that existing on the date of this
Agreement and (ii) forthwith, notice of any cancellation or
nonrenewal of coverage by the Company. Any proceeds in
excess of $100,000 from any Casualty Insurance Policy which
are payable to the insured in respect of any claim, or any
condemnation award or other compensation in respect of a
condemnation (or any transfer or disposition of property in
lieu of condemnation) for which the Company or any of its
Subsidiaries receives a condemnation award or other
compensation in excess of $100,000, shall be paid to the
Agent to be held, applied or released in accordance with
Section 5 of the Security Agreement.
(c) The Company shall maintain a term life
insurance policy in form and substance and issued by a life
insurance company, in each case acceptable to the Agent in
its sole good faith discretion, with respect to Marvin
Winkler in an amount not less than $5,000,000 (the "Key-Man
Life Insurance Policy"). Any proceeds payable to the
Company under the Key-Man Life Insurance Policy shall be
paid to the Agent for application in accordance with Section
5 of the Security Agreement and the Company will, at the
time of issuance of the Key-Man Life Insurance Policy,
deliver to the Agent a duly executed instrument of
assignment assigning such policy to the Agent.
SECTION 6.05. Compliance with Laws. The Company
will comply, and cause each of its Subsidiaries to comply,
in all material respects with all applicable laws,
ordinances, rules, regulations, and requirements of
governmental authorities (including Environmental Laws and
ERISA and the rules and regulations thereunder).
SECTION 6.06. Inspection of Property, Books and
Records. The Company will keep, and will cause each of its
Subsidiaries to keep, proper books of record and account in
which full, true and correct entries shall be made of all
dealings and transactions in relation to its business and
activities; and will permit, and will cause each of its
Subsidiaries to permit, representatives of any Lender at
such Lender's expense to visit and inspect any of their
respective properties, to examine and make abstracts or
copies from any of their respective books and records, to
conduct a collateral audit and analysis of their respective
inventories and accounts receivable and to discuss their
respective affairs, finances and accounts with their
respective officers, employees and independent public
accountants, all at such reasonable times and as often as
may reasonably be desired.
SECTION 6.07. Use of Proceeds. None of the
proceeds of the Loans have been be used in violation of any
applicable law or regulation.
SECTION 6.08. Further Assurances. The Company
will, at its own cost and expense, cause to be promptly and
duly taken, executed, acknowledged and delivered all such
further acts, documents and assurances (x) as may from time
to time be necessary or as the Required Lenders may from
time to time request in order to carry out the intent and
purposes of the Financing Documents and the transactions
contemplated thereby, including all such actions to
establish, preserve, protect and perfect the estate, right,
title and interest of the Lenders to the Collateral
(including Collateral acquired after the date hereof),
including first priority Liens thereon, subject only to
Permitted Liens and (y) as the Required Lenders may from
time to time request, to establish, preserve, protect and
perfect first priority Liens in favor of the Lenders on any
and all assets of the Company and its Subsidiaries, now
owned or hereafter acquired, that are not Collateral on the
date hereof. The Company shall promptly give notice to the
Agent of the acquisition after the Effective Date by the
Company or any Subsidiary of any real property (including
leaseholds in respect of real property), trademark,
copyright or patent.
SECTION 6.09. Lenders' Meetings. Upon the
request of the Lenders, the Company will conduct a meeting
with the Lenders to discuss the financial condition of the
Company at which shall be present the chief executive
officer and the chief financial officer of the Company and
such other officers of the Company as the Company's chief
executive officer shall designate. Such meetings shall be
held at a time and place convenient to the Lenders and to
the Company; provided that any such meeting may be held
telephonically unless the Required Lenders request
otherwise.
SECTION 6.10. Consummation of the Acquisition.
The Company will cause the closing of the Acquisition to
occur prior to the making of the Loans on the Effective
Date, and will not without the prior written consent of the
Required Lenders waive any condition to its obligations to
consummate the Acquisition.
SECTION 6.11. Hazardous Materials; Remediation.
The Company will (i) promptly give notice to the Lenders in
writing of any complaint, order, citation, notice or other
written communication from any Person with respect to, or if
the Company becomes aware of, (x) the existence or alleged
existence of a violation of any applicable Environmental Law
or the incurrence of any liability, obligation, loss,
damage, cost, expense, fine, penalty or sanction or the
requirement to commence any remedial action resulting from
or in connection with any air emission, water discharge,
noise emission, Hazardous Material or any other
environmental, health or safety matter at, upon, under or
within any of the properties now or previously owned, leased
or operated by the Company or any of its Subsidiaries, or
due to the operations or activities of the Company, any
Subsidiary or any other Person on or in connection with any
such property or any part thereof or (y) any release on any
of such properties of Hazardous Materials in a quantity that
is reportable under any applicable Environmental Law; (ii)
promptly comply with any governmental requirements requiring
the removal, treatment or disposal of such Hazardous
Materials or Hazardous Materials Contamination and provide
evidence satisfactory to the Required Lenders of such
compliance except where such compliance is the subject of a
Permitted Contest, provided that no such contest shall
subject (x) the Company or any of its Subsidiaries to any
risk of any criminal liability or additional civil
liability, (y) the Lenders to any risk of any liability or
(z) the property in question to any risk of the imposition
of a Lien; and (iii) provide the Lenders, within 30 days
after demand therefor by the Required Lenders, with a bond,
letter of credit or similar financial assurance evidencing
to the satisfaction of the Required Lenders that sufficient
funds are available, or otherwise establish to the
satisfaction of the Required Lenders that sufficient funds
are available, to pay the cost of removing, treating and
disposing of such Hazardous Materials or Hazardous Materials
Contamination and discharging any assessment which may be
established on any such property as a result thereof.
SECTION 6.12. Enforcement of Covenants Not to
Compete. The Company shall preserve, protect and defend, to
the extent permitted by applicable law, all of its rights,
if any, with respect to any covenant not to compete
contained in any of the material contracts of the Company or
contained in any employment agreement with any employee
whose annual salary and other compensation payable by the
Company and its Subsidiaries is $100,000 or more.
SECTION 6.13. Landlord and Warehouseman Waivers.
The Company shall use its best efforts to deliver to the
Agent waivers of contractual and statutory landlord's,
landlord's mortgagee's and warehouseman's Liens in form and
substance reasonably satisfactory to the Agent under each
existing lease, warehouse agreement or similar agreement to
which the Company or any Subsidiary is a party; provided
that such waivers will in any event be incorporated when the
existing lease, warehouse agreement or similar agreement is
amended, renewed or extended and the Company will obtain
waivers of both contractual and statutory landlord's,
landlord's mortgagee's and warehouseman's Liens in form and
substance reasonably satisfactory to the Agent in connection
with each new lease, warehouse agreement or similar
agreement entered into by the Company or any Subsidiary.
ARTICLE VII
NEGATIVE COVENANTS
The Company agrees that so long as any amount
payable under any Note remains unpaid:
SECTION 7.01. Debt. The Company will not, and
will not permit any of its Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee or otherwise
become or remain directly or indirectly liable with respect
to, any Debt, except for:
(a) Debt of the Company outstanding on the date
of this Agreement as set forth in Schedule 7.01;
(b) Debt of the Company under the Financing
Documents;
(c) Debt of the Company or any of its
Subsidiaries incurred or assumed for the purpose of
financing all or any part of the cost of acquiring any
asset (including through Capital Leases), in an
aggregate principal amount at any time outstanding not
greater than $350,000;
(d) Debt of the Company or any Subsidiary
incurred for the purpose of refinancing Debt permitted
under Section 7.01(c) above; provided that (i) the
aggregate principal amount of such Debt does not exceed
the then outstanding principal amount of Debt being
refinanced and (ii) no Subsidiary is an obligor with
respect thereto that was not an obligor with respect to
the Debt being refinanced.
(e) Debt of the Company or any of its
Subsidiaries to a wholly-owned Subsidiary of the
Company, or of any Subsidiary of the Company to the
Company;
(f) Debt of the Company under the Purchase Notes
(as defined in the Stock Purchase Agreement);
(g) Debt of the Company in respect of letters of
credit and guarantees issued for the account of the
Company; provided that the aggregate outstanding amount
of such Debt shall at no time exceed $1,000,000;
(h) Debt of the Company under the Working Capital
Facility in an aggregate principal amount outstanding
at no time in excess of the sum (i) the sum of (x) 85%
of "Eligible Receivables" (as defined in the Working
Capital Facility) plus (y) 50% of "Eligible Inventory"
(as defined in the Working Capital Facility) at such
time plus (ii) $5,000,000; and
(i) Debt of the Company not otherwise permitted
by clauses (a) through (h), inclusive, of this Section
7.01 in an aggregate principal amount outstanding at no
time in excess of $500,000.
SECTION 7.02. Negative Pledge. Neither the
Company nor any Subsidiary will create, assume or suffer to
exist any Lien on any asset now owned or hereafter acquired
by it, except:
(a) any Lien on any asset securing Debt permitted
under Section 7.01(c) incurred or assumed for the
purpose of financing all or any part of the cost of
acquiring such asset, provided that such Lien attaches
to such asset concurrently with or within 90 days after
the acquisition thereof;
(b) Liens securing Debt under the Working Capital
Facility;
(c) Liens arising in the ordinary course of its
business which (i) do not secure Debt, (ii) do not
secure any obligation in an amount exceeding $50,000
and (iii) do not in the aggregate materially detract
from the value of its assets or materially impair the
use thereof in the operation of its business;
(d) Liens created by the Security Documents; and
(e) Liens securing Debt permitted under Section
7.01(d); provided that such Debt is not secured by any
assets other than the assets which secured the Debt
being refinanced.
SECTION 7.03. Capital Stock. (a) The Company
shall not permit any of its Subsidiaries to issue any shares
of capital stock except shares of capital stock issued by
any Subsidiary to the Company.
(b) The Company shall not issue any capital stock
unless arrangements satisfactory to the Agent have been made
to cause such capital stock to be pledged to it under the
Security Documents and for the holder of such capital stock
to be bound thereby.
SECTION 7.04. ERISA. The Company will not, and
will not permit any of its Subsidiaries to:
(a) engage in any transaction in connection with
which the Company or any of its Subsidiaries could be
subject to any material liability arising from either a
civil penalty assessed pursuant to Section 502(i) of
ERISA or a tax imposed by Section 4975 of the Code;
(b) terminate any Plan in a manner, or take any
other action, which could result in any material
liability of any member of the ERISA Group to the PBGC;
(c) fail to make full payment when due of all
amounts which, under the provisions of any Plan, it is
required to pay as contributions thereto, or permit to
exist any accumulated funding deficiency, whether or
not waived, with respect to any Plan;
(d) permit the present value of all benefit
liabilities under all Plans to exceed the fair market
value of the assets of such Plans; or
(e) fail to make any payments to any
Multiemployer Plan that it may be required to make
under any agreement relating to such Multiemployer Plan
or any law pertaining thereto.
SECTION 7.05. Consolidations, Mergers and Sales
of Assets. The Company will not, and will not permit any of
its Subsidiaries to, (i) consolidate or merge with or into
any other Person (other than mergers of Subsidiaries into
the Company as permitted by Section 6.03) or (ii) sell,
lease or otherwise transfer, directly or indirectly, any of
its or their assets, other than (x) sales of inventory in
the ordinary course of their respective businesses and sales
of accounts receivable pursuant to the Working Capital
Facility and (y) dispositions for cash and fair value of
assets that the board of directors of the Company determines
in good faith are no longer used or useful in the business
of the Company and its Subsidiaries, provided that
immediately after any such disposition, the aggregate fair
market value of all such assets disposed of pursuant to this
clause (y) during the Fiscal Year in which such disposition
is made does not exceed $50,000.
SECTION 7.06. Purchase of Assets, Investments.
The Company will not, and will not permit any Subsidiary to,
acquire any assets other than in the ordinary course of
business. The Company will not, and will not permit any
Subsidiary to, make, acquire or own any Investment in any
Person other than (a) Temporary Cash Investments and (b)
Investments in Subsidiaries made after the date hereof in an
aggregate amount not exceeding $5,000. Without limiting the
generality of the foregoing, the Company will not, and will
not permit any Subsidiary to, (i) acquire or create any
Subsidiary without (x) the consent of the Required Lenders
and (y) arrangements satisfactory to the Required Lenders
for a pledge of the stock of such Subsidiary to the Agent
for the benefit of the Lenders and a guaranty by such
Subsidiary of the obligations of the Company hereunder or
(ii) engage in any joint venture or partnership with any
other Person.
SECTION 7.07. Transactions with Affiliates. The
Company will not, and will not permit any Subsidiary to,
directly or indirectly, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange
of any property or the rendering of any service) with any
Affiliate of the Company or stockholder of the Company or
any affiliate of any such stockholder (an "Affiliate
Transaction") on terms that are less favorable to the
Company or such Subsidiary, as the case may be, than those
which might be obtained at the time from a Person who is not
an Affiliate of the Company or stockholder of the Company or
an affiliate of such stockholder, as the case may be;
provided that (i) if and for so long as the Signal Agreement
shall be in full force and effect and the security interests
created thereby are valid and perfected security interests,
then transactions between the Company or any of its
Subsidiaries and Signal shall not be "Affiliate
Transactions" for purposes hereof and (ii) if and for so
long as The Shirt Shed Agreement shall be in full force and
effect and the security interests created thereby are valid
and perfected security interests, then transactions between
the Company or any of its Subsidiaries and The Shirt Shed,
Inc. shall not be "Affiliate Transactions" for purposes
hereof.
SECTION 7.08. Amendments or Waivers. (a) With-
out the prior written consent of the Required Lenders, the
Company will not, and will not permit any Subsidiary to,
agree to any amendment to or waiver of or in respect of the
certificate of incorporation of the Company or any Operative
Document or any other material amendment to or waiver of any
material contract constituting a part of the Collateral in
any manner which could adversely affect the Company or the
rights of the Lenders under the Financing Documents or their
ability to enforce the same.
(b) The Company shall immediately notify the
Agent if the Company or any other Person gives any notice of
its intent to, or takes any other action to, terminate the
Working Capital Facility.
SECTION 7.09. Fiscal Year. The Company shall not
change its fiscal year from a fiscal year ending December
31.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01. Events of Default. If any one or
more of the following events (hereinafter called "Events of
Default") shall occur and be continuing for any reason
whatsoever (whether voluntary or involuntary, by operation
of law or otherwise):
(a) the Company shall fail to pay any principal
when due or shall fail to pay any interest or premium
on any Note, or any fees or any other amount payable
hereunder within three Business Days of the date when
due;
(b) the Company shall fail to observe or perform
any covenant contained in Section 6.04, or Article VII
hereof, or Section 5 or Sections 4(A), (E) or (I) of
the Security Agreement;
(c) the Company or any of its Subsidiaries,
stockholders or Affiliates shall fail to observe or
perform any covenant or agreement contained in the
Financing Documents (other than those covered by clause
(a) or (b) above) for 30 days after notice thereof has
been given to the Company by the Agent;
(d) any representation, warranty, certification
or statement made by the Company in any Financing
Document or in any certificate, financial statement or
other document delivered pursuant to the Financing
Documents shall prove to have been incorrect in any
respect (or in any material respect if such
representation, warranty, certification or statement is
not by its terms already qualified as to materiality)
when made (or deemed made);
(e) the Company or any of its Subsidiaries shall
fail to make any payment in respect of any Debt (other
than the Notes) arising in one or more related or
unrelated transactions, in an aggregate principal
amount exceeding $50,000;
(f) any event or condition shall occur which
results in the acceleration of the maturity of any Debt
(other than the Notes) of the Company or any of its
Subsidiaries arising in one or more related or
unrelated transactions, in an aggregate principal
amount exceeding $50,000, or enables (or, with the
giving of notice or lapse of time or both, would
enable) the holder of such Debt or any Person acting on
such holder's behalf to accelerate the maturity
thereof;
(g) the Company or any of its Subsidiaries shall
commence a voluntary case or other proceeding seeking
liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in
effect or seeking the appointment of a trustee,
receiver, liquidator, custodian or other similar
official of it or any substantial part of its property,
or shall consent to any such relief or to the
appointment of or taking possession by any such
official in an involuntary case or other proceeding
commenced against it, or shall make a general
assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall
take any corporate action to authorize any of the
foregoing;
(h) an involuntary case or other proceeding shall
be commenced against the Company or any of its
Subsidiaries seeking liquidation, reorganization or
other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its
property, and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of
60 days; or an order for relief shall be entered
against the Company or any of its Subsidiaries under
the federal bankruptcy laws as now or hereafter in
effect;
(i) any member of the ERISA Group shall fail to
pay when due an amount or amounts aggregating in excess
of $50,000 which it shall have become liable to pay
under Title IV of ERISA; or notice of intent to
terminate a Material Plan shall be filed under Title IV
of ERISA by any member of the ERISA Group, any plan
administrator or any combination of the foregoing; or
the PBGC shall institute proceedings under Title IV of
ERISA to terminate, to impose liability (other than for
premiums under Section 4007 of ERISA) in respect of, or
to cause a trustee to be appointed to administer any
Material Plan; or a condition shall exist by reason of
which the PBGC would be entitled to obtain a decree
adjudicating that any Material Plan must be terminated;
or there shall occur a complete or partial withdrawal
from, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more
Multiemployer Plans which could cause one or more
members of the ERISA Group to incur a current payment
obligation in excess of $50,000;
(j) a judgment or order for the payment of money
in excess of $50,000 shall be rendered against the
Company or any of its Subsidiaries and such judgment or
order shall continue unsatisfied and unstayed for a
period of 20 days;
(k) Signal (and/or its wholly-owned Subsidiaries)
shall cease to be the registered and beneficial owner
of 100% of the capital stock of the Company;
(l) the auditor's report or reports on the
audited statements delivered pursuant to Section 6.01
shall include any material qualification (including
with respect to the scope of audit) or exception;
(m) the Lien created by any of the Security
Documents shall at any time fail to constitute a valid
and perfected Lien on all of the Collateral purported
to be secured thereby, subject to no prior or equal
Lien except Permitted Liens, or the Company, any
Subsidiary, Signal or any stockholder or Affiliate of
the Company or Signal shall so assert in writing;
(n) the Company shall be prohibited or otherwise
materially restrained from conducting the business
theretofore conducted by it by virtue of any
determination, ruling, decision, decree or order of any
court or regulatory authority of competent jurisdiction
and such determination, ruling, decision, decree or
order remains unstayed and in effect for any period of
20 days beyond any period for which any business
interruption insurance policy of the Company shall
provide full coverage to the Company of any losses and
lost profits;
(o) Signal or any of its subsidiaries,
stockholders or affiliates or KKE shall fail to observe
or perform any of their respective obligations under
the Security Documents to which they are a party for a
period of 30 days or more after notice thereof has been
given by the Agent;
(p) an "Event of Default" under the Working
Capital Facility shall occur; or
(q) any of the Operative Documents shall for any
reason fail to constitute the valid and binding
agreement of any party thereto, or any such party
(other than the Lenders or the Agent) shall so assert
in writing or the Agent shall for any reason not have
(for the benefit of the secured parties as set forth in
the Security Documents) as collateral security for the
Notes and the other obligations of the Company, or of
Signal, or any of its subsidiaries, stockholders or
affiliates, or of KKE under the Financing Documents, a
valid and perfected Lien on the property, rights and
revenues intended to be covered by the Security
Documents;
then, and in every such event and at any time thereafter
during the continuance of such event, the Agent shall if
requested by the Required Lenders, by notice to the Company
declare the Notes (together with accrued interest thereon)
to be, and the Notes shall thereupon become, immediately due
and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the
Company; provided that in the case of any of the Events of
Default specified in clause (g) or (h) above with respect to
the Company, without any notice to the Company or any other
act by the Agent or the Lenders, all of the Notes (together
with accrued interest thereon) shall become immediately due
and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the
Company.
ARTICLE IX
FEES, EXPENSES AND INDEMNITIES;
GENERAL PROVISIONS RELATING TO PAYMENTS
SECTION 9.01. Computation of Interest. All
interest hereunder and under the Notes shall be calculated
on the basis of a 360-day year for the actual number of days
elapsed.
SECTION 9.02. General Provisions Regarding
Payments. (a) All payments (including prepayments) to be
made by the Company under any Financing Document, including
payments of principal of and premium and interest on the
Notes, fees, expenses and indemnities, shall be made without
set-off or counterclaim and in immediately available funds.
(b) If any payment hereunder becomes due and
payable on a day other than a Business Day, such payment
shall be extended to the next succeeding Business Day and,
with respect to payments of principal, interest thereon
shall be payable at the then applicable rate during such
extension. The Company shall make all payments in
immediately available funds to each Lender's Payment Account
before 1:00 P.M. (New York City time) on the date when due.
Each payment (including prepayments) by the Company on
account of principal of and interest on any Loans shall be
made pro rata according to the respective outstanding
principal amounts of such Class of Loans held by each
Lender. All amounts payable by the Company hereunder or
under any other Financing Document not paid when due (other
than payments of principal and interest on the Notes, which
shall bear interest as set forth therein) shall bear
interest, payable on demand, for each day until paid at a
rate per annum equal to 5% plus the rate announced by
Nations Bank of North Carolina, N.A. from time to time as
its prime rate (calculated on the basis of a 360-day year
for the actual number of days elapsed).
SECTION 9.03. Expenses. Whether or not the
transactions contemplated hereby shall be consummated, the
Company agrees to pay on demand (i) all costs and expenses
of preparation of this Agreement, the other Financing
Documents and of the Company's performance of and compliance
with all agreements and conditions contained herein and
therein, (ii) the reasonable fees and expenses and
disbursements of counsel (including the reasonable
allocation of the compensation, costs and expenses of
in-house counsel, based upon time spent) to, and independent
appraisers and consultants retained by, the Lenders in
connection with the negotiation, preparation, execution and
administration of this Agreement, the other Financing
Documents and any amendments hereto or thereto and waivers
hereof and thereof, (iii) all costs and expenses of
creating, perfecting and maintaining Liens pursuant to the
Financing Documents, including filing and recording fees and
expenses, the costs of any bonds required to be posted in
respect of future filing and recording fees and expenses,
title investigations and fees and expenses of such local
counsel as the Agent shall request and (iv) if an Event of
Default occurs, all out-of-pocket expenses incurred by the
Agent and each Lender, including reasonable fees and
disbursements of counsel (including the reasonable
allocation of the compensation, costs and expenses of
in-house counsel, based upon time spent), in connection with
such Event of Default and collection, bankruptcy, insolvency
and other enforcement proceedings resulting therefrom;
provided that the fees and reasonably estimated expenses and
disbursements of counsel to the Lenders incurred in
connection with negotiation, preparation and execution of
the Operative Documents and the consummation of the
transactions contemplated thereby to occur on the Effective
Date shall be paid by the Company on the Effective Date
(with payment for expenses and disbursements to be adjusted
subsequent to the Effective Date if the foregoing estimates
exceed or fall short of the actual amounts).
SECTION 9.04. Indemnity. Whether or not the
transactions contemplated hereby shall be consummated, the
Company agrees to indemnify, pay and hold harmless the Agent
and each Lender and any subsequent holder of any of the
Notes, and the officers, directors, employees and agents of
the Agent, each Lender and such holders (collectively called
the "Indemnitees") from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, expenses and disbursements of any kind
or nature whatsoever (including the fees and disbursements
of counsel for such Indemnitee in connection with any
investigative, administrative or judicial proceeding,
whether or not such Indemnitee shall be designated a party
thereto, and the expenses of investigation by engineers,
environmental consultants and similar technical personnel),
which may be imposed on, incurred by or asserted against
such Indemnitee as a result of or in connection with the
transactions contemplated hereby or by the other Operative
Documents (including (i)(A) as a direct or indirect result
of the presence on or under, or escape, seepage, leakage,
spillage, discharge, emission or release from, any property
now or previously owned, leased or operated by the Company
or any of its Subsidiaries of any Hazardous Materials or any
Hazardous Materials Contamination, (B) arising out of or
relating to the offsite disposal of any materials generated
or present on any such property or (C) arising out of or
resulting from the environmental condition of any such
property or the applicability of any governmental
requirements relating to Hazardous Materials, whether or not
occasioned wholly or in part by any condition, accident or
event caused by any act or omission of the Company or any of
its Subsidiaries, and (ii) proposed and actual extensions of
credit under this Agreement) and the use or intended use of
the proceeds of the Notes, except that the Company shall
have no obligation hereunder to an Indemnitee with respect
to any liability resulting from the gross negligence or
wilful misconduct of such Indemnitee. To the extent that
the undertaking set forth in the immediately preceding
sentence may be unenforceable, the Company shall contribute
the maximum portion which it is permitted to pay and satisfy
under applicable law to the payment and satisfaction of all
such indemnified liabilities incurred by the Indemnitees or
any of them. Without limiting the generality of any
provision of this Section, to the fullest extent permitted
by law, the Company hereby waives all rights for
contribution or any other rights of recovery with respect to
liabilities, losses, damages, costs and expenses arising
under or relating to Environmental Laws that it might have
by statute or otherwise against any Indemnitee.
