SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 17, 1998
SIGNAL APPAREL COMPANY, INC.
(Exact name of Registrant as specified in its charter)
Indiana 1-2782 62-0641635
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
200 Manufacturers Road, Chattanooga, Tennessee 37405
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (423) 266-2175
N/A
(Former name or former address, if changed since last report.)
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Item 5. Other Events.
Signal Apparel Company, Inc. (the "Company") reached an agreement (the "Purchase
Agreement") with four institutional investors concerning the private placement
of up to $10 million in 5% senior convertible preferred stock effective
September 17, 1998 (the "Closing Date"). Under the terms of the agreement, the
Company has placed an initial installment of $5 million of 5% Convertible
Preferred Stock, Series G1 as of the Closing Date. The placement of an
additional $5 million of 5% Convertible Preferred Stock, Series G2, also will be
available to the Company, subject to the satisfaction of conditions concerning
the absence of certain adverse changes or events and the registration for resale
of the shares of Common Stock issuable upon conversion of (or as payment of
dividends with respect to) the Series G1 and Series G2 preferred stock.
In connection with this private placement, the Company paid $50,000 of the
purchasers' expenses and paid a placement fee of $325,000 to an investment
banker. The Company also issued warrants to the placement agent for the purchase
of up to 62,500 shares of the Company's Common Stock at an exercise price of
$2.9375 per share, with a term of five years. Net proceeds of $4,625,000 will be
used for working capital purposes as well as applied to reduce the balance of
the Company's overadvance borrowings under the factoring arrangement with its
senior lender, resulting in an overall increase in availability under the
facility which will be used by the Company to pursue the recently announced
Umbro license initiative and the planned acquisition of Tahiti Apparel. In
connection with the completion of this private placement, the Company also paid
bonuses totaling $150,000 to four of its executive officers pursuant to the
terms of its employment arrangements with such officers.
Other significant terms of the Purchase Agreement and of the Series G1 and
Series G2 preferred stock are as follows:
1. The $5 million of Series G1 Preferred Stock is convertible at the option of
the purchasers (subject to certain limitations) into shares of Common Stock
at a maximum conversion price of $2.50 per share of Common Stock, subject
to reduction as follows: the conversion price will be reduced to the
average of the five lowest closing bid prices for the common stock during
any 44-trading day period if such average is less than the maximum
conversion price. The conversion price is also subject to reduction in the
event of certain below-market issuances of securities by the Company. The
Purchase Agreement provides that, subject to certain exceptions, the
holders may not convert more than 33.3% of the Series G1 Convertible
Preferred Stock into Common Stock in any single calendar month, and that no
conversions to Common Stock will be permitted prior to the earlier of (i)
the effective date of the resale registration statement discussed in
Paragraph (7) below or (ii) December 16, 1998.
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Any shares of Series G1 Convertible Preferred Stock remaining outstanding
and unconverted on September 17, 2001 shall be (at the option of the holder
of such shares) converted to Common Stock or redeemed by the Company in
cash at a price per share determined in accordance with Section 6(a) of the
Series G1 Certificate of Designations filed as Annex 7 to the Company's
Restated Articles of Incorporation, as amended (the "Certificate of
Designations").
2. Signal currently has 32,636,547 shares of Common Stock issued and
outstanding. Accordingly, the $5 million of Series G1 Preferred Stock
issued September 17 will convert into not less than approximately 5.8% of
the issued and outstanding shares of the Company's Common Stock (or 4.1% of
the Company's Common Stock on a fully diluted basis).
3. The Series G1 Preferred Stock accrues dividends, payable semi-annually on
January 1 and July 1, at an annual rate of 5%. These dividends are payable,
at the option of the Company, either in cash or in shares of the Company's
Common Stock (valued for such purpose at the average of the closing bid
prices for the Common Stock on the NYSE for the five (5) trading days prior
to the applicable dividend payment date). The dividend on the preferred
stock will be eliminated if the closing bid price of the common stock
exceeds $3.41 per share for any five trading day period.
4. The Company has the right to specify, as of the beginning of each calendar
month while any shares of Series G1 Preferred Stock remain outstanding, a
minimum conversion price per share of Common Stock for which, if it
receives notice during such month that any holder intends to convert Series
G1 Preferred shares at a time when the applicable conversion price is below
such specified price, the Company will instead redeem such shares of Series
G1 Preferred at a price per preferred share equal to the product of (i) the
average closing bid price for the Common Stock over a 5-trading day period
ending on the otherwise applicable conversion date times (ii) a "Conversion
Ratio" determined by dividing the sum of the stated value plus any accrued
but unpaid dividends on such preferred shares by the conversion price per
share of Common Stock which would apply in the absence of the Company's
election to exercise such cash redemption privilege.
5. The shares of Series G1 Preferred Stock do not have any voting rights with
respect to matters submitted to the Company's shareholders for approval
except that, without the affirmative vote of all of the holders of Series
G1 Preferred Stock, the Company may not: (a) take any action that would
alter or change adversely the powers, preferences or rights given to the
Series G1 Preferred Stock, or increase the authorized amount of such stock;
(b) authorize
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or create any class of stock ranking senior as to dividends or distribution
of assets upon a liquidation; (c) otherwise amend its Restated Articles of
Incorporation or Bylaws or take any other action that would have a similar
adverse effect on the rights of holders of Series G1 Preferred Stock, or
(d) sell all or substantially all of its assets.
6. The purchasers of the Series G1 Preferred Stock received (collectively),
for no additional consideration, warrants to purchase 100,000 shares of the
Company's Common Stock with an exercise price of $3.125 per Common share.
7. The Purchase Agreement requires the Company to register the shares of
Common Stock into which the Series G1 (as well as Series G2, if issued)
Preferred Stock may be converted, plus any shares of Common Stock which may
be issued in payment of dividends on such stock and the shares of Common
Stock issuable upon exercise of the purchaser's warrants, for resale by the
purchasers of the preferred stock under the Securities Act of 1933, as
amended. In order to satisfy this requirement, the terms of the Purchase
Agreement and an accompanying Registration Rights Agreement require the
Company to register for resale a number of shares equal to at least the sum
of (i) 200% of the minimum number of shares of Common Stock issuable upon
conversion of the Series G1 Convertible Preferred shares; (ii) the number
of shares of Common Stock that would be required for the payment of two
years worth of dividends on the Series G1 Preferred Stock (based on the
average closing bid price for the Common Stock for the five trading days
ending on September 17, 1998); and (iii) the 100,000 shares of Common Stock
issuable upon exercise of the purchaser's warrants. In order to satisfy the
resale registration requirements of both the Series G1 Preferred Stock and
(upon its issuance) the Series G2 Preferred Stock in the same registration,
the Company intends to register twice the number of shares otherwise called
for by clauses (i) and (ii) of the preceding sentence. Additionally, the
Purchase Agreement permits the Company to register for resale (on the same
registration statement) up to 2,000,000 otherwise restricted shares of
Common Stock issuable upon the exercise of warrants held by the Company's
President (John W. Prutch) and CEO (Thomas A. McFall) and by its principal
shareholder, WGI, LLC. Accordingly, the Company expects to file a
registration statement on Form S-3 with the S.E.C., within 30 days of
September 17, 1998, covering the resale of up to 10,805,904 shares of the
Company's Common Stock.
8. If the resale registration required by the Registration Rights Agreement is
not filed by the Company by no later than October 17, 1998 and/or is not
declared effective by no later than December 16, 1998, the conversion price
per share of Common Stock will be reduced by one percent (1%) per month for
the first two months after the applicable deadline.
<PAGE>
If such failure still remains uncured, thereafter, the Company shall be
required to pay the holders of the Series G1 Convertible Preferred Stock a
penalty of $70,000 per month until the applicable filing or effectiveness
requirement is satisfied.
9. The Certificate of Designations also requires that the Company will (in
accordance with applicable New York Stock Exchange Rules) submit for
approval by its shareholders at the Company's 1998 Annual Meeting the
question of the potential issuance by the Company of shares of its Common
Stock in excess of 20% of the number of shares of Common Stock currently
outstanding in connection with the terms of the Series G1 and Series G2
Preferred Stock. Based on the number of shares of Common Stock held by the
Company's principal shareholder and the fact that the Company has been
advised that the Company's principal shareholder will support the approval
of such proposal, the Company anticipates that such approval of
shareholders will be obtained at its 1998 Annual Meeting.
10. The Purchase Agreement and the Certificate of Designations also provide for
additional monetary penalties in the event that the Company should take
certain actions (which the Company does not intend to take) to prevent the
conversion of shares of Series G1 Preferred Stock into shares of the
Company's Common Stock or to otherwise frustrate the rights of the holders
of the Series G1 Preferred Stock.
11. The Purchase Agreement and the Certificate of Designations provide that the
Series G1 and Series G2 Preferred Stock will be pari passu with each
other, and will be senior to all other classes of the Company's equity
securities with respect to dividend priorities and liquidation rights. In
order to effectuate this requirement, WGI, LLC, holder of all of the shares
of the Company's existing Series F Preferred Stock which was issued in the
Company's 1997 restructuring, agreed that such stock would be retired
simultaneously with the placement of the Series G1 Preferred Stock and
replaced with an identical number of shares of a new class of Series H
Preferred Stock which has the same terms and conditions as the Series F
Preferred Stock, except that the Series H Preferred Stock is junior in
priority to the Series G1 and Series G2 Preferred Stock.
Item 7. Financial Statements and Exhibits.
(a) None.
(b) None.
(c) Exhibits.
<PAGE>
(3.1) Restated Articles of Incorporation of Signal Apparel Company, Inc.,
as amended through September 17, 1998.
(4.1) Certificate of Designation of 5% Convertible Preferred Stock, Series
G1, of Signal Apparel Company, Inc. (Incorporated by reference to
ANNEX 7 to Exhibit 3.1 to this Report.)
(4.2) Certificate of Designation Series H Preferred Stock of Signal
Apparel Company, Inc. (Incorporated by reference to ANNEX 8 to
Exhibit 3.1 to this Report.)
(10.1) Convertible Preferred Stock Purchase Agreement dated September 17,
1998.
(10.2) Registration Rights Agreement dated September 17, 1998.
(10.3) Warrants to purchase Common Stock, issued to purchasers of Series G1
Preferred Stock, dated September 17, 1998.
(10.4) Warrants to purchase Common Stock, issued to placement agent for
Series G1 Preferred Stock, dated September 17, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: October 1, 1998 SIGNAL APPAREL COMPANY, INC.
By: /s/ Robert J. Powell
---------------------------
Robert J. Powell
Vice President,
General Counsel & Secretary
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 Eighty-One Million Six
Hundred Thousand (81,600,000) shares, divided into two classes, as follows:
Eighty Million (80,000,000) 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. Authorization 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.
<PAGE>
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
<PAGE>
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 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 taxed 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 any 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
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
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.
<PAGE>
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
<PAGE>
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
<PAGE>
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,
<PAGE>
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
<PAGE>
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.
<PAGE>
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."
<PAGE>
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
<PAGE>
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
<PAGE>
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
<PAGE>
(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.
<PAGE>
ANNEX 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.
-------------------------------
[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
<PAGE>
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 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
<PAGE>
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 a liquidation, dissolution or winding-up of the affairs
<PAGE>
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
<PAGE>
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
<PAGE>
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 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
<PAGE>
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 provision 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.
<PAGE>
ANNEX 5
VOTING POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF,
OF THE
SERIES E PREFERRED STOCK
OF
SIGNAL APPAREL COMPANY, INC.
SECTION 1
DESIGNATION AND RANK
1.1. DESIGNATION. The number of authorized shares constituting the "Series
E Preferred Stock" (hereinafter called the "SERIES E PREFERRED") of Signal
Apparel Company, Inc. (the "CORPORATION") is 20,000. Shares of the Series E
Preferred shall be issued at a stated value of $1,000.00 per share (the "STATED
VALUE"). The number of authorized shares of the Series E 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 E Preferred shall
be junior to the Corporation's Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, and Series D 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.
<PAGE>
SECTION 2
DIVIDEND RIGHTS
2.1. DIVIDEND RATE. From the date of issuance dividends shall accrue on
each share of the Series E Preferred at an annual rate equal to seven percent
(7%) per annum multiplied by the Stated Value, or $70 per share per year for
each full year. 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 the Series E Preferred
shall be payable at the option of the Corporation (i) in cash or (ii) by the
issuance of that number of whole shares of the Corporation's common stock (the
"COMMON STOCK") computed by dividing the amount of the dividend by the market
price applicable to such dividend. For the purposes of this Section 2, "market
price" means the average of the daily closing bid prices of the Common Stock for
a period of the last five (5) consecutive trading days preceding the date of
calculating the market price. The closing price for each trading day shall be
(i) for any period during which the Common Stock shall be listed for trading on
a national securities exchange, the last reported bid price per share of the
Common Stock as reported by the primary stock exchange, or the NASDAQ Stock
Market, if the Common Stock is quoted on the NASDAQ Stock Market. Dividends on
each share of the Series E Preferred 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 E 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, as defined hereafter, on
the next Business Day thereafter) of each year, (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 at a rate of $17.50 per share for
each full calendar quarter 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 E 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 that shall be, in the State of
New York, a legal holiday or a day on which banking
<PAGE>
institutions are authorized by law to close. If any cumulative dividends in
respect of the Series E Preferred are not paid in full, the owners of all series
of the Series E Preferred shall participate ratably in any payment of
accumulated dividends.
2.3. DIVIDENDS OR DISTRIBUTIONS TO JUNIOR STOCK. So long as any shares of
the Series E Preferred are outstanding, no dividend or distribution shall be
declared or paid or set aside for payment on the Common Stock or on any other
capital stock of the Corporation ranking junior to the Series E Preferred as to
dividends, nor shall the Common Stock or any other stock of the Corporation
ranking junior to the Series E 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 the Common
Stock or other stock of the Corporation ranking junior to the Series E Preferred
as to dividends) unless, in each case, full cumulative dividends on all
outstanding shares of the Series E Preferred shall have been declared and paid
through and including the most recent Dividend Payment Date.
SECTION 3
LIQUIDATION RIGHTS
3.1. PREFERENCES OF THE SERIES E PREFERRED 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 E Preferred, the holders of shares of the Series E
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"), whether or
not such accrued and unpaid dividends have been declared by the Board of
Directors of the Corporation. 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 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
<PAGE>
of affairs or other similar event, the net assets of the Corporation to be
distributed among the holders of shares of the Series E Preferred and any other
class or series of stock of the Corporation ranking on a parity with the Series
E 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 the Corporation's
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series D Preferred Stock and of any other class or series of stock of the
Corporation ranking senior to the Series E Preferred shall be distributed among
the holders of shares of the Series E Preferred and any other class or series of
stock ranking on a parity with the Series E 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 E Preferred and the holders of any other class or series of stock of
the Corporation ranking on a parity with the Series E 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 that is
junior to the Series E Preferred as to distributions upon liquidation.
SECTION 4
VOTING RIGHTS
4.1. GENERAL. The holders of shares of the Series E Preferred shall have
only such voting rights as are expressly set forth herein or otherwise provided
by law. Shares of the Series E Preferred shall not give their holders any
pre-emptive rights to acquire any other securities issued by the Corporation at
any time in the future.
4.2. CONSENT FOR CERTAIN ACTIONS. So long as any of the shares of the
Series E 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-
<PAGE>
thirds (2/3) of the outstanding shares of the Series E 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 E 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 E 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
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 or on parity with
any such preference or priority of the Series E Preferred, other than the
issuance of shares of the Corporation's Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock.
The holders of the Series E Preferred shall be entitled to notice of any meeting
of the stockholders of the Corporation.
<PAGE>
SECTION 5
CONVERSION
5.1 For the purposes of conversion, shares of the Series E Preferred shall
be valued at $1,000.00 per share ("VALUE"), and, if converted at the option of a
shareholder, shares of the Series E Preferred shall be converted into shares of
the Common Stock at the price per share equal to the lower of the (i) product of
.60 multiplied by the average daily closing bid prices of the Common Stock for
the period of five (5) consecutive trading days immediately preceding the date
of conversion of the shares of the Series E Preferred or (ii) product of .60
multiplied by the average daily closing bid prices of the Common Stock for the
period of 5 consecutive trading days immediately preceding the date of closing
of the offering of the Series E Preferred (the lower of (i) or (ii) is
hereinafter referred to as the "SHAREHOLDER CONVERSION PRICE"). The closing
price for each trading day shall be determined as provided in the last sentence
of Section 5.3.
5.2 Any holder of the Series E Preferred (an "ELIGIBLE HOLDER") at any time
after the later of January 2, 1996 and the 40th day following the date of the
closing of the sale of the Series E Preferred may convert up to 100% of its
holdings of the Series E Preferred.
5.3 Notwithstanding any other provisions of this Section 5, the Corporation
may, at its sole option, but shall not be obligated to, at any time, and from
time to time, on and after the 75th day after the date of closing of the
offering of the Series E Preferred, and upon written notice delivered to each of
the Eligible Holders not less than 30 days prior to any date stipulated by the
Corporation for the conversion of shares of the Series E Preferred (the
"CONVERSION DATE"), require the Eligible Holders, on a pro-rata basis, to
convert all or any portion of their shares of the Series E Preferred into shares
of the Common Stock at a price per share equal to the lower of the (i) product
of .60 multiplied by the average daily closing bid prices of the Common Stock
for the period of five (5) consecutive trading days immediately preceding the
date of closing of the offering of the Series E Preferred or (ii) product of .60
multiplied by the average daily closing bid prices of the Common Stock for the
period of five (5) consecutive trading days immediately preceding the Conversion
Date (the lower of (i) or (ii) is hereinafter referred to as the "CORPORATION
CONVERSION PRICE"); PROVIDED, HOWEVER, that an Eligible Holder shall have the
right in accordance with Section 5.2 hereof, at such holder's option, to convert
all or a portion of the shares of the Series E Preferred held by such holder
into shares of the Common Stock at the Shareholder Conversion Price, by the
Eligible Holder giving written notice to the Corporation prior to the Conversion
Date
<PAGE>
that it elects to convert a stated number of shares of the Series E Preferred
into shares of the Common Stock and by surrender of the share certificates
representing the shares of the Series E Preferred to be converted in accordance
with Section 5.4 hereof. The closing price for each trading day shall be for any
period during which the Common Stock shall be listed for trading on a national
securities exchange, the last reported bid price per share of the Common Stock
as reported by the primary stock exchange, or the NASDAQ Stock Market, if the
Common Stock is quoted on the NASDAQ Stock Market.
5.4 The conversion right granted by Section 5.2 hereof may be exercised
only by an Eligible Holder of the Series E Preferred, in whole or in part, by
the surrender of the share certificate or share certificates representing the
shares of the Series E Preferred to be converted at the principal office of the
Corporation (or at such other place as the Corporation may designate in written
notice sent to the holder by first-class mail, postage prepaid, at its address
shown on the books of the Corporation) against delivery of that number of whole
shares of the Common Stock as shall be computed by dividing (1) the aggregate
Value of the shares of the Series E Preferred so surrendered plus any accrued
but unpaid dividends thereon, if any, by (2) the Shareholder Conversion Price in
effect at the time of such surrender. On each Conversion Date, all shares of the
Series E Preferred required by the Corporation to be converted, without any
action on the part of the holder thereof, shall be deemed automatically
converted into that number of whole shares of the Common Stock as shall be
computed by dividing (1) the aggregate Value of the shares of the Series E
Preferred so converted plus any accrued but unpaid dividends thereon, if any, by
(2) the Corporation Conversion Price in effect at the time of such exercise. In
the event of any exercise of the conversion right (whether at the initiative of
an Eligible Holder or of the Corporation) of the Series E Preferred granted
herein (i) share certificates representing shares of the Common Stock purchased
by virtue of such exercise shall be delivered to such holder forthwith, and (ii)
unless all the holder's shares of the Series E Preferred have been fully
converted, a new share certificate representing the shares of the Series E
Preferred not so converted, if any, shall also be delivered to such holder
forthwith. The share certificates representing shares of the Common Stock so
purchased shall be dated the date of such surrender and the holder making such
surrender shall be deemed for all purposes to be the holder of the Common Stock
so purchased as of the date of such surrender.
5.5 All shares of the Common Stock that may be issued upon conversion of
shares of the Series E Preferred will, upon
<PAGE>
issuance, be duly issued, fully paid and nonassessable and free from all taxes,
liens, and charges with respect to the issue thereof. At all times that any
shares of the Series E Preferred are outstanding, the Corporation shall have
authorized, and shall have reserved for the purpose of issuance upon such
conversion, a sufficient number of shares of the Common Stock to provide for the
conversion into shares of the Common Stock of all shares of the Series E
Preferred then outstanding at the then effective Shareholder Conversion Price or
the Corporation Conversion Price, as the case may be. Without limiting the
generality of the foregoing, if, at any time, the Shareholder Conversion Price
or the Corporation Conversion Price, as the case may be, is decreased, the
number of shares of the Common Stock authorized and reserved for issuance upon
the conversion of shares of the Series E Preferred shall be proportionately
increased.
5.6 The number of shares of the Common Stock issued upon conversion of
shares of the Series E Preferred and the Shareholder Conversion Price or the
Corporation Conversion Price, as the case may be, shall be subject to adjustment
from time to time upon the happening of certain events, as follows:
5.6.1. In the case of any amendment to the Restated Articles of
Incorporation to change the designation of the Common Stock or the rights,
privileges, restrictions or conditions in respect of the Common Stock or
division of the Common Stock into series, the rights of the holders of
shares of the Series E Preferred shall be adjusted so as to provide that
upon conversion thereof the holder of shares of the Series E Preferred
being converted shall procure, in lieu of each share of the Common Stock
theretofore issuable upon such conversion, the kind and amount of shares,
other securities, money and property receivable upon such designation,
change or division by the holder of one share of the Common Stock issuable
upon such conversion had conversion occurred immediately prior to such
designation, change or division. The Series E Preferred shall be deemed
thereafter to provide for adjustment that shall be nearly equivalent as may
be practicable to the adjustments provided for in this Section 5. The
provisions of this subsection 5.6.1 shall apply in the same manner to
successive reclassifications, changes, consolidations and mergers.
5.6.2. If the Corporation, at any time while any shares of the Series
E Preferred are outstanding, shall amend the Restated Articles of
Incorporation so as to change the Common Stock into a different number of
<PAGE>
shares, the Shareholder Conversion Price or the Corporation Conversion
Price, as the case may be, shall be proportionately reduced, in case of
such change increasing the number of shares of the Common Stock, as of the
effective date of such increase, or if the Corporation shall take a record
of holders of the Common Stock for the purpose of such increase, as of such
record date, whichever is earlier, or the Shareholder Conversion Price or
the Corporation Conversion Price, as the case may be, shall be
proportionately increased, in the case of such change decreasing the number
of shares of the Common Stock, as of the effective date of such decrease
or, if the Corporation shall take a record of holders of the Common Stock
for the purpose of such decrease, as of such record date, whichever is
earlier.
5.6.3. If the Corporation, at any time while any of the Series E
Preferred are outstanding, shall pay a dividend payable in shares of the
Common Stock, the Shareholder Conversion Price or the Corporation
Conversion Price, as the case may be, shall be adjusted, as of the date the
Corporation shall take a record of the holders of the Common Stock for the
purpose of receiving such dividend (or if no such record is taken, as of
the date of payment of such dividend), so that each Eligible Holder of
shares of the Series E Preferred converted after such time shall be
entitled to receive the aggregate number and kind of shares of the Common
Stock that, if such shares of the Series E Preferred had been converted
immediately prior to such time, such holder would have owned upon such
conversion and been entitled to receive by virtue of such dividend.
5.7 Whenever the Shareholder Conversion Price or the Corporation Conversion
Price, as the case may be, shall be adjusted pursuant to Section 5.6 hereof, the
Corporation shall make a certificate signed by its President or a Vice President
and by its Treasurer, Assistant Treasurer, Secretary or Assistant Secretary,
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated
(including a description of the basis on which the Board made any determination
hereunder), and the Shareholder Conversion Price or the Corporation Conversion
Price, as the case may be, after giving effect to such adjustment, and shall
cause copies of such certificates to be mailed (by first-class mail, postage
prepaid) to each holder of the Series E Preferred at its address shown on
<PAGE>
the books of the Corporation. The Corporation shall make such certificate and
mail it to each such holder promptly after each adjustment.
5.8 No fractional shares of the Common Stock shall be issued in connection
with any conversion of shares of the Series E Preferred, but in lieu of such
fractional shares, the Corporation shall make a cash payment therefor equal in
amount to the product of the applicable fraction multiplied by the Shareholder
Conversion Price or the Corporation Conversion Price, as the case may be, then
in effect.
5.9 No shares of the Series E Preferred which have been converted into
shares of the Common Stock shall be reissued by the Corporation; PROVIDED,
HOWEVER, that each such share, after being retired and canceled, shall be
restored to the status of an authorized but unissued share of the Series E
Preferred and may thereafter be issued as a share of the Series E Preferred.
<PAGE>
ANNEX 6
VOTING POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF,
OF THE
SERIES F PREFERRED STOCK
OF
SIGNAL APPAREL COMPANY, INC.
SECTION 1
DESIGNATION AND RANK
1. DESIGNATION. The number of authorized shares constituting the "SERIES F
PREFERRED STOCK" (hereinafter called the "SERIES F PREFERRED") of Signal Apparel
Company, Inc. (the "CORPORATION") is one thousand (1,000). Shares of the Series
F 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 F Preferred may
be increased by the affirmative vote of 75% of the Board of Directors.
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 F Preferred shall
be equal to the Corporation's Series A 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 the Series F Preferred at
<PAGE>
an annual rate equal to nine percent (9%) per annum multiplied by the Stated
Value, or $9,000.00 per share per year for each full year. 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 the Series F Preferred
shall be payable in cash. Dividends on each share of the Series F Preferred
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 F Preferred shall be payable,
when and as declared by the Board of Directors or a committee thereof, annually
on December 31 (or, if such day is not a Business Day, as defined hereafter, on
the next Business Day thereafter) of each year, (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 at a rate of $9,000.00 per share
for each full calendar year on each Dividend Payment Date with respect to the
yearly 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 F Preferred for any period less than a
full yearly 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 that shall be, in the State of New York,
a legal holiday or a day on which banking institutions are authorized by law to
close. If any cumulative dividends in respect of the Series F Preferred are not
paid in full, the owners of all series of the Series F Preferred shall
participate ratably in any payment of accumulated dividends.
2.3. DIVIDENDS OR DISTRIBUTIONS TO JUNIOR STOCK. So long as any shares of
the Series F Preferred are outstanding, no dividend or distribution shall be
declared or paid or set aside for payment on the Common Stock or on any other
capital stock of the Corporation ranking junior to the Series F Preferred as to
dividends, nor shall the Common Stock or any other stock of the Corporation
ranking junior to the Series F 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
<PAGE>
(except by conversion into or exchange for shares of the Common Stock or other
stock of the Corporation ranking junior to the Series F Preferred as to
dividends) unless, in each case, full cumulative dividends on all outstanding
shares of the Series F Preferred shall have been declared and paid through and
including the most recent Dividend Payment Date.
SECTION 3
LIQUIDATION RIGHTS
3.1. PREFERENCES OF THE SERIES F PREFERRED 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 F Preferred, the holders of shares of the Series F
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"), whether or
not such accrued and unpaid dividends have been declared by the Board of
Directors of the Corporation. 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 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 of affairs or other similar
event, the net assets of the Corporation to be distributed among the holders of
shares of the Series F Preferred and any other class or series of stock of the
Corporation ranking on a parity with the Series F 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 any other class or series of stock of the Corporation ranking senior
to the Series F Preferred shall be distributed among the holders of shares of
the Series F Preferred and any other class or series of stock ranking on a
parity with the Series F 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
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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 F Preferred and the holders of any other class or series of stock of
the Corporation ranking on a parity with the Series F 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 that is
junior to the Series F Preferred as to distributions upon liquidation.
SECTION 4
VOTING AND PREEMPTIVE RIGHTS
4.1. GENERAL. The holders of shares of the Series F Preferred shall have
only such voting rights as are expressly set forth herein or otherwise provided
by law. Shares of the Series F Preferred shall not give their holders any
preemptive rights to acquire any other securities issued by the Corporation at
any time in the future.
4.2. CONSENT FOR CERTAIN ACTIONS. So long as any of the shares of the
Series F 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 the Series F 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 F 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
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a parity with any such preference or priority of the Series F 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
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 or on parity with
any such preference or priority of the Series F Preferred, other than the
issuance of shares of the Corporation's Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock eries D Preferred Stock or Series
E Preferred Stock.
The holders of the Series F Preferred shall be entitled to notice of any meeting
of the stockholders of the Corporation.
SECTION 5
CONVERSION
5.1 Shares of the Series F Preferred Stock shall not be convertible by
their terms, at the option of either the Corporation or the holders thereof,
into shares of the Common Stock or into any other security of the Corporation.
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ANNEX 7
CERTIFICATE OF DESIGNATION OF
5% CONVERTIBLE PREFERRED STOCK, SERIES G1
OF SIGNAL APPAREL COMPANY, INC.
Pursuant to Section 23-1-25-2 of the
Business Corporation Law of the State of Indiana
Section 1. Designation, Amount, Par Value, Stated Value and Rank. The
series of preferred stock shall be designated as Convertible Preferred Stock,
Series G1 (the "Series G1 Preferred Stock"), and the number of shares so
designated shall be 5,000 (which shall not be subject to increase without the
consent of each of the Holders of the Series G1 Preferred Stock ("Holders")).
Each share of Series G1 Preferred Stock, no par value, shall have a stated value
of $1,000 per share (the "Stated Value").
The Series G1 Preferred Stock shall rank senior to the Junior Securities
(as defined in Section 8) as to dividends, distributions and upon liquidation,
dissolution or winding up. No class of equity securities of the Company will be
senior or pari passu to the Series G1 Preferred Stock, other than the Series G2
Preferred Stock, as to dividends, distributions and upon liquidation,
dissolution or winding up.
Section 2. Dividends.
(a) Holders of Series G1 Preferred Stock shall be entitled to receive, out
of funds legally available therefor, and the Company shall pay, cumulative
dividends at the rate per share (as a percentage of the Stated Value per share)
equal to 5% per annum, payable semi-annually, commencing on the first to occur
of either January 1 or July 1 following the Closing Date (as defined in Section
8), in cash or shares of Common Stock (as defined in Section 8) at the option of
the Company (subject to the terms and conditions set forth herein). Dividends on
the Series G1 Preferred Stock shall be calculated on the basis of a 360-day
year, shall accrue daily commencing on the Original Issue Date (as defined in
Section 8), and shall be deemed to accrue from such date and be cumulative
whether or not earned or declared and whether or not there are profits, surplus
or other funds of the Company legally available for the payment of dividends.
Accrued and unpaid dividends of the Series G1 Preferred Stock for any shares
which are being converted shall be paid on the date on which such Series G1
Preferred Stock is converted. Except as
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otherwise provided herein, if at any time the Company pays less than the total
amount of dividends then accrued on account of the Series G1 Preferred Stock,
such payment shall be distributed ratably among the Holders based upon the
number of shares held by each Holder. The Company shall provide the Holders
semi-annual notice of its intention to pay dividends in cash or shares of Common
Stock for any dividends that may be payable upon conversion in the six month
period beginning on January 1 or July 1 and including the dividend payable on
January 1 or July 1. Such notice shall be delivered to all Holders not less than
5 Trading Days prior to January 1 and July 1 of each year for so long as shares
of Series G1 Preferred Stock are outstanding. If the Company fails to give such
notice, such dividends shall be paid in cash. If semi-annual dividends are paid
in shares of Common Stock, the number of shares of Common Stock payable as such
dividend to each Holder shall be equal to the quotient obtained by dividing (a)
the cash amount of such dividend payable to such Holder on such dividend payment
date by (b) the Average Per Share Market Value. As used herein, the "Average Per
Share Market Value" means the average of the Per Share Market Value for the five
Trading Days prior to such dividend payment date.
(b) Notwithstanding anything to the contrary contained herein, the Company
may not issue shares of Common Stock in payment of dividends (and must deliver
cash in respect thereof) on the Series G1 Preferred Stock if:
(i) the number of shares of Common Stock at the time authorized,
unissued and unreserved for all purposes, or held as treasury stock, is
insufficient to pay such dividends in shares of Common Stock;
(ii) the shares of Common Stock to be issued in respect of such
dividends are not registered for resale pursuant to an effective
registration statement that names the recipient of such dividend as a
selling shareholder thereunder and may not be sold without volume
restrictions pursuant to Rule 144 promulgated under the Securities Act of
1933, as amended (the "Securities Act");
(iii) the shares of Common Stock to be issued in respect of such
dividends are not authorized for listing on the NYSE or such other
registered national exchange on which the Common Stock is then listed for
trading; or
(iv) the Company has failed to timely satisfy its obligations pursuant
to any Conversion Notice (as defined in Section 5(a)(ii)).
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(c) If the Company intends to issue shares of Common Stock in payment of
dividends and such issuance of shares of Common Stock would result in the
recipient thereof beneficially owning, in accordance with the provisions of Rule
13d-3 promulgated under the Securities Exchange Act, as amended or superseded,
or any successor statute or rule promulgated by the Commission, more than 4.999%
of the issued and outstanding shares of Common Stock, the Company shall
accumulate but shall not declare such stock dividend until such time as (i) the
payment of such dividend would not result in the recipient thereof beneficially
owning more than 4.999% of the issued and outstanding shares of Common Stock
after taking such dividend into account or (ii) such recipient has complied with
the filing requirements of Section 13(d) of the Exchange Act.
(d) Notwithstanding anything to the contrary contained herein, if the Per
Share Market Value is 150% of the Closing Price (as defined in Section 8) for
five (5) consecutive Trading Days, dividends shall cease to accrue on the Series
G1 Preferred Stock as of such fifth Trading Day.
(e) So long as any Series G1 Preferred Stock shall remain outstanding or
unconverted, except pursuant to existing agreements of the Company on the date
hereof, neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities (as defined in
Section 8), nor shall the Company directly or indirectly pay or declare any
dividend or make any distribution (other than a dividend or distribution
described in Section 5) upon, nor shall any distribution be made in respect of,
any Junior Securities, nor shall any monies be set aside for or applied to the
purchase or redemption (through a sinking fund or otherwise) of any Junior
Securities.
Section 3. Voting Rights. Except as otherwise provided herein and as
otherwise required by law, the Series G1 Preferred Stock shall have no voting
rights. However, so long as any shares of Series G1 Preferred Stock are
outstanding, the Company shall not and shall cause its subsidiaries not to,
without the affirmative vote of the Holders of all of the shares of the Series
G1 Preferred Stock then outstanding, (a) alter or change adversely the powers,
preferences or rights given to the Series G1 Preferred Stock, (b) alter or amend
this Certificate of Designation, (c) authorize or create any class of stock
ranking senior as to dividends or distribution of assets upon a Liquidation (as
defined in Section 4) or otherwise to the Series G1 Preferred Stock, except for
any series of Series G2 Preferred
<PAGE>
Stock issued and sold in accordance with the Purchase Agreement, (d) amend its
Articles of Incorporation, bylaws or other charter documents so as to affect
adversely any rights of any Holders, (e) increase the authorized number of
shares of Series G1 Preferred Stock, (f) sell all or substantially all of its
assets, or (g) enter into any agreement with respect to the foregoing.
Section 4. Liquidation. Upon any liquidation, dissolution or winding-up of
the Company, whether voluntary or involuntary (a "Liquidation"), the Holders
shall be entitled to receive out of the assets of the Company, whether such
assets are capital or surplus, for each share of Series G1 Preferred Stock an
amount equal to the Stated Value plus all accrued but unpaid dividends per
share, whether declared or not, before any distribution or payment shall be made
to the Holders of any Junior Securities, and if the assets of the Company shall
be insufficient to pay in full all amounts due to the Holders, then the entire
assets to be distributed to the Holders shall be distributed among the Holders
and the Holders of all securities ranking pari passu to the Series G1 Preferred
Stock ratably in accordance with the respective amounts that would be payable on
such shares if all amounts payable thereon were paid in full. A sale, conveyance
or disposition of all or substantially all of the assets of the Company or the
consummation by the Company of a transaction or series of related transactions
in which more than 50% of the voting power of the Company is disposed of, or a
consolidation or merger of the Company with or into any other company or
companies shall not be treated as a Liquidation, but instead shall be subject to
the provisions of Section 5. The Company shall mail written notice of any such
Liquidation, not less than 45 days prior to the payment date stated therein, to
each Holder.
Section 5. Conversion.
(a) (i) Each share of Series G1 Preferred Stock shall be convertible into
shares of Common Stock (subject to reduction pursuant to Section 5(a)(ii)
and Section 5(a)(iv) at the Conversion Ratio (as defined in Section 8) at
the option of the Holder in whole or in part at any time after the Original
Issue Date. The Holders shall effect conversions by surrendering to the
Company the certificate or certificates representing the shares of Series
G1 Preferred Stock to be converted, together with a copy of the form of
conversion notice attached hereto as Exhibit A (the "Conversion Notice").
Each Conversion Notice shall specify the Holder, the number of shares of
Series G1 Preferred Stock to be converted and the date on which such
conversion
<PAGE>
is to be effected, which date may not be prior to the date the Holder
delivers such Conversion Notice by facsimile (the "Conversion Date"). If no
Conversion Date is specified in a Conversion Notice, the Conversion Date
shall be the date that the Conversion Notice is deemed delivered pursuant
to Section 9. Subject to Sections 5(b) and 5(a)(ii) hereof, each Conversion
Notice, once given, shall be irrevocable. If the Holder is converting less
than all shares of Series G1 Preferred Stock represented by the certificate
or certificates tendered by the Holder with the Conversion Notice, or if a
conversion hereunder cannot be effected in full for any reason, the Company
shall promptly deliver to such Holder (in the manner and within the time
set forth in Section 5(b)) a new certificate for such number of shares of
Series G1 Preferred Stock as have not been converted.
(ii) The Company shall not be obligated to issue any shares of Common
Stock upon conversion of Series G1 Preferred Stock if the issuance of such
shares of Common Stock would exceed that number of shares of Common Stock
which the Company may issue upon conversion of Series G1 Preferred Stock
(the "Issuance Maximum") without breaching the Company's obligations under
the rules or regulations of NYSE, or the market or exchange where the
Common Stock is then traded, except that such limitation shall not apply in
the event that the Company (a) obtains the approval of its shareholders as
required by the applicable rules of NYSE, or the market or exchange where
the Common Stock is then traded, (or any successor rule or regulation) for
issuances of Common Stock in excess of such amount or (b) obtains a written
opinion from outside counsel to the Company that such approval is not
required, which opinion shall be reasonably satisfactory to the Holders of
a majority of the Preferred Stock then outstanding. Until such approval or
written opinion is obtained, no purchaser of Series G1 Preferred Stock
pursuant to the Purchase Agreement (as defined in Section 8) (the
"Purchasers") shall be issued, upon conversion of Series G1 Preferred
Stock, shares of Common Stock in an amount greater than the product of (i)
the Issuable Maximum multiplied by (ii) a fraction, the numerator of which
is the number of shares of Series G1 Preferred Stock issued to such
Purchaser pursuant to the Purchase Agreement and the denominator of which
is the aggregate amount of shares of the Series G1 Preferred Stock issued
to all the Purchasers pursuant to the Purchase Agreement ("Cap Allocation
Amount"). In the event that any Purchaser shall sell or otherwise transfer
any of such Purchaser's Series G1 Preferred Stock, the transferee shall
<PAGE>
be allocated a pro rata portion of such Purchaser's Cap Allocation Amount.
In the event that any Holders of Series G1 Preferred Stock shall convert
all of such Holder's Series G1 Preferred Stock into a number of shares of
Common Stock which, in the aggregate, is less than such Holder's Cap
Allocation Amount, then the difference between such Holder's Cap Allocation
Amount and the number of shares of Common Stock actually issued to such
Holder shall be allocated to the respective Cap Allocation Amounts of the
remaining Holders of Series G1 Preferred Stock on a pro rata basis in
proportion to the number of Series G1 Preferred Stock then held by each
such Holder. If on the Conversion Date applicable to any conversion, the
number of shares of Common Stock issuable upon conversion of the Series G1
Preferred Stock submitted for conversion exceeds such Holder's Cap
Allocation Amount of an applicable Issuable Maximum, then the Company shall
redeem such excess number of shares of Preferred Stock, or fraction
thereof, for an amount equal to (a) such number of shares of Preferred
Stock multiplied by (b) the Redemption Price Per Share. Such redemption
amount shall be paid by the Company as promptly as possible but in any
event within seven days after the Conversion Date. If the Company fails to
pay such amounts within seven days of the Conversion Date, then (I) such
amounts shall bear interest at the rate or 15% per annum until paid in
full, (II) at the option of the Holder of such Series G1 Preferred Stock
submitted for conversion, such Holder may void such conversion and have the
Company return such Series G1 Preferred Stock and (III) if so directed by
the Holders of at least two-thirds (2/3) of the Series G1 Preferred Stock
then outstanding, including shares of Series G1 Preferred Stock submitted
for conversion but which have not been redeemed, the Company shall
immediately delist the Common Stock from the exchange or automated
quotation system on which the Common Stock is traded which has given rise
to the Issuable Maximum and have the Common Stock at such Holders' option,
traded on the electronic bulletin board or the "pink sheets".
<PAGE>
(iii) In no event shall a Holder be permitted to convert any shares of
Series G1 Preferred Stock in excess of the number of such shares upon the
conversion of which, (x) the number of shares of Common Stock beneficially
owned by such Holder (other than shares of Common Stock issuable upon
conversion of shares of Series G1 Preferred Stock) plus (y) the number of
shares of Common Stock issuable upon the conversion of such shares of
Series G1 Preferred Stock, would be equal to or exceed (z) 4.999% of the
number of shares of Common Stock then issued and outstanding, including
shares issuable on conversion of the Series G1 Preferred Stock held by such
Holder after application of this Section 5(a)(iii). As used herein,
beneficial ownership shall be determined in accordance with Section 13(d)
of the Exchange Act and the rules thereunder. Nothing contained herein
shall be deemed to restrict the right of a Holder to convert such shares of
Series G1 Preferred Stock at such time as such conversion will not violate
the provisions of this paragraph. The limitations of this Section 5(a)(iii)
shall not apply to any redemption pursuant to Section 5(a)(ii) nor shall
they apply if a Holder has complied with the filing requirements of Section
13(d) of the Exchange Act.
