SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _______________ to _______________
Commission File No. 1-2782
SIGNAL APPAREL COMPANY, INC.
----------------------------
(Exact name of Registrant as specified in its charter)
Indiana62-0641635
-----------------
(State of Incorporation) (I.R.S. Employer Identification Number)
200 Manufacturers Road, Chattanooga, Tennessee 37405
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (423) 266-2175
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
----------------------------------------
Common Stock: Par value $.01 a shareNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirement for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[ ]
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant: $5,498,539 calculated by using
the closing price on the New York Stock Exchange on March 10,
1998 of the Company's Common stock, and excluding common shares
owned beneficially by directors and officers of the Company, and
by certain other entities, who may be deemed to be "affiliates",
certain of whom disclaim such status.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
ClassOutstanding as of March 10, 1998
-------------------------------------
Common Stock, $.01 par value 32,661,460 shares
DOCUMENTS INCORPORATED BY REFERENCE
Part ofDocuments from Which Portions are
Form 10-KIncorporated by Reference
------------------------------------------
Part IIIProxy Statement 1998 for Annual Meeting of
Shareholders<PAGE>
SIGNAL APPAREL COMPANY, INC.
ANNUAL REPORT ON
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1997
INDEX
Item
- - ----
PART I
1.Business 4
2.Properties 9
3.Legal Proceedings 11
4.Submission of Matters to a Vote of Security Holders 11
PART II
5.Market for the Registrant's Common Equity and
Related Stockholder Matters 15
6.Selected Financial Data 15
7.Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
8.Financial Statements and Supplementary Data 23
9.Disagreements on Accounting and Financial Disclosure 51
PART III
10.Directors and Executive Officers of the Registrant 52
11.Executive Compensation 52
12.Security Ownership of Certain Beneficial Owners
and Management 52
13.Certain Relationships and Related Transactions 52
PART IV
14.Exhibits, Financial Statement Schedules and
Reports on Form 8-K 53
PART I
Item 1.BUSINESS
(a) Signal Apparel Company, Inc. ("Signal" or the "Company") is
engaged in the manufacture and marketing of apparel within
the following product lines: knit and woven activewear,
women's knit apparel and screenprinted and embroidered knit
apparel.
In October 1997, the Company purchased all of the
outstanding capital stock of GIDI Holdings, Inc. doing
business as Grand Illusion Sportswear, Inc. ("Grand
Illusion"), a supplier of embellished apparel and other
activewear primarily to large corporate accounts.
In November 1997, the Company purchased all of the
outstanding capital stock of Big Ball Sports, Inc. and Print
The Planet, Inc. (the primary screen printer for Big Ball
Sports, Inc.) (collectively, "Big Ball"). Big Ball is a
supplier of branded knitwear to department, sporting goods,
and specialty stores in the mid-tier and upstairs retail
channels.
(b) The Company is engaged in the single line of business of
apparel manufacturing and marketing.
For financial information about the Company, see the
information discussed in Item 8 below.
(c) GENERAL
Founded in 1891 as Wayne Knitting Mills, a women's hosiery
company, in Fort Wayne, Indiana, the Company merged with the
H. W. Gossard Co. of Chicago, Illinois in 1967 and became
Wayne-Gossard Corporation. The Company's name was changed
to Signal Apparel Company, Inc. in February 1987. As a
result of a merger in July 1991, The Shirt Shed, Inc. became
a wholly-owned subsidiary of the Company. During 1993, The
Shirt Shed, Inc. began doing business under the name Signal
Artwear. In November 1994, the Company purchased all the
outstanding capital stock of American Marketing Works Inc.
(AMW) whose principal business was the marketing of branded
licensed apparel. The outstanding capital stock of Grand
Illusion and Big Ball was purchased in October 1997 and
November 1997, respectively.
The Company manufactures and markets activewear in juvenile,
youth and adult size ranges and upscale knit apparel for the
ladies' market. The Company's products are sold principally
to distributors and retail accounts primarily with the Big
Ball, Signal Sport or Signal Artwear label, or with a
customer's label or, under applicable license agreements,
with the label of designers (joan vass, u.s.a. and Cynthia
Rowley), sports personalities (Magic Johnson and Hank Aaron)
or licensed brands (Looney Tunes, Garfield, Riddell, etc.).
Currently, a major portion of the products manufactured by
the Company consists of products generally similar in design
and composition to those produced by many of the Company's
competition. The Company's business is, therefore, highly
subject to competitive pressures.
The Company presently operates under the following strategic
business unit structure:
LICENSED SPORTS BUSINESS UNIT:
The Licensed Sports Business Unit is engaged in selling
decorated apparel to mid-tier and mass merchants, chain
stores, sporting goods and sport specialty stores and
department stores as a line of popularly priced sportswear,
ranging from children's to adult sizes. This unit markets
tops and bottoms from the Company's facilities and other
suppliers with a variety of silkscreened and embroidered
graphics derived under license from popular cartoons,
colleges and professional sports leagues. Finished products
are generally sold under licensed brands such as Hank Aaron
Originals, Magic Johnson Originals and Riddell.
LICENSED CHARACTER BUSINESS UNIT:
The Licensed Character Business Unit is engaged in selling
to mid-tier and mass merchants, chain stores, specialty and
department stores a line of popularly priced activewear,
ranging from children's to adult sizes. This unit utilizes
tops and bottoms from the Company's facilities and other
suppliers and produces its finished products through the
addition of a variety of silkscreened and embroidered
graphics derived under license from popular cartoons,
movies, and television shows, as well as original concepts
produced by its internal creative art staff.
BIG BALL SPORTS BUSINESS UNIT:
The Big Ball Sports Business Unit is engaged in selling
screenprinted and embroidered apparel to mid-tier and
upstairs department, sporting goods and specialty store
accounts as a line of popularly priced activewear ranging
from children's to adult sizes. This unit markets tops and
bottoms obtained from the Company's manufacturing facilities
and other suppliers and featuring the proprietary "Is Life"
and "Big Ball Sports" trademarks.
GRAND ILLUSION SPORTSWEAR BUSINESS UNIT:
The Grand Illusion Sportswear Business Unit is engaged in
selling screenprinted and embroidered apparel to large
corporate accounts and distributors servicing those accounts
in children's, youth and adult size ranges. This unit
obtains products from the Company's facilities and other
suppliers and imprints the logos and other indicia of its
unit's corporate accounts.
HERITAGE SPORTSWEAR BUSINESS UNIT:
Heritage Sportswear produces and sells two lines of tailored
knits designed under license from Joan Vass and Cynthia
Rowley which bear the "joan vass, u.s.a." and "Cynthia
Rowley" labels, respectively. These designer lines are sold
to fine specialty stores, department stores, and Joan Vass
and Cynthia Rowley stores, respectively. The unit also
produces knit products which are marketed by other units of
the Company.
SALES BY PRODUCT LINE
The following table reflects the percentage of net sales
contributed by the Company's product lines to net sales
during 1997, 1996, and 1995:
Percentage of
Product Line Net Sales
------------------------------------
1997 1996 1995
---- ---- ----
Active sportswear 7% 18% 32%
Embellished (Licensed Sports,
Licensed Character, Big Ball
Sports & Grand Illusion) 66% 58% 51%
Women's knit apparel
(Heritage Sportswear) 27% 24% 17%
In 1997, Wal-Mart accounted for 20% and K-mart accounted for
10% of the Company's total sales. In 1996, Wal-Mart
accounted for 14% and K-mart accounted for 12% of the
Company's total sales. In 1995, no one customer accounted
for as much as 10% of sales.
DESCRIPTION OF OPERATIONS
The primary raw material used by the Company is finished
cloth made from both synthetic and natural fibers, which it
purchases from several different suppliers. The Company
also purchases blank garments, sewing thread, inks, elastic,
hangers, cartons and bags. Supplies of finished cloth with
synthetic fibers are generally dependent upon the global
availability of petroleum, while supplies of finished cloth
with natural fibers are generally dependent upon worldwide
crop conditions. These factors generally have had a greater
effect on price than on availability.
Although the Company does not have formal arrangements
extending beyond one year with its suppliers, the Company
has not experienced any significant difficulty obtaining
necessary raw materials from its current sources and
believes that, in any event, adequate alternative sources
are available.
"Big Ball", "...Is Life", "Signal Artwear" and "Signal Sport"
are the principal registered trademarks of the Company. In
addition to the license to use the "Riddell" trademark and
logo, the Company is licensed to use the registered
trademarks "joan vass, u.s.a." and "Cynthia Rowley" in
connection with women's tailored knit apparel. The Company
and its various subsidiaries are licensed directly or
through affiliates of well-known athletes to use various
trademarks of the National Football League, the National
Basketball Association, Major League Baseball, the National
Hockey League and various colleges in connection with
collections of decorated activewear. The Company is also
licensed by Warner Brothers and other companies to print
various cartoon, movie and celebrity characters and other
graphics on garments. The Company is licensed by affiliates
of well known athletes Magic Johnson (for NBA products)and
Hank Aaron (for MLB products) to produce and sell products
bearing labels with their respective names. The ability to
use the foregoing trademarks is important to the
implementation of the Company's strategy of expanding sales
of products directed to the retail market. Sales under the
license to use the "joan vass, u.s.a." trademark have
represented a significant portion of the sales of the
Company's Heritage Sportswear Division.
The licenses held by the Company vary significantly in their
terms and duration. The Company's primary licenses with the
NFL, NBA, MLB and NHL, generally, are renewed for one to
two-year terms on an annual basis. The Company is currently
in negotiations with the NFL for the renewal of its license
scheduled to expire on March 31, 1998. Negotiations for
renewal of the Company's NBA and NHL licenses, presently
scheduled to expire on July 31, 1998 and June 30, 1998,
respectively, typically commence during the second calendar
quarter. An agreement in principle has been reached to
extend the Company's MLB license through at least December
31, 1998.
The Company's Looney Tunes license with Warner Brothers is
presently scheduled to expire on December 31, 1998.
The Cynthia Rowley license has a term ending December 31,
1998 and the interim extension of the joan vass, u.s.a.
license is currently scheduled to expire on November 30,
1998. It is expected that the Cynthia Rowley license will
not be renewed.
The business of the Company tends to be seasonal with peak
shipping months varying from product line to product line.
To meet the demands of peak shipping months, it is necessary
to build inventories of some products well in advance of
expected shipping dates. The Company believes that its
credit practices and merchandise return policy are customary
in the industry. Borrowings are used to the extent
necessary to finance seasonal inventories and receivables.
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition".
During 1997, the Company sold its products to over 1600
customers, including department stores, specialty stores,
mass merchandisers and other retailers, wholesalers,
distributors, screenprinters, and other manufacturers.
Products are shipped directly from the Company's
manufacturing facilities and warehouses. During fiscal
1996, the Company began identifying trends in its sales data
that indicated a shift in demand in the market for its
embellished products away from the smaller specialty
retailers and towards larger chain stores. These trends
continued during 1997, with the result that this portion of
the Company's business has become more dependent on a few
large customers which possess significant negotiating power
with regard to the terms of sale and the circumstances under
which unsold merchandise may be returned to the Company.
The chart below shows Signal's scheduled back orders at
year-end.
Dollars in thousands199719961995
------------
Embellished products $3,850 $4,238 $11,140
Active Sportswear 119 518 2,941
Womens Knit Apparel 1,350 1,997 2,807
------ ------ ------
Total $5,319 $6,753 $16,888
Scheduled order backlogs consist of orders received from
customers and entered into the Company's order entry system,
at which point the orders are scheduled for production. The
Company expects to ship substantially all of its December
31, 1997 backlog of unfilled orders by December 31, 1998;
however, orders are subject to cancellation, generally
without penalty unless specially embellished to order, by
customers prior to shipment. The Company's backlog of
orders on December 31, 1997 is not necessarily indicative of
actual shipments or sales for any future period, and period-
to-period comparisons from 1997 to 1996 may not be
meaningful.
The apparel industry as a whole, including the part of the
industry engaged in by the Company, is highly competitive.
The Company believes that the principal methods of
competition in the markets in which it competes are design
and styling, price and quality. The designer and brand name
markets are influenced by fashion, design, color, consistent
quality and consumer loyalty. Imports offer competition
throughout the Company's product lines. The industry is
very fragmented, and the Company's relative position in the
industry is not known.
Compliance with federal, state and local provisions which
have been enacted regulating the discharge of materials into
the environment, or otherwise relating to the protection of
the environment, have not had, and are not expected to have,
any material effect upon the capital expenditures, operating
results, or the competitive position of the Company.
The Company had approximately 810 employees at
March 1, 1998, compared to 850 employees at March 1, 1997.