SECTION 9.05. Taxes. The Company agrees to pay
all governmental assessments, charges or taxes (except
income or other similar taxes imposed on any Lender or any
holder of a Note), including any interest or penalties
thereon, at any time payable or ruled to be payable in
respect of the existence, execution or delivery of this
Agreement, the other Financing Documents, or the issuance of
the Notes, and to indemnify and hold each Lender and each
and every holder of the Notes, harmless against liability in
connection with any such assessments, charges or taxes.
SECTION 9.06. Maximum Interest. (a) In no event
shall the interest charged with respect to the Notes or any
other obligations of the Company under the Financing
Documents exceed the maximum amount permitted under the laws
of the State of New York or of any other applicable
jurisdiction.
(b) Notwithstanding anything to the contrary
herein or elsewhere, if at any time the rate of interest
payable for the account of any Lender hereunder or under any
Note or other Financing Document (the "Stated Rate") would
exceed the highest rate of interest permitted under any
applicable law to be charged by such Lender (the "Maximum
Lawful Rate"), then for so long as the Maximum Lawful Rate
would be so exceeded, the rate of interest payable for the
account of such Lender shall be equal to the Maximum Lawful
Rate; provided, that if at any time thereafter the Stated
Rate is less than the Maximum Lawful Rate, the Company
shall, to the extent permitted by law, continue to pay
interest for the account of such Lender at the Maximum
Lawful Rate until such time as the total interest received
by such Lender is equal to the total interest which such
Lender would have received had the Stated Rate been (but for
the operation of this provision) the interest rate payable.
Thereafter, the interest rate payable for the account of
such Lender shall be the Stated Rate unless and until the
Stated Rate again would exceed the Maximum Lawful Rate, in
which event this provision shall again apply.
(c) In no event shall the total interest received
by any Lender exceed the amount which such Lender could
lawfully have received had the interest been calculated for
the full term hereof at the Maximum Lawful Rate with respect
to such Lender.
(d) In computing interest payable with reference
to the Maximum Lawful Rate applicable to any Lender, such
interest shall be calculated at a daily rate equal to the
Maximum Lawful Rate divided by the number of days in the
year in which such calculation is made.
(e) If any Lender has received interest hereunder
in excess of the Maximum Lawful Rate with respect to such
Lender, such excess amount shall be applied to the reduction
of the principal balance of its Loans or to other amounts
(other than interest) payable hereunder, and if no such
principal or other amounts are then outstanding, such excess
or part thereof remaining shall be paid to the Company.
ARTICLE X
THE AGENT
SECTION 10.01. Appointment and Authorization.
Each Lender irrevocably appoints and authorizes the Agent to
enter into each of the Security Documents on its behalf and
to take such action as agent on its behalf and to exercise
such powers under the Financing Documents as are delegated
to the Agent by the terms thereof, together with all such
powers as are reasonably incidental thereto.
SECTION 10.02. Agent and Affiliates. Greyrock
Capital Group Inc. shall have the same rights and powers
under the Financing Documents as any other Lender and may
exercise or refrain from exercising the same as though it
were not the Agent, and Greyrock Capital Group Inc. and its
affiliates may lend money to and generally engage in any
kind of business with the Company or any Subsidiary or
affiliate of the Company as if it were not the Agent
hereunder.
SECTION 10.03. Action by Agent. The obligations
of the Agent hereunder are only those expressly set forth
herein and under the other Financing Documents. Without
limiting the generality of the foregoing, the Agent shall
not be required to take any action with respect to any
Default, except as expressly provided in Article VIII.
SECTION 10.04. Consultation with Experts. The
Agent may consult with legal counsel (who may be counsel for
the Company), independent public accountants and other
experts selected by it and shall not be liable for any
action taken or omitted to be taken by it in good faith in
accordance with the advice of such counsel, accountants or
experts.
SECTION 10.05. Liability of Agent. Neither the
Agent nor any of its directors, officers, agents, or
employees shall be liable for any action taken or not taken
by it in connection with the Financing Documents (i) with
the consent or at the request of the Required Lenders or
(ii) in the absence of its own gross negligence or willful
misconduct. Neither the Agent nor any of its directors,
officers, agents or employees shall be responsible for or
have any duty to ascertain, inquire into or verify (i) any
statement, warranty or representation made in connection
with any Financing Document or any borrowing hereunder; (ii)
the performance or observance of any of the covenants or
agreements of the Company; (iii) the satisfaction of any
condition specified in Article IV, except receipt of items
required to be delivered to the Agent; or (iv) the validity,
effectiveness, sufficiency or genuineness of any Financing
Document or any other instrument or writing furnished in
connection therewith. The Agent shall not incur any
liability by acting in reliance upon any notice, consent,
certificate, statement, or other writing (which may be a
bank wire, telex or similar writing) believed by it to be
genuine or to be signed by the proper party or parties.
SECTION 10.06 Indemnification. Each Lender
shall, ratably indemnify the Agent (to the extent not
reimbursed by the Company) against any cost, expense
(including counsel fees and disbursements), claim, demand,
action, loss or liability (except such as result from the
Agent's gross negligence or willful misconduct) that the
Agent may suffer or incur in connection with the Financing
Documents or any action taken or omitted by the Agent
hereunder or thereunder.
SECTION 10.07. Credit Decision. Each Lender
acknowledges that it has, independently and without reliance
upon the Agent or any other Lender, and based on such
documents and information as it has deemed appropriate, made
its own credit analysis and decision to enter into this
Agreement. Each Lender also acknowledges that it will,
independently and without reliance upon the Agent or any
other Lender, and based on such documents and information as
it shall deem appropriate at the time, continue to make its
own credit decisions in taking or not taking any action
under the Financing Documents.
SECTION 10.08. Successor Agent. The Agent may
resign at any time by giving notice thereof to the Lenders
and the Company. Upon any such resignation, the Required
Lenders shall have the right to appoint a successor Agent.
If no successor Agent shall have been so appointed by the
Required Lenders, and shall have accepted such appointment,
within 30 days after the retiring Agent gives notice of
resignation, then the retiring Agent may, on behalf of the
Lenders, appoint a successor Agent, which shall be a
commercial bank, finance company, insurance company or other
financial institution organized or licensed under the laws
of the United States of America or of any State thereof
having a combined capital and surplus of at least
$50,000,000. Upon the acceptance of its appointment as
Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the
rights and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and obligations
hereunder. After any retiring Agent's resignation hereunder
as Agent, the provisions of this Article shall inure to its
benefit as to any actions taken or omitted to be taken by it
while it was Agent.
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Survival. All agreements,
representations and warranties made herein shall survive the
execution and delivery of this Agreement, the other
Operative Documents and the execution, sale and delivery of
the Notes. The indemnities and agreements set forth in
Articles IX and X shall survive the payment of the Notes and
the termination of this Agreement.
SECTION 11.02. No Waivers. No failure or delay
by the Agent or any Lender in exercising any right, power or
privilege under any Financing Document shall operate as a
waiver thereof nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. The
rights and remedies herein and therein provided shall be
cumulative and not exclusive of any rights or remedies
provided by law.
SECTION 11.03. Notices. All notices, requests
and other communications to any party hereunder shall be in
writing (including prepaid overnight courier, telex,
facsimile transmission or similar writing) and shall be
given to such party at its address or telecopy or telex
number set forth on the signature pages hereof (or, in the
case of any such Lender who becomes a Lender after the date
hereof, in a notice delivered to the Company and the Agent
by the assignee Lender forthwith upon such assignment) or at
such other address or telecopy or telex number as such party
may hereafter specify for the purpose by notice to the Agent
and the Company. Each such notice, request or other
communication shall be effective (i) if given by telex or
telecopy, when such telex or telecopy is transmitted to the
telex or telecopy number specified in this Section and the
appropriate answerback is received (in the case of telex) or
telephonic confirmation of receipt thereof is obtained (in
the case of telecopy) or (ii) if given by mail, prepaid
overnight courier or any other means, when received at the
address specified in this Section or when delivery at such
address is refused.
SECTION 11.04. Severability. In case any
provision of or obligation under this Agreement or the Notes
or any other Financing Document shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired
thereby.
SECTION 11.05. Amendments and Waivers. Any
provision of this Agreement or the Notes may be amended or
waived if, but only if, such amendment or waiver is in
writing and is signed by the Company and the Required
Lenders (and, if the rights or duties of the Agent are
affected thereby, by the Agent); provided that no such
amendment or waiver shall, unless signed by all the Lenders,
(i) subject any Lender to any additional obligation, (ii)
reduce the principal of or rate of interest on any Loan or
fees hereunder, (iii) postpone the date fixed for any
payment of principal of any Loan pursuant to Section 2.04(a)
or 3.04(a), or of interest on any Loan or any fees hereunder
or (iv) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Notes which shall
be required for the Lenders or any of them to take any
action under this Section or any other provision of this
Agreement.
SECTION 11.06. Successors and Assigns;
Registration. (a) The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns
(including any transferee of any Note or Warrant), except
that the Company may not assign or otherwise transfer any of
its rights under this Agreement without the prior written
consent of all Lenders.
(b) The terms and provisions of this Agreement
shall inure to the benefit of any transferee or assignee of
any Note and, in the event of such transfer or assignment,
the rights and privileges herein conferred upon the
assigning Lender shall automatically extend to and be vested
in such transferee or assignee, all subject to the terms and
conditions hereof. Any assignment shall be for an equal
percentage of each Class of such assignor Lender's Loans,
and any such assignee Lender shall, upon its registration in
the Note Register referred to below, become a "Lender" for
all purposes hereunder. No such assignment by Greyrock
Capital shall result in Greyrock Capital holding less than
51% of the aggregate unpaid principal amount of the Loans,
or, if no Loans are outstanding, having less than 51% of the
aggregate amount of the Commitments; provided that Greyrock
Capital may assign or otherwise transfer all or any portion
of its Loans and Commitments if at any time it shall, in the
judgment of Greyrock Capital, become unlawful under, or
violate, any statute, regulation, judgment, order or decree
applicable to Greyrock Capital for Greyrock Capital to make,
maintain or fund its Loans, such determination by Greyrock
Capital Group Inc. to be conclusive.
(c) Upon any assignment of any Note(s), the
assigning Lender shall surrender its Note(s) to the Company
for exchange or registration of transfer, and the Company
will promptly execute and deliver in exchange therefor new
Note(s) of the same tenor and registered in the name of the
assignor Lender (if less than all of such Lender's Notes are
assigned) and the name of the assignee Lender.
(d) The Company shall maintain a register (the
"Note Register") of the Lenders and all assignee Lenders
that are the holders of all the Notes issued pursuant to
this Agreement. The Company will allow any Lender to
inspect and copy such list at the Company's principal place
of business during normal business hours. Prior to the due
presentment for registration of transfer of any Note, the
Company may deem and treat the Person in whose name a Note
is registered as the absolute owner of such Note for the
purpose of receiving payment of principal of and premium and
interest on such Note and for all other purposes whatsoever,
and the Company shall not be affected by notice to the
contrary.
(e) Each Lender (including any assignee Lender at
the time of such assignment) represents that it (i) is
acquiring its Notes solely for investment purposes and not
with a view toward, or for sale in connection with, any
distribution thereof, (ii) has received and reviewed such
information as it deems necessary to evaluate the merits and
risks of its investment in the Notes, (iii) is an
"accredited investor" within the meaning of Rule 501(a)
under the Securities Act and (iv) has such knowledge and
experience in financial and business matters as to be
capable of evaluating the merits and risks of its investment
in the Notes, including a complete loss of its investment.
(f) Each Lender understands that the Notes are
being offered only in a transaction not involving any public
offering within the meaning of the Securities Act, and that,
if in the future such Lender decides to resell, pledge or
otherwise transfer any of the Notes, such Notes may be
resold, pledged or transferred only (i) to the Company, (ii)
to a person who such Lender reasonably believes is a
qualified institutional buyer that purchases for its own
account or for the account of a qualified institutional
buyer to whom notice is given that such resale, pledge or
transfer is being made in reliance on Rule 144A under the
Securities Act or (iii) pursuant to an exemption from
registration under the Securities Act.
(g) Each Lender understands that the Notes will,
unless otherwise agreed by the Company and the holder
thereof, bear a legend to the following effect:
THIS SECURITY IS NOT BEING REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"). THE HOLDER HEREOF, BY
PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT
OF THE ISSUER THAT THIS SECURITY MAY BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) TO THE
COMPANY, (2) TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN
THE MEANING OF RULE 144A UNDER THE SECURITIES ACT
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT
OF A QUALIFIED INSTITUTIONAL BUYER THAT IS AWARE
THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A OR (3) PURSUANT TO
AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT.
(h) If any Note becomes mutilated and is
surrendered by the Lender with respect thereto to the
Company, or if any Lender claims that any of its Notes has
been lost, destroyed or wrongfully taken, the Company shall
execute and deliver to such Lender a replacement Note, upon
the affidavit of such Lender attesting to such loss,
destruction or wrongful taking with respect to such Note and
receipt of indemnity or security satisfactory to the Company
(it being understood and agreed that if such Lender is
Greyrock Capital, then a written agreement of indemnity
given by Greyrock Capital alone shall be satisfactory to the
Company and no further security shall be required), and such
lost, destroyed, mutilated, surrendered or wrongfully taken
Note shall thereupon be deemed to be canceled for all
purposes hereof. Any costs and expenses of the Company in
replacing any such Note shall be for the account of such
Lender.
(i) Notwithstanding any other provision hereof or
of any other Operative Document, if the Company or any
Affiliate purchases any Note or any interest in any Loan,
such Note or interest shall thereupon be canceled, no new
Note or interest shall be substituted therefor and the
Company or such Affiliate, as the case may be, shall not be
a "Lender" for purposes of any of the Operative Documents or
be assigned the rights of any Lender.
SECTION 11.07. Collateral. Each of the Lenders
represents to the Agent and each of the other Lenders that
it in good faith is not relying upon any Margin Stock as
collateral in the extension or maintenance of the credit
provided for in this Agreement.
SECTION 11.08. Headings. Headings and captions
used in the Financing Documents (including the Exhibits and
Schedules hereto and thereto) are included herein and
therein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or
be given any substantive effect.
SECTION 11.09. Governing Law; Submission to
Jurisdiction. This Agreement and each Note shall be
governed by and construed in accordance with the laws of the
State of New York. The Company hereby submits to the
nonexclusive jurisdiction of the United States District
Court for the Southern District of New York and of any New
York State court sitting in New York City for purposes of
all legal proceedings arising out of or relating to this
Agreement or the transactions contemplated hereby. The
Company irrevocably waives, to the fullest extent permitted
by law, any objection which it may now or hereafter have to
the laying of the venue of any such proceeding brought in
such a court and any claim that any such proceeding brought
in such a court has been brought in an inconvenient forum.
Each of the parties hereto irrevocably consents to service
of process in the manner provided for notices in Section
11.03 (except that process may not be served by telecopy).
Nothing in this Agreement will affect the right of any party
to this Agreement to serve process in any other manner
permitted by law.
SECTION 11.10. Notice of Breach by Agent or
Lender. The Company agrees to give the Agent and the
Lenders notice of any action or inaction by the Agent or any
Lender or any agent or attorney of the Agent or any Lender
in connection with this Agreement or any other Financing
Document or the obligations of the Company under this
Agreement or any other Financing Document that may be
actionable against the Agent or any Lender or any agent or
attorney of the Agent or any Lender or a defense to payment
of any obligations of the Company under this Agreement or
any other Financing Document for any reason, including
commission of a tort or violation of any contractual duty or
duty implied by law. The Company agrees, to the fullest
extent that it may lawfully do so, that unless such notice
is given promptly (and in any event within 60 days after the
Company has knowledge, or with the exercise of reasonable
diligence could have had knowledge, of any such action or
inaction), the Company shall not assert, and the Company
shall be deemed to have waived, any claim or defense arising
therefrom to the extent that the Agent or any Lender could
have mitigated such claim or defense after receipt of such
notice.
SECTION 11.11. WAIVER OF JURY TRIAL. EACH OF THE
COMPANY, THE AGENT AND THE LENDERS HEREBY IRREVOCABLY WAIVES
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THE FINANCING DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREBY AND TO THE FULLEST EXTENT
PERMITTED BY LAW WAIVES ANY RIGHTS THAT IT MAY HAVE TO CLAIM
OR RECEIVE CONSEQUENTIAL OR SPECIAL DAMAGES IN CONNECTION
WITH ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THE
FINANCING DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
THEREBY.
SECTION 11.12. Counterparts; Integration. This
Agreement may be signed in any number of counterparts, each
of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same
instrument. This Agreement, the other Financing Documents,
the Investors Agreement and the Warrants constitute the
entire agreement and understanding among the parties hereto
and supersede any and all prior agreements and
understandings, oral or written, relating to the subject
matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused
this Amended Agreement to be duly executed by their
respective authorized officers as of the day and year first
above written.
AMERICAN MARKETING WORKS, INC.
By: /s/ Marvin Winkler
Title: President
Address: 228 Manhattan Beach Blvd.
Suite 305
Manhattan Beach, CA 90266
Company Account Designation:
Manufacturers Bank
ABA No.: 122226076
Account No.: 90048806
Account Name: American Marketing
Works, Inc.
GREYROCK CAPITAL GROUP INC.
as Lender and Agent
By: /s/ Ron Cohn
Title: Authorized Signatory
One Canterbury Green
P.O. Box 120013
Stamford, CT 06912-0013
Telecopy: 203-352-4102
Payment Account Designation:
First Chicago National Bank
Chicago, Illinois
ABA Number: 071000013
Account Number: 52-56933
Account Name: Greyrock Capital Group
Inc.
Reference: American Marketing Works,
Inc.
Agent Payment Account:
First Chicago National Bank
Chicago, Illinois
ABA Number: 071000013
Account Number: 52-56933
Account Name: Greyrock Capital Group
Inc.
Reference: American Marketing Works,
Inc.
LIST OF OMITTED EXHIBITS AND SCHEDULES
Exhibit A - Tranche A Note (included as Exhibit 10.49 to Form 10-
K for the year ended December 31, 1994)
Exhibit B - Tranche B Note (included as Exhibit 10.50 to Form 10-
K for the year ended December 31, 1994)
Exhibit C - Opinion of counsel to the Company
Exhibit D - Opinion of counsel to the Company
Schedule 1.01 - Security Documents
Schedule 5.02 - Required Consents and Defaults
Schedule 5.04 (c) - Financial Information
Schedule 5.05 - Legal Proceedings
Schedule 5.07 - Defaults
Schedule 5.10 - Subsidiaries
Schedule 5.13 - Taxes
Schedule 5.16 - Compensation Arrangements
Schedule 5.19 - Environmental Matters
Schedule 6.04 - Required Insurance
Schedule 7.01 - Outstanding Debt
EXHIBIT 10.49
THIS SECURITY IS NOT BEING REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY,
AGREES FOR THE BENEFIT OF THE ISSUER THAT THIS SECURITY
MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)
TO THE COMPANY, (2) TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER THAT IS AWARE THAT THE RESALE, PLEDGE
OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A
OR (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT.
AMERICAN MARKETING WORKS, INC.
TRANCHE A NOTE
$4,750,000.00 February 16, 1993
AMERICAN MARKETING WORKS, INC., a Delaware
corporation (together with its successors, the "Company"), for
value received, promises to pay GREYROCK CAPITAL GROUP INC.
(the "Lender"), or registered assigns, an aggregate principal
amount of FOUR MILLION SEVEN HUNDRED AND FIFTY THOUSAND
DOLLARS ($4,750,000), or the aggregate outstanding principal
amount of the Tranche A Loans made by such Lender, whichever
is less, on June 30, 1995 (or if such day is not a Business
Day, on the next succeeding Business Day) (the "Maturity
Date"), and to pay, in arrears on the first day of each
calendar month (or, if such day is not a Business Day, on the
next succeeding Business Day), commencing with December 1,
1994, until the Maturity Date and on the Maturity Date,
interest (computed on the basis of the actual number of days
elapsed over a year of 360 days) on the aggregate unpaid
principal amount hereof from time to time at a rate equal to
the sum of 4.75% per annum plus the Commercial Paper Rate (as
hereinafter defined) (but not at a rate higher than the
highest rate permitted by applicable law), and to pay on
demand interest at a rate equal to the sum of 6.75% per annum
plus the Commercial Paper Rate (but not at a rate higher than
the highest rate permitted by applicable law) on any overdue
principal, premium and interest from the due date thereof to
the date of actual payment (after as well as before judgment
and during bankruptcy). Changes in the rate of interest
applicable hereto shall occur as of the opening of business on
any day on which the Commercial Paper Rate changes.
"Commercial Paper Rate" means for any day in any
calendar month, the rate of interest equivalent to the money
market yield for the Interest Determination Date falling in
such month on the one month Commercial Paper Rate for
dealer-placed commercial paper of issuers whose corporate
bonds are rated "AA" or its equivalent by a nationally
recognized rating agency, as such rate is made available on a
discount basis or otherwise by the Federal Reserve Bank of New
York and published weekly by the Board of Governors of the
Federal Reserve System in its H.15 report, or any successor
publication published by the Board of Governors of the Federal
Reserve System or, if such rate for such date is not yet
published in such statistical release, the rate for that date
will be the rate set forth in the weekly statistical release
designated as such, or any successor publication, published by
the Board of Governors of the Federal Reserve System.
"Interest Determination Date" means November 1, 1994 and the
first Business Day of each calendar month thereafter.
This Note is one of the Tranche A Notes referred to
in the Amended and Restated Credit Agreement dated as of
February 16, 1993 (as amended from time to time, the "Credit
Agreement") among the Company, the lenders referred to therein
and Greyrock Capital Group Inc. (as successor to U S WEST
Financial Services, Inc.), as Agent. The Credit Agreement and
the Security Documents referred to therein contain additional
rights of the holder of, and the security for, this Note.
Capitalized terms used but not defined herein have the
meanings assigned thereto in the Credit Agreement.
If an Event of Default shall occur and be
continuing, the unpaid balance of the principal of this Note
together with all accrued but unpaid interest hereon may
become or be declared forthwith due and payable in the manner
and with the effect provided in the Credit Agreement.
This Note also may and must be prepaid as provided
in the Credit Agreement, together with any premiums set forth
therein, under the circumstances therein described.
Payments of principal hereof and interest and
premium hereon shall be made in lawful money of the United
States of America.
This Note shall be governed by, and construed in
accordance with, the laws of the State of New York in all
respects, including all matters of construction, validity and
performance, without regard to the choice of law provisions
thereof.
IN WITNESS WHEREOF, the Company has caused this Note
to be duly executed as of the day and year first above
written.
AMERICAN MARKETING WORKS, INC.
By /s/ Marvin Winkler
Title: President
EXHIBIT 10.50
THIS SECURITY IS NOT BEING REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY,
AGREES FOR THE BENEFIT OF THE ISSUER THAT THIS SECURITY
MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)
TO THE COMPANY, (2) TO A PERSON WHO THE SELLER REASONABLY
BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING
FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER THAT IS AWARE THAT THE RESALE, PLEDGE
OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A
OR (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT.
AMERICAN MARKETING WORKS, INC.