(iv) In no event shall a Holder be allowed to convert more than
thirty-three percent (33%) in any one calendar month of the total number of
shares of Series G1 Preferred Stock originally purchased on the Original
Issue Date, and no conversion of shares of Series G1 Preferred Stock shall
be allowed prior to the earlier of the effectiveness of the Underlying
Shares Registration Statement or the 90th day after the Closing Date.
Notwithstanding the foregoing, the conversion restriction set forth in this
Section 5(a)(iv) shall not apply (A) at any time on and after the date of
the issuance by the Company of any securities (other than the Series G1 or
G2 Preferred Stock) convertible into or exchangeable or exercisable for
Common Stock at a conversion price, exchange price or exercise price which
may vary with the market price of the Common Stock and which security is
convertible, in whole or in part, prior to 90 days after the later of (i)
the date the Underlying Shares Registration Statement is declared effective
or (ii) the issuance date of such convertible security, (B) on and after
any date on which the Common Stock is not listed on The Nasdaq National
Market, The New York Stock Exchange or The American Stock Exchange has been
suspended from trading (excluding suspensions of not more than one day
resulting from business announcements), or any such delisting or suspension
is
<PAGE>
threatened or pending, (C) on or after any date on which there shall have
occurred an event constituting a Change of Control Transaction (as defined
in Section 8), (D) on or after any date on which there shall have been an
announcement of a bona fide tender offer, merger, exchange offer or other
transaction to purchase 50% or more of the Common Stock, (E) on or after
any date on which the Company has breached a material representation or
warranty or a material covenant hereunder or under the Purchase Agreement
or Registration Rights Agreement, (F) to conversions at a Conversion Price
not less than the Fixed Strike Price then in effect or (G) at any time the
Company consummates an issuance or sale of securities under Section 3.11(i)
of the Purchase Agreement whereby such issuance or sale is for a price no
less than the Per Share Market Value.
(v) Proxy Statement. Unless otherwise consented to in writing by the
Holders of 2/3 of the Series G1 Preferred Stock then outstanding, the
Company shall provide each stockholder entitled to vote at the next meeting
of stockholders of the Company, which meeting shall not be later than
January 31, 1999 (the "Stockholder Meeting Deadline"), a proxy statement,
which has been previously reviewed by the Holders of the Series G1
Preferred Stock and a counsel of their choice, soliciting each such
stockholder's affirmative vote at such stockholder meeting for approval of
the Company's issuance of all of the Securities (as defined in the Purchase
Agreement), and the Company shall use its best efforts to solicit its
stockholders' approval of such issuance of the Securities and cause the
Board of Directors of the Company to recommend to the stockholders that
they approve such proposal. If the Company fails to hold a meeting of its
stockholders by the Stockholder Meeting Deadline then, as partial relief
(which remedy shall not be exclusive of any other remedies available at law
or in equity), the Company shall pay to each Holder of Series G1 Preferred
Stock an amount in cash per share of Series G1 Preferred Stock equal to the
product of (i) the Stated Value of the Series G1 Preferred Stock;
multiplied by (ii) .025; multiplied by (iii) the quotient of (x) the number
of days after the Stockholder Meeting Deadline that a meeting of the
Company's stockholders is not held, divided by (y) 30. The Company shall
make the payments referred to in the immediately preceding sentence within
five days of the earlier of (I) the holding of the meeting of the Company's
stockholders, the failure of which resulted in the requirement to make such
payments, and (II) the last day of each 30-day period beginning on the
<PAGE>
Stockholder Meeting Deadline. In the event the Company fails to make such
payments in a timely manner, such payments shall bear interest at the rate
of 2.0% per month (pro rated for partial months) until paid in full.
(b) (i) Not later than three (3) Trading Days after any Conversion Date,
the Company will deliver to the Holder (i) a certificate or certificates
which shall be free of restrictive legends and trading restrictions (other
than those required by Section 3. l(b) of the Purchase Agreement)
representing the number of shares of Common Stock being acquired upon the
conversion of shares of Series G1 Preferred Stock, including accrued but
unpaid dividends if the Company has elected to pay accrued dividends in
stock pursuant to Section 2 (subject to reduction pursuant to Section
5(a)(ii) and Section 5(a)(iii)) and (ii) one or more certificates
representing the number of shares of Series G1 Preferred Stock not
converted, and (iii) a bank check in the amount of accrued and unpaid
dividends (if the Company has elected to pay accrued dividends in cash
pursuant to Section 2). Upon request of the Holder, any certificate or
certificates required to be delivered by the Company under this Section 5
shall be electronically delivered through the Depository Trust Corporation
or another established clearing corporation performing similar functions.
If in the case of any Conversion Notice such certificate or certificates,
including for purposes hereof, any shares of Common Stock to be issued on
the Conversion Date on account of accrued but unpaid dividends hereunder,
are not delivered to or as directed by the applicable Holder by the third
Trading Day after the Conversion Date, the Holder shall be entitled at any
time on or before its receipt of such certificate or certificates
thereafter, to rescind such conversion by written notice to the Company, in
which event the Company shall immediately return the certificates
representing the shares of Series G1 Preferred Stock for which Common Stock
was not delivered pursuant to such conversion.
(ii) If the Company fails to deliver to the Holder such certificate or
certificates pursuant to this Section 5, including for purposes hereof, any
shares of Common Stock to be issued on the Conversion Date on account of
accrued but unpaid dividends hereunder, on or prior to the third Trading
Day after the Conversion Date (the "Delivery Date"), the Company shall pay
to such Holder, in cash, as liquidated damages and not as a penalty, $5,000
per day until such certificates are delivered. If the Company fails to
deliver to the Holder such certificate or certificates pursuant to
<PAGE>
this Section prior to the 15th day after the Conversion Date, the Company
shall, at the Holder's option (i) redeem, from funds legally available
therefor at the time of such redemption, such number of shares of Series G1
Preferred Stock then held by such Holder, as requested by such Holder, and
(ii) pay all accrued but unpaid dividends on account of the Series G1
Preferred Stock for which the Company shall have failed to issue Common
Stock certificates hereunder, in cash. If such Holder opts to redeem any
number of shares of Series G1 Preferred Stock pursuant to this Section
5(b)(ii), then the Company shall immediately notify all other Holders of
such Holder's election to redeem and, at any other Holders' option, which
shall be exercised within two business days thereof, redeem, from funds
legally available therefor at the time of such redemption, such number of
shares of Series G1 Preferred Stock then held by such other Holder, as
requested by such Holder, which redemption shall be simultaneous with other
redemptions referred to above. The redemption price shall be equal to the
sum of (A) the aggregate of all accrued but unpaid dividends, plus (B) the
number of shares of Series G1 Preferred Stock then held by such Holder
multiplied by (1) the average Per Share Market Value for the five Trading
Days immediately preceding (x) the Conversion Date or (y) the date of
payment in full by the Company of such prepayment price, whichever is
greater, multiplied by, (2) the Conversion Ratio calculated on the
Conversion Date. If the Holder has requested that the Company redeem shares
of Series G1 Preferred Stock pursuant to this Section and the Company fails
for any reason to pay the redemption price referenced above within seven
days after such notice is deemed delivered pursuant to Section 5(i), the
Company will pay interest on the redemption price at a rate of 15% per
annum, in cash to such Holder, accruing from such seventh day until the
redemption price and any accrued interest thereon is paid in full. Nothing
herein shall limit a Holder's right to pursue actual damages for the
Company's failure to deliver certificates representing shares of Common
Stock upon conversion within the period specified herein (including,
without limitation, damages relating to any purchase of shares of Common
Stock by such Holder to make delivery on a sale effected in anticipation of
receiving certificates representing shares of Common Stock upon conversion,
such damages to be in an amount equal to (A) the aggregate amount paid by
such Holder for the shares of Common Stock so purchased minus (B) the
aggregate amount of net proceeds, if any, received by such Holder from the
sale of the shares of Common Stock issued by the Company pursuant to such
conversion), and such Holder shall have the
<PAGE>
right to pursue all remedies available to it at law or in equity
(including, without limitation, a decree of specific performance and/or
injunctive relief).
(iii) In addition to any other rights available to the Holder, if the
Company fails to deliver to the Holder such certificate or certificates
pursuant to Section 5(b)(i), by the Delivery Date and after the Delivery
Date the Holder purchases (in an open market transaction or otherwise)
shares of Common Stock to deliver to the satisfaction of a sale by such
Holder of the Underlying Shares which the Holder anticipated receiving on
the Delivery Date upon such conversion (a "Buy-In"), then the Company shall
pay in cash to the Holder (in addition to any remedies available to or
elected by the Holder) the amount by which (A) the Holder's total purchase
price (including brokerage commissions, if any) for the shares of Common
Stock purchased for a Buy-In exceeds (B) the aggregate Conversion Price for
the number of shares of Common Stock in the Buy-In for which such
conversion was not timely honored. For example, if the Holder purchases
shares of Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of $10,000 aggregate
Conversion Price for the number of shares of Common Stock in the Buy-In,
the Company shall be required to pay the Holder $1,000. The Holder shall
provide the Company written notice indicating the amounts payable to the
Holder in respect of the Buy-In.
(c) (i) The conversion price for each share of Series G1 Preferred Stock
(the "Conversion Price") in effect on any Conversion Date shall be the
lesser of (a) 110% of the Closing Price (the "Fixed Strike Price") and (b)
100% of the average of the Per Share Market Value on any five (5) Trading
Days during the Look-Back Period (excluding Short Days).
(ii) If during any period (a "Black-out Period"), a Holder is unable
to sell any Common Stock issued or issuable upon conversion of Preferred
Stock immediately due (a) to the postponement of filing or delay or
suspension of effectiveness of a registration statement, (b) because the
Company has otherwise informed such Holder that an existing prospectus
cannot be used at that time in the sale or transfer of such Common Stock or
(c) the failure to have enough shares of Common Stock registered, such
Holder shall have the option but not the obligation on any Conversion Date
within ten Trading Days following the expiration of the Black-out Period of
using the Conversion Price applicable on
<PAGE>
such Conversion Date or any Conversion Price selected by such Holder that
would have been applicable had such Conversion Date been at any earlier
time during the Black-out Period or within the ten Trading Days thereafter.
(iii) Notwithstanding the foregoing, (a) if the Underlying Shares
Registration Statement is not filed on or prior to the 30th day after the
Original Issue Date, or (b) the Company fails to file with the Commission a
request for acceleration in accordance with Rule 12dl-2 promulgated under
the Exchange Act within five (5) Trading Days of the date that the Company
is notified (orally or in writing, whichever is earlier) by the Commission
that an Underlying Shares Registration Statement will not be "reviewed," or
not subject to further review, or (c) if the Underlying Shares Registration
Statement is not declared effective by the Commission on or prior to the
90th day after the Original Issue Date, or (d) if such Underlying Shares
Registration Statement is filed with and declared effective by the
Commission but thereafter ceases to be effective as to all Registrable
Securities (as such term is defined in the Registration Rights Agreement)
at any time prior to the expiration of the "Effectiveness Period" (as such
term as defined in the Registration Rights Agreement), without being
succeeded within fifteen Trading Days by a subsequent Underlying Shares
Registration Statement filed with and declared effective by the Commission,
or (e) if trading in the Common Stock shall be suspended or if the Common
Stock is delisted for any reason for more than three Trading Days in the
aggregate, or (f) if the conversion rights of the Holders are suspended for
any reason other than as prevented by Section 5(a)(iii), or (g) if the
Company breaches in a material respect any covenant or other material term
or condition to this Certificate of Designations, the Purchase Agreement
(other than a representation or warranty contained therein), the
Registration Rights Agreement or any other agreement, document, certificate
or other instrument delivered in connection with the transactions
contemplated hereby or thereby, and such breach continues for a period of
thirty days after written notice thereof to the Company, or (h) if the
Company elects to convene a shareholders meeting pursuant to Section
5(a)(ii) and fails to convene a meeting of shareholders within the time
periods specified in Section 5(a)(ii) or does so convene a meeting of
shareholders within such time period but fails to obtain Shareholder
Approval at such meeting, or (i) if the Company has breached Section 3(n)
of the Registration Rights Agreement (any such failure or breach being
referred to as an "Event," and for purposes
<PAGE>
of clauses (a), (c) and (f) the date on which such Event occurs, or for
purposes of clause (b) the date on which such five day period is exceeded,
or for purposes of clause (d) the date which such fifteen Trading
Day-period is exceeded, or for purposes of clause (e) the date on which
such three Trading Day period is exceeded, or for clause (g) the date on
which such thirty day period is exceeded, being referred to as "Event
Date"), the Conversion Price (a) shall be decreased by 1% as of the Event
Date and shall be decreased an additional 1% per month after the Event Date
(pro rated for partial months) until the earlier to occur of the second
month anniversary after the Event Date and such time as the applicable
Event is cured for any Event pertaining to clause (a), (b) or (c) above or
(b) shall be decreased 2% as of the Event Date and shall be decreased an
additional 2% per month after the Event Date (pro rated for partial months)
until the earlier to occur of the second month anniversary after the Event
Date and such time as the applicable Event is cured for any Event
pertaining to clauses (d) through (i) above. Commencing the second month
anniversary after the Event Date, the Company shall pay to the Holders
$70,000 per month until the applicable Event is cured (each Holder being
entitled to receive such portion of such amount as equals its pro rata
portion of the Series G1 Preferred Stock then outstanding). Any decrease in
the Conversion Price pursuant to this Section shall continue
notwithstanding the fact that the Event causing such decrease has been
subsequently cured. Additionally, if the Company has failed to file a
registration statement as required by the Registration Rights Agreement
within 60 days after the Closing Date or if any registration statement
required to be filed by the Company pursuant to the Registration Rights
Agreement has not been declared effective by the Commission within 90 days
of the date it was required to file such registration statement pursuant to
the Registration Rights Agreement or if the Company has let any
registration statement required to be filed pursuant to the Registration
Rights Agreement lapse for a period of 15 consecutive days, then each
Holder shall have the option to require the Company to redeem the balance
of such Holder's Series G1 Preferred Stock, together with all accrued but
unpaid dividends, in cash at a redemption price equal to the sum of (A) the
aggregate of all accrued but unpaid dividends, plus (B) the number of
shares of Series G1 Preferred Stock then held by such Holder multiplied by
(l) the average Per Share Market Value for the five Trading Days
immediately preceding (x) the date of the redemption request notice or (y)
the date of payment in full by the Company of such prepayment price,
whichever is
<PAGE>
greater, multiplied by, (2) the Conversion Ratio calculated on the
redemption date. If the Holder has requested that the Company redeem shares
of Series G1 Preferred Stock pursuant to this Section 5(iii) and the
Company fails for any reason to pay the redemption price as calculated
above within five days after such notice is deemed delivered, the Company
will pay interest on the redemption price at a rate of 15% per annum, in
cash to such Holder, accruing from such fifth day until the redemption
price and any accrued interest thereon is paid in full. The provisions of
this Section 5(iii) are not exclusive and shall in no way limit the
Company's obligations under the Registration Rights Agreement.
(iv) If the Company, at any time while any shares of Series G1
Preferred Stock are outstanding, (a) shall pay a stock dividend or
otherwise make a distribution or distributions on shares of its Junior
Securities payable in shares of Common Stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine
outstanding shares of Common Stock into a smaller number of shares, or (d)
issue by reclassification of shares of Common Stock any shares of capital
stock of the Company, the Fixed Strike Price shall be multiplied by a
fraction, (A) the numerator of which shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding before such
event and (B) the denominator of which shall be the number of shares of
Common Stock outstanding after such event. Any adjustment made pursuant to
this Section 5(c)(iv) shall become effective immediately after the record
date for the determination of shareholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or
re-classification.
<PAGE>
(v) If the Company, at any time while any shares of Series G1
Preferred Stock are outstanding, shall issue rights or warrants to all
Holders of Common Stock entitling them to subscribe for or purchase shares
of Common Stock at a price per share less than the Per Share Market Value
of Common Stock at the record date mentioned below, the Fixed Strike Price
shall be multiplied by a fraction, of which the denominator shall be the
number of shares of Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered would
purchase at such Per Share Market Value. Such adjustment shall be made
whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of shareholders
entitled to receive such rights or warrants. However, upon the expiration
of any right or warrant to purchase Common Stock the issuance of which
resulted in an adjustment in the Fixed Strike Price pursuant to this
Section 5(c)(iii), if any such right or warrant shall expire and shall not
have been exercised, the Fixed Strike Price shall immediately upon such
expiration be re-computed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Fixed Strike Price made pursuant to the provisions of
this Section 5 after the issuance of such rights or warrants) had the
adjustment of the Fixed Strike Price made upon the issuance of such rights
or warrants been made on the basis of offering for subscription or purchase
only that number of shares of Common Stock actually purchased upon the
exercise of such rights or warrants actually exercised.
(vi) If the Company, at any time while shares of Series G1 Preferred
Stock are outstanding, shall distribute to all of the Holders of Common
Stock (and not to Holders of Series G1 Preferred Stock) evidences of its
indebtedness or assets or rights or warrants to subscribe for or purchase
any security (excluding those referred to in Sections 5(c)(iv) and (vi)
above), then in each such case the Fixed Strike Price at which each share
of Series G1 Preferred Stock shall thereafter be convertible shall be
determined by multiplying the Conversion Price in effect immediately prior
to the record date fixed for determination of shareholders entitled
<PAGE>
to receive such distribution by a fraction of which the denominator shall
be the Per Share Market Value of Common Stock determined as of the record
date mentioned above, and of which the numerator shall be such Per Share
Market Value of the Common Stock on such record date less the then fair
market value at such record date of the portion of such assets or evidence
of indebtedness so distributed applicable to one outstanding share of
Common Stock as determined by the Board of Directors in good faith;
provided, however, that in the event of a distribution exceeding ten
percent of the net assets of the Company, such fair market value shall be
determined by a nationally recognized or major regional investment banking
firm or firm of independent certified public accountants of recognized
standing (an "Appraiser") selected in good faith by the Holders of a
majority in interest of the shares of Series G1 Preferred Stock then
outstanding; and provided, further, that the Company, after receipt of the
determination by such Appraiser shall have the right to select an
additional Appraiser meeting the same qualifications, in good faith, in
which case the fair market value shall be equal to the average of the
determinations by each such Appraiser. In either case the adjustments shall
be described in a statement provided to the Holders of Series G1 Preferred
Stock of the portion of assets or evidences of indebtedness so distributed
or such subscription rights applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.
(vii) All calculations under this Section 5 shall be made to the
nearest cent or the nearest l/l00th of a share, as the case may be.
(viii) Whenever the Conversion Price is adjusted pursuant to Section
5(c)(iv), (v) or (vi), the Company shall promptly mail to each Holder of
Series G1 Preferred Stock, a notice setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the facts
requiring such adjustment.
(ix) In case of (A) any reclassification of the Common Stock, (B) any
consolidation or merger of the Company with or into another person pursuant
to which (i) a majority of the Company's Board of Directors will not
constitute a majority of the board of directors of the surviving entity or
(ii) less than 51% of the outstanding shares of the capital stock of the
surviving entity will be held by the same shareholders of the Company prior
to such
<PAGE>
reclassification, consolidation or merger, (C) the sale or transfer of all
or substantially all of the assets of the Company, (D) any compulsory share
exchange pursuant to which the Common Stock is converted into other
securities, cash or property, (E) suspension from listing or delisting of
the Common Stock from The New York Stock Exchange or The Nasdaq National
Market for a period of five consecutive days, (F) the Company's notice to
any Holder, including by way of public announcement, at any time, of its
intention, for any reason, not to comply with proper requests for
conversion of any shares of Series G1 Preferred Stock into shares of Common
Stock, or (G) a breach by the Company of any representation, warranty,
covenant or other term or condition of the Purchase Agreement, the
Registration Rights Agreement, this Certificate of Designation or any other
agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated thereby or hereby, except to
the extent that such breach would not have a Material Adverse Effect (as
defined in Section 2.1(a) of the Purchase Agreement) and except, in the
case of a breach of a covenant which is curable, only if such breach
continues for a period of at least ten days after the Company knows or
reasonably should have known of the existence of such breach (clauses (A)
through (G) above are referred to as a "Redemption Event"), in the case of
(A), (B), (C) and (D), the Holders of the Series G1 Preferred Stock then
outstanding shall have the right thereafter to convert such shares only
into the shares of stock and other securities, cash and property receivable
upon or deemed to be held by Holders of Common Stock following such
Redemption Event, and the Holders of the Series G1 Preferred Stock shall be
entitled upon such event to receive such amount of securities, cash or
property as the shares of the Common Stock of the Company into which such
shares of Series G1 Preferred Stock could have been converted immediately
prior to such Redemption Event would have been entitled; provided, however,
that on and after the date of any Redemption Event, each Holder shall have
the option to require the Company to redeem, from funds legally available
therefor at the time of such redemption, its shares of Series G1 Preferred
Stock at a price per share equal to the product of (i) the average Per
Share Market Value for the five Trading Days immediately preceding (1) the
effective date, the date of the closing, date of occurrence or the date of
the announcement, as the case may be, of the Redemption Event triggering
such redemption right or (2) the date of payment in full by the Company of
the redemption price hereunder, whichever is greater, and (ii) the
Conversion Ratio calculated on the date of the closing, date of occurrence
or the effective date, as the case may be, of the Redemption Event
triggering such redemption right, as the case may be or, at the option of
Holder, on
<PAGE>
the date of submission of a Redemption Notice. The entire redemption price
shall be paid in cash, and the terms of payment of such redemption price
shall be subject to the provisions set forth in Section 6(b). In the case
of (A), (B), (C) and (D), the terms of any such Redemption Event shall
include such terms so as to continue to give to the Holder of Series G1
Preferred Stock the right to receive the securities, cash or property set
forth in this Section 5(c)(vii) upon any conversion or redemption following
such Redemption Event. This provision shall similarly apply to successive
Redemption Events.
(x) If:
A. the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
B. the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
C. the Company shall authorize the granting to the Holders of
the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any
rights; or
D. the approval of any shareholders of the Company shall be
required in connection with any reclassification of the
Common Stock of the Company, any consolidation or merger to
which the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of any
compulsory share of exchange whereby the Common Stock is
converted into other securities, cash or property; or
E. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of Series G1 Preferred Stock, and
shall cause to be mailed to the Holders of Series G1 Preferred Stock at
their last addresses as they shall appear upon the stock books of the
Company, at least 30 calendar days prior to the applicable record or
effective date hereinafter specified, a notice (provided such notice
<PAGE>
shall not include any material non-public information) stating (x) the date
on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be
taken, the date as of which the Holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants
are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to
become effective or close, and the date as of which it is expected that
Holders of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer or share
exchange; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of
the corporate action required to be specified in such notice. Holders are
entitled to convert shares of Series G1 Preferred Stock during the 30-day
period commencing the date of such notice to the effective date of the
event triggering such notice.
(xi) If the Company (i) makes a public announcement that it intends to
enter into a Change of Control Transaction (as defined in Section 8) or
(ii) any person, group or entity (including the Company, but excluding a
Holder or any affiliate of a Holder) publicly announces a bona fide tender
offer, exchange offer or other transaction to purchase 50% or more of the
Common Stock (such announcement being referred to herein as a "Major
Announcement" and the date on which a Major Announcement is made, the
"Announcement Date"), then, in the event that a Holder seeks to convert
shares of Series G1 Preferred Stock on or following the Announcement Date,
the Conversion Price shall, effective upon the Announcement Date and
continuing through the earlier to occur of the consummation of the proposed
transaction or tender offer, exchange offer or other transaction and the
Abandonment Date (as defined below), be equal to the lesser of (A) the
Conversion Price in effect on the Trading Day immediately preceding the
Announcement Date for such Series G1 Preferred Stock and (B) the Conversion
Price on such Conversion Date. "Abandonment Date" means with respect to any
proposed transaction or tender offer, exchange offer or other transaction
for which a public announcement as contemplated by this paragraph has been
made, the date upon which the Company (in the case of clause (i) above) or
the person, group or entity (in the case of clause (ii) above) publicly
announces the
<PAGE>
termination or abandonment of the proposed transaction or tender offer,
exchange offer or another transaction which caused this paragraph to become
operative.
(d) The Company covenants that it will not take any action which might
materially and adversely affect the rights of the Holders of Series G1 Preferred
Stock (different than or distinguished from the effect generally on rights of
Holders of any class of the Company's capital stock).
(e) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued Common Stock solely for the purpose
of issuance upon conversion of Series G1 Preferred Stock and payment of
dividends on Series G1 Preferred Stock, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the Holders of Series G1 Preferred Stock, not less than 150% of such
number of shares of Common Stock as shall (subject to any additional
requirements of the Company as to reservation of such shares set forth in the
Purchase Agreement) be issuable (taking into account the adjustments of Section
5(c)) upon the conversion of all outstanding shares of Series G1 Preferred Stock
and payment of dividends hereunder (without regard to any limitations on
conversion). The Company covenants that all shares of Common Stock that shall be
so issuable shall, upon issue, be duly and validly authorized, issued and fully
paid, nonassessable and freely tradable.
(f) Upon a conversion hereunder, the Company shall not be required to issue
stock certificates representing fractions of shares of Common Stock, but may if
otherwise permitted, make a cash payment in respect of any final fraction of a
share based on the Per Share Market Value at such time. If the Company elects
not, or is unable, to make such a cash payment, the Holder of a share of Series
G1 Preferred Stock shall be entitled to receive, in lieu of the final fraction
of a share, one whole share of Common Stock.
(g) The issuance of certificates for shares of Common Stock on conversion
of Series G1 Preferred Stock shall be made without charge to the Holders thereof
for any documentary stamp or similar taxes that may be payable in respect of the
issue or delivery of such certificate.
(h) Shares of Series G1 Preferred Stock converted into Common Stock shall
be canceled and shall have the status of authorized but unissued shares of
undesignated stock.
<PAGE>
(i) Any and all notices or other communications or deliveries to be
provided by the Holders hereunder, including, without limitation, any Conversion
Notice, shall be in writing and delivered personally, by facsimile or sent by a
nationally recognized overnight courier service, addressed to the attention of
the Chief Executive Officer and to the Secretary of the Company at the facsimile
telephone number or address of the principal place of business of the Company as
set forth in the Purchase Agreement. Any and all notices or other communications
or deliveries to be provided by the Company hereunder shall be in writing and
delivered personally, by facsimile or sent by a nationally recognized overnight
courier service, addressed to each Holder of Series G1 Preferred Stock at the
facsimile telephone number or address of such Holder appearing on the books of
the Company, or if no such facsimile telephone number or address appears, at the
principal place of business of the Holder. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the earliest of (i)
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section prior to
7:00 p.m. (Eastern Time), (ii) the date after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile telephone
number specified in this Section later than 7:00 p.m. (New York Time) on any
date and earlier than 11:59 p.m. (Eastern Time) on such date, (iii) upon
receipt, if sent by a nationally recognized overnight courier service, or (iv)
upon actual receipt by the party to whom such notice is required to be given.
(j) Adjustment to Fixed Strike Price. In order to prevent dilution of the
rights granted under this Certificate of Designation, the Fixed Strike Price
will be subject to adjustment from time to time as provided in this Section
5(j).
(i) Adjustment of Fixed Strike Price upon Issuance of Common Stock. If
and whenever on or after the Closing Date, the Company issues or sells, or
is deemed to have issued or sold, any shares of Common Stock (other than
the Underlying Shares, Warrant Shares or shares of Common Stock deemed to
have been issued by the Company in connection with an Approved Stock Plan
(as defined below)) for a consideration per share less than the Fixed
Strike Price in effect immediately prior to such issuance or sale, then
immediately after such issue or sale, the Fixed Strike Price then in effect
shall be reduced to an amount equal to the consideration per share of
Common Stock of such issuance or sale. If and whenever on or after the
Closing Date, the Company issues or sells, or is deemed to have issued or
sold, any shares of Common Stock (other than the Underlying Shares, Warrant
Shares, shares of Common Stock deemed to have been
<PAGE>
issued by the Company in connection with an Approved Stock Plan (as defined
below) or shares of Common Stock issued or deemed to have been issued as
consideration for an acquisition by the Company of a license or of a
division, assets or business (or stock constituting any portion thereof)
from another person) for a consideration per share which is (A) greater
than the Fixed Strike Price in effect immediately prior to such issuance or
sale and (B) less the average of the Per Share Market Values on the five
consecutive trading days immediately preceding the date of such issuance or
sale (the price in this clause (B) is herein referred to as "Market
Price"), then immediately after such issue or sale, the Fixed Strike Price
then in effect shall be reduced to an amount equal to the product of (x)
the Fixed Strike Price in effect immediately prior to such issue or sale
and (y) the quotient determined by dividing (1) the sum of (I) the product
of (A) the Market Price and (B) the number of shares of Common Stock Deemed
Outstanding (as defined below) immediately prior to such issue or sale, and
(II) the consideration, if any, received by the Company upon such issue or
sale, by (2) the product of (I) the Market Price and (II) the number of
shares of Common Stock Deemed Outstanding (as defined below) immediately
after such issue or sale. For purposes of determining the adjusted Fixed
Strike Price under this Section 5(j)(i), the following shall be applicable:
(A) Issuance of Options. If the Company in any manner grants any
rights or options to subscribe for or to purchase Common Stock or any stock
or other securities convertible into or exchangeable for Common Stock (such
rights or options being herein called "Options" and such convertible or
exchangeable stock or securities being herein called "Convertible
Securities") and the price per share for which Common Stock is issuable
upon the exercise of such Options or upon conversion or exchange of such
Convertible Securities is less than the Fixed Strike Price in the case of
the first sentence of Section 5(j)(i), or the Market Price in the case of
the second sentence of Section 5(j)(i) (collectively, the "Applicable
Price"), then the total maximum number of shares of Common Stock issuable
upon the exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to be outstanding and to have been
issued and sold by the Company for such price per share. For purposes of
this Section 5(j)(i)(A), the "price per share for which Common Stock is
issuable upon exercise of such Options or upon conversion or exchange of
such Convertible Securities" is determined by dividing (I) the total
amount, if any, received or receivable by the Company as consideration for
the granting of such Options, plus the minimum aggregate amount of
additional consideration payable to the Company upon the
<PAGE>
exercise of all such Options, plus in the case of such Options which relate
to Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the issuance or sale of
such Convertible Securities and the conversion or exchange thereof, by (II)
the total maximum number of shares of Common Stock issuable upon exercise
of such Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options. No adjustment of the
Fixed Strike Price shall be made upon the actual issuance of such Common
Stock or of such Convertible Securities upon the exercise of such Options
or upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.
(B) Issuance of Convertible Securities. If the Company in any manner
issues or sells any Convertible Securities and the price per share for
which Common Stock is issuable upon such conversion or exchange is less
than the Applicable Price, then the maximum number of shares of Common
Stock issuable upon conversion or exchange of such Convertible Securities
shall be deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For the purposes of this Section
5(j)(i)(B), the "price per share for which Common Stock is issuable upon
such conversion or exchange" is determined by dividing (I) the total amount
received or receivable by the Company as consideration for the issue or
sale of such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (II) the total maximum number of shares
of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. No adjustment of the Fixed Strike Price shall be
made upon the actual issue of such Common Stock upon conversion or exchange
of such Convertible Securities, and if any such issue or sale of such
Convertible Securities is made upon exercise of any Options for which
adjustment of the Fixed Strike Price had been or are to be made pursuant to
other provisions of this Section 5(j)(i), no further adjustment of the
Fixed Strike Price shall be made by reason of such issue or sale.
(C) Change in Option Price or Rate of Conversion. If there is a change
at any time in (i) the purchase price provided for in any Options, (ii) the
additional consideration, if any, payable upon the issue, conversion or
exchange of any Convertible Securities or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for Common
Stock, then the Fixed Strike Price in effect at the time of such change
shall be readjusted to the Fixed Strike Price which would have been in
effect at such time had such Options or Convertible Securities still
<PAGE>
outstanding provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold; provided that no adjustment shall be
made if such adjustment would result in an increase of the Fixed Strike
Price then in effect.
(D) Certain Definitions. For purposes of determining the adjusted
Fixed Strike Price under this Section 5(j)(i), the following terms have
meanings set forth below:
(I) "Approved Stock Plan" shall mean any contract, plan or
agreement which has been approved by the Board of Directors of the
Company, pursuant to which the Company's securities may be issued to
any employee, officer, director or consultant.
(II) "Common Stock Deemed Outstanding" means, at any given time,
the number of shares of Common Stock issued and outstanding at such
time, plus the number of shares of Common Stock deemed to be
outstanding pursuant to Sections 5(j)(i)(A) and 5(j)(i)(B) hereof
regardless of whether the Options or Convertible Securities are
actually exercisable at such time, but excluding any shares of Common
Stock issuable upon conversion of the shares of Series G1 Preferred
Stock or exercise of the Warrants.
(E) Effect on Fixed Strike Price of Certain Events. For purposes of
determining the adjusted Fixed Strike Price under this Section 5(j)(i), the
following shall be applicable:
(I) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will
be deemed to be the net amount received by the Company therefor. In
case any Common Stock, Options or Convertible Securities are issued or
sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company will be the fair
value of such consideration, except where such consideration consists
of securities, in which case the amount of consideration received by
the Company will be the arithmetic average of the Per Share Market
Values of such security for the five (5) consecutive Trading Days
immediately preceding the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued to the owners of the
non-surviving entity in connection with any merger in which the
Company is the surviving entity the amount of consideration therefor
will be deemed to be the fair value of such portion of the net assets
and business of
<PAGE>
the non-surviving entity as is attributable to such Common Stock,
Options or Convertible Securities, as the case may be. The fair value
of any consideration other than cash or securities will be determined
jointly by the Company and the Holders of a majority of the shares of
Series G1 Preferred Stock then outstanding. If such parties are unable
to reach agreement within ten (10) days after the occurrence of an
event requiring valuation (the "Valuation Event"), the fair value of
such consideration will be determined within forty-eight (48) hours of
the tenth (10th) day following the Valuation Event by an independent,
reputable appraiser selected by the Company. The determination of such
appraiser shall be binding upon all parties absent manifest error.
(II) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the
Options will be deemed to have been issued for an aggregate
consideration of $.01.
(III) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by
or for the account of the Company, and the disposition of any shares
so owned or held will be considered an issue or sale of Common Stock.
(IV) Record Date. If the Company takes a record of the holders of
Common Stock for the purpose of entitling them (1) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (2) to subscribe for or purchase Common
Stock, Options or Convertible Securities, then such record date will
be deemed to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the declaration of such
dividend or the making of such other distribution or the date of the
granting of such right of subscription or purchase, as the case may
be.
(ii) Certain Events. If any event occurs of the type contemplated by
the provisions of Section 5(j)(i) (subject to the exceptions stated
therein) but not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation rights, phantom
stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Conversion
Price so as to protect the rights of the Holders of the shares of Series G1
Preferred Stock; provided, however, that no such adjustment will increase
the Conversion Price as otherwise determined pursuant to this Section 5(j).
<PAGE>
Section 6. Redemptions.
(a) All outstanding and unconverted shares of Series G1 Preferred Stock on
the 3rd anniversary of the Original Issue Date shall be, at the Holders' option,
converted pursuant to Section 5(a)(ii) or redeemed by the Company pursuant to
this Section 6(a), from funds legally available therefor at a price per share
equal to the product of (i) the average Per Share Market Value for the five
Trading Days immediately preceding (1) the 3rd anniversary of the Original Issue
Date or (2) the date of payment in full by the Company of the redemption price
hereunder, whichever is greater, and (ii) the Conversion Ratio calculated on the
3rd anniversary of the Original Issue Date, plus any accrued but unpaid
dividends on such shares. Thereafter, all shares of Series G1 Preferred Stock
shall cease to be outstanding and shall have the status of authorized but
undesignated preferred stock. The entire redemption price shall be paid in cash.
(b) If any portion of the applicable redemption price under Section 6(a)
shall not be paid by the Company within seven (7) calendar days after the date
due, interest shall accrue thereon at the rate of 15% per annum until the
redemption price plus all such interest is paid in full (which amount shall be
paid as liquidated damages and not as a penalty). In addition, if any portion of
such redemption price remains unpaid for more than seven (7) calendar days after
the date due, the Holder of the Series G1 Preferred Stock subject to such
redemption may elect, by written notice to the Company given within 30 days
after the date due, to either (i) demand conversion in accordance with the
formula and the time frame therefor set forth in Section 5 of all of the shares
of Series G1 Preferred Stock for which such redemption price, plus accrued
liquidated damages thereof, has not been paid in full (the "Unpaid Redemption
Shares"), in which event the Per Share Market Price for such shares shall be the
lower of the Per Share Market Price calculated on the date such redemption price
was originally due and the Per Share Market Price as of the Holder's written
demand for conversion, or (ii) invalidate ab initio such redemption,
notwithstanding anything herein contained to the contrary. If the Holder elects
option (i) above, the Company shall within five Trading Days of its receipt of
such election deliver to the Holder the shares of Common Stock issuable upon
conversion of the Unpaid Redemption Shares subject to such Holder conversion
demand and otherwise perform its obligations hereunder with respect thereto; or,
if the Holder elects option (ii) above, the Company shall promptly, and in any
event not later than five Trading Days from receipt of Holder's notice of such
election, return to the Holder all of the Unpaid Redemption Shares.
<PAGE>
Section 7. Company's Right to Redeem in Lieu of Conversion. Subject to the
terms and conditions of this Section 7 below, at any time after the Issuance
Date, and so long as the Company has provided appropriate notice as described
below, the Company may elect to redeem shares of Series G1 Preferred Stock
submitted for conversion in lieu of converting such shares of Series G1
Preferred Stock, provided that the Conversion Price for such shares of Series G1
Preferred Stock on the Conversion Date is less than the applicable Redemption
Trigger Price (appropriately adjusted for any stock split, stock dividend,
combination or other similar transaction) (a "Company Redemption in Lieu of
Conversion").
(a) Redemption Price of Company Redemption in Lieu of Conversion. The
"Redemption Price of Company Redemption in Lieu of Conversion" shall be an
amount per Preferred Share equal to the product of (A) the Conversion Ratio of
the shares of Series G1 Preferred Stock on the applicable Conversion Date and
(B) the Per Share Market Value on the Conversion Date.
(b) Mechanics of Company Redemption in Lieu of Conversion. The Company
shall exercise its right to redeem by delivering written notice by facsimile and
overnight courier ("Notice of Company Redemption in Lieu of Conversion") to (i)
each Holder of the shares of Series G1 Preferred Stock and (ii) the Transfer
Agent. Such Notice of Company Redemption in Lieu of Conversion shall indicate
(A) the maximum, if any, aggregate dollar amount of Redemption Price of Company
Redemption in Lieu of Conversion which the Company will pay for any Company
Redemption in Lieu of Conversion, (B) each Holder's pro rata allocation of such
maximum amount, (C) the dollar price which is less than the Fixed Strike Price
in effect on the Closing Date (subject to adjustment for any stock split, stock
dividend, combination or other similar transaction) which shall constitute the
"Redemption Trigger Price" for the Redemption in Lieu of Conversion Period (as
defined below) for the applicable month, and (D) confirm the time period during
which the Company may effect Company Redemption in Lieu of Conversion, which
period ("Redemption in Lieu of Conversion Period") shall begin on and include
the first date of the calendar month which is at least five business days after
the date of receipt by all the Holders of the Notice of Company Redemption in
Lieu of Conversion and shall end on and include the last date of such calendar
month. If the Company elects to limit the Redemption Price of Company Redemption
in Lieu of Conversion which it will pay out for redemptions of shares of Series
G1 Preferred
<PAGE>
Stock submitted for redemption during the Redemption in Lieu of Conversion
Period, the Company shall allocate for redemption from each Holder of shares of
Series G1 Preferred Stock an amount of the Redemption Price of Company
Redemption in Lieu of Conversion equal to such Holder's pro rata amount (based
on the number of shares of Series G1 Preferred Stock held by such Holder on the
date of the Notice of Company Redemption in Lieu of Conversion relative to the
total number of shares of Series G1 Preferred Stock outstanding on such date).
Notwithstanding anything in this Section 7(b), the Company shall convert shares
of Series G1 Preferred Stock pursuant to Section 5 if the Conversion Date for
shares of Series G1 Preferred Stock submitted for conversion is (i) before the
beginning, or after the termination, of the Redemption in Lieu of Conversion
Period, (ii) for a Conversion Price greater than or equal to the Redemption
Trigger Price (appropriately adjusted for stock splits, stock dividends,
combinations and other similar transactions) or (iii) are in excess of such
Holder's pro rata allocation of the maximum Redemption Price of Company
Redemption in Lieu of Conversion indicated in its Notice of Company Redemption
in Lieu of Conversion.
(c) Payment of Redemption Price. The Company shall pay the applicable
Redemption Price of Company Redemption in Lieu of Conversion to the Holder of
the shares of Series G1 Preferred Stock being redeemed in cash within three
Trading Days after the Conversion Date. If the Company shall fail to pay the
applicable Redemption Price of Company Redemption in Lieu of Conversion to such
Holder within three Trading Days after the Conversion Date, in addition to any
remedy such Holder of shares of Series G1 Preferred Stock may have under this
Certificate of Designations and the Purchase Agreement, such unpaid amount shall
bear interest at the rate of 1.5% per month until paid in full. Until the
Company pays such unpaid applicable Redemption Price of Company Redemption in
Lieu of Conversion in full to each Holder, each Holder of shares of Series G1
Preferred Stock submitted for redemption pursuant to this Section 7(c) and for
which the applicable Redemption Price of Company Redemption in Lieu of
Conversion has not been paid, shall have the option, in lieu of redemption, (A)
to require the Company to promptly return to such Holder all of the shares of
Series G1 Preferred Stock that were submitted for redemption by such Holder
under this Section 7(c) and for which the applicable Redemption Price of Company
Redemption in Lieu of Conversion has not been paid or (B) to convert those
shares of Series G1 Preferred Stock for which the applicable Redemption Price of
the Company Redemption in Lieu of Conversion has not been paid at a Conversion
Price equal to the lesser of (I) the Conversion Price applicable to such
conversion on the Conversion Date and (II) the Conversion Price which would have
been in effect on the 4th Trading Day after the Conversion Date, by sending
written notice thereof to the Company via
<PAGE>
facsimile (the "Void Company Redemption Notice"). Upon the Company's receipt of
such Void Company Redemption Notice(s) requesting the return of the shares of
Series G1 Preferred Stock and prior to payment of the full applicable redemption
price to each Holder, (i) the Company's Redemption in Lieu of Conversion shall
be null and void with respect to those shares of Series G1 Preferred Stock
submitted for redemption and for which the applicable redemption price has not
been paid, (ii) the Company shall immediately return any shares of Series G1
Preferred Stock submitted to the Company by each Holder for redemption under
this Section 7(c) and for which the applicable Redemption Price of Company
Redemption in Lieu of Conversion has not been paid and (iii) the Fixed Strike
Price of such returned shares of Series G1 Preferred Stock shall be adjusted to
the lesser of (I) the Conversion Price applicable to such conversion on the date
on which such shares of Series G1 Preferred Stock were originally presented for
conversion and (II) the Conversion Price which would have been in effect on the
4th Trading Day after the Conversion Date. If the Company fails to timely effect
a Company Redemption in Lieu of Conversion in accordance with this Section 7(c),
the Company shall not be allowed to submit another Notice of Company Redemption
in Lieu of Conversion without (i) the prior written consent of Holders of at
least two-thirds (2/3) of the shares of Series G1 Preferred Stock then
outstanding or (ii) evidence reasonably satisfactory to Holders of at least
two-thirds (2/3) of the shares of Series G1 Preferred Stock then outstanding
that the Company has immediately available funds for the redemption procedure.