(d) All of the Company's manufacturing facilities are located in
the United States. Substantially all (over 95%) of the
Company's sales are domestic.
Item 2.PROPERTIES
The Company operates owned and leased facilities, aggregating
approximately 977,600 square feet of usable space. The following
table sets forth certain information concerning each of these
facilities:
FacilitySquareOwned/Products/
Location FeetLeasedOperations
------------------------------
SIGNAL:
Chattanooga, TN 250,000 Leased Screen printing -
printing, warehouse,
distribution and
offices
Chattanooga, TN 192,200 Owned Sportswear - warehouse,
distribution and
offices
New Tazewell, TN 91,300 Owned Sportswear - cut and
sew, warehouse and
distribution. Sold to
the City of Tazewell in
February 1998.
Currently leased from
the City of Tazewell.
New York, NY 1,400 Leased Showroom and
Offices
HERITAGE SPORTSWEAR:
Marion, SC 164,600 Owned Women's apparel, knit
sweaters and skirts -
knitting, cut and sew,
and offices
Lakeview, SC 85,100 Owned Women's apparel, knit
sweaters and skirts -
warehouse and
distribution
New York, NY 3,900 Leased Showroom and offices
BIG BALL SPORTS:
Houston, TX 62,700 Leased Screen printing -
printing, warehouse,
distribution and
offices
GRAND ILLUSION SPORTSWEAR:
Schaumburg, IL 28,200 Leased Imprinting, warehouse,
distribution and office
IDLE FACILITIES:
Marion, SC 29,200 Owned
Wabash, IN 69,000 Owned
The buildings at all facilities set forth in the table above and
the machinery and equipment contained therein are well maintained
and are suitable for the Company's needs (see later paragraph for
a discussion of the idle facilities). Substantially all of the
buildings are protected by sprinkler systems and automatic alarm
systems, and all are insured for amounts which the Company
considers adequate. The plants in New Tazewell, Tennessee;
Wabash, Indiana; and Marion and Lakeview, South Carolina are
subject to mortgage liens incurred in connection with financing
with the senior lender and a principal shareholder, Walsh
Greenwood and affiliates. As of the February 1998 sale of the
Tazewell facility, the New Tazewell plant is no longer subject to
these mortgage liens.
The Company owns facilities in Marion, S.C. and Wabash, Indiana,
aggregating approximately 98,200 square feet, which were idle at
December 31, 1997. At the present time the Company intends to
sell these facilities.
As part of its strategic plan, the Company uses independent
contractors to supplement the productive capacities of its own
manufacturing facilities. The Company believes the production of
its own facilities plus the contracted production will support
the expected level of business in 1998.
Item 3.Legal Proceedings
The Company is unaware of any material pending legal proceeding
other than ordinary, routine litigation incidental to its
business.
Item 4.Submission of Matters to a Vote of Security
Holders
(a) The Annual Meeting of the Company's shareholders was
held on December 30, 1997.
(b) The names of the directors elected at the meeting are as
follows: Jacob I. Feigenbaum; Paul R. Greenwood; David E.
Houseman; Thomas A. McFall; John W. Prutch; Leon Ruchlamer; and
Stephen Walsh.
(c) The meeting was held to consider and vote upon (i) a
proposal to amend the Company's 1985 Stock Option Plan to
increase the number of shares of Common Stock issuable thereunder
from 1,910,000 to 4,000,000; (ii) a proposal to issue warrants to
purchase up to 4,500,000 shares of the Company's Common Stock to
a principal shareholder in connection with certain additional
funding and waivers under the credit agreement between the
Company and said principal shareholder; (iii) a proposal to issue
15,473,220 shares of the Company's Common Stock in connection
with the Company's plan to restructure its then outstanding debt
and preferred stock; (iv) a proposal to amend the Company's
Restated Articles of Incorporation to increase the number of
authorized shares of the Company's Common Stock from 40,000,000
to 80,000,000;(v) a proposal to issue warrants to purchase up to
250,000 shares of the Company's Common Stock to a
director/consultant of the Company as compensation to said
director/consultant; (vi) a proposal to issue warrants to
purchase up to 25,000 shares of the Company's Common Stock to a
director of the Company as additional compensation to said
director in lieu of certain director fees (vii) the election of
seven directors.
The results of the proposal to amend the Company's Stock
Option Plan were as follows:
FOR 11,164,218
AGAINST 27,344
ABSTAIN 7,031
BROKER NON-VOTES 0
TOTAL 11,198,593
<PAGE>
The results of the proposal to issue warrants in connection
with certain additional funding and waivers under the credit
agreement between the Company and a principal shareholder were as
follows:
FOR 11,174,961
AGAINST 17,569
ABSTAIN 6,063
BROKER NON-VOTES 0
TOTAL 11,198,593
The results of the proposal to issue shares of the Company's
Common Stock in connection with the Company's restructuring plan
were as follows:
FOR 11,170,850
AGAINST 18,848
ABSTAIN 8,895
BROKER NON-VOTES 0
TOTAL 11,198,593
The results of the proposal to amend the Company's Restated
Articles of Incorporation were as follows:
FOR 10,040,916
AGAINST 22,834
ABSTAIN 1,134,843
BROKER NON-VOTES 0
TOTAL 11,198,593
The results of the proposal to issue warrants to the
director/consultant were as follows:
FOR 10,023,296
AGAINST 39,852
ABSTAIN 1,135,445
BROKER NON-VOTES 0
TOTAL 11,198,593
The results of the proposal to issue warrants to the
director were as follows:
FOR 10,023,358
AGAINST 39,852
ABSTAIN 1,135,383
BROKER NON-VOTES 0
TOTAL 11,198,593
There was no solicitation in opposition to management's
nominees for directors. Each director serves a one year term, or
until his successor is elected and qualified. The results of the
election of directors were as follows:
WITHHOLD
DIRECTOR NAME FOR AUTHORITY TOTAL
Jacob I. Feigenbaum 11,187,162 11,431 11,198,593
Paul R. Greenwood 11,187,612 10,981 11,198,593
David E. Houseman 11,187,262 11,331 11,198,593
Thomas A. McFall 11,187,242 11,351 11,198,593
John W. Prutch 11,187,192 11,401 11,198,593
Leon Ruchlamer 11,187,182 11,411 11,198,593
Stephen Walsh 11,187,162 10,931 11,198,593
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
MARKET PRICES AND DIVIDENDS
<TABLE>
<CAPTION>
Quarter Ended
March 31 June 30 September 30 December 31
1997 1996 1997 1996 1997 1996 1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock:
High $3.00 $8.00 $1.75 $7.38 $1.88 $4.38 $4.38 $3.75
Low 1.75 6.25 1.00 4.38 .88 3.50 1.13 2.88
Cash dividends 0 0 0 0 0 0 0 0
</TABLE>
The Company's loan agreements contain provisions which currently
restrict the Company's ability to pay dividends (see Note 5 of
Notes to Consolidated Financial Statements). No Common Stock
dividends were declared during the five-year period ended
December 31, 1997,(See Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note 5 of Notes
to Consolidated Financial Statements.)
Shareholders of record as of March 10, 1998:
Common990
The Company's Common Stock is listed on the New York Stock
Exchange. (Symbol "SIA")
Item 6. Selected Financial Data
SUMMARY OF SELECTED FINANCIAL DATA
Dollars in Thousands (Except Per Share Data)
<TABLE>
<CAPTION>
1997(b) 1996 1995 1994(a) 1993
<S> <C> <C> <C> <C> <C>
Net Sales $44,616 $58,808 $89,883 $95,818 $131,000
Net loss (30,345) (33,696) (39,959) (53,304) (34,878)
Basic/diluted net loss
per common share (2.39) (2.91) (3.80) (6.88) (4.17)
Total assets 29,660 26,167 43,229 69,448 87,914
Long-term obligations 60,147 66,423 57,243 49,258 26,748
</TABLE>
(a) The data includes amounts applicable to American Marketing
Works from date of acquisition, November 22, 1994.
(b)The data includes amounts applicable to Grand Illusion and
Big Ball Sports from the dates of acquisition, (October 1,
1997 and November 5, 1997) respectively.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1997 COMPARED WITH 1996
Net sales of $44.6 million for 1997 represent a decrease of $14.2
million or 24.1% from the $58.8 million in net sales for 1996.
This decrease is comprised of a $6.6 million reduction in
decorated products, and a $7.4 million reduction in undecorated
activewear, and a $1.9 million reduction in women's fashion
knitwear, partially offset by screenprinted sales of $1.7 million
for the newly acquired Big Ball Sports and Grand Illusion
business units.
Sales of decorated products were $27.8 million for 1997 versus
$34.4 million for 1996. Reduced unit volume accounted for a $5.0
million decrease in sales while a decrease in average selling
price accounted for a $1.6 million sales reduction. The decrease
in average selling price was due to a combination of product mix
and unit selling price changes. The Company is focusing its
efforts on the recovery of lost volume in this core area of the
business.
Sales of undecorated activewear products were $3.1 million for
1997 versus $10.5 million for 1996. The Company is concentrating
its marketing efforts on decorated products in an effort to
produce higher margin sales than can be achieved with sales of
undecorated activewear. As a result of this decision, the
Company's sales of undecorated activewear have continued to
decline during 1997 and no longer represent a significant portion
of the Company's total sales.
Sales of women's fashion knitwear were $12.0 million for 1997 as
compared to $13.9 million for 1996. Average selling price per
unit decreased 59% but was offset by a 213% increase in unit
volume. The reduction in average selling price was due to a
combination of product mix and unit selling price changes. The
reduced average selling price was the prime reason for the
increased unit sales volume.
Gross profit was $5.3 million (11.9% of sales) for 1997 compared
to $3.8 million (6.5% of sales) for 1996. The primary components
of the $1.5 million improvement in margin are lower manufacturing
costs ($6.2 million) offset by lower sales ($3.2 million) and a
lower standard margin ($1.5 million). Manufacturing costs were
improved as a result of the closing of the LaGrange, Georgia
knitting & dying plant, and reduced overhead costs.
Royalty expense related to licensed product sales was 12.3% of
sales for 1997 and 8.2% for 1996. This increase was caused by an
increase in the percentage of licensed versus non-licensed
product sales and by additional expenses to cover guarantees
where sales levels are not expected to cover minimum royalty
requirements. Selling, general and administrative (SG&A)
expenses were 31% and 30% of sales for 1997 and 1996,
respectively. Actual SG&A expense decreased $3.8 million due to
the Company's aggressive cost reduction efforts.
The primary elements making up the 1997 other expense amount of
$1.6 million are a $.8 million write down of property, plant and
equipment, a $.3 million bank charge for failing to reach the
minimum sales requirements under its factoring agreement, a $.1
million in additional amortization of goodwill and $.1 million in
factor charges for customer late payments.
The primary elements making up the 1996 other expense amount of
$4.1 million are a $3.1 million write-down of property, plant and
equipment which have been idled and/or held for resale, $.2
million in factor charges for customer late payments and $.2
million accrued severance.
1996 COMPARED WITH 1995
Net sales of $58.8 million for 1996 represent a decrease of 34.6%
or $31.1 million when compared to the $89.9 million in net sales
for 1995. This decrease is comprised of a $16.1 million
reduction for undecorated activewear, a $1.7 million reduction
for women's fashion knitwear and a $13.3 million reduction for
screenprinted product
Sales of undecorated activewear decreased 60.6% to $10.5 million
in 1996 as compared to $26.6 million in 1995. Of the $16.1
million reduction, $9.3 million is the result of Signal's
decision in the last quarter of 1995 to discontinue use of
distributors, and $2.3 million is the result of reduced sales to
a large customer. The Company made the decision to concentrate
its marketing efforts on sales of embellished products in an
effort to produce higher margin sales that can be made with
undecorated activewear. Reduction of unit volume accounted for
85% of the total reduction of undecorated activewear sales during
1996 while reduction in average selling price accounted for the
remaining 15%. The decrease in average selling price was due to
a combination of product mix and unit selling price changes.
Sales of women's fashion knitwear decreased 10.8% to $13.9
million in 1996 as compared to $15.6 million in 1995. The $1.7
million sales reduction was primarily due to competition from
garments selling at lower retail prices. Unit volume accounted
for a $2.3 million reduction which was partially offset by an
increase in average selling price. The increase in average
selling price was due to a combination of product mix and unit
selling price changes.
Sales of screenprinted products were $34.4 million for 1996
versus $47.7 million in 1995. The sales reduction was primarily
the result of reduced sales to several large customers. Based on
its sales data during 1996 as compared to 1995, the Company
believes that it is seeing a shift in demand in the market for
its screenprinted products away from the smaller specialty
retailers and towards larger chain stores, thereby making this
portion of the Company's business more dependent on a few large
customers which possess significant negotiating power with regard
to the terms of sale. Unit volume accounted for a $19.8 million
reduction which was partially offset by an increase in average
selling price. The increase in average selling price was due to
a combination of product mix (including fewer closeouts in 1996)
and unit selling price changes.