TRANCHE B NOTE
$1,750,000.00 February 16, 1993
AMERICAN MARKETING WORKS, INC., a Delaware
corporation (together with its successors, the "Company"), for
value received, promises to pay GREYROCK CAPITAL GROUP
INC. (the "Lender"), or registered assigns, an aggregate
principal amount of ONE MILLION SEVEN HUNDRED AND FIFTY
THOUSAND DOLLARS ($1,750,000), or the aggregate outstanding
principal amount of the Tranche B Loans made by such Lender,
whichever is less, on June 30, 1995 (or if such day is not a
Business Day, on the next succeeding Business Day) (the
"Maturity Date"), and to pay, in arrears on the first day of
each calendar month (or, if any such day is not a Business
Day, on the next succeeding Business Day), commencing with
December 1, 1994, until the Maturity Date and on the Maturity
Date, interest (computed on the basis of the actual number of
days elapsed over a year of 360 days) on the aggregate unpaid
principal amount hereof from time to time at a rate equal to
the sum of 7.65% per annum plus the Commercial Paper Rate (as
hereinafter defined) (but not at a rate higher than the
highest rate permitted by applicable law), and to pay on
demand interest at a rate equal to the sum of 9.65% per annum
plus the Commercial Paper Rate (but not at a rate higher than
the highest rate permitted by applicable law) on any overdue
principal, premium and interest from the due date thereof to
the date of actual payment (after as well as before judgment
and during bankruptcy). Changes in the rate of interest
applicable hereto shall occur as of the opening of business or
any day on which the Commercial Paper Rate changes.
"Commercial Paper Rate" means for any day in any
calendar month, the rate of interest equivalent to the money
market yield for the Interest Determination Date falling in
such month on the one month Commercial Paper Rate for
dealer-placed commercial paper of issuers whose corporate
bonds are rated "AA" or its equivalent by a nationally
recognized rating agency, as such rate is made available on a
discount basis or otherwise by the Federal Reserve Bank of New
York and published weekly by the Board of Governors of the
Federal Reserve System in its H.15 report, or any successor
publication published by the Board of Governors of the Federal
Reserve System or, if such rate for such date is not yet
published in such statistical release, the rate for that date
will be the rate set forth in the weekly statistical release
designated as such, or any successor publication, published by
the Board of Governors of the Federal Reserve System.
"Interest Determination Date" means November 1, 1994 and the
first Business Day of each calendar month thereafter.
This Note is one of the Tranche B Notes referred to
in the Amended and Restated Credit Agreement dated as of
February 16, 1993 (as amended from time to time, the "Credit
Agreement") among the Company, the lenders referred to therein
and Greyrock Capital Group Inc. (as successor to U S WEST
Financial Services, Inc.), as Agent. The Credit Agreement and
the Security Documents referred to therein contain additional
rights of the holder of, and the security for, this Note.
Capitalized terms used but not defined herein have the
meanings assigned thereto in the Credit Agreement.
If an Event of Default shall occur and be
continuing, the unpaid balance of the principal of this Note
together with all accrued but unpaid interest hereon may
become or be declared forthwith due and payable in the manner
and with the effect provided in the Credit Agreement.
This Note also may and must be prepaid as provided
in the Credit Agreement, together with any premiums set forth
therein, under the circumstances therein described.
Payments of principal hereof and interest and
premium hereon shall be made in lawful money of the United
States of America.
This Note shall be governed by, and construed in
accordance with, the laws of the State of New York in all
respects, including all matters of construction, validity and
performance, without regard to the choice of law provisions
thereof.
IN WITNESS WHEREOF, the Company has caused this Note
to be duly executed as of the day and year first above
written.
AMERICAN MARKETING WORKS, INC.
By: /s/ Marvin Winkler
Title: President
EXHIBIT 10-51
SECURITY AGREEMENT
AGREEMENT dated as of February 16, 1993 between
AMW ACQUISITION CORP., a Delaware corporation (together with
its successors, including American Marketing Works, Inc., a
Delaware corporation, as the survivor of the merger of AMW
Acquisition Corp. with and into American Marketing Works,
Inc. concurrently with the making of the initial loans under
the Credit Agreement referred to below and the execution and
delivery of this Agreement by the parties hereto, the
"Company"), and U S WEST FINANCIAL SERVICES, INC., as Agent.
W I T N E S S E T H :
WHEREAS, the Company, certain lenders and U S WEST
Financial Services, Inc., as agent for such lenders, are
parties to a Credit Agreement of even date herewith (as the
same may be amended from time to time, the "Credit
Agreement"); and
WHEREAS, in order to induce such lenders and U S
WEST Financial Services, Inc., as agent for such lenders to
enter into the Credit Agreement, the Company has agreed to
grant a continuing security interest in and to the
Collateral (as hereafter defined) to secure its obligations
under the Financing Documents referred to in the Credit
Agreement;
NOW, THEREFORE, in consideration of the premises
and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
SECTION 1. Definitions
Terms defined in the Credit Agreement and not
otherwise defined herein have, as used herein, the
respective meanings provided for therein. The following
additional terms, as used herein, have the following
respective meanings:
"Accounts" means all "accounts" (as defined in the
UCC) now owned or hereafter acquired by the Company, and
shall also mean and include all accounts receivable,
contract rights, book debts, notes, drafts and other
obligations or indebtedness owing to the Company arising
from the sale, lease or exchange of goods or other property
by it and/or the performance of services by it (including
any such obligation which might be characterized as an
account, contract right or general intangible under the
Uniform Commercial Code in effect in any jurisdiction) and
all of the Company's rights in, to and under all purchase
orders for goods, services or other property, and all of the
Company's rights to any goods, services or other property
represented by any of the foregoing (including returned or
repossessed goods and unpaid sellers' rights of rescission,
replevin, reclamation and rights to stoppage in transit) and
all monies due to or to become due to the Company under all
contracts for the sale, lease or exchange of goods or other
property and/or the performance of services by it (whether
or not yet earned by performance on the part of the
Company), in each case whether now in existence or hereafter
arising or acquired (and including all Accounts sold or
assigned under the New Factoring Agreement) including the
right to receive the proceeds of said purchase orders and
contracts and all collateral security and guarantees of any
kind given by any Person with respect to any of the
foregoing.
"Collateral" has the meaning set forth in
Section 3.
"Collateral Accounts" means the Lockbox Account
and the Insurance Account.
"Copyright License" means any written agreement
now or hereafter in existence granting to the Company any
right to publication as to which a Copyright is in
existence.
"Copyrights" means all the following: (i) all
copyrights under the laws of the United States or any other
country, all registrations and recordings thereof, and all
applications for copyrights under the laws of the United
States or any other country, including registrations,
recordings and applications in the United States Copyright
Office or in any similar office or agency of the United
States, any State thereof or any other country or any
political subdivision thereof, and (ii) all reissues,
continuations, continuations-in-part or extensions thereof.
"Copyright Security Agreement" means a Copyright
Security Agreement executed and delivered by the Company in
favor of the Agent, for the benefit of the Secured Parties,
substantially in the form of Exhibit E hereto, as the same
may be amended from time to time.
"Documents" means all "documents" (as defined in
the UCC) or other receipts covering, evidencing or
representing goods, now owned or hereafter acquired by the
Company.
"Equipment" means all "equipment" (as defined in
the UCC) now owned or hereafter acquired by the Company,
including all motor vehicles, trucks, trailers, railcars and
barges.
"General Intangibles" means all "general
intangibles" (as defined in the UCC) now owned or hereafter
acquired by the Company, including (i) all right, title and
interest of the Company under the Acquisition Documents and
the New Factoring Agreement and all amounts payable to it
thereunder, (ii) all obligations or indebtedness owing to
the Company (other than Accounts) from whatever source
arising, (iii) all Patents, Patent Licenses, Trademarks,
Trademark Licenses, Copyrights, Copyright Licenses, rights
in intellectual property, goodwill, trade names, service
marks, trade secrets, permits and licenses (except to the
extent that the granting by the Company of a security
interest therein results in the violation or termination of,
or a default under, any agreement to which the Company is a
party), (iv) all rights or claims in respect of refunds for
taxes paid and (v) all reversionary rights in respect of any
pension plan or similar arrangement maintained for employees
of any member of the ERISA Group.
"Instruments" means all "instruments", "chattel
paper" or "letters of credit" (each as defined in the UCC),
including those evidencing, representing, arising from or
existing in respect of, relating to, securing or otherwise
supporting the payment of, any of the Accounts, including
(but not limited to) promissory notes, drafts, bills of
exchange and trade acceptances, now owned or hereafter
acquired by the Company.
"Insurance Account" has the meaning set forth in
Section 5(C).
"Insurance Proceeds" has the meaning set forth in
Section 5(C).
"Liquid Investments" has the meaning set forth in
Section 5(E).
"Lockbox Account" has the meaning set forth in
Section 5(A).
"Lockbox Agreement" has the meaning set forth in
Section 5(A).
"Lockbox Bank" has the meaning set forth in
Section 5(A).
"Patents" means all the following: (i) all
letters patent of the United States or any other country,
all registrations and recordings thereof, and all
applications for letters patent of the United States or any
other country, including registrations, recordings and
applications in the United States Patent and Trademark
Office or in any similar office or agency of the United
States or any other country or any political subdivision
thereof, including those described in the Perfection
Certificate, and (ii) all reissues, continuations,
continuation-in-part or extensions thereof.
"Patent License" means any written agreement now
or hereafter in existence granting to the Company any right
to practice any invention on which a Patent is in existence.
"Patent Security Agreement" means the Patent
Security Agreement executed and delivered by the Company in
favor of the Agent, for the benefit of the Secured Parties,
substantially in the form of Exhibit C hereto, as the same
may be amended from time to time.
"Perfection Certificate" means a certificate
substantially in the form of Exhibit A, completed and
supplemented with the schedules and attachments contemplated
thereby to the satisfaction of the Agent, and duly executed
by the chief executive officer of the Company.
"Permitted Liens" means the Security Interests and
the Liens on the Collateral permitted to be created, assumed
or exist pursuant to Section 9.02 of the Credit Agreement.
"Proceeds" means all proceeds of, and all other
profits, products, rents or receipts, in whatever form,
arising from the collection, sale, lease, exchange,
assignment, licensing or other disposition of, or other
realization upon, collateral, including all claims of the
Company against third parties for loss of, damage to or
destruction of, or for proceeds payable under, or unearned
premiums with respect to, policies of insurance in respect
of, any collateral, and any condemnation or requisition
payments with respect to any collateral, in each case
whether now existing or hereafter arising.
"Secured Obligations" means the obligations
secured under this Agreement which include (a) all principal
of and interest (including any interest which accrues after
the commencement of any case, proceeding or other action
relating to the bankruptcy, insolvency or reorganization of
the Company) on any loan under, or any note issued pursuant
to, the Credit Agreement, (b) all other amounts payable by
the Company hereunder or under any other Financing Document,
(c) all other obligations of the Company hereunder and under
the other Financing Documents, (d) all other debts,
obligations and liabilities of any kind, nature or
description whatsoever (whether primary, secondary, direct,
contingent, sole, joint or several, or otherwise, and
whether due or to become due) of Company to any Secured
Party, now existing or hereafter arising and (e) any
renewals, extensions or modifications of any of the
foregoing.
"Security Interests" means the security interests
in the Collateral granted hereunder securing the Secured
Obligations.
"Secured Parties" means the Agent and the Lenders.
"Trademarks" means all of the following: (i) all
trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade styles,
service marks, logos, other source or business identifiers,
designs and general intangibles of like nature, now existing
or hereafter adopted or acquired, all registrations and
recordings thereof, and all applications in connection
therewith, including registrations, recordings and
applications in the United States Patent and Trademark
Office or in any similar office or agency of the United
States, any State thereof or any other country or any
political subdivision thereof, including those described in
the Perfection Certificate, and (ii) all extensions or
renewals thereof.
"Trademark License" means any written agreement
now or hereafter in existence granting to the Company any
right to use any Trademark.
"Trademark Security Agreement" means the Trademark
Security Agreement executed and delivered by the Company in
favor of the Agent, for the benefit of the Secured Parties,
substantially in the form of Exhibit D hereto, as the same
may be amended from time to time.
"UCC" means the Uniform Commercial Code as in
effect on the date hereof in the State of New York; provided
that if by reason of mandatory provisions of law, the
perfection or the effect of perfection or non-perfection of
the Security Interest in any Collateral is governed by the
Uniform Commercial Code as in effect in a jurisdiction other
than New York, "UCC" means the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the
provisions hereof relating to such perfection or effect of
perfection or non-perfection.
SECTION 2. Representations and Warranties
The Company represents and warrants as follows:
(A) The Company has good and marketable title to
all of the Collateral, free and clear of any Liens other
than the Permitted Liens. The Company has taken all actions
necessary under the UCC to perfect its interest in any
Accounts purchased or otherwise acquired by it, as against
its assignors and creditors of its assignors.
(B) The Company has not performed any acts which
might prevent the Agent from enforcing any of the terms of
this Agreement or which would limit the Agent in any such
enforcement. Other than financing statements or other
similar or equivalent documents or instruments with respect
to the Security Interests and Permitted Liens, no financing
statement, mortgage, security agreement or similar or
equivalent document or instrument covering all or any part
of the Collateral is on file or of record in any
jurisdiction in which such filing or recording would be
effective to perfect a Lien on such Collateral. No
Collateral is in the possession of any Person (other than
the Company) asserting any claim thereto or security
interest therein, except that the Agent or its designee may
have possession of Collateral as contemplated hereby.
(C) The information set forth in the Perfection
Certificate delivered to the Agent prior to the Closing Date
is correct and complete after giving effect to the
consummation of the Recapitalization. Not later than 30
days following the Closing Date, the Company shall furnish
to the Agent file search reports from each UCC filing office
set forth in Schedule 7 to the Perfection Certificate
confirming the filing information set forth in such
Schedule.
(D) The Security Interests constitute valid
security interests under the UCC securing the Secured
Obligations. When UCC financing statements in the form
specified in Exhibit A shall have been filed in the offices
specified in the Perfection Certificate, the Security
Interests shall constitute perfected security interests in
the Collateral to the extent that a security interest
therein may be perfected by filing pursuant to the UCC,
prior to all other Liens and rights of others therein except
for the Permitted Liens. When the Company has executed and
delivered to the insurance company issuing the Key-Man Life
Insurance assignments of policy as collateral security (the
"Insurance Assignments") and such insurance company has
acknowledged the Insurance Assignments, the Agent will have,
for the benefit of itself and the Secured Parties, a
perfected Security Interest in each Key Man Life Insurance
Policy and shall be entitled to receive all payments
thereunder subject to the provisions of the Insurance
Assignments. When a Patent Security Agreement or a
Trademark Security Agreement has been recorded with the
United States Patent and Trademark Office, the Security
Interests shall constitute perfected security interests in
all right, title and interest of the Company in the Patents
or Trademarks, as the case may be, listed in Schedule 1 to
such Agreement, prior to all other Liens and rights of
others therein, subject to Permitted Liens. When a
Copyright Security Agreement has been filed with the United
States Copyright Office, the Security Interests shall
constitute perfected security interests in all right, title
and interest of the Company in Copyrights listed in
Schedule 1 to such Agreement, prior to all other Liens and
rights of others therein except for the Permitted Liens.
(E) The Equipment is insured in accordance with
the requirements of the Credit Agreement.
SECTION 3. The Security Interests
(A) In order to secure the full and punctual
payment and performance of the Secured Obligations in
accordance with the terms thereof, the Company hereby grants
to the Agent for the ratable benefit of the Secured Parties
a continuing security interest in and to all of the
following property of the Company, whether now owned or
existing or hereafter acquired or arising and regardless of
where located (all being collectively referred to as the
"Collateral"):
(1) Accounts;
(2) General Intangibles;
(3) Documents;
(4) Instruments;
(5) Equipment;
(6) The Lockbox Account and the Insurance
Account, all cash deposited in either of the foregoing
from time to time, the Liquid Investments made pursuant
to Section 5(E) and other monies and property of any
kind of the Company in the possession or under the
control of the Agent;
(7) All books and records (including customer
lists, credit files, computer programs, printouts and
other computer materials and records) of the Company
pertaining to any of the Collateral;
(8) Each Key Man Life Insurance Policy and other
insurance policies of the Company; and
(9) All Proceeds of all or any of the Collateral
described in Clauses 1 through 8 hereof.
(B) The Security Interests are granted as
security only and shall not subject the Agent or any Secured
Party to, or transfer or in any way affect or modify, any
obligation or liability of the Company with respect to any
of the Collateral or any transaction in connection
therewith.
SECTION 4. Further Assurances; Covenants
(A) The Company will not change its name,
identity or corporate structure in any manner unless it
shall have given the Agent prior notice thereof and
delivered an opinion of counsel with respect thereto in
accordance with Section 4(K). The Company will not change
the location of (i) its chief executive office or chief
place of business or (ii) the locations where it keeps or
holds any Collateral or any records relating thereto from
the applicable location described in the Perfection
Certificate unless it shall have given the Agent prior
notice thereof and delivered an opinion of counsel with
respect thereto in accordance with Section 4(K). The
Company shall not in any event change the location of any
Collateral if such change would cause the Security Interests
in such Collateral to lapse or cease to be perfected.
(B) The Company will, from time to time, at its
expense, execute, deliver, file and record any statement,
assignment, instrument, document, agreement or other paper
and take any other action, (including any filings of
financing or continuation statements under the UCC) that
from time to time may be necessary or desirable, or that the
Agent may request, in order to create, preserve, perfect,
confirm or validate the Security Interests or to enable the
Agent and the Secured Parties to obtain the full benefits of
this Agreement, or to enable the Agent to exercise and
enforce any of its rights, powers and remedies hereunder
with respect to any of the Collateral. To the extent
permitted by applicable law, the Company hereby authorizes
the Agent, and appoints the Agent as its true and lawful
attorney (with full power of substitution, in the name of
the Company, the Agent, the Secured Parties or otherwise,
for the sole use and benefit of the Agent and the Secured
Parties), to execute and file financing statements or
continuation statements without the Company's signature
appearing thereon. The Company agrees that a carbon,
photographic, photostatic or other reproduction of this
Agreement or of a financing statement is sufficient as a
financing statement. The Company shall pay the costs of, or
incidental to, any recording or filing of any financing or
continuation statements concerning the Collateral.
(C) If any Collateral is at any time in the
possession or control of any warehouseman, bailee or any of
the Company's agents or processors, the Company shall notify
such warehouseman, bailee, agent or processor of the
Security Interests created hereby and to hold all such
Collateral for the Agent's account subject to the Agent's
instructions.
(D) The Company shall keep full and accurate
books and records relating to the Collateral, and stamp or
otherwise mark such books and records in such manner as the
Required Lenders may reasonably require in order to reflect
the Security Interests.
(E) The Company will immediately deliver and
pledge each Instrument to the Agent, appropriately endorsed
to the Agent, provided that so long as no Event of Default
shall have occurred and be continuing, the Company may
retain for collection in the ordinary course any Instruments
(other than checks and drafts constituting payments in
respect of Accounts, as to which the provisions of Section
5(B) shall apply) received by it in the ordinary course of
business and the Agent shall, promptly upon request of the
Company, make appropriate arrangements for making any other
Instrument pledged by the Company available to it for
purposes of presentation, collection or renewal (any such
arrangement to be effected, to the extent deemed appropriate
to the Agent, against trust receipt or like document).
(F) The Company shall use its best efforts to
cause to be collected from its account debtors, as and when
due, any and all amounts owing under or on account of each
Account (including Accounts which are delinquent, such
Accounts to be collected in accordance with lawful
collection procedures) and shall apply forthwith upon
receipt thereof all such amounts as are so collected to the
outstanding balance of such Account. Subject to the rights
of the Agent and the Secured Parties hereunder upon the
occurrence and during the continuance of an Event of
Default, the Company may allow in the ordinary course of
business as adjustments to amounts owing under its Accounts
(i) an extension or renewal of the time or times of payment,
or settlement for less than the total unpaid balance, which
the Company finds appropriate in accordance with sound
business judgment unless such extension, renewal or
settlement results in causing such Account to not be an
Eligible Receivable and thereby causes the aggregate unpaid
balance of Working Capital Borrowings to exceed the
Borrowing Base and (ii) a refund or credit due as a result
of returned or damaged merchandise or as a discount for
prompt payment, all in accordance with the Company's
ordinary course of business consistent with its historical
collection practices. The costs and expenses (including
attorney's fees) of collection, whether incurred by the
Company or the Agent, shall be borne by the Company.
(G) The Company shall, (i) on or prior to the
Closing Date, in the case of Equipment now owned and
(ii) within 10 days of acquiring any other Equipment,
deliver to the Agent any and all certificates of title,
applications for title or similar evidence of ownership of
such Equipment and shall cause the Agent to be named as
lienholder on any such certificate of title or other
evidence of ownership. The Company shall promptly inform
the Agent of any additions to or deletions from the
Equipment and shall not permit any such items to become a
fixture to real estate or an accession to other personal
property.
(H) Without the prior written consent of the
Required Lenders, the Company will not sell, lease,
exchange, assign or otherwise dispose of, or grant any
option with respect to, any Collateral except, subject to
the rights of the Agent and the Secured Parties hereunder if
an Event of Default shall have occurred and be continuing,
as permitted under the Credit Agreement including Section
9.06, whereupon, in the case of such a sale or exchange, the
Security Interests created hereby in such item (but not in
any Proceeds arising from such sale or exchange) shall cease
immediately without any further action on the part of the
Agent.
(I) Prior to the Closing Date, the Company will
cause the Agent to be named as an insured party and loss
payee on each insurance policy covering risks relating to
any of its Equipment. The Company will deliver to the
Agent, upon request of the Agent, the insurance policies for
such insurance. Each such insurance policy shall include
effective waivers by the insurer of all claims for insurance
premiums against the Agent or any Secured Party, provide
that all insurance proceeds in excess of $100,000 per claim
shall be adjusted with and payable to the Agent and provide
that no material modification, cancellation or termination
thereof shall be effective until at least 30 days after
receipt by the Agent of written notice thereof. The Company
hereby appoints the Agent as its attorney-in-fact to make
proof of loss, claim for insurance and adjustments with
insurers, and to execute or endorse all documents, checks or
drafts in connection with payments made as a result of any
such insurance policies.
(J) The Company will, promptly upon request,
provide to the Agent all information and evidence it may
reasonably request concerning the Collateral to enable the
Agent to enforce the provisions of this Agreement.
(K) Not more than six months nor less than 30
days prior to each date on which the Company proposes to
take any action contemplated by Section 4(A), the Company
shall give notice to the Agent of such proposed action, and,
at the Company's cost and expense, cause to be delivered to
the Secured Parties with such notice, an opinion of counsel,
satisfactory to the Agent, substantially in the form of
Exhibit B to the effect that all financing statements and
amendments or supplements thereto, continuation statements
and other documents required to be recorded or filed in
order to perfect and protect the Security Interests against
all creditors of and purchasers from the Company have been
filed in each filing office necessary for such purpose, that
all filing fees and taxes, if any, payable in connection
with such filings have been paid in full and stating the
first date on which a continuation statement with respect to
each of such filings may be filed in order to continue its
effectiveness.
(L) From time to time upon request by the Agent,
the Company shall, at its cost and expense, cause to be
delivered to the Secured Parties an opinion of counsel
satisfactory to the Agent as to such matters relating to the
transactions contemplated hereby as the Required Lenders may
reasonably request.
(M) The Company shall notify the Agent
immediately if it knows that any application or registration
relating to any Copyright, Patent or Trademark may become
abandoned or dedicated (other than applications or
registrations (x) with respect to any such Patents or
Trademarks that are no longer used or useful in the business
of the Company or whose minimal value does not reasonably
justify the cost of maintaining such registration or
application, or (y) that have been refused by the applicable
patent or trademark registry) or of any adverse
determination or development (including the institution of,
or any such determination or development in, any proceeding
in the United States Patent and Trademark Office, or any
court) regarding the Company's ownership of any Copyright,
Patent or Trademark, its right to register the same, or to
keep and maintain the same. In the event that any
Copyright, Patent, Trademark, Patent License, Trademark
License or Copyright License is infringed, misappropriated
or diluted by a third party, the Company shall notify the
Agent promptly after it learns thereof and shall, unless the
Company shall reasonably determine that any such action
would be of negligible economic value, promptly take all
other actions as the Company shall deem appropriate to stop
such infringement, misappropriation or dilution including,
if necessary, suing for infringement, misappropriation or
dilution and to recover any and all damages for such
infringement, misappropriation or dilution, and take such
other actions as the Company shall reasonably deem
appropriate under the circumstances to protect such
Copyright, Patent, Trademark, Patent License, Trademark
License or Copyright License. In no event shall the
Company, either itself or though any agent, employee or
licensee, file an application for the registration of any
Copyright, Patent or Trademark with the United States
Copyright Office, the United States Patent and Trademark
Office, or with any similar office or agency in any other
country or any political subdivision thereof, unless it
promptly informs the Agent, and, upon request of the Agent,
executes and delivers any and all agreements, instruments,
documents and papers the Agent may request to evidence the
Security Interest in such Copyright, Patent or Trademark and
the goodwill and general intangibles of the Company relating
thereto or represented thereby, and the Company hereby
constitutes the Agent its attorney-in-fact to execute and
file all such writings for the foregoing purposes, all acts
of such attorney being hereby ratified and confirmed; such
power, being coupled with an interest, shall be irrevocable
until the Secured Obligations are paid in full.