Section 8. Definitions. For the purposes hereof, the following terms shall
have the following meanings:
"Change of Control Transaction" means the occurrence of any of (i) an
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Section 13(d)(3) of the Exchange Act), other than WGI, LLC or
any of its Affiliates, of in excess of 50% of the voting securities of the
Company, (ii) a replacement of more than one-half of the members of the
Company's board of directors which is not approved by a majority of those
individuals who are members of the board of directors on the date hereof, or
their duly elected successors who are directors immediately prior to such
transaction, in one or a series of related transactions, (iii) the merger of the
Company with or into another entity, unless following such transaction, the
Holders of the Company's securities continue to hold at least 50% of such
securities following such transaction, (iv) consolidation or sale of all or
substantially all of the assets of the Company in one or a series of related
transactions, or (v) the execution by the Company of an agreement to which the
Company is a party or
<PAGE>
by which it is bound, providing for any of the events set forth above in (i),
(ii), (iii) or (iv).
"Closing Date" means the date of the closing of the purchase and sale of
the Series G1 Preferred Stock.
"Closing Price" means the average of the Per Share Market Value of the
Common Stock for 10 Trading Days ending on the Series G1 Closing Date, provided,
however, that such average shall be calculated using only the eight (8) Trading
Days which do not include the single highest and single lowest Per Share Market
Value during such 10 Trading Day period.
"Commission" means the United States Securities and Exchange Commission, or
any successor to such agency.
"Common Stock" means the Company's common stock, $.01 par value per share,
of the Company and stock of any other class into which such shares may hereafter
have been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, of which the numerator
is the sum of (a) Stated Value, plus (b) accrued but unpaid dividends (including
any accrued but unpaid interest thereon), but only to the extent not paid in
shares of Common Stock in accordance with the terms hereof, and of which the
denominator is the Conversion Price at such time.
"Junior Securities" means the Common Stock and all other equity securities
of the Company which are junior in rights and liquidation preference to the
Series G1 Preferred Stock.
"Look-Back Period" means, for any Conversion Date, the forty-four (44)
Trading Days immediately preceding such Conversion Date. For each day after the
90th day from the Filing Date that the registration statement required pursuant
to the Registration Rights Agreement is not effective, a day will be added to
the Look-Back Period.
"NYSE" means The New York Stock Exchange.
"Original Issue Date" shall mean the date of the first issuance of any
shares of the Series G1 Preferred Stock regardless of the number of transfers of
any particular shares of Series G1 Preferred Stock and regardless of the number
of certificates which may be issued to evidence such Series G1 Preferred Stock.
<PAGE>
"Per Share Market Value" means on any particular date (a) the closing bid
price per share of the Common Stock on such date on the NYSE or other registered
national stock exchange on which the Common Stock is then listed or if there is
no such price on such date, then the closing bid price on such exchange or
quotation system on the date nearest preceding such date, or (b) if the Common
Stock is not listed then on the NYSE or any registered national stock exchange,
the closing bid price for a share of Common Stock in the over-the-counter
market, as reported by the NYSE or in the National Quotation Bureau Incorporated
or similar organization or agency succeeding to its functions of reporting
prices) at the close of business on such date, or (c) if the Common Stock is not
then publicly traded the fair market value of a share of Common Stock as
determined by an Appraiser selected in good faith by the Holders of a majority
in interest of the shares of the Series G1 Preferred Stock; provided, however,
that the Company, after receipt of the determination by such Appraiser, shall
have the right to select an additional Appraiser, in which case, the fair market
value shall be equal to the average of the determinations by each such
Appraiser; and provided, further that all determinations of the Per Share Market
Value shall be appropriately adjusted for any stock dividends, stock splits or
other similar transactions during such period.
"Person" means a corporation, an association, a partnership, organization,
a business, an individual, a government or political subdivision thereof or a
governmental agency.
"Purchase Agreement" means the Convertible Series G1 Preferred Stock
Purchase Agreement, dated as of the Original Issue Date, among the Company and
the original Holders of the Series G1 Preferred Stock.
"Redemption Price Per Share" means, with respect to each share of the
Series G1 Preferred Stock, the greater of (A)(i) the average Per Share Market
Value of such shares for the five (5) Trading Days immediately preceding the
Conversion Date multiplied by (ii) the number of shares equal to the Conversion
Ratio on the Conversion Date, and (B)(1) the Stated Value of such shares, plus
any accrued but unpaid dividends on such shares, multiplied by (2) 120%.
"Shareholder Approval" means the approval by a majority of the total votes
cast on the proposal, in person or by proxy, at a meeting of the shareholders of
the Company held in accordance with the Company's Restated Articles of
Incorporation and by-laws, of the issuance by the Company of shares of Common
Stock exceeding the Issuable Maximum as a consequence of the conversion
<PAGE>
of Series G1 Preferred Stock into Common Stock at a price less than the greater
of the book or market value on the Original Issue Date as and to the extent
required pursuant to the Rules of the NYSE (or any successor or replacement
provision thereof).
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the Original Issue Date, by and among the Company and the original
Holders.
"Short Day" means any Trading Day on which a Holder shall have consummated
a short sale or short sales of the Common Stock in an amount equal to at least
5% of the aggregate pro rata amount of the Series G1 Purchase Price and Series
G2 Purchase Price (as such terms are defined in the Purchase Agreement) paid by
such Holder.
"Trading Day" means (a) a day on which the Common Stock is traded on the
NYSE or other registered national stock exchange on which the Common Stock has
been listed, or (b) if the Common Stock is not listed on the NYSE or any
registered national stock exchange, a day or which the Common Stock is traded in
the over-the-counter market, as reported by the OTC Bulletin Board, or (c) if
the Common Stock is not quoted on the OTC Bulletin Board, a day on which the
Common Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, however, that in the
event that the Common Stock is not listed or quoted as set forth in (a), (b) and
(c) hereof, then Trading Day shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"Underlying Shares" means the number of shares of Common Stock into which
the Shares are convertible and the shares or Common Stock issuable upon payment
of dividends thereon, in accordance with the terms hereof and the Purchase
Agreement.
"Underlying Shares Registration Statement" means the registration
statement, to be filed by the Company with the Commission under the Securities
Act of 1933, as amended, in accordance with the terms of the Purchase Agreement,
for resale of the Underlying Shares by the Holders.
Section 9. Notices. Except as otherwise provided in the event of conversion
of shares of Series G1 Preferred Stock, all notices or other communications
required hereunder shall be in
<PAGE>
writing and shall be sent either (a) by courier, or (b) by telecopy as well as
by registered or certified mail, and shall be regarded as properly given in the
case of a courier upon actual delivery to the proper place of address; in the
case of telecopy, on the day received, if received by 7:00 p.m. EST, if properly
addressed and sent without transmission error to the correct number (provided
that confirmation of such transmission has been mechanically or electronically
generated and is retained in sender's files); in the case of a letter for which
a telecopy could not be successfully transmitted or receipt of which could not
be confirmed as herein provided, three days after the registered or certified
mailing date if the letter is properly addressed and postage prepaid; and shall
be regarded as properly addressed if sent to the parties or their
representatives at the addresses given below:
To the Company: Signal Apparel Company, Inc.
200A Manufacturers Road
Chattanooga, Tennessee 37405
Attn: President & General Counsel
Phone: (423) 752-2032
Fax: (423) 752-2040
with copies to: Witt, Gaither & Whitaker, P.C.
1100 SunTrust Bank Building
736 Market Street
Chattanooga, Tennessee 37402
Attn: Steven R. Barrett
Phone: (423) 265-8881
Fax: (423) 266-4138
To the Holders: Brown Simpson Strategic Growth Fund, Ltd.
152 West 57th Street, 40th Floor
New York, New York 10019
Attn: Paul Gustus
Phone: (212) 247-8200
Fax: (212) 247-1329
Brown Simpson Strategic Growth Fund, L.P.
152 West 57th Street, 40th Floor
New York, New York 10019
Attn: Paul Gustus
Phone: (212) 247-8200
Fax: (212) 247-1329
<PAGE>
with copies to: Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1700 Pacific Avenue, Suite 4100
Dallas, Texas 75201
Attn: Diane B. Muse
Phone: (214) 969-4694
Fax: (214) 969-4343
To the Holders: Heracles Fund Ltd.
c/o Promethean Investment Group
40 W. 57th Street, Suite 1520
New York, NY 10019
Attn: Jamie O'Brien
Phone: (212) 698-0588
Fax: (212) 698-0505
Themis Partners, L.P.
c/o Promethean Investment Group
40 W. 57th Street, Suite 1520
New York, NY 10019
Attn: Jamie O'Brien
Phone: (212) 698-0588
Fax: (212) 698-0505
with copies to: Katten Muchin & Zavis
525 West Monroe Street - Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert Brantman
Phone: (312) 902-5289
Fax: (312) 902-1061
or such other address as any of the above may have furnished to the other
parties in writing by registered mail, return receipt requested.
Section 10. Lost or Stolen Certificates. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of any stock certificates representing Series G1 Preferred Stock,
and, in the case of loss, theft or destruction, of any indemnification
undertaking by the Holder to the Company in customary form and, in the case of
mutilation, upon surrender and cancellation of such Series G1 Stock
certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tendor and date; provided, however, the Company shall not
be obligated to re-issue preferred stock certificates if the Holder
contemporaneously requests the Company to convert such Series G1 Preferred Stock
into Common Stock.
Section 11. Remedies Characterized. Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this
<PAGE>
Certificate of Designation shall be cumulative and in addition to all other
remedies available under this Certificate of Designation, at law or in equity
(including a decree of specific performance and/or other injunctive relief), no
remedy contained herein shall be deemed a waiver of compliance with the
provisions giving rise to such remedy and nothing herein shall limit a Holder's
right to pursue actual damages for any failure by the Company to comply with the
terms of this Certificate of Designation. The Company covenants to each Holder
of Series G1 Preferred Stock that there shall be no characterization concerning
this instrument other than as expressly provided herein. Amounts set forth or
provided for herein with respect to payments, conversion and the like (and the
computation thereof) shall be the amounts to be received by the Holder thereof
and shall not, except as expressly provided herein, be subject to any other
obligation of the Company (or the performance thereof). The Company acknowledges
that a breach by it of its obligations hereunder will cause irreparable harm to
the Holders of the Series G1 Preferred Stock and that, in the event of any
breach may be inadequate. The Company therefore agrees that, in the event of any
such breach or threatened breach, the Holders of the Series G1 Preferred Stock
shall be entitled, in addition to all other available remedies, to an injection
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
Section 12. Specific Shall Not Limit General; Construction. No specific
provision contained in this Certificate of Designation shall limit or modify any
more general provision contained herein. This Certificate of Designation shall
be deemed to be jointly drafted by the Company and all Purchasers (as defined in
this Purchase Agreement) and shall not be construed against any person as the
drafter hereof.
Section 13. Failure or Indulgence Not Waiver. No failure or delay on the
part of a Holder of Series G1 Preferred Stock in the exercise of any power,
right or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such power, right or privilege preclude other
or further exercise thereof or of any other right, power or privilege.
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder in order to
Convert shares of Series G1 Preferred Stock)
The undersigned hereby elects to convert the number of shares of Series
G1 Convertible Preferred Stock indicated below, into shares of common stock, par
value $.01 per share (the "Common Stock"), of Signal Apparel Company, Inc. (the
"Company") according to the conditions hereof, as of the date written below. If
shares are to be issued in the name of a person other than undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the Holder for
any conversion, except for such transfer taxes, if any.
Conversion calculations:
Date to Effect Conversion
--------------------------------------------
Number of shares of Series G1
Preferred Stock to be Converted
--------------------------------------------
Number of shares of Common Stock to be Issued
--------------------------------------------
Applicable Conversion Price
--------------------------------------------
Signature
--------------------------------------------
Name
--------------------------------------------
Address
<PAGE>
ANNEX 8
VOTING POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE,
PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND
QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS THEREOF,
OF THE
SERIES H PREFERRED STOCK
OF
SIGNAL APPAREL COMPANY, INC.
--------------------------------
SECTION 1
DESIGNATION AND RANK
1.1. Designation. The number of authorized shares constituting the "Series
H Preferred Stock" (hereinafter called the "Series H Preferred") of Signal
Apparel Company, Inc. (the "Corporation") is one thousand (1,000). Shares of the
Series H 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 H 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 H Preferred shall
be subordinate to the Corporation's Series G1 Preferred Stock and Series G2
Preferred Stock, shall be equal to the Corporation's Series A Preferred Stock
and Series F Preferred Stock, and shall be senior to the Corporation's Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series
E Preferred Stock, and shall be senior to all series and classes of the common
stock of the Corporation.
<PAGE>
SECTION 2
DIVIDEND RIGHTS
2.1. Dividend Rate. From the date of issuance dividends shall accrue on
each share of the Series H Preferred at an annual rate equal to nine percent
(9%) per annum multiplied by the Stated Value, or $9,000.00 per share per year
for each full year. 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 the Series H Preferred
shall be payable in cash. Dividends on each share of the Series H Preferred
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 H Preferred shall be payable,
when and as declared by the Board of Directors or a committee thereof, annually
on December 31 (or, if such day is not a Business Day, as defined hereafter, on
the next Business Day thereafter) of each year, (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 at a rate of $9,000.00 per share
for each full calendar year on each Dividend Payment Date with respect to the
yearly 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 H Preferred for any period less than a
full yearly 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 that shall be, in the State of New York,
a legal holiday or a day on which banking institutions are authorized by law to
close. If any cumulative dividends in respect of the Series H Preferred are not
paid in full, the owners of all series of the Series H Preferred shall
participate ratably in any payment of accumulated dividends.
2.3. Dividends or Distributions to Junior Stock. So long as any shares of
the Series H Preferred are outstanding, no dividend or distribution shall be
declared or paid or set aside for payment on the Common Stock or on any other
capital stock of the Corporation ranking junior to the Series H Preferred as to
dividends, nor shall the Common Stock or any other stock of the Corporation
ranking junior to the Series H Preferred be redeemed, purchased or otherwise
acquired for any consideration (or any moneys paid to or made available for a
sinking fund for the
<PAGE>
redemption of any shares of any such stock) by the Corporation (except by
conversion into or exchange for shares of the Common Stock or other stock of the
Corporation ranking junior to the Series H Preferred as to dividends) unless, in
each case, full cumulative dividends on all outstanding shares of the Series H
Preferred shall have been declared and paid through and including the most
recent Dividend Payment Date.
SECTION 3
LIQUIDATION RIGHTS
3.1. Preferences of the Series H Preferred 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 H Preferred, the holders of shares of the Series H
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"), whether or
not such accrued and unpaid dividends have been declared by the Board of
Directors of the Corporation. 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 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 of affairs or other similar
event, the net assets of the Corporation to be distributed among the holders of
shares of the Series H Preferred and any other class or series of stock of the
Corporation ranking on a parity with the Series H 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 any other class or series of stock of the Corporation ranking senior
to the Series H Preferred shall be distributed among the holders of shares of
the Series H Preferred and any other class or series of stock ranking on a
parity with the Series H Preferred ratably, in proportion to the full amounts to
which they would otherwise be respectively entitled, and such
<PAGE>
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 H Preferred and the holders of any other class or series of stock of
the Corporation ranking on a parity with the Series H 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 that is
junior to the Series H Preferred as to distributions upon liquidation.
SECTION 4
VOTING AND PREEMPTIVE RIGHTS
4.1. General. The holders of shares of the Series H Preferred shall have
only such voting rights as are expressly set forth herein or otherwise provided
by law. Shares of the Series H Preferred shall not give their holders any
preemptive rights to acquire any other securities issued by the Corporation at
any time in the future.
4.2. Consent for Certain Actions. So long as any of the shares of the
Series H 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 the Series H 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 H 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
<PAGE>
a parity with any such preference or priority of the Series H 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
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 or on parity with
any such preference or priority of the Series H Preferred, other than the
issuance of shares of the Corporation's Series A Preferred Stock, Series G1
Preferred Stock, or Series G2 Preferred Stock.
The holders of the Series H Preferred shall be entitled to notice of any meeting
of the stockholders of the Corporation.
SECTION 5
CONVERSION
5.1 Shares of the Series H Preferred Stock shall not be convertible by
their terms, at the option of either the Corporation or the holders thereof,
into shares of the Common Stock or into any other security of the Corporation.
================================================================================
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Between
SIGNAL APPAREL COMPANY, INC.,
BROWN SIMPSON STRATEGIC GROWTH FUND, LTD.,
BROWN SIMPSON STRATEGIC GROWTH FUND, L.P.,
HERACLES FUND LTD.
and
THEMIS PARTNERS, L.P.
Dated as of September 17, 1998
================================================================================
<PAGE>
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement"), dated as
of September 17, 1998, between Signal Apparel Company, Inc., an Indiana
corporation (the "Company"), Brown Simpson Strategic Growth Fund, Ltd., a Cayman
Islands exempt company ("Brown Simpson Limited"), and Brown Simpson Strategic
Growth Fund, L.P., a New York limited partnership ("Brown Simpson LP"), Heracles
Fund Ltd., a ________ company ("Heracles") and Themis Partners, L.P., a ______
limited partnership ("Themis"). Brown Simpson Limited, Brown Simpson LP,
Heracles and Themis are each referred to herein as a "Purchaser" and are
collectively referred to herein as the "Purchasers."
WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchasers, and the Purchasers
desire to acquire from the Company, shares of the Company's 5% Series G1
Convertible Preferred Stock, no par value (the "Series G1 Preferred") and the
Company's 5% Series G2 Convertible Preferred Stock, no par value (the "Series G2
Preferred," and together with the Series G1 Preferred, the "Preferred Stock").
IN CONSIDERATION of the mutual covenants contained in this Agreement, the
Company and each Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED SHARES
1.1 Purchase and Sale.
(a) Subject to the terms and conditions set forth herein, the Company
shall issue and sell to the Purchasers, and the Purchasers, severally and
not jointly, shall purchase from the Company: (i) 5,000 shares of Series G1
Preferred (the "Series G1 Shares") and 100,000 warrants (the "Warrants")
and (ii) up to 5,000 shares of Series G2 Preferred (the "Series G2 Shares,"
and together with the Series G1 Shares, the "Shares") in the respective
amounts set forth in Schedule 1 attached hereto. Notwithstanding anything
to the contrary set forth in this Agreement, the aggregate number of Shares
to be sold hereunder shall not exceed 5,000 Series G1 Shares and 5,000
Series G2 Shares, respectively (the "Maximum Share Amount").
(b) The Series G1 Preferred shall have the respective rights,
preferences and privileges (the "Series G1 Terms") set forth in the
Certificate of Designation (the "Series G1 Designation") the form of which
is attached hereto as Exhibit A, which shall be approved by the Purchasers
and the Company's Board of Directors and filed on or prior to the Series G1
Closing (as defined below) by the Company with the Secretary of State of
Indiana. The Series G2 Preferred shall have respective rights, preferences
and privileges identical to the Series G1 Terms mutatis mutandis, and shall
rank pari passu with the Series G1 Preferred with regard to dividends,
liquidation, voting rights and any other preferential rights designated
therein, except that the Conversion Price (as defined below) for conversion
of the Series G2 Shares shall be determined as of the Series G2 Closing
Date (as defined below) for such Series G2 Shares.
The Series G2 Preferred shall be authorized pursuant to a certificate of
designation identical to the Series G1 Designation, mutatis mutandis, prepared
by the Company,
<PAGE>
subject to the approval of the Purchasers, and filed at or prior to the Series
G2 Closing Date, by the Company with the Secretary of State of Indiana (such
certificate of designation, together with the Series G1 Designation, are
referred to as the "Certificates of Designation").
For purposes of this Agreement, "Conversion Price," "Original Issue Date,"
"Conversion Date" "Trading Day" and "Per Share Market Value" shall have the
meanings set forth in Exhibit A; "Market Price" at any date shall mean the
average Per Share Market Value for the five (5) Trading Days immediately
preceding such date; and "Securities" shall mean the Shares, Underlying Shares,
Warrants and Warrant Shares (each as defined herein or in Exhibit A) taken
together.
1.2 Purchase Price. The purchase price per Share which price shall include
the related Warrants shall be $1,000.
1.3 The Closings.
(a) The Series G1 Closing.
(i) The closing of the purchase and sale of the Series G1 Shares
(the "Series G1 Closing") shall take place at the offices of Akin,
Gump, Strauss, Hauer & Feld, L.L.P. ("Akin, Gump"), 590 Madison
Avenue, New York, New York 10022, immediately following the execution
hereof or such later date or different location as the parties shall
agree, but not prior to the date that the conditions set forth in
Section 4.1 have been satisfied or waived by the appropriate party.
The date of the Series G1 Closing is hereinafter referred to as the
"Series G1 Closing Date." At the Series G1 Closing, the Company shall
sell and issue to the Purchasers, and the Purchasers shall, severally
and not jointly, purchase from the Company, Warrants and 5,000 Series
G1 Shares for an aggregate purchase price of $5,000,000 (the "Series
G1 Purchase Price") in the respective amounts set forth on Schedule 1
attached hereto.
(ii) At the Series G1 Closing, (a) the Company shall deliver to
each Purchaser stock certificates representing the Series G1 Shares
purchased by such Purchaser as set forth next to such Purchaser's name
on Schedule 1 attached hereto and Warrants, each registered in the
name of such Purchaser, and all other documents, instruments and
writings required to have been delivered at or prior to the Series G1
Closing by the Company pursuant to this Agreement and the Registration
Rights Agreement, dated the date hereof, by and between the Company
and the Purchasers, in the form of Exhibit B (the "Registration Rights
Agreement"), and (b) each Purchaser shall deliver to the Company the
portion of the Series G1 Purchase Price set forth next to its name on
Schedule 1, in United States dollars in immediately available funds by
wire transfer to an account designated in writing by the Company for
such purpose on or prior to the Series G1 Closing Date, and all
documents, instruments and writings required to have been delivered at
or prior to the Series G1 Closing by such Purchaser pursuant to this
Agreement and the Registration Rights Agreement.
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<PAGE>
(b) The Series G2 Closing.
(i) Subject to the terms and conditions set forth in Section 4.2
and elsewhere in this Agreement, the Company shall, so long as the Per
Share Market Value on the date of the receipt by the Purchasers of the
Series G2 Subsequent Financing Notice is not less than the Per Share
Market Value on the Series G1 Closing Date, have the right to deliver
a written notice to the Purchasers (a "Series G2 Subsequent Financing
Notice") requiring the Purchasers, severally and not jointly, to
purchase the Series G2 Shares for a purchase price of $5,000,000. The
Company may deliver a Series G2 Subsequent Financing Notice with at
least 15 days prior written notice for the Series G2 Closing to occur
no earlier than 90 days after the date on which the Registration
Statement on Form S-3 filed with the Securities and Exchange
Commission (the "Commission") with respect to the Series G1 Shares has
been declared effective by the Commission and no later than 115 days
after such effective date. The Purchasers shall not be required to
purchase any Series G2 Shares if the Per Share Market Value on the
Series G2 Closing Date is less than the Per Share Market Value on the
Series G1 Closing Date. The Series G2 Closing Date (as defined below)
may not be later than 205 days after the Series G1 Closing Date. At
the Series G2 Closing, the registration statement with respect to the
Series G2 Shares shall have been declared effective by the Commision
and each Purchaser shall be obligated (subject to the terms and
conditions herein) to purchase such portion of such Series G2 Shares
as equals such Purchaser's pro rata portion of the purchase price for
the Series G1 Shares issued and sold at the Series G1 Closing. The
closing of the purchase and sale of the Series G2 Shares (the "Series
G2 Closing") shall take place in the same manner as the Series G1
Closing, on such date indicated in the Series G2 Subsequent Financing
Notice (which may not be prior to the 15th Trading Day nor subsequent
to the 20th Trading Day after receipt by the Purchasers of the Series
G2 Subsequent Financing Notice, or as otherwise agreed to by the
parties); provided that in no case shall the Series G2 Closing take
place unless and until the conditions listed in Section 4.2 have been
satisfied or waived by the appropriate party. The date of the Series
G2 Closing is hereinafter referred to as the "Series G2 Closing Date"
and the purchase price paid for the Series G2 Shares is hereinafter
referred to as the "Series G2 Purchase Price"). The Company shall only
be entitled to give one Series G2 Subsequent Financing Notice.
(ii) At the Series G2 Closing, (a) the Company shall deliver (A)
to each Purchaser (1) a pro rata portion of the Series G2 Shares
(determined by reference to the amount of Series G1 Shares issued and
sold at the Series G1 Closing) to be issued and sold thereat (or such
other amount upon which the parties may agree), registered in the name
of the appropriate Purchaser, (2) the legal opinions referenced in
Section 4.2(l), substantially in the form attached hereto as Exhibits
C1 and C2, and (3) all other documents, instruments and writings
required to have been delivered at or prior to the Series G2 Closing
by the Company to the Purchasers pursuant to this Agreement; and (b)
each Purchaser shall deliver to the Company (1) the purchase price for
the Series G2 Shares being purchased by it at the Series G2 Closing in
United States dollars in immediately available funds by wire transfer
to an account designated in writing by the Company for such purpose on
or prior to the Series G2 Closing Date and (2) all documents,
instruments and writings required to have been delivered at or prior
to the Series G2 Closing by such Purchaser pursuant to this Agreement.
3
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The Company
hereby makes the following representations and warranties to each of the
Purchasers:
(a) Organization and Qualification. The Company is a corporation, duly
incorporated, validly existing and in good standing under the laws of the
State of Indiana, with the requisite corporate power and authority to own
and use its properties and assets and to carry on its business as currently
conducted. Except as set forth in Schedule 2.1(a), the Company has no
material subsidiaries other than as set forth in Exhibit 21 to the
Company's Form 10-K for the year ended December 31, 1997 (collectively the
"Subsidiaries"). Each of the Subsidiaries is a corporation, duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the
full corporate power and authority to own and use its properties and assets
and to carry on its business as currently conducted. Each of the Company
and the Subsidiaries is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing,
as the case may be, would not, individually or in the aggregate, (x)
adversely affect the legality, validity or enforceability of the Preferred
Stock or any of the Transaction Documents (as defined below), (y) have or
result in a material adverse effect on the results of operations, assets,
prospects, or financial condition of the Company and the Subsidiaries,
taken as a whole or (z) adversely impair the Company's ability to perform
fully on a timely basis its obligations under any Transaction Document (any
of (x), (y) or (z), being a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated by this Agreement and the other Transaction
Documents, and otherwise to carry out its obligations hereunder and
thereunder. This Agreement, the Certificates of Designation, Transfer Agent
Instructions, the Warrants and the Registration Rights Agreement are
collectively referred to as the "Transaction Documents." The execution and
delivery of each of the Transaction Documents by the Company and the
consummation by it of the transactions contemplated hereby and thereby have
been duly authorized by all necessary action on the part of the Company and
no further action is required by the Company. Each of the Transaction
Documents has been duly executed by the Company and when delivered in
accordance with the terms hereof will constitute the valid and binding
obligation of the Company enforceable against the Company in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar
laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general
application. Neither the Company nor any Subsidiary is in any material
violation of any of the provisions of its respective articles of
incorporation, by-laws or other charter documents such that any right of a
holder of the Shares would be affected. Prior to each of the closing dates
the respective Certificate of Designation has been filed with the Secretary
of State of the State of Indiana and will be in full force and effect,
enforceable against the Company in accordance with the terms thereof,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization,
4
<PAGE>
moratorium, liquidation or similar laws relating to, or affecting generally
the enforcement of, creditors' rights and remedies or by other equitable
principles of general application.
(c) Capitalization. The authorized, issued and outstanding capital
stock of the Company as of September 11, 1998, is set forth in Schedule
2.1(c). No shares of Common Stock are entitled to preemptive or similar
rights, nor is any holder of the Common Stock entitled to preemptive or
similar rights arising out of any agreement or understanding with the
Company by virtue of any of the Transaction Documents. Except as disclosed
in Schedule 2.1(c), there are no outstanding options, warrants, script
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or, except as a result of the purchase and sale of the Shares,
securities, rights or obligations convertible into or exchangeable for, or
giving any person any right to subscribe for or acquire any shares of
Common Stock, or contracts, commitments, understandings, or arrangements by
which the Company or any Subsidiary is or may become bound to issue
additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. No anti-dilution or similar
adjustment provision of securities of the Company will be triggered by the
issuance of the Securities except as described on Schedule 2.1(c) Except as
specifically disclosed in the SEC Documents (as defined below) or Schedule
2.1(c), no Person or group of related Persons beneficially owns (as
determined pursuant to Rule 13d-3 promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) or has the right to acquire
by agreement with or by obligation binding upon the Company beneficial
ownership of in excess of 5% of the Common Stock. A "Person" means an
individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other
entity of any kind.
(d) Issuance of Shares. The Shares and Warrants are duly authorized,
and when issued and paid for in accordance with the terms hereof, shall be
validly issued, fully paid and nonassessable, free and clear of all liens,
encumbrances and rights of first refusal of any kind (collectively,
"Liens"). The Company has and, at the Series G1 Closing Date and the Series
G2 Closing Date (each a "Closing Date"), as the case may be, will have and
at all times while the Shares and Warrants are outstanding will maintain an
adequate reserve of duly authorized shares of Common Stock to enable it to
perform its obligations under this Agreement, the Warrants and the
Certificates of Designation with respect to the number of Shares issued and
outstanding at such Closing Date and in no circumstances shall such
reserved and available shares of Common Stock be less than the sum of (i)
200% times the maximum number of shares of Common Stock which would be
issuable upon conversion of the Shares issued pursuant to the terms hereof
with respect to the number of Shares issued and outstanding at such Closing
Date were such conversion effected on the Original Issue Date for such
Shares, (ii) the number of shares of Common Stock which would be issuable
upon exercise of the Warrants and (iii) the number of shares of Common
Stock which would be issuable upon payment of dividends on the shares;
assuming each share is outstanding for two years. The shares of Common
Stock issuable upon conversion of the Shares, which may be issued as
payment of dividends on the Shares and which are issuable upon exercise of
the Warrants are collectively referred to herein as the "Underlying
Shares." When issued in accordance with the Certificates of Designation,
the Underlying Shares will be duly authorized, validly issued, fully paid
and nonassessable, free and clear of all Liens.
5
<PAGE>
(e) No Conflicts. The execution, delivery and performance of this
Agreement and the other Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and
thereby do not and will not (i) conflict with or violate any provision of
its articles of incorporation, bylaws or other charter documents (each as
amended through the date hereof) or (ii) subject to obtaining the consents
referred to in Section 2.1(f), conflict with, or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration
or cancellation of, any agreement, indenture or instrument (evidencing a
Company debt or otherwise) to which the Company is a party or by which any
property or asset of the Company is bound or affected, or (iii) result in a
violation of any law, rule, regulation, order, judgment, injunction, decree
or other restriction of any court or governmental authority to which the
Company is subject (including Federal and state securities laws and
regulations), or by which any material property or asset of the Company is
bound or affected, except in the case of each of clauses (ii) and (iii),
such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the
aggregate, have or result in a Material Adverse Effect. The business of the
Company is not being conducted in violation of any law, ordinance or
regulation of any governmental authority, except for any such violations as
would not, individually or in the aggregate, have or result in a Material
Adverse Effect.
(f) Consents and Approvals. Except as specifically set forth in
Schedule 2.1(f), neither the Company nor any Subsidiary is required to
obtain any consent, waiver, authorization or order of, give any notice to,
or make any filing or registration with, any court or other federal, state,
local or other governmental authority or other person in connection with
the execution, delivery and performance by the Company of the Transaction
Documents, other than (i) the approval of the Company's Board of Directors
and the filings of the Certificates of Designation with respect to the
Preferred Stock with the Secretary of State of Indiana, which filings and
approvals with respect to each of the Series G1 Shares and the Series G2
Shares shall be effected on or prior to the Series G1 Closing Date and the
Series G2 Closing Date, as appropriate, (ii) the filing of Underlying
Shares Registration Statements with the Commission, which shall be filed in
accordance with and in the time periods set forth in the Registration
Rights Agreement, (iii) the application(s) or any letter(s) acceptable to
the New York Stock Exchange for the listing of the Underlying Shares with
the New York Stock Exchange (and with any other national securities
exchange or market on which the Common Stock is then listed), and (iv) any
filings, notices or registrations under applicable state securities laws
(together with the consents, waivers, authorizations, orders, notices and
filings referred to in Schedule 2.1(f), the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically set forth in
Schedule 2.1(g), there is no action, suit, notice of violation, proceeding
or investigation pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries or any of their
respective properties before or by any court, governmental or
administrative agency or regulatory authority (federal, state, county,
local or foreign) which (i) adversely affects or challenges the legality,
validity or enforceability of any of the Transaction Documents or the
Preferred Stock or (ii) could reasonably be expected to, individually or in
the aggregate, have a Material Adverse Effect.
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<PAGE>
(h) No Default or Violation. Neither the Company nor any Subsidiary
(i) is in default under or in violation of any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound which could reasonably be
expected to, individually or in the aggregate, have a Material Adverse
Effect, (ii) is in violation of any order of any court, arbitrator or
governmental body applicable to it which could reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect, or (iii)
is in violation of any statute, rule or regulation of any governmental
authority to which it is subject which could reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect.
(i) Schedules. The Schedules to this Agreement furnished by or on
behalf of the Company do not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they
were made, not misleading.
(j) Private Offering. The Company and all Persons acting on its behalf
have not made, and will not make, offers or sales of the Preferred Stock or
Warrants, and any securities that might be integrated with offers or sales
of the Preferred Stock or Warrants, except to Accredited Investors (as
defined in Regulation D ("Regulation D") under the Securities Act of 1933,
as amended (the "Securities Act") without any general solicitation or
advertising and otherwise in compliance with the conditions of Regulation
D. Subject to the accuracy and completeness of the representations and
warranties of the respective Purchasers contained in Section 2.2 hereof,
the offer and sale by the Company to the Purchasers of the Preferred Stock,
the Warrants and the Underlying Shares into which the Preferred Stock is
convertible or the Warrants are exercisable is exempt from the registration
requirements of the Securities Act.
(k) SEC Documents; Financial Statements; No Adverse Change. The
Company has filed all reports required to be filed by it under the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the three
years preceding the date hereof (or such shorter period as the Company was
required by law to file such material) (the foregoing materials being
collectively referred to herein as the "SEC Documents" and, together with
the Schedules to this Agreement, the "Disclosure Materials") on a timely
basis or has received a valid extension of such time of filing and has
filed any such SEC Documents prior to the expiration of any such extension.
As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the Securities Act and the Exchange Act
and the rules and regulations of the Commission promulgated thereunder, and
none of the SEC Documents, when filed, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. All material
agreements to which the Company is a party or to which the property or
assets of the Company are subject have been filed as exhibits to the SEC
Documents as required; neither the Company nor any of its subsidiaries is
in breach of any agreement where such breach could reasonably be expected
to, individually or in the aggregate, have a Material Adverse Effect. The
financial statements of the Company included in the SEC Documents comply in
all material respects with applicable accounting requirements and the rules
and regulations of the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been prepared in accordance
with generally accepted accounting
7
<PAGE>
principles applied on a consistent basis during the periods involved,
except as may be otherwise specified in such financial statements or the
notes thereto, and fairly present in all material respects the financial
position of the Company as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case
of unaudited statements, to normal year-end audit adjustments. Since the
date of the financial statements included in the Company's last filed
Quarterly Report on Form 10-Q for the period ended June 30, 1998, there has
been no event, occurrence or development that has had or to the Company's
knowledge, as of the date of this Agreement, will have a Material Adverse
Effect which has not been specifically disclosed in writing to the
Purchasers by the Company. The Company last filed audited financial
statements with the Commission on March 31, 1998, and has not received any
comments from the Commission in respect thereof.
(l) Seniority. No class of equity securities of the Company will be
senior to the Preferred Stock in right of payment, whether upon
liquidation, dissolution or otherwise following the closing of the exchange
by WGI, LLC of all of its Series F Preferred Stock for Series H Preferred
Stock. Such closing shall take place simultaneously with or prior to the
Series G1 Closing. So long as any Series G1 Preferred Stock or Series G2
Preferred Stock remains outstanding, the Company shall not exchange,
redeem, or convert any of the Company's capital stock for indebtedness,
including convertible debt, of the Company.
(m) Investment Company. The Company is not, and is not controlled by
or under common control with an affiliate (an "Affiliate") of, an
"investment company" within the meaning of the Investment Company Act of
1940, as amended.
(n) Certain Fees. Except for fees payable to Brown Simpson Asset
Management, LLC ("Brown Simpson") pursuant to the section entitled "Fees
and Expenses" of the letter agreement (the "Term Letter") dated August 25,
1998 between the Company and Brown Simpson, fees payable to the Company's
placement agent in connection with this transaction and fees payable in
respect of this transaction to Messrs. Thomas A. McFall (the Company's
Co-CEO) and John W. Prutch (the Company's President) pursuant to the
Company's compensation agreements with each of such individuals, no fees or
commissions will be payable by the Company to any broker, financial
advisor, finder, investment banker, or bank with respect to the
transactions contemplated by this Agreement. The Purchasers shall have no
obligation with respect to any fees or with respect to any claims made by
or on behalf of other Persons for fees of a type contemplated in this
Section 2.1(n) that may be due in connection with the transactions
contemplated by this Agreement. The Company shall indemnify and hold
harmless each of the Purchasers, its employees, officers, directors,
agents, and partners, and their respective Affiliates (as such term is
defined under Rule 405 promulgated under the Securities Act), from and
against all claims, losses, damages, costs (including the costs of
preparation and attorney's fees) and expenses suffered in respect of any
such claimed or existing fees.
(o) Solicitation Materials. The Company has not (i) distributed any
offering materials in connection with the offering and sale of the Shares
or the Underlying Shares other than the Disclosure Materials and any
amendments and supplements thereto or (ii) solicited any offer to buy or
sell the Shares or the Underlying Shares by means of any form of general
solicitation or advertising. None of the Disclosure Materials or any other
information provided to
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the Purchasers by or on behalf of the Company contain any untrue statement
of material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Company confirms (i) that it has not provided Heracles or Themis or their
agents or counsel with any information that constitutes or might constitute
material non-public information and (ii) that on or prior to the Effective
Date (as defined herein) it will publicly announce any material non-public
information that legally can be announced that it may have provided to
Brown Simpson Limited or Brown Simpson LP. The Company shall not enter into
any subsequent non-disclosure agreements with respect to any material
non-public information which any of the Purchasers may already have
knowledge of that would prevent it from announcing any of such information
that otherwise legally could have been announced on or prior to the
Effective Date.
The Company understands and confirms that the Purchasers shall be relying
on the representations set forth in this Section 2.1 in effecting transactions
in securities of the Company.
(p) Form S-3 Eligibility. The Company is, and at each Closing Date
will be, eligible to register securities (including the Underlying Shares)
for resale with the Commission under Form S-3 promulgated under the
Securities Act.
(q) Exclusivity. The Company shall not issue and sell the Preferred
Stock to any Person other than the Purchasers pursuant to this Agreement
other than with the specific prior written consent of each of the
Purchasers.
(r) Listing and Maintenance Requirements Compliance. Except as
disclosed in Schedule 2.1(r), the Company has not in the three years
preceding the date hereof received notice (written or oral) from any stock
exchange, market or trading facility on which the Common Stock is or has
been listed (or on which it has been quoted) to the effect that the Company
is not in compliance with the listing or maintenance requirements of such
exchange or market. After giving effect to the transactions contemplated in
this Agreement, the Company believes that it is in compliance with all such
maintenance requirements.
(s) Patents and Trademarks. The Company has, or has rights to use, all
patents, patent applications, trademarks, trademark applications, service
marks, trade names, copyrights, licenses and rights (collectively, the
"Intellectual Property Rights") which are necessary for use in connection
with its business, as currently conducted and as described in the SEC
Documents. To the best knowledge of the Company, there is no existing
infringement by another Person of any of the Intellectual Property Rights
which are necessary for use in connection with the Company's business which
could reasonably be expected to, individually or in the aggregate, have a
Material Adverse Effect and the Company is not infringing on any other
person's Intellectual Property Rights.
(t) Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Underlying Shares upon conversion of the Shares and payment
of dividends thereon in accordance with the Certificates of Designation may
result in dilution of the outstanding shares of Common Stock, which
dilution may be substantial under certain market conditions. The
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Company further acknowledges that its obligation to issue Underlying Shares
upon conversion of the Shares and payment of dividends thereon in
accordance with the Certificates of Designation is unconditional and
absolute regardless of the effect of any such dilution.
(u) Registration Rights; Rights of Participation. Except as described
on Schedule 2.1(u) hereto, (A) the Company has not granted or agreed to
grant to any Person any rights (including "piggy-back" registration rights)
to have any securities of the Company registered with the Commission or any
other governmental authority which has not been satisfied and (B) no
Person, including, but not limited to, current or former shareholders of
the Company, underwriters, brokers or agents, has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by this Agreement or any other
Transaction Document.
(v) Title. Except as disclosed in Schedule 2.1(v), the Company and the
Subsidiaries have good and marketable title in fee simple to all real
property and personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear
of all Liens, except for liens, claims or encumbrances as do not materially
affect the value of such property and do not interfere with the use made
and proposed to be made of such property by the Company and its
Subsidiaries. Any real property and facilities held under lease by the
Company and its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its Subsidiaries.