Gross profit was $3.8 million (6.5% of sales) in 1996 compared to
$14.0 million (15.6% of sales) in 1995. The $10.2 million
decrease in gross profit in 1996 was the result of decreased
first quality sales and decreased manufacturing efficiencies
partially offset by improved margins on first quality sales due
to sales mix and decreased closeout sales.
Royalty expense related to licensed product sales was 8.2% and
7.1% of total sales for 1996 and 1995, respectively. The
increase in royalty expense percentage over 1995 is the result of
increased sales of licensed products relative to total sales.
Selling, general and administrative ("SG&A") expenses were 30% of
sales for the years ended December 31, 1996 and 1995,
respectively. Actual SG&A expense decreased $9.5 million to
$17.7 million due to the Company's aggressive cost reduction
efforts and lower levels of operating activity.
The primary elements making up the 1996 other expense amount of
$4.1 million are $ 3.1 million write-down of property, plant and
equipment which have been idled and/or held for resale, $.2
million in factor charges for customer late payments and $.2
million accrued severance. The primary elements making up the
1995 other expense amount of $1.3 million are $.4 million
amortization of goodwill and $.1 million in factor charges for
customer late payments.
The write-down of property, plant and equipment was necessary
because during 1996 Signal completed the closing of the Signal
Artwear Indiana facility and moved that production to a new
facility in Chattanooga, Tennessee. Additionally, the Company
abandoned certain other facilities.
FINANCIAL CONDITION
Additional working capital was required in 1997 to fund the
continued losses incurred by the Company. Such working capital
was provided through several transactions with the Company's
principal shareholders and its senior lender. In 1997, the
Company received $21.0 million from WGI,LLC, and certain of its
affiliates (collectively "WGI") a principal shareholder. This
was to help fund the deficit during 1997. At December 31, 1997,
the Company had over-advance borrowings of approximately $34.0
million with its senior lender compared to $14.1 million at
December 31, 1996. (Please see Note 5 to the accompanying
Consolidated Financial Statements of the Company for a more
detailed discussion of the discretionary over-advance facilities
with the Company's senior lender).
The working capital deficit at December 31, 1997 increased
$13.0 million from the prior year. The increase in the working
capital deficit was primarily due to a decrease in inventories
($4.3 million), a decrease in cash ($1.3 million), a decrease in
prepaids and other ($.2 million), and an increase in the
revolving advance account ($20.1 million). These were offset by
an increase in accounts receivable ($2.5 million), an increase in
notes receivable ($0.5 million), a decrease in accounts payable
($2.5 million), a decrease in accrued liabilities ($2.4 million),
and a decrease in accrued interest ($5.4 million). Contributing
to the working capital deficit and included in the above numbers
was $2.9 million negative working capital acquired relating to
the acquisitions of Grand Illusion and Big Ball Sports.
Accounts receivable increased $2.5 million or 324% compared to
the prior year. The increase was a result of the Company's
acquisition of the two new subsidiaries ($1.1 million) and
increased sales for the last quarter of the year compared to 1996
and the timing of funding from the Company's senior lender on
factored receivables ($1.4 million).
Inventories decreased $4.3 million or 29.3% compared to last
year. Inventories decreased as a result of the Company's sale of
excess and closeout inventory as well as reduced inventory in the
undecorated activewear segment, resulting from the Company's
focus on screenprinted products ($5.1 million), which was
partially offset by the acquisition of the two new subsidiaries
($0.8 million).
Accounts payable and accrued liabilities decreased $4.9 million
or 34.6% over prior year-end. This was a result from decreased
purchases and payments of past due payables ($8.1 million) which
was offset by the acquisition of the two new subsidiaries ($3.2
million).
Accrued interest decreased $5.4 million or 77% over prior year-
end. This was the result of the conversion of interest to equity
($16.1 million) which was offset by interest accrued on other
outstanding debt ($10.7 million).
Cash used in operations was $20.8 million in 1997, compared to
$11.4 million used in operating activities in 1996. The net loss
of $30.3 million and an increase in accounts receivable ($1.4
million) were the primary uses of funds in 1997. These items
were partially offset by depreciation and amortization
($1.5 million), significantly lower inventory levels
($5.1 million), an increase in accounts payable and accrued
liabilities ($2.9 million) and losses on sale and write-down of
property, plant and equipment held for sale ($1.0 million).
Cash provided by investing activities of $1.9 million resulted
from sales of property and equipment. There were commitments to
purchase $.4 million of equipment at December 31, 1997. During
1998, the Company anticipates capital expenditures of
approximately $.9 million.
Cash provided by financing activities was $17.7 million in 1997.
The Company borrowed an additional $21.0 million from WGI as well
as $1.5 million from other lenders. This was partially offset by
principal payments on borrowings of $4.8 million.
The revolving advance account increased $20.1 million from $20.4
million at year-end 1996 to $40.5 million at December 31, 1997.
The increase of $20.1 million under the revolving advance account
is a result of the amended and restated factoring agreement with
the Senior lender. The senior lender allowed the Company to
apply $20.0 million of the proceeds to the reduction of
subordinated indebtedness under a credit agreement between the
Company and WGI. Under the amended and restated factoring
agreement, with its senior lender the Company's total outstanding
obligations to the Senior lender cannot exceed the lower of $55
million or the borrowing base as defined. At year-end, the
borrowing base was $6.8 million. Therefore, approximately $34.0
million was over advanced under the revolving advance account.
The over advance is secured by treasury bills pledged by a
principal shareholder, and in part, by the guarantee of two
principal shareholders.
The Amended and Restated Factoring Agreement provides the Company
with up to a maximum of $55,000,000 aggregate credit
availability, subject to (i) a borrowing base that is calculated
on the basis of the Company's eligible inventory, eligible
receivables and collateral pledged by a principal shareholder of
the Company and (ii) certain special over-advance provisions.
The base interest rate on the Company's outstanding indebtedness
under the Agreement will be the Senior Lender's Prime Rate plus
1-1/4%. The Agreement also provides for commissions based on the
volume of factored receivables. The Agreement also contains
revised financial covenants modified in accordance with the
Company's current business plan for the initial term of the
Agreement, but preserves existing defaults under the prior
factoring Agreement between the Company and the Senior Lender.
In connection with the Amended and Restated Factoring Agreement,
the Company has issued to the Senior Lender immediately
exercisable warrants to purchase up to 250,000 shares of the
Company's Common Stock at an exercise price of $2.50 per share.
With the Senior Lender's consent, the Company applied $20,000,000
of the proceeds from the renewed financing arrangement to the
reduction of subordinated indebtedness owed under a Credit
Agreement between the Company and WGI, one of the Company's
principal shareholders, thereby reducing the Company's effective
annual interest rate on such indebtedness from 25% to 1-1/4% over
the senior lender's prime rate.
Interest expense was $14.7 million in 1997 compared to $10.8
million in 1996. Total outstanding debt averaged $72.4 million
and $61.8 million for 1997 and 1996, respectively, with average
interest rates of 20.3% and 17.5%. Average outstanding debt and
average interest rate increased due to the borrowings under the
WGI, Credit Agreement with an annual interest rate of 25%. As a
result of continued losses, the Company has been unable to fund
its cash needs from operating activities. The Company's
liquidity shortfalls were primarily funded through the additional
$21.0 million advanced from WGI.
The Company also uses letters of credit to support some domestic
sourcing of inventory and certain other obligations. Outstanding
letters of credit were $0.6 million at December 31, 1997
(excluding collateral of $2.0 million pledged to the senior
lender in the form of a standby letter of credit).
Total shareholders' deficit decreased by $24.9 million compared
to year-end 1996. The Company sustained losses of $30.3 million
during 1997.
YEAR 2000
In 1997, the Company upgraded its main computer to an IBM AS/400
model 500. Plans are in place to move all mainframe processing
to this hardware and to Year 2000 compliant software the end of
1998.
The main manufacturing and accounting software package was
upgraded in 1997 to the Year 2000 compliant Apparel Business
Systems (ABS) software. Plans are in place to move all mainframe
processing to this software by the end of 1998. All of this
hardware and software will be tested in 1998 by in-house staff.
The cost of these hardware and software upgrades totaled $270,000
in 1997. Plans call for an additional $50,000 to be spent on
software modifications in 1998, to replace current systems.
EDI with customers was addressed in 1997 by acquiring Premenos
software for the AS/400. All customer EDI will be moved from a
PC system to the mainframe by mid-1998. Fixed asset accounting
was moved to a Year 2000 compliant software package in early
1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company has finalized and executed an Amended and Restated
Factoring Agreement with its senior lender, BNY Financial
Corporation (a subsidiary of the Bank of New York). The term of
the agreement extends through March 31, 2000.
The amended and restated factoring agreement provides the Company
with up to a maximum of $55.0 million aggregate credit
availability, based on the Company's inventory, receivables,
fixed assets and collateral pledged by principal shareholders of
the Company. Financial covenants under the agreement have been
modified in accordance with management's current business plan
for the Company. In connection with the agreement, the Company
has issued to the Senior Lender immediately exercisable warrants
to purchase up to 250,000 shares of the Company's Common Stock at
$2.50 per share.
With the senior lender's consent, the Company has applied $20.0
million of the proceeds from this renewed financing arrangement
to the reduction of subordinated indebtedness owed under a credit
agreement between the Company and WGI, one of the Company's
principal shareholders, thereby reducing the Company's effective
annual interest rate on such indebtedness from 25% to a rate of
1-1/4% over the senior lender's prime rate. Based upon current
interest rates, this reduction represents potential annual
savings to the Company of approximately $3.0 million. The senior
lender has also agreed to eliminate or reduce certain fees which
have previously been charged to the Company.
As a result of continuing losses, the Company has been unable to
fund its cash needs through cash generated by operations. The
Company's liquidity shortfalls from operations during these
periods have been funded through several transactions with its
principal shareholders and with the Company's senior lender.
These transactions are detailed above in the Financial Condition
section.
As of December 31, 1997, the Company's senior lender waived
certain covenant violations (pertaining to working capital and
cumulative pre-tax operating earnings) under the Company's
amended and restated factoring agreement. Nevertheless, on the
basis of such violations (which could also serve as a basis for
the senior lender enforcing its remedies under defaults preserved
from the Company's prior factoring agreement), all of the
Company's long-term debt owed to the senior lender at December
31, 1997 was subject to accelerated maturity and, as such, has
been classified as a current liability in the consolidated
balance sheets. If the senior lender were to accelerate the
maturity of such debt, the Company would not have funds available
to repay the debt.
If the Company's's sales and profit margins do not substantially
improve in the near term, the Company will be required to seek
additional capital in order to continue its operations and to
move forward with the Company's turnaround plans, which include
seeking appropriate additional acquisitions. To obtain such
additional capital and such financing, the Company may be
required to issue additional securities that may dilute the
interests of its stockholders. At the end of fiscal 1997, the
Company implemented a restructuring plan for its preferred equity
and the majority of its subordinated indebtedness (following
approval by shareholders of the issuance of Common Stock in
connection therewith), which resulted in a significant increase
in the Company's overall equity as well as a significant
reduction in the Company's level of indebtedness and ongoing
interest expense. Although management believes that the
restructuring has enhanced the Company's opportunities for
obtaining the needed funding, no assurance can be given that any
such additional financing will be available to the Company on
commercially reasonable terms or otherwise. If the Company's
sales and profit margins do not significantly improve and
additional funds cannot be raised as needed, the Company will not
be able to continue as a going concern.
INFLATION AND CHANGING PRICES
Inflation and changing prices have not had a material effect on
the Company's results of operations or financial condition during
the past three years.
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1997 and
December 31, 1996
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996, and 1995
Consolidated Statements of Shareholders' Deficit for the
Years Ended December 31, 1997, 1996, and 1995
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996, and 1995
Notes to Consolidated Financial Statements
Financial Statement Schedules:
See Part IV, Item 14 (a) 2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Signal Apparel Company, Inc.:
We have audited the accompanying consolidated balance sheets of
SIGNAL APPAREL COMPANY, INC. (an Indiana corporation) AND
SUBSIDIARIES as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' deficit and
cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Signal Apparel Company, Inc. and subsidiaries as of
December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been
prepared assuming the Company will continue as a going concern.