SECTION 5. Lockbox Account and Insurance Account
(A) Upon the request of the Agent (whether or not
a Default or Event of Default shall have occurred and be
continuing), the Agent and the Company shall establish,
pursuant to a lockbox agreement in form and substance
satisfactory to the Agent (the "Lockbox Agreement"), a bank
account (the "Lockbox Account") with a bank or other
financial institution acceptable to the Agent and the
Company, in the name "American Marketing Works, Inc. -- US
WEST Financial Services, Inc., as Agent", and under the
exclusive control of the Agent, into which there shall be
deposited from time to time the cash proceeds of the
Collateral required to be delivered to the Agent pursuant to
subsection (B) of this Section 5 or any other provision of
this Agreement. Any income received with respect to the
balance from time to time standing to the credit of the
Lockbox Account, including any interest or capital gains on
Liquid Investments, shall remain, or be deposited, in the
Lockbox Account. All right, title and interest in and to
the cash amounts on deposit from time to time in the Lockbox
Account together with any Liquid Investments from time to
time made pursuant to subsection (E) of this Section shall
vest in the Agent, shall constitute part of the Collateral
hereunder and shall not constitute payment of the Secured
Obligations until applied thereto as hereinafter provided.
(B) From and after the establishment of the
Lockbox Account, the Company shall instruct all account
debtors and other Persons obligated in respect of all
Accounts (other than Accounts that constitute Factored
Receivables) to make all payments in respect of such
Accounts and shall use its best efforts to cause such
account debtors and other Persons to remit all such payments
directly to the Lockbox Account (if paid by wire transfer)
or to a post office box that is subject to the Lockbox
Agreement, for deposit into the Lockbox Account. In
addition to the foregoing, the Company agrees that if the
proceeds of any Collateral hereunder (including the payments
made in respect of Accounts (other than Accounts that
constitute Factored Receivables)) shall be received by it,
the Company, subject to subsection (C) of this Section,
shall as promptly as possible deposit such proceeds into the
Lockbox Account. Until so deposited, all such proceeds
shall be held in trust by the Company for and as the
property of the Agent and the Secured Parties and shall not
be commingled with any other funds or property of the
Company. The balance from time to time standing to the
credit of the Lockbox Account shall, except upon the
occurrence and continuation of an Event of Default, be
distributed to the Company in accordance with the provisions
of the Lockbox Agreement. If immediately available cash on
deposit in the Lockbox Account is not sufficient to make any
distribution to the Company referred to in the previous
sentence of this Section 5(B), the Agent shall cause to be
liquidated as promptly as practicable Liquid Investments in
the Lockbox Account designated by the Company as required to
obtain sufficient cash to make such distribution and,
notwithstanding any other provision of this Section 5, such
distribution shall not be made until such liquidation has
taken place. Upon the occurrence and continuation of an
Event of Default, the Agent shall, if so instructed by the
Required Lenders, apply or cause to be applied (subject to
collection) any or all of the balance from time to time
standing to the credit of the Lockbox Account in the manner
specified in Section 9.
(C) Promptly upon and at all times after the
receipt of any cash proceeds of insurance policies, awards
of condemnation or other compensation required to be paid to
the Agent pursuant to Section 8.04(b) or 8.04(c) of the
Credit Agreement (the "Insurance Proceeds"), the Company
shall establish and shall thereafter maintain an additional
cash collateral account (the "Insurance Account") at the
offices of the Lockbox Bank or such other bank as the
Company and the Agent may agree (the "Insurance Account
Bank"), in the name and under the control of the Agent.
Forthwith upon such establishment, the Company shall notify
the Agent of the location, account name and account number
of such account. The Company hereby agrees to cause any
Insurance Proceeds received from time to time after the
establishment of the Insurance Account to be deposited
therein as set forth in this paragraph. Any income received
with respect to the balance from time to time standing to
the credit of the Insurance Account, including any interest
or capital gains on Liquid Investments, shall remain, or be
deposited, in the Insurance Account. All right, title and
interest in and to the cash amounts on deposit from time to
time in the Insurance Account together with any Liquid
Investments from time to time made pursuant to subsection
(E) of this Section shall vest in the Agent, shall
constitute part of the Collateral hereunder and shall not
constitute payment of the Secured Obligations until applied
thereto as hereinafter provided. The Agent shall apply to
repayment of the Tranche A Loans and Tranche B Loans,
respectively, those amounts on deposit in the Insurance
Account which are required to be applied to the repayment of
the Tranche A Loans in accordance with Section 2.04(b)(ii)
of the Credit Agreement or to repayment of the Tranche B
Loans in accordance with Section 3.04(b)(ii) of the Credit
Agreement.
(D) The balance from time to time standing to the
credit of the Insurance Account (to the extent not applied
pursuant to the last sentence of Section 5(C)) shall be
subject to withdrawal only upon the instructions of the
Agent. Except upon the occurrence and continuation of an
Event of Default, the Agent agrees to give instructions to
distribute such amounts to the Company at such times and in
such amounts (other than amounts attributable to proceeds
paid pursuant to Section 8.04(c) of the Credit Agreement) as
the Company shall request for the purpose of repairing,
reconstructing or replacing the property in respect of which
such Insurance Proceeds were received. Any such request
shall be accompanied by a certificate of the chief financial
officer or treasurer of the Company setting forth in detail
reasonably satisfactory to the Required Lenders the repair,
reconstruction or replacement for which such funds will be
expended. If immediately available cash on deposit in the
Insurance Account is not sufficient to make any distribution
to the Company referred to in the previous sentence of this
Section 5(D), the Agent shall cause to be liquidated as
promptly as practicable such Liquid Investments in the
Insurance Account designated by the Company as required to
obtain sufficient cash to make such distribution and,
notwithstanding any other provision of this Section 5, such
distribution shall not be made until such liquidation has
taken place. Upon the occurrence and continuation of an
Event of Default, the Agent shall, if so instructed by the
Required Lenders, apply or cause to be applied (subject to
collection) any or all of the balance from time to time
standing to the credit of the Insurance Account in the
manner specified in Section 9.
(E) Amounts on deposit in the Lockbox Account and
the Insurance Account shall be invested and re-invested from
time to time in such Liquid Investments as the Company shall
determine, which Liquid Investments shall be held in the
name and be under the control of the Agent; provided that,
if an Event of Default has occurred and is continuing, the
Agent shall, if instructed by the Required Lenders, cause
such Liquid Investments to be liquidated and apply or cause
to be applied the proceeds thereof to the payment of the
Secured Obligations in the manner specified in Section 9.
For this purpose, "Liquid Investments" means Temporary Cash
Investments; provided that (i) each Liquid Investment shall
mature within 30 days after it is acquired by the Agent and
(ii) in order to provide the Agent, for the benefit of the
Secured Parties, with a perfected security interest therein,
each Liquid Investment shall be either:
(i) evidenced by negotiable certificates or
instruments, or if non-negotiable then issued in the
name of the Agent, which (together with any appropriate
instruments of transfer) are delivered to, and held by,
the Agent or an agent thereof (which shall not be the
Company or any of its Affiliates) in the State of New
York; or
(ii) in book-entry form and issued by the United
States and subject to pledge under applicable state law
and Treasury regulations and as to which (in the
opinion of counsel to the Agent) appropriate measures
shall have been taken for perfection of the Security
Interests.
SECTION 6. General Authority
The Company hereby irrevocably appoints the Agent
its true and lawful attorney, with full power of
substitution, in the name of the Company, the Agent, the
Secured Parties or otherwise, for the sole use and benefit
of the Agent and the Secured Parties, but at the Company's
expense, to the extent permitted by law to exercise, at any
time and from time to time while an Event of Default has
occurred and is continuing, all or any of the following
powers with respect to all or any of the Collateral:
(i) to demand, sue for, collect, receive and give
acquittance for any and all monies due or to become due
thereon or by virtue thereof,
(ii) to settle, compromise, compound, prosecute or
defend any action or proceeding with respect thereto,
(iii) to sell, transfer, assign or otherwise deal
in or with the same or the proceeds or avails thereof,
as fully and effectually as if the Agent were the
absolute owner thereof, and
(iv) to extend the time of payment of any or all
thereof and to make any allowance and other adjustments
with reference thereto;
provided that the Agent shall give the Company not less than
ten days' prior written notice of the time and place of any
sale or other intended disposition of any of the Collateral,
except any Collateral which is perishable or threatens to
decline speedily in value or is of a type customarily sold
on a recognized market. The Company agrees that such notice
constitutes "reasonable notification" within the meaning of
Section 9-504(3) of the UCC.
SECTION 7. Remedies upon Event of Default
(A) If any Event of Default has occurred and is
continuing, the Agent may exercise on behalf of the Secured
Parties all rights of a secured party under the UCC (whether
or not in effect in the jurisdiction where such rights are
exercised) and, in addition, the Agent may, without being
required to give any notice, except as herein provided or as
may be required by mandatory provisions of law, (i) withdraw
all cash and Liquid Investments in the Collateral Accounts
and apply such cash and Liquid Investments and other cash,
if any, then held by it as Collateral as specified in
Section 9 and (ii) if there shall be no such cash or Liquid
Investments or if such cash and Liquid Investments shall be
insufficient to pay all the Secured Obligations in full,
sell the Collateral or any part thereof at public or private
sale, for cash, upon credit or for future delivery, and at
such price or prices as the Agent may deem satisfactory.
The Agent or any Secured Party may be the purchaser of any
or all of the Collateral so sold at any public sale (or, if
the Collateral is of a type customarily sold in a recognized
market or is of a type which is the subject of widely
distributed standard price quotations, at any private sale).
The Company will execute and deliver such documents and take
such other action as the Agent deems necessary or advisable
in order that any such sale may be made in compliance with
law. Upon any such sale the Agent shall have the right to
deliver, assign and transfer to the purchaser thereof the
Collateral so sold. Each purchaser at any such sale shall
hold the Collateral so sold to it absolutely and free from
any claim or right of whatsoever kind, including any equity
or right of redemption of the Company which may be waived,
and the Company, to the extent permitted by law, hereby
specifically waives all rights of redemption, stay or
appraisal which it has or may have under any law now
existing or hereafter adopted. The notice (if any) of such
sale required by Section 6 shall (1) in case of a public
sale, state the time and place fixed for such sale, and
(2) in the case of a private sale, state the day after which
such sale may be consummated. Any such public sale shall be
held at such time or times within ordinary business hours
and at such place or places as the Agent may fix in the
notice of such sale. At any such sale the Collateral may be
sold in one lot as an entirety or in separate parcels, as
the Agent may determine. The Agent shall not be obligated
to make any such sale pursuant to any such notice. The
Agent may, without notice or publication, adjourn any public
or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for the
sale, and such sale may be made at any time or place to
which the same may be so adjourned. In case of any sale of
all or any part of the Collateral on credit or for future
delivery, the Collateral so sold may be retained by the
Agent until the selling price is paid by the purchaser
thereof, but the Agent shall not incur any liability in case
of the failure of such purchaser to take up and pay for the
Collateral so sold and, in case of any such failure, such
Collateral may again be sold upon like notice. The Agent,
instead of exercising the power of sale herein conferred
upon it, may proceed by a suit or suits at law or in equity
to foreclose the Security Interests and sell the Collateral,
or any portion thereof, under a judgment or decree of a
court or courts of competent jurisdiction.
(B) For the purpose of enforcing any and all
rights and remedies under this Agreement the Agent may (i)
require the Company to, and the Company agrees that it will,
at its expense and upon the request of the Agent, forthwith
assemble all or any part of the Collateral as directed by
the Agent and make it available at a place designated by the
Agent which is, in its opinion, reasonably convenient to the
Agent and the Company, whether at the premises of the
Company or otherwise, (ii) to the extent permitted by
applicable law, enter, with or without process of law and
without breach of the peace, any premise where any of the
Collateral is or may be located, and without charge or
liability to it seize and remove such Collateral from such
premises, (iii) have access to and use the Company's books
and records relating to the Collateral and (iv) prior to the
disposition of the Collateral, store or transfer it without
charge in or by means of any storage or transportation
facility owned or leased by the Company, process, repair or
recondition it or otherwise prepare it for disposition in
any manner and to the extent the Agent deems appropriate
and, in connection with such preparation and disposition,
use without charge any Trademark, trade name, Copyright,
Patent or technical process used by the Company.
(C) Without limiting the generality of the
foregoing, if any Event of Default has occurred and is
continuing,
(i) the Agent may license, or sublicense, whether
general, special or otherwise, and whether on an
exclusive or non-exclusive basis, any Copyrights,
Patents or Trademarks included in the Collateral
throughout the world for such term or terms, on such
conditions and in such manner as the Agent shall in its
sole discretion determine;
(ii) the Agent may (without assuming any
obligations or liability thereunder), at any time and
from time to time, enforce (and shall have the
exclusive right to enforce) against any licensor,
licensee or sublicensee all rights and remedies of the
Company in, to and under any Copyright Licenses, Patent
Licenses or Trademark Licenses and take or refrain from
taking any action under any thereof, and the Company
hereby releases the Agent and each of the other Secured
Parties from, and agrees to hold the Agent and each of
the other Secured Parties free and harmless from and
against any claims arising out of, any lawful action so
taken or omitted to be taken with respect thereto,
except any such claim to the extent that it arises
solely as the result of the gross negligence or willful
misconduct of any Secured Party; and
(iii) upon request by the Agent, the Company will
execute and deliver to the Agent a power of attorney,
in form and substance satisfactory to the Agent, for
the implementation of any lease, assignment, license,
sublicense, grant of option, sale or other disposition
of a Copyright, Patent, Trademark, Copyright License,
Patent License or Trademark License. In the event of
any such disposition pursuant to this Section, the
Company shall supply its know-how and expertise
relating to the manufacture and sale of the products
bearing Trademarks or the products or services made or
rendered in connection with Patents, and its customer
lists and other records relating to such Patents or
Trademarks and to the distribution of said products, to
the Agent.
SECTION 8. Limitation on Duty of Agent
in Respect of Collateral
Beyond the exercise of reasonable care in the
custody thereof, the Agent shall have no duty as to any
Collateral in its possession or control or in the possession
or control of any agent or bailee or any income thereon or
as to the preservation of rights against prior parties or
any other rights pertaining thereto. The Agent shall be
deemed to have exercised reasonable care in the custody of
the Collateral in its possession if the Collateral is
accorded treatment substantially equal to that which it
accords its own property, and shall not be liable or
responsible for any loss or damage to any of the Collateral,
or for any diminution in the value thereof, by reason of the
act or omission of any warehouseman, carrier, forwarding
agency, consignee or other agent or bailee selected by the
Agent in good faith.
SECTION 9. Application of Proceeds
Upon the occurrence and during the continuance of
an Event of Default, the proceeds of any sale of, or other
realization upon, all or any part of the Collateral and any
cash held in the Collateral Accounts shall be applied by the
Agent in the following order of priorities:
first, to payment of the expenses of such sale or
other realization, including reasonable compensation to
agents and counsel for the Agent, and all expenses,
liabilities and advances incurred or made by the Agent
in connection therewith, and any other unreimbursed
expenses for which the Agent or any Secured Party is to
be reimbursed pursuant to Section 11.04 of the Credit
Agreement or Section 12 hereof and unpaid fees owing to
the Agent under the Credit Agreement;
second, to the ratable payment of accrued but
unpaid interest on the Secured Obligations in
accordance with the provisions of the Credit Agreement;
third, to the ratable payment of unpaid principal
of the Secured Obligations;
fourth, to the ratable payment of all other
Secured Obligations, until all Secured Obligations
shall have been paid in full; and
finally, to payment to the Company or its
successors or assigns, or as a court of competent
jurisdiction may direct, of any surplus then remaining
from such proceeds.
The Agent may make distributions hereunder in cash or in
kind or, on a ratable basis, in any combination thereof.
SECTION 10. Concerning the Agent
The provisions of Section 11.05 and Article XII of
the Credit Agreement shall inure to the benefit of the Agent
in respect of this Agreement and shall be binding upon the
parties to the Credit Agreement in such respect. In
furtherance and not in derogation of the rights, privileges
and immunities of the Agent therein set forth:
(A) The Agent is authorized to take all such
action as is provided to be taken by it as Agent hereunder
and all other action reasonably incidental thereto. As to
any matters not expressly provided for herein (including the
timing and methods of realization upon the Collateral) the
Agent shall act or refrain from acting in accordance with
written instructions from the Required Lenders or, in the
absence of such instructions, in accordance with its
discretion.
(B) The Agent shall not be responsible for the
existence, genuineness or value of any of the Collateral or
for the validity, perfection, priority or enforceability of
the Security Interests in any of the Collateral, whether
impaired by operation of law or by reason of any action or
omission to act on its part hereunder. The Agent shall have
no duty to ascertain or inquire as to the performance or
observance of any of the terms of this Agreement by the
Company.
SECTION 11. Appointment of Co-Agents
At any time or times, in order to comply with any
legal requirement in any jurisdiction, the Agent may appoint
another bank or trust company or one or more other persons,
either to act as co-agent or co-agents, jointly with the
Agent, or to act as separate agent or agents on behalf of
the Secured Parties with such power and authority as may be
necessary for the effectual operation of the provisions
hereof and may be specified in the instrument of appointment
(which may, in the discretion of the Agent, include
provisions for the protection of such co-agent or separate
agent similar to the provisions of Section 10).
SECTION 12. Expenses
In the event that the Company fails to comply with
the provisions of the Credit Agreement or this Agreement,
such that the value of any Collateral or the validity,
perfection, rank or value of any Security Interest is
thereby diminished or potentially diminished or put at risk,
the Agent if requested by the Required Lenders may, but
shall not be required to, effect such compliance on behalf
of the Company, and the Company shall reimburse the Agent
for the costs thereof on demand. All insurance expenses and
all expenses of protecting, storing, warehousing,
appraising, insuring, handling, maintaining, and shipping
the Collateral, any and all excise, property, sales, and use
taxes imposed by any state, federal, or local authority on
any of the Collateral, or in respect of periodic appraisals
and inspections of the Collateral to the extent the same may
be requested by the Required Lenders from time to time (but
not more frequent than annually unless an Event of Default
shall have occurred and be continuing), or in respect of the
sale or other disposition thereof shall be borne and paid by
the Company; and if the Company fails to promptly pay any
portion thereof when due, the Agent or any Secured Party
may, at its option, but shall not be required to, pay the
same and charge the Company's account therefor, and the
Company agrees to reimburse the Agent or such Secured Party
therefor on demand. All sums so paid or incurred by the
Agent or any Secured Party for any of the foregoing and any
and all other sums for which the Company may become liable
hereunder and all costs and expenses (including reasonable
attorneys' fees, legal expenses and court costs (including
the reasonable allocation of the compensation, costs and
expenses of in-house counsel, based upon time spent))
reasonably incurred by the Agent or any Secured Party in
enforcing or protecting the Security Interests or any of
their rights or remedies under this Agreement, shall,
together with interest thereon until paid at an annual rate
equal to 5% plus the rate announced from time to time by The
Chase Manhattan Bank (National Association) in New York City
as its prime rate, be additional Secured Obligations
hereunder.
SECTION 13. Termination of Security
Interests; Release of Collateral
Upon the repayment in full of all Secured
Obligations and the termination of the Commitments under the
Credit Agreement, the Security Interests shall terminate and
all rights to the Collateral shall revert to the Company.
At any time and from time to time prior to such termination
of the Security Interests, the Agent may release any of the
Collateral with the prior written consent of all of the
Secured Parties. Upon any such termination of the Security
Interests or release of Collateral, the Agent will, at the
expense of the Company, execute and deliver to the Company
such documents as the Company shall reasonably request to
evidence the termination of the Security Interests or the
release of such Collateral, as the case may be.
SECTION 14. Notices
All notices, communications and distributions
hereunder shall be given in accordance with Section 13.03 of
the Credit Agreement.
SECTION 15. Waivers, Non-Exclusive Remedies
No failure on the part of the Agent to exercise,
and no delay in exercising and no course of dealing with
respect to, any right under this Agreement shall operate as
a waiver thereof; nor shall any single or partial exercise
by the Agent or any Secured Party of any right under the
Credit Agreement, any of the other Financing Documents or
this Agreement preclude any other or further exercise
thereof or the exercise of any other right. The rights in
this Agreement, the Credit Agreement and the other Financing
Documents are cumulative and are not exclusive of any other
remedies provided by law.
SECTION 16. Successors and Assigns
This Agreement is for the benefit of the Agent and
the Secured Parties and their successors and assigns, and in
the event of an assignment of all or any of the Secured
Obligations, the rights hereunder, to the extent applicable
to the indebtedness so assigned, may be transferred with
such indebtedness. This Agreement shall be binding on the
Company and its successors and assigns.
SECTION 17. Changes in Writing
Neither this Agreement nor any provision hereof
may be changed, waived, discharged or terminated orally, but
only in writing signed by the Company and the Agent with the
consent of the Required Lenders (or all of the Secured
Parties in the case of an amendment to the provisions of
Section 13 that require the consent of all Secured Parties
to release Collateral).
SECTION 18. New York Law
This Agreement shall be construed in accordance
with and governed by the laws of the State of New York,
except as otherwise required by mandatory provisions of law
and except to the extent that remedies provided by the laws
of any jurisdiction other than New York are governed by the
laws of such jurisdiction.
SECTION 19. Severability
If any provision hereof is invalid or
unenforceable in any jurisdiction, then, to the fullest
extent permitted by law, (i) the other provisions hereof
shall remain in full force and effect in such jurisdiction
and shall be liberally construed in favor of the Agent and
the Secured Parties in order to carry out the intentions of
the parties hereto as nearly as may be possible; and
(ii) the invalidity or unenforceability of any provision
hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed by their respective
authorized officers as of the day and year first above
written.
AMW ACQUISITION CORP.
By \s\ Steve McDonald
--------------------
Title: President
U S WEST FINANCIAL SERVICES,
INC., as Agent
By \s\ A. Pier Meager
--------------------
Title:
LIST OF OMITTED EXHIBITS AND SCHEDULES
Exhibit A Perfection Certificate
Schedule 6(A) Description of Collateral
Schedule 7 Schedule of Filings
Exhibit B Opinion of counsel for the Company
Exhibit C to Exhibit F Patent Security Agreement
Schedule 1 to Patent
Security Agreement Patents
Exhibit D to Exhibit F Trademark Security Agreement
Schedule 1 to Trademark
Security Agreement US Trademark Registrations
Exhibit E to Exhibit F Copyright Security Agreement
Schedule 1 to Copyright
Security Agreement Copyrights
AMENDMENT NO. 2 TO CREDIT AGREEMENT
AMENDMENT NO. 1 TO SECURITY AGREEMENT
AMENDMENT NO. 2 TO CREDIT AGREEMENT AND AMENDMENT
NO. 1 TO SECURITY AGREEMENT (this "Amendment") dated as of
August 4, 1994 among AMERICAN MARKETING WORKS, INC.
(together with its successors, the "Company"), the LENDERS
listed on the signature pages hereof and NATIONS FINANCIAL
CAPITAL CORPORATION (as successor to U S WEST Financial
Services, Inc.), as Agent (the "Agent").
W I T N E S S E T H:
WHEREAS, the parties hereto have heretofore
entered into a Credit Agreement dated as of February 16,
1993 (as amended by Amendment No. 1 thereto, the "Credit
Agreement") and the Company and the Agent have heretofore
entered into a Security Agreement dated as of February 16,
1993 (the "Security Agreement"); and
WHEREAS, the parties hereto desire to amend the
Credit Agreement to (i) change the definition of the
Borrowing Base to include 35% of Eligible Inventory (up to
$1,000,000) on the terms hereinafter set forth and (ii) make
certain other mutually satisfactory changes to the Credit
Agreement and the Security Agreement;
NOW, THEREFORE, the parties hereto agree as
follows:
SECTION 1. Definitions; References. Unless
otherwise specifically defined herein, each term used herein
which is defined in the Credit Agreement or the Security
Agreement shall have the meaning assigned to such term in
the Credit Agreement or the Security Agreement, as the case
may be. Each reference to "hereof", "hereunder", "herein"
and "hereby" and each other similar reference and each
reference to "this Agreement" and each other similar
reference contained in the Credit Agreement or the Security
Agreement shall from and after the date hereof refer to the
Credit Agreement or the Security Agreement, as the case may
be, as amended hereby.