(w) Regulatory Permits. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Documents except where the
failure to possess such permits would not, individually or in the
aggregate, have a Material Adverse Effect ("Material Permits"), and neither
the Company nor any such Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
(x) Material Misstatement. None of the Transaction Documents or any
other written or formally presented information, report, financial
statement, exhibit, schedule or document furnished by or on behalf of the
Company in connection with the negotiation of the transactions contemplated
hereby contained, contains or will contain at the time it was or is so
furnished any material misstatement of fact or omitted, omits or will omit
at such time to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were, are or
will be made, not misleading.
(y) No Integrated Offering. Neither the Company, nor any of its
Affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any
offers to buy any security, under circumstances that would require
registration of any of the Securities under the Securities Act or cause
this offering of the Securities to be integrated with prior offerings by
the Company for purposes of the Securities Act or any regulations of any
exchange or automated quotation system on which any of the securities
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of the Company are listed or designated, nor will the Company or any of its
Subsidiaries take any action or steps that would require registration of
any of the Securities under the Securities Act or cause the offering of the
Securities to be integrated with other offerings, except for complying with
the obligations under the Registration Rights Agreement.
(z) Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has
any reason to believe that it will not be able to renew its existing
insurance coverages as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business
at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the
Company and its Subsidiaries, taken as a whole.
(aa) Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and
to maintain asset accountability, (iii) access to assets is permitted only
in accordance with management's general or specific authorization and (iv)
the recorded accountability for assets is compared with the existing assets
at reasonable intervals and appropriate action is taken with respect to any
differences.
(ab) Tax Status. The Company and each of its Subsidiaries has made or
filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject (unless
and only to the extent that the Company and each of its Subsidiaries has
set aside on its books provisions reasonably adequate for the payment of
all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charged that are material in amount, shown or
determined to be due on such returns, reports and declarations, except
those being contested in good faith and has set aside on it books
provisions reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due
by the taxing authority of any jurisdiction, and the officers of the
Company know of no basis for any such claim.
(ac) Transactions With Affiliates. Except as set forth on Schedule
2.1(ac) and in the SEC Documents filed at least ten days prior to the date
hereof and other than the grant of stock options and warrants disclosed on
Schedule 2.1(c), none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company or any of
its Subsidiaries (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of
real or personal property to or from, or otherwise requiring payments to or
from any officer, director or such employee or, to the knowledge of the
Company, any corporation, partnership, trust or entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
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(ad) Application to Takeover Protection. The Company and its board of
directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under the laws of the state of its
incorporation which is or could become applicable to the Buyers as a result
of the transactions contemplated by this Agreement, including, without
limitation, the Company's issuance of the Securities and the Purchaser's
ownership of the Securities.
(ae) No Other Agreements. The Company has not, directly or indirectly,
made any agreements with any Purchasers relating to the terms or conditions
of the transactions contemplated by the Transaction Documents except as set
forth in the Transaction Documents.
Each of the Purchasers hereby acknowledges and agrees that the Company
makes no representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 2.1.
2.2 Representations and Warranties of the Purchasers. Each of the
Purchasers, severally and not jointly, hereby represents and warrants to the
Company as follows:
(a) Organization; Authority. Such Purchaser is a corporation duly
incorporated or a limited liability company or limited partnership duly
formed, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or formation with the requisite power and
authority, corporate or otherwise, to enter into and to consummate the
transactions contemplated hereby and by the Registration Rights Agreement
and otherwise to carry out its obligations hereunder and thereunder. The
purchase by such Purchaser of the Shares hereunder has been duly authorized
by all necessary action on the part of such Purchaser. Each of this
Agreement and the Registration Rights Agreement has been duly executed and
delivered by such Purchaser and constitutes the valid and legally binding
obligation of such Purchaser, enforceable against such Purchaser, in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights generally and to
general principles of equity.
(b) Investment Intent. Such Purchaser is acquiring the Shares and the
Underlying Shares for its own account for investment purposes only and not
with a view to or for distributing or reselling such Shares or Underlying
Shares or any part thereof or interest therein, without prejudice, however,
to such Purchaser's right, subject to the provisions of this Agreement and
the Registration Rights Agreement, at all times to sell or otherwise
dispose of all or any part of such Shares or Underlying Shares pursuant to
an effective registration statement under the Securities Act and in
compliance with applicable State securities laws or under an exemption from
such registration; provided, however, that by making the representations
herein, such Purchaser does not agree to hold any of the Securities for any
minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the Securities Act.
(c) Purchaser Status. At the time such Purchaser was offered the
Shares, and at each Closing Date, (i) it was and will be, an "accredited
investor" as defined in Rule 501 under the Securities Act, or (ii) such
Purchaser either alone or together with its representatives, had and
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will have such knowledge, sophistication and experience in business and
financial matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Shares and the Underlying Shares, and had
and will have so evaluated the merits and risks of such investment.
(d) Ability of Purchaser to Bear Risk of Investment. Such Purchaser is
able to bear the economic risk of an investment in the Shares and the
Underlying Shares and, at the present time, is able to afford a complete
loss of such investment.
(e) Reliance. Each Purchaser understands and acknowledges that (i) the
Shares are being offered and sold to the Purchaser without registration
under the Securities Act in a private placement that is exempt from the
registration provisions of the Securities Act under Section 4(2) of the
Securities Act or Regulation D promulgated thereunder and (ii) the
availability of such exemption, depends in part on, and the Company will
rely upon the accuracy and truthfulness of, the representations set forth
in this Section 2.2 and such Purchaser hereby consents to such reliance.
(f) Non-Public Information. Brown Simpson Limited and Brown Simpson LP
acknowledge and agree that they are bound by the terms of that certain
Confidentiality Agreement dated August 3, 1998 (the "Confidentiality
Agreement") between the Company and such Purchasers, and that no sale,
transfer or other disposition by them of any of the Shares (or any of the
Underlying Shares, as applicable) may be effected by such Purchasers except
in compliance with all of the terms and conditions of such Confidentiality
Agreement until such time as the Company discloses any material non-public
information that may have been covered by the Confidentiality Agreement.
Neither Heracles nor Themis are parties to the Confidentiality Agreement.
Brown Simpson Limited and Brown Simpson LP have abided by the terms of the
Confidentiality Agreement in all communication they have had with Heracles
and Themis with respect to the transactions contemplated by this Agreement.
(g) Short Sales. For the 31-day period prior to and including the
Series G1 Closing Date, such Purchaser has not been and currently is not
net short with respect to shares of Common Stock of the Company.
The Company acknowledges and agrees that the Purchasers make no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions.
(a) If any Purchaser should decide to dispose of Shares (and upon
conversion thereof any of the Underlying Shares) held by it, each Purchaser
understands and agrees that it may do so only pursuant to an effective
registration statement under the Securities Act, to the Company or pursuant
to an available exemption from the registration requirements of the
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Securities Act. Brown Simpson Limited and Brown Simpson LP may make no
disposition or other transfer of any Shares or Underlying Shares except in
compliance with all of the requirements of the Confidentiality Agreement
until such time as the Company discloses any material non-public
information that may have been covered by the Confidentiality Agreement.
The Company shall announce any material non-public information it legally
can announce on or prior to the Effective Date of the Underlying Shares
Registration Statement and shall not enter into any subsequent
non-disclosure agreements that would prevent it from announcing any such
information that otherwise legally could have been announced on or prior to
the Effective Date. In connection with any transfer of any Shares or any
Underlying Shares other than pursuant to an effective registration
statement or to the Company, the Company may require the transferor thereof
to provide to the Company a written opinion of counsel experienced in the
area of United States securities laws selected by the transferor, the form
and substance of which opinion shall be reasonably satisfactory to the
Company, to the effect that such transfer does not require registration of
such transferred securities under the Securities Act. Notwithstanding the
foregoing, the Company hereby consents to and agrees to register (i) any
transfer of Shares by one Purchaser to another Purchaser, and agrees that
no documentation other than executed transfer documents shall be required
for any such transfer, and (ii) any transfer by any Purchaser to an
Affiliate of such Purchaser or to an Affiliate of another Purchaser, or any
transfer among any such Affiliates, provided that transferee certifies to
the Company that it is an "accredited investor" as defined in Rule 501(a)
under the Securities Act. Any such transferee shall be bound by the terms
of this Agreement and shall have the rights of a Purchaser under this
Agreement and the Registration Rights Agreement, and any such transferee of
Brown Simpson Limited or Brown Simpson LP shall be bound by the terms of
the Confidentiality Agreement.
(b) Each Purchaser agrees to the imprinting, so long as is required by
this Section 3.1(b), of the following legend on the Shares and Warrants:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
The Underlying Shares issuable upon conversion of Shares or as payment of
dividends thereon shall not contain the legend set forth above if (i) the
conversion of such Shares or the payment of such dividends occurs at any time
while the Underlying Shares Registration Statement is effective under the
Securities Act, (ii) in the written opinion of counsel to the Company
experienced in the area of United States securities laws such legend is not
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission) or
(iii) such Shares or underlying Shares may be sold pursuant to Rule 144. The
Company agrees that it will provide each Purchaser, upon
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request, with a certificate or certificates representing Underlying Shares, free
from such legend at such time as such legend is no longer required hereunder.
3.2 Stop Transfer Instruction. The Company may not make any notation on its
records or give instructions to any transfer agent of the Company which enlarge
the restrictions of transfer set forth in Section 3.1.
3.3 Furnishing of Information. As long as any Purchaser owns Shares or
Underlying Shares, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act and to promptly furnish the Purchasers with
true and complete copies of all such filings. As long as any Purchaser owns
Shares or Underlying Shares, if the Company is not required to file reports
pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c) promulgated under the Securities Act annual and quarterly financial
statements, together with a discussion and analysis of such financial statements
in form and substance substantially similar to those that would otherwise be
required to be included in reports required by Section 13(a) or 15(d) of the
Exchange Act, as well as any other information required thereby, in the time
period that such filings would have been required to have been made under the
Exchange Act. The Company further covenants that it will take such further
action as any holder of Shares may reasonably request, all to the extent
required from time to time to enable such Person to sell Underlying Shares
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Securities Act, including
the legal opinion referenced above in Section 3.1(b). Upon the request of any
such Person, the Company shall deliver to such Person a written certification of
a duly authorized officer as to whether it has complied with such requirements.
3.4 Blue Sky Laws. In accordance with the Registration Rights Agreement,
the Company shall qualify the Underlying Shares under the securities or Blue Sky
laws of such jurisdictions as the Purchasers may request and shall continue such
qualification at all times through the third anniversary of the last Closing
Date.
3.5 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Shares or the Underlying Shares in a manner that would require the
registration under the Securities Act of the sale of the Shares or the
Underlying Shares to any Purchaser.
3.6 Certain Agreements. As long as any Purchaser owns Shares, the Company
shall not and shall cause the Subsidiaries not to, without the consent of
two-thirds of the holders of all of the Shares then outstanding, (i) amend its
articles of incorporation, bylaws or other charter documents so as to adversely
affect any rights of any Purchaser; (ii) declare, authorize, set aside or pay
any dividend or other distribution with respect to the Common Stock except as
permitted under the Certificates of Designation and as would not adversely
affect the rights of any Purchaser hereunder or under the Certificates of
Designation; (iii) repay, repurchase or offer to repay, repurchase or otherwise
acquire or pay dividends or make distributions on shares of its
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Common Stock in any manner, except as may be subject to prior commitments
reflected in the Disclosure Materials; (iv) issue any series of preferred stock
or other securities with rights senior (in respect of liquidations, dividends,
preferences and similar rights) to those of the Shares, or (v) enter into any
agreement with respect to any of the foregoing.
3.7 Listing and Reservation of Underlying Shares.
(a) The Company shall (i) not later than the applicable Closing Date
prepare and file with the New York Stock Exchange (as well as any other
national securities exchange or market on which the Common Stock is then
listed) an additional shares listing application or a letter acceptable to
the New York Stock Exchange covering and listing a number of shares of
Common Stock which is at least equal to 200% of the maximum number of
Underlying Shares then issuable assuming the payment of all future
dividends on the Shares then outstanding were made in shares of Common
Stock, (ii) take all steps necessary to cause the Underlying Shares to be
approved for listing on the New York Stock Exchange (as well as on any
other national securities exchange or market on which the Common Stock is
then listed) as soon as possible thereafter and (iii) provide to the
Purchasers evidence of such listing, and the Company shall maintain the
listing of its Common Stock on such exchange.
(b) The Company at all times shall reserve shares of its authorized
but unissued Common Stock for issuance upon (i) conversion of the Shares,
(ii) payment of dividends thereupon in shares of Common Stock and (iii)
exercise of the Warrants, pursuant to the terms of the Certificates of
Designation, the the sum of (a) 150% times the maximum number of shares of
Common Stock which would be issuable upon conversion of the Shares issued
pursuant to the terms hereof with respect to the number of Shares issued
and outstanding at such time were such conversion effected on such date for
such Shares, (b) the number of shares of Common Stock which would be
issuable upon exercise of the Warrants and (c) the number of shares of
Common Stock which would be issuable upon payment of dividends on the
shares; assuming each share is outstanding for two years. Shares of Common
Stock reserved for issuance upon the conversion of the Shares as set forth
in Section 3.7(a) shall be allocated pro rata to each of the Purchasers in
accordance with the amount of Shares issued and delivered to such Purchaser
at each Closing, as applicable.
3.8 No Violation of Applicable Law. Notwithstanding any provision of this
Agreement to the contrary, if the redemption of Shares or Underlying Shares
otherwise required under this Agreement, any applicable Certificate of
Designations or the Registration Rights Agreement would be prohibited by the
relevant provisions of the Business Corporation Law of the State of Indiana,
such redemption shall be effected as soon as it is permitted under such law;
provided, however, that from the 5th day after such redemption notice until such
redemption price is paid in full, interest on any such unpaid amount shall
accrue and be payable at the rate of 15% per annum in accordance with the
applicable Certificate of Designation.
3.9 Notice of Breaches.
(a) Each of the Company and each Purchaser shall give prompt written
notice to the other of any breach by it of any representation, warranty or
other agreement contained in this
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Agreement or in the Registration Rights Agreement, as well as any events or
occurrences arising after the date hereof and prior to, with respect to the
Series G2 Closing, the Series G2 Closing Date which would reasonably be
likely to cause any representation or warranty or other agreement of such
party, as the case may be, contained herein to be incorrect or breached as
of such Closing Date provided such notice will not constitute material
non-public information. However, no disclosure by either party pursuant to
this Section 3.9 shall be deemed to cure any breach of any representation,
warranty or other agreement contained herein or in the Registration Rights
Agreement.
(b) Notwithstanding the generality of Section 3.9(a) the Company shall
promptly notify, provided such notification will not constitute material
non-public information, each Purchaser of any notice or claim (written or
oral) that it receives from any lender of the Company to the effect that
the consummation of the transactions contemplated hereby and by the
Registration Rights Agreement violates or would violate any written
agreement or understanding between such lender and the Company, and the
Company shall promptly furnish by facsimile to the holders of the Shares a
copy of any written statement in support of or relating to such claim or
notice.
(c) The default by any Purchaser of any of its obligations,
representations or warranties under any Transaction Document shall not be
imputed to, and shall have no effect upon, any other Purchaser or affect
the Company's obligations under the Transaction Documents to any
non-defaulting Purchaser.
3.10 Conversion Obligations of the Company. The Company covenants to
convert Shares and to deliver Underlying Shares in accordance with the terms and
conditions and time period set forth in the respective Certificates of
Designation.
3.11 Subsequent Registrations. Other than Underlying Shares and other
"Registrable Securities" (as defined in the Registration Rights Agreement) to be
registered in accordance with the Registration Rights Agreement, the Company
shall not, for a period of not less than 90 Trading Days after the date that the
Underlying Shares Registration Statement relating to the securities issued at
the Series G1 Closing Date and the Series G2 Closing Date is declared effective
by the Commission, without the prior written consent of two-thirds of the
Purchasers, (i) issue or sell any of its or any of its Affiliates' equity or
equity-equivalent securities unless such issuance or sale is equal to or at a
premium to the Per Share Market Price on the date such issuance or sale, (ii)
register for resale any securities of the Company or (iii) have a registration
statement declared effective covering an issuance by the Company of any of its
securities. Any days that any Purchaser is unable to sell Underlying Shares
under an Underlying Shares Registration Statement shall be added to such 90
Trading Day period for the purposes of (i), (ii) and (iii) above.
3.12 Use of Proceeds. The Company shall use all of the proceeds from the
sale of the Shares for working capital and general corporate purposes and not
for the satisfaction of any portion of Company borrowings outside the normal
course of business or to redeem Company equity or equity-equivalent securities.
Pending application of the proceeds of this placement in
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the manner permitted hereby, the Company will invest such proceeds in interest
bearing accounts and/or short-term, investment grade interest bearing
securities.
3.13 Reimbursement. In the event that any Purchaser, other than by reason
of its gross negligence or willful misconduct, becomes involved in any capacity
in any action, proceeding or investigation brought by or against any person,
including shareholders of the Company, in connection with or as a result of (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document hereby or thereby, or (c) any
cause of action, suit or claim brought or made against such Purchaser and
arising out of or resulting from the execution, delivery, performance or
enforcement of the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, the Company will reimburse such
Purchaser for its legal and other actual out-of-pocket expenses (including the
cost of any investigation and preparation) incurred in connection therewith. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any affiliate of the Purchasers and
partners, directors, agents, employees and controlling persons (if any), as the
case may be, of the Purchasers and any such affiliate, and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such affiliate and any
such person. The Company also agrees that neither the Purchasers or any such
affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any person asserting claims on behalf of or
in right of the Company in connection with or as a result of the consummation of
the Transaction Documents except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from the gross negligence
or willful misconduct of such Purchaser or entity in connection with the
transactions contemplated by this Agreement.
3.14 Short Sales. No Purchaser shall engage in a short selling transaction
in which the number of shares of Common Stock shorted exceeds the number of
shares of Common Stock held by such Purchaser plus (i) the number of shares of
Common Stock into which the shares of Preferred Stock held by such Purchaser are
then convertible, (ii) the number of Shares of Common Stock that are accrued and
unpaid as dividends thereon and (iii) the number of Shares of Common Stock into
which the Warrants are exercisable (without regard to any restrictions on
conversion).
3.15 Right of First Refusal; Subsequent Registrations. The Company shall
not, directly or indirectly, without the prior written consent of the
Purchasers, offer, sell, grant any option to purchase, or otherwise dispose of
(or announce any offer, sale, grant or any option to purchase or other
disposition) any of its or its Affiliates' equity or equity-equivalent
securities or any instrument that permits the holder thereof to acquire Common
Stock at any time over the life of the security or instrument at a price that is
less than the closing bid price of the Common Stock at the time of issuance of
such security or instrument (a "Subsequent Placement") for a period of 180 days
after any Closing Date, except (i) the granting of options or warrants to
employees, officers, directors and consultants of the Company, and the issuance
of shares upon exercise of
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options granted, under any stock option plan heretofore or hereinafter duly
adopted by the Company or under any other compensatory arrangement between the
Company and any employee, officer, director or consultant, or the issuance of
shares pursuant to any compensatory warrants issued to any of the foregoing,
(ii) shares issued upon exercise of any currently outstanding warrants and upon
conversion of any currently outstanding convertible preferred stock in each case
disclosed in Schedule 2.1(c), and (iii) shares of Common Stock issued upon
conversion of Preferred Shares, unless (A) the Company delivers to each
Purchaser a written notice (the "Subsequent Placement Notice") of its intention
to effect such Subsequent Placement, which Subsequent Placement Notice shall
describe in reasonable detail the proposed terms of such Subsequent Placement
the amount of proceeds intended to be raised thereunder, the Person with whom
such Subsequent Placement shall be effected, and attached to which shall be a
term sheet or similar document relating thereto and (B) no Purchaser shall have
notified the Company by 5:00 p.m. (New York time) on the third (3rd) Trading
Date after its receipt of the Subsequent Placement Notice of its willingness to
provide (or to cause its sole designee to provide), subject to completion of
mutually acceptable documentation, financing to the Company on substantially the
terms set forth in the Subsequent Placement Notice. If no Purchaser shall notify
the Company of its intention to provide the financing as proposed in the
Subsequent Placement Notice within such time period, the Company may effect the
Subsequent Placement substantially upon the terms and to the Person (or
Affiliates of such Persons) set forth in the Subsequent Placement Notice;
provided, that the Company shall provide each Purchaser with a second Subsequent
Placement Notice, and the Purchasers shall again have the right of first refusal
set forth above in this paragraph (a), if the Subsequent Placement subject to
the initial Subsequent Placement Notice shall not have been consummated for any
reason on the terms set forth in such Subsequent Placement Notice within thirty
(30) Trading Days after the date of the initial Subsequent Placement Notice with
the Person (or an Affiliate of such Person) identified in the Subsequent
Placement Notice. If the Purchasers shall indicate a willingness to provide
financing in excess of the amount set forth in the Subsequent Placement Notice,
then each Purchaser shall be entitled to provide financing pursuant to such
Subsequent Placement Notice up to an amount equal to such Purchaser's pro rata
portion of the Preferred Stock purchased by the Purchasers under this Agreement
at the Series G1 Closing. Notwithstanding the foregoing, the Company may, after
a period of not less than thirty (30) Trading Days after the respective dates
that the Underlying Shares Registration Statements relating to the securities
issued on the Series G1 Closing Date and the Series G2 Closing Date are declared
effective, sell its or its Affiliates' equity securities in an underwritten
public offering, provided, that written notice of such an offering be provided
to the Purchasers ten (10) Trading Days in advance of the commencement of such
an offering.
3.16 Filing of Form 8-K. On or before the 3rd business day following each
of the Closing Dates, the Company shall file a Form 8-K with the Commission
describing the terms of the transactions contemplated by the Transaction
Documents in the form required by the Exchange Act.
3.17 Transactions With Affiliates. Notwithstanding the Subordinated Credit
Facility between the Company and WGI, LLC, so long as (i) any Shares or Warrants
are outstanding, the Company shall not, and shall cause each of its Subsidiaries
not to, enter into, amend, modify or supplement, or permit any Subsidiary to
enter into, amend, modify or supplement, any
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agreement, transaction, commitment or arrangement with any of its Subsidiary's
officers, directors, person who were officers or directors at any time during
the previous two years, stockholders who beneficially own 5% or more of the
Common Stock, or affiliates or with any individual related by blood, marriage or
adoption toany such individual or with any entity in which any such entity or
individual owns a 5% or more beneficial interest (each a "Related Party"),
except for (a) customary employment arrangements and benefit programs on
reasonable terms, (b) any agreement, transaction, commitment or arrangement on
an arms-length basis on terms no less favorable than terms which would have been
obtained from a person other than such Related Party, or (c) any agreement,
transaction, commitment or arrangement which is approved by a majority of the
disinterested directors of the Company. For purposes hereof, any director who is
also an officer of the Company or any Subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "Affiliate" for purposes of this Section 3.18 only
means, with respect to any person or entity, another person or entity that,
directly or indirectly, (i) has a 5% or more equity interest in that person or
entity, (ii) has 5% or more common ownership with that person or entity, (iii)
controls that person or entity, or (iv) shares common control with that person
or entity. "Control" or "controls" for purposes hereof means that a person or
entity has the power, direct or indirect, to conduct or govern the policies of
another person or entity.
3.18 Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificate, registered in the name of each Purchaser or its respective
nominee(s), for shares of Common Stock issuable upon conversion of the Shares or
as payment of dividends thereon (the "Conversion Shares") and the shares of
Common Stock issuable upon exercise of the Warrants (the "Warrant Shares") in
such amounts as specified from time to time by each Purchaser to the Company
upon conversion of the Shares or exercise of the Warrants, in the form attached
hereto as Exhibit D (the "Irrevocable Transfer Agent Instructions"). Prior to
registration of the Conversion Shares and Warrant Shares under the Securities
Act, all such certificates shall bear the restrictive legend specified in
Section 3.1(b) of this Agreement. The Company warrants that no instruction other
than the Irrevocable Transfer Agent Instructions referred to in this Section
3.19, and stop transfer instructions to give effect to Section 3.1 hereof (in
the case of the Conversion Shares and the Warrant Shares, prior to registration
of the Conversion Shares under the Securities Act) will be given by the Company
to its transfer agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. If a Purchaser
provides the Company with an opinion of counsel, in form and substance
reasonably satisfactory to the Company, to the effect that a public sale,
assignment or transfer of the Securities may be made without registration under
the Securities Act or the Purchaser provides the Company with reasonable
assurances that the Securities can be sold pursuant to Rule 144 without any
restriction as to the number of securities acquired as of a particular date that
can then be immediately sold, the Company shall permit the transfer, and, in the
case of the Conversion Shares and the Warrants Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Purchaser and without any restrictive legend.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Purchasers by vitiating the intent and purpose of
the transaction contemplated hereby. Accordingly, the Company acknowledges that
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the remedy at law for a breach of its obligations under this Section 3.19 will
be inadequate and agrees, in the event of a beach or threatened breach by the
Company of the provisions of this Section 3.19, that the Purchasers, shall be
entitled, in addition to all other available remedies, to an order and/or
injunction restraining any breach and requiring immediate issuance and transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
ARTICLE IV
conditions
4.1 (a) Conditions Precedent to the Obligation of the Company to Sell the
Series G1 Shares. The obligation of the Company to sell the Series G1 Shares
hereunder is subject to the satisfaction or waiver (with prior written notice to
each Purchaser) by the Company, at or before the Series G1 Closing, of each of
the following conditions:
(i) Accuracy of the Purchasers' Representations and Warranties. The
representations and warranties of each Purchaser shall be true and correct
as of the date when made and as of the Series G1 Closing Date, as though
made on and as of such date;
(ii) Performance by the Purchasers. Each Purchaser shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by such Purchaser at or prior to the
Series G1 Closing; and
(iii) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement or the Registration Rights Agreement.
(b) Conditions Precedent to the Obligation of the Purchasers to Purchase
the Series G1 Shares. The obligation of each Purchaser hereunder to acquire and
pay for the Series G1 Shares is subject to the satisfaction or waiver by such
Purchaser, at or before the Series G1 Closing, of each of the following
conditions:
(i) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company set forth in this Agreement
and in the Registration Rights Agreement shall be true and correct as of
the date when made and as of the Series G1 Closing Date as though made on
and as of such date;
(ii) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Series G1
Closing;
(iii) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or endorsed by any court or
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governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement or
the Registration Rights Agreement;
(iv) Adverse Changes. Since the date of the financial statements
included in the Company's Quarterly Report on Form 10-Q or Annual Report on
Form 10-K, whichever is more recent, last filed prior to the date of this
Agreement, no event which had a Material Adverse Effect shall have occurred
which is not disclosed in the Disclosure Materials (for purposes hereof
changes in the market price of the Common Stock may be considered in
determining whether there has occurred an event which has had a Material
Adverse Effect;
(v) Litigation. No litigation shall have been instituted or threatened
against the Company which could reasonably be expected to, individually or
in the aggregate, have a Material Adverse Effect.
(vi) No Suspensions of Trading in Common Stock. The trading in the
Common Stock shall not have been suspended by the Commission or on the New
York Stock Exchange which suspension shall remain in effect;
(vii) Listing of Common Stock. The Company shall have filed a listing
application to list the Underlying Shares for trading on the New York Stock
Exchange;
(viii) Legal Opinion. The Company shall have delivered to the
Purchasers the opinions of Witt, Gaither & Whitaker, P.C., the Company's
outside legal counsel and Robert J. Powell, the Company's general counsel,
in the forms attached hereto as Exhibits C1 and C2;
(ix) Required Approvals. All Required Approvals shall have been
obtained other than those relating solely to the Series G2 Shares;
(x) Shares of Common Stock. On or prior to the Series G1 Closing Date,
the Company shall have duly reserved the number of Underlying Shares
required by the Transaction Documents to be reserved for issuance upon
conversion of Series G1 Shares and payment of dividends thereon;
(xi) Delivery of Stock Certificates. The Company shall have delivered
to each Purchaser or such Purchaser's designee, the stock certificate(s)
representing the Series G1 Shares, registered in the name of such
Purchaser, each in form satisfactory to the Purchaser;
(xii) Registration Rights Agreement. The Company shall have executed
and delivered the Registration Rights Agreement;
(xiii) Certificates of Designation. The Series G1 Designation shall
have been duly approved by the Company's Board of Directors and filed with
the Secretary of State of Indiana, and the Company shall have delivered a
copy thereof to the Purchaser certified as filed by the office of the
Secretary of State of Indiana;
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(xiv) Change of Control. No Change of Control (as hereafter defined)
shall have occurred between the date hereof and the Series G1 Closing Date;
and
(xv) Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit D attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(xvi) Series G1 Warrant. The Company shall at the Series G1 Closing,
deliver warrants (the "Warrants"), in the form attached hereto as Exhibit
E, to purchase 100,000 shares of the Common Stock to the Purchasers
allocated pro rata based on Shares purchased. The warrant shall have a term
of five years, an exercise price of 125% of Fixed Strike Price and shall
not be redeemable by the Company.
(xvii) Officer's Certificate. On the Closing Date the Company shall
deliver to the Purchasers an Officer's Certificate dated the Closing Date
and signed by an executive officer of the Company confirming the accuracy
of the Company's representations, warranties and covenants as of such
Closing Date and confirming the compliance by the Company with the
conditions precedent set forth in this Section 4.1 as of such Closing Date.
(xviii) Secretary's Certificate. On the Closing Date the Company shall
deliver to the Purchasers a Secretary's Certificate dated the Closing Date
and signed by the Secretary or Assistant Secretary of the Company
certifying (A) that attached thereto is a true and complete copy of the
Restated Articles of Incorporation of the Company, as in effect on the
Closing Date, (B) that attached thereto is a true and complete copy of the
bylaws of the Company, as in effect on the Closing Date and (C) that
attached thereto is a true and complete copy of the resolutions duly
adopted by the Board of Directors of the Company authorizing the execution,
delivery and performance of the Transaction Documents.
4.2 Conditions Precedent to the Obligation of the Purchasers to Purchase
the Series G2 Shares. The obligation of each Purchaser hereunder to acquire and
pay for the Series G2 Shares is subject to the satisfaction or waiver by each
Purchaser, at or before the Series G2 Closing, of each of the following
conditions:
(a) Series G1 Closing. The Series G1 Closing shall have occurred.
(b) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company contained herein and in the
Registration Rights Agreement shall be true and correct as of the date when
made and as of the Series G2 Closing Date, as though made on and as of such
date.
(c) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement and the Registration
Rights Agreement to be performed, satisfied or complied with by the Company
at or prior to the Series G2 Closing Date.
(d) Underlying Shares Registration Statements. With respect to the
Series G2 Closing, the Underlying Shares Registration Statement with
respect to at least 150% of the
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Underlying Shares issuable on conversion of all outstanding Series G1
Shares and as payment of dividends thereon and upon exercise of the
Warrants shall have been declared effective under the Securities Act by the
Commission; and on the Series G2 Closing Date such Underlying Shares
Registration Statement shall be effective, not subject to any stop order
and not be subject to any suspension pursuant to Section 3(n) of the
Registration Rights Agreement, and shall have been effective and shall not
have been subject to any stop order for the thirty (30) business days prior
to such Closing Date and no stop order shall be pending or threatened as at
such Closing Date. Prior to the Series G2 Closing, the Underlying Shares
Registration Statement with respect to at least 150% of the Underlying
Shares issuable, as of the Series G2 Closing Date, upon conversion of the
Series G2 Shares to be issued at the Series G2 Closing and as payment of
dividends thereon shall have been declared effective under the Securities
Act by the Commission; and on the Series G2 Closing Date such Underlying
Shares Registration Statement shall be effective, not subject to any stop
order and not be subject to suspension pursuant to Section 3(n) of the
Registration Rights Agreement and no such stop order or suspension shall be
pending or threatened.
(e) Certificate of Designation. The Company shall have filed with the
Secretary of State of the State of Indiana the Certificate of Designation
with respect to the Series G2 Shares.
(f) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or endorsed by any court of governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement or the Registration Rights Agreement
relating to the issuance or conversion of any of the Shares.
(g) Litigation. No litigation shall have been instituted or threatened
against the Company which could reasonably be expected to, individually or
in the aggregate, have a Material Adverse Effect.
(h) Management. There shall have been no substantial changes in the
position or responsibilities of any of the following members of the
Company's senior management team: Stephen Walsh, Chairman of the Board and
Co-CEO; Thomas A. McFall, Co-CEO; and John W. Prutch, President.
(i) No Suspensions of Trading in Common Stock. The trading in the
Common Stock shall not have been suspended by the Commission or on the New
York Stock Exchange (except for any suspension of trading of limited
duration solely to permit dissemination of material information regarding
the Company).
(j) Listing of Common Stock. The Common Stock shall have been at all
times since the Series G1 Closing Date, and on the Series G2 Closing Date
be listed for trading on the New York Stock Exchange.
(k) Change of Control. No Change of Control in the Company shall have
occurred. "Change of Control" means the occurrence of any of (i) an
acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated
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under the Exchange Act), other than WGI, LLC or any of its Affiliates, of
in excess of 50% of the voting securities of the Company, (ii) a
replacement of more than one-half of the members of the Company's board of
directors which is not approved by those individuals who are members of the
board of directors on the date hereof in one or a series of related
transactions, (iii) the merger of the Company with or into another entity,
consolidation or sale of all or substantially all of the assets of the
Company in one or a series of related transactions or (iv) the execution by
the Company of an agreement to which the Company is a party or by which it
is bound, providing for any of the events set forth above in (i), (ii) or
(iii).
(l) Legal Opinions. The Company shall have delivered to the Purchasers
the opinions of Witt, Gaither & Whitaker, P.C., outside counsel to the
Company, and of Robert J. Powell, the Company's general counsel, in
substantially the forms attached hereto as Exhibits C1 and C2, dated the
applicable Closing Date.
(m) Required Approvals. All Required Approvals shall have been
obtained.
(n) Shares of Common Stock. On the Series G2 Closing Date, the Company
shall have duly reserved the number of Underlying Shares required by this
Agreement to be reserved for issuance upon conversion of Series G2 Shares,
and payment of dividends thereon.
(o) Delivery of Stock Certificates. The Company shall have delivered
to each Purchaser or such Purchaser's designee the stock certificate(s)
representing the Shares being purchased at such Closing, registered in the
name of such Purchaser, each in form satisfactory to such Purchaser.
(p) Performance of Conversion/Exercise Obligations. The Company shall
have delivered Underlying Shares upon conversion of Shares and otherwise
performed its obligations in accordance with the terms, conditions and
timing requirements of each Certificate of Designation and the other
Transaction Documents.
(q) Common Stock Price. The Per Share Market Value on the Series G2
Closing Date shall not be less than the Per Share Market Value of the
Common Stock on the Series G1 Closing Date.
(r) Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit D attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(s) Officer's Certificate. On the Closing Date the Company shall
deliver to the Purchasers an Officer's Certificate dated the Closing Date
and signed by an executive officer of the Company confirming the accuracy
of the Company's representations, warranties and covenants as of such
Closing Date and confirming the compliance by the Company with the
conditions precedent set forth in this Section 4.2 as of such Closing Date.
(t) Interim Financings. The Purchasers shall have no obligation to
purchase the Series G2 Preferred if, after the Series G1 Closing the
Company has sold or issued, in a private placement transaction that
violates Section 3.11(i) (excluding a private placement in connection
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with an acquisition of a license or of a division, assets or business (or
stock constituting any portion thereof) from another Person (an
"Acquisition")) or series of such transactions to a single entity or a
group of entities under common control or which are related such that they
could be considered a single entity, equity or equity equivalent securities
in an amount exceeding $500,000.
(u) Secretary's Certificate. On the Closing Date the Company shall
deliver to the Purchasers a Secretary's Certificate dated the Closing Date
and signed by the Secretary or Assistant Secretary of the Company
certifying (A) that attached thereto is a true and complete copy of the
Restated Articles of Incorporation of the Company, as in effect on the
Closing Date, (B) that attached thereto is a true and complete copy of the
bylaws of the Company, as in effect on the Closing Date and (C) that
attached thereto is a true and complete copy of the resolutions duly
adopted by the Board of Directors of the Company authorizing the execution,
delivery and performance of the Transaction Documents.
(v) Shareholder Approval. The Company's shareholders shall have
approved issuances of Common Stock greater than 20% of the voting power of
the outstanding shares of Common Stock of Company.
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses. Except (i) as set forth in the Term Letter under the
caption "Fees and Expenses," (ii) as set forth in the Registration Rights
Agreement and (iii) as otherwise set forth in this Agreement, each party shall
pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay all stamp and other taxes and duties levied in connection
with the issuance of the Shares pursuant hereto.
5.2 Entire Agreement; Amendments. This Agreement, together with the
Exhibits and Schedules hereto, the Registration Rights Agreement and each
Certificate of Designation (each when filed) contain the entire understanding of
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters.
5.3 Notices. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be deemed to have been received
(a) upon hand delivery (receipt acknowledged) or delivery by telex (with correct
answer back received), telecopy or facsimile (with transmission confirmation
report) at the address or number designated below (if received by 7:00 p.m. EST
where such notice is to be received), or the first business day following such
delivery (if delivered on a business day after during normal business hours
where such notice is to be received) or (b) on the second business day following
the date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be as set forth below each parties'
name on Schedule 1, and (i) if to the Company, with copies to Witt, Gaither
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& Whitaker, P.C., 1100 SunTrust Bank Building, 736 Market Street, Chattanooga,
Tennessee 37402, Attn: Steven R. Barrett, fax: (423) 266-4138, and (ii) if to
any Purchaser with copies to Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1700
Pacific Avenue, Suite 4100, Dallas, Texas 75201, Attn: Diane B. Muse, fax: (214)
969-4343, or such other address as may be designated in writing hereafter, in
the same manner, by such person.
5.4 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
both the Company and the Purchasers; or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter. Notwithstanding the foregoing, no
such amendment shall be effective to the extent that it applies to less than all
of the holders of the Shares outstanding. The Company shall not offer or pay any
consideration to a Purchaser for consenting to such an amendment or waiver
unless the same consideration is offered to each Purchaser and the same
consideration is paid to each Purchaser which consents to such amendment or
waiver.
5.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
5.6 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each of the Purchasers. The Purchasers may
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Company, except that any assignees must make the
representations and warranties set forth in Section 2.2 and otherwise comply
with the terms of this Agreement otherwise applicable to its assignor. This
provision shall not limit a Purchaser's right to transfer securities in
accordance with all of the terms of this Agreement or under the Registration
Rights Agreement.
5.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
5.8 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the nonexclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper.
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5.9 Survival. The agreements, covenants, representations, warranties and
provisions contained in this Agreement shall survive the delivery of the Shares
pursuant to this Agreement and each Closing hereunder and any conversion of
Shares.
5.10 Execution. This Agreement may be executed in two or more counterparts,
all of which when taken together shall be considered one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
5.11 Publicity. The Company and each Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and neither party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the disclosing party shall
provide the other party with prior notice of such public statement. The Company
shall not publicly or otherwise disclose the names of any of the Purchasers
without each such Purchaser's prior written consent.
5.12 Severability. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
5.13 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchasers
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents without the showing of economic loss and without any
bond or other security being required. Each of the Company and the Purchasers
(severally and not jointly) agree that monetary damages would not be adequate
compensation for any loss incurred by reason of any breach of its obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.
5.14 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser hereunder is several and not joint with the
obligations of the other Purchasers hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any Closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without
28
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limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Preferred Stock Purchase Agreement to be duly executed by their respective
authorized persons as of the date first indicated above.
SIGNAL APPAREL COMPANY, INC.
By: /s/ John W. Prutch
-----------------------------
Name: John W. Prutch
Title: President
BROWN SIMPSON STRATEGIC
GROWTH FUND, LTD.
By: /s/ Evan Levine
-----------------------------
Name: Evan Levine
Title: Principal
BROWN SIMPSON STRATEGIC
GROWTH FUND, L.P.
By: /s/ Evan Levine
-----------------------------
Name: Evan Levine
Title: Principal
HERACLES FUND LTD.
By Promethean Investment Group, LLC
Its: Investment Advisor
By: /s/ James F. O'Brien, Jr.
-----------------------------
Name: James F. O'Brien, Jr.
Title: President
THEMIS PARTNERS, L.P.
By Promethean Investment Group, LLC
Its: Investment Advisor
By: /s/ James F. O'Brien, Jr.
-----------------------------
Name: James F. O'Brien, Jr.
Title: President
<PAGE>
Company:
Signal Apparel Company, Inc.
200A Manufacturers Road
Chattanooga, Tennessee 37405
Attn: President & General Counsel
Fax: (423) 752-2040
Purchasers:
Brown Simpson Strategic Growth Fund, Ltd.
152 West 57th Street, 40th Floor
New York, New York 10019
Attn: Paul Gustus
Fax: (212) 247-1329
Portion of Series G1 Purchase Price $1,600,000
Series G1 Shares 1600
Brown Simpson Strategic Growth Fund, L.P.
152 West 57th Street, 40th Floor
New York, New York 10019
Attn: Paul Gustus
Fax: (212) 247-1329
Portion of Series G1 Purchase Price $900,000
Series G1 Shares 900
Heracles Fund Ltd.
c/o Promethean Investment Group
40 W. 57th Street, Suite 1520
New York, NY 10019
Attn: Jamie O'Brien
Tel: (212) 698-0588
Fax: (212) 698-0505
Portion of Series G1 Purchase Price $1,875,000
Series G1 Shares 1,875
Themis Partners, L.P.
c/o Promethean Investment Group
40 W. 57th Street, Suite 1520
New York, NY 10019
Attn: Jamie O'Brien
Tel: (212) 698-0588
Fax: (212) 698-0505
Portion of Series G1 Purchase Price $625,000
Series G1 Shares 625
1
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
into as of September 17, 1998, among Signal Apparel Company, Inc., an Indiana
corporation (the "Company"), Brown Simpson Strategic Growth Fund, L.P., a New
York limited partnership ("Brown Simpson LP"), Brown Simpson Strategic Growth
Fund, Ltd., a Cayman Islands exempt company ("Brown Simpson Ltd."), Heracles
Fund Ltd., a ______ company ("Heracles") and Themis Partners, L.P., a ____
limited partnership ("Themis"). Brown Simpson LP, Brown Simpson Ltd., Heracles
and Themis are each referred to herein as a "Purchaser" and are collectively
referred to herein as the "Purchasers."