As discussed in Note 1 to the consolidated financial statements,
the Company has as of December 31, 1997 a working capital deficit
of $43.4 million, an accumulated deficit of $245.2 million, and
the liquidity of the Company has been adversely affected by
recurring losses from operations. These matters raise
substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are
also described in Note 1. The financial statements do not
include any adjustments to reflect the possible future effects on
the recoverability and classification of asset carrying amounts
or the amount and classification of liabilities that might result
should the Company be unable to continue as a going concern.
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chattanooga, Tennessee
March 27, 1998<PAGE>
CONSOLIDATED BALANCE SHEETS
Signal Apparel Company, Inc. and Subsidiaries
December 31, 1997 and 1996
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 1996
------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 384 $ 1,713
Receivables, less allowance for
doubtful accounts of $2,665
in 1997 and $1,573 in 1996 3,203 755
Note receivable 500 0
Inventories 10,390 14,687
Prepaid expenses and other 531 769
--------- ---------
Total current assets 15,008 17,924
--------- ---------
Property, plant and equipment, at cost:
Land 433 500
Buildings and improvements 7,957 12,102
Machinery and equipment 21,020 33,552
--------- ---------
Total property, plant and equipment 29,410 46,154
Less accumulated depreciation 23,365 37,984
--------- ---------
Net property, plant and equipment 6,045 8,170
--------- ---------
Goodwill, less accumulated amortization
of $56 in 1997 4,832 0
---------------------
Debt issuance costs, net 3,716 0
---------------------
Other assets 59 73
--------- ---------
Total assets $ 29,660 $ 26,167
========= =========
Liabilities and Shareholders' Deficit
Current liabilities:
Accounts payable $ 2,577 $ 5,055
Accrued liabilities 6,617 9,003
Accrued interest 1,603 7,044
Current portion of long-term debt 7,110 6,795
Revolving advance account 40,457 20,362
-------- ---------
Total current liabilities 58,364 48,259
--------- ---------
Long-term debt, principally to
Related Parties, less current portion 12,580 39,266
--------- ---------
Other noncurrent liabilities 0 4,797
--------- ---------
Commitments and contingencies (Notes 1,
2, 5, 6, and 10)
Redeemable Series D Preferred Stock,
$100,000 stated value per share,
100 shares authorized, none out-
standing in 1997 and 1996 0 0
Shareholders' deficit:
Series A Preferred Stock, $100,000
stated value per share, 400 shares
authorized, none outstanding in 1997,
327.087 shares issued and
outstanding in 1996 (liquidation
preference of $100,000 per share
plus cumulative unpaid dividends
of $6,875 in 1996) 0 39,584
Series B Preferred Stock, $100,000
stated value per share, 250 shares
authorized, none outstanding in
1997 and 1996 0 0
Series C Preferred Stock, $100,000
stated value per share, 1,000 shares
authorized, none outstanding in 1997,
317.678 shares issued in
1996 (liquidation preference of
$100,000 per share plus
cumulative unpaid dividends of
$4,850 in 1996) 0 36,618
Series E Preferred Stock,$1,000 stated
value per share, 20,000 shares
authorized, none outstanding in
1997 and 1996 0 0
Series F Preferred Stock,
$100,000 stated value per share,
1,000 shares authorized in 1997,
443.16 shares issued and outstanding
in 1997, (cumulative undeclared
dividends at a rate of 9% per annum) 44,316 0
Common Stock, 80,000,000 shares
authorized, $.01 par value
per share, 32,536,460 shares issued in
1997, 11,578,046 shares issued in 1996 325 115
Additional paid-in capital 160,399 73,507
Accumulated deficit (245,207) (214,862)
--------- ---------
Subtotal (40,167) (65,038)
Less cost of common treasury
shares (140,220 shares) (1,117) (1,117)
--------- ---------
Total shareholders' defici (41,284) (66,155)
--------- ---------
Total liabilities and
shareholders' deficit $ 29,660 $ 26,167
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
Signal Apparel Company, Inc. and Subsidiaries
Years Ended December 31, 1997, 1996, and 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Net sales $ 44,616 $ 58,808 $ 89,883
Cost of sales 39,287 54,974 75,896
Gross profit 5,329 3,834 13,987
Royalty expense (5,467) (4,822) (6,362)
Selling, general and
administrative expenses (13,916) (17,742) (27,279)
Interest expense (14,726) (10,833) (8,255)
Other expense, net (1,565) (4,133) (1,314)
Write-off of goodwill 0 0 (10,736)
Loss before income taxes (30,345) (33,696) (39,959)
Income taxes 0 0 0
Net loss $(30,345) $(33,696) $(39,959)
Weighted average shares
outstanding 12,693 11,566 10,503
Basic/diluted net loss
per share $ (2.39) $ (2.91) $ (3.80)
</TABLE>
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
Signal Apparel Company, Inc. and Subsidiaries
Years Ended December 31, 1997, 1996, and 1995
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Preferred Stock Addt'l
------------------ Common Paid-In Accum. Treasury
Series A Series C Series F Stock Capital Deficit Stock Total
- - ------------------------ -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $39,584 $33,618 $ 0 $ 102 $69,721 $(141,207) $(1,117) $ 701
Net loss 0 0 0 0 0 ( 39,959) 0 (39,959)
Exercise of employee stock
options 0 0 0 0 97 0 0 97
Issuance of 30 shares of
Series C Preferred Stock 0 3,000 0 0 0 0 0 3,000
Issuance of 1,310,000 shares
of Common Stock 0 0 0 13 2,740 0 0 2,753
Grant of 200,000 stock
Options below quoted
market value 0 0 0 0 454 0 0 454
Balance, December 31, 1995 39,584 36,618 0 115 73,012 (181,166) (1,117) (32,954)
Net loss 0 0 0 0 0 (33,696) 0 (33,696)
Exercise of employee stock
options 0 0 0 0 200 0 0 200
Compensation expense related
to stock options granted
below quoted market value 0 0 0 0 295 0 0 295
Balance, December 31, 1996 39,584 36,61 0 115 73,507 (214,862) (1,117) (66,155)
Net Loss (30,345) (30,345)
Exercise of warrants to
acquire 4,630,000 shares
of Common Stock through
conversions of $10,582
in debt and Series C
Preferred Stock 0 (3,375) 0 46 13,911 0 0 10,582
Conversion of $23,802 in
debt and Series C
Preferred Stock into
Series F Preferred Stock 0 (20,514) 44,316 0 0 23,802
Conversion of $15,833 in
debt and Series A and C
Preferred Stock into
15,473,220 shares of
common stock (39,584) (12,729) 0 155 67,991 0 0 15,833
Issuance of 855,194
shares of common stock
for Big Ball acquisition 0 0 0 9 1,274 0 0 1,283
Issuance of 4,750,000
warrants in connection
with extension of debt 0 0 0 0 3,716 0 0 3,716
Balance, December 31,1997 $ 0 $ 0 $ 44,316 $ 325 $160,399 (245,207) $(1,117) $(41,284)
</TABLE>
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Signal Apparel Company, Inc.
and Subsidiaries
Years Ended December 31, 1997, 1996, and 1995
(Dollars in thousands)
1997 1996 1995
------------------------------
Operating Activities:
Net loss $(30,345) $(33,696) $(39,959)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and amortization 1,467 2,924 3,708
Loss on disposal and write-down
of property, plant and equipment 977 2,340 166
Write-off of goodwill -- -- 10,736
Compensation expense related to
stock options granted below
quoted market value -- 295 454
Changes in operating assets and
liabilities, net of effects of
businesses acquired:
Receivables (1,369) 3,603 2,354
Inventories 5,146 7,435 11,229
Prepaid expenses and other 349 775 (130)
Accounts payable and accrued
liabilities 2,931 4,958 118
--------- --------- ---------
Net cash used in operating
activities (20,844) (11,366) (11,324)
--------- --------- ---------
Investing activities:
Purchases of property, plant and
equipment (233) (285) (452)
Proceeds from the sale of property,
plant and equipment 2,295 488 81
Acquisitions of businesses, less cash
acquired (200) -- --
--------- --------- ---------
Net cash provided by
(used in) investing
activities 1,862 203 (371)
--------- --------- ---------
Financing activities:
Net(decrease) increase in revolving
advance account (26) 724 (9,244)
Proceeds from borrowings 22,472 12,533 20,000
Principal payments on borrowings (3,998) (1,830) (668)
Principal payments on multiemployer
withdrawal liability (795) (246) (298)
Proceeds from issuance of common stock -- -- 3,000
Proceeds from exercise of stock options -- 200 97
--------- --------- ---------
Net cash provided by
financing activities 17,653 11,381 12,887
--------- --------- ---------
Net (decrease) increase in cash
and cash equivalents (1,329) 218 1,192
Cash and cash equivalents,
beginning of year 1,713 1,495 303
--------- --------- ---------
Cash and cash equivalents, end of year $ 384 $ 1,713 $ 1,495
========= ========= =========
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Signal Apparel Company, Inc. and Subsidiaries
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements of Signal Apparel Company,
Inc. (the "Company")have been presented on a going concern basis
which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The Company
reported a net loss of $30,345,000 for the year ended December
31, 1997 and cumulative losses for the past three years of
$104,000,000. The 1995 net loss included a write-down of
goodwill of approximately $10,736,000 related to the acquisition
of American Marketing Works, Inc. ("AMW"). As a result of these
continuing losses, the Company's accumulated deficit now totals
$245,207,000 at December 31, 1997.
The Company is not currently in compliance with certain financial
covenants of its amended and restated factoring areement with its
senior lender; therefore all long-term debt due the senior lender
is subject to accelerated maturity and as such, has been
classified as a current liability in the consolidated balance
sheets. If the senior lender were to accelerate the maturity of
the debt, the Company would not have funds available to repay
this debt. The Company's working capital deficit as of December
31, 1997 totals $43,356,000.
Throughout 1997 and during the first quarter of 1998, the Company
experienced liquidity shortfalls from operations that were
resolved through advances to the Company from a principal
shareholder. The Company's continued existence is dependent upon
its ability to raise additional debt or equity financing to
maintain existing credit facilities and to substantially improve
its operating results during 1998.
Plans to improve operations include: (i) reducing general and
administrative costs, (ii) focusing the Company's efforts on the
embellished activewear business, including licensed NFL, NBA,
MLB, NHL, and various cartoon characters, (iii) reducing costs of
sales through outsourcing and other measures, (iv) seeking
appropriate additional acquisitions to enhance the Company's
sales and profitability and (v) the sale of idle facilities.
In order for the Company to have sufficient liquidity for it to
continue as a going concern in its present form, the Company will
need to raise additional funds and execute planned improvements.
The Company has no assurances it will be able to raise additional
funds. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of
recorded asset amounts or the amount and classification of
liabilities or any other adjustments that might become necessary
should the Company be unable to continue as a going concern in
its present form. There can be no assurances that the Company's
operations can be returned to profitability.
Nature of Operations
The Company manufactures and markets activewear in juvenile,
youth and adult size ranges and upscale knit apparel for the
ladies' market. The Company's products are sold to wholesalers
and retail accounts, primarily in the United States.
Principles of Consolidation
The consolidated financial statements include the accounts of
Signal Apparel Company, Inc. ("Signal") and its wholly-owned
subsidiaries (collectively, the "Company"). All significant
intercompany balances and transactions have been eliminated in
consolidation.
Revenue Recognition
Revenue is recognized when the Company's products are shipped to
its customers.
Cash and Cash Equivalents
Cash and cash equivalents include all cash and investments with
original maturities of three months or less.
Inventories
Inventories are stated at the lower of first-in, first-out (FIFO)
cost or market for all inventories. For discontinued and
closeout inventories, the Company evaluates the need for write-
downs on an item by item basis. Market value for finished goods
and blank (unprinted) goods is estimated net realizable value.
Property, Plant and Equipment
Depreciation of property, plant and equipment is provided over
the estimated useful lives of the assets principally using
accelerated methods. Assets under capital leases are included in
property, plant and equipment, and amortization of such assets is
included with depreciation expense. The estimated useful lives
of the assets range from 4 to 32 years for buildings and
improvements and from 3 to 10 years for machinery and equipment.
Expenditures for maintenance and repairs are charged to expense
as incurred. Depreciation and amortization of property, plant
and equipment amounted to $1,411,000 in 1997, $2,924,000 in 1996,
and $3,353,000 in 1995. The Company has idle facilities in
Marion, South Carolina and Wabash, Indiana. At December 31,
1997, the Company had idle property, plant and equipment held for
sale with a net book value of approximately $796,000. The
Company has written the property, plant and equipment down to its
estimated fair value less estimated costs to sell. Write downs
of $753,000 and $1,845,000 have been included in other expense in
the consolidated statement of operations for 1997 and 1996,
respectively.
Net Loss per Share
Effective for the period ended December 31, 1997, the Company
adopted Statement of Financial Accounting Standards No.