SECTION 2. Amendments to Section 1.01 of the
Credit Agreement. (a) Section 1.01 of the Credit Agreement
is amended by adding the following new definitions (to be
inserted in alphabetical order as appropriate in such
Section 1.01):
"Eligible Inventories" means, at any date of
determination thereof, the aggregate value (determined
at the lower of cost or market on a basis consistent
with that used in the preparation of the financial
statements referred to in Section 7.04(a)) at such date
of all Inventories owned by the Company and located in
any jurisdiction in the United States of America as to
which appropriate UCC financing statements have been
filed naming the Company as "debtor" and the Agent as
"secured party", all net of any amounts payable by the
Company in respect of commissions, processing fees or
other charges, excluding, however, without duplication
(i) any such Inventory which has been shipped to a
customer, even if on a consignment or "sale or return"
basis and whether or not such Inventory has been
subsequently returned by such customer; (ii) any
Inventory subject to a Lien (other than Liens created
pursuant to the Security Agreement), including a
landlord's or warehouseman's Lien; (iii) any Inventory
against which the Company has taken a reserve or that
is aged more than 180 days; (iv) any Inventory not
subject to a valid and perfected first-priority Lien in
favor of the Agent under the Security Agreement,
subject to no prior or equal Lien; (v) any Inventory
not produced in compliance with the applicable
requirements of the Fair Labor Standards Act; and (vi)
any supply, scrap or obsolete Inventory and any
Inventory that is not in the judgment of the Agent
reasonably marketable.
"Inventory" means inventory (as defined in Article
9 of the UCC) to the extent comprised of readily
marketable materials of a type manufactured, consumed
or held for resale (including raw materials and
work-in-process) by the Company in the ordinary course
of its business as presently conducted, or as modified
from time to time in a manner not prohibited by this
Agreement.
"Inventory Loan Termination Certificate" means a
certificate from the Company to the Agent certifying
that:
(a) the Company wishes to permanently
eliminate Eligible Inventory from the Borrowing
Base; and
(b) both before and after giving effect to
the delivery of such certificate (including the
consequential reduction in the amount of the
Borrowing Base) the aggregate outstanding
principal amount of the Working Capital Loans plus
the aggregate outstanding principal amount of the
Republic Reimbursement Obligations does not exceed
the Borrowing Base.
(b) The definition of "Borrowing Base" appearing
in Section 1.01 of the Credit Agreement is amended to read
in its entirety as follows:
"Borrowing Base" means, on any date, a dollar
amount equal to the sum of (i) 85% of Eligible
Receivables other than Non-Recourse Factored
Receivables plus (ii) 94% of Eligible Receivables
that are Non-Recourse Factored Receivables plus
(iii) unless on or prior to such date the Company
shall have delivered an Inventory Loan Termination
Certificate, the lesser of (x) $1,000,000 and (y)
35% of Eligible Inventory, each determined as of
such date of the Borrowing Base Certificate most
recently delivered pursuant to Section 8.01(l).
(c) The definition of "Eligible Receivables"
appearing in Section 1.01 of the Credit Agreement is amended
by:
(i) amending clause (i) by adding the words
"(including, without limitation, Receivables
representing amounts "charged-back" under the New
Factoring Agreement)";
(ii) deleting the word "and" appearing at the
end of clause (j);
(iii) deleting the "." appearing at the end of
clause (k) and substituting ";" therefore; and
(iv) adding the following new clauses (l) and
(m):
"(l) any Receivable due from a salesperson or
sales organization making sales on a commission
basis; and
(m) Receivables representing "cash-on-
delivery" sales."
; provided that the amendments set forth in clause (iv)
above shall not become effective until November 1, 1994.
SECTION 3. Amendment to Section 8.14 of the
Credit Agreement. Section 8.14 of the Credit Agreement is
amended by adding the following new sentence at the end
thereof:
The Company shall (i) within 15 days following the
last Business Day of each quarter report to the
Lenders the results of a physical count of the
Inventory of the Company conducted no more than 30
days prior to such last Business Day; (ii)
maintain perpetual inventory records and within 10
days following the last Business Day of each month
report inventory levels to the Lenders together
with a comparison showing changes from the most
recent prior monthly report delivered pursuant to
this clause (ii); and (iii) on the last Business
Day of each of the first three weeks in each
month, report inventory balances by type to the
Lenders. All such reports shall be in form and
substance satisfactory to the Required Lenders.
SECTION 4. Amendments to Exhibit I. The Credit
Agreement is amended by amending Exhibit I thereto (Form of
Borrowing Base Certificate) to read in its entirety as set
forth in Annex 1 to this Amendment.
SECTION 5. Addition of New Section 8.18 to the
Credit Agreement. The Credit Agreement is amended by adding
a new Section 8.18 to read in its entirety as follows:
SECTION 8.18. Consultants. The Company shall
retain management consultants reasonably acceptable to
the Required Lenders to advise the chief executive
officer until such time as a new chief executive
officer is hired and a reasonable transition period has
elapsed.
SECTION 6. Amendment to Security Agreement. The
Security Agreement is amended by adding the following new
Section 3A immediately following the existing Section 3.
SECTION 3A. Security Interest in Inventory.
(A) In order to secure the full and punctual
payment and performance of the Secured Obligations in
accordance with the terms thereof, the Company hereby
grants to the Agent for the ratable benefit of the
Secured Parties a continuing security interest in and
to all of the Inventory of the Company, whether now
owned or existing, hereafter acquired or arising and
regardless of where located together with all books and
records (including customer lists, credit files,
computer programs, printouts and other computer
materials and records) of the Company pertaining to any
of the Inventory and all Proceeds thereof
(collectively, the "Inventory Collateral") and the term
"Collateral" as used in the Credit Agreement, this
Agreement and all other Financing Documents shall mean
and include the Inventory Collateral.
(B) All Inventory has or will have been
produced in compliance with the applicable requirements
of the Fair Labor Standards Act, as amended.
(C) The information set forth in the
Perfection Certificate delivered to the Agent pursuant
to Section 7(c) of Amendment No. 2 to the Credit
Agreement is correct and complete as of its date. Not
later than 30 days following such date, the Company
shall furnish to the Agent file search reports from
each UCC filing office set forth in Schedule 7 to such
Perfection Certificate confirming the filing
information set forth in such Schedule.
(D) The Security Interests constitute valid
security interests under the UCC securing the Secured
Obligations. When UCC financing statements in the form
specified in Schedule 6(A) to Annex A to Amendment
No. 2 to the Credit Agreement shall have been filed in
the filing offices specified in the Perfection
Certificate referred to in clause (c) above, the
Security Interests shall constitute perfected security
interests in the Collateral (except Inventory in
transit) to the extent that a security interest therein
may be perfected by filing pursuant to the UCC, prior
to all other Liens and rights of others therein except
for the Permitted Liens.
(E) The Inventory is insured in accordance
with the requirements of the Credit Agreement.
(F) If no Default would result from the
elimination of Eligible Inventory from the Borrowing
Base, the security interests granted pursuant to
Section 3A in the Inventory Collateral shall terminate
upon receipt by the Agent of an Inventory Loan
Termination Certificate. Such termination shall not
affect the security interests granted by the Company in
Section 3 of the Security Agreement (including, without
limitation, the security interests granted in Accounts)
which shall remain in full force and effect. Upon any
such termination of the security interests in the
Inventory Collateral or release of Inventory
Collateral, the Agent will, at the expense of the
Company, execute and deliver to the Company such
documents as the Company shall reasonably request to
evidence the termination of such security interests or
the release of such Inventory Collateral, as the case
may be.
(G) As used in this Agreement, the term
"Inventory" means all "inventory" (as defined in the
UCC), now owned or hereafter acquired by the Company
wherever located, and shall also mean and include,
without limitation, all raw materials and other
materials and supplies, work-in-process and finished
goods and any products made or processed therefrom and
all substances, if, any commingled therewith or added
thereto.
SECTION 7. Conditions to Effectiveness. The
effectiveness of this Amendment is subject to the
satisfaction of the following conditions:
(a) receipt by the Agent of counterparts hereof,
signed by each of the parties hereto;
(b) the Agent shall have received a duly executed
letter from the Sponsor substantially in the form of Annex 2
hereto and all amounts (if any) then required to have been
paid to the Agent pursuant to such letter;
(c) the Agent shall have received a duly
completed and executed Perfection Certificate in the form of
Annex 3 hereto and UCC-1 financing statements in the form
attached as Schedule 6(A) to Annex 3 hereto shall have been
signed by a duly authorized officer of the Company and shall
have been filed in each of the jurisdictions specified in
Paragraph 2 of such Perfection Certificate;
(d) the Agent shall have received a certificate
signed by a duly authorized officer of the Company dated the
date hereof, to the effect that: (i) the representations and
warranties contained in the Credit Agreement are true and
correct on and as of the date hereof as though made on and
as of such date; and (ii) after giving effect to the
execution, delivery and performance by the parties thereto
of this Amendment, no Default has occurred and is continuing
(except that the Company is currently not in compliance with
the provisions of Sections 9.13, 9.14, 9.15 and 9.17 of the
Credit Agreement);
(e) the Agent shall have received all fees and
other amounts due and payable under the Credit Agreement
(including fees and expenses payable pursuant to Section
11.04 of the Credit Agreement) of which the Company has
received notice; and
(f) the Agent shall have received such other
documents as it may reasonably request relating to the
existence of the Company and the Sponsor, the corporate or
other authority for and the validity of this Amendment,
(including satisfactory confirmation that amounts have been
adequately reserved (or otherwise provided for) under the
partnership agreement of the Sponsor) and any other matters
relevant hereto, all in form and substance satisfactory to
the Agent in its sole good faith discretion.
SECTION 8. No Other Waivers. Other than as
specifically provided therein, this Amendment shall not
operate as a waiver of any right, remedy, power or privilege
of the Lenders or the Agent under the Credit Agreement or of
any other term or condition of the Financing Documents and
no failure or delay by the Lenders or the Agent in
exercising any right, remedy, power or privilege under any
Financing Document shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any
other right, remedy, power or privilege and the Company
acknowledges and agrees that any additional borrowings shall
be subject to satisfaction of each of the applicable
conditions set forth in Section 6.02 of the Credit
Agreement.
SECTION 9. GOVERNING LAW. THIS AMENDMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.
SECTION 10. Counterparts; Effectiveness. This
Amendment may be signed in any number of counterparts, each
of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same
instrument. This Amendment shall become effective as of the
date hereof when all of the conditions set forth in Section
7 shall have been satisfied or waived with the consent of
all Lenders.
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed by their respective
authorized officers as of the day and year first above
written.
AMERICAN MARKETING WORKS, INC.
By /s/ Marvin Winkler
-----------------------------
Title: CEO
NATIONS FINANCIAL CAPITAL CORPORATION,
as Lender and Agent
By /s/ Ronald S. Cohn
-----------------------------
Title: Authorized Signatory
LIST OF OMITTED EXHIBITS AND SCHEDULES
Annex 1 Borrowing Base Certificate
Annex 2 Letter Agreement
Annex 3 Perfection Certificate
Schedule 6(A) Description of Collateral
Schedule 7 Schedule of Filings
AMENDMENT NO. 2 TO SECURITY AGREEMENT
AMENDMENT NO. 2 TO SECURITY AGREEMENT (this
"Amendment") dated as of November 22, 1994 among AMERICAN
MARKETING WORKS, INC. (together with its successors, the
"Company"), the LENDERS listed on the signature pages hereof
and GREYROCK CAPITAL GROUP INC. (as successor to
U S WEST Financial Services, Inc.), as Agent (the "Agent").
W I T N E S S E T H:
WHEREAS, the Company and the Agent have heretofore
entered into a Security Agreement dated as of February 16,
1993 (as amended by Amendment No. 1 thereto, the "Security
Agreement"); and
WHEREAS, the parties hereto desire to make certain
mutually satisfactory changes to the Credit Agreement and
the Security Agreement;
NOW, THEREFORE, the parties hereto agree as
follows:
SECTION 1. Definitions; References. Unless
otherwise specifically defined herein, each term used herein
which is defined in the Security Agreement shall have the
meaning assigned to such term in the Security Agreement.
Each reference to "hereof", "hereunder", "herein" and
"hereby" and each other similar reference and each reference
to "this Agreement" and each other similar reference
contained in the Security Agreement shall from and after the
date hereof refer to the Security Agreement, as the case may
be, as amended hereby.
SECTION 2. Amendment to Security Agreement. The
Security Agreement is amended by replacing the existing
Section 3A with the following new Section 3A.
SECTION 3A. Security Interest in Inventory.
(A) In order to secure the full and punctual
payment and performance of the Secured Obligations in
accordance with the terms thereof, the Company hereby
grants to the Agent for the ratable benefit of the
Secured Parties a continuing security interest in and
to all of the Inventory of the Company, whether now
owned or existing, hereafter acquired or arising and
regardless of where located together with all books and
records (including customer lists, credit files,
computer programs, printouts and other computer
materials and records) of the Company pertaining to any
of the Inventory and all Proceeds thereof
(collectively, the "Inventory Collateral") and the term
"Collateral" as used in the Credit Agreement, this
Agreement and all other Financing Documents shall mean
and include the Inventory Collateral.
(B) All Inventory has or will have been
produced in compliance with the applicable requirements
of the Fair Labor Standards Act, as amended.
(C) The information set forth in the
Perfection Certificate delivered to the Agent pursuant
to Section 7(c) of Amendment No. 2 to the Credit
Agreement is correct and complete as of its date. Not
later than 30 days following such date, the Company
shall furnish to the Agent file search reports from
each UCC filing office set forth in Schedule 7 to such
Perfection Certificate confirming the filing
information set forth in such Schedule.
(D) The Security Interests constitute valid
security interests under the UCC securing the Secured
Obligations. When UCC financing statements in the form
specified in Schedule 6(A) to Annex A to Amendment
No. 2 to the Credit Agreement shall have been filed in
the filing offices specified in the Perfection
Certificate referred to in clause (c) above, the
Security Interests shall constitute perfected security
interests in the Collateral (except Inventory in
transit) to the extent that a security interest therein
may be perfected by filing pursuant to the UCC, prior
to all other Liens and rights of others therein except
for the Permitted Liens.
(E) The Inventory is insured in accordance
with the requirements of the Credit Agreement.
(F) As used in this Agreement, the term
"Inventory" means all "inventory" (as defined in the
UCC), now owned or hereafter acquired by the Company
wherever located, and shall also mean and include,
without limitation, all raw materials and other
materials and supplies, work-in-process and finished
goods and any products made or processed therefrom and
all substances, if, any commingled therewith or added
thereto.
SECTION 3. Other Amendments. (a) The reference
to "Section 9.06" of the Credit Agreement appearing in
Section 4(H) of the Security Agreement is hereby amended to
read "Section 7.05".
(b) The reference to "Section 11.04" of the
Credit Agreement appearing in Section 9 of the Security
Agreement is hereby amended to read "Section 9.03".
(c) The references to "Section 11.05" and
"Article XII" of the Credit Agreement appearing in Section
10 of the Security Agreement are hereby amended to read
"Section 9.04" and "Article X", respectively.
(d) The reference to "Section 13.03" of the
Credit Agreement appearing in Section 14 of the Security
Agreement is hereby amended to read "Sections 11.03".
(e) The references to "Section 8.04(b)" and
"Section 8.04(c)" of the Credit Agreement appearing in
Sections 5(C) and (D) of the Security Agreement are hereby
amended to read "Section 6.04(b)" and "Section 6.04(c)",
respectively and the last sentence of Section 5(C) of the
Security Agreement is deleted.
SECTION 4. No Other Waivers. Other than as
specifically provided therein, this Amendment shall not
operate as a waiver of any right, remedy, power or privilege
of the Lenders or the Agent under the Security Agreement or
of any other term or condition of the Financing Documents
and no failure or delay by the Lenders or the Agent in
exercising any right, remedy, power or privilege under any
Financing Document shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any
other right, remedy, power or privilege.
SECTION 5. GOVERNING LAW. THIS AMENDMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK.
SECTION 6. Counterparts. This Amendment may be
signed in any number of counterparts, each of which shall be
an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have
caused this Amendment to be duly executed by their
respective authorized officers as of the day and year first
above written.
AMERICAN MARKETING WORKS, INC.
By /s/ Marvin Winkler
----------------------------
Title: Pres.
GREYROCK CAPITAL GROUP INC.
as Agent
By /s/ R. S. Cohn
----------------------------
Title:
LIST OF OMITTED EXHIBITS AND SCHEDULES
Perfection Certificate
Schedule 5(A) File Search Reports
Schedule 5(B) Financing Statements Identified in Search
Reports
Schedule 6(A) Description of Collateral
Schedule 6(B) Acknowledged Financing Statements
Schedule 7 Schedule of Filings
Schedule 9 List of Owned Intangible Assets
EXHIBIT 10-52
SIGNAL GUARANTY AND SECURITY AGREEMENT
AGREEMENT dated as of November 22, 1994 between
SIGNAL APPAREL COMPANY, INC., an Indiana corporation
(together with its successors, the "Guarantor"), and
GREYROCK CAPITAL GROUP INC., as Agent for the Lenders
referred to below.
W I T N E S S E T H :
WHEREAS American Marketing Works, Inc. (the
"Company"), certain lenders and Greyrock Capital Group Inc.,
as agent for such lenders, are parties to an Amended and
Restated Credit Agreement dated as of February 16, 1993 (as
the same may be amended from time to time, the "Credit
Agreement"); and
WHEREAS in order to induce such lenders and
Greyrock Capital Group Inc., as agent for such lenders to
enter into the Credit Agreement, the Guarantor has agreed to
guarantee the obligations of the Company under the Financing
Documents referred to in the Credit Agreement, and to grant
a continuing security interest in and to the Collateral (as
hereafter defined) to secure its guarantee of the Company's
obligations under the Financing Documents;
NOW THEREFORE in consideration of the premises and
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
SECTION 1. Definitions
Terms defined in the Credit Agreement and not
otherwise defined herein have, as used herein, the
respective meanings provided for therein. The following
additional terms, as used herein, have the following
respective meanings:
"Accounts" means all "accounts" (as defined in the
UCC) now owned or hereafter acquired by the Guarantor, and
shall also mean and include all accounts receivable,
contract rights, book debts, notes, drafts and other
obligations or indebtedness owing to the Guarantor arising
from the sale, lease or exchange of goods or other property
by it and/or the performance of services by it (including
any such obligation which might be characterized as an
account, contract right or general intangible under the
Uniform Commercial Code in effect in any jurisdiction) and
all of the Guarantor's rights in, to and under all purchase
orders for goods, services or other property, and all of the
Guarantor's rights to any goods, services or other property
represented by any of the foregoing (including returned or
repossessed goods and unpaid sellers' rights of rescission,
replevin, reclamation and rights to stoppage in transit) and
all monies due to or to become due to the Guarantor under
all contracts for the sale, lease or exchange of goods or
other property and/or the performance of services by it
(whether or not yet earned by performance on the part of the
Guarantor), in each case whether now in existence or
hereafter arising or acquired including, without limitation,
the right to receive the proceeds of said purchase orders
and contracts and all collateral security and guarantees of
any kind given by any Person with respect to any of the
foregoing.
"Collateral" has the meaning set forth in
Section 4.
"Documents" means all "documents" (as defined in
the UCC) or other receipts covering, evidencing or
representing goods, now owned or hereafter acquired by the
Guarantor.
"Equipment" means all "equipment" (as defined in
the UCC) now owned or hereafter acquired by the Guarantor,
including without limitation all motor vehicles, trucks,
trailers, railcars and barges.
"FS Signal Pledge Agreement" means the FS Signal
Pledge Agreement dated as of November 22, 1994 between FS
Signal Associates II and Greyrock Capital Group Inc.
"General Intangibles" means all "general
intangibles" (as defined in the UCC) now owned or hereafter
acquired by the Guarantor, including (i) all obligations or
indebtedness owing to the Guarantor (other than Accounts)
from whatever source arising, (ii) all patents, patent
licenses, trademarks, trademark licenses, rights in
intellectual property, goodwill, trade names, service marks,
trade secrets, copyrights, permits and licenses (except to
the extent that the granting by the Guarantor of a security
interest therein results in the violation or termination of,
or a default under, any license agreement to which the
Guarantor is a party), (iii) all rights or claims in respect
of refunds for taxes paid and (iv) all rights in respect of
any pension plan or similar arrangement maintained for
employees of any member of the ERISA Group.
"Instruments" means all "instruments", "chattel
paper" or "letters of credit" (each as defined in the UCC),
including those evidencing, representing, arising from or
existing in respect of, relating to, securing or otherwise
supporting the payment of, any of the Accounts, including
(but not limited to) promissory notes, drafts, bills of
exchange and trade acceptances, now owned or hereafter
acquired by the Guarantor.
"Inventory" means all "inventory" (as defined in
the UCC), now owned or hereafter acquired by the Guarantor,
wherever located, and shall also mean and include all raw
materials and other materials and supplies, work-in-process
and finished goods and any products made or processed
therefrom and all substances, if any, commingled therewith
or added thereto.
"Perfection Certificate" means a certificate
substantially in the form of Exhibit A, completed and
supplemented with the schedules and attachments contemplated
thereby to the satisfaction of the Agent, and duly executed
by the chief executive officer and the chief legal officer
of the Guarantor.
"Permitted Asset Dispositions" means the transfer
by Signal of (i) up to 19.9% of the issued and outstanding
common stock of The Shirt Shed, Inc., (ii) up to 19.9% of
the issued and outstanding common stock of the Company and
(iii) the assets which comprise the "Heritage" division of
Signal as of the date hereof to a wholly-owned subsidiary of
Signal (the "Acquisition Financing Subsidiary"); provided
that substantially simultaneously with the completion of the
transfer of such assets, the Acquisition Financing
Subsidiary shall (i) incur Debt that is non-recourse to
Signal or any other Subsidiary of Signal and (ii) apply the
proceeds of such Debt to acquire a clothing mill the
identity of which has been approved in writing by Greyrock
Capital.
"Permitted Liens" means the Security Interests and
the Liens on the Collateral permitted to be created, to be
assumed or to exist pursuant to the Signal Working Capital
Facility.
"Pledged Stock" means the capital stock of the
Company and of Shirt Shed identified on Schedule 4 hereto
and any other capital stock required to be pledged to the
Agent pursuant to Section 4(B).
"Proceeds" means all proceeds of, and all other
profits, products, rents or receipts, in whatever form,
arising from the collection, sale, lease, exchange,
assignment, licensing or other disposition of, or other
realization upon, collateral, including all claims of the
Guarantor against third parties for loss of, damage to or
destruction of, or for proceeds payable under, or unearned
premiums with respect to, policies of insurance in respect
of, any collateral, and any condemnation or requisition
payments with respect to any collateral, in each case
whether now existing or hereafter arising.
"Secured Obligations" means the obligations
secured under this Agreement which include (a) all amounts
payable by the Guarantor in respect of the Guarantor's
guarantee under this Agreement of the full and punctual
payment of the principal of and interest on the obligations
of the Company under the Financing Documents and all other
amounts payable by the Company under the Financing Documents
and (b) any amendments, restatements, renewals, extensions
or modifications of any of the foregoing.
"Secured Parties" means the Agent and the Lenders.
"Security Interests" means the security interests
in the Collateral granted hereunder securing the Secured
Obligations.
"Shirt Shed" means The Shirt Shed, Inc., an
Indiana corporation, together with its successors.
"Signal Working Capital Facility" means the BNY
Financial Corporation Factoring Agreement dated as of May
23, 1991 between the Guarantor and BNY Financial
Corporation, or any successor or replacement working capital
facility entered into by the Guarantor, in each case as
amended from time to time.
"UCC" means the Uniform Commercial Code as in
effect on the date hereof in the State of New York; provided
that if by reason of mandatory provisions of law, the
perfection or the effect of perfection or non-perfection of
the Security Interest in any Collateral is governed by the
Uniform Commercial Code as in effect in a jurisdiction other
than New York, "UCC" means the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the
provisions hereof relating to such perfection or effect of
perfection or non-perfection.