This Agreement is made pursuant to the Convertible Preferred Stock Purchase
Agreement, dated as of the date hereof among the Company and the Purchasers (the
"Purchase Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions.
Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Purchase Agreement. As used in this Agreement,
the following terms shall have the following meanings:
"Advice" shall have meaning set forth in Section 3(o).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," controlling" and "controlled" have meanings
correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the state of
New York generally are authorized or required by law or other government actions
to close.
"Closing Date" shall have the meaning set forth in the Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, par value $.01 per share.
<PAGE>
"Effectiveness Date" means (i) with respect to the Registration Statement
to be filed with respect to the Series G1 Shares, the 90th day following the
Series G1 Closing Date and (ii) with respect to the Registration Statement to be
filed with respect to the Series G2 Shares, the date such registration statement
was declared effective prior to the Series G2 Closing Date.
"Effectiveness Period" shall have the meaning set forth in Section 2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Shareholders" means those shareholders having existing
registration rights as of the date of the Purchase Agreement and listed on
Schedule 2.1(u) to the Purchase Agreement (except to the extent that any such
shareholders have waived their existing registration rights as disclosed on
Schedule 2.1(u)).
"Filing Date" means (i) with respect to the shares of Common Stock issuable
upon conversion of the Series G1 Shares and upon the exercise of the Series G1
Warrants, the 30th day following the Series G1 Closing Date and (ii) with
respect to the shares of Common Stock issuable upon conversion of the Series G2
Shares, the date such that the Registration Statement is filed prior to the
Series G2 Closing Date.
"Holder" or "Holders" means the holder or holders, as the case may be, from
time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 5(c).
"Indemnifying Party" shall have the meaning set forth in Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Stock" means the shares of Series G1 and Series G2 Preferred, no
par value, of the Company issued to the Purchasers pursuant to the Purchase
Agreement.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities
2
<PAGE>
covered by the Registration Statement, and all other amendments and supplements
to the Prospectus, including post-effective amendments, and all material
incorporated by reference in such Prospectus.
"Registrable Securities" means (a) with respect to the Registration
Statement to be filed within 30 days after the Series G1 Closing, the shares of
Common Stock issuable upon (i) conversion of the Series G1 Shares, (ii) payment
of dividends in respect of the Series G1 Shares and (iii) exercise of the Series
G1 Warrants; and (b) with respect to the Registration Statement to be filed with
respect to the Series G2 Shares prior to the Series G2 Closing, the shares of
Common Stock issuable upon (i) conversion of the Series G2 Shares and (ii)
payment of dividends in respect of the Series G2 Shares; provided, however, that
in order to account for the fact that the number of shares of Common Stock that
are issuable upon conversion of shares of Preferred Stock is determined in part
upon the market price of the Common Stock at the time of conversion, Registrable
Securities shall include (but not be limited to) a number of shares of Common
Stock equal to no less than the sum of (1) 200% of the maximum number of shares
of Common Stock into which the applicable series of Preferred Stock are
convertible, assuming such conversion occurred on the particular Closing Date
for such series of Preferred Stock, (2) 100% of the maximum number of Shares of
Common Stock into which the Warrants are exercisable and (3) the number of
shares of Common Stock issuable on payment of dividends on such Preferred Shares
during the two year period after the applicable Closing Date assuming all such
dividends were paid in shares of Common Stock. Such registered shares of Common
Stock shall be allocated among the Holders pro rata based on the total number of
Registrable Securities issued or issuable as of each date that a Registration
Statement, as amended, relating to the resale of the Registrable Securities is
declared effective by the Commission. Notwithstanding anything herein contained
to the contrary, if the actual number of shares of Common Stock into which the
shares of Preferred Stock are convertible exceeds 200% of the number of shares
of Common Stock into which the particular series of Preferred Stock are
convertible based upon a computation as at a particular Closing Date, the term
"Registrable Securities" shall be deemed to include such additional shares of
Common Stock.
"Registration Statement" means the registration statements and any
additional registration statements contemplated by Section 2(a), including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference in such
registration statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
3
<PAGE>
"Rule 415" means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Series G1 Warrant" means the warrant issuable at the Series G1 Closing.
"Special Counsel" means any special counsel to the Holders, for which the
Holders will be reimbursed by the Company pursuant to Section 4.
"Underwritten Registration or Underwritten Offering" means a registration
in connection with which securities of the Company are sold to an underwriter
for reoffering to the public pursuant to an effective registration statement.
2. Shelf Registration.
(a) On or prior to each applicable Filing Date the Company shall prepare
and file with the Commission a "Shelf" Registration Statement covering all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415. The Registration Statement shall be on Form S-3 (except if
otherwise directed by the Holders of a majority in interest of the applicable
Registrable Securities in accordance herewith or if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3, in which
case such registration shall be on another appropriate form in accordance
herewith). The Company shall (i) not permit any securities other than the
Registrable Securities and those securities listed in Schedule 2.1(u) of the
Purchase Agreement (other than securities as to which the Existing Shareholders
have waived their piggy-back rights as disclosed on such schedule) to be
included in the Registration Statement and (ii) use its best efforts to cause
the Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in any event prior to the
Effectiveness Date, and to keep such Registration Statement continuously
effective under the Securities Act until the date which is five years after the
date that such Registration Statement is declared effective by the Commission or
such earlier date when all Registrable Securities covered by such Registration
Statement have been sold or may be sold without volume restrictions pursuant to
Rule 144 as determined by the counsel to the Company pursuant to a written
opinion letter, addressed to the Company's transfer agent to such effect (the
"Effectiveness Period"). If an additional Registration Statement is required to
be filed because the actual number of shares of Common Stock into which the
Preferred Stock is convertible plus shares issuable upon the payment of
dividends and the exercise of the Series G1 Warrant exceeds the number of shares
of Common Stock initially registered in respect of any particular series of
Preferred Stock based upon the computation on a particular Closing Date, the
Company shall have 15 Business Days to file such additional Registration
Statement, and the Company shall use its best efforts to cause such additional
Registration Statement to be declared effective by the Commission as soon as
possible.
4
<PAGE>
(b) If the Holders of a majority of the Registrable Securities so elect, an
offering of Registrable Securities pursuant to the Registration Statement may be
effected in the form of an Underwritten Offering, provided however, the Company
shall still be obligated to cause the Registration Statement with respect to
Registrable Securities of any Holder who did not elect to participate in an
Underwritten Offering to be declared effective by the applicable Filing Date. In
such event, and if the managing underwriters advise the Company and such Holders
in writing that in their opinion the amount of Registrable Securities proposed
to be sold in such Underwritten Offering exceeds the amount of Registrable
Securities which can be sold in such Underwritten Offering, there shall be
included in such Underwritten Offering the amount of such Registrable Securities
which in the opinion of such managing underwriters can be sold, and such amount
shall be allocated pro rata among the Holders proposing to sell Registrable
Securities in such Underwritten Offering. To the extent that Existing
Shareholders are included in the Underwritten Offering, such amount shall be
allocated pro rata among the Existing Shareholders and the Holders proposing to
sell Registrable Securities in such Underwritten Offering.
(c) If any of the Registrable Securities are to be sold in an Underwritten
Offering, the investment banker in interest that will administer the offering
will be selected by the Holders of a majority of the Registrable Securities
included in such offering provided that the Company shall consent to the
inclusion of such investment banker, which consent shall not be unreasonably
withheld. No Holder or Existing Shareholder may participate in any Underwritten
Offering hereunder unless such Holder (i) agrees to sell its Registrable
Securities on the basis provided in any underwriting agreements approved by the
Persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such arrangements.
3. Registration Procedures.
In connection with the Company's registration obligations hereunder, the
Company shall:
(a) Prepare and file with the Commission on or prior to each applicable
Filing Date, a Registration Statement on Form S-3 (or if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3 such
registration shall be on another appropriate form in accordance herewith, or, in
connection with an Underwritten Offering hereunder, such other form agreed to by
the Company and by a majority-in-interest of Holders of Registrable Securities)
in accordance with the method or methods of distribution thereof as specified by
the Holders (except if otherwise directed by the Holders), and cause the
Registration Statement to become effective and remain effective as provided
herein; provided, however, that not less than five (5) Business Days prior to
the filing of the Registration Statement or any related Prospectus or any
amendment or supplement thereto (including any document that would be
incorporated therein by reference), the Company shall, (i) furnish to the
Holders, their Special Counsel and any managing underwriters, copies of all such
documents proposed to be filed, which documents (other than those incorporated
by reference) will be subject to the review of such Holders, their Special
Counsel and such managing underwriters, and (ii) cause its officers and
directors,
5
<PAGE>
counsel and independent certified public accountants to respond to such
inquiries as shall be necessary, in the reasonable opinion of respective counsel
to such Holders and such underwriters, to conduct a reasonable investigation
within the meaning of the Securities Act. The Company shall not file the
Registration Statement or any such Prospectus or any amendments or supplements
thereto to which the Holders of a majority of the Registrable Securities, their
Special Counsel, or any managing underwriters, shall reasonably object in
writing within three (3) Business Days of their receipt thereof. If such
objection relates to an act or omission of the Holder, the Company shall not be
penalized for failing to meet the applicable Filing Date.
(b) (i) Prepare and file with the Commission such amendments, including
post-effective amendments, to the Registration Statement as may be necessary to
keep the Registration Statement continuously effective as to the applicable
Registrable Securities for the Effectiveness Period and prepare and file with
the Commission such additional Registration Statements in order to register for
resale under the Securities Act all of the Registrable Securities; (ii) cause
the related Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant to Rule 424
(or any similar provisions then in force) promulgated under the Securities Act;
(iii) respond as promptly as possible to any comments received from the
Commission with respect to the Registration Statement or any amendment thereto
and as promptly as possible provide the Holders true and complete copies of all
correspondence from and to the Commission relating to the Registration
Statement; and (iv) comply in all material respects with the provisions of the
Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement during the
applicable period in accordance with the intended methods of disposition by the
Holders thereof set forth in the Registration Statement as so amended or in such
Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold, their Special
Counsel and any managing underwriters as promptly as possible (and, in the case
of (i)(A) below, not less than five (5) days prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than one
(1) Business Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is proposed
to be filed; (B) when the Commission notifies the Company whether there will be
a "review" of such Registration Statement and whenever the Commission comments
in writing on such Registration Statement and (C) with respect to the
Registration Statement or any post-effective amendment, when the same has become
effective (and cause the Company's counsel to notify the Company's transfer
agent of such effectiveness); (ii) of any request by the Commission or any other
Federal or state governmental authority for amendments or supplements to the
Registration Statement or Prospectus or for additional information; (iii) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement covering any or all of the Registrable Securities or the
initiation of any Proceedings for that purpose; (iv) when the President or
General Counsel of the Company obtain, or should have obtained, knowledge that
any of the representations and warranties of the Company contained in any
agreement (including any underwriting agreement) contemplated hereby have ceased
to be true and correct in all material respects; (v) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the
6
<PAGE>
Registrable Securities for sale in any jurisdiction, or the initiation or
threatening of any Proceeding for such purpose; and (vi) when the President or
General Counsel of the Company obtain, or should have obtained, knowledge of the
occurrence of any event that makes any statement made in the Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued, obtain
the withdrawal of, (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of a majority
in interest of the Registrable Securities to be sold in connection with an
Underwritten Offering, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as the
Company reasonably agrees should be included therein and (ii) make all required
filings of such Prospectus supplement or such post-effective amendment as soon
as practicable after the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment;
provided, however, that the Company shall not be required to take any action
pursuant to this Section 3(e) that would, in the opinion of counsel for the
Company, violate applicable law or be materially detrimental to the business
prospects of the Company.
(f) Furnish to each Holder, their Special Counsel and any managing
underwriters, without charge, at least one conformed copy of each Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent requested by such Person (including
those previously furnished or incorporated by reference) promptly after the
filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel, and any
underwriters, without charge, as many copies of the Prospectus or Prospectuses
(including each form of prospectus) and each amendment or supplement thereto as
such Persons may reasonably request; and the Company hereby consents to the use
of such Prospectus and each amendment or supplement thereto by each of the
selling Holders and any underwriters in connection with the offering and sale of
the Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
(h) Prior to any public offering of Registrable Securities, use its best
efforts to register or qualify or cooperate with the selling Holders, any
underwriters and their Special Counsel in connection with the registration or
qualification (or exemption from such registration
7
<PAGE>
or qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Holder or underwriter requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness Period
and to do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement; provided, however, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action that would subject it to general service
of process in any such jurisdiction where it is not then so subject or subject
the Company to any material tax in any such jurisdiction where it is not then so
subject.
(i) Cooperate with the Holders and any managing underwriters to facilitate
the timely preparation and delivery of certificates representing Registrable
Securities to be sold pursuant to a Registration Statement, which certificates
shall be free, to the extent permitted by applicable law and subject to any
legends required by the Purchase Agreement, of all restrictive legends, and to
enable such Registrable Securities to be in such denominations and registered in
such names as any such managing underwriters or Holders may request at least two
Business Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section 3(c)(vi), as
promptly as possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities relating to
such Registration Statement to be listed on the New York Stock Exchange and/or
any other securities exchange, quotation system, market or over-the-counter
bulletin board, if any, on which similar securities issued by the Company are
then listed as and when required pursuant to the Purchase Agreement.
(l) Enter into such agreements (including an underwriting agreement in
form, scope and substance as is customary in Underwritten Offerings) and take
all such other actions in connection therewith (including those reasonably
requested by any managing underwriters and the Holders of a majority of the
Registrable Securities being sold) in order to expedite or facilitate the
disposition of such Registrable Securities, and whether or not an underwriting
agreement is entered into, (i) make such representations and warranties to such
Holders and such underwriters as are customarily made by issuers to underwriters
in underwritten public offerings, and confirm the same if and when requested;
(ii) in the case of an Underwritten Offering obtain and deliver copies thereof
to the managing underwriters, if any, of opinions of counsel to the Company and
updates thereof addressed to each such underwriter, in form, scope and substance
reasonably satisfactory to any such managing underwriters and Special Counsel to
the selling Holders covering the matters customarily covered in opinions
requested in Underwritten
8
<PAGE>
Offerings and such other matters as may be reasonably requested by such Special
Counsel and underwriters; (iii) immediately prior to the effectiveness of the
Registration Statement, and, in the case of an Underwritten Offering, at the
time of delivery of any Registrable Securities sold pursuant thereto, obtain and
deliver copies to the Holders and the managing underwriters, if any, of "cold
comfort" letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other independent certified
public accountants of any subsidiary of the Company or of any business acquired
by the Company for which financial statements and financial data is, or is
required to be, included in the Registration Statement), addressed to each
selling Holder and each of the underwriters, if any, in form and substance as
are customary in connection with Underwritten Offerings; (iv) if an underwriting
agreement is entered into, the same shall contain indemnification provisions and
procedures no less favorable to the selling Holders and the underwriters, if
any, than those set forth in Section 6 (or such other provisions and procedures
acceptable to the managing underwriters, if any, and holders of a majority of
Registrable Securities participating in such Underwritten Offering); and (v)
deliver such documents and certificates as may be reasonably requested by the
Holders of a majority of the Registrable Securities being sold, their Special
Counsel and any managing underwriters to evidence the continued validity of the
representations and warranties made pursuant to clause 3(1)(i) above and to
evidence compliance with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any disposition
of Registrable Securities, and any attorney or accountant retained by such
selling Holders or underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in each case reasonably requested by any such Holder,
representative, underwriter, attorney or accountant in connection with the
Registration Statement; provided, however, that any information that is
determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential by
such Persons, unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities; (ii) disclosure of such information that is required by law; (iii)
such information becomes generally available to the public other than as a
result of a disclosure or failure to safeguard by such Person; or (iv) such
information becomes available to such Person from a source other than the
Company and such source is not known by such Person, after diligent
investigation, to be bound by a confidentiality agreement with the Company.
(n) Comply in all material respects with all applicable rules and
regulations of the Commission and make generally available to its security
holders earning statements satisfying the provisions of Section 11(a) of the
Securities Act and Rule 158 not later than 45 days after the end of any 12-month
period (or 90 days after the end of any 12-month period if such period is a
fiscal year) (i) commencing at the end of any fiscal quarter in which
Registrable Securities are sold to underwriters in a firm commitment or best
efforts Underwritten Offering and (ii) if not sold to underwriters in such an
offering, commencing on the first day of the first
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<PAGE>
fiscal quarter of the Company after the effective date of the Registration
Statement, which statement shall conform to the requirements of Rule 158.
(o) The Company may require each selling Holder to furnish to the Company
information regarding such Holder and the distribution of such Registrable
Securities as is required by law to be disclosed in the Registration Statement,
and the Company may exclude from such registration the Registrable Securities of
any such Holder who fails to furnish such information within three (3) business
days.
If the Registration Statement refers to any Holder by name or otherwise as
the holder of any securities of the Company, then such Holder shall have the
right to require (if such reference to such Holder by name or otherwise is not
required by the Securities Act or any similar Federal statute then in force) the
deletion of the reference to such Holder in any amendment or supplement to the
Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any Registrable
Securities under the Registration Statement until it has received copies of the
Prospectus as then amended or supplemented as contemplated in Section 3(g) and
notice from the Company that such Registration Statement and any post-effective
amendments thereto have become effective as contemplated by Section 3(c) and
(ii) it and its officers, directors or Affiliates, if any, will comply with the
prospectus delivery requirements of the Securities Act as applicable to them in
connection with sales of Registrable Securities pursuant to the Registration
Statement.
Each Holder agrees by its acquisition of such Registrable Securities that,
upon receipt of a notice from the Company of the occurrence of any event of the
kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or 3(c)(vi),
such Holder will forthwith discontinue disposition of such Registrable
Securities under the Registration Statement until such Holder's receipt of the
copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Section 3(j), or until it is advised in writing (the "Advice")
by the Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement.
(p) If (i) there is material non-public information regarding the Company
which the Company's Board of Directors (the "Board") reasonably determines not
to be in the Company's best interest to disclose and which the Company is not
otherwise required to disclose, or (ii) there is a significant business
opportunity (including but not limited to the acquisition or disposition of
assets (other than in the ordinary course of business) or any merger,
consolidation, tender offer or other similar transaction) available to the
Company which the Board reasonably determines not to be in the Company's best
interest to disclose, then the Company may postpone or suspend filing or
effectiveness of a registration statement for a period not to exceed 20
consecutive days, provided that the Company may not postpone or suspend its
obligation under this Section 3(p) for more than 45 days in the aggregate during
any 12 month period; provided,
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however, that no such postponement or suspension shall be permitted for
consecutive 20 day periods, arising out of the same set of facts, circumstances
or transactions.
4. Registration Expenses.
(a) All fees and expenses incident to the performance of or compliance with
this Agreement by the Company, except as and to the extent specified in Section
4(b), shall be borne by the Company whether or not pursuant to an Underwritten
Offering and whether or not the Registration Statement is filed or becomes
effective and whether or not any Registrable Securities are sold pursuant to the
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the New York Stock Exchange and each other securities
exchange or market on which Registrable Securities are required hereunder to be
listed and (B) in compliance with state securities or Blue Sky laws (including,
without limitation, fees and disbursements of counsel for the Holders in
connection with Blue Sky qualifications of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as the managing underwriters, if any, or
the Holders of a majority of Registrable Securities may designate)), (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing prospectuses if the
printing of prospectuses is requested by the managing underwriters, if any, or
by the holders of a majority of the Registrable Securities included in the
Registration Statement), (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company and Special Counsel for the
Holders, in the case of the Special Counsel, to a maximum amount of $20,000, (v)
Securities Act liability insurance, if the Company so desires such insurance,
and (vi) fees and expenses of all other Persons retained by the Company in
connection with the consummation of the transactions contemplated by this
Agreement. In addition, the Company shall be responsible for all of its internal
expenses incurred in connection with the consummation of the transactions
contemplated by this Agreement (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit, the fees and expenses incurred in connection
with the listing of the Registrable Securities on any securities exchange as
required hereunder.
(b) If the Holders require an Underwritten Offering pursuant to the terms
hereof, the Company shall be responsible for all costs, fees and expenses in
connection therewith, except for the fees and disbursements of the Underwriters
(including any underwriting commissions and discounts) and their legal counsel
and accountants (which shall be borne by the Holders). Therefore, in such
circumstances the Holder shall bear the expenses of the fees and disbursements
of any legal counsel or accounting firm retained by the underwriters in
connection with such Underwritten Offering and the costs of any determination
(but not filing) by the underwriters of the eligibility of the Registrable
Securities for investment under the applicable state securities laws. By way of
illustration which is not intended to diminish from the provisions of Section
4(a), the Holders shall not be responsible for, and the Company shall be
required to pay the fees or disbursements incurred by the Company (including by
its legal counsel and accountants) in connection with, the preparation and
filing of a Registration Statement and
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related Prospectus for such offering, the maintenance of such Registration
Statement in accordance with the terms hereof, the listing of the Registrable
Securities in accordance with the requirements hereof, and printing expenses
incurred to comply with the requirements hereof.
5. Indemnification.
(a) Indemnification by the Company. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, agents (including any underwriters retained by such Holder
in connection with the offer and sale of Registrable Securities), brokers
(including brokers who offer and sell Registrable Securities as principal as a
result of a pledge or any failure to perform under a margin call of Common
Stock), investment advisors and employees of each of them, each Person who
controls any such Holder (within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, costs of preparation and
attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising out
of or relating to (i) any untrue or alleged untrue statement of a material fact
contained in the Registration Statement that has been declared effective by the
Commission or any supplements or amendments thereto or (ii) any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein (in the case of any Prospectus or form of
prospectus or supplement thereto, in light of the circumstances under which they
were made) not misleading (in the case of any Prospectus or form of Prospectus
or supplement thereto, in light of the circumstances under which they were
made), except to the extent, but only to the extent, that such untrue statements
or omissions are based solely upon information regarding such Holder furnished
in writing to the Company by such Holder expressly for use therein, which
information was reasonably relied on by the Company for use therein or to the
extent that such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus or in any amendment or
supplement thereto. The Company shall notify the Holders promptly of the
institution, threat or assertion of any Proceeding of which the Company is aware
in connection with the transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, the directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses, as
incurred, arising solely out of or based solely upon (i) any untrue statement of
a material fact contained in the Registration Statement that has been declared
effective by the Commission or any supplements or amendments thereto or (ii) any
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading to the extent, but only to the extent,
that such untrue statement or omission is contained in any information so
furnished in writing by such Holder to the Company specifically for inclusion in
the Registration Statement
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<PAGE>
or such Prospectus and that such information was reasonably relied upon by the
Company for use in the Registration Statement, such Prospectus or such form of
prospectus or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus.
Notwithstanding the above, the obligations of each Holder to indemnify shall be
limited to the amount of proceeds each Holder received from sales of Common
Stock under the Registration Statement.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in any
such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding consummated without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, consummate any settlement of
any pending Proceeding in respect of which any Indemnified Party is a party,
unless such settlement includes an unconditional release of such Indemnified
Party from all liability on claims that are the subject matter of such
Proceeding.
All fees and expenses of the Indemnified Party (including reasonable fees
and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within 10 Business
Days of written notice thereof to the Indemnifying Party
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<PAGE>
(regardless of whether it is ultimately determined that an Indemnified Party is
not entitled to indemnification hereunder; provided, that the Indemnifying Party
may require such Indemnified Party to undertake to reimburse all such fees and
expenses to the extent it is finally judicially determined that such Indemnified
Party is not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a) or 5(b)
is unavailable to an Indemnified Party because of a failure or refusal of a
governmental authority to enforce such indemnification in accordance with its
terms (by reason of public policy or otherwise), then each Indemnifying Party,
in lieu of indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission of a material fact, has been taken
or made by, or relates to information supplied by, such Indemnifying Party or
Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any Losses shall
be deemed to include, subject to the limitations set forth in Section 5(c), any
reasonable attorneys' or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties. Notwithstanding the above, the obligations of each Holder
to contribute shall be limited to the amount of proceeds each Holder received
from sales of Common Stock under the Registration Statement.
6. Rule 144.
As long as any Holder owns Shares or Underlying Shares, the Company
covenants to timely file (or obtain extensions in respect thereof and file
within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to Section 13(a) or l5(d) of the Exchange
Act and to promptly furnish the Holders with true and complete copies of all
such filings. As long as any Holder owns Shares or Underlying Shares, if the
Company is not
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<PAGE>
required to file reports pursuant to Section 13(a) or l5(d) of the Exchange Act,
it will prepare and furnish to the Holders and make publicly available in
accordance with Rule 144(c) promulgated under the Securities Act annual and
quarterly financial statements, together with a discussion and analysis of such
financial statements in form and substance substantially similar to those that
would otherwise be required to be included in reports required by Section 13(a)
or 15(d) of the Exchange Act, as well as any other information required thereby,
in the time period that such filings would have been required to have been made
under the Exchange Act. The Company further covenants that it will take such
further action as any Holder may reasonably request, all to the extent required
from time to time to enable such Person to sell Underlying Shares without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 promulgated under the Securities Act, including providing
any legal opinions referred to in the Purchase Agreement. Upon the request of
any Holder, the Company shall deliver to such Holder a written certification of
a duly authorized officer as to whether it has complied with such requirements.
7. Miscellaneous.
(a) Remedies. In the event of a breach by the Company or by a Holder, of
any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of its
subsidiaries has, as of the date hereof entered into, nor shall the Company or
any of its subsidiaries, on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Except as disclosed in Schedule 2.1(u) of the Purchase
Agreement, neither the Company nor any of its subsidiaries has previously
entered into any agreement granting any registration rights with respect to any
of its securities to any Person. Without limiting the generality of the
foregoing, without the written consent of the Holders of a majority of the then
outstanding Registrable Securities, the Company shall not grant to any Person
the right to request the Company to register any securities of the Company under
the Securities Act unless the rights so granted are subject in all respects to
the prior rights in full of the Holders set forth herein, and are not otherwise
in conflict or inconsistent with the provisions of this Agreement.
(c) No Piggyback on Registrations. Neither the Company nor any of its
security holders (other than the Holders in such capacity pursuant hereto or as
disclosed in Schedule 2.l(u) of the Purchase Agreement) may include securities
of the Company in the Registration Statement other than the Registrable
Securities or as disclosed in Schedule 2. l(u) of
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<PAGE>
the Purchase Agreement, and the Company shall not after the date hereof enter
into any agreement providing such right to any of its securityholders, unless
the right so granted is subject in all respects to the prior rights in full of
the Holders set forth herein, and is not otherwise in conflict or inconsistent
with the provisions of this Agreement.
(d) Piggy-Back Registrations. If at any time when there is not an effective
Registration Statement covering Underlying Shares for any outstanding shares of
Preferred Stock, the Company shall determine to prepare and file with the
Commission a registration statement relating to an offering for its own account
or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, the Company shall send to each Holder of Registrable Securities
(and, to the extent required by agreements disclosed in Schedule 2.1(u) of the
Purchase Agreement, to each Existing Shareholder) written notice of such
determination and, if within fifteen (15) days after receipt of such notice, any
such Holder or Existing Shareholder shall so request, (which request shall
specify the Registrable Securities intended to be disposed of by the
Purchasers), the Company will use best efforts to effect the registration under
the Securities Act of all Registrable Securities which the Company has been so
requested to register by the Holder or Existing Shareholder, to the extent
requisite to permit the disposition of the Registrable Securities so to be
registered, provided that if at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to such Holder or Existing Shareholder and, thereupon, (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from its obligation to pay expenses in accordance with Section 4 hereof),
and (ii) in the case of a determination to delay registering, shall be permitted
to delay registering any Registrable Securities being registered pursuant to
this Section 7(d) for the same period as the delay in registering such other
securities. The Company shall include in such registration statement all or any
part of (i) such Registrable Securities such Holder requests to be registered
and (ii) such securities as the Existing Shareholder requests to be registered;
provided, however, that the Company shall not be required to register any
Registrable Securities pursuant to this Section 7(d) that are eligible for sale
pursuant to Rule 144(k) of the Securities Act. In the case of an underwritten
public offering, if the managing underwriter(s) or underwriter(s) should
reasonably object to the inclusion of the Registrable Securities and (as
applicable) shares requested to be included by Existing Shareholders in such
registration statement, then if the Company after consultation with the
Underwriter should reasonably determine that the inclusion of such Registrable
Securities and (as applicable) shares requested to be included by Existing
Shareholders, would materially adversely affect the offering contemplated in
such registration statement, and based on such determination recommends
inclusion in such registration statement of fewer or none of the Registrable
Securities of the Holders and (as applicable) shares requested to be included by
Existing Shareholders, then (x) the number of Registrable Securities of the
Holders and (as applicable) shares requested to be included by Existing
Shareholders included in
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<PAGE>
such registration statement shall be reduced pro-rata among such Holders and
Existing Shareholders (based upon the number of Registrable Securities and
shares of Existing Shareholders requested to be included in the registration),
if the Company after consultation with the underwriter(s) recommends the
inclusion of fewer Registrable Securities and shares of Existing Shareholders,
or (y) none of the Registrable Securities of the Holders and shares of Existing
Shareholders shall be included in such registration statement, if the Company
after consultation with the underwriter(s) recommends the inclusion of none of
such Registrable Securities and shares of Existing Shareholders; provided,
however, that if Securities are being offered for the account of other persons
or entities as well as the Company, such reduction shall not represent a greater
fraction of the number of Registrable Securities intended to be offered by the
Holders than the fraction of similar reductions imposed on such other persons or
entities (other than the Company).
(e) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the same shall be in writing and signed by the Company and the Holders of
at least two-thirds of the then outstanding Registrable Securities; provided,
however, that, for the purposes of this sentence, Registrable Securities that
are owned, directly or indirectly, by the Company, or an Affiliate of the
Company are not deemed outstanding. Notwithstanding the foregoing, a waiver or
consent to depart from the provisions hereof with respect to a matter that
relates exclusively to the rights of Holders and that does not directly or
indirectly affect the rights of other Holders may be given by Holders of at
least a majority of the Registrable Securities to which such waiver or consent
relates; provided, however, that the provisions of this sentence may not be
amended, modified, or supplemented except in accordance with the provisions of
the immediately preceding sentence.
(f) Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 7:00 p.m. (New York City
time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in the Purchase Agreement later than 7:00 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service or (iv) actual receipt by the
party to whom such notice is required to be given to each Holder at its address
set forth under its name on Schedule 1 attached hereto or such other address as
may be designated in writing hereafter, in the same manner, by such Person.
Copies of notices to Brown Simpson Limited and Brown Simpson LP shall be sent to
Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1700 Pacific Avenue, Suite 4100,
Dallas, Texas 75201, Attn: Diane B. Muse, Esq., fax: (214) 969-4343. Copies of
notices to Heracles or Themis shall be sent to Katten, Muchin & Zavis, 525 West
Monroe Street, Suite 1600, Chicago, Illinois 60661-3693, Attn: Robert Brantman,
fax: (312) 902-1061. Copies of notices to the Company shall be sent to Witt,
Gaither & Whitaker, P.C., 1100 SunTrust Bank Building, Chattanooga, Tennessee
37402-2606, Attn: Steven R. Barrett, Esq., fax: (423) 266-4138.
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(g) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties
and shall inure to the benefit of each Holder. The Company may not assign its
rights or obligations hereunder without the prior written consent of each
Holder. Each Purchaser may assign its rights hereunder in the manner and to the
Persons as permitted under the Purchase Agreement.
(h) Assignment of Registration Rights. The rights of each Holder hereunder,
including the right to have the Company register for resale Registrable
Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder to any Affiliate of such Holder, any
other Holder or Affiliate of any other Holder and up to four other assignees of
all or a portion of the shares of Preferred Stock or the Registrable Securities
if: (i) the Holder agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
best time after such assignment, (ii) the Company is, within a reasonable time
after such transfer or assignment, furnished with written notice of (a) the name
and address of such transferee or assignee, and (b) the securities with respect
to which such registration rights are being transferred or assigned, (iii)
following such transfer or assignment the further disposition of such securities
by the transferee or assignees is restricted under the Securities Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this Section, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions of this Agreement, and (v) such transfer shall have been made in
accordance with the applicable requirements of the Purchase Agreement. The
rights to assignment shall apply to the Holders (and to subsequent) successors
and assigns.
(i) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(j) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of law.
(k) Cumulative Remedies. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law.
(l) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their reasonable efforts to find and employ an alternative means to achieve the
same or substantially the same result as that contemplated by such term,
provision,
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covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(m) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(n) Shares Held by The Company and its Affiliates. Whenever the consent or
approval of Holders of a specified percentage of Registrable Securities is
required hereunder, Registrable Securities held by the Company or its Affiliates
(other than any Holder or transferees or successors or assigns thereof if such
Holder is deemed to be an Affiliate solely by reason of its holdings of such
Registrable Securities) shall not be counted in determining whether such consent
or approval was given by the Holders of such required percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.
SIGNAL APPAREL COMPANY, INC.
By: /s/ John W. Prutch
--------------------------------------
Name: John W. Prutch
Title: President
BROWN SIMPSON STRATEGIC GROWTH FUND, LTD.
By: /s/ Evan Levine
--------------------------------------
Name: Evan Levine
Title: Principal
BROWN SIMPSON STRATEGIC GROWTH FUND, L.P.
By: /s/ Evan Levine
--------------------------------------
Name: Evan Levine
Title: Principal
HERACLES FUND LTD.
By Promethean Investment Group, LLC,
Its: Investment Advisor
By: /s/ James F. O'Brien, Jr.
--------------------------------------
Name: James F. O'Brien, Jr.
Title: President
THEMIS PARTNERS, L.P.
By Promethean Investment Group, LLC,
Its: General Partner
By: /s/ James F. O'Brien, Jr.
--------------------------------------
Name: James F. O'Brien, Jr.
Title: President
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SCHEDULE 1
COMPANY:
Signal Apparel Company, Inc.
200A Manufacturers Road
Chattanooga, Tennessee 37405
Attn: President & General Counsel
Fax: (423) 752-2040
PURCHASERS:
Brown Simpson Strategic Growth Fund, Ltd.
152 West 57th Street, 40th Floor
New York, New York 10019
Attn: Mitchell D. Kaye
Fax: (212) 247-1329
Portion of Series G1 Purchase Price $1,600,000
Series G1 Shares 1,600
Brown Simpson Strategic Growth Fund, L.P.
152 West 57th Street, 40th Floor
New York, New York 10019
Attn: Mitchell D. Kaye
Fax: (212) 247-1329
Portion of Series G1 Purchase Price $900,000
Series G1 Shares 900
Heracles Fund Ltd.
c/o Promethean Investment Group
40 W. 57th Street, Suite 1520
New York, NY 10019
Attn: Jamie O'Brien
Tel: (212) 698-0588
Fax: (212) 698-0505
Portion of Series G1 Purchase Price $1,875,000
Series G1 Shares 1,875
Themis Partners, L.P.
c/o Promethean Investment Group
40 W. 57th Street, Suite 1520
New York, NY 10019
Attn: Jamie O'Brien
Tel: (212) 698-0588
Fax: (212) 698-0505
Portion of Series G1 Purchase Price $625,000
Series G1 Shares 625
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THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY
STATE SECURITIES OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH
SHARES MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER SAID ACT AND UNDER
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR EXEMPTIONS FROM SUCH
REGISTRATION
18,000 Warrant No. G1-1
SIGNAL APPAREL COMPANY, INC.
STOCK PURCHASE WARRANT
Registered Owner: Brown Simpson Strategic Growth Fund, L.P.
This certifies that, for value received, Signal Apparel Company, Inc., an
Indiana corporation, the ("Company") grants the following rights to the
Registered Owner, or assigns, of this Warrant:
1. Issue. Upon tender (as defined in section 5 hereof) to the Company, the
Company shall issue to the Registered Owner, or assigns, up to the number of
shares specified in paragraph 2 hereof of fully paid and nonassessable shares of
Common Stock that the Registered Owner, or assigns, is otherwise entitled to
purchase.
2. Number of Shares. The total number of shares of Common Stock that the
Registered Owner, or assigns, of this Warrant is entitled to receive upon
exercise of this Warrant is 18,000 shares, subject to adjustment from time to
time as set forth in paragraph 6 below. The Company shall at all times reserve
and hold available sufficient shares of Common Stock to satisfy all conversion
and purchase rights represented by outstanding convertible securities, options
and warrants, including this Warrant. The Company covenants and agrees that all
shares of Common Stock that may be issued upon the exercise of this Warrant
shall, upon issuance, be duly and validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the purchase and the
issuance of the shares.
3. Exercise Price. The exercise price of this Warrant, the price at which
the shares of stock purchasable upon exercise of this Warrant may be purchased,
is 125% of the Fixed Strike Price (as defined in the Certificate of
Designation), subject to adjustment from time to time pursuant to the provisions
of paragraph 6 below (the "Exercise Price").
4. Exercise Period. This Warrant may only be exercised beginning on
September 17, 1998 and up to and including September 17, 2003 five years after
the date of the Warrant,
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less one day. If not exercised during this period, this Warrant and all rights
granted under this Warrant shall expire and lapse.
5. Tender. This Warrant may be exercised, in whole or in part, by actual
delivery of (i) the Exercise Price in cash, (ii) a duly executed Warrant
Exercise Form, a copy of which is attached to this Warrant as Exhibit A,
properly executed by the Registered Owner, or assigns, of this Warrant, and
(iii) by surrender of this Warrant. The payment and Warrant Exercise Form must
be delivered, personally or by mail, to the registered office of the Company.
Documents sent by mail shall be deemed to be delivered when they are received by
the Company.
6. Adjustment of Exercise Price.
(a) If the Company, at any time while this Warrant is outstanding, (a)
shall pay a stock dividend on its Common Stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine
outstanding shares of Common Stock into a smaller number of shares, or (d)
issue by reclassification of shares of Common Stock any shares of capital
stock of the Company, the Exercise Price shall be multiplied by a fraction
the numerator of which shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and the
denominator of which shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this
paragraph (6)(a) shall become effective immediately after the record date
for the determination of shareholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or re-classification.
(b) If the Company, at any time while this Warrant is outstanding,
shall issue rights or warrants to all of the holders of Common Stock
entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the Per Share Market Value (as defined below) of
Common Stock at the record date mentioned below, the Exercise Price shall
be multiplied by a fraction, the denominator of which shall be the number
of shares of Common Stock (excluding treasury shares, if any) outstanding
on the date of issuance of such rights or warrants plus the number of
additional shares of Common Stock offered for subscription or purchase, and
the numerator of which shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of shares which the aggregate
offering price of the total number of shares so offered would purchase at
such Per Share Market Value. Such adjustment shall be made whenever such
rights or warrants are issued, and shall become effective immediately after
the record date for the determination of shareholders entitled to receive
such rights or warrants. However, upon the expiration of any right or
warrant to purchase Common Stock the issuance of which resulted in an
adjustment in the Exercise Price pursuant to this paragraph (6)(b), if any
such right or warrant shall expire and all or any portion thereof shall not
have been exercised, the Exercise Price shall immediately upon such
expiration be re-computed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Exercise Price made pursuant to the provisions of
section (f) after the issuance of such rights or warrants) had the
adjustment of the Exercise Price made upon the issuance of such rights or
warrants been made on the basis of offering for subscription or purchase
only that
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number of shares of Common Stock (if any) actually purchased upon the
exercise of such rights or warrants actually exercised.
(c) If the Company, at any time while this Warrant is outstanding,
shall distribute to all of the holders of Common Stock evidences of its
indebtedness or assets or rights or warrants to subscribe for or purchase
any security (excluding those referred to in paragraphs 6(a) and (b)
above), then in each such case the Exercise Price at which the Warrant
shall thereafter be convertible shall be determined by multiplying the
Exercise Price in effect immediately prior to the record date fixed for
determination of shareholders entitled to receive such distribution by a
fraction the denominator of which shall be the Per Share Market Value of
Common Stock determined as of the record date mentioned above, and the
numerator of which shall be such Per Share Market Value of the Common Stock
on such record date less the then fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed
applicable to one outstanding share of Common Stock as determined by the
Board of Directors in good faith; provided, however, that in the event of a
distribution exceeding ten percent of the net assets of the Company, such
fair market value shall be determined by a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (an "Appraiser") selected in good faith
by the holder of the Warrant; and provided, further, that the Company,
after receipt of the determination by such Appraiser shall have the right
to select an additional Appraiser meeting the same qualifications, in good
faith, in which case the fair market value shall be equal to the average of
the determinations by each such Appraiser. Such adjustment shall be made
whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(d) All calculations under this section 6 shall be made to the nearest
cent or the nearest l/l00th of a share, as the case may be.
(e) Whenever the Exercise Price is adjusted pursuant to paragraphs
6(a), (b) or (c), the Company shall promptly mail to the holder of the
Warrant, a notice setting forth the Exercise Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment.
(f) In case of (A) any reclassification of the Common Stock, (B) any
consolidation or merger of the Company with or into another person pursuant
to which (i) a majority of the Company's Board of Directors will not
constitute a majority of the board of directors of the surviving entity or
(ii) less than 51% of the outstanding shares of the capital stock of the
surviving entity will be held by the same shareholders of the Company prior
to such reclassification, consolidation or merger, (C) the sale or transfer
of all or substantially all of the assets of the Company, (D) any
compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, (E) suspension from listing or
delisting of the Common Stock from The New York Stock Exchange or The
Nasdaq National Market for a period of five consecutive days, (F) the
Company's notice to any Holder, including by way of public announcement, at
any time, of its intention, for any reason, not to comply with proper
requests for conversion of any shares of Series G1 Preferred Stock into, or
exercise of this
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Warrant for, shares of Common Stock, or (G) a breach by the Company of any
representation, warranty, covenant or other term or condition of the
Purchase Agreement, the Registration Rights Agreement, the Certificate of
Designation or any other agreement, document, certificate or other
instrument delivered in connection with the transactions contemplated
thereby or hereby, except to the extent that such breach would not have a
Material Adverse Effect (as defined in Section 2.1(a) of the Purchase
Agreement) and except, in the case of a breach of a covenant which is
curable, only if such breach continues for a period of at least ten days
after the Company knows or reasonably should have known of the existence of
such breach (clauses (A) through (G) above referred to as a "Redemption
Event"), the holder of the Warrant shall have the right thereafter to
convert the Warrant only into the shares of stock and other securities,
cash and property receivable upon or deemed to be held by holders of Common
Stock following such Redemption Event, and the holder of the Warrant shall
be entitled upon such event to receive such amount of securities, cash or
property as the shares of the Common Stock of the Company into which the
Warrant could have been converted immediately prior to such Redemption
Event would have been entitled.