("SFAS")128 "Earnings Per Share", which changes the criteria for
reporting earnings per share ("EPS"). As the Company has been in
a loss position, the Company's common stock equivalents (see Note
6) would have an antidilutive effect on EPS and are excluded from
diluted EPS for all periods presented.
Stock-Based Compensation
The Company accounts for its stock-based compensation plan under
Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB No. 25). Effective in 1996, the
Company adopted the disclosure option of SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 requires
companies that do not choose to account for stock-based
compensation as prescribed by the statement to disclose the pro
forma effects on net income and earnings per share as if SFAS No.
123 had been adopted. Additionally, certain other disclosures
are required with respect to stock-based compensation and the
assumptions used to determine the pro forma effects of SFAS No.
123. See Note 6.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Credit and Market Risk
The Company sells products to a wide variety of customers
servicing the ultimate consumer. Pursuant to the terms of a
factoring agreement with its senior lender, the Company sells
substantially all accounts receivable, except cash-in-advance or
cash-on-delivery sales, to the factor on a preapproved basis.
The Company pays a factoring commission as consideration for the
credit risk and other services provided by the factor.
With regard to credit-approved sales, the factor accepts the
credit risk for nonpayment due to financial inability to pay.
With regard to noncredit approved sales, the Company accepts all
credit risk of nonpayment for any reason. At December 31, 1997,
the senior lender had outstanding receivables from the Company's
customers totaling $4.6 million, of which $1.1 million was not
credit-approved by the factor. The Company performs ongoing
credit evaluations of those customers carried at its own risk and
generally does not require collateral for such receivables. The
Company maintains an allowance for doubtful accounts at a level
which management believes is sufficient to cover potential credit
losses.
In 1997, Wal-Mart accounted for 20% and Kmart accounted for 10%
of net sales. In 1996, Wal-Mart accounted for 14% and Kmart
accounted for 12% of net sales. In 1995, no one customer
accounted for more than 10% of net sales.
Goodwill
On October 17, 1997, the Company acquired GIDI Holdings, Inc.,
doing business as Grand Illusion Sportswear. On November 5, 1997,
the Company completed the related acquisitions of Big Ball
Sports, Inc. and Print The Planet, Inc.(collectively "Big Ball").
These acquisitions resulted in goodwill of $751,000 and
$3,949,000,respectively (Note 2). The goodwill related to these
acquisitions is being amortized on a straight-line basis over 15
years. Amortization expense for 1997 was $56,000.
In connection with the 1994 acquisition of AMW, the Company
recorded goodwill. In 1995, however, the Company determined that
the goodwill related to the acquisition of AMW had been impaired.
This impairment was due to operating losses by AMW, the loss of
significant licenses, shortfalls in sales projections, and the
uncertainty about AMW's return to profitability. As a result,
the unamortized balance of the AMW goodwill was written off.
The charge for this goodwill write-off was $10,736,000 in 1995,
and has been separately presented in the accompanying statements
of operations.
Debt Issuance Costs
During the year, the Company issued 250,000 warrants to its
senior lender at an exercise price of $2.50 per share in
connection with the extension of the revolving advance account.
In addition, the Company issued 4,500,000 warrants with an
exercise price of $1.75 per share to WGI,LLC in connection with
advances made by WGI,LLC. The fair market value using the Black
- - - Scholes option pricing model (see note 6 for assumptions) of
these warrants of $3,716,000 has been capitalized and is included
in the accompanying balance sheet as debt issuance costs. These
costs are being amortized over the term of the debt and the
expected term of the WGI,LLC advances.
Reclassifications
Certain reclassifications have been made in the fiscal 1996 and
1995 financial statements to conform with the 1997 presentation.
2. Acquisitions
Pursuant to the terms of a stock purchase agreement dated as of
October 1, 1997 the Company purchased all of the issued and
outstanding common stock of GIDI Holdings, Inc., d/b/a Grand
Illusion Sportswear, an Illinois Corporation, for $200,000.
Grand Illusion assets acquired and liabilities assumed were
$1,040,000 and $1,483,000, respectively. The acquisition has
been accounted for as a purchase. The excess of the purchase
price over the fair value of the net identifiable assets acquired
is being amortized on a straight-line basis over 15 years.
Pursuant to stock purchase agreements dated October 31, 1997 the
Company acquired all of the outstanding capital stock of Big Ball
Sports, Inc., a Texas Corporation and Print the Planet, Inc., a
Texas Corporation.
Pursuant to the terms of the purchase agreements, the Company
(i) entered into employment agreements with two of the former
owners; (ii) paid $250,000 in cash and issued a promissory note
in the amount of $250,000 (payable in 12 monthly installments of
interest only, followed by 36 monthly installments of principal
and interest beginning November 5, 1998)(in each case with
interest on the unpaid balance at prime); and (iii) issued a
total of 855,194 shares of Common Stock in settlement of various
outstanding claims of creditors pertaining to Big Ball.
All of the shares of Common Stock issued pursuant to the purchase
agreements are unregistered, restricted shares of Common Stock
pursuant to the rules and regulations of the Securities and
Exchange Commission. The Company entered into Registration
Rights Agreements with each recipient of unregistered shares
which give each holder certain "piggy back" registration rights
for a period of two years.
Big Ball Sports and Print the Planet, Inc. assets acquired and
liabilities assumed were $3,335,000 and $5,846,000, respectively.
The acquisition has been accounted for under the purchase method
of accounting. The excess of purchase price over the fair value
of the net identifiable assets acquired has been recorded as an
intangible asset and is being amortized on a straight line basis
over 15 years.
The results of operations of Grand Illusion Sportswear and Big
Ball Sports and Print the Planet, Inc. are included in the
accompanying consolidated financial statements from their
respective dates of acquisition. The following summarized
unaudited pro forma financial information gives effect to the
acquisitions as if they had occurred on January 1 of each year:
Year Ended
Dollars in thousands, December 31,
Except per share data 1997 1996
Net sales $ 59,823 $ 80,135
Net loss (31,978) (38,537)
Net loss per share (2.40) (3.10)
3. Note Receivable
On December 2, 1997, a third party entered into a $500,000
promissory note with the Company as part of the sale of the
Company's LaGrange plant. The note bears interest at 10% payable
in 24 equal monthly installments of interest and principal
beginning January 1, 1998.
4. Inventories
Inventories consisted of the following at December 31, 1997
and 1996:
(Dollars in thousands) 1997 1996
- - -----------------------------------------------------------------
Raw materials $ 731 $ 794
Work in process 1,032 2,060
Finished goods 8,120 11,383
Supplies 507 450
- - -----------------------------------------------------------------
$10,390 $14,687
=================================================================
5. Debt
Debt consisted of the following at December 31, 1997 and 1996:
(Dollars in thousands) 1997 1996
- - -----------------------------------------------------------------
Senior obligations:
Revolving advance account under
Senior credit facility -- interest
payable monthly at the alternate
base rate (as defined) plus 1.25%
(9.75% at December 31, 1997);
secured by accounts receivable,
inventories and certain machinery
and equipment and guarantees
of principal shareholder $40,457 $20,362
Senior term note repaid in 1997 - 995
Senior term note -- interest payable
monthly at the alternate base rate
(as defined) plus 1.5% (10.0% at
December 31, 1997); secured by
accounts receivable, inventories,
and machinery and equipment; payable
in equal monthly installments of
$49,500 over a period through
July 1999 with a balloon payment
due August 1999 823 2,576
Senior secured subordinated promissory
note to related party -- interest at
25% through August 22, 1997; thereafter at
10% (payable at maturity); secured by a
second lien on accounts receivable,
inventory, machinery and equipment,
and certain real estate 11,210 32,049
Notes payable to related party - 6,500
converted to equity in 1997
Notes payable to related parties --
interest accrued monthly at 5.5% per
annum based on the average outstanding
debt. 1,981 -
Subordinated debt to related party 3,000 3,000
Obligations under capital leases 1,205 278
Other 1,471 663
- - -----------------------------------------------------------------
Total 60,147 66,423
Less: Current portion of
long-term debt 7,110 6,795
Revolving advance account 40,457 20,362
- - -----------------------------------------------------------------
Long Term Debt, excluding current
portion and revolving advance account $ 12,580 $ 39,266
=================================================================
On October 31, 1997, the financing arrangement with the Company's
senior lender was extended through March 31, 2000. On January
30, 1998, the financing agreement with the senior lender was
amended to include the factoring of Big Ball Sports, Inc. Under
the current financing arrangement, the Company's total
outstanding obligations to the senior lender (including the
revolving advance account and senior term notes) at any month-end
cannot exceed the lower of $55,000,000 or the borrowing base, as
defined in the agreement. The borrowing base is generally equal
to the sum of 85% of eligible receivables (as defined), plus the
lower of the inventory cap ($16,000,000, subject to adjustment)
or 50% of eligible inventory (as defined), less certain reserves,
plus the discretionary overadvances and the senior term notes.
The senior lender has agreed to allow certain discretionary
overadvances in excess of the borrowing base. At December 31,
1997, the discretionary overadvance facilities aggregated
$34,000,000, $4,000,000 of which is secured by a collateral
pledge by two principal shareholders, FS Signal Associates II and
WGI. All such overadvance facilities with the senior lender are
discretionary. The balance of $30,000,000 is guaranteed by the
principal shareholder, WGI. The collateral pledge may only be
repaid after repayment of all outstanding borrowings under the
discretionary overadvance facility from the senior lender. Such
overadvances are classified in the revolving advance account.
Under the revolving advance account, interest is at the alternate
base rate plus 1.25%. The alternate base rate is a fluctuating
rate equal to the higher of the prime rate (as defined) or the
federal funds rate plus .5%, and is payable monthly. In addition
to the amounts due to the senior lender for interest, the Company
is obligated to pay a quarterly fee of .25% per annum on the
difference between $55,000,000 and the average amount of
obligations outstanding, as defined, to such lender.
The current financing arrangement requires, among other things,
the maintenance of minimum amounts of working capital, cumulative
pretax operating results and net worth, and also limits the
Company's ability to pay dividends and the amount of indebtedness
the Company may incur. As of December 31, 1997, the Company was
not in compliance with various covenants of the credit facility.
Due to the Company's noncompliance with certain of the amended
and restated covenants, all long-term debt with the senior lender
is classified as a current liability in the accompanying
consolidated balance sheets at December 31, 1997.
During 1997, as part of the Restructing Plan (see Note 6),
$20,000,000 of the outstanding debt owed to WGI, was repaid with
proceeds from the senior lender under the terms of the new
financing agreement. In addition, notes payable to a related
party were converted to equity as part of the Restructuring Plan
(see note 6). In 1997, the Company used $1,750,000 in proceeds
from the sale of the LaGrange facility to reduce its obligations
under the senior term notes as required. Also, during 1997, the
Company entered into a Reimbursement Agreement of a Promissory
Note with FS Signal, whereby the Company agreed to repay amounts
that FS Signal pays in support of letters of credit. At December
31, 1997, the Company had a debt of $1,981,000 relating to this
agreement. Also, during 1997, the Company financed certain
capital expenditures relating to machinery and equipment totaling
$842,000 by entering into capital leases.
Effective March 31, 1994, the Company signed a promissory note
for $3,000,000 with a related party, FS Signal Associates I. The
promissory note was due on April 30, 1997, subject to the terms
of the subordination agreement with the Company's senior lender.
Interest was payable at maturity at the prime rate, as defined,
plus 3%. In connection with this promissory note, accrued
interest payable to FS Signal Associates I was approximately
$1,322,000 and $989,000 at December 31, 1997 and 1996,
respectively.
Subsequent to December 31, 1997 the Company received $4,250,000
in additional advances from WGI,LLC. These amounts, as well as,
the $11,210,000 received in 1997 are expected to be documented as
funding under a new credit agreement with WGI,LLC. These
additional advances currently accrue interest at a rate of 10%.
Interest expense in the consolidated statements of operations
includes accrued interest to related parties of $1,599,000,
$7,119,000, and $3,852,000 during 1997, 1996, and 1995,
respectively.
The Company made cash payments for interest of $ 2,349,000,
$2,649,000, and $4,634,000 during 1997, 1996, and 1995,
respectively. The aggregate future scheduled maturities of debt
for the five years subsequent to December 31, 1997, are as
follows: 1998 - $47,567,000; 1999 - $11,914,000; 2000 -
$337,000; 2001 - $205,000, and 2002 - $124,000.
6. Capital Stock
On December 30, 1997, the shareholders approved an amendment to
the Company's 1985 Stock Option Plan to increase the number of
shares of Common Stock available for grant from 1,910,000 to
4,000,000 shares. The options have terms ranging from 5 to 10
years and vest over periods from one to four years from date of
grant.