SECTION 2. Representations and Warranties
The Guarantor represents and warrants as follows:
(A) The Guarantor has good and marketable title
to all of the Collateral, free and clear of any Liens other
than the Permitted Liens. The Guarantor has taken all
actions necessary under the UCC to perfect its interest in
any Accounts purchased or otherwise acquired by it, as
against its assignors and creditors of its assignors. The
Pledged Stock includes all of the issued and outstanding
capital stock of the Company. All of the Pledged Stock has
been duly authorized and validly issued, and is fully paid
and non-assessable, and is subject to no options to purchase
or similar rights of any Person. The Guarantor is not and
will not become a party to or otherwise bound by any
agreement, other than this Agreement, which restricts in any
manner the rights of any present or future holder of any of
the Pledged Stock with respect thereto.
(B) The Guarantor has not performed any acts
which might prevent the Agent from enforcing any of the
terms of this Agreement or which would limit the Agent in
any such enforcement. Other than financing statements or
other similar or equivalent documents or instruments with
respect to the Security Interests and Permitted Liens, no
financing statement, mortgage, security agreement or similar
or equivalent document or instrument covering all or any
part of the Collateral is on file or of record in any
jurisdiction in which such filing or recording would be
effective to perfect a Lien on such Collateral.
(C) The information set forth in the Perfection
Certificate delivered to the Agent prior to the Effective
Date is correct and complete after giving effect to the
consummation of the Acquisition. Not later than 30 days
following the Effective Date, the Guarantor shall furnish to
the Agent file search reports from each UCC filing office
set forth in Schedule 7 to the Perfection Certificate
confirming the filing information set forth in such
Schedule.
(D) The Security Interests constitute valid
security interests under the UCC securing the Secured
Obligations. When UCC financing statements in the form
specified in Exhibit A shall have been filed in the offices
specified in the Perfection Certificate, the Security
Interests shall constitute perfected security interests in
the Collateral (except Inventory in transit) to the extent
that a security interest therein may be perfected by filing
pursuant to the UCC, prior to all other Liens and rights of
others therein except for the Permitted Liens.
(E) The Guarantor will, and will cause each of
its Subsidiaries to, maintain (either in the name of the
Guarantor or in such Subsidiary's own name) with financially
sound and responsible insurance companies, insurance on all
their respective properties in at least such amounts and
against at least such risks (and with such risk retention)
as are usually insured against in the same general area by
companies of established repute engaged in the same or a
similar business; and will furnish to the Lenders, upon
request from the Agent, information presented in reasonable
detail as to the insurance so carried.
(F) All Inventory has or will have been produced
in compliance with the applicable requirements of the Fair
Labor Standards Act, as amended.
(G) Upon the delivery of certificates
representing the Pledged Stock to the Agent (or to BNY
Financial Corporation as bailee for the Agent) in accordance
with Section 4 hereof, the Agent will have valid and
perfected security interests in the Collateral subject to no
prior Lien (other than Permitted Liens). No registration,
recordation or filing with any governmental body, agency or
official is required in connection with the execution or
delivery of this Agreement or for the perfection or
enforcement of the Security Interests in the Pledged Stock.
(H) UCC Filing Locations. The chief executive
office of the Guarantor is located at its address set forth
on the signature pages of the Credit Agreement. Under the
Uniform Commercial Code as in effect in the State in which
such office is located, no local filing is required to
perfect a security interest in collateral consisting of
general intangibles.
SECTION 3. The Guaranty
(A) The Guarantor hereby unconditionally
guarantees the full and punctual payment (whether at stated
maturity, upon acceleration or otherwise) of the principal
of and interest on each payment obligation of the Company
under the Financing Documents, and the full and punctual
payment of all other amounts payable by the Company
thereunder. Upon failure by the Company to pay punctually
any such amount, the Guarantor shall forthwith on demand pay
the amount not so paid at the place and in the manner
specified in the Credit Agreement.
(B) Guaranty Unconditional. The obligations of
the Guarantor hereunder shall be unconditional and absolute
and, without limiting the generality of the foregoing, shall
not be released, discharged or otherwise affected by:
(i) any extension, renewal, settlement,
compromise, waiver or release in respect of any
obligation of the Company under Credit Agreement or any
other Financing Document, by operation of law or
otherwise;
(ii) any renewal, extension, modification,
amendment or restatement of or supplement to the Credit
Agreement or any other Financing Document;
(iii) any release, impairment, non-perfection or
invalidity of any direct or indirect security for any
obligation of the Company under the Credit Agreement or
any other Financing Document;
(iv) any change in the corporate existence,
structure or ownership of the Company, or any
insolvency, bankruptcy, reorganization or other similar
proceeding affecting the Company or its assets or any
resulting release or discharge of any obligation of the
Company contained in the Credit Agreement or any other
Financing Document;
(v) the existence of any claim, set-off or other
rights which the Guarantor may have at any time against
the Company, the Agent, any Lender or any other
corporation or person, whether in connection herewith
or any unrelated transactions, provided that nothing
herein shall prevent the assertion of any such claim by
separate suit or compulsory counterclaim;
(vi) any invalidity or unenforceability relating
to or against the Company for any reason of the Credit
Agreement or any other Financing Document, or any
provision of applicable law or regulation purporting to
prohibit the payment by the Company of the principal of
or interest on any Note or any other amount payable by
the Company under the Credit Agreement or any other
Financing Document; or
(vii) any other act or omission to act or delay of
any kind by the Company, the Agent, any Lender or any
other corporation or person or any other circumstance
whatsoever which might, but for the provisions of this
paragraph, constitute a legal or equitable discharge of
or defense to the Guarantor's obligations hereunder.
(C) Discharge Only Upon Payment In Full;
Reinstatement In Certain Circumstances. The Guarantor's
obligations hereunder shall remain in full force and effect
until the principal of and interest on the Notes and all
other amounts payable by the Company under the Credit
Agreement and the other Financing Documents shall have been
paid in full. If at any time any payment of the principal
of or interest on any Note or any other amount payable by
the Company under the Credit Agreement or the other
Financing Documents is rescinded or must be otherwise
restored or returned upon the insolvency, bankruptcy or
reorganization of the Company or otherwise, the Guarantor's
obligations hereunder with respect to such payment shall be
reinstated as though such payment had been due but not made
at such time.
(D) Waiver by the Guarantor. The Guarantor
irrevocably waives acceptance hereof, presentment, demand,
protest and any notice not provided for herein, as well as
any requirement that at any time any action be taken by any
corporation or person against any Company or any other
corporation or person.
(E) Subrogation. The Guarantor shall not be
entitled, by operation of law or otherwise, upon making any
payment hereunder to be subrogated to the rights of the
payee against the Company with respect to such payment or
against any direct or indirect security therefor, or
otherwise to be reimbursed, indemnified or exonerated by or
for the account of the Company in respect thereof unless and
until the Secured Obligations have been fully and finally
paid.
(F) Stay of Acceleration. If acceleration of the
time for payment of any amount payable by the Company under
the Credit Agreement or any of the other Financing Documents
is stayed upon the insolvency, bankruptcy or reorganization
of the Company, all such amounts otherwise subject to
acceleration under the terms of this Agreement shall
nonetheless be payable by the Guarantor hereunder forthwith
on demand by the Agent made at the request of the requisite
proportion of the Lenders specified in Article VIII of the
Credit Agreement.
SECTION 4. The Security Interests
(A) In order to secure the full and punctual
payment and performance of the Secured Obligations in
accordance with the terms thereof, the Guarantor hereby
grants to the Agent and, in the case of the property
described in Clause 9 hereof, assigns and pledges to and
with the Agent, for the ratable benefit of the Secured
Parties a continuing security interest in and to all of the
following property of the Guarantor, whether now owned or
existing or hereafter acquired or arising and regardless of
where located (all being collectively referred to as the
"Collateral"):
(1) Accounts;
(2) Inventory;
(3) General Intangibles;
(4) Documents;
(5) Instruments;
(6) Equipment;
(7) All books and records (including customer
lists, credit files, computer programs, printouts and
other computer materials and records) of the Guarantor
pertaining to any of the Collateral;
(8) The Pledged Stock, and all of the Guarantor's
rights and privileges with respect to the Pledged
Stock, and all income and profits thereon, and all
interest, dividends and other payments and
distributions with respect thereto, and all proceeds of
the foregoing (contemporaneously with the execution and
delivery hereof, the Guarantor is delivering
certificates representing the Company Stock in pledge
hereunder);
(9) All Proceeds of all or any of the Collateral
described in Clauses 1 through 8 hereof.
(B) In the event that the Company at any time
issues any additional or substitute shares of capital stock
of any class, the Guarantor will immediately pledge and
deposit with the Agent (or BNY Financial Corporation as
bailee for the Agent) certificates representing all such
shares as additional security for the Secured Obligations.
All such shares constitute Pledged Stock and are subject to
all provisions of this Agreement.
(C) The Security Interests are granted as
security only and shall not subject any Secured Party to, or
transfer or in any way affect or modify, any obligation or
liability of the Guarantor with respect to any of the
Collateral or any transaction in connection therewith.
(D) All certificates representing Pledged Stock
delivered to the Agent by the Guarantor pursuant hereto
shall be in suitable form for transfer by delivery, or shall
be accompanied by duly executed instruments of transfer or
assignment in blank, with signatures appropriately
guaranteed, and accompanied by any required transfer tax
stamps, all in form and substance satisfactory to the Agent.
SECTION 5. Further Assurances; Covenants
(A) The Guarantor will not change its name,
identity or corporate structure in any manner unless it
shall have given the Agent (i) not less than 30 days' prior
notice thereof and (ii) delivered an opinion of counsel with
respect thereto in accordance with Section 5(K). The
Guarantor will not change the location of (i) its chief
executive office or chief place of business or (ii) the
locations where it keeps or holds any Collateral or any
records relating thereto from the applicable location
described in the Perfection Certificate unless it shall have
given the Agent (i) not less than 30 days' prior notice
thereof and (ii) delivered an opinion of counsel with
respect thereto in accordance with Section 5(K). The
Guarantor shall not in any event change the location of any
Collateral if such change would cause the Security Interests
in such Collateral to lapse or cease to be perfected.
(B) The Guarantor will, from time to time, at its
expense, execute, deliver, file and record any statement,
assignment, instrument, document, agreement or other paper
and take any other action (including any filings of
financing or continuation statements under the UCC) that
from time to time may be necessary or desirable, or that the
Agent may request, in order to create, preserve, perfect,
confirm or validate the Security Interests or to enable the
Secured Parties to obtain the full benefits of this
Agreement, or to enable the Agent to exercise and enforce
any of its rights, powers and remedies hereunder with
respect to any of the Collateral. To the extent permitted
by applicable law, the Guarantor hereby authorizes the
Agent, and appoints the Agent as its true and lawful
attorney (with full power of substitution, in the name of
the Guarantor, the Secured Parties or otherwise, for the
sole use and benefit of the Secured Parties), to execute and
file financing statements or continuation statements without
the Guarantor's signature appearing thereon. The Guarantor
agrees that a carbon, photographic, photostatic or other
reproduction of this Agreement or of a financing statement
is sufficient as a financing statement. The Guarantor shall
pay the costs of, or incidental to, any recording or filing
of any financing or continuation statements concerning the
Collateral.
(C) If any Collateral is at any time in the
possession or control of any warehouseman, bailee or any of
the Guarantor's agents or processors, the Guarantor shall
notify such warehouseman, bailee, agent or processor of the
Security Interests created hereby and to hold all such
Collateral for the Agent's account subject to the Agent's
instructions.
(D) The Guarantor shall keep full and accurate
books and records relating to the Collateral, and stamp or
otherwise mark such books and records in such manner as the
Required Lenders may reasonably require in order to reflect
the Security Interests.
(E) The Guarantor will immediately deliver and
pledge each Instrument to the Agent, appropriately endorsed
to the Agent, provided that so long as no Event of Default
shall have occurred and be continuing, the Guarantor may
retain for collection in the ordinary course any Instruments
received by it in the ordinary course of business and the
Agent shall, promptly upon request of the Guarantor, make
appropriate arrangements for making any other Instrument
pledged by the Guarantor available to it for purposes of
presentation, collection or renewal (any such arrangement to
be effected, to the extent deemed appropriate to the Agent,
against trust receipt or like document).
(F) The Guarantor shall use its best efforts to
cause to be collected from its account debtors, as and when
due, any and all amounts owing under or on account of each
Account (including Accounts which are delinquent, such
Accounts to be collected in accordance with lawful
collection procedures) and shall apply forthwith upon
receipt thereof all such amounts as are so collected to the
outstanding balance of such Account. Subject to the rights
of the Secured Parties hereunder upon the occurrence and
during the continuance of an Event of Default, the Guarantor
may allow in the ordinary course of business as adjustments
to amounts owing under its Accounts (i) an extension or
renewal of the time or times of payment, or settlement for
less than the total unpaid balance, which the Guarantor
finds appropriate in accordance with sound business judgment
and (ii) a refund or credit due as a result of returned or
damaged merchandise or as a discount for prompt payment, all
in accordance with the Guarantor's ordinary course of
business consistent with its historical collection
practices. The costs and expenses (including attorney's
fees) of collection, whether incurred by the Guarantor or
the Agent, shall be borne by the Guarantor.
(G) Upon the occurrence and during the
continuance of any Event of Default, upon request of the
Required Lenders through the Agent, the Guarantor will
promptly notify (and the Guarantor hereby authorizes the
Agent so to notify) each account debtor in respect of any
Account or Instrument that such Collateral has been assigned
to the Agent hereunder, and that any payments due or to
become due in respect of such Collateral are to be made
directly to the Agent or its designee.
(H) The Guarantor shall, (i) upon the request of
the Agent, in the case of Equipment then owned and
(ii) thereafter, within 10 days of acquiring any other
Equipment, deliver to the Agent any and all certificates of
title, applications for title or similar evidence of
ownership of such Equipment and shall cause the Agent to be
named as lienholder on any such certificate of title or
other evidence of ownership. The Guarantor shall promptly
inform the Agent of any additions to or deletions from the
Equipment and shall not permit any such items to become a
fixture to real estate or an accession to other personal
property.
(I) Without the prior written consent of the
Required Lenders, the Guarantor will not sell, lease,
exchange, assign or otherwise dispose of, or grant any
option with respect to, any Collateral except, subject to
the rights of the Secured Parties hereunder if an Event of
Default shall have occurred and be continuing, as permitted
under the Signal Working Capital Facility and except that
Signal may make the Permitted Asset Dispositions, whereupon,
in the case of such a sale or exchange, the Security
Interests created hereby in such item (but not in any
Proceeds arising from such sale or exchange) shall cease
immediately without any further action on the part of the
Agent.
(J) The Guarantor will, promptly upon request,
provide to the Agent all information and evidence it may
reasonably request concerning the Collateral to enable the
Agent to enforce the provisions of this Agreement.
(K) Not more than six months nor less than 30
days prior to each date on which the Guarantor proposes to
take any action contemplated by Section 5(A), the Guarantor
shall give notice to the Agent of such proposed action, and,
at the Guarantor's cost and expense, cause to be delivered
to the Secured Parties with such notice, an opinion of
counsel, satisfactory to the Agent, substantially in the
form of Exhibit B to the effect that all financing
statements and amendments or supplements thereto,
continuation statements and other documents required to be
recorded or filed in order to perfect and protect the
Security Interests for a period (and after giving effect to
the proposed action that is the subject of such notice),
specified in such opinion, continuing until a date not
earlier than eighteen months from the date of such opinion,
against all creditors of and purchasers from the Guarantor
have been filed in each filing office necessary for such
purpose and that all filing fees and taxes, if any, payable
in connection with such filings have been paid in full.
(L) From time to time upon request by the Agent,
the Guarantor shall, at its cost and expense, cause to be
delivered to the Secured Parties an opinion of counsel
satisfactory to the Agent as to such matters relating to the
transactions contemplated hereby as the Required Lenders may
reasonably request.
SECTION 6. Record Ownership of Pledged Stock
The Agent may at any time or from time to time, in
its sole discretion, cause any or all of the Pledged Stock
to be transferred of record into the name of the Agent or
its nominee. The Guarantor will promptly give to the Agent
copies of any notices or other communications received by it
with respect to Pledged Stock registered in the name of the
Guarantor and the Agent will promptly give to the Guarantor
copies of any notices and communications received by the
Agent with respect to Pledged Stock registered in the name
of the Agent or its nominee.
SECTION 7. Right to Receive Distributions on Collateral
The Agent shall have the right to receive and,
upon the occurrence and during the continuance of any Event
of Default, to retain as Collateral hereunder all dividends
and other payments and distributions made upon or with
respect to the Collateral and the Guarantor shall take all
such action as the Agent may deem necessary or appropriate
to give effect to such right. All such dividends and other
payments and distributions which are received by the
Guarantor shall be received in trust for the benefit of the
Agent and the Secured Parties and, if the Agent so directs
upon the occurrence and during the continuance of an Event
of Default, shall be segregated from other funds of the
Guarantor and shall, forthwith upon demand by the Agent
during the continuance of an Event of Default, be paid over
to the Agent as Collateral in the same form as received
(with any necessary endorsement). After all Events of
Default that shall have occurred have been cured, the
Agent's right to retain dividends and other payments and
distributions under this Section 7 shall cease and the Agent
shall pay over to the Guarantor any such Collateral retained
by the Agent during the continuance of an Event of Default.
SECTION 8. Right to Vote Pledged Stock
Unless an Event of Default shall have occurred and
be continuing, the Guarantor shall have the right, from time
to time, to vote and to give consents, ratifications and
waivers with respect to the Pledged Stock, and the Agent
shall, upon receiving a written request from the Guarantor
accompanied by a certificate signed by its principal
financial officer stating that no Event of Default has
occurred and is continuing, deliver to the Guarantor or as
specified in such request such proxies, powers of attorney,
consents, ratifications and waivers in respect of any of the
Pledged Stock which is registered in the name of the Agent
or its nominee as shall be specified in such request and be
in form and substance satisfactory to the Agent.
If an Event of Default shall have occurred and be
continuing, the Agent shall have the right to the extent
permitted by law and the Guarantor shall take all such
action as may be necessary or appropriate to give effect to
such right, to vote and to give consents, ratifications and
waivers, and take any other action with respect to any or
all of the Pledged Stock with the same force and effect as
if the Agent were the absolute and sole owner thereof.
SECTION 9. Insurance
The Guarantor will cause the Agent to be named as
an insured party and loss payee on each insurance policy
covering risks relating to any of its Inventory and
Equipment. The Guarantor will deliver to the Agent, upon
request of the Agent, the insurance policies for such
insurance or certificates of insurance evidencing such
coverage. Each such insurance policy shall include
effective waivers by the insurer of all claims for insurance
premiums against the Agent or any Lender, provide for
coverage to the Agent regardless of the breach by the
Guarantor of any warranty or representation made therein,
not be subject to co-insurance, provide that all insurance
proceeds in excess of $100,000 per claim shall be adjusted
with and payable to the Agent and provide that no
cancellation, termination or material modification thereof
shall be effective until at least 30 days after receipt by
the Agent of written notice thereof. The Guarantor hereby
appoints the Agent as its attorney-in-fact to make proof of
loss, claim for insurance and adjustments with insurers, and
to execute or endorse all documents, checks or drafts in
connection with payments made as a result of any insurance
policies.
SECTION 10. General Authority
The Guarantor hereby irrevocably appoints the
Agent its true and lawful attorney, with full power of
substitution, in the name of the Guarantor, the Secured
Parties or otherwise, for the sole use and benefit of the
Secured Parties, but at the Guarantor's expense, to the
extent permitted by law to exercise, at any time and from
time to time while an Event of Default has occurred and is
continuing, all or any of the following powers with respect
to all or any of the Collateral:
(i) to demand, sue for, collect, receive and give
acquittance for any and all monies due or to become due
thereon or by virtue thereof,
(ii) to settle, compromise, compound, prosecute or
defend any action or proceeding with respect thereto,
(iii) to sell, transfer, assign or otherwise deal
in or with the same or the proceeds or avails thereof,
as fully and effectually as if the Agent were the
absolute owner thereof, and
(iv) to extend the time of payment of any or all
thereof and to make any allowance and other adjustments
with reference thereto;
provided that the Agent shall give the Guarantor not less
than ten days' prior written notice of the time and place of
any sale or other intended disposition of any of the
Collateral, except any Collateral which is perishable or
threatens to decline speedily in value or is of a type
customarily sold on a recognized market. The Agent and the
Guarantor agree that such notice constitutes "reasonable
notification" within the meaning of Section 9-504(3) of the
UCC.
SECTION 11. Registration Rights
(A) Registration rights with respect to the
Guarantor common stock pledged under the First Signal Pledge
Agreement. The Guarantor hereby grants to the Secured
Parties registration rights with respect to the common stock
of the Guarantor that constitutes collateral under the FS
Signal Pledge Agreement on the terms set forth in Exhibit C
hereto.
(B) Registration rights with respect to the
Pledged Stock. If the Agent shall determine to exercise its
right to sell all or any of the Collateral and if in the
opinion of counsel for the Agent it is necessary, or if in
the opinion of the Agent it is advisable, to have the
securities included in the Collateral, or the portion
thereof to be sold, registered under the provisions of the
Securities Act of 1933, the Guarantor agrees to cause the
Company, at its own expense, (i) to execute and deliver all
such instruments and documents, and to do or cause to be
done all other such acts and things, as may be necessary or,
in the opinion of the Agent, advisable to register such
securities under the provisions of the Securities Act of
1933 and to cause the registration statement relating
thereto to become effective and to remain effective for such
period as prospectuses are required by law to be furnished,
and to make or cause to be made all amendments and
supplements thereto and to the related prospectus which, in
the opinion of the Agent, are necessary or advisable, all in
conformity with the requirements of the Securities Act of
1933 and the rules and regulations of the Securities and
Exchange Commission thereunder, (ii) to make available to
its security holders as soon as practicable, an earning
statement (which need not be audited) covering a period of
at least 12 months, beginning with the first month after the
effective date of any such registration statement, which
earning statement will satisfy the provisions of Section
11(a) of the Securities Act of 1933, (iii) to use its best
efforts to qualify such securities under state Blue Sky or
securities laws and to obtain the approval of any
governmental authorities for the sale of such securities, as
requested by the Agent, and (iv) at the request of the
Agent, to indemnify and hold harmless the Agent, the Lenders
and any underwriters (and any Person controlling any of the
foregoing) from and against any loss, liability, claim,
damage and expense (and reasonable counsel fees incurred in
connection therewith) under the Securities Act of 1933 or
otherwise insofar as such loss, liability, claim, damage or
expense arises out of or is based upon any untrue statement
or alleged untrue statement of a material fact contained in
such registration statement or prospectus or in any
preliminary prospectus or any amendment or supplement
thereto, or arises out of or is based upon any omission or
alleged omission to state therein a material fact required
to be stated or necessary to make the statements therein not
misleading, such indemnification to remain operative
regardless of any investigation made by or on behalf of the
Agent, any Lender or any underwriter (or any Person
controlling any of the foregoing), provided that the Company
shall not be liable to the Agent, any Lender or any
underwriter (or any Person controlling any of the foregoing)
to the extent that any such loss, liability, claim, damage
or expense arises out of or is based on an untrue statement
or alleged untrue statement or an omission or an alleged
omission made in reliance upon and in conformity with
written information furnished to the Company by such Person
expressly for use in such registration statement or
prospectus.
SECTION 12. Remedies upon Event of Default
(A) If any Event of Default has occurred and is
continuing, the Agent may exercise on behalf of the Secured
Parties all rights of a secured party under the UCC (whether
or not in effect in the jurisdiction where such rights are
exercised) and, in addition, the Agent may, without being
required to give any notice, except as herein provided or as
may be required by mandatory provisions of law, (i) apply
cash, if any, then held by it as Collateral as specified in
Section 14 and (ii) if there shall be no such cash or if
such cash shall be insufficient to pay all the Secured
Obligations in full, sell the Collateral or any part thereof
at public or private sale, for cash, upon credit or for
future delivery, and at such price or prices as the Agent
may deem satisfactory. The Agent or any other Secured Party
may be the purchaser of any or all of the Collateral so sold
at any public sale (or, if the Collateral is of a type
customarily sold in a recognized market or is of a type
which is the subject of widely distributed standard price
quotations, at any private sale). The Agent is authorized,
in connection with any such sale, if it deems it advisable
so to do, (i) to restrict the prospective bidders on or
purchasers of any of the Pledged Stock to a limited number
of sophisticated investors who will represent and agree that
they are purchasing for their own account for investment and
not with a view to the distribution or sale of any of such
Pledged Stock, (ii) to cause to be placed on certificates
for any or all of the Pledged Stock or on any other
securities pledged hereunder a legend to the effect that
such security has not been registered under the Securities
Act of 1933 and may not be disposed of in violation of the
provision of said Act, and (iii) to impose such other
limitations or conditions in connection with any such sale
as the Agent deems necessary or advisable in order to comply
with said Act or any other law. The Guarantor will execute
and deliver such documents and take such other action as the
Agent deems necessary or advisable in order that any such
sale may be made in compliance with law. Upon any such sale
the Agent shall have the right to deliver, assign and
transfer to the purchaser thereof the Collateral so sold.