(g) If:
A. the Company shall declare a dividend (or any other distribution)
on its Common Stock; or
B. the Company shall declare a special nonrecurring cash dividend on
or a redemption of its Common Stock; or
C. the Company shall authorize the granting to the holders of the
Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; or
D. the approval of any shareholders of the Company shall be required
in connection with any reclassification of the Common Stock of
the Company, any consolidation or merger to which the Company is
a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share of exchange
whereby the Common Stock is converted into other securities, cash
or property; or
E. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of this Warrant, and shall cause
to be mailed to the holder of this Warrant at its address as it shall
appear below, at least 30 calendar days prior to the applicable record or
effective date hereinafter specified, a notice (provided such notice shall
not include any material non-public information) stating (x) the date on
which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be
taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend,
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distributions, redemption, rights or warrants are to be determined or (y)
the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and
the date as of which it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for securities,
cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however,
that the failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate action
required to be specified in such notice.
(h) Adjustment to Exercise Price. In order to prevent dilution of the
rights granted under this Warrant, the Exercise Price will be subject to
adjustment from time to time as provided in this Section 6(h).
(i) Adjustment of Exercise Price upon Issuance of Common Stock.
If and whenever on or after the Closing Date, the Company issues or
sells, or is deemed to have issued or sold, any shares of Common Stock
(other than the Underlying Shares, Warrant Shares or shares of Common
Stock deemed to have been issued by the Company in connection with an
Approved Stock Plan (as defined below)) for a consideration per share
less than the Exercise Price in effect immediately prior to such
issuance or sale, then immediately after such issue or sale, the
Exercise Price then in effect shall be reduced to an amount equal to
the consideration per share of Common Stock of such issuance or sale.
If and whenever on or after the Closing Date, the Company issues or
sells, or is deemed to have issued or sold, any shares of Common Stock
(other than the Underlying Shares, Warrant Shares, shares of Common
Stock deemed to have been issued by the Company in connection with an
Approved Stock Plan (as defined below) or shares of Common Stock
issued or deemed to have been issued as consideration for an
acquisition by the Company of a license or of a division, assets or
business (or stock constituting any portion thereof) from another
person) for a consideration per share which is (A) greater than the
Exercise Price in effect immediately prior to such issuance or sale
and (B) less the average of the Per Share Market Values on the five
consecutive trading days immediately preceding the date of such
issuance or sale (the price in this clause (B) is herein referred to
as "Market Price"), then immediately after such issue or sale, the
Exercise Price then in effect shall be reduced to an amount equal to
the product of (x) the Exercise Price in effect immediately prior to
such issue or sale and (y) the quotient determined by dividing (1) the
sum of (I) the product of (A) the Market Price and (B) the number of
shares of Common Stock Deemed Outstanding (as defined below)
immediately prior to such issue or sale, and (II) the consideration,
if any, received by the Company upon such issue or sale, by (2) the
product of (I) the Market Price and (II) the number of shares of
Common Stock Deemed Outstanding (as defined below) immediately after
such issue or sale. For purposes of determining the adjusted Exercise
Price under this Section 6(h)(i), the following shall be applicable:
(A) Issuance of Options. If the Company in any manner grants
any rights or options to subscribe for or to purchase Common
Stock or any stock or other securities convertible into or
exchangeable for Common Stock (such rights or options being
herein called "Options" and such convertible or exchangeable
stock or securities being herein called "Convertible Securities")
and the price per share for which Common Stock is
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issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than the Exercise
Price in the case of the first sentence of Section 6(h)(i), or
the Market Price in the case of the second sentence of Section
6(h)(i) (collectively, the "Applicable Price"), then the total
maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon
the exercise of such Options shall be deemed to be outstanding
and to have been issued and sold by the Company for such price
per share. For purposes of this Section 6(h)(i)(A), the "price
per share for which Common Stock is issuable upon exercise of
such Options or upon conversion or exchange of such Convertible
Securities" is determined by dividing (I) the total amount, if
any, received or receivable by the Company as consideration for
the granting of such Options, plus the minimum aggregate amount
of additional consideration payable to the Company upon the
exercise of all such Options, plus in the case of such Options
which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the
Company upon the issuance or sale of such Convertible Securities
and the conversion or exchange thereof, by (II) the total maximum
number of shares of Common Stock issuable upon exercise of such
Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such
Options. No adjustment of the Exercise Price shall be made upon
the actual issuance of such Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such
Convertible Securities.
(B) Issuance of Convertible Securities. If the Company in
any manner issues or sells any Convertible Securities and the
price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Applicable Price, then
the maximum number of shares of Common Stock issuable upon
conversion or exchange of such Convertible Securities shall be
deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For the purposes of this
Section 6(h)(i)(B), the "price per share for which Common Stock
is issuable upon such conversion or exchange" is determined by
dividing (I) the total amount received or receivable by the
Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (II) the total maximum number
of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities. No adjustment of the
Exercise Price shall be made upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is
made upon exercise of any Options for which adjustment of the
Exercise Price had been or are to be made pursuant to other
provisions of this Section 6(h)(i), no further adjustment of the
Exercise Price shall be made by reason of such issue or sale.
(C) Change in Option Price or Rate of Conversion. If there
is a change at any time in (i) the purchase price provided for in
any Options, (ii) the additional consideration, if any, payable
upon the issue, conversion or exchange of any Convertible
Securities or (iii) the rate at which any Convertible
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Securities are convertible into or exchangeable for Common Stock,
then the Exercise Price in effect at the time of such change
shall be readjusted to the Exercise Price which would have been
in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price,
additional consideration or changed conversion rate, as the case
may be, at the time initially granted, issued or sold; provided
that no adjustment shall be made if such adjustment would result
in an increase of the Exercise Price then in effect.
(D) Certain Definitions. For purposes of determining the
adjusted Exercise Price under this Section 6(h)(i), the following
terms have meanings set forth below:
(I) "Approved Stock Plan" shall mean any contract, plan
or agreement which has been approved by the Board of
Directors of the Company, pursuant to which the Company's
securities may be issued to any employee, officer, director
or consultant.
(II) "Common Stock Deemed Outstanding" means, at any
given time, the number of shares of Common Stock issued and
outstanding at such time, plus the number of shares of
Common Stock deemed to be outstanding pursuant to Sections
6(h)(i)(A) and 6(h)(i)(B) hereof regardless of whether the
Options or Convertible Securities are actually exercisable
at such time, but excluding any shares of Common Stock
issuable upon conversion of the shares of Series G1
Preferred Stock or exercise of the Warrants.
(E) Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under this Section
6(h)(i), the following shall be applicable:
(I) Calculation of Consideration Received. If any
Common Stock, Options or Convertible Securities are issued
or sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the net
amount received by the Company therefor. In case any Common
Stock, Options or Convertible Securities are issued or sold
for a consideration other than cash, the amount of the
consideration other than cash received by the Company will
be the fair value of such consideration, except where such
consideration consists of securities, in which case the
amount of consideration received by the Company will be the
arithmetic average of the Per Share Market Values of such
security for the five (5) consecutive Trading Days
immediately preceding the date of receipt. In case any
Common Stock, Options or Convertible Securities are issued
to the owners of the non-surviving entity in connection with
any merger in which the Company is the surviving entity the
amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may
be. The fair value of any consideration other than cash or
securities will be determined jointly by the Company and the
Holders of a majority of the shares of Series G1 Preferred
Stock then outstanding. If such parties are unable to reach
agreement within ten
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(10) days after the occurrence of an event requiring
valuation (the "Valuation Event"), the fair value of such
consideration will be determined within forty-eight (48)
hours of the tenth (10th) day following the Valuation Event
by an independent, reputable appraiser selected by the
Company. The determination of such appraiser shall be
binding upon all parties absent manifest error.
(II) Integrated Transactions. In case any Option is
issued in connection with the issue or sale of other
securities of the Company, together comprising one
integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the
Options will be deemed to have been issued for an aggregate
consideration of $.01.
(III) Treasury Shares. The number of shares of Common
Stock outstanding at any given time does not include shares
owned or held by or for the account of the Company, and the
disposition of any shares so owned or held will be
considered an issue or sale of Common Stock.
(IV) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them
(1) to receive a dividend or other distribution payable in
Common Stock, Options or in Convertible Securities or (2) to
subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date will be deemed
to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(ii) Certain Events. If any event occurs of the type contemplated
by the provisions of Section 6(h)(i) (subject to the exceptions stated
therein) but not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation rights, phantom
stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Exercise
Price so as to protect the rights of the Registered Holder, or
assigns, of this Warrant; provided, however, that no such adjustment
will increase the Exercise Price as otherwise determined pursuant to
this Section 6(h).
7. Per Share Market Value. Per Share Market Value means on any particular
date (i) the closing bid price per share of the Common Stock on such date on the
New York Stock Exchange or other registered national stock exchange on which the
Common Stock is then listed or if there is no such price on such date, then the
closing bid price on such exchange or quotation system on the date nearest
preceding such date, or (ii) if the Common Stock is not listed then on the New
York Stock Exchange or any registered national stock exchange, the closing bid
price for a share of Common Stock in the over-the-counter market, as reported by
the New York Stock Exchange or in the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting prices)
at the close of business on such date, or (iii) if the Common Stock is not then
publicly traded the fair market value of a share of Common Stock as determined
by an Appraiser selected in good faith by the holder of this Warrant; provided,
however, that the Company, after receipt of the determination by such Appraiser,
shall have the
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right to select an additional Appraiser, in which case, the fair market value
shall be equal to the average of the determinations by each such Appraiser; and
provided, further that all determinations of the Per Share Market Value shall be
appropriately adjusted for any stock dividends, stock splits or other similar
transactions during such period.
8. Registration Rights. The Company will undertake the registration of the
Common Stock into which such Warrants are convertible at such times and upon
such terms pursuant to the provisions of the Registration Rights Agreement dated
September 17, 1998 by and among the Company, Brown Simpson Strategic Growth
Fund, L.P., Brown Simpson Strategic Growth Fund, Ltd., Heracles Fund Ltd. and
Themis Partners, L.P.
9. Notices. All notices or other communications required hereunder shall be
in writing and shall be sent either (i) by courier, or (ii) by telecopy as well
as by registered or certified mail, and shall be regarded as properly given in
the case of a courier upon actual delivery to the proper place of address; in
the case of telecopy, on the day following the date of transmission if properly
addressed and sent without transmission error to the correct number and receipt
is confirmed by telephone within 48 hours of the transmission; in the case of a
letter for which a telecopy could not be successfully transmitted or receipt of
which could not be confirmed as herein provided, three days after the registered
or certified mailing date if the letter is properly addressed and postage
prepaid; and shall be regarded as properly addressed if sent to the parties or
their representatives at the addresses given below:
To the Company: Signal Apparel Company, Inc.
200A Manufacturers Road
Chattanooga, Tennessee 37405
Attn: President & General Counsel
Phone: (423) 756-8146
Fax: (423) 752-2040
To the holder: Brown Simpson Strategic Growth Fund, L.P.
152 West 57th Street, 40th Floor
New York, New York 10019
Attn: Paul Gustus
Phone: (212) 247-8200
Fax: (212) 247-1329
or such other address as any of the above may have furnished to the other
parties in writing by registered mail, return receipt requested.
[signature page follows]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer as of the date first set forth above.
SIGNAL APPAREL COMPANY, INC.
By: /s/ John W. Prutch
--------------------------------
Name: John W. Prutch
Title: President
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EXHIBIT A
Warrant Exercise Form
TO: SIGNAL APPAREL COMPANY, INC.
The undersigned hereby: (1) irrevocably subscribes for and offers to
purchase _______ shares of Common Stock of Signal Apparel Company, Inc.,
pursuant to Warrant No. G1 heretofore issued to ___________________ on
____________, 1998; (2) encloses a payment of $__________ for these shares at a
price of $____ per share (as adjusted pursuant to the provisions of the
Warrant); and (3) requests that a certificate for the shares be issued in the
name of the undersigned and delivered to the undersigned at the address
specified below.
Date: ____________________________________________________
Investor Name: ___________________________________________
Taxpayer Identification
Number: ___________________________________________________
By: ______________________________________________________
Printed Name: ____________________________________________
Title: ____________________________________________________
Address: __________________________________________________
Note: The above signature should correspond exactly with
the name on the face of this Warrant Certificate or
with the name of assignee appearing in assignment
form below.
AND, if said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant Certificate is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder less
any fraction of a share paid in cash and delivered to the address stated above.
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THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY
STATE SECURITIES OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH
SHARES MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER SAID ACT AND UNDER
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR EXEMPTIONS FROM SUCH
REGISTRATION
32,000 Warrant No. G1-2
SIGNAL APPAREL COMPANY, INC.
STOCK PURCHASE WARRANT
Registered Owner: Brown Simpson Strategic Growth Fund, Ltd.
This certifies that, for value received, Signal Apparel Company, Inc., an
Indiana corporation, the ("Company") grants the following rights to the
Registered Owner, or assigns, of this Warrant:
1. Issue. Upon tender (as defined in section 5 hereof) to the Company, the
Company shall issue to the Registered Owner, or assigns, up to the number of
shares specified in paragraph 2 hereof of fully paid and nonassessable shares of
Common Stock that the Registered Owner, or assigns, is otherwise entitled to
purchase.
2. Number of Shares. The total number of shares of Common Stock that the
Registered Owner, or assigns, of this Warrant is entitled to receive upon
exercise of this Warrant is 32,000 shares, subject to adjustment from time to
time as set forth in paragraph 6 below. The Company shall at all times reserve
and hold available sufficient shares of Common Stock to satisfy all conversion
and purchase rights represented by outstanding convertible securities, options
and warrants, including this Warrant. The Company covenants and agrees that all
shares of Common Stock that may be issued upon the exercise of this Warrant
shall, upon issuance, be duly and validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the purchase and the
issuance of the shares.
3. Exercise Price. The exercise price of this Warrant, the price at which
the shares of stock purchasable upon exercise of this Warrant may be purchased,
is 125% of the Fixed Strike Price (as defined in the Certificate of
Designation), subject to adjustment from time to time pursuant to the provisions
of paragraph 6 below (the "Exercise Price").
4. Exercise Period. This Warrant may only be exercised beginning on
September 17, 1998 and up to and including September 17, 2003 five years after
the date of the Warrant,
<PAGE>
less one day. If not exercised during this period, this Warrant and all rights
granted under this Warrant shall expire and lapse.
5. Tender. This Warrant may be exercised, in whole or in part, by actual
delivery of (i) the Exercise Price in cash, (ii) a duly executed Warrant
Exercise Form, a copy of which is attached to this Warrant as Exhibit A,
properly executed by the Registered Owner, or assigns, of this Warrant, and
(iii) by surrender of this Warrant. The payment and Warrant Exercise Form must
be delivered, personally or by mail, to the registered office of the Company.
Documents sent by mail shall be deemed to be delivered when they are received by
the Company.
6. Adjustment of Exercise Price.
(a) If the Company, at any time while this Warrant is outstanding, (a)
shall pay a stock dividend on its Common Stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine
outstanding shares of Common Stock into a smaller number of shares, or (d)
issue by reclassification of shares of Common Stock any shares of capital
stock of the Company, the Exercise Price shall be multiplied by a fraction
the numerator of which shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and the
denominator of which shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this
paragraph (6)(a) shall become effective immediately after the record date
for the determination of shareholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or re-classification.
(b) If the Company, at any time while this Warrant is outstanding,
shall issue rights or warrants to all of the holders of Common Stock
entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the Per Share Market Value (as defined below) of
Common Stock at the record date mentioned below, the Exercise Price shall
be multiplied by a fraction, the denominator of which shall be the number
of shares of Common Stock (excluding treasury shares, if any) outstanding
on the date of issuance of such rights or warrants plus the number of
additional shares of Common Stock offered for subscription or purchase, and
the numerator of which shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of shares which the aggregate
offering price of the total number of shares so offered would purchase at
such Per Share Market Value. Such adjustment shall be made whenever such
rights or warrants are issued, and shall become effective immediately after
the record date for the determination of shareholders entitled to receive
such rights or warrants. However, upon the expiration of any right or
warrant to purchase Common Stock the issuance of which resulted in an
adjustment in the Exercise Price pursuant to this paragraph (6)(b), if any
such right or warrant shall expire and all or any portion thereof shall not
have been exercised, the Exercise Price shall immediately upon such
expiration be re-computed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Exercise Price made pursuant to the provisions of
section (f) after the issuance of such rights or warrants) had the
adjustment of the Exercise Price made upon the issuance of such rights or
warrants been made on the basis of offering for subscription or purchase
only that
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<PAGE>
number of shares of Common Stock (if any) actually purchased upon the
exercise of such rights or warrants actually exercised.
(c) If the Company, at any time while this Warrant is outstanding,
shall distribute to all of the holders of Common Stock evidences of its
indebtedness or assets or rights or warrants to subscribe for or purchase
any security (excluding those referred to in paragraphs 6(a) and (b)
above), then in each such case the Exercise Price at which the Warrant
shall thereafter be convertible shall be determined by multiplying the
Exercise Price in effect immediately prior to the record date fixed for
determination of shareholders entitled to receive such distribution by a
fraction the denominator of which shall be the Per Share Market Value of
Common Stock determined as of the record date mentioned above, and the
numerator of which shall be such Per Share Market Value of the Common Stock
on such record date less the then fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed
applicable to one outstanding share of Common Stock as determined by the
Board of Directors in good faith; provided, however, that in the event of a
distribution exceeding ten percent of the net assets of the Company, such
fair market value shall be determined by a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (an "Appraiser") selected in good faith
by the holder of the Warrant; and provided, further, that the Company,
after receipt of the determination by such Appraiser shall have the right
to select an additional Appraiser meeting the same qualifications, in good
faith, in which case the fair market value shall be equal to the average of
the determinations by each such Appraiser. Such adjustment shall be made
whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(d) All calculations under this section 6 shall be made to the nearest
cent or the nearest l/l00th of a share, as the case may be.
(e) Whenever the Exercise Price is adjusted pursuant to paragraphs
6(a), (b) or (c), the Company shall promptly mail to the holder of the
Warrant, a notice setting forth the Exercise Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment.
(f) In case of (A) any reclassification of the Common Stock, (B) any
consolidation or merger of the Company with or into another person pursuant
to which (i) a majority of the Company's Board of Directors will not
constitute a majority of the board of directors of the surviving entity or
(ii) less than 51% of the outstanding shares of the capital stock of the
surviving entity will be held by the same shareholders of the Company prior
to such reclassification, consolidation or merger, (C) the sale or transfer
of all or substantially all of the assets of the Company, (D) any
compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, (E) suspension from listing or
delisting of the Common Stock from The New York Stock Exchange or The
Nasdaq National Market for a period of five consecutive days, (F) the
Company's notice to any Holder, including by way of public announcement, at
any time, of its intention, for any reason, not to comply with proper
requests for conversion of any shares of Series G1 Preferred Stock into, or
exercise of this
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<PAGE>
Warrant for, shares of Common Stock, or (G) a breach by the Company of any
representation, warranty, covenant or other term or condition of the
Purchase Agreement, the Registration Rights Agreement, the Certificate of
Designation or any other agreement, document, certificate or other
instrument delivered in connection with the transactions contemplated
thereby or hereby, except to the extent that such breach would not have a
Material Adverse Effect (as defined in Section 2.1(a) of the Purchase
Agreement) and except, in the case of a breach of a covenant which is
curable, only if such breach continues for a period of at least ten days
after the Company knows or reasonably should have known of the existence of
such breach (clauses (A) through (G) above referred to as a "Redemption
Event"), the holder of the Warrant shall have the right thereafter to
convert the Warrant only into the shares of stock and other securities,
cash and property receivable upon or deemed to be held by holders of Common
Stock following such Redemption Event, and the holder of the Warrant shall
be entitled upon such event to receive such amount of securities, cash or
property as the shares of the Common Stock of the Company into which the
Warrant could have been converted immediately prior to such Redemption
Event would have been entitled.
(g) If:
A. the Company shall declare a dividend (or any other distribution)
on its Common Stock; or
B. the Company shall declare a special nonrecurring cash dividend on
or a redemption of its Common Stock; or
C. the Company shall authorize the granting to the holders of the
Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; or
D. the approval of any shareholders of the Company shall be required
in connection with any reclassification of the Common Stock of
the Company, any consolidation or merger to which the Company is
a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share of exchange
whereby the Common Stock is converted into other securities, cash
or property; or
E. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of this Warrant, and shall cause
to be mailed to the holder of this Warrant at its address as it shall
appear below, at least 30 calendar days prior to the applicable record or
effective date hereinafter specified, a notice (provided such notice shall
not include any material non-public information) stating (x) the date on
which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be
taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend,
4
<PAGE>
distributions, redemption, rights or warrants are to be determined or (y)
the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and
the date as of which it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for securities,
cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however,
that the failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate action
required to be specified in such notice.
(h) Adjustment to Exercise Price. In order to prevent dilution of the
rights granted under this Warrant, the Exercise Price will be subject to
adjustment from time to time as provided in this Section 6(h).
(i) Adjustment of Exercise Price upon Issuance of Common Stock.
If and whenever on or after the Closing Date, the Company issues or
sells, or is deemed to have issued or sold, any shares of Common Stock
(other than the Underlying Shares, Warrant Shares or shares of Common
Stock deemed to have been issued by the Company in connection with an
Approved Stock Plan (as defined below)) for a consideration per share
less than the Exercise Price in effect immediately prior to such
issuance or sale, then immediately after such issue or sale, the
Exercise Price then in effect shall be reduced to an amount equal to
the consideration per share of Common Stock of such issuance or sale.
If and whenever on or after the Closing Date, the Company issues or
sells, or is deemed to have issued or sold, any shares of Common Stock
(other than the Underlying Shares, Warrant Shares, shares of Common
Stock deemed to have been issued by the Company in connection with an
Approved Stock Plan (as defined below) or shares of Common Stock
issued or deemed to have been issued as consideration for an
acquisition by the Company of a license or of a division, assets or
business (or stock constituting any portion thereof) from another
person) for a consideration per share which is (A) greater than the
Exercise Price in effect immediately prior to such issuance or sale
and (B) less the average of the Per Share Market Values on the five
consecutive trading days immediately preceding the date of such
issuance or sale (the price in this clause (B) is herein referred to
as "Market Price"), then immediately after such issue or sale, the
Exercise Price then in effect shall be reduced to an amount equal to
the product of (x) the Exercise Price in effect immediately prior to
such issue or sale and (y) the quotient determined by dividing (1) the
sum of (I) the product of (A) the Market Price and (B) the number of
shares of Common Stock Deemed Outstanding (as defined below)
immediately prior to such issue or sale, and (II) the consideration,
if any, received by the Company upon such issue or sale, by (2) the
product of (I) the Market Price and (II) the number of shares of
Common Stock Deemed Outstanding (as defined below) immediately after
such issue or sale. For purposes of determining the adjusted Exercise
Price under this Section 6(h)(i), the following shall be applicable:
(A) Issuance of Options. If the Company in any manner grants
any rights or options to subscribe for or to purchase Common
Stock or any stock or other securities convertible into or
exchangeable for Common Stock (such rights or options being
herein called "Options" and such convertible or exchangeable
stock or securities being herein called "Convertible Securities")
and the price per share for which Common Stock is
5
<PAGE>
issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than the Exercise
Price in the case of the first sentence of Section 6(h)(i), or
the Market Price in the case of the second sentence of Section
6(h)(i) (collectively, the "Applicable Price"), then the total
maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon
the exercise of such Options shall be deemed to be outstanding
and to have been issued and sold by the Company for such price
per share. For purposes of this Section 6(h)(i)(A), the "price
per share for which Common Stock is issuable upon exercise of
such Options or upon conversion or exchange of such Convertible
Securities" is determined by dividing (I) the total amount, if
any, received or receivable by the Company as consideration for
the granting of such Options, plus the minimum aggregate amount
of additional consideration payable to the Company upon the
exercise of all such Options, plus in the case of such Options
which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the
Company upon the issuance or sale of such Convertible Securities
and the conversion or exchange thereof, by (II) the total maximum
number of shares of Common Stock issuable upon exercise of such
Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such
Options. No adjustment of the Exercise Price shall be made upon
the actual issuance of such Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such
Convertible Securities.
(B) Issuance of Convertible Securities. If the Company in
any manner issues or sells any Convertible Securities and the
price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Applicable Price, then
the maximum number of shares of Common Stock issuable upon
conversion or exchange of such Convertible Securities shall be
deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For the purposes of this
Section 6(h)(i)(B), the "price per share for which Common Stock
is issuable upon such conversion or exchange" is determined by
dividing (I) the total amount received or receivable by the
Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (II) the total maximum number
of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities. No adjustment of the
Exercise Price shall be made upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is
made upon exercise of any Options for which adjustment of the
Exercise Price had been or are to be made pursuant to other
provisions of this Section 6(h)(i), no further adjustment of the
Exercise Price shall be made by reason of such issue or sale.
(C) Change in Option Price or Rate of Conversion. If there
is a change at any time in (i) the purchase price provided for in
any Options, (ii) the additional consideration, if any, payable
upon the issue, conversion or exchange of any Convertible
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<PAGE>
Securities or (iii) the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock, then the
Exercise Price in effect at the time of such change shall be
readjusted to the Exercise Price which would have been in effect
at such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at
the time initially granted, issued or sold; provided that no
adjustment shall be made if such adjustment would result in an
increase of the Exercise Price then in effect.
(D) Certain Definitions. For purposes of determining the
adjusted Exercise Price under this Section 6(h)(i), the following
terms have meanings set forth below:
(I) "Approved Stock Plan" shall mean any contract, plan
or agreement which has been approved by the Board of
Directors of the Company, pursuant to which the Company's
securities may be issued to any employee, officer, director
or consultant.
(II) "Common Stock Deemed Outstanding" means, at any
given time, the number of shares of Common Stock issued and
outstanding at such time, plus the number of shares of
Common Stock deemed to be outstanding pursuant to Sections
6(h)(i)(A) and 6(h)(i)(B) hereof regardless of whether the
Options or Convertible Securities are actually exercisable
at such time, but excluding any shares of Common Stock
issuable upon conversion of the shares of Series G1
Preferred Stock or exercise of the Warrants.
(E) Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under this Section
6(h)(i), the following shall be applicable:
(I) Calculation of Consideration Received. If any
Common Stock, Options or Convertible Securities are issued
or sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the net
amount received by the Company therefor. In case any Common
Stock, Options or Convertible Securities are issued or sold
for a consideration other than cash, the amount of the
consideration other than cash received by the Company will
be the fair value of such consideration, except where such
consideration consists of securities, in which case the
amount of consideration received by the Company will be the
arithmetic average of the Per Share Market Values of such
security for the five (5) consecutive Trading Days
immediately preceding the date of receipt. In case any
Common Stock, Options or Convertible Securities are issued
to the owners of the non-surviving entity in connection with
any merger in which the Company is the surviving entity the
amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may
be. The fair value of any consideration other than cash or
securities will be determined jointly by the Company and the
Holders of a majority of the shares of Series G1 Preferred
Stock then outstanding. If such parties are unable to reach
agreement within ten
7
<PAGE>
(10) days after the occurrence of an event requiring
valuation (the "Valuation Event"), the fair value of such
consideration will be determined within forty-eight (48)
hours of the tenth (10th) day following the Valuation Event
by an independent, reputable appraiser selected by the
Company. The determination of such appraiser shall be
binding upon all parties absent manifest error.
(II) Integrated Transactions. In case any Option is
issued in connection with the issue or sale of other
securities of the Company, together comprising one
integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the
Options will be deemed to have been issued for an aggregate
consideration of $.01.
(III) Treasury Shares. The number of shares of Common
Stock outstanding at any given time does not include shares
owned or held by or for the account of the Company, and the
disposition of any shares so owned or held will be
considered an issue or sale of Common Stock.
(IV) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them
(1) to receive a dividend or other distribution payable in
Common Stock, Options or in Convertible Securities or (2) to
subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date will be deemed
to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(ii) Certain Events. If any event occurs of the type contemplated
by the provisions of Section 6(h)(i) (subject to the exceptions stated
therein) but not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation rights, phantom
stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Exercise
Price so as to protect the rights of the Registered Holder, or
assigns, of this Warrant; provided, however, that no such adjustment
will increase the Exercise Price as otherwise determined pursuant to
this Section 6(h).
7. Per Share Market Value. Per Share Market Value means on any particular
date (i) the closing bid price per share of the Common Stock on such date on the
New York Stock Exchange or other registered national stock exchange on which the
Common Stock is then listed or if there is no such price on such date, then the
closing bid price on such exchange or quotation system on the date nearest
preceding such date, or (ii) if the Common Stock is not listed then on the New
York Stock Exchange or any registered national stock exchange, the closing bid
price for a share of Common Stock in the over-the-counter market, as reported by
the New York Stock Exchange or in the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting prices)
at the close of business on such date, or (iii) if the Common Stock is not then
publicly traded the fair market value of a share of Common Stock as determined
by an Appraiser selected in good faith by the holder of this Warrant; provided,
however, that the Company, after receipt of the determination by such Appraiser,
shall have the
8
<PAGE>
right to select an additional Appraiser, in which case, the fair market value
shall be equal to the average of the determinations by each such Appraiser; and
provided, further that all determinations of the Per Share Market Value shall be
appropriately adjusted for any stock dividends, stock splits or other similar
transactions during such period.
8. Registration Rights. The Company will undertake the registration of the
Common Stock into which such Warrants are convertible at such times and upon
such terms pursuant to the provisions of the Registration Rights Agreement dated
September 17, 1998 by and among the Company, Brown Simpson Strategic Growth
Fund, L.P., Brown Simpson Strategic Growth Fund, Ltd., Heracles Fund Ltd. and
Themis Partners, L.P.
9. Notices. All notices or other communications required hereunder shall be
in writing and shall be sent either (i) by courier, or (ii) by telecopy as well
as by registered or certified mail, and shall be regarded as properly given in
the case of a courier upon actual delivery to the proper place of address; in
the case of telecopy, on the day following the date of transmission if properly
addressed and sent without transmission error to the correct number and receipt
is confirmed by telephone within 48 hours of the transmission; in the case of a
letter for which a telecopy could not be successfully transmitted or receipt of
which could not be confirmed as herein provided, three days after the registered
or certified mailing date if the letter is properly addressed and postage
prepaid; and shall be regarded as properly addressed if sent to the parties or
their representatives at the addresses given below:
To the Company: Signal Apparel Company, Inc.
200A Manufacturers Road
Chattanooga, Tennessee 37405
Attn: President & General Counsel
Phone: (423) 756-8146
Fax: (423) 752-2040
To the holder: Brown Simpson Strategic Growth Fund, Ltd.
152 West 57th Street, 40th Floor
New York, New York 10019
Attn: Paul Gustus
Phone: (212) 247-8200
Fax: (212) 247-1329
or such other address as any of the above may have furnished to the other
parties in writing by registered mail, return receipt requested.
[signature page follows]
9
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer as of the date first set forth above.
SIGNAL APPAREL COMPANY, INC.
By: /s/ John W. Prutch
---------------------
Name: John W. Prutch
Title: President
10
<PAGE>
EXHIBIT A
Warrant Exercise Form
TO: SIGNAL APPAREL COMPANY, INC.
The undersigned hereby: (1) irrevocably subscribes for and offers to
purchase _______ shares of Common Stock of Signal Apparel Company, Inc.,
pursuant to Warrant No. G1 heretofore issued to ___________________ on
____________, 1998; (2) encloses a payment of $__________ for these shares at a
price of $____ per share (as adjusted pursuant to the provisions of the
Warrant); and (3) requests that a certificate for the shares be issued in the
name of the undersigned and delivered to the undersigned at the address
specified below.
Date: ____________________________________________________
Investor Name: ___________________________________________
Taxpayer Identification
Number: ___________________________________________________
By: ______________________________________________________
Printed Name: ____________________________________________
Title: ____________________________________________________
Address: __________________________________________________
Note: The above signature should correspond exactly with
the name on the face of this Warrant Certificate or
with the name of assignee appearing in assignment
form below.
AND, if said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant Certificate is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder less
any fraction of a share paid in cash and delivered to the address stated above.
11
<PAGE>
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY
STATE SECURITIES OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF
SUCH SHARES MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER SAID ACT AND UNDER
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR EXEMPTIONS FROM SUCH
REGISTRATION
12,500 Warrant No. G1-3
SIGNAL APPAREL COMPANY, INC.
STOCK PURCHASE WARRANT
Registered Owner: Themis Partners, L.P.
This certifies that, for value received, Signal Apparel Company, Inc., an
Indiana corporation, the ("Company") grants the following rights to the
Registered Owner, or assigns, of this Warrant:
1. Issue. Upon tender (as defined in section 5 hereof) to the Company, the
Company shall issue to the Registered Owner, or assigns, up to the number of
shares specified in paragraph 2 hereof of fully paid and nonassessable shares of
Common Stock that the Registered Owner, or assigns, is otherwise entitled to
purchase.
2. Number of Shares. The total number of shares of Common Stock that the
Registered Owner, or assigns, of this Warrant is entitled to receive upon
exercise of this Warrant is 12,500 shares, subject to adjustment from time to
time as set forth in paragraph 6 below. The Company shall at all times reserve
and hold available sufficient shares of Common Stock to satisfy all conversion
and purchase rights represented by outstanding convertible securities, options
and warrants, including this Warrant. The Company covenants and agrees that all
shares of Common Stock that may be issued upon the exercise of this Warrant
shall, upon issuance, be duly and validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the purchase and the
issuance of the shares.
3. Exercise Price. The exercise price of this Warrant, the price at which
the shares of stock purchasable upon exercise of this Warrant may be purchased,
is 125% of the Fixed Strike Price (as defined in the Certificate of
Designation), subject to adjustment from time to time pursuant to the provisions
of paragraph 6 below (the "Exercise Price").
4. Exercise Period. This Warrant may only be exercised beginning on
September 17, 1998 and up to and including September 17, 2003 five years after
the date of the Warrant,
<PAGE>
less one day. If not exercised during this period, this Warrant and all rights
granted under this Warrant shall expire and lapse.
5. Tender. This Warrant may be exercised, in whole or in part, by actual
delivery of (i) the Exercise Price in cash, (ii) a duly executed Warrant
Exercise Form, a copy of which is attached to this Warrant as Exhibit A,
properly executed by the Registered Owner, or assigns, of this Warrant, and
(iii) by surrender of this Warrant. The payment and Warrant Exercise Form must
be delivered, personally or by mail, to the registered office of the Company.
Documents sent by mail shall be deemed to be delivered when they are received by
the Company.
6. Adjustment of Exercise Price.
(a) If the Company, at any time while this Warrant is outstanding, (a)
shall pay a stock dividend on its Common Stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine
outstanding shares of Common Stock into a smaller number of shares, or (d)
issue by reclassification of shares of Common Stock any shares of capital
stock of the Company, the Exercise Price shall be multiplied by a fraction
the numerator of which shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and the
denominator of which shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this
paragraph (6)(a) shall become effective immediately after the record date
for the determination of shareholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or re-classification.
(b) If the Company, at any time while this Warrant is outstanding,
shall issue rights or warrants to all of the holders of Common Stock
entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the Per Share Market Value (as defined below) of
Common Stock at the record date mentioned below, the Exercise Price shall
be multiplied by a fraction, the denominator of which shall be the number
of shares of Common Stock (excluding treasury shares, if any) outstanding
on the date of issuance of such rights or warrants plus the number of
additional shares of Common Stock offered for subscription or purchase, and
the numerator of which shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of shares which the aggregate
offering price of the total number of shares so offered would purchase at
such Per Share Market Value. Such adjustment shall be made whenever such
rights or warrants are issued, and shall become effective immediately after
the record date for the determination of shareholders entitled to receive
such rights or warrants. However, upon the expiration of any right or
warrant to purchase Common Stock the issuance of which resulted in an
adjustment in the Exercise Price pursuant to this paragraph (6)(b), if any
such right or warrant shall expire and all or any portion thereof shall not
have been exercised, the Exercise Price shall immediately upon such
expiration be re-computed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Exercise Price made pursuant to the provisions of
section (f) after the issuance of such rights or warrants) had the
adjustment of the Exercise Price made upon the issuance of such rights or
warrants been made on the basis of offering for subscription or purchase
only that
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number of shares of Common Stock (if any) actually purchased upon the
exercise of such rights or warrants actually exercised.
(c) If the Company, at any time while this Warrant is outstanding,
shall distribute to all of the holders of Common Stock evidences of its
indebtedness or assets or rights or warrants to subscribe for or purchase
any security (excluding those referred to in paragraphs 6(a) and (b)
above), then in each such case the Exercise Price at which the Warrant
shall thereafter be convertible shall be determined by multiplying the
Exercise Price in effect immediately prior to the record date fixed for
determination of shareholders entitled to receive such distribution by a
fraction the denominator of which shall be the Per Share Market Value of
Common Stock determined as of the record date mentioned above, and the
numerator of which shall be such Per Share Market Value of the Common Stock
on such record date less the then fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed
applicable to one outstanding share of Common Stock as determined by the
Board of Directors in good faith; provided, however, that in the event of a
distribution exceeding ten percent of the net assets of the Company, such
fair market value shall be determined by a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (an "Appraiser") selected in good faith
by the holder of the Warrant; and provided, further, that the Company,
after receipt of the determination by such Appraiser shall have the right
to select an additional Appraiser meeting the same qualifications, in good
faith, in which case the fair market value shall be equal to the average of
the determinations by each such Appraiser. Such adjustment shall be made
whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(d) All calculations under this section 6 shall be made to the nearest
cent or the nearest l/l00th of a share, as the case may be.
(e) Whenever the Exercise Price is adjusted pursuant to paragraphs
6(a), (b) or (c), the Company shall promptly mail to the holder of the
Warrant, a notice setting forth the Exercise Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment.
(f) In case of (A) any reclassification of the Common Stock, (B) any
consolidation or merger of the Company with or into another person pursuant
to which (i) a majority of the Company's Board of Directors will not
constitute a majority of the board of directors of the surviving entity or
(ii) less than 51% of the outstanding shares of the capital stock of the
surviving entity will be held by the same shareholders of the Company prior
to such reclassification, consolidation or merger, (C) the sale or transfer
of all or substantially all of the assets of the Company, (D) any
compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, (E) suspension from listing or
delisting of the Common Stock from The New York Stock Exchange or The
Nasdaq National Market for a period of five consecutive days, (F) the
Company's notice to any Holder, including by way of public announcement, at
any time, of its intention, for any reason, not to comply with proper
requests for conversion of any shares of Series G1 Preferred Stock into, or
exercise of this
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Warrant for, shares of Common Stock, or (G) a breach by the Company of any
representation, warranty, covenant or other term or condition of the
Purchase Agreement, the Registration Rights Agreement, the Certificate of
Designation or any other agreement, document, certificate or other
instrument delivered in connection with the transactions contemplated
thereby or hereby, except to the extent that such breach would not have a
Material Adverse Effect (as defined in Section 2.1(a) of the Purchase
Agreement) and except, in the case of a breach of a covenant which is
curable, only if such breach continues for a period of at least ten days
after the Company knows or reasonably should have known of the existence of
such breach (clauses (A) through (G) above referred to as a "Redemption
Event"), the holder of the Warrant shall have the right thereafter to
convert the Warrant only into the shares of stock and other securities,
cash and property receivable upon or deemed to be held by holders of Common
Stock following such Redemption Event, and the holder of the Warrant shall
be entitled upon such event to receive such amount of securities, cash or
property as the shares of the Common Stock of the Company into which the
Warrant could have been converted immediately prior to such Redemption
Event would have been entitled.
(g) If:
A. the Company shall declare a dividend (or any other distribution)
on its Common Stock; or
B. the Company shall declare a special nonrecurring cash dividend on
or a redemption of its Common Stock; or
C. the Company shall authorize the granting to the holders of the
Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; or
D. the approval of any shareholders of the Company shall be required
in connection with any reclassification of the Common Stock of
the Company, any consolidation or merger to which the Company is
a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share of exchange
whereby the Common Stock is converted into other securities, cash
or property; or
E. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of this Warrant, and shall cause
to be mailed to the holder of this Warrant at its address as it shall
appear below, at least 30 calendar days prior to the applicable record or
effective date hereinafter specified, a notice (provided such notice shall
not include any material non-public information) stating (x) the date on
which a record is to be taken for the purpose of such dividend,
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distribution, redemption, rights or warrants, or if a record is not to be
taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants
are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to
become effective or close, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer or share
exchange; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of
the corporate action required to be specified in such notice.
(h) Adjustment to Exercise Price. In order to prevent dilution of the
rights granted under this Warrant, the Exercise Price will be subject to
adjustment from time to time as provided in this Section 6(h).
(i) Adjustment of Exercise Price upon Issuance of Common Stock.
If and whenever on or after the Closing Date, the Company issues or
sells, or is deemed to have issued or sold, any shares of Common Stock
(other than the Underlying Shares, Warrant Shares or shares of Common
Stock deemed to have been issued by the Company in connection with an
Approved Stock Plan (as defined below)) for a consideration per share
less than the Exercise Price in effect immediately prior to such
issuance or sale, then immediately after such issue or sale, the
Exercise Price then in effect shall be reduced to an amount equal to
the consideration per share of Common Stock of such issuance or sale.