The Company accounts for its stock-based compensation under APB
No. 25, under which no compensation expense has been recognized
for stock options granted with exercise prices equal to or
greater than the fair value of the Company's Common Stock on the
date of grant. The Company adopted SFAS No. 123 for disclosure
purposes only in 1996. For SFAS No. 123 purposes, the fair value
of each employee option grant has been estimated as of the date
of grant using the Black-Scholes option pricing model with the
following weighted average assumptions for 1997,1996 and 1995,
respectively: risk-free interest rate of 6.11%, 6.52% and 6.40%,
expected life of 3.0, 5.0 and 5.4 years, expected dividend yield
of 0% and expected volatility of 71% for 1997 and 46% for 1996
and 1995. Using these assumptions, the fair value of the
employee stock options granted in 1997,1996 and 1995 is
$2,743,000, $913,000 and $967,000, respectively, which would be
amortized as compensation expense over the vesting period of the
options. Compensation expense recognized under APB No. 25 in
1997, 1996 and 1995 was $0, $295,000 and $454,000, respectively.
Had compensation cost for the plan been determined in accordance
with SFAS No. 123, utilizing the assumptions detailed above, the
Company's pro forma net loss would have been $31,049,000,
$34,314,000 and $40,472,000 for the years ended December 31,
1997, 1996 and 1995, respectively. Pro forma net loss per share
would have been $2.45, $2.97 and $3.85 for the years ended
December 31, 1997, 1996 and 1995, respectively.
The pro forma effect on net loss in this disclosure may not be
representative of the pro forma effect on net loss in future
years because it does not take into consideration expense related
to grants made prior to 1995.
A summary of the Company's stock option activity for 1997, 1996
and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 493,600 $5.29 760,236 $5.47 483,500 $6.27
Granted, at market price
1,700,000 2.12 18,000 6.19 305,000 5.60
Granted , at below market
Price 65,000 2.38 52,500 4.48 200,000 4.00
Granted, at below market
price 682,000 2.38 0 0 0 0
Exercised 0 0 (50,000) 4.00 (13,750) 7.06
Canceled or expired (292,250) 3.38 (287,136) 5.90 (214,514) (5.98)
Outstanding at
end of year 2,648,350 $2.66 493,600 $5.29 760,236 $5.47
Exercisable at end of 380,600 $5.38 433,825 $5.31 201,786 $6.30
year
Weighted average fair $1.31 3.27 3.25
value of options granted,
at market
price
Weighted average fair $1.26 3.30 4.01
value of options
granted, at Below market
market price
Weighted average fair value
of options granted, at
above market price $ .46 N/A N/A
</TABLE>
There are 2,648,350 options outstanding at December 31, 1997,
including 2,267,750 having exercise prices between $1.50 and
$2.50 with a weighted average exercise price of $2.20 and a
weighted average remaining contractual life of 4.5 years. None
of these options were exercisable at year end. There are also
177,500 options with exercise prices between $3.00 and $4.00,
with a weighted average exercise price of $3.89 and a weighted
average remaining contractual life of 7.3 years. All of these
options were exercisable at year end. The remaining 203,100
options have exercise prices between $5.00 and $7.06, with a
weighted average exercise price of $6.73 and a weighted average
remaining contractual life of 6.2 years. All of these options
were exercisable at year end.
At the Annual Meeting of Shareholders of Signal Apparel Company,
Inc. held on December 30, 1997, the Company's shareholders
approved the issuance of an additional 15,473,220 shares of the
Company's Common Stock in connection with a plan approved by the
Board of Directors to restructure the Company's outstanding
subordinated debt and preferred stock (the "Restructuring Plan").
In anticipation of the adoption of the Restructuring Plan, WGI,
LLC , a principal shareholder of the Company, acquired an
additional 4,630,000 shares of Common Stock through the exercise
of warrants on November 7, 1997 (the "Restructuring
Acquisition"). After this exercise of Warrants, WGI owned 50.44%
of the Common Stock of the Company (not including remaining
exercisable warrants).
Pursuant to an agreement between the Company and WGI concerning
the Restructuring Plan, the Company applied $20,000,000 of the
increased funding available under the amended and restated
factoring agreement with the Company's senior lender to reduce
the Company's outstanding indebtedness under the credit agreement
between it and WGI. The reduction of outstanding indebtedness
under the credit agreement with WGI also reduced the Company's
effective annual interest rate on this portion of its debt from
over 20% per annum to a rate of prime plus 1-1/4% (currently
9.75%). The Restructuring Plan reduces the Company's annual
interest expense by eliminating approximately $50,200,000 of
indebtedness from the Company's balance sheet, leaving
approximately $41,282,000 owed to the Senior Lender and
approximately $17,800,000 owed to WGI and FS Signal (including
approximately $11,397,000 owed to WGI). The Restructuring Plan
also eliminates a liability of $11,725,000 for accrued but unpaid
dividends on preferred stock and reduces the Company's
shareholders' deficit by over 50%, from approximately $89.3
million to approximately $41.3 million.
The Restructuring Plan also includes: (i) amendment of all
remaining outstanding warrants held by WGI (covering a total of
345,000 shares with an exercise price of $7.06 per share),
reducing the exercise price of such warrants to $1.75 per share
(approximately equal to the market price on the date of the
Annual Meeting); (ii) issuance to WGI of 8,000,000 shares of
Common Stock valued at approximately $1.98 per share (a premium
of approximately 13% over the market price on the date of the
Annual Meeting) in payment for $15,831,950 of the remaining
subordinated debt owed by the Company to WGI (representing a
discount on the debt repayment of $1,831,950, which equals the
net economic benefit of repricing the WGI warrants); and (iii)
conversion of both the remaining outstanding balance of such debt
of $23,802,000 (including accrued interest through the date of
the Annual Meeting) and approximately $20,514,000 in stated value
(plus accumulated dividends) of Series C Preferred Stock held by
WGI into a total of approximately 443.16 shares of a new Series F
Preferred Stock, stated value $100,000 per share.
The new Series F Preferred Stock accrues cumulative undeclared
dividends at the rate of 9% per annum. These dividends are
payable in cash when declared. The Series F Preferred Stock is
not convertible into Common Stock or into any other security
issued by the Company, and does not have any mandatory redemption
or call features.
In addition to the transactions described above between the
Company and WGI, the Company exercised its rights under an
agreement dated March 31, 1995 between the Company and the
holders of all outstanding shares of its Series A Preferred Stock
and Series C Preferred Stock (the "Preferred Stock Agreement") to
redeem all of the remaining outstanding shares (including
accumulated dividends) of the Company's Series A Preferred Stock
and Series C Preferred Stock with shares of Common Stock valued
for such purpose at $7 per share. Following the completion of
the restructuring transactions described above involving WGI, FS
Signal was the only remaining holder of shares of the Company's
Series A Preferred Stock and Series C Preferred Stock. The
redemption of all of such stock held by FS Signal ($39,583,700 in
stated value plus accrued dividends in Series A Preferred Stock
and $12,728,841 in stated value plus accrued dividends in Series
C Preferred Stock) resulted in the issuance of an additional
7,473,220 shares of the Company's Common Stock to FS Signal.
The issuance of Common Stock as described above in connection
with the Restructuring Plan and related transactions resulted in
WGI having a greater percentage of voting power. Prior to the
implementation of the Restructuring Plan and the aforementioned
related transactions, WGI owned 34.35% of the issued and
outstanding shares of the Company's Common Stock (not including
exercisable warrants). Now, WGI owns 50.85% of the issued and
outstanding shares of Common Stock (not including exercisable
warrants). FS Signal's percentage of voting power has remained
the same, approximately 36% of the issued and outstanding shares
of Common Stock (not including exercisable warrants).
Implementation of the Restructuring Plan and related transactions
described above has resulted in ownership of shareholders other
than WGI and FS Signal being reduced from approximately 30% to
approximately 14% of the issued and outstanding shares of the
Company's Common Stock (not including exercisable warrants).
Although WGI now owns over 50% of the voting securities (as
defined by Rule 12b-2 of Regulation S-K) of the Company, the
Company does not deem the implementation of the Restructuring
Plan and related transactions to have effected a change in
control of the Company as WGI already, through its ownership of
other securities of the Company convertible into Common Stock and
its relationship with the Company and management, possessed the
power to direct the management and policies of the Company.
Under its Restated Articles of Incorporation, as amended, the
Company has the authority to issue 1,600,000 shares of preferred
stock having no par value, issuable in series, with the
designation, powers, preferences, rights, qualifications and
restrictions to be established by the board of directors. At
December 31, 1997, the Company had authorized 400 shares of
Series A Preferred Stock, 250 shares of Series B Preferred Stock,
and 1,000 shares of Series C Preferred Stock, 100 shares of
Series D Preferred Stock and 20,000 shares of Series E Preferred
Stock, and 1,000 shares of Series F Preferred Stock. See Note 7
for discussion of the Series D Redeemable Preferred Stock.
At December 31, 1997, there were no shares of the Series A, B, C,
D or E Preferred Stock outstanding. As discussed above the
Company issued 443.16 shares of Series F Preferred Stock
effective December 31, 1997 in connection with the implementation
of the Restructuring Plan.
In January 1995, Walsh Greenwood made an equity investment in the
Company of $3,000,000 for which they received 30 shares of Series
C Preferred Stock. In connection with this investment, the
Company issued warrants to Walsh Greenwood to purchase 300,000
shares of the Company's Common Stock at an exercise price of
$7.625 per share. Such warrants expire on February 1, 2000.
In conjunction with the Walsh Greenwood Credit Agreement (Note
4), in 1995 the Company issued warrants to Walsh Greenwood to
purchase 4,000,000 shares of Common Stock. Of these, warrants to
purchase 2,000,000 shares were issued with an exercise price of
$2.25 per share expiring on March 31, 1998. Such warrants vested
as funds were drawn at the rate of 100,000 warrants for each
$1,000,000 drawn. Additionally, Walsh Greenwood received
warrants to purchase 2,000,000 shares with an exercise price at a
25% discount to the 20-day average trading price in December 1996
($2.32 per share). These warrants vested upon issuance and were
exercisable for a period of three years commencing on January 1,
1997. These warrants were subsequently assigned by Walsh
Greenwood to WGI, and comprised a portion of the warrants to
acquire 4,630,000 shares of Common Stock which were exercised by
WGI in anticipation of the Restructuring Plan, as discussed
above.
On November 5, 1995, Marvin and Sherri Winkler and MW
Holdings(collectively, the "Winkler Interest") agreed to convert
outstanding promissory notes totaling approximately $2,434,000
into 1,000,000 unregistered shares of the Company's Common Stock.
The Company agreed to use its best efforts to include such shares
in the next registration statement under the Securities Act of
1933 that the Company files, and, if such registration does not
occur by November 1996, the Company agreed to pay interest at the
rate of 7% per annum on the value of the unregistered shares
(half of said interest to be paid in cash, half to be paid in
shares of Common Stock) until such shares are registered or
disposed of. The Company had not registered such shares as of
September 1997. Pursuant to the terms of an agreement between
the Winkler Interests and the Company in September 1997, the
Winkler Interests agreed to accept $175,000 (payable in equal
monthly installments of $25,000 each) and 125,000 unregistered
shares of the Company's Common Stock in lieu of certain past and
all future interest obligations of the Company to the Winkler
Interests (including interest that otherwise would have accrued
on account of the none registration of shares of Common Stock
issued to the Winkler Interests).
From June 1996 through December 1997, the Company incurred
additional indebtedness to WGI for funds advanced in an aggregate
amount of $33,044,000, bringing the Company's total indebtedness
to WGI in December 1997 (prior to implementation of the
Restructuring Plan), including accrued interest thereon, to
approximately $50,214,000. These funds were advanced to the
Company on an "as needed" basis with the understanding that the
additional indebtedness would be documented on the same terms as
the existing WGI Credit Agreement. Additionally, as of December
31, 1996, the Company had not made all interest payments required
by the WGI Credit Agreement and had breached the financial
covenants specified by the agreement. In March 1997, Walsh
Greenwood agreed to waive those conditions. Finally, in
connection with the Company's amendment and restatement of the
factoring agreement with its senior lender, the senior lender
required WGI to (i) deposit $15,000,000 of collateral as security
in support of a portion of the Company's borrowing base under the
amended and restated factoring agreement and (ii) to continue in
place a guaranty of a portion of the Company's obligations in the
amount of $9,000,000 which was originally entered into February
27, 1996 by another affiliate of WGI The Company entered into a
Reimbursement Agreement and related Promissory Note with WGI
dated October 31, 1997 (subordinate to the Company's obligations
to its senior lender and parri passu with its obligations to FS
Signal), pursuant to which the Company agreed to repay any
amounts that WGI may be required to pay to the senior lender by
virtue of these arrangements. As an inducement to WGI to provide
such additional funding to the Company, and in connection with
such waiver and the collateral and guaranty arrangements with the
senior lender, the Company agreed (subject to shareholder
approval) to issue warrants to WGI to purchase up to 4,500,000
additional shares of the Company's Common Stock at an exercise
price of $1.75 per share (approximately the then-current market
price). The Company agreed to issue these warrants with
antidilution provisions and registration rights no more favorable
than the equivalent provisions in other outstanding warrants
issued to principal shareholders of the Company, except that the
registration rights would include three demand registrations.