Each purchaser at any such sale shall hold the Collateral so
sold to it absolutely and free from any claim or right of
whatsoever kind, including any equity or right of redemption
of the Guarantor which may be waived, and the Guarantor, to
the extent permitted by law, hereby specifically waives all
rights of redemption, stay or appraisal which it has or may
have under any law now existing or hereafter adopted. The
notice (if any) of such sale required by Section 10 shall
(1) in the case of a public sale, state the time and place
fixed for such sale, (2) in the case of a sale at a broker's
board or on a securities exchange, state the board or
exchange at which such sale is to be made and the day on
which the Collateral, or the portion thereof so being sold,
will first be offered for sale at such board or exchange,
and (3) in the case of a private sale, state the day after
which such sale may be consummated. Any such public sale
shall be held at such time or times within ordinary business
hours and at such place or places as the Agent may fix in
the notice of such sale. At any such sale the Collateral
may be sold in one lot as an entirety or in separate
parcels, as the Agent may determine. The Agent shall not be
obligated to make any such sale pursuant to any such notice.
The Agent may, without notice or publication, adjourn any
public or private sale or cause the same to be adjourned
from time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any time or
place to which the same may be so adjourned. In case of any
sale of all or any part of the Collateral on credit or for
future delivery, the Collateral so sold may be retained by
the Agent until the selling price is paid by the purchaser
thereof, but the Agent shall not incur any liability in case
of the failure of such purchaser to take up and pay for the
Collateral so sold and, in case of any such failure, such
Collateral may again be sold upon like notice. The Agent,
instead of exercising the power of sale herein conferred
upon it, may proceed by a suit or suits at law or in equity
to foreclose the Security Interests and sell the Collateral,
or any portion thereof, under a judgment or decree of a
court or courts of competent jurisdiction.
(B) For the purpose of enforcing any and all
rights and remedies under this Agreement the Agent may (i)
require the Guarantor to, and the Guarantor agrees that it
will, at its expense and upon the request of the Agent,
forthwith assemble all or any part of the Collateral as
directed by the Agent and make it available at a place
designated by the Agent which is, in its opinion, reasonably
convenient to the Agent and the Guarantor, whether at the
premises of the Guarantor or otherwise, (ii) to the extent
permitted by applicable law, enter, with or without process
of law and without breach of the peace, any premise where
any of the Collateral is or may be located, and without
charge or liability to it seize and remove such Collateral
from such premises, (iii) have access to and use the
Guarantor's books and records relating to the Collateral and
(iv) prior to the disposition of the Collateral, store or
transfer it without charge in or by means of any storage or
transportation facility owned or leased by the Guarantor,
process, repair or recondition it or otherwise prepare it
for disposition in any manner and to the extent the Agent
deems appropriate and, in connection with such preparation
and disposition, use without charge any trademark, trade
name, copyright, patent or technical process used by the
Guarantor.
SECTION 13. Limitation on Duty of Agent
in Respect of Collateral
Beyond the exercise of reasonable care in the
custody thereof, the Agent shall have no duty as to any
Collateral in its possession or control or in the possession
or control of any agent or bailee or any income thereon or
as to the preservation of rights against prior parties or
any other rights pertaining thereto. The Agent shall be
deemed to have exercised reasonable care in the custody of
the Collateral in its possession if the Collateral is
accorded treatment substantially equal to that which it
accords its own property, and shall not be liable or
responsible for any loss or damage to any of the Collateral,
or for any diminution in the value thereof, by reason of the
act or omission of any warehouseman, carrier, forwarding
agency, consignee or other agent or bailee selected by the
Agent in good faith.
SECTION 14. Application of Proceeds
Upon the occurrence and during the continuance of
an Event of Default, the proceeds of any sale of, or other
realization upon, all or any part of the Collateral shall be
applied by the Agent in the following order of priorities:
first, to payment of the expenses of such sale or
other realization, including reasonable compensation to
agents and counsel for the Agent, and all expenses,
liabilities and advances incurred or made by the Agent
in connection therewith, and any other unreimbursed
expenses for which the Agent or any other Secured Party
is to be reimbursed pursuant to Section 9.03 of the
Credit Agreement or Section 17 hereof and unpaid fees
owing to the Agent under the Credit Agreement;
second, to the ratable payment of accrued but
unpaid interest on the Secured Obligations in
accordance with the provisions of the Credit Agreement;
third, to the ratable payment of unpaid principal
of the Secured Obligations;
fourth, to the ratable payment of all other
Secured Obligations, until all Secured Obligations
shall have been paid in full; and
finally, to payment to the Guarantor or its
successors or assigns, or as a court of competent
jurisdiction may direct, of any surplus then remaining
from such proceeds.
The Agent may make distributions hereunder in cash or in
kind or, on a ratable basis, in any combination thereof.
SECTION 15. Concerning the Agent
The provisions of Section 9.04 and Article X of
the Credit Agreement shall inure to the benefit of the Agent
in respect of this Agreement and shall be binding upon the
Guarantor in such respect. In furtherance and not in
derogation of the rights, privileges and immunities of the
Agent therein set forth:
(A) The Agent is authorized to take all such
action as is provided to be taken by it as Agent hereunder
and all other action reasonably incidental thereto. As to
any matters not expressly provided for herein (including the
timing and methods of realization upon the Collateral) the
Agent shall act or refrain from acting in accordance with
written instructions from the Required Lenders or, in the
absence of such instructions, in accordance with its
discretion.
(B) The Agent shall not be responsible for the
existence, genuineness or value of any of the Collateral or
for the validity, perfection, priority or enforceability of
the Security Interests in any of the Collateral, whether
impaired by operation of law or by reason of any action or
omission to act on its part hereunder. The Agent shall have
no duty to ascertain or inquire as to the performance or
observance of any of the terms of this Agreement by the
Guarantor.
SECTION 16. Appointment of Co-Agents
At any time or times, in order to comply with any
legal requirement in any jurisdiction, the Agent may appoint
another bank or trust company or one or more other persons,
either to act as co-agent or co-agents, jointly with the
Agent, or to act as separate agent or agents on behalf of
the Secured Parties with such power and authority as may be
necessary for the effectual operation of the provisions
hereof and may be specified in the instrument of appointment
(which may, in the discretion of the Agent, include
provisions for the protection of such co-agent or separate
agent similar to the provisions of Section 15).
SECTION 17. Expenses
In the event that the Guarantor fails to comply
with the provisions of this Agreement, such that the value
of any Collateral or the validity, perfection, rank or value
of any Security Interest is thereby diminished or
potentially diminished or put at risk, the Agent if
requested by the Required Lenders may, but shall not be
required to, effect such compliance on behalf of the
Guarantor, and the Guarantor shall reimburse the Agent for
the costs thereof on demand. Any and all taxes which the
Agent may have been required to pay by reason of the
Security Interests or to free any of the Collateral from any
Lien thereon, and all insurance expenses and all expenses of
protecting, storing, warehousing, appraising, insuring,
handling, maintaining, and shipping the Collateral, any and
all excise, property, sales, and use taxes imposed by any
state, federal, or local authority on any of the Collateral,
or in respect of periodic appraisals and inspections of the
Collateral to the extent the same may be requested by the
Required Lenders from time to time, or in respect of the
sale or other disposition thereof shall be borne and paid by
the Guarantor; and if the Guarantor fails to promptly pay
any portion thereof when due, the Agent or any other Secured
Party may, at its option, but shall not be required to, pay
the same and charge the Guarantor's account therefor, and
the Guarantor agrees to reimburse the Agent or such other
Secured Party therefor on demand. All sums so paid or
incurred by the Agent or any Lender for any of the foregoing
and any and all other sums for which the Guarantor may
become liable hereunder and all costs and expenses
(including reasonable attorneys' fees, legal expenses and
court costs (including the reasonable allocation of the
compensation, costs and expenses of in-house counsel, based
upon time spent)) reasonably incurred by the Agent or any
other Secured Party in enforcing or protecting the Security
Interests or any of their rights or remedies under this
Agreement, shall, together with interest thereon until paid
at an annual rate equal to 2% plus the rate announced from
time by NationsBank of North Carolina, N.A. as its prime
rate, be additional Secured Obligations hereunder.
SECTION 18. Termination of Security
Interests; Release of Collateral
Upon the repayment in full of all Secured
Obligations, the Security Interests shall terminate and all
rights to the Collateral shall revert to the Guarantor. At
any time and from time to time prior to such termination of
the Security Interests, the Agent may release any of the
Collateral with the prior written consent of the Required
Lenders. Upon any such termination of the Security
Interests or release of Collateral, the Agent will, at the
expense of the Guarantor, execute and deliver to the
Guarantor such documents as the Guarantor shall reasonably
request to evidence the termination of the Security
Interests or the release of such Collateral, as the case may
be.
SECTION 19. Notices
All notices, communications and distributions
hereunder shall be given in accordance with Section 11.03 of
the Credit Agreement, provided that the Guarantor's address
shall be that set forth on the signature pages hereof.
SECTION 20. Waivers, Non-Exclusive Remedies
No failure on the part of the Agent to exercise,
and no delay in exercising and no course of dealing with
respect to, any right under this Agreement shall operate as
a waiver thereof; nor shall any single or partial exercise
by the Agent or any Secured Party of any right under the
Credit Agreement, any of the other Financing Documents or
this Agreement preclude any other or further exercise
thereof or the exercise of any other right. The rights in
this Agreement, the Credit Agreement and the other Financing
Documents are cumulative and are not exclusive of any other
remedies provided by law.
SECTION 21. Successors and Assigns
This Agreement is for the benefit of the Agent and
the Secured Parties and their successors and assigns, and in
the event of an assignment of all or any of the Secured
Obligations, the rights hereunder, to the extent applicable
to the indebtedness so assigned, may be transferred with
such indebtedness. This Agreement shall be binding on the
Guarantor and its successors and assigns.
SECTION 22. Changes in Writing
Neither this Agreement nor any provision hereof
may be changed, waived, discharged or terminated orally, but
only in writing signed by the Guarantor and the Agent with
the consent of the Required Lenders.
SECTION 23. NEW YORK LAW
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
(WITHOUT REFERENCE TO PRINCIPLES OR CONFLICTS OF LAW),
EXCEPT AS OTHERWISE REQUIRED BY MANDATORY PROVISIONS OF LAW
AND EXCEPT TO THE EXTENT THAT REMEDIES PROVIDED BY THE LAWS
OF ANY JURISDICTION OTHER THAN NEW YORK ARE GOVERNED BY THE
LAWS OF SUCH JURISDICTION.
SECTION 24. Severability
If any provision hereof is invalid or
unenforceable in any jurisdiction, then, to the fullest
extent permitted by law, (i) the other provisions hereof
shall remain in full force and effect in such jurisdiction
and shall be liberally construed in favor of the Agent and
the other Secured Parties in order to carry out the
intentions of the parties hereto as nearly as may be
possible; and (ii) the invalidity or unenforceability of any
provision hereof in any jurisdiction shall not affect the
validity or enforceability of such provision in any other
jurisdiction.
SECTION 25. Counterparts
This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the
same effect as if the signatures thereto and hereto were
upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed by their respective
authorized officers as of the day and year first above
written.
SIGNAL APPAREL COMPANY, INC.
By: /s/ G. M. Grandin
--------------------------
Title: Senior Vice
President
GREYROCK CAPITAL GROUP INC.,
as Agent
By: /s/ Ron Cohn
--------------------------
Title: Authorized Signatory
LIST OF OMITTED EXHIBITS AND SCHEDULES
Schedule 4 Stock Pledged
Exhibit A Perfection Certificate
Schedule 6(A) Description of Collateral
Schedule 7 Schedule of Filings
Exhibit B Opinion of counsel for the Company
Exhibit C Registration Rights
Schedule 2(C) List of Facility Addresses
Schedule 2(E) Authorized Consignment Distributors of Signal
Knitwear
Schedule 5(A) File Search Reports
Schedule 5(B) Financing Statements Identified in Search
Reports
Schedule 6(B) Acknowledged Financing Statements
Schedule 9 List of Patents, Trademarks, Copyrights
EXHIBIT 10.53
SHIRT SHED GUARANTY AND SECURITY AGREEMENT
AGREEMENT dated as of November 22, 1994 between
THE SHIRT SHED COMPANY, INC., an Indiana corporation
(together with its successors, the "Guarantor"), and
GREYROCK CAPITAL GROUP INC., as Agent for the lenders
referred to below.
W I T N E S S E T H :
WHEREAS American Marketing Works, Inc. (the
"Company"), certain lenders and Greyrock Capital Group Inc.,
as agent for such lenders, are parties to an Amended and
Restated Credit Agreement dated as of February 16, 1993 (as
the same may be amended from time to time, the "Credit
Agreement"); and
WHEREAS in order to induce such lenders and
Greyrock Capital Group Inc., as agent for such lenders, to
enter into the Credit Agreement, the Guarantor has agreed to
guarantee the obligations of the Company under the Financing
Documents referred to in the Credit Agreement, and to grant
a continuing security interest in and to the Collateral (as
hereafter defined) to secure its guarantee of the Company's
obligations under the Financing Documents;
NOW THEREFORE in consideration of the premises and
other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
SECTION 1. Definitions
Terms defined in the Credit Agreement and not
otherwise defined herein have, as used herein, the
respective meanings provided for therein. The following
additional terms, as used herein, have the following
respective meanings:
"Accounts" means all "accounts" (as defined in the
UCC) now owned or hereafter acquired by the Guarantor, and
shall also mean and include all accounts receivable,
contract rights, book debts, notes, drafts and other
obligations or indebtedness owing to the Guarantor arising
from the sale, lease or exchange of goods or other property
by it and/or the performance of services by it (including
any such obligation which might be characterized as an
account, contract right or general intangible under the
Uniform Commercial Code in effect in any jurisdiction) and
all of the Guarantor's rights in, to and under all purchase
orders for goods, services or other property, and all of the
Guarantor's rights to any goods, services or other property
represented by any of the foregoing (including returned or
repossessed goods and unpaid sellers' rights of rescission,
replevin, reclamation and rights to stoppage in transit) and
all monies due to or to become due to the Guarantor under
all contracts for the sale, lease or exchange of goods or
other property and/or the performance of services by it
(whether or not yet earned by performance on the part of the
Guarantor), in each case whether now in existence or
hereafter arising or acquired including, without limitation,
the right to receive the proceeds of said purchase orders
and contracts and all collateral security and guarantees of
any kind given by any Person with respect to any of the
foregoing.
"Collateral" has the meaning set forth in
Section 4.
"Documents" means all "documents" (as defined in
the UCC) or other receipts covering, evidencing or
representing goods, now owned or hereafter acquired by the
Guarantor.
"Equipment" means all "equipment" (as defined in
the UCC) now owned or hereafter acquired by the Guarantor,
including without limitation all motor vehicles, trucks,
trailers, railcars and barges.
"General Intangibles" means all "general
intangibles" (as defined in the UCC) now owned or hereafter
acquired by the Guarantor, including (i) all obligations or
indebtedness owing to the Guarantor (other than Accounts)
from whatever source arising, (ii) all patents, patent
licenses, trademarks, trademark licenses, rights in
intellectual property, goodwill, trade names, service marks,
trade secrets, copyrights, permits and licenses (except to
the extent that the granting by the Guarantor of a security
interest therein results in the violation or termination of,
or default under, any licensing agreement to which the
Guarantor is a party), (iii) all rights or claims in respect
of refunds for taxes paid and (iv) all rights in respect of
any pension plan or similar arrangement maintained for
employees of any member of the ERISA Group.
"Instruments" means all "instruments", "chattel
paper" or "letters of credit" (each as defined in the UCC),
including those evidencing, representing, arising from or
existing in respect of, relating to, securing or otherwise
supporting the payment of, any of the Accounts, including
(but not limited to) promissory notes, drafts, bills of
exchange and trade acceptances, now owned or hereafter
acquired by the Guarantor.
"Inventory" means all "inventory" (as defined in
the UCC), now owned or hereafter acquired by the Guarantor,
wherever located, and shall also mean and include all raw
materials and other materials and supplies, work-in-process
and finished goods and any products made or processed
therefrom and all substances, if any, commingled therewith
or added thereto.
"Perfection Certificate" means a certificate sub-
stantially in the form of Exhibit A, completed and supple-
mented with the schedules and attachments contemplated
thereby to the satisfaction of the Agent, and duly executed
by the chief executive officer and the chief legal officer
of the Guarantor.
"Permitted Liens" means the Security Interests and
the Liens on the Collateral permitted to be created, to be
assumed or to exist pursuant to the Shirt Shed Working
Capital Facility.
"Proceeds" means all proceeds of, and all other
profits, products, rents or receipts, in whatever form,
arising from the collection, sale, lease, exchange,
assignment, licensing or other disposition of, or other
realization upon, collateral, including all claims of the
Guarantor against third parties for loss of, damage to or
destruction of, or for proceeds payable under, or unearned
premiums with respect to, policies of insurance in respect
of, any collateral, and any condemnation or requisition
payments with respect to any collateral, in each case
whether now existing or hereafter arising.
"Secured Obligations" means the obligations
secured under this Agreement which include (a) all amounts
payable by the Guarantor in respect of the Guarantor's
guarantee under this Agreement of the full and punctual
payment of the principal of and interest on the obligations
of the Company under the Financing Documents and all other
amounts payable by the Company under the Financing Documents
and (b) any amendments, restatements, renewals, extensions
or modifications of any of the foregoing.
"Secured Parties" means the Agent and the Lenders.
"Security Interests" means the security interests
in the Collateral granted hereunder securing the Secured
Obligations.
"Shirt Shed Working Capital Facility" means the
BNY Financial Corporation Factoring Agreement dated as of
July 25, 1991 between the Guarantor and BNY Financial
Corporation, or any successor or replacement working capital
facility entered into by the Guarantor, in each case as
amended from time to time.
"UCC" means the Uniform Commercial Code as in
effect on the date hereof in the State of New York; provided
that if by reason of mandatory provisions of law, the
perfection or the effect of perfection or non-perfection of
the Security Interest in any Collateral is governed by the
Uniform Commercial Code as in effect in a jurisdiction other
than New York, "UCC" means the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the
provisions hereof relating to such perfection or effect of
perfection or non-perfection.
SECTION 2. Representations and Warranties
The Guarantor represents and warrants as follows:
(A) The Guarantor has good and marketable title
to all of the Collateral, free and clear of any Liens other
than the Permitted Liens. The Guarantor has taken all
actions necessary under the UCC to perfect its interest in
any Accounts purchased or otherwise acquired by it, as
against its assignors and creditors of its assignors.
(B) The Guarantor has not performed any acts
which might prevent the Agent from enforcing any of the
terms of this Agreement or which would limit the Agent in
any such enforcement. Other than financing statements or
other similar or equivalent documents or instruments with
respect to the Security Interests and Permitted Liens, no
financing statement, mortgage, security agreement or similar
or equivalent document or instrument covering all or any
part of the Collateral is on file or of record in any
jurisdiction in which such filing or recording would be
effective to perfect a Lien on such Collateral.
(C) The information set forth in the Perfection
Certificate delivered to the Agent prior to the Effective
Date is correct and complete after giving effect to the
consummation of the Acquisition. Not later than 30 days
following the Effective Date, the Guarantor shall furnish to
the Agent file search reports from each UCC filing office
set forth in Schedule 7 to the Perfection Certificate
confirming the filing information set forth in such
Schedule.
(D) The Security Interests constitute valid
security interests under the UCC securing the Secured
Obligations. When UCC financing statements in the form
specified in Exhibit A shall have been filed in the offices
specified in the Perfection Certificate, the Security
Interests shall constitute perfected security interests in
the Collateral (except Inventory in transit) to the extent
that a security interest therein may be perfected by filing
pursuant to the UCC, prior to all other Liens and rights of
others therein except for the Permitted Liens.
(E) The Guarantor will, and will cause each of
its Subsidiaries to, maintain (either in the name of the
Guarantor or in such Subsidiary's own name) with financially
sound and responsible insurance companies, insurance on all
their respective properties in at least such amounts and
against at least such risks (and with such risk retention)
as are usually insured against in the same general area by
companies of established repute engaged in the same or a
similar business; and will furnish to the Lenders, upon
request from the Agent, information presented in reasonable
detail as to the insurance so carried.
(F) All Inventory has or will have been produced
in compliance with the applicable requirements of the Fair
Labor Standards Act, as amended.
SECTION 3. The Guaranty
(A) The Guarantor hereby unconditionally guaran-
tees the full and punctual payment (whether at stated
maturity, upon acceleration or otherwise) of the principal
of and interest on each payment obligation of the Company
under the Financing Documents, and the full and punctual
payment of all other amounts payable by the Company there-
under. Upon failure by the Company to pay punctually any
such amount, the Guarantor shall forthwith on demand pay the
amount not so paid at the place and in the manner specified
in the Credit Agreement.
(B) Guaranty Unconditional. The obligations of
the Guarantor hereunder shall be unconditional and absolute
and, without limiting the generality of the foregoing, shall
not be released, discharged or otherwise affected by:
(i) any extension, renewal, settlement, compro-
mise, waiver or release in respect of any obligation of
the Company under Credit Agreement or any other Finan-
cing Document, by operation of law or otherwise;
(ii) any renewal, extension, modification, amend-
ment or restatement of or supplement to the Credit
Agreement or any other Financing Document;
(iii) any release, impairment, non-perfection or
invalidity of any direct or indirect security for any
obligation of the Company under the Credit Agreement or
any other Financing Document;
(iv) any change in the corporate existence,
structure or ownership of the Company, or any insol-
vency, bankruptcy, reorganization or other similar
proceeding affecting the Company or its assets or any
resulting release or discharge of any obligation of the
Company contained in the Credit Agreement or any other
Financing Document;
(v) the existence of any claim, set-off or other
rights which the Guarantor may have at any time against
the Company, the Agent, any Lender or any other corpor-
ation or person, whether in connection herewith or any
unrelated transactions, provided that nothing herein
shall prevent the assertion of any such claim by
separate suit or compulsory counterclaim;
(vi) any invalidity or unenforceability relating
to or against the Company for any reason of the Credit
Agreement or any other Financing Document, or any
provision of applicable law or regulation purporting to
prohibit the payment by the Company of the principal of
or interest on any Note or any other amount payable by
the Company under the Credit Agreement or any other
Financing Document; or
(vii) any other act or omission to act or delay
of any kind by the Company, the Agent, any Lender or
any other corporation or person or any other
circumstance whatsoever which might, but for the
provisions of this paragraph, constitute a legal or
equitable discharge of or defense to the Guarantor's
obligations hereunder.
(C) Discharge Only Upon Payment In Full; Rein-
statement In Certain Circumstances. The Guarantor's obliga-
tions hereunder shall remain in full force and effect until
the principal of and interest on the Notes and all other
amounts payable by the Company under the Credit Agreement
and the other Financing Documents shall have been paid in
full. If at any time any payment of the principal of or
interest on any Note or any other amount payable by the
Company under the Credit Agreement or the other Financing
Documents is rescinded or must be otherwise restored or
returned upon the insolvency, bankruptcy or reorganization
of the Company or otherwise, the Guarantor's obligations
hereunder with respect to such payment shall be reinstated
as though such payment had been due but not made at such
time.
(D) Waiver by the Guarantor. The Guarantor
irrevocably waives acceptance hereof, presentment, demand,
protest and any notice not provided for herein, as well as
any requirement that at any time any action be taken by any
corporation or person against any Company or any other
corporation or person.