If and whenever on or after the Closing Date, the Company issues or
sells, or is deemed to have issued or sold, any shares of Common Stock
(other than the Underlying Shares, Warrant Shares, shares of Common
Stock deemed to have been issued by the Company in connection with an
Approved Stock Plan (as defined below) or shares of Common Stock
issued or deemed to have been issued as consideration for an
acquisition by the Company of a license or of a division, assets or
business (or stock constituting any portion thereof) from another
person) for a consideration per share which is (A) greater than the
Exercise Price in effect immediately prior to such issuance or sale
and (B) less the average of the Per Share Market Values on the five
consecutive trading days immediately preceding the date of such
issuance or sale (the price in this clause (B) is herein referred to
as "Market Price"), then immediately after such issue or sale, the
Exercise Price then in effect shall be reduced to an amount equal to
the product of (x) the Exercise Price in effect immediately prior to
such issue or sale and (y) the quotient determined by dividing (1) the
sum of (I) the product of (A) the Market Price and (B) the number of
shares of Common Stock Deemed Outstanding (as defined below)
immediately prior to such issue or sale, and (II) the consideration,
if any, received by the Company upon such issue or sale, by (2) the
product of (I) the Market Price and (II) the number of shares of
Common Stock Deemed Outstanding (as defined below) immediately after
such issue or sale. For purposes of determining the adjusted Exercise
Price under this Section 6(h)(i), the following shall be applicable:
(A) Issuance of Options. If the Company in any manner grants
any rights or options to subscribe for or to purchase Common
Stock or any stock or other securities convertible into or
exchangeable for Common Stock (such rights or options being
herein called "Options" and such convertible or exchangeable
stock or securities being herein called "Convertible Securities")
and the price per share for which Common Stock is
5
<PAGE>
issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than the Exercise
Price in the case of the first sentence of Section 6(h)(i), or
the Market Price in the case of the second sentence of Section
6(h)(i) (collectively, the "Applicable Price"), then the total
maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon
the exercise of such Options shall be deemed to be outstanding
and to have been issued and sold by the Company for such price
per share. For purposes of this Section 6(h)(i)(A), the "price
per share for which Common Stock is issuable upon exercise of
such Options or upon conversion or exchange of such Convertible
Securities" is determined by dividing (I) the total amount, if
any, received or receivable by the Company as consideration for
the granting of such Options, plus the minimum aggregate amount
of additional consideration payable to the Company upon the
exercise of all such Options, plus in the case of such Options
which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the
Company upon the issuance or sale of such Convertible Securities
and the conversion or exchange thereof, by (II) the total maximum
number of shares of Common Stock issuable upon exercise of such
Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such
Options. No adjustment of the Exercise Price shall be made upon
the actual issuance of such Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such
Convertible Securities.
(B) Issuance of Convertible Securities. If the Company in
any manner issues or sells any Convertible Securities and the
price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Applicable Price, then
the maximum number of shares of Common Stock issuable upon
conversion or exchange of such Convertible Securities shall be
deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For the purposes of this
Section 6(h)(i)(B), the "price per share for which Common Stock
is issuable upon such conversion or exchange" is determined by
dividing (I) the total amount received or receivable by the
Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (II) the total maximum number
of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities. No adjustment of the
Exercise Price shall be made upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is
made upon exercise of any Options for which adjustment of the
Exercise Price had been or are to be made pursuant to other
provisions of this Section 6(h)(i), no further adjustment of the
Exercise Price shall be made by reason of such issue or sale.
(C) Change in Option Price or Rate of Conversion. If there
is a change at any time in (i) the purchase price provided for in
any Options, (ii) the additional consideration, if any, payable
upon the issue, conversion or exchange of any Convertible
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<PAGE>
Securities or (iii) the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock, then the
Exercise Price in effect at the time of such change shall be
readjusted to the Exercise Price which would have been in effect
at such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at
the time initially granted, issued or sold; provided that no
adjustment shall be made if such adjustment would result in an
increase of the Exercise Price then in effect.
(D) Certain Definitions. For purposes of determining the
adjusted Exercise Price under this Section 6(h)(i), the following
terms have meanings set forth below:
(I) "Approved Stock Plan" shall mean any contract, plan
or agreement which has been approved by the Board of
Directors of the Company, pursuant to which the Company's
securities may be issued to any employee, officer, director
or consultant.
(II) "Common Stock Deemed Outstanding" means, at any
given time, the number of shares of Common Stock issued and
outstanding at such time, plus the number of shares of
Common Stock deemed to be outstanding pursuant to Sections
6(h)(i)(A) and 6(h)(i)(B) hereof regardless of whether the
Options or Convertible Securities are actually exercisable
at such time, but excluding any shares of Common Stock
issuable upon conversion of the shares of Series G1
Preferred Stock or exercise of the Warrants.
(E) Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under this Section
6(h)(i), the following shall be applicable:
(I) Calculation of Consideration Received. If any
Common Stock, Options or Convertible Securities are issued
or sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the net
amount received by the Company therefor. In case any Common
Stock, Options or Convertible Securities are issued or sold
for a consideration other than cash, the amount of the
consideration other than cash received by the Company will
be the fair value of such consideration, except where such
consideration consists of securities, in which case the
amount of consideration received by the Company will be the
arithmetic average of the Per Share Market Values of such
security for the five (5) consecutive Trading Days
immediately preceding the date of receipt. In case any
Common Stock, Options or Convertible Securities are issued
to the owners of the non-surviving entity in connection with
any merger in which the Company is the surviving entity the
amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may
be. The fair value of any consideration other than cash or
securities will be determined jointly by the Company and the
Holders of a majority of the shares of Series G1 Preferred
Stock then outstanding. If such parties are unable to reach
agreement within ten
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<PAGE>
(10) days after the occurrence of an event requiring
valuation (the "Valuation Event"), the fair value of such
consideration will be determined within forty-eight (48)
hours of the tenth (10th) day following the Valuation Event
by an independent, reputable appraiser selected by the
Company. The determination of such appraiser shall be
binding upon all parties absent manifest error.
(II) Integrated Transactions. In case any Option is
issued in connection with the issue or sale of other
securities of the Company, together comprising one
integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the
Options will be deemed to have been issued for an aggregate
consideration of $.01.
(III) Treasury Shares. The number of shares of Common
Stock outstanding at any given time does not include shares
owned or held by or for the account of the Company, and the
disposition of any shares so owned or held will be
considered an issue or sale of Common Stock.
(IV) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them
(1) to receive a dividend or other distribution payable in
Common Stock, Options or in Convertible Securities or (2) to
subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date will be deemed
to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(ii) Certain Events. If any event occurs of the type contemplated
by the provisions of Section 6(h)(i) (subject to the exceptions stated
therein) but not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation rights, phantom
stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Exercise
Price so as to protect the rights of the Registered Holder, or
assigns, of this Warrant; provided, however, that no such adjustment
will increase the Exercise Price as otherwise determined pursuant to
this Section 6(h).
7. Per Share Market Value. Per Share Market Value means on any particular
date (i) the closing bid price per share of the Common Stock on such date on the
New York Stock Exchange or other registered national stock exchange on which the
Common Stock is then listed or if there is no such price on such date, then the
closing bid price on such exchange or quotation system on the date nearest
preceding such date, or (ii) if the Common Stock is not listed then on the New
York Stock Exchange or any registered national stock exchange, the closing bid
price for a share of Common Stock in the over-the-counter market, as reported by
the New York Stock Exchange or in the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting prices)
at the close of business on such date, or (iii) if the Common Stock is not then
publicly traded the fair market value of a share of Common Stock as determined
by an Appraiser selected in good faith by the holder of this Warrant; provided,
however, that the Company, after receipt of the determination by such Appraiser,
shall have the
8
<PAGE>
right to select an additional Appraiser, in which case, the fair market value
shall be equal to the average of the determinations by each such Appraiser; and
provided, further that all determinations of the Per Share Market Value shall be
appropriately adjusted for any stock dividends, stock splits or other similar
transactions during such period.
8. Registration Rights. The Company will undertake the registration of the
Common Stock into which such Warrants are convertible at such times and upon
such terms pursuant to the provisions of the Registration Rights Agreement dated
September 17, 1998 by and among the Company, Brown Simpson Strategic Growth
Fund, L.P., Brown Simpson Strategic Growth Fund, Ltd., Heracles Fund Ltd. and
Themis Partners, L.P.
9. Notices. All notices or other communications required hereunder shall be
in writing and shall be sent either (i) by courier, or (ii) by telecopy as well
as by registered or certified mail, and shall be regarded as properly given in
the case of a courier upon actual delivery to the proper place of address; in
the case of telecopy, on the day following the date of transmission if properly
addressed and sent without transmission error to the correct number and receipt
is confirmed by telephone within 48 hours of the transmission; in the case of a
letter for which a telecopy could not be successfully transmitted or receipt of
which could not be confirmed as herein provided, three days after the registered
or certified mailing date if the letter is properly addressed and postage
prepaid; and shall be regarded as properly addressed if sent to the parties or
their representatives at the addresses given below:
To the Company: Signal Apparel Company, Inc.
200A Manufacturers Road
Chattanooga, Tennessee 37405
Attn: President & General Counsel
Phone: (423) 756-8146
Fax: (423) 752-2040
To the Holder: Themis Partners, L.P.
c/o Promethean Investment Group
40 W. 57th Street, Suite 1520
New York, NY 10019
Attn: Jamie O'Brien
Tel: (212) 698-0588
Fax: (212) 698-0505
or such other address as any of the above may have furnished to the other
parties in writing by registered mail, return receipt requested.
[signature page follows]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer as of the date first set forth above.
SIGNAL APPAREL COMPANY, INC.
By: /s/ John W. Prutch
-----------------------------
Name: John W. Prutch
Title: President
10
<PAGE>
EXHIBIT A
Warrant Exercise Form
TO: SIGNAL APPAREL COMPANY, INC.
The undersigned hereby: (1) irrevocably subscribes for and offers to
purchase _______ shares of Common Stock of Signal Apparel Company, Inc.,
pursuant to Warrant No. G1 heretofore issued to ___________________ on
____________, 1998; (2) encloses a payment of $__________ for these shares at a
price of $____ per share (as adjusted pursuant to the provisions of the
Warrant); and (3) requests that a certificate for the shares be issued in the
name of the undersigned and delivered to the undersigned at the address
specified below.
Date: ____________________________________________________
Investor Name: ___________________________________________
Taxpayer Identification
Number: ___________________________________________________
By: ______________________________________________________
Printed Name: ____________________________________________
Title: ____________________________________________________
Address: __________________________________________________
Note: The above signature should correspond exactly with
the name on the face of this Warrant Certificate or
with the name of assignee appearing in assignment
form below.
AND, if said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant Certificate is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder less
any fraction of a share paid in cash and delivered to the address stated above.
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<PAGE>
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY
STATE SECURITIES OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH
SHARES MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER SAID ACT AND UNDER
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR EXEMPTIONS FROM SUCH
REGISTRATION
37,500 Warrant No. G1-4
SIGNAL APPAREL COMPANY, INC.
STOCK PURCHASE WARRANT
Registered Owner: Heracles Fund Ltd.
This certifies that, for value received, Signal Apparel Company, Inc., an
Indiana corporation, the ("Company") grants the following rights to the
Registered Owner, or assigns, of this Warrant:
1. Issue. Upon tender (as defined in section 5 hereof) to the Company, the
Company shall issue to the Registered Owner, or assigns, up to the number of
shares specified in paragraph 2 hereof of fully paid and nonassessable shares of
Common Stock that the Registered Owner, or assigns, is otherwise entitled to
purchase.
2. Number of Shares. The total number of shares of Common Stock that the
Registered Owner, or assigns, of this Warrant is entitled to receive upon
exercise of this Warrant is 37,500 shares, subject to adjustment from time to
time as set forth in paragraph 6 below. The Company shall at all times reserve
and hold available sufficient shares of Common Stock to satisfy all conversion
and purchase rights represented by outstanding convertible securities, options
and warrants, including this Warrant. The Company covenants and agrees that all
shares of Common Stock that may be issued upon the exercise of this Warrant
shall, upon issuance, be duly and validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the purchase and the
issuance of the shares.
3. Exercise Price. The exercise price of this Warrant, the price at which
the shares of stock purchasable upon exercise of this Warrant may be purchased,
is 125% of the Fixed Strike Price (as defined in the Certificate of
Designation), subject to adjustment from time to time pursuant to the provisions
of paragraph 6 below (the "Exercise Price").
4. Exercise Period. This Warrant may only be exercised beginning on
September 17, 1998 and up to and including September 17, 2003 five years after
the date of the Warrant,
<PAGE>
less one day. If not exercised during this period, this Warrant and all rights
granted under this Warrant shall expire and lapse.
5. Tender. This Warrant may be exercised, in whole or in part, by actual
delivery of (i) the Exercise Price in cash, (ii) a duly executed Warrant
Exercise Form, a copy of which is attached to this Warrant as Exhibit A,
properly executed by the Registered Owner, or assigns, of this Warrant, and
(iii) by surrender of this Warrant. The payment and Warrant Exercise Form must
be delivered, personally or by mail, to the registered office of the Company.
Documents sent by mail shall be deemed to be delivered when they are received by
the Company.
6. Adjustment of Exercise Price.
(a) If the Company, at any time while this Warrant is outstanding, (a)
shall pay a stock dividend on its Common Stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine
outstanding shares of Common Stock into a smaller number of shares, or (d)
issue by reclassification of shares of Common Stock any shares of capital
stock of the Company, the Exercise Price shall be multiplied by a fraction
the numerator of which shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and the
denominator of which shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this
paragraph (6)(a) shall become effective immediately after the record date
for the determination of shareholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or re-classification.
(b) If the Company, at any time while this Warrant is outstanding,
shall issue rights or warrants to all of the holders of Common Stock
entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the Per Share Market Value (as defined below) of
Common Stock at the record date mentioned below, the Exercise Price shall
be multiplied by a fraction, the denominator of which shall be the number
of shares of Common Stock (excluding treasury shares, if any) outstanding
on the date of issuance of such rights or warrants plus the number of
additional shares of Common Stock offered for subscription or purchase, and
the numerator of which shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of shares which the aggregate
offering price of the total number of shares so offered would purchase at
such Per Share Market Value. Such adjustment shall be made whenever such
rights or warrants are issued, and shall become effective immediately after
the record date for the determination of shareholders entitled to receive
such rights or warrants. However, upon the expiration of any right or
warrant to purchase Common Stock the issuance of which resulted in an
adjustment in the Exercise Price pursuant to this paragraph (6)(b), if any
such right or warrant shall expire and all or any portion thereof shall not
have been exercised, the Exercise Price shall immediately upon such
expiration be re-computed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Exercise Price made pursuant to the provisions of
section (f) after the issuance of such rights or warrants) had the
adjustment of the Exercise Price made upon the issuance of such rights or
warrants been made on the basis of offering for subscription or purchase
only that
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<PAGE>
number of shares of Common Stock (if any) actually purchased upon the
exercise of such rights or warrants actually exercised.
(c) If the Company, at any time while this Warrant is outstanding,
shall distribute to all of the holders of Common Stock evidences of its
indebtedness or assets or rights or warrants to subscribe for or purchase
any security (excluding those referred to in paragraphs 6(a) and (b)
above), then in each such case the Exercise Price at which the Warrant
shall thereafter be convertible shall be determined by multiplying the
Exercise Price in effect immediately prior to the record date fixed for
determination of shareholders entitled to receive such distribution by a
fraction the denominator of which shall be the Per Share Market Value of
Common Stock determined as of the record date mentioned above, and the
numerator of which shall be such Per Share Market Value of the Common Stock
on such record date less the then fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed
applicable to one outstanding share of Common Stock as determined by the
Board of Directors in good faith; provided, however, that in the event of a
distribution exceeding ten percent of the net assets of the Company, such
fair market value shall be determined by a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (an "Appraiser") selected in good faith
by the holder of the Warrant; and provided, further, that the Company,
after receipt of the determination by such Appraiser shall have the right
to select an additional Appraiser meeting the same qualifications, in good
faith, in which case the fair market value shall be equal to the average of
the determinations by each such Appraiser. Such adjustment shall be made
whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(d) All calculations under this section 6 shall be made to the nearest
cent or the nearest l/l00th of a share, as the case may be.
(e) Whenever the Exercise Price is adjusted pursuant to paragraphs
6(a), (b) or (c), the Company shall promptly mail to the holder of the
Warrant, a notice setting forth the Exercise Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment.
(f) In case of (A) any reclassification of the Common Stock, (B) any
consolidation or merger of the Company with or into another person pursuant
to which (i) a majority of the Company's Board of Directors will not
constitute a majority of the board of directors of the surviving entity or
(ii) less than 51% of the outstanding shares of the capital stock of the
surviving entity will be held by the same shareholders of the Company prior
to such reclassification, consolidation or merger, (C) the sale or transfer
of all or substantially all of the assets of the Company, (D) any
compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, (E) suspension from listing or
delisting of the Common Stock from The New York Stock Exchange or The
Nasdaq National Market for a period of five consecutive days, (F) the
Company's notice to any Holder, including by way of public announcement, at
any time, of its intention, for any reason, not to comply with proper
requests for conversion of any shares of Series G1 Preferred Stock into, or
exercise of this
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Warrant for, shares of Common Stock, or (G) a breach by the Company of any
representation, warranty, covenant or other term or condition of the
Purchase Agreement, the Registration Rights Agreement, the Certificate of
Designation or any other agreement, document, certificate or other
instrument delivered in connection with the transactions contemplated
thereby or hereby, except to the extent that such breach would not have a
Material Adverse Effect (as defined in Section 2.1(a) of the Purchase
Agreement) and except, in the case of a breach of a covenant which is
curable, only if such breach continues for a period of at least ten days
after the Company knows or reasonably should have known of the existence of
such breach (clauses (A) through (G) above referred to as a "Redemption
Event"), the holder of the Warrant shall have the right thereafter to
convert the Warrant only into the shares of stock and other securities,
cash and property receivable upon or deemed to be held by holders of Common
Stock following such Redemption Event, and the holder of the Warrant shall
be entitled upon such event to receive such amount of securities, cash or
property as the shares of the Common Stock of the Company into which the
Warrant could have been converted immediately prior to such Redemption
Event would have been entitled.
(g) If:
A. the Company shall declare a dividend (or any other distribution)
on its Common Stock; or
B. the Company shall declare a special nonrecurring cash dividend on
or a redemption of its Common Stock; or
C. the Company shall authorize the granting to the holders of the
Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; or
D. the approval of any shareholders of the Company shall be required
in connection with any reclassification of the Common Stock of
the Company, any consolidation or merger to which the Company is
a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share of exchange
whereby the Common Stock is converted into other securities, cash
or property; or
E. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of this Warrant, and shall cause
to be mailed to the holder of this Warrant at its address as it shall
appear below, at least 30 calendar days prior to the applicable record or
effective date hereinafter specified, a notice (provided such notice shall
not include any material non-public information) stating (x) the date on
which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be
taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend,
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distributions, redemption, rights or warrants are to be determined or (y)
the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and
the date as of which it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for securities,
cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however,
that the failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate action
required to be specified in such notice.
(h) Adjustment to Exercise Price. In order to prevent dilution of the
rights granted under this Warrant, the Exercise Price will be subject to
adjustment from time to time as provided in this Section 6(h).
(i) Adjustment of Exercise Price upon Issuance of Common Stock.
If and whenever on or after the Closing Date, the Company issues or
sells, or is deemed to have issued or sold, any shares of Common Stock
(other than the Underlying Shares, Warrant Shares or shares of Common
Stock deemed to have been issued by the Company in connection with an
Approved Stock Plan (as defined below)) for a consideration per share
less than the Exercise Price in effect immediately prior to such
issuance or sale, then immediately after such issue or sale, the
Exercise Price then in effect shall be reduced to an amount equal to
the consideration per share of Common Stock of such issuance or sale.
If and whenever on or after the Closing Date, the Company issues or
sells, or is deemed to have issued or sold, any shares of Common Stock
(other than the Underlying Shares, Warrant Shares, shares of Common
Stock deemed to have been issued by the Company in connection with an
Approved Stock Plan (as defined below) or shares of Common Stock
issued or deemed to have been issued as consideration for an
acquisition by the Company of a license or of a division, assets or
business (or stock constituting any portion thereof) from another
person) for a consideration per share which is (A) greater than the
Exercise Price in effect immediately prior to such issuance or sale
and (B) less the average of the Per Share Market Values on the five
consecutive trading days immediately preceding the date of such
issuance or sale (the price in this clause (B) is herein referred to
as "Market Price"), then immediately after such issue or sale, the
Exercise Price then in effect shall be reduced to an amount equal to
the product of (x) the Exercise Price in effect immediately prior to
such issue or sale and (y) the quotient determined by dividing (1) the
sum of (I) the product of (A) the Market Price and (B) the number of
shares of Common Stock Deemed Outstanding (as defined below)
immediately prior to such issue or sale, and (II) the consideration,
if any, received by the Company upon such issue or sale, by (2) the
product of (I) the Market Price and (II) the number of shares of
Common Stock Deemed Outstanding (as defined below) immediately after
such issue or sale. For purposes of determining the adjusted Exercise
Price under this Section 6(h)(i), the following shall be applicable:
(A) Issuance of Options. If the Company in any manner grants
any rights or options to subscribe for or to purchase Common
Stock or any stock or other securities convertible into or
exchangeable for Common Stock (such rights or options being
herein called "Options" and such convertible or exchangeable
stock or securities being herein called "Convertible Securities")
and the price per share for which Common Stock is
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issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than the Exercise
Price in the case of the first sentence of Section 6(h)(i), or
the Market Price in the case of the second sentence of Section
6(h)(i) (collectively, the "Applicable Price"), then the total
maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon
the exercise of such Options shall be deemed to be outstanding
and to have been issued and sold by the Company for such price
per share. For purposes of this Section 6(h)(i)(A), the "price
per share for which Common Stock is issuable upon exercise of
such Options or upon conversion or exchange of such Convertible
Securities" is determined by dividing (I) the total amount, if
any, received or receivable by the Company as consideration for
the granting of such Options, plus the minimum aggregate amount
of additional consideration payable to the Company upon the
exercise of all such Options, plus in the case of such Options
which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the
Company upon the issuance or sale of such Convertible Securities
and the conversion or exchange thereof, by (II) the total maximum
number of shares of Common Stock issuable upon exercise of such
Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such
Options. No adjustment of the Exercise Price shall be made upon
the actual issuance of such Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such
Convertible Securities.
(B) Issuance of Convertible Securities. If the Company in
any manner issues or sells any Convertible Securities and the
price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Applicable Price, then
the maximum number of shares of Common Stock issuable upon
conversion or exchange of such Convertible Securities shall be
deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For the purposes of this
Section 6(h)(i)(B), the "price per share for which Common Stock
is issuable upon such conversion or exchange" is determined by
dividing (I) the total amount received or receivable by the
Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (II) the total maximum number
of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities. No adjustment of the
Exercise Price shall be made upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is
made upon exercise of any Options for which adjustment of the
Exercise Price had been or are to be made pursuant to other
provisions of this Section 6(h)(i), no further adjustment of the
Exercise Price shall be made by reason of such issue or sale.
(C) Change in Option Price or Rate of Conversion. If there
is a change at any time in (i) the purchase price provided for in
any Options, (ii) the additional consideration, if any, payable
upon the issue, conversion or exchange of any Convertible
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<PAGE>
Securities or (iii) the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock, then the
Exercise Price in effect at the time of such change shall be
readjusted to the Exercise Price which would have been in effect
at such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at
the time initially granted, issued or sold; provided that no
adjustment shall be made if such adjustment would result in an
increase of the Exercise Price then in effect.
(D) Certain Definitions. For purposes of determining the
adjusted Exercise Price under this Section 6(h)(i), the following
terms have meanings set forth below:
(I) "Approved Stock Plan" shall mean any contract, plan
or agreement which has been approved by the Board of
Directors of the Company, pursuant to which the Company's
securities may be issued to any employee, officer, director
or consultant.
(II) "Common Stock Deemed Outstanding" means, at any
given time, the number of shares of Common Stock issued and
outstanding at such time, plus the number of shares of
Common Stock deemed to be outstanding pursuant to Sections
6(h)(i)(A) and 6(h)(i)(B) hereof regardless of whether the
Options or Convertible Securities are actually exercisable
at such time, but excluding any shares of Common Stock
issuable upon conversion of the shares of Series G1
Preferred Stock or exercise of the Warrants.
(E) Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under this Section
6(h)(i), the following shall be applicable:
(I) Calculation of Consideration Received. If any
Common Stock, Options or Convertible Securities are issued
or sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the net
amount received by the Company therefor. In case any Common
Stock, Options or Convertible Securities are issued or sold
for a consideration other than cash, the amount of the
consideration other than cash received by the Company will
be the fair value of such consideration, except where such
consideration consists of securities, in which case the
amount of consideration received by the Company will be the
arithmetic average of the Per Share Market Values of such
security for the five (5) consecutive Trading Days
immediately preceding the date of receipt. In case any
Common Stock, Options or Convertible Securities are issued
to the owners of the non-surviving entity in connection with
any merger in which the Company is the surviving entity the
amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may
be. The fair value of any consideration other than cash or
securities will be determined jointly by the Company and the
Holders of a majority of the shares of Series G1 Preferred
Stock then outstanding. If such parties are unable to reach
agreement within ten
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(10) days after the occurrence of an event requiring
valuation (the "Valuation Event"), the fair value of such
consideration will be determined within forty-eight (48)
hours of the tenth (10th) day following the Valuation Event
by an independent, reputable appraiser selected by the
Company. The determination of such appraiser shall be
binding upon all parties absent manifest error.
(II) Integrated Transactions. In case any Option is
issued in connection with the issue or sale of other
securities of the Company, together comprising one
integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the
Options will be deemed to have been issued for an aggregate
consideration of $.01.
(III) Treasury Shares. The number of shares of Common
Stock outstanding at any given time does not include shares
owned or held by or for the account of the Company, and the
disposition of any shares so owned or held will be
considered an issue or sale of Common Stock.
(IV) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them
(1) to receive a dividend or other distribution payable in
Common Stock, Options or in Convertible Securities or (2) to
subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date will be deemed
to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(ii) Certain Events. If any event occurs of the type contemplated
by the provisions of Section 6(h)(i) (subject to the exceptions stated
therein) but not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation rights, phantom
stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Exercise
Price so as to protect the rights of the Registered Holder, or
assigns, of this Warrant; provided, however, that no such adjustment
will increase the Exercise Price as otherwise determined pursuant to
this Section 6(h).
7. Per Share Market Value. Per Share Market Value means on any particular
date (i) the closing bid price per share of the Common Stock on such date on the
New York Stock Exchange or other registered national stock exchange on which the
Common Stock is then listed or if there is no such price on such date, then the
closing bid price on such exchange or quotation system on the date nearest
preceding such date, or (ii) if the Common Stock is not listed then on the New
York Stock Exchange or any registered national stock exchange, the closing bid
price for a share of Common Stock in the over-the-counter market, as reported by
the New York Stock Exchange or in the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting prices)
at the close of business on such date, or (iii) if the Common Stock is not then
publicly traded the fair market value of a share of Common Stock as determined
by an Appraiser selected in good faith by the holder of this Warrant; provided,
however, that the Company, after receipt of the determination by such Appraiser,
shall have
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the right to select an additional Appraiser, in which case, the fair market
value shall be equal to the average of the determinations by each such
Appraiser; and provided, further that all determinations of the Per Share Market
Value shall be appropriately adjusted for any stock dividends, stock splits or
other similar transactions during such period.
8. Registration Rights. The Company will undertake the registration of the
Common Stock into which such Warrants are convertible at such times and upon
such terms pursuant to the provisions of the Registration Rights Agreement dated
September 17, 1998 by and among the Company, Brown Simpson Strategic Growth
Fund, L.P., Brown Simpson Strategic Growth Fund, Ltd., Heracles Fund Ltd. and
Themis Partners, L.P.
9. Notices. All notices or other communications required hereunder shall be
in writing and shall be sent either (i) by courier, or (ii) by telecopy as well
as by registered or certified mail, and shall be regarded as properly given in
the case of a courier upon actual delivery to the proper place of address; in
the case of telecopy, on the day following the date of transmission if properly
addressed and sent without transmission error to the correct number and receipt
is confirmed by telephone within 48 hours of the transmission; in the case of a
letter for which a telecopy could not be successfully transmitted or receipt of
which could not be confirmed as herein provided, three days after the registered
or certified mailing date if the letter is properly addressed and postage
prepaid; and shall be regarded as properly addressed if sent to the parties or
their representatives at the addresses given below:
To the Company: Signal Apparel Company, Inc.
200A Manufacturers Road
Chattanooga, Tennessee 37405
Attn: President & General Counsel
Phone: (423) 756-8146
Fax: (423) 752-2040
To the Holder: Heracles Fund Ltd.
c/o Promethean Investment Group
40 W. 57th Street, Suite 1520
New York, NY 10019
Attn: Jamie O'Brien
Tel: (212) 698-0588
Fax: (212) 698-0505
or such other address as any of the above may have furnished to the other
parties in writing by registered mail, return receipt requested.
[signature page follows]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer as of the date first set forth above.
SIGNAL APPAREL COMPANY, INC.
By: /s/ John W. Prutch
---------------------------
Name: John W. Prutch
Title: President
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EXHIBIT A
Warrant Exercise Form
TO: SIGNAL APPAREL COMPANY, INC.
The undersigned hereby: (1) irrevocably subscribes for and offers to
purchase _______ shares of Common Stock of Signal Apparel Company, Inc.,
pursuant to Warrant No. G1 heretofore issued to ___________________ on
____________, 1998; (2) encloses a payment of $__________ for these shares at a
price of $____ per share (as adjusted pursuant to the provisions of the
Warrant); and (3) requests that a certificate for the shares be issued in the
name of the undersigned and delivered to the undersigned at the address
specified below.
Date: ____________________________________________________
Investor Name: ___________________________________________
Taxpayer Identification
Number: ___________________________________________________
By: ______________________________________________________
Printed Name: ____________________________________________
Title: ____________________________________________________
Address: __________________________________________________
Note: The above signature should correspond exactly with
the name on the face of this Warrant Certificate or
with the name of assignee appearing in assignment
form below.
AND, if said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant Certificate is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder less
any fraction of a share paid in cash and delivered to the address stated above.
11
- --------------------------------------------------------------------------------
SIGNAL APPAREL COMPANY
WARRANT TO PURCHASE SHARES OF COMMON STOCK
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT
BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i)
PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACT WHICH HAS BECOME EFFECTIVE
AND IS CURRENT WITH RESPECT TO THE SECURITIES, OR (ii) PURSUANT TO A SPECIFIC
EXEMPTION FROM REGISTRATION UNDER THE ACT BUT ONLY UPON THE HOLDER HEREOF FIRST
HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE COMPANY, OR OTHER COUNSEL
ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL
APPLICABLE PROVISIONS OF THE ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR
SECURITIES LAW.
================================================================================
September 17, 1998
SIGNAL APPAREL COMPANY, INC.
For good and valuable consideration the receipt and sufficiency of which is
hereby acknowledged by Signal Apparel Company, Inc., an Indiana corporation,
with its principal office at 200-A Manufacturers Road, Chattanooga, Tennessee
37405, (the "Company"), Pacific Continental Securities Corp. (the "Holder"), of
Two Rector Street, 13th Floor, New York, New York 10006, subject to the terms
and conditions of this Warrant, is hereby granted the right to purchase, at the
initial exercise pace of $2.9375 per share, at any one or more times from the
date hereof until 5:00 P.M. New York City Time on September 17, 2003, in the
aggregate, forty-three thousand seven hundred fifty (43,750) shares of Common
Stock of the Company, $.01 par value (the "Shares) subject to adjustment as
provided in Section 5 hereof.
This Warrant initially is exercisable at a price of $2.9375 per share
payable in cash, by certified or official bank check in New York Clearing House
funds or other form of payment satisfactory to the Company, subject to
adjustment as provided in Section 5 hereof.
1. Exercise of Warrant. The purchase rights represented by this Warrant are
exercisable at the option of the Holder hereof, in whole or in part, at one or
more times
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during any period in which this Warrant may be exercised as set forth above. The
Holder shall not be deemed to have exercised its purchase rights hereunder until
the Company receives written notice of the Holder's intent to exercise its
purchase rights hereunder. The written notice shall be in the form of the
Subscription Form attached hereto and made a part hereof. Less than all of the
Shares may be purchased under this Warrant.
2. Issuance of Certificates. Upon the exercise of this Warrant, the
issuance of certificates for Shares underlying this Warrant shall be made
forthwith (and in any event within ten (10) business days after the Company's
receipt of (i) written notice hereunder as specified in Section 1 above) and
(ii) good funds in respect of the Purchase Price pursuant to Section 4 hereof
for the shares so exercised and such certificates shall be issued in the name of
the Holder hereof.
3. Restriction on Transfer and Registration Rights. Neither this Warrant
nor any Shares issuable upon exercise hereof have been registered under the
Securities Act of 1933, as amended (the "Act"), and neither may be sold or
transferred in whole or in part unless the Holder shall have first given prior
written notice to the Company describing such sale or transfer and furnished to
the Company an opinion, satisfactory to counsel for the Company as determined by
such counsel in its sole discretion, to the effect that the proposed sale or
transfer may be made without registration under the Act; provided, however, that
the foregoing shall not apply if there is in effect a registration statement
with respect to this Warrant or the Shares issuable upon exercise hereof, as the
case may be, at the time of the proposed sale or transfer. Upon exercise, in
part or in whole, of this Warrant, each certificate issued representing the
Shares underlying this Warrant shall bear a legend to the foregoing effect. The
Holder shall have such rights to request the
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<PAGE>
Company to register all or any of the Shares issuable upon exercise of this
Warrant as set forth in Annex B hereto (the "Registration Rights") subject to
the terms of Annex B.
4. Price.
4.1 Initial and Adjusted Purchase Price. The initial Purchase Price shall
be $2.9375 per Share. The adjusted Purchase Price shall be the price which shall
result from time to time from any and all adjustments of the initial purchase
price in accordance with the provisions of Section 5 hereof.
4.2 Purchase Price. The term "Purchase Price" herein shall mean the initial
purchase price or the adjusted purchase price, as the case may be.
5. Adjustments of Purchase Price and Number of Shares. The Shares subject
to this Warrant and the Purchase Price thereof shall be appropriately adjusted
by the Company in accordance with the Statement of Rights to Warrants included
in Annex A hereto.
6. Replacement of Warrant. Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and, in case of such loss, theft, destruction or mutilation, of
indemnity or security reasonably satisfactory to it in its sole discretion, and
reimbursement to the Company of all expenses incidental or relating thereto, and
upon surrender and cancellation of this Warrant (unless lost, stolen or
destroyed), the Company will make and deliver a new Warrant of like tenor, in
lieu of this Warrant.
7. Notices to Warrant Holder. Nothing contained in this Warrant shall be
construed as conferring upon the Holder hereof the right to vote or to consent
as a shareholder in respect of any meetings of shareholders for the election of
directors or any
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<PAGE>
other matter, or as having any rights whatsoever as a shareholder of the
Company. The Company shall, however, during the term of this warrant supply
Holder with copies of all filings made with the SEC under the Securities
Exchange Act of 1934, as amended and of all documents delivered to stockholders
of the Company.
8. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of this Warrant, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth on the first page of
this Warrant or to such other address as the Company may designate by
notice to the Holder, Attention: Secretary; with a required copy to the
Company's counsel, Witt, Gaither & Whitaker, P.C., 1100 SunTrust Bank
Building, 736 Market Street, Chattanooga, Tennessee, 37402, Attention:
Steven R. Barrett, Esq.
9. Successors. All the agents contained in this Warrant shall bind the
parties hereto and their respective heirs, executors, administrators,
distributees, permitted successors and assigns. The Holder may assign this
Warrant without the Company's prior written consent provided that the Holder
complies with the provisions of this agreement and applicable securities laws.
Any attempted assignment in violation of the preceding sentence shall be void
and of no effect.
10. Headings. The headings in this Warrant are inserted for purposes of
convenience only and shall have no substantive effect.
4
<PAGE>
11. Law Governing. This Warrant is delivered in the State of New York
and shall be construed and enforced in accordance with, and governed by, the
laws of the State of New York, without giving effect to conflicts of law
principles.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its
corporate name by, and such signature to be attested to by, a duly authorized
officer as of the date first above written.
SIGNAL APPAREL COMPANY, INC.
By:_________________________________
Its:_________________________________
Attest:
_________________________
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<PAGE>
ANNEX A
STATEMENT OF RIGHTS TO WARRANTS
AND
FORMS OF SUBSCRIPTION AND ASSIGNMENT
(a) Adjustment to Purchase Price and Number of Shares. In case, prior to
the expiration of this Warrant by exercise or by its terms, the Company shall
issue any shares of its Common Stock as a stock dividend or subdivide the number
of outstanding shares of its Common Stock into a greater number of shares, then
in either of such cases, the then applicable purchase price per share of the
shares of Common Stock purchasable pursuant to this Warrant in effect at the
time of such action shall be proportionately reduced and the number of shares at
that time purchasable pursuant to this Warrant shall be proportionately
increased; and conversely, in the event the Company shall contract the number of
outstanding shares of Common Stock by combining such shares into a smaller
number of shares, then, in such case, the then applicable purchase price per
share of the shares of Common Stock purchasable pursuant to this Warrant in
effect at the time of such action shall be proportionately increased and the
number or shares of Common Stock purchasable pursuant to this Warrant shall be
proportionately decreased. Any dividend paid or distributed upon the Common
Stock shall be treated as a dividend paid in Common Stock to the extent that
shares of Common Stock are issuable upon conversion thereof.
(b) Recapitalization. In case, prior to the expiration of this Warrant by
exercise or by its terms, the Company shall be recapitalized by reclassifying
its outstanding Common Stock, (other than a change in par value to no par
value), or the Company or a successor corporation shad consolidate or merge with
or convey all or substantially all of its or of any successor corporation's
property and assets to any other corporation or corporations (any such other
corporations being included within the meaning of the term "successor
corporation" hereinbefore used in the event of any consolidation or merger of
any such other corporation with, or the sale of all or substantially all of the
property of any such other corporation to, another corporation or corporations),
then, as a condition of such recapitalization, consolidation, merger or
conveyance, lawful and adequate provision shall be made whereby the Holder of
this Warrant shall thereafter have the right to purchase, upon the basis and on
the terms and conditions specified in this Warrant, in lieu of the shares of
Common Stock of the Company theretofore purchasable upon the exercise of this
Warrant, such shares of stock, securities or assets of the other corporation as
to which the Holder of this Warrant would have been entitled had this Warrant
been exercised immediately prior to such recapitalization, consolidation, merger
or conveyance; and in any such event, the rights of the Warrant Holder to any
adjustment in the number of shares of Common Stock purchasable upon the exercise
of this Warrant, as hereinbefore provided, shall continue and be preserved in
respect of any stock which the Warrant Holder becomes entitled to purchase.
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<PAGE>
(c) Dissolution. In case the Company at any time while this Warrant shall
remain unexpired and unexercised shall sell all or substantially all of its
property or dissolve, liquidate or wind up its affairs, lawful provision shall
be made as part of the terms of any such sale, dissolution, liquidation or
winding up, so that the Holder of this Warrant may thereafter receive upon
exercise hereof in lieu of each share of Common Stock of the Company which he
would have been entitled to receive, the same kind and amount of any securities
or assets as may be issuable, distributable or payable upon any such sale,
dissolution, liquidation or winding up with respect to each share of Common
Stock of the Company; provided, however, that in any case of any such sale or of
dissolution, liquidation or winding up, the right to exercise this Warrant shall
terminate on a date fixed by the Company. Such date so fixed shall be no earlier
than 3 P.M. New York City Time, on the forty-fifth (45th) day next succeeding
the date on which notice of such termination of the right to exercise this
Warrant has been given by mail to the registered Holder of this Warrant at its
address as it appears on the books of the Company.
(d) No Fractional Shares. Upon any exercise of this Warrant by the Warrant
Holder, the Company shall not be required to deliver fractions of one share, but
adjustment in the purchase price payable by the Warrant Holder shall be made in
respect of any such fraction of one share on the basis of the purchase price per
share then applicable upon exercise of this Warrant.
(e) Notices of Certain Events. In the event that, prior to the expiration
of this Warrant by exercise or by its terms, the Company shall determine to take
a record of its stockholders for the purpose of determining stockholders
entitled to receive any dividend, stock dividend, distribution or other right
whether or not it may cause any change or adjustment in the number, amount,
price or nature of the securities or assets deliverable upon the exercise of
this Warrant pursuant to the foregoing provisions, the Company shall give at
least ten (10) days' prior written notice to the effect that it intends to take
such record to the registered Holder of this Warrant at its address as it
appears on the books of the Company, said notice to specify the date as of which
such record is to be taken, the purpose for which such record is to be taken,
and the effect which the action which may be taken will have upon this Warrant.
(f) Registered Owner. The Company may deem and treat the registered Holder
of the Warrant at any time as the absolute owner hereof for all purposes, and
shall not be affected by any notice to the contrary.
(g) Status. This Warrant shall not entitle any Holder thereof to any of the
rights of a stockholder, and shall not entitle any Holder thereof to any
dividend declared upon the Common Stock unless the Holder shall have exercised
the within Warrant and purchased the shares of Common Stock prior to the record
date fixed by the Board of Directors for the determination of Holders of Common
Stock entitled to exercise any such rights or receive said dividend.
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<PAGE>
(h) No Adjustment for Small Amounts. Anything in the Statement of Rights to
Warrants to the contrary notwithstanding, the Company shall not be required to
give effect to any adjustment in the Purchase Price unless and until the net
effect of one or more adjustments, determined as above provided, shall have
required a change of the Purchase Price by at least ten cents, but when the
cumulative net effect of more than one adjustment so determined shall be to
change the actual Purchase Price by at least ten cents, such change in the
Purchase Price shall thereupon be given effect.
8
<PAGE>
ASSIGNMENT
(To Be Executed By the Registered Holder
to Effect a Transfer of the Within Warrant)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto ________________________________
________________________________________________________________________________
(Name)
________________________________________________________________________________
(Address)
________________________________________________________________________________
the right to purchase Common Stock evidenced by the within Warrant, to the
extent _______ of shares of Common Stock, and does hereby irrevocably constitute
and appoint
________________________________________________________________________________
to transfer the said right on the books of the Company, with full power of
substitution.
Dated: ____________________, 19___.
__________________________________
(Signature)
NOTICE: The signature to this assignment must correspond with the name
as written upon the case of the within Warrant in every
particular, without alteration or enlargement, or any change
whatsoever and must be guaranteed by a bank, other than a
savings bank or trust company, having an office or
correspondent in New York, or by a firm having membership on a
registered national securities exchange and an office in New
York, New York.
9
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FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To Signal Apparel Company, Inc.
The undersigned, the Holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ________(1) shares of Common Stock of Signal Apparel
Company, Inc. and herewith makes payment of $___________ therefor, and requests
that the certificate or certificates for such shares be issued in the name of
and delivered to the undersigned.
Dated
____________________________
(Signature must conform in
all rejects to name of
Holder as specified on the
face of the Warrants)
____________________________
(Address)
- --------
(1) Insert here the maximum number of shares or, in the case of a partial
exercise, the portion thereof as to which the Warrant is being exercised.