Using a formula vesting such warrants at the rate of 100,000
shares for each $1,000,000 of additional funding (as under the
WGI Credit Agreement), these warrants were vested as to all
4,500,000 shares when their issuance was approved by the
Company's shareholders on December 30, 1997. The warrants will
be issued effective as of such date.
A summary of the Company's warrant activity for 1997, 1996 and
1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 9,754,560 $5.22 9,754,560 $5.22 5,454,560 $7.23
Issued, at market price 250,000 2.38 0 0.00 300,000 7.63
Issued, at above market
price 5,710,000 1.86 0 0.00 0 0.00
Issued, at below market
price 250,000 2.50 0 0.00 4,000,000 2.28
Exercised (4,630,000) 3.01 0 0.00 0 0.00
Canceled or expired (445,000) 7.06 0 0.00 0 0.00
Outstanding at end of 10,889,560 $4.21 9,754,560 $5.22 9,254,560 $5.22
year
Exercisable at end of 9,824,560 $4.40 9,254,560 $5.12 9,254,560 $5.12
year
</TABLE>
Of the 10,889,560 warrants outstanding at December 31, 1997,
6,210,000 have exercise prices between $1.75 and $2.50, with a
weighted average exercise price of $1.91 and a weighted average
remaining contractual life of 4.8 years. Of these warrants,
5,145,000 are exercisable with a weighted average exercise price
of $1.79. The remaining 4,679,560 warrants have exercise prices
between $7.06 and $11.61, with a weighted average exercise price
of $7.26 and a weighted average remaining contractual life of 0.9
years. All of these warrants are exercisable.
7. Redeemable Preferred Stock
The Series D Preferred Stock is junior to the Series A, B and C
Preferred Stock of the Company (see Note 6); bears a cumulative
dividend at an annual rate equal to ten percent (10%) of the
stated value of such stock, compounded quarterly; and is required
to be redeemed by the Company on November 22, 1999 at a
redemption price equal to the stated value per share for such
stock plus accrued and unpaid dividends, subject to the rights of
the holders of the Company's other outstanding series of
Preferred Stock which are senior to the Series D Preferred Stock.
The Series D Redeemable Preferred Stock has a stated value of
$100,000 per share and a liquidation preference of $100,000 per
share, plus cumulative unpaid dividends. As of December 31, 1997
and 1996 none had been issued.
8. Income Taxes
The Company recognizes deferred tax assets and liabilities for
the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this
method, deferred tax assets and liabilities are determined based
on the differences between the financial reporting and income tax
bases using enacted tax rates in effect for the year in which the
differences are expected to reverse.
There was no income tax provision or benefit recorded during the
years ended December 31, 1997, 1996, and 1995, due to the losses
sustained by the Company.
Deferred income tax assets and liabilities for 1997 and 1996
reflect the impact of temporary differences between the amount of
assets and liabilities for financial reporting and income tax
reporting purposes. The Company has established a valuation
allowance for the entire amount of the net deferred tax asset due
to the uncertainty regarding the realizability of these assets.
Temporary differences and carryforwards which give rise to
deferred tax assets at December 31, 1997 and 1996 are as follows
(in thousands):
1997 1996
---- ----
Deferred tax assets:
Tax loss carryforwards $86,778 $73,140
Inventory reserves 1,741 1,346
Accounts receivable
Reserves 983 1,740
Multi-employer
withdrawal liability 146 435
Other 2,012 2,690
------- --------
Total deferred tax assets $91,660 79,351
Valuation allowance (91,183) (78,635)
Deferred tax liabilities:
LIFO to FIFO change (477) (716)
-------- --------
Net deferred tax asset $ 0 $ 0
======== =========
The Company and its subsidiaries file a consolidated federal
income tax return. At December 31, 1997, the Company had tax
loss carryforwards of approximately $228,000,000 which expire in
years 1999 through 2012 if not utilized earlier. At the time
Shirt Shed, AMW and Big Ball were acquired, they had tax loss
carryforwards of $17,400,000,$11,800,000 and $3,021,000,
respectively, which are included above. These tax loss
carryforwards are subject to annual limitations imposed for the
change in ownership (as defined in Section 382 of the Internal
Revenue Code) and application of the consolidated income tax
return rules.
The Company did not pay any income taxes in 1997, 1996 and 1995.
9. Pension and Retirement Plans
The Company sponsors defined contribution plans for employees.
The Company makes contributions to the plans equal to a
percentage of the participants' contributions within certain
limitations. The Company recognized expense related to these
plans of $121,000 in 1997, $124,000 in 1996 and $109,000 in 1995.
The Company's policy is to fund amounts accrued annually.
Certain former employees of Signal participate in a defined
benefit pension plan negotiated with a union (multi-employer
plan) that no longer represents any employee of the Company. The
total multi-employer withdrawal liability was $350,000 and
$1,146,000 at December 31, 1997 and 1996, respectively.
10. Commitments and Contingencies
Operating Leases
The Company occupies certain manufacturing facilities, sales and
administrative offices and uses certain equipment under operating
lease arrangements. Rent expense aggregated approximately
$1,229,000 in 1997, $1,263,000 in 1996, and $1,729,000 in 1995.
Approximate future minimum rental commitments for all
noncancellable operating leases as of December 31, 1997 are as
follows (dollars in thousands):
1998 $ 1,198
1999 570
2000 242
2001 30
2002 1
-------
$ 2,041
=======
Real estate taxes, insurance, and maintenance expense are
generally obligations of the Company.
Letters of Credit Supported by Related Parties
The Company uses letters of credit (which are supported by
commitments from entities controlled by FS Signal) to assist the
Company in purchasing inventory, maintaining licenses and other
matters. During 1997, the Company entered into a Reimbursement
Agreement and a Promissory Note with FS Signal whereby the
Company agreed to repay amounts that FS Signal pays in support of
these letters of credit. At December 31, 1997, the Company had
$1,981,000 in current portion of long-term debt due to FS Signal
for creditor drawdowns on these letters of credit which were
repaid by FS Signal in 1997 and 1996.
Royalty and Other Commitments
Pursuant to the terms of various license agreements, the Company
is obligated to pay future minimum royalties of approximately
$530,000 due in 1998. The Company has estimated that certain
guaranteed royalties will not be met through the normal course of
business and has accrued approximately $350,000 at December 31,
1997 to cover such guarantees.
Legal Proceedings
The Company is a party to various legal proceedings incidental to
its business. The ultimate disposition of these matters is not
presently determinable but will not, in the opinion of
management, have a material adverse effect on the Company's
financial condition or results of operations.
11.Fair Value of Financial Instruments
The carrying amount of cash, receivables and short-term payables
approximates fair value because of the short maturity of these
financial instruments. Due to the current financial condition
(Note 1) and the ongoing attempts to raise additional funds, it
is not practical to estimate the fair value of the Company's
debt.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not Applicable<PAGE>
PART III
Those portions of the Company's Proxy Statement for its 1997
Annual Meeting of Shareholders described below are incorporated
herein by reference.
Item 10.Directors and Executive Officers of the Registrant
Election of Directors and Executive Officers
Item 11.Executive Compensation
Executive Compensation and Employment Agreements
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Security Ownership of Certain Beneficial Owners and Management
Election of Directors
Item 13. Certain Relationships and Related Transactions
Compensation Committee Interlocks and Insider Participation
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a)1.Financial Statements and Schedules
The financial statements are incorporated by reference under
Part II, Item 8 and are set forth in the Index to Financial
Statements and Schedules found in Part II, Item 8.
(a)2. Financial Statement Schedules:
Report of Independent Public Accountants
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted as the required information
is inapplicable or the information is presented in the
consolidated financial statements or related notes.
(a)3. Exhibits
(2.1) Stock Purchase Agreement dated
October 6, 1994, by and among the Company,
Kidd, Kamm Equity Partners, L.P., MW
Holdings, L.P., and the additional parties
listed on the signature pages thereto.
Incorporated by reference to Exhibit 2-1 to
current report on Form 8-K dated November 22,
1994. (S.E.C. File No. 1-2782)
(2.2) Amendment, dated November 1, 1994,
to Stock Purchase Agreement dated October 6,
1994. Incorporated by reference to Exhibit 2-
2 to current report on Form 8-K dated
November 22, 1994. (S.E.C. File No. 1-2782)
(2.3) Amendment No. 2, dated November
21, 1994, to Stock Purchase Agreement dated
October 6, 1994. Incorporated by reference
to Exhibit 2-3 to current report on Form 8-K
dated November 22, 1994. (S.E.C. File No. 1-
2782)
(3.1) Copy of Restated Articles of
Incorporation, as amended December 30, 1998.
(3.2) Copy of Bylaws as amended March
23, 1992. Incorporated by reference to
Exhibit 3-2 to Form 10-K for the year ended
December 31, 1991. (S.E.C. File No. 1-2782)
(10.1) License Agreement between the
Company and RHC Licensing Corporation dated
June 2, 1992. Incorporated by reference to
Exhibit 10.52 to Form 10-K for the year ended
December 31, 1992. (S.E.C. File No. 1-2782)
(10.2) License Agreement, dated June 1,
1992, between the Company and Joan Vass, Inc.
Incorporated by reference to Exhibit 10.1 to
Form 10-K for the year ended December 31,
1992. (S.E.C. File No. 1-2782)
(10.3) First Interim Extension, dated
March 29, 1996, to License Agreement, dated
June 1, 1992, between the Company and Joan
Vass, Inc.
(10.4) Second Interim Extension, dated
September 11, 1996, to License Agreement,
dated June 1, 1992, between the Company and
Joan Vass, Inc.
(10.5) Third Interim Extension, dated
January 31, 1997, to License Agreement, dated
June 1, 1992, between the Company and Joan
Vass, Inc.
(10.6) Fourth Interim Extension, dated
May 1, 1997, to License Agreement, dated June
1, 1992, between the Company and Joan Vass,
Inc.
(10.7) Fifth Interim Extension, dated
January 2, 1998, to License Agreement, dated
June 1, 1992, between the Company and Joan
Vass, Inc.
(10.8) Factoring Agreement dated as of
May 23, 1991 between the Company and BNY
Financial Corporation, together with BNY
Financial Corporation General Security
Agreement, Inventory Security Agreement,
Equipment Security Agreement, and related
documents, all dated as of May 23, 1991
relating to a $60,000,000) credit facility.
Incorporated by reference to Exhibit 10.10 to
Form S-4 Registration Statement filed with
the Commission on May 28, 1991. (S.E.C. File
No. 33-39843)
(10.9) Factoring Agreement dated as of
July 25, 1991 between The Shirt Shed, Inc.
and BNY Financial Corporation. Incorporated
by reference to Exhibit 10.1 to Current
Report on Form 8-K dated July 22, 1991.
(S.E.C. File No. 1-2782)
(10.10) General Security Agreement,
Inventory Security Agreement, Equipment
Security Agreement, and related documents,
all dated as of July 25, 1991 between The
Shirt Shed, Inc. and BNY Financial
Corporation. Incorporated by reference to
Exhibit 10.10 to Form 10-K for the year ended
December 31, 1991. (S.E.C. File No. 1-2782)
(10.11) Promissory Note of Signal
Apparel Company, Inc., for $5,000,000 dated
as of November 12, 1992, and payable to BNY
Financial Corporation and related letter
dated October 15, 1992, canceling the
Promissory Note for $3,500,000 payable to BNY
Financial Corporation. Incorporated by
reference to Exhibit 10.8 to Form 10-K for
the year ended December 31, 1992. (S.E.C.
File No. 1-2782)
(10.12) June 12, 1991 Letter Agreement
to Factoring Agreement dated as of May 23,
1991, between the Company and BNY Financial
Corporation. Incorporated by reference to
Exhibit 10.12 to Form 10-K for the year ended
December 31, 1991. (S.E.C. File No. 1-2782)
(10.13) Letter Amendments, dated as of
July 22, 1991, to Factoring Agreements dated
as of (i) May 23, 1991, between the Company
and BNY Financial Corporation, and (ii) July
25, 1991 between The Shirt Shed, Inc. and BNY
Financial Corporation. Incorporated by
reference to Exhibit 10.13 to Form 10-K for
the year ended December 31, 1991. (S.E.C.