(E) Subrogation. The Guarantor shall not be
entitled, by operation of law or otherwise, upon making any
payment hereunder to be subrogated to the rights of the
payee against the Company with respect to such payment or
against any direct or indirect security therefor, or
otherwise to be reimbursed, indemnified or exonerated by or
for the account of the Company in respect thereof unless and
until the Secured Obligations shall have been fully and
finally paid.
(F) Stay of Acceleration. If acceleration of the
time for payment of any amount payable by the Company under
the Credit Agreement or any of the other Financing Documents
is stayed upon the insolvency, bankruptcy or reorganization
of the Company, all such amounts otherwise subject to accel-
eration under the terms of this Agreement shall nonetheless
be payable by the Guarantor hereunder forthwith on demand by
the Agent made at the request of the requisite proportion of
the Lenders specified in Article VIII of the Credit Agree-
ment.
SECTION 4. The Security Interests
(A) In order to secure the full and punctual
payment and performance of the Secured Obligations in
accordance with the terms thereof, the Guarantor hereby
grants to the Agent for the ratable benefit of the Secured
Parties a continuing security interest in and to all of the
following property of the Guarantor, whether now owned or
existing or hereafter acquired or arising and regardless of
where located (all being collectively referred to as the
"Collateral"):
(1) Accounts;
(2) Inventory;
(3) General Intangibles;
(4) Documents;
(5) Instruments;
(6) Equipment;
(7) All books and records (including customer
lists, credit files, computer programs, printouts and
other computer materials and records) of the Guarantor
pertaining to any of the Collateral; and
(8) All Proceeds of all or any of the Collateral
described in Clauses 1 through 8 hereof.
(B) The Security Interests are granted as securi-
ty only and shall not subject any Secured Party to, or
transfer or in any way affect or modify, any obligation or
liability of the Guarantor with respect to any of the
Collateral or any transaction in connection therewith.
SECTION 5. Further Assurances; Covenants
(A) The Guarantor will not change its name, iden-
tity or corporate structure in any manner unless it shall
have given the Agent (i) not less than 30 days' prior notice
thereof and (ii) delivered an opinion of counsel with
respect thereto in accordance with Section 5(K). The Guar-
antor will not change the location of (i) its chief
executive office or chief place of business or (ii) the
locations where it keeps or holds any Collateral or any
records relating thereto from the applicable location
described in the Perfection Certificate unless it shall have
given the Agent (i) not less than 30 days' prior notice
thereof and (ii) delivered an opinion of counsel with
respect thereto in accordance with Section 5(K). The
Guarantor shall not in any event change the location of any
Collateral if such change would cause the Security Interests
in such Collateral to lapse or cease to be perfected.
(B) The Guarantor will, from time to time, at its
expense, execute, deliver, file and record any statement,
assignment, instrument, document, agreement or other paper
and take any other action (including any filings of
financing or continuation statements under the UCC) that
from time to time may be necessary or desirable, or that the
Agent may request, in order to create, preserve, perfect,
confirm or validate the Security Interests or to enable the
Secured Parties to obtain the full benefits of this Agree-
ment, or to enable the Agent to exercise and enforce any of
its rights, powers and remedies hereunder with respect to
any of the Collateral. To the extent permitted by appli-
cable law, the Guarantor hereby authorizes the Agent, and
appoints the Agent as its true and lawful attorney (with
full power of substitution, in the name of the Guarantor,
the Secured Parties or otherwise, for the sole use and
benefit of the Secured Parties), to execute and file finan-
cing statements or continuation statements without the
Guarantor's signature appearing thereon. The Guarantor
agrees that a carbon, photographic, photostatic or other
reproduction of this Agreement or of a financing statement
is sufficient as a financing statement. The Guarantor shall
pay the costs of, or incidental to, any recording or filing
of any financing or continuation statements concerning the
Collateral.
(C) If any Collateral is at any time in the
possession or control of any warehouseman, bailee or any of
the Guarantor's agents or processors, the Guarantor shall
notify such warehouseman, bailee, agent or processor of the
Security Interests created hereby and to hold all such
Collateral for the Agent's account subject to the Agent's
instructions.
(D) The Guarantor shall keep full and accurate
books and records relating to the Collateral, and stamp or
otherwise mark such books and records in such manner as the
Required Lenders may reasonably require in order to reflect
the Security Interests.
(E) The Guarantor will immediately deliver and
pledge each Instrument to the Agent, appropriately endorsed
to the Agent, provided that so long as no Event of Default
shall have occurred and be continuing, the Guarantor may
retain for collection in the ordinary course any Instruments
received by it in the ordinary course of business and the
Agent shall, promptly upon request of the Guarantor, make
appropriate arrangements for making any other Instrument
pledged by the Guarantor available to it for purposes of
presentation, collection or renewal (any such arrangement to
be effected, to the extent deemed appropriate to the Agent,
against trust receipt or like document).
(F) The Guarantor shall use its best efforts to
cause to be collected from its account debtors, as and when
due, any and all amounts owing under or on account of each
Account (including Accounts which are delinquent, such
Accounts to be collected in accordance with lawful collec-
tion procedures) and shall apply forthwith upon receipt
thereof all such amounts as are so collected to the outstan-
ding balance of such Account. Subject to the rights of the
Secured Parties hereunder upon the occurrence and during the
continuance of an Event of Default, the Guarantor may allow
in the ordinary course of business as adjustments to amounts
owing under its Accounts (i) an extension or renewal of the
time or times of payment, or settlement for less than the
total unpaid balance, which the Guarantor finds appropriate
in accordance with sound business judgment and (ii) a refund
or credit due as a result of returned or damaged merchandise
or as a discount for prompt payment, all in accordance with
the Guarantor's ordinary course of business consistent with
its historical collection practices. The costs and expenses
(including attorney's fees) of collection, whether incurred
by the Guarantor or the Agent, shall be borne by the
Guarantor.
(G) Upon the occurrence and during the contin-
uance of any Event of Default, upon request of the Required
Lenders through the Agent, the Guarantor will promptly
notify (and the Guarantor hereby authorizes the Agent so to
notify) each account debtor in respect of any Account or
Instrument that such Collateral has been assigned to the
Agent hereunder, and that any payments due or to become due
in respect of such Collateral are to be made directly to the
Agent or its designee.
(H) The Guarantor shall, (i) upon the request of
the Agent, in the case of Equipment then owned and (ii)
thereafter, within 10 days of acquiring any other Equipment,
deliver to the Agent any and all certificates of title,
applications for title or similar evidence of ownership of
such Equipment and shall cause the Agent to be named as
lienholder on any such certificate of title or other evi-
dence of ownership. The Guarantor shall promptly inform the
Agent of any additions to or deletions from the Equipment
and shall not permit any such items to become a fixture to
real estate or an accession to other personal property.
(I) Without the prior written consent of the
Required Lenders, the Guarantor will not sell, lease,
exchange, assign or otherwise dispose of, or grant any
option with respect to, any Collateral except, subject to
the rights of the Secured Parties hereunder if an Event of
Default shall have occurred and be continuing, as permitted
under the Shirt Shed Working Capital Facility, whereupon, in
the case of such a sale or exchange, the Security Interests
created hereby in such item (but not in any Proceeds arising
from such sale or exchange) shall cease immediately without
any further action on the part of the Agent.
(J) The Guarantor will, promptly upon request,
provide to the Agent all information and evidence it may
reasonably request concerning the Collateral to enable the
Agent to enforce the provisions of this Agreement.
(K) Not more than six months nor less than 30
days prior to each date on which the Guarantor proposes to
take any action contemplated by Section 5(A), the Guarantor
shall give notice to the Agent of such proposed action, and,
at the Guarantor's cost and expense, cause to be delivered
to the Secured Parties with such notice, an opinion of
counsel, satisfactory to the Agent, substantially in the
form of Exhibit B to the effect that all financing state-
ments and amendments or supplements thereto, continuation
statements and other documents required to be recorded or
filed in order to perfect and protect the Security Interests
for a period (and after giving effect to the proposed action
that is the subject of such notice), specified in such
opinion, continuing until a date not earlier than eighteen
months from the date of such opinion, against all creditors
of and purchasers from the Guarantor have been filed in each
filing office necessary for such purpose and that all filing
fees and taxes, if any, payable in connection with such
filings have been paid in full.
(L) From time to time upon request by the Agent,
the Guarantor shall, at its cost and expense, cause to be
delivered to the Secured Parties an opinion of counsel
satisfactory to the Agent as to such matters relating to the
transactions contemplated hereby as the Required Lenders may
reasonably request.
SECTION 6. Insurance
The Guarantor will cause the Agent to be named as
an insured party and loss payee on each insurance policy
covering risks relating to any of its Inventory and Equip-
ment. The Guarantor will deliver to the Agent, upon request
of the Agent, the insurance policies for such insurance or
certificates of insurance evidencing such coverage. Each
such insurance policy shall include effective waivers by the
insurer of all claims for insurance premiums against the
Agent or any Lender, provide for coverage to the Agent
regardless of the breach by the Guarantor of any warranty or
representation made therein, not be subject to co-insurance,
provide that all insurance proceeds in excess of $100,000
per claim shall be adjusted with and payable to the Agent
and provide that no cancellation, termination or material
modification thereof shall be effective until at least 30
days after receipt by the Agent of written notice thereof.
The Guarantor hereby appoints the Agent as its attorney-in-
fact to make proof of loss, claim for insurance and adjust-
ments with insurers, and to execute or endorse all docu-
ments, checks or drafts in connection with payments made as
a result of any insurance policies.
SECTION 7. General Authority
The Guarantor hereby irrevocably appoints the
Agent its true and lawful attorney, with full power of
substitution, in the name of the Guarantor, the Secured
Parties or otherwise, for the sole use and benefit of the
Secured Parties, but at the Guarantor's expense, to the
extent permitted by law to exercise, at any time and from
time to time while an Event of Default has occurred and is
continuing, all or any of the following powers with respect
to all or any of the Collateral:
(i) to demand, sue for, collect, receive and give
acquittance for any and all monies due or to become due
thereon or by virtue thereof,
(ii) to settle, compromise, compound, prosecute or
defend any action or proceeding with respect thereto,
(iii) to sell, transfer, assign or otherwise deal
in or with the same or the proceeds or avails thereof,
as fully and effectually as if the Agent were the
absolute owner thereof, and
(iv) to extend the time of payment of any or all
thereof and to make any allowance and other adjustments
with reference thereto;
provided that the Agent shall give the Guarantor not less
than ten days' prior written notice of the time and place of
any sale or other intended disposition of any of the Colla-
teral, except any Collateral which is perishable or threa-
tens to decline speedily in value or is of a type custom-
arily sold on a recognized market. The Agent and the Guar-
antor agree that such notice constitutes "reasonable noti-
fication" within the meaning of Section 9-504(3) of the UCC.
SECTION 8. Remedies upon Event of Default
(A) If any Event of Default has occurred and is
continuing, the Agent may exercise on behalf of the Secured
Parties all rights of a secured party under the UCC (whether
or not in effect in the jurisdiction where such rights are
exercised) and, in addition, the Agent may, without being
required to give any notice, except as herein provided or as
may be required by mandatory provisions of law, (i) apply
cash, if any, then held by it as Collateral as specified in
Section 10 and (ii) if there shall be no such cash or if
such cash shall be insufficient to pay all the Secured
Obligations in full, sell the Collateral or any part thereof
at public or private sale, for cash, upon credit or for
future delivery, and at such price or prices as the Agent
may deem satisfactory. The Agent or any other Secured Party
may be the purchaser of any or all of the Collateral so sold
at any public sale (or, if the Collateral is of a type
customarily sold in a recognized market or is of a type
which is the subject of widely distributed standard price
quotations, at any private sale). The Guarantor will
execute and deliver such documents and take such other
action as the Agent deems necessary or advisable in order
that any such sale may be made in compliance with law. Upon
any such sale the Agent shall have the right to deliver,
assign and transfer to the purchaser thereof the Collateral
so sold. Each purchaser at any such sale shall hold the
Collateral so sold to it absolutely and free from any claim
or right of whatsoever kind, including any equity or right
of redemption of the Guarantor which may be waived, and the
Guarantor, to the extent permitted by law, hereby
specifically waives all rights of redemption, stay or
appraisal which it has or may have under any law now
existing or hereafter adopted. The notice (if any) of such
sale required by Section 7 shall (1) in the case of a public
sale, state the time and place fixed for such sale and
(2) in the case of a private sale, state the day after which
such sale may be consummated. Any such public sale shall be
held at such time or times within ordinary business hours
and at such place or places as the Agent may fix in the
notice of such sale. At any such sale the Collateral may be
sold in one lot as an entirety or in separate parcels, as
the Agent may determine. The Agent shall not be obligated
to make any such sale pursuant to any such notice. The
Agent may, without notice or publication, adjourn any public
or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for the
sale, and such sale may be made at any time or place to
which the same may be so adjourned. In case of any sale of
all or any part of the Collateral on credit or for future
delivery, the Collateral so sold may be retained by the
Agent until the selling price is paid by the purchaser
thereof, but the Agent shall not incur any liability in case
of the failure of such purchaser to take up and pay for the
Collateral so sold and, in case of any such failure, such
Collateral may again be sold upon like notice. The Agent,
instead of exercising the power of sale herein conferred
upon it, may proceed by a suit or suits at law or in equity
to foreclose the Security Interests and sell the Collateral,
or any portion thereof, under a judgment or decree of a
court or courts of competent jurisdiction.
(B) For the purpose of enforcing any and all
rights and remedies under this Agreement the Agent may (i)
require the Guarantor to, and the Guarantor agrees that it
will, at its expense and upon the request of the Agent,
forthwith assemble all or any part of the Collateral as
directed by the Agent and make it available at a place
designated by the Agent which is, in its opinion, reasonably
convenient to the Agent and the Guarantor, whether at the
premises of the Guarantor or otherwise, (ii) to the extent
permitted by applicable law, enter, with or without process
of law and without breach of the peace, any premise where
any of the Collateral is or may be located, and without
charge or liability to it seize and remove such Collateral
from such premises, (iii) have access to and use the Guar-
antor's books and records relating to the Collateral and
(iv) prior to the disposition of the Collateral, store or
transfer it without charge in or by means of any storage or
transportation facility owned or leased by the Guarantor,
process, repair or recondition it or otherwise prepare it
for disposition in any manner and to the extent the Agent
deems appropriate and, in connection with such preparation
and disposition, use without charge any trademark, trade
name, copyright, patent or technical process used by the
Guarantor.
SECTION 9. Limitation on Duty of Agent in Respect
of Collateral
Beyond the exercise of reasonable care in the
custody thereof, the Agent shall have no duty as to any
Collateral in its possession or control or in the possession
or control of any agent or bailee or any income thereon or
as to the preservation of rights against prior parties or
any other rights pertaining thereto. The Agent shall be
deemed to have exercised reasonable care in the custody of
the Collateral in its possession if the Collateral is
accorded treatment substantially equal to that which it
accords its own property, and shall not be liable or
responsible for any loss or damage to any of the Collateral,
or for any diminution in the value thereof, by reason of the
act or omission of any warehouseman, carrier, forwarding
agency, consignee or other agent or bailee selected by the
Agent in good faith.
SECTION 10. Application of Proceeds
Upon the occurrence and during the continuance of
an Event of Default, the proceeds of any sale of, or other
realization upon, all or any part of the Collateral shall be
applied by the Agent in the following order of priorities:
first, to payment of the expenses of such sale or
other realization, including reasonable compensation to
agents and counsel for the Agent, and all expenses,
liabilities and advances incurred or made by the Agent
in connection therewith, and any other unreimbursed
expenses for which the Agent or any other Secured Party
is to be reimbursed pursuant to Section 9.03 of the
Credit Agreement or Section 13 hereof and unpaid fees
owing to the Agent under the Credit Agreement;
second, to the ratable payment of accrued but
unpaid interest on the Secured Obligations in accor-
dance with the provisions of the Credit Agreement;
third, to the ratable payment of unpaid principal
of the Secured Obligations;
fourth, to the ratable payment of all other
Secured Obligations, until all Secured Obligations
shall have been paid in full; and
finally, to payment to the Guarantor or its suc-
cessors or assigns, or as a court of competent juris-
diction may direct, of any surplus then remaining from
such proceeds.
The Agent may make distributions hereunder in cash or in
kind or, on a ratable basis, in any combination thereof.
SECTION 11. Concerning the Agent
The provisions of Section 9.04 and Article X of
the Credit Agreement shall inure to the benefit of the Agent
in respect of this Agreement and shall be binding upon the
Guarantor in such respect. In furtherance and not in dero-
gation of the rights, privileges and immunities of the Agent
therein set forth:
(A) The Agent is authorized to take all such
action as is provided to be taken by it as Agent hereunder
and all other action reasonably incidental thereto. As to
any matters not expressly provided for herein (including the
timing and methods of realization upon the Collateral) the
Agent shall act or refrain from acting in accordance with
written instructions from the Required Lenders or, in the
absence of such instructions, in accordance with its
discretion.
(B) The Agent shall not be responsible for the
existence, genuineness or value of any of the Collateral or
for the validity, perfection, priority or enforceability of
the Security Interests in any of the Collateral, whether
impaired by operation of law or by reason of any action or
omission to act on its part hereunder. The Agent shall have
no duty to ascertain or inquire as to the performance or
observance of any of the terms of this Agreement by the
Guarantor.
SECTION 12. Appointment of Co-Agents
At any time or times, in order to comply with any
legal requirement in any jurisdiction, the Agent may appoint
another bank or trust company or one or more other persons,
either to act as co-agent or co-agents, jointly with the
Agent, or to act as separate agent or agents on behalf of
the Secured Parties with such power and authority as may be
necessary for the effectual operation of the provisions
hereof and may be specified in the instrument of appointment
(which may, in the discretion of the Agent, include provi-
sions for the protection of such co-agent or separate agent
similar to the provisions of Section 11).
SECTION 13. Expenses
In the event that the Guarantor fails to comply
with the provisions of this Agreement, such that the value
of any Collateral or the validity, perfection, rank or value
of any Security Interest is thereby diminished or poten-
tially diminished or put at risk, the Agent if requested by
the Required Lenders may, but shall not be required to,
effect such compliance on behalf of the Guarantor, and the
Guarantor shall reimburse the Agent for the costs thereof on
demand. All insurance expenses and all expenses of
protecting, storing, warehousing, appraising, insuring,
handling, maintaining, and shipping the Collateral, any and
all excise, property, sales, and use taxes imposed by any
state, federal, or local authority on any of the Collateral,
or in respect of periodic appraisals and inspections of the
Collateral to the extent the same may be requested by the
Required Lenders from time to time, or in respect of the
sale or other disposition thereof shall be borne and paid by
the Guarantor; and if the Guarantor fails to promptly pay
any portion thereof when due, the Agent or any other Secured
Party may, at its option, but shall not be required to, pay
the same and charge the Guarantor's account therefor, and
the Guarantor agrees to reimburse the Agent or such other
Secured Party therefor on demand. All sums so paid or
incurred by the Agent or any Lender for any of the foregoing
and any and all other sums for which the Guarantor may
become liable hereunder and all costs and expenses
(including reasonable attorneys' fees, legal expenses and
court costs (including the reasonable allocation of the
compensation, costs and expenses of in-house counsel, based
upon time spent)) reasonably incurred by the Agent or any
other Secured Party in enforcing or protecting the Security
Interests or any of their rights or remedies under this
Agreement, shall, together with interest thereon until paid
at an annual rate equal to 2% plus the rate announced from
time by NationsBank of North Carolina, N.A. as its prime
rate, be additional Secured Obligations hereunder.
SECTION 14. Termination of Security
Interests Release of Collateral
Upon the repayment in full of all Secured Obliga-
tions, the Security Interests shall terminate and all rights
to the Collateral shall revert to the Guarantor. At any
time and from time to time prior to such termination of the
Security Interests, the Agent may release any of the
Collateral with the prior written consent of the Required
Lenders. Upon any such termination of the Security
Interests or release of Collateral, the Agent will, at the
expense of the Guarantor, execute and deliver to the
Guarantor such documents as the Guarantor shall reasonably
request to evidence the termination of the Security
Interests or the release of such Collateral, as the case may
be.
SECTION 15. Notices
All notices, communications and distributions
hereunder shall be given in accordance with Section 11.03 of
the Credit Agreement, provided that the Guarantor's address
shall be that set forth on the signature pages hereof.
SECTION 16. Waivers, Non-Exclusive Remedies
No failure on the part of the Agent to exercise,
and no delay in exercising and no course of dealing with
respect to, any right under this Agreement shall operate as
a waiver thereof; nor shall any single or partial exercise
by the Agent or any Secured Party of any right under the
Credit Agreement, any of the other Financing Documents or
this Agreement preclude any other or further exercise there-
of or the exercise of any other right. The rights in this
Agreement, the Credit Agreement and the other Financing
Documents are cumulative and are not exclusive of any other
remedies provided by law.
SECTION 17. Successors and Assigns
This Agreement is for the benefit of the Agent and
the Secured Parties and their successors and assigns, and in
the event of an assignment of all or any of the Secured
Obligations, the rights hereunder, to the extent applicable
to the indebtedness so assigned, may be transferred with
such indebtedness. This Agreement shall be binding on the
Guarantor and its successors and assigns.
SECTION 18. Changes in Writing
Neither this Agreement nor any provision hereof
may be changed, waived, discharged or terminated orally, but
only in writing signed by the Guarantor and the Agent with
the consent of the Required Lenders.
SECTION 19. NEW YORK LAW
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
(WITHOUT REFERENCE TO PRINCIPLES OR CONFLICTS OF LAW),
EXCEPT AS OTHERWISE REQUIRED BY MANDATORY PROVISIONS OF LAW
AND EXCEPT TO THE EXTENT THAT REMEDIES PROVIDED BY THE LAWS
OF ANY JURISDICTION OTHER THAN NEW YORK ARE GOVERNED BY THE
LAWS OF SUCH JURISDICTION.
SECTION 20. Severability
If any provision hereof is invalid or unenfor-
ceable in any jurisdiction, then, to the fullest extent
permitted by law, (i) the other provisions hereof shall
remain in full force and effect in such jurisdiction and
shall be liberally construed in favor of the Agent and the
other Secured Parties in order to carry out the intentions
of the parties hereto as nearly as may be possible; and
(ii) the invalidity or unenforceability of any provision
hereof in any jurisdiction shall not affect the validity or
enforceability of such provision in any other jurisdiction.
SECTION 21. Counterparts
This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the
same effect as if the signatures thereto and hereto were
upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed by their respective
authorized officers as of the day and year first above
written.
THE SHIRT SHED, INC.
By /s/ G. M. Grandin
---------------------------
Title: Vice President
GREYROCK CAPITAL GROUP INC.,
as Agent
By: /s/ Ron Cohn
--------------------------
Title: Authorized Signatory
LIST OF OMITTED EXHIBITS AND SCHEDULES
Exhibit A Perfection Certificate
Schedule 6(A) Description of Collateral
Schedule 7 Schedule of Filings
Exhibit B Opinion of counsel for the guarantor
Schedule 2(C) List of facility addresses
Schedule 2(E) Outside Contractors
Schedule 5(A) File Search Reports
Schedule 5(B) Financing Statements Identified in Search
Reports
Schedule 6(B) Acknowledged Financing Statements
EXHIBIT 21
SIGNAL APPAREL COMPANY, INC.
SUBSIDIARIES OF THE REGISTRANT
AS OF MARCH 24, 1995
Name State of Incorporation
- ---- ----------------------
American Marketing Works, Inc. Delaware
The Shirt Shed, Inc. Delaware
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included (or incorporated by
reference) in this Form 10-K into the Company's previously filed
Registration Statements on Form S-8 (File No. 33-27325, File
No. 33-43808 and File No. 33-84106).
/s/ Arthur Andersen LLP
------------------------
ARTHUR ANDERSEN LLP
Chattanooga, Tennessee
March 31, 1995
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration
Statement (Form S-8 Nos. 33-27325, 33-43808 and 33-84106)
pertaining to the stock option plans of Signal Apparel Company,
Inc. and in the related prospectuses of our report dated
March 29, 1993, except for Note 3, as to which the date is
March 29, 1995, with respect to the consolidated financial
statements and schedule of Signal Apparel Company, Inc. for the
year ended December 31, 1992, included in this Annual Report
(Form 10-K) for the year ended December 31, 1994.
/s/ Ernst & Young LLP
--------------------------
Ernst & Young LLP
Chattanooga, Tennessee
March 31, 1995
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