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<PAGE>
ANNEX B
REGISTRATION RIGHTS
(a) If, at any time prior to September 17, 2003 the Company proposes to
register any of its securities under the Securities Act of 1933 (the "Securities
Act") (other than (i) securities issued or issuable to the holders of the
Company's Series G1 Convertible Preferred Stock or Series G2 Convertible
Preferred Stock, (ii) securities to be issued pursuant to a stock option or
other employee benefit or similar plan or (iii) in connection with a transaction
contemplated by Rule 145 under the Securities Act), the Company shall, promptly
give written notice (the "Registration Notice") to Holder of the Company's
intention to effect such registration. If, within 15 days after receipt of such
Registration Notice, Holder submits a written request to the Company specifying
the number of shares of Common Stock which it will receive upon exercise of the
Warrant and which it proposes to sell or otherwise dispose of, (the "Subject
Stock") the Company shall include the Subject Stock in such registration
statement. Holder when requesting inclusion of the Subject Stock in any such
registration statement, may in its discretion delay exercise of the Warrant and
notify the Company that it will exercise its Warrant as to the Subject Stock
immediately upon the registration statement becoming effective or for delivery
upon closing of a related offering. The Company shall keep each registration
statement covering any Subject Stock in effect until the earlier of (i) 90 days
following the effectiveness of such registration statement and (ii) the sale of
the Subject Shares. Notwithstanding the foregoing, if the offering of the
Company's securities pursuant to such registration statement is to be made by or
through underwriters, the Company shall not be required to include Subject Stock
therein if and to the extent that the underwriter managing the offering advises
the Company in writing that such inclusion would materially adversely affect
such offering and, in such event, the Company may delay the effectiveness of the
registration of or cause Holder to delay the sale of the Subject Stock for a
period of not more than 60 days after completion of the distribution of
securities being underwritten on behalf of the Company (but in no event for more
than 180 days after the registration statement first becomes effective) and the
Company shall thereupon promptly file such supplements and post-effective
amendments and take such other steps as may be necessary to permit Holder to
make its proposed offering following the end of such period of delay.
(b) In connection with any offering of shares of Subject Stock registered
pursuant to this Annex B the Company (i) shall furnish to Holder such number of
copies of each registration statement, each prospectus and each preliminary
prospectus, and of each amendment and supplement to any thereof as Holder may
reasonably request in order to effect the offering and sale of the Subject Stock
to be offered and sold, but only while the Company shall be required under the
provisions hereof to cause the registration statement to remain current and (ii)
take such action as shall be necessary to qualify the shares covered by such
registration statement under such blue sky or other state securities laws for
offer and sale as Holder shall request; provided, however, that the Company
shall not be obligated to qualify as a foreign corporation to do business under
the laws of
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any jurisdiction in which it shall not then be qualified or to file any general
consent to service of process in any jurisdiction in which such a consent has
not been previously filed. To the extent the Company shall enter into an
underwriting agreement (the "Agreement") with a managing underwriter or
underwriters selected by it containing representations, warranties, indemnities
and agreements then customarily included by an issuer in underwriting agreements
with respect to secondary distributions, Holder agrees as a condition to
participation in such offering to make such representations and warranties with
respect to information as to it as selling stockholder, and as to its holdings,
which is furnished in writing to the underwriter for use in the registration
statement as are customary and appropriate. In connection with any offering of
Subject Stock registered pursuant to this Annex B, the Company shall furnish to
the underwriter, at the Company's expense, unlegended certificates representing
ownership of the Subject Stock being sold in such denominations as requested and
instruct any transfer agent and registrar of the Subject Stock to release any
stop transfer orders with respect to such Subject Stock.
(c) In connection with any registration pursuant to this Annex B all
expenses of registration shall be borne by the Company (unless contrary to the
federal securities laws or the laws of any state where the Subject Stock is to
be offered), provided, however, in connection with any such registration, Holder
shall be obligated to pay any and all underwriter's and/or brokers commissions,
to the extent that such commissions would not have been so incurred in the
absence of the registration of such Subject Stock. Under no circumstances shall
the Company have any liability for any fees and expenses of underwriters,
counsel, accountants or other agents of Holder relating to the subject stock
with respect to any registration statement filed pursuant hereto, including but
not limited to any out-of-pocket expenses, securities liability insurance
policies, the costs of any investigations by or on behalf of Holder of the
accuracy and completeness of such registration statement or related to the
furnishing of information by Holder in connection with such registration
statement.
(d) For a period until the earlier of (i) ninety (90) days from and after
the effective date of any registration statement filed pursuant hereto in which
any of the Subject Stock is included and (ii) the sale of the Subject Shares,
the Company shall from time to time amend or supplement the registration
statement and the prospectus used in connection therewith as may be necessary to
permit such sale and disposition and to the extent necessary in order to keep
such registration statement effective and such prospectus current under the Act
so that neither the registration statement nor the prospectus contains any
untrue statement as to any material fact, omits any statements necessary to make
the statements contained therein not misleading.
(e) In the case of any offering registered pursuant to this Annex B, the
Company agrees to indemnify and hold harmless Holder and each controlling person
of Holder within the meaning of Section 15 of the Securities Act, and the
directors and officers of Holder, against any and all losses, claims, damages or
liabilities to which they or any of them may become subject under the Securities
Act or any other statute or
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<PAGE>
common law or otherwise, and to reimburse them, from time to time upon request,
for any legal or other expenses reasonably incurred by them in connection with
investigating any claims and defending any actions, insofar as any such losses,
claims, damages, liabilities or actions shall arise out of or shall be based
upon any untrue statement or alleged untrue statement contained in the
registration statement relating to the sale of such Subject Stock in any
preliminary prospectus or in any prospectus or in any supplement or amendment to
any of the foregoing of a material fact, or the omission or alleged omission to
state therein a material fact required to be stated or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, provided, however, that the indemnification agreement contained
in this paragraph shall not apply to such losses, claims, damages, liabilities
or actions which shall arise from (i) the sale of Subject Stock if such losses,
claims, damages, liabilities or actions shall arise out of or shall be based
upon any such untrue statement or alleged untrue statement, or any such omission
or alleged omission, if such statement or omission shall have been made in
reliance upon and in conformity with information furnished in writing to the
Company by Holder specifically for use in connection with the preparation of the
registration statement or any preliminary prospectus or prospectus contained in
the registration statement or any amendment thereof or supplement thereto; or
(ii) any actual or alleged untrue statement of a material fact or any actual or
alleged omission of a material fact required to be stated in any preliminary
prospectus if Holder sells Securities to a Person to whom there was not sent or
given, at or prior to the written confirmation of such sale, a copy of the final
prospectus or of the final prospectus as then amended or supplemented, whichever
is most recent, if the Company had previously furnished copies thereof to Holder
or its representatives and such final prospectus, as then amended or
supplemented, corrected any such misstatement or omission; or (iii) the use of
any preliminary, final or summary prospectus by or on behalf of Holder after the
Company has notified Holder that such prospectus contains an untrue statement of
a material fact or omits to state a material fact required to be stated therein,
in the light of the circumstances under which they were made, not misleading; or
(iv) the use of any final prospectus, as amended or supplemented, by or on
behalf of Holder after such time as the obligation of the Company under this
Annex B to keep the related registration statement effective has expired; or (v)
any violation of any federal or state securities laws, rules or regulations
committed by Holder (other than any violation that arises out of or is based
upon the circumstances described above and as to which Holder would otherwise be
entitled to indemnification hereunder).
(f) In connection with any registration statement in which Holder is
participating, Holder will indemnify, to the extent permitted by law, the
Company, controlling persons of the Company under Section 15 of the Securities
Act and its directors and officers against any and all losses, claims, damages,
liabilities and expenses resulting, and to reimburse them, from time to time
upon request, for any legal or other expenses reasonably incurred by them in
connection with investigating any claims and defending any actions, solely by
reason of (i) any untrue statement of a material fact or any omission of a
material fact necessary to make the statements therein not misleading, in the
registration statement or any prospectus or preliminary prospectus or any
13
<PAGE>
amendment or supplement thereto, but only to the extent that such untrue
statement is contained in, or such omission is omitted from, information so
furnished to the Company by Holder in writing; (ii) the use of any prospectus by
or on behalf of Holder (x) after the Company has notified Holder that such
prospectus contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein, in light of the circumstances under
which they were made, not misleading or (y) after such time as the obligation of
the Company to keep the related registration statement effective and current has
expired; (iii) the failure to send or deliver to a party to whom Holder sells
the Securities, at or prior to the written confirmation of sale, a copy of the
final prospectus or of the final prospectus as then amended or supplemented,
whichever is most recent, if the Company had previously furnished copies thereof
to Holder or its representatives; or (iv) any violation by Holder of any federal
or state securities law or rule or regulation thereunder (other than any
violation that arises out of or is based upon the circumstances described above
and as to which Holder is entitled to indemnification hereunder); provided,
however, that Holder shall not be liable in the aggregate for any amounts
exceeding the product of the sale price minus the exercise price per share of
Subject Stock of Holder sold in such registered offering and the number of
shares of Subject Stock sold pursuant to such registration statement or
prospectus by Holder.
(g) Each party indemnified under paragraph (e) or (f) of this Annex B
shall, promptly after receipt of notice of the commencement of any action
against such indemnified party in respect of which indemnity may be sought
hereunder, notify the indemnifying party in writing of the commencement thereof.
The omission of any indemnified party to so notify an indemnifying party of any
such action shall not relieve the indemnifying party from any liability in
respect of such action which it may have to such indemnifies party on account of
the indemnity agreement contained in paragraph (e) or (f) of this Annex B,
unless the indemnifying party was prejudiced by such omission, and in no event
shall relieve the indemnifying party from any other liability which it may have
to such indemnified party. In case any such action shall be brought against any
indemnified party and it shall notify an indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it may desire to assume the defense thereof through counsel
satisfactory to the indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under paragraph (e) or (f) of this Annex B for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof, other than reasonable costs of investigation (unless such indemnified
party reasonably objects to such assumption on the grounds that there may be
defenses available to it which are different from or in addition to such
indemnifying party in which event the indemnified party shall be reimbursed by
the indemnifying party for the expenses incurred in connection with retaining
one separate legal counsel).
(h) Nothing in paragraph (e) or (f) of this Annex B shall prevent the
indemnified party from retaining counsel of its own choosing, at its own
expense, to defend or cooperate in the defense or investigation of any claim in
respect of which
14
<PAGE>
indemnification is available hereunder. No indemnifying party will consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(i) If recovery is not available under the foregoing indemnification
provisions, for any reason other than as specified therein, the parties entitled
to indemnification by the terms thereof shall be entitled to contribution for
any losses, claims, damages, or liabilities, joint or several, and expenses to
which they may become subject, in such proportion as is appropriate to reflect
the relative fault of the parties entitled to indemnification, on the one he
and, and the indemnifying parties, on the other, in connection with the matter
out of which such losses, claims, damages, liabilities or expenses arise or
result from. In determining the amount of contribution to which the respective
parties are entitled, there shall be considered the parties' relative knowledge
and access to information concerning the matter with respect to which the action
was asserted, the opportunity to correct and prevent any statement or omission,
and any other equitable considerations appropriate under the circumstances. The
Company and each Holder agrees that it would not be equitable if the amount of
such contribution were determined by pro rata or per capita allocations.
Notwithstanding the provisions of this Section (i) the Holder shall not be
required to contribute any amount in excess of the amount by which the net
proceeds received by such Holder from the sale of its Warrants or underlying
shares of Common Stock exceeds the amount of the exercise price of the Warrants
plus any damages that such Holder has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission.
(j) Notwithstanding the foregoing, Holder shall furnish to the Company such
information regarding Holder, its intended method of distribution of the
Securities and such other information as the Company may from time to time
reasonably request for purposes of preparation of any registration statement
pursuant to this Annex B and to maintain the effectiveness of such registration
statement.
(i) At least five business days prior to any disposition of Securities
(other than pursuant to an underwritten offering) by Holder, Holder will
orally advise the Company (and promptly confirm such advise in writing) of
the dates on which such disposition is expected to commence and terminate,
the number of Securities expected to be sold, the method of disposition and
such other information as the Company may reasonably request in order to
supplement the prospectus contained in the registration statement in
accordance with the rules and regulations of the Commission. Promptly after
receiving such advise, the Company will, if necessary, (x) prepare a
supplement to the prospectus based upon such advice and file the same with
the Commission pursuant to Rule 424(b) under the Securities Act and (y), if
necessary, qualify the Securities to be sold under the securities or blue
sky laws of such jurisdiction in the United States as Holder shall
reasonably request (subject to the proviso of Section (b) of this Annex B).
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<PAGE>
(ii) Holder agrees that, upon receipt of any notice from the Company
of any event of the kind described in Section (d) of this Annex B, Holder
will forthwith discontinue disposition of the Securities pursuant to such
registration statement until receipt of copies of the supplemented or
amended prospectus contemplated by Section (d), and, if so directed by the
Company, will deliver to the Company all copies of the prospectus covering
the Securities in its possession at the time of receipt of such notice.
(iii) Holder shall, at any time it is engaged in a distribution of
Securities, comply with all applicable requirements of Regulation M (or any
successor provisions then in force) promulgated under the Securities
Exchange Act of 1934 (the "Exchange Act") and (x) will not engage in any
stabilization activity in connection with the securities of the Company in
contravention of such rules, (y) will distribute the Securities solely in
the manner described in the registration statement and (z) will not bid for
or purchase any securities of the Company or attempt to induce any person
to purchase any securities of the Company other than as permitted under the
Exchange Act.
(iv) Holder shall provide such information and materials, execute all
such documents and take all such other actions as the Company shall
reasonably request in order to permit the Company to comply with all
applicable requirements of law and to effect the registration of Holder's
Securities.
(v) If Securities are registered for sale pursuant to Rule 415 under
the Securities Act, Holder shall cease any distribution of such shares
under the registration statement twice a year, for up to 90 days each, upon
the request of the Company if: (x) such distribution would require the
public disclosure of material non-public information concerning any
transaction or negotiations involving the Company or any of its affiliates
that, in the good faith judgment of the Company's Board of Directors (or
the executive committee thereof), would materially interfere with such
transaction or negotiations, (y) such distribution would otherwise require
premature disclosure of information that; in the good faith judgment of the
Company's Board of Directors, would adversely affect or otherwise be
detrimental to the Company or (z) the Company proposes to file a
registration statement under the Securities Act for the offering and sale
of securities for its own account in an underwritten offering and the
managing underwriter therefor shall advise the Company in writing that in
its opinion the continued distribution of the Securities would adversely
affect the success of the offering of the securities proposed to be
registered for the account of the Company. The Company shall promptly
notify Holder at such time as (i) such transactions or negotiations have
been otherwise publicly disclosed or terminated, (ii) such non-public
information has been publicly disclosed or counsel to the Company has
determined that such disclosure is not required due to subsequent events or
(iii) the completion of such underwritten offering.
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- --------------------------------------------------------------------------------
SIGNAL APPAREL COMPANY
WARRANT TO PURCHASE SHARES OF COMMON STOCK
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT
BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i)
PURSUANT TO A REGISTRATION STATEMENT UNDER THE ACT WHICH HAS BECOME EFFECTIVE
AND IS CURRENT WITH RESPECT TO THE SECURITIES, OR (ii) PURSUANT TO A SPECIFIC
EXEMPTION FROM REGISTRATION UNDER THE ACT BUT ONLY UPON THE HOLDER HEREOF FIRST
HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO THE COMPANY, OR OTHER COUNSEL
ACCEPTABLE TO THE COMPANY, THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL
APPLICABLE PROVISIONS OF THE ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR SIMILAR
SECURITIES LAW.
================================================================================
September 17, 1998
SIGNAL APPAREL COMPANY, INC.
For good and valuable consideration the receipt and sufficiency of which is
hereby acknowledged by Signal Apparel Company, Inc., an Indiana corporation,
with its principal office at 200-A Manufacturers Road, Chattanooga, Tennessee
37405, (the "Company"), Emerson Capital, Inc. (the "Holder"), of Two Rector
Street, 13th Floor, New York, New York 10006, subject to the terms and
conditions of this Warrant, is hereby granted the right to purchase, at the
initial exercise pace of $2.9375 per share, at any one or more times from the
date hereof until 5:00 P.M. New York City Time on September 17, 2003, in the
aggregate, eighteen thousand seven hundred fifty (18,750) shares of Common Stock
of the Company, $.01 par value (the "Shares) subject to adjustment as provided
in Section 5 hereof.
This Warrant initially is exercisable at a price of $2.9375 per share
payable in cash, by certified or official bank check in New York Clearing House
funds or other form of payment satisfactory to the Company, subject to
adjustment as provided in Section 5 hereof.
1. Exercise of Warrant. The purchase rights represented by this Warrant are
exercisable at the option of the Holder hereof, in whole or in part, at one or
more times
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during any period in which this Warrant may be exercised as set forth above. The
Holder shall not be deemed to have exercised its purchase rights hereunder until
the Company receives written notice of the Holder's intent to exercise its
purchase rights hereunder. The written notice shall be in the form of the
Subscription Form attached hereto and made a part hereof. Less than all of the
Shares may be purchased under this Warrant.
2. Issuance of Certificates. Upon the exercise of this Warrant, the
issuance of certificates for Shares underlying this Warrant shall be made
forthwith (and in any event within ten (10) business days after the Company's
receipt of (i) written notice hereunder as specified in Section 1 above) and
(ii) good funds in respect of the Purchase Price pursuant to Section 4 hereof
for the shares so exercised and such certificates shall be issued in the name of
the Holder hereof.
3. Restriction on Transfer and Registration Rights. Neither this Warrant
nor any Shares issuable upon exercise hereof have been registered under the
Securities Act of 1933, as amended (the "Act"), and neither may be sold or
transferred in whole or in part unless the Holder shall have first given prior
written notice to the Company describing such sale or transfer and furnished to
the Company an opinion, satisfactory to counsel for the Company as determined by
such counsel in its sole discretion, to the effect that the proposed sale or
transfer may be made without registration under the Act; provided, however, that
the foregoing shall not apply if there is in effect a registration statement
with respect to this Warrant or the Shares issuable upon exercise hereof, as the
case may be, at the time of the proposed sale or transfer. Upon exercise, in
part or in whole, of this Warrant, each certificate issued representing the
Shares underlying this Warrant shall bear a legend to the foregoing effect. The
Holder shall have such rights to request the
2
<PAGE>
Company to register all or any of the Shares issuable upon exercise of this
Warrant as set forth in Annex B hereto (the "Registration Rights") subject to
the terms of Annex B.
4. Price.
4.1 Initial and Adjusted Purchase Price. The initial Purchase Price shall
be $2.9375 per Share. The adjusted Purchase Price shall be the price which shall
result from time to time from any and all adjustments of the initial purchase
price in accordance with the provisions of Section 5 hereof.
4.2 Purchase Price. The term "Purchase Price" herein shall mean the initial
purchase price or the adjusted purchase price, as the case may be.
5. Adjustments of Purchase Price and Number of Shares. The Shares subject
to this Warrant and the Purchase Price thereof shall be appropriately adjusted
by the Company in accordance with the Statement of Rights to Warrants included
in Annex A hereto.
6. Replacement of Warrant. Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and, in case of such loss, theft, destruction or mutilation, of
indemnity or security reasonably satisfactory to it in its sole discretion, and
reimbursement to the Company of all expenses incidental or relating thereto, and
upon surrender and cancellation of this Warrant (unless lost, stolen or
destroyed), the Company will make and deliver a new Warrant of like tenor, in
lieu of this Warrant.
7. Notices to Warrant Holder. Nothing contained in this Warrant shall be
construed as conferring upon the Holder hereof the right to vote or to consent
as a shareholder in respect of any meetings of shareholders for the election of
directors or any
3
<PAGE>
other matter, or as having any rights whatsoever as a shareholder of the
Company. The Company shall, however, during the term of this warrant supply
Holder with copies of all filings made with the SEC under the Securities
Exchange Act of 1934, as amended and of all documents delivered to stockholders
of the Company.
8. Notices. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of this Warrant, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth on the first page of
this Warrant or to such other address as the Company may designate by
notice to the Holder, Attention: Secretary; with a required copy to the
Company's counsel, Witt, Gaither & Whitaker, P.C., 1100 SunTrust Bank
Building, 736 Market Street, Chattanooga, Tennessee, 37402, Attention:
Steven R. Barrett, Esq.
9. Successors. All the agents contained in this Warrant shall bind the
parties hereto and their respective heirs, executors, administrators,
distributees, permitted successors and assigns. The Holder may assign this
Warrant without the Company's prior written consent provided that the Holder
complies with the provisions of this agreement and applicable securities laws.
Any attempted assignment in violation of the preceding sentence shall be void
and of no effect.
10. Headings. The headings in this Warrant are inserted for purposes of
convenience only and shall have no substantive effect.
4
<PAGE>
11. Law Governing. This Warrant is delivered in the State of New York and
shall be construed and enforced in accordance with, and governed by, the laws of
the State of New York, without giving effect to conflicts of law principles.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its
corporate name by, and such signature to be attested to by, a duly authorized
officer as of the date first above written.
SIGNAL APPAREL COMPANY, INC.
By:__________________________________
Its:_________________________________
Attest:
______________________________
5
<PAGE>
ANNEX A
STATEMENT OF RIGHTS TO WARRANTS
AND
FORMS OF SUBSCRIPTION AND ASSIGNMENT
(a) Adjustment to Purchase Price and Number of Shares. In case, prior to
the expiration of this Warrant by exercise or by its terms, the Company shall
issue any shares of its Common Stock as a stock dividend or subdivide the number
of outstanding shares of its Common Stock into a greater number of shares, then
in either of such cases, the then applicable purchase price per share of the
shares of Common Stock purchasable pursuant to this Warrant in effect at the
time of such action shall be proportionately reduced and the number of shares at
that time purchasable pursuant to this Warrant shall be proportionately
increased; and conversely, in the event the Company shall contract the number of
outstanding shares of Common Stock by combining such shares into a smaller
number of shares, then, in such case, the then applicable purchase price per
share of the shares of Common Stock purchasable pursuant to this Warrant in
effect at the time of such action shall be proportionately increased and the
number or shares of Common Stock purchasable pursuant to this Warrant shall be
proportionately decreased. Any dividend paid or distributed upon the Common
Stock shall be treated as a dividend paid in Common Stock to the extent that
shares of Common Stock are issuable upon conversion thereof.
(b) Recapitalization. In case, prior to the expiration of this Warrant by
exercise or by its terms, the Company shall be recapitalized by reclassifying
its outstanding Common Stock, (other than a change in par value to no par
value), or the Company or a successor corporation shad consolidate or merge with
or convey all or substantially all of its or of any successor corporation's
property and assets to any other corporation or corporations (any such other
corporations being included within the meaning of the term "successor
corporation" hereinbefore used in the event of any consolidation or merger of
any such other corporation with, or the sale of all or substantially all of the
property of any such other corporation to, another corporation or corporations),
then, as a condition of such recapitalization, consolidation, merger or
conveyance, lawful and adequate provision shall be made whereby the Holder of
this Warrant shall thereafter have the right to purchase, upon the basis and on
the terms and conditions specified in this Warrant, in lieu of the shares of
Common Stock of the Company theretofore purchasable upon the exercise of this
Warrant, such shares of stock, securities or assets of the other corporation as
to which the Holder of this Warrant would have been entitled had this Warrant
been exercised immediately prior to such recapitalization, consolidation, merger
or conveyance; and in any such event, the rights of the Warrant Holder to any
adjustment in the number of shares of Common Stock purchasable upon the exercise
of this Warrant, as hereinbefore provided, shall continue and be preserved in
respect of any stock which the Warrant Holder becomes entitled to purchase.
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(c) Dissolution. In case the Company at any time while this Warrant shall
remain unexpired and unexercised shall sell all or substantially all of its
property or dissolve, liquidate or wind up its affairs, lawful provision shall
be made as part of the terms of any such sale, dissolution, liquidation or
winding up, so that the Holder of this Warrant may thereafter receive upon
exercise hereof in lieu of each share of Common Stock of the Company which he
would have been entitled to receive, the same kind and amount of any securities
or assets as may be issuable, distributable or payable upon any such sale,
dissolution, liquidation or winding up with respect to each share of Common
Stock of the Company; provided, however, that in any case of any such sale or of
dissolution, liquidation or winding up, the right to exercise this Warrant shall
terminate on a date fixed by the Company. Such date so fixed shall be no earlier
than 3 P.M. New York City Time, on the forty-fifth (45th) day next succeeding
the date on which notice of such termination of the right to exercise this
Warrant has been given by mail to the registered Holder of this Warrant at its
address as it appears on the books of the Company.
(d) No Fractional Shares. Upon any exercise of this Warrant by the Warrant
Holder, the Company shall not be required to deliver fractions of one share, but
adjustment in the purchase price payable by the Warrant Holder shall be made in
respect of any such fraction of one share on the basis of the purchase price per
share then applicable upon exercise of this Warrant.
(e) Notices of Certain Events. In the event that, prior to the expiration
of this Warrant by exercise or by its terms, the Company shall determine to take
a record of its stockholders for the purpose of determining stockholders
entitled to receive any dividend, stock dividend, distribution or other right
whether or not it may cause any change or adjustment in the number, amount,
price or nature of the securities or assets deliverable upon the exercise of
this Warrant pursuant to the foregoing provisions, the Company shall give at
least ten (10) days' prior written notice to the effect that it intends to take
such record to the registered Holder of this Warrant at its address as it
appears on the books of the Company, said notice to specify the date as of which
such record is to be taken, the purpose for which such record is to be taken,
and the effect which the action which may be taken will have upon this Warrant.
(f) Registered Owner. The Company may deem and treat the registered Holder
of the Warrant at any time as the absolute owner hereof for all purposes, and
shall not be affected by any notice to the contrary.
(g) Status. This Warrant shall not entitle any Holder thereof to any of the
rights of a stockholder, and shall not entitle any Holder thereof to any
dividend declared upon the Common Stock unless the Holder shall have exercised
the within Warrant and purchased the shares of Common Stock prior to the record
date fixed by the Board of Directors for the determination of Holders of Common
Stock entitled to exercise any such rights or receive said dividend.
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(h) No Adjustment for Small Amounts. Anything in the Statement of Rights to
Warrants to the contrary notwithstanding, the Company shall not be required to
give effect to any adjustment in the Purchase Price unless and until the net
effect of one or more adjustments, determined as above provided, shall have
required a change of the Purchase Price by at least ten cents, but when the
cumulative net effect of more than one adjustment so determined shall be to
change the actual Purchase Price by at least ten cents, such change in the
Purchase Price shall thereupon be given effect.
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ASSIGNMENT
(To Be Executed By the Registered Holder
to Effect a Transfer of the Within Warrant)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto ________________________________
________________________________________________________________________________
(Name)
________________________________________________________________________________
(Address)
________________________________________________________________________________
the right to purchase Common Stock evidenced by the within Warrant, to the
extent _______ of shares of Common Stock, and does hereby irrevocably constitute
and appoint
________________________________________________________________________________
to transfer the said right on the books of the Company, with full power of
substitution.
Dated: ____________________, 19___.
_____________________________
(Signature)
NOTICE: The signature to this assignment must correspond with the name
as written upon the case of the within Warrant in every
particular, without alteration or enlargement, or any change
whatsoever and must be guaranteed by a bank, other than a
savings bank or trust company, having an office or
correspondent in New York, or by a firm having membership on a
registered national securities exchange and an office in New
York, New York.
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FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
To Signal Apparel Company, Inc.
The undersigned, the Holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ________(2) shares of Common Stock of Signal Apparel
Company, Inc. and herewith makes payment of $___________ therefor, and requests
that the certificate or certificates for such shares be issued in the name of
and delivered to the undersigned.
Dated
______________________________
(Signature must conform in all
rejects to name of Holder as
specified on the face of the
Warrants)
______________________________
(Address)
- ----------
(2) Insert here the maximum number of shares or, in the case of a partial
exercise, the portion thereof as to which the Warrant is being exercised.
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ANNEX B
REGISTRATION RIGHTS
(a) If, at any time prior to September 17, 2003 the Company proposes to
register any of its securities under the Securities Act of 1933 (the "Securities
Act") (other than (i) securities issued or issuable to the holders of the
Company's Series G1 Convertible Preferred Stock or Series G2 Convertible
Preferred Stock, (ii) securities to be issued pursuant to a stock option or
other employee benefit or similar plan or (iii) in connection with a transaction
contemplated by Rule 145 under the Securities Act), the Company shall, promptly
give written notice (the "Registration Notice") to Holder of the Company's
intention to effect such registration. If, within 15 days after receipt of such
Registration Notice, Holder submits a written request to the Company specifying
the number of shares of Common Stock which it will receive upon exercise of the
Warrant and which it proposes to sell or otherwise dispose of, (the "Subject
Stock") the Company shall include the Subject Stock in such registration
statement. Holder when requesting inclusion of the Subject Stock in any such
registration statement, may in its discretion delay exercise of the Warrant and
notify the Company that it will exercise its Warrant as to the Subject Stock
immediately upon the registration statement becoming effective or for delivery
upon closing of a related offering. The Company shall keep each registration
statement covering any Subject Stock in effect until the earlier of (i) 90 days
following the effectiveness of such registration statement and (ii) the sale of
the Subject Shares. Notwithstanding the foregoing, if the offering of the
Company's securities pursuant to such registration statement is to be made by or
through underwriters, the Company shall not be required to include Subject Stock
therein if and to the extent that the underwriter managing the offering advises
the Company in writing that such inclusion would materially adversely affect
such offering and, in such event, the Company may delay the effectiveness of the
registration of or cause Holder to delay the sale of the Subject Stock for a
period of not more than 60 days after completion of the distribution of
securities being underwritten on behalf of the Company (but in no event for more
than 180 days after the registration statement first becomes effective) and the
Company shall thereupon promptly file such supplements and post-effective
amendments and take such other steps as may be necessary to permit Holder to
make its proposed offering following the end of such period of delay.
(b) In connection with any offering of shares of Subject Stock registered
pursuant to this Annex B the Company (i) shall furnish to Holder such number of
copies of each registration statement, each prospectus and each preliminary
prospectus, and of each amendment and supplement to any thereof as Holder may
reasonably request in order to effect the offering and sale of the Subject Stock
to be offered and sold, but only while the Company shall be required under the
provisions hereof to cause the registration statement to remain current and (ii)
take such action as shall be necessary to qualify the shares covered by such
registration statement under such blue sky or other state securities laws for
offer and sale as Holder shall request; provided, however, that the Company
shall not be obligated to qualify as a foreign corporation to do business under
the laws of
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any jurisdiction in which it shall not then be qualified or to file any general
consent to service of process in any jurisdiction in which such a consent has
not been previously filed. To the extent the Company shall enter into an
underwriting agreement (the "Agreement") with a managing underwriter or
underwriters selected by it containing representations, warranties, indemnities
and agreements then customarily included by an issuer in underwriting agreements
with respect to secondary distributions, Holder agrees as a condition to
participation in such offering to make such representations and warranties with
respect to information as to it as selling stockholder, and as to its holdings,
which is furnished in writing to the underwriter for use in the registration
statement as are customary and appropriate. In connection with any offering of
Subject Stock registered pursuant to this Annex B, the Company shall furnish to
the underwriter, at the Company's expense, unlegended certificates representing
ownership of the Subject Stock being sold in such denominations as requested and
instruct any transfer agent and registrar of the Subject Stock to release any
stop transfer orders with respect to such Subject Stock.
(c) In connection with any registration pursuant to this Annex B all
expenses of registration shall be borne by the Company (unless contrary to the
federal securities laws or the laws of any state where the Subject Stock is to
be offered), provided, however, in connection with any such registration, Holder
shall be obligated to pay any and all underwriter's and/or brokers commissions,
to the extent that such commissions would not have been so incurred in the
absence of the registration of such Subject Stock. Under no circumstances shall
the Company have any liability for any fees and expenses of underwriters,
counsel, accountants or other agents of Holder relating to the subject stock
with respect to any registration statement filed pursuant hereto, including but
not limited to any out-of-pocket expenses, securities liability insurance
policies, the costs of any investigations by or on behalf of Holder of the
accuracy and completeness of such registration statement or related to the
furnishing of information by Holder in connection with such registration
statement.
(d) For a period until the earlier of (i) ninety (90) days from and after
the effective date of any registration statement filed pursuant hereto in which
any of the Subject Stock is included and (ii) the sale of the Subject Shares,
the Company shall from time to time amend or supplement the registration
statement and the prospectus used in connection therewith as may be necessary to
permit such sale and disposition and to the extent necessary in order to keep
such registration statement effective and such prospectus current under the Act
so that neither the registration statement nor the prospectus contains any
untrue statement as to any material fact, omits any statements necessary to make
the statements contained therein not misleading.
(e) In the case of any offering registered pursuant to this Annex B, the
Company agrees to indemnify and hold harmless Holder and each controlling person
of Holder within the meaning of Section 15 of the Securities Act, and the
directors and officers of Holder, against any and all losses, claims, damages or
liabilities to which they or any of them may become subject under the Securities
Act or any other statute or
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<PAGE>
common law or otherwise, and to reimburse them, from time to time upon request,
for any legal or other expenses reasonably incurred by them in connection with
investigating any claims and defending any actions, insofar as any such losses,
claims, damages, liabilities or actions shall arise out of or shall be based
upon any untrue statement or alleged untrue statement contained in the
registration statement relating to the sale of such Subject Stock in any
preliminary prospectus or in any prospectus or in any supplement or amendment to
any of the foregoing of a material fact, or the omission or alleged omission to
state therein a material fact required to be stated or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, provided, however, that the indemnification agreement contained
in this paragraph shall not apply to such losses, claims, damages, liabilities
or actions which shall arise from (i) the sale of Subject Stock if such losses,
claims, damages, liabilities or actions shall arise out of or shall be based
upon any such untrue statement or alleged untrue statement, or any such omission
or alleged omission, if such statement or omission shall have been made in
reliance upon and in conformity with information furnished in writing to the
Company by Holder specifically for use in connection with the preparation of the
registration statement or any preliminary prospectus or prospectus contained in
the registration statement or any amendment thereof or supplement thereto; or
(ii) any actual or alleged untrue statement of a material fact or any actual or
alleged omission of a material fact required to be stated in any preliminary
prospectus if Holder sells Securities to a Person to whom there was not sent or
given, at or prior to the written confirmation of such sale, a copy of the final
prospectus or of the final prospectus as then amended or supplemented, whichever
is most recent, if the Company had previously furnished copies thereof to Holder
or its representatives and such final prospectus, as then amended or
supplemented, corrected any such misstatement or omission; or (iii) the use of
any preliminary, final or summary prospectus by or on behalf of Holder after the
Company has notified Holder that such prospectus contains an untrue statement of
a material fact or omits to state a material fact required to be stated therein,
in the light of the circumstances under which they were made, not misleading; or
(iv) the use of any final prospectus, as amended or supplemented, by or on
behalf of Holder after such time as the obligation of the Company under this
Annex B to keep the related registration statement effective has expired; or (v)
any violation of any federal or state securities laws, rules or regulations
committed by Holder (other than any violation that arises out of or is based
upon the circumstances described above and as to which Holder would otherwise be
entitled to indemnification hereunder).
(f) In connection with any registration statement in which Holder is
participating, Holder will indemnify, to the extent permitted by law, the
Company, controlling persons of the Company under Section 15 of the Securities
Act and its directors and officers against any and all losses, claims, damages,
liabilities and expenses resulting, and to reimburse them, from time to time
upon request, for any legal or other expenses reasonably incurred by them in
connection with investigating any claims and defending any actions, solely by
reason of (i) any untrue statement of a material fact or any omission of a
material fact necessary to make the statements therein not misleading, in the
registration statement or any prospectus or preliminary prospectus or any
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<PAGE>
amendment or supplement thereto, but only to the extent that such untrue
statement is contained in, or such omission is omitted from, information so
furnished to the Company by Holder in writing; (ii) the use of any prospectus by
or on behalf of Holder (x) after the Company has notified Holder that such
prospectus contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein, in light of the circumstances under
which they were made, not misleading or (y) after such time as the obligation of
the Company to keep the related registration statement effective and current has
expired; (iii) the failure to send or deliver to a party to whom Holder sells
the Securities, at or prior to the written confirmation of sale, a copy of the
final prospectus or of the final prospectus as then amended or supplemented,
whichever is most recent, if the Company had previously furnished copies thereof
to Holder or its representatives; or (iv) any violation by Holder of any federal
or state securities law or rule or regulation thereunder (other than any
violation that arises out of or is based upon the circumstances described above
and as to which Holder is entitled to indemnification hereunder); provided,
however, that Holder shall not be liable in the aggregate for any amounts
exceeding the product of the sale price minus the exercise price per share of
Subject Stock of Holder sold in such registered offering and the number of
shares of Subject Stock sold pursuant to such registration statement or
prospectus by Holder.
(g) Each party indemnified under paragraph (e) or (f) of this Annex B
shall, promptly after receipt of notice of the commencement of any action
against such indemnified party in respect of which indemnity may be sought
hereunder, notify the indemnifying party in writing of the commencement thereof.
The omission of any indemnified party to so notify an indemnifying party of any
such action shall not relieve the indemnifying party from any liability in
respect of such action which it may have to such indemnifies party on account of
the indemnity agreement contained in paragraph (e) or (f) of this Annex B,
unless the indemnifying party was prejudiced by such omission, and in no event
shall relieve the indemnifying party from any other liability which it may have
to such indemnified party. In case any such action shall be brought against any
indemnified party and it shall notify an indemnifying party of the commencement
thereof, the indemnifying party shall be entitled to participate therein and, to
the extent that it may desire to assume the defense thereof through counsel
satisfactory to the indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under paragraph (e) or (f) of this Annex B for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof, other than reasonable costs of investigation (unless such indemnified
party reasonably objects to such assumption on the grounds that there may be
defenses available to it which are different from or in addition to such
indemnifying party in which event the indemnified party shall be reimbursed by
the indemnifying party for the expenses incurred in connection with retaining
one separate legal counsel).
(h) Nothing in paragraph (e) or (f) of this Annex B shall prevent the
indemnified party from retaining counsel of its own choosing, at its own
expense, to defend or cooperate in the defense or investigation of any claim in
respect of which
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<PAGE>
indemnification is available hereunder. No indemnifying party will consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
(i) If recovery is not available under the foregoing indemnification
provisions, for any reason other than as specified therein, the parties entitled
to indemnification by the terms thereof shall be entitled to contribution for
any losses, claims, damages, or liabilities, joint or several, and expenses to
which they may become subject, in such proportion as is appropriate to reflect
the relative fault of the parties entitled to indemnification, on the one he
and, and the indemnifying parties, on the other, in connection with the matter
out of which such losses, claims, damages, liabilities or expenses arise or
result from. In determining the amount of contribution to which the respective
parties are entitled, there shall be considered the parties' relative knowledge
and access to information concerning the matter with respect to which the action
was asserted, the opportunity to correct and prevent any statement or omission,
and any other equitable considerations appropriate under the circumstances. The
Company and each Holder agrees that it would not be equitable if the amount of
such contribution were determined by pro rata or per capita allocations.
Notwithstanding the provisions of this Section (i) the Holder shall not be
required to contribute any amount in excess of the amount by which the net
proceeds received by such Holder from the sale of its Warrants or underlying
shares of Common Stock exceeds the amount of the exercise price of the Warrants
plus any damages that such Holder has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission.
(j) Notwithstanding the foregoing, Holder shall furnish to the Company such
information regarding Holder, its intended method of distribution of the
Securities and such other information as the Company may from time to time
reasonably request for purposes of preparation of any registration statement
pursuant to this Annex B and to maintain the effectiveness of such registration
statement.
(i) At least five business days prior to any disposition of Securities
(other than pursuant to an underwritten offering) by Holder, Holder will
orally advise the Company (and promptly confirm such advise in writing) of
the dates on which such disposition is expected to commence and terminate,
the number of Securities expected to be sold, the method of disposition and
such other information as the Company may reasonably request in order to
supplement the prospectus contained in the registration statement in
accordance with the rules and regulations of the Commission. Promptly after
receiving such advise, the Company will, if necessary, (x) prepare a
supplement to the prospectus based upon such advice and file the same with
the Commission pursuant to Rule 424(b) under the Securities Act and (y), if
necessary, qualify the Securities to be sold under the securities or blue
sky laws of such jurisdiction in the United States as Holder shall
reasonably request (subject to the proviso of Section (b) of this Annex B).
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<PAGE>
(ii) Holder agrees that, upon receipt of any notice from the Company
of any event of the kind described in Section (d) of this Annex B, Holder
will forthwith discontinue disposition of the Securities pursuant to such
registration statement until receipt of copies of the supplemented or
amended prospectus contemplated by Section (d), and, if so directed by the
Company, will deliver to the Company all copies of the prospectus covering
the Securities in its possession at the time of receipt of such notice.
(iii) Holder shall, at any time it is engaged in a distribution of
Securities, comply with all applicable requirements of Regulation M (or any
successor provisions then in force) promulgated under the Securities
Exchange Act of 1934 (the "Exchange Act") and (x) will not engage in any
stabilization activity in connection with the securities of the Company in
contravention of such rules, (y) will distribute the Securities solely in
the manner described in the registration statement and (z) will not bid for
or purchase any securities of the Company or attempt to induce any person
to purchase any securities of the Company other than as permitted under the
Exchange Act.
(iv) Holder shall provide such information and materials, execute all
such documents and take all such other actions as the Company shall
reasonably request in order to permit the Company to comply with all
applicable requirements of law and to effect the registration of Holder's
Securities.
(v) If Securities are registered for sale pursuant to Rule 415 under
the Securities Act, Holder shall cease any distribution of such shares
under the registration statement twice a year, for up to 90 days each, upon
the request of the Company if: (x) such distribution would require the
public disclosure of material non-public information concerning any
transaction or negotiations involving the Company or any of its affiliates
that, in the good faith judgment of the Company's Board of Directors (or
the executive committee thereof), would materially interfere with such
transaction or negotiations, (y) such distribution would otherwise require
premature disclosure of information that; in the good faith judgment of the
Company's Board of Directors, would adversely affect or otherwise be
detrimental to the Company or (z) the Company proposes to file a
registration statement under the Securities Act for the offering and sale
of securities for its own account in an underwritten offering and the
managing underwriter therefor shall advise the Company in writing that in
its opinion the continued distribution of the Securities would adversely
affect the success of the offering of the securities proposed to be
registered for the account of the Company. The Company shall promptly
notify Holder at such time as (i) such transactions or negotiations have
been otherwise publicly disclosed or terminated, (ii) such non-public
information has been publicly disclosed or counsel to the Company has
determined that such disclosure is not required due to subsequent events or
(iii) the completion of such underwritten offering.
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