File No. 1-2782)
(10.14) July 25, 1991 Letter Amendments
to Factoring Agreement dated as of July 25,
1991, between The Shirt Shed, Inc. and BNY
Financial Corporation. Incorporated by
reference to Exhibit 10.14 to Form 10-K for
the year ended December 31, 1991. (S.E.C.
File No. 1-2782)
(10.15) July 25, 1991 Letter Amendments
to Factoring Agreements dated as of (i) May
23, 1991, between the Company and BNY
Financial Corporation, and (ii) July 25,
1991, between The Shirt Shed, Inc. and BNY
Financial Corporation. Incorporated by
reference to Exhibit 10.15 to Form 10-K for
the year ended December 31, 1991. (S.E.C.
File No. 1-2782)
(10.16) Letter Amendment dated as of
October 23, 1991, to prior Letter Amendment,
dated July 25, 1991, to factoring Agreements
dated (i) May 23, 1991, between the Company
and BNY Financial Corporation, and (ii) July
25, 1991, between The Shirt Shed, Inc. and
BNY Financial Corporation. Incorporated by
reference to Exhibit 10.16 to Form 10-K for
the year ended December 31, 1991. (S.E.C.
File No. 1-2782)
(10.17) January 24, 1992 Letter
Amendment to Factoring Agreements dated as of
(i) May 23, 1991 between the Company and BNY
Financial Corporation and (ii) July 25, 1991,
between The Shirt Shed, Inc. and BNY
Financial Corporation. Incorporated by
reference to Exhibit 10.14 to Form 10-K for
the year ended December 31, 1992. (S.E.C.
File No. 1-2782)
(10.18) January 31, 1992 Letter
Amendment to Factoring Agreement dated as of
May 23, 1991, between the Company and BNY
Financial Corporation. Incorporated by
reference to Exhibit 10.18 to Form 10-K for
the year ended December 31, 1991. (S.E.C.
File No. 1-2782)
(10.19) February 21, 1992 Letter
Amendments to Factoring Agreements dated as
of (i) May 23, 1991, between the Company and
BNY Financial Corporation, and (ii) July 25,
1991, between The Shirt Shed, Inc. and BNY
Financial Corporation. Incorporated by
reference to Exhibit 10.19 to Form 10-K for
the year ended December 31, 1991. (S.E.C.
File No. 1-2782)
(10.20) Guaranty by the Company of
obligations of The Shirt Shed, Inc. to BNY
Financial Corporation, dated July 25, 1991.
Incorporated by reference to Exhibit 10.21 to
Form 10-K for the year ended December 31,
1991. (S.E.C. File No. 1-2782)
(10.21) Guaranty by The Shirt Shed, Inc.
of obligations of the Company to BNY
Financial Corporation, dated July 25, 1991.
Incorporated by reference to Exhibit 10.23 to
Form 10-K for the year ended December 31,
1992. (S.E.C. File No. 1-2782)
(10.22) Execution version (March 27,
1992) of Letter Amendment dated as of January
24, 1992 to Factoring Agreements dated as of
(i) May 23, 1991, between the Company and BNY
Financial Corporation, and (ii) July 25,
1991, between The Shirt Shed, Inc. and BNY
Financial Corporation. Incorporated by
reference to Exhibit 10.1 to Form 10.Q for
the quarter ended March 31, 1992. (S.E.C.
File No. 1-2782)
(10.23) March 20, 1992 Letter Amendment
to Factoring Agreements dated as of (i) May
23, 1991, between the Company and BNY
Financial Corporation, and (ii) July 25,
1991, between The Shirt Shed, Inc. and BNY
Financial Corporation. Incorporated by
reference to Exhibit 10.2 to Form 10.Q for
the quarter ended March 31, 1992. (S.E.C.
File No. 1-2782)
(10.24) March 28, 1992 Letter Amendment
to Factoring Agreements dated as of (i) May
23, 1991, between the Company and BNY
Financial Corporation, and (ii) July 25,
1991, between the Company and The Shirt Shed,
Inc. Incorporated by reference to Exhibit
10.3 to Form 10.Q for the quarter ended March
31, 1992. (S.E.C. File No. 1-2782)
(10.25) July 31, 1992 Letter concerning
Factoring Agreements dated as of (i) May 23,
1991, between the Company and BNY Financial
Corporation and (ii) July 25, 1991, between
The Shirt Shed, Inc. and BNY Financial
Corporation. Incorporated by reference to
Exhibit 10.4 to Form 10.Q for the quarter
ended September 30, 1992. (S.E.C. File No. 1-
2782)
(10.26) November 12, 1992 Letter
Amendment to Factoring Agreements dated as of
(i) May 23, 1991, between the Company and BNY
Financial Corporation and (ii) July 25, 1991,
between The Shirt Shed, Inc. and BNY
Financial Corporation. Incorporated by
reference to Exhibit 10.24 to Form 10-K for
the year ended December 31, 1992. (S.E.C.
File No. 1-2782)
(10.27) March 29, 1993 Letter Amendment
to Factoring Agreements dated as of (i) May
23, 1991, between the Company and BNY
Financial Corporation, and (ii) July 25,
1991, between The Shirt Shed, Inc. and BNY
Financial Corporation. Incorporated by
reference to Exhibit 10.25 to Form 10-K for
the year ended December 31, 1992. (S.E.C.
File No. 1-2782)
(10.28) March 1, 1993 Letter concerning
Factoring Agreements dated as of (i) May 23,
1991, between the Company and BNY Financial
Corporation and (ii) July 25, 1991, between
The Shirt Shed, Inc. and BNY Financial
Corporation. Incorporated by reference to
Exhibit 10.26 to Form 10-K for the year ended
December 31, 1992. (S.E.C. File No. 1-2782)
(10.29) May 14, 1993 Letter Amendment to
Factoring Agreements dated as of (i) May 23,
1991, between the Company and BNY Financial
Corporation, and (ii) July 25, 1991, between
The Shirt Shed, Inc. and BNY Financial
Corporation. Incorporated by reference to
Exhibit 10.1 to Form 10.Q for the quarter
ended March 31, 1993. (S.E.C. File No. 1-
2782)
(10.30) August 12, 1993 Letter Amendment
to Factoring Agreements dated as of (i) May
23, 1991, between the Company and BNY
Financial Corporation, and (ii) July 25,
1991, between The Shirt Shed, Inc. and BNY
Financial Corporation. Incorporated by
reference to Exhibit 10.5 to Form 10.Q for
the quarter ended June 30, 1993. (S.E.C. File
No. 1-2782)
(10.31) November 8, 1993 Waiver
concerning Factoring Agreements dated as of
(i) May 23, 1991, between the Company and BNY
Financial Corporation, and (ii) July 25, 1991
between The Shirt Shed, Inc. and BNY
Financial Corporation. Incorporated by
reference to Exhibit 10.7 to Form 10.Q for
the quarter ended September 30, 1993. (S.E.C.
File No. 1-2782)
(10.32) Letter Agreement dated as of
March 31, 1994 to Factoring Agreements dated
as of (i) May 23, 1991, between the Company
and BNY Financial Corporation, and (ii) July
25, 1991, between The Shirt Shed, Inc. and
BNY Financial Corporation. Incorporated by
reference to Exhibit 10.28 to Form 10-K for
the year ended December 31, 1993. (S.E.C.
File No. 1-2782)
(10.33) Subordination Agreement, dated
March 31, 1994 between the Company, FS Signal
Associates I and BNY Financial Corporation.
Incorporated by reference to Exhibit 10.3 to
Form 10.Q for the quarter ended March 31,
1994. (S.E.C. File No. 1-2782)
(10.34) July 14, 1994 Letter Amendment
to Factoring Agreements dated as of (i) May
23, 1991 between the Company and BNY
Financial Corporation and (ii) July 25, 1991,
between The Shirt Shed, Inc., and BNY
Financial Corporation. Incorporated by
reference to Exhibit 10.2 to Form 10.Q for
the quarter ended June 30, 1994. (S.E.C. File
No. 1-2782)
(10.35) July 29, 1994 Letter Amendment
to Factoring Agreement, dated May 23, 1991
between the Company and BNY Financial
Corporation, and The Shirt Shed, Inc. as
guarantor. Incorporated by reference to
Exhibit 10.3 to the Form 10.Q for the quarter
ended June 30, 1994. (S.E.C. File No. 1-2782)
(10.36) Promissory Note of the Company
for $4,157,000 dated July 29, 1994 and
payable to BNY Financial Corporation.
Incorporated by reference to Exhibit 10.4 to
the Form 10.Q for the quarter ended June 30,
1994. (S.E.C. File No. 1-2782)
(10.37) Promissory Note of the Company
for $1,480,000 dated July 29, 1994 and
payable to BNY Financial Corporation.
Incorporated by reference to Exhibit 10.5 to
the Form 10.Q for the quarter ended June 30,
1994. (S.E.C. File No. 1-2782)
(10.38) Guaranty by The Shirt Shed, Inc.
of the obligations of the Company to pay a
Promissory Note in the amount of $1,480,000
to BNY Financial Corporation. Incorporated
by reference to Exhibit 10.6 to the Form 10.Q
for the quarter ended June 30, 1994. (S.E.C.
File No. 1-2782)
(10.39) Deed to Secure Debt and Security
Agreement dated July 29, 1994 between the
Company and BNY Financial Corporation.
Incorporated by reference to Exhibit 10.7 to
the Form 10.Q for the quarter ended June 30,
1994. (S.E.C. File No. 1-2782)
(10.40) Real Estate Mortgage, Security
Agreement, Assignment of Leases and Rents,
and Fixture Filing dated July 29, 1994
between the Shirt Shed, Inc. and BNY
Financial Corporation. Incorporated by
reference to Exhibit 10.8 to the Form 10.Q
for the quarter ended June 30, 1994. (S.E.C.
File No. 1-2782)
(10.41) Deed of Trust, Assignment of
Leases and Security Agreement dated July 29,
1994 between the Company and BNY Financial
Corporation. Incorporated by reference to
Exhibit 10.9 to the Form 10.Q for the quarter
ended June 30, 1994. (S.E.C. File No. 1-2782)
(10.42) Letter Agreement dated September
1, 1994 between the Company, BNY Financial
Corporation, FS Signal Associates II and WG
Trading Co. Incorporated by reference to
Exhibit 10.4 to the Form 10.Q for the quarter
ended September 30, 1994. (S.E.C. File No. 1-
2782)
(10.43) November 14, 1994 Letter
Amendment to Factoring Agreements dated as of
(i) May 23, 1991 between the Company and BNY
Financial Corporation and (ii) July 25, 1991
between The Shirt Shed, Inc. and BNY
Financial Corporation. Incorporated by
reference to Exhibit 10.3 to current report
on Form 8-K dated November 22, 1994. (S.E.C.
File No. 1-2782)
(10.44) November 22, 1994 Letter
Amendments to Factoring Agreements dated as
of (i) May 23, 1991 between the Company and
BNY Financial Corporation and (ii) July 25,
1991 between The Shirt Shed, Inc. and BNY
Financial Corporation. Incorporated by
reference to Exhibit 10.4 to current report
on Form 8-K dated November 22, 1994. (S.E.C.
File No. 1-2782)
(10.45) November 22, 1994 Letter
Amendments to Factoring Agreements dated as
of (i) May 23, 1991 between the Company and
BNY Financial Corporation; (ii) July 25, 1991
between the Shirt Shed, Inc. and BNY
Financial Corporation; and (iii) November 22,
1994 between American Marketing Works, Inc.
and BNY Financial Corporation. Incorporated
by reference to Exhibit 10.7 to current
report on Form 8-K dated November 22, 1994.
(S.E.C. File No. 1-2782)
(10.46) Pledge Agreement, dated November
22, 1994, between the Company and BNY
Financial Corporation re: capital stock of
The Shirt Shed, Inc. and American Marketing
Works, Inc. Incorporated by reference to
Exhibit 10.12 to current report on Form 8-K
dated November 22, 1994. (S.E.C. File No. 1-
2782)
(10.47) Letter Agreement dated March 30,
1995 amending the Factoring Agreement dated
as of May 23, 1991 by and between BNY
Financial Corp. and the Company waiving
compliance with certain provisions thereof.
Incorporated by reference to Exhibit 10.1 to
Form 10.Q for the quarter ended June 30,
1995. (S.E.C. File No. 1-2782)
(10.48) Letter Amendment dated November
7, 1995 amending the Factoring Agreements
dated as of May 23, 1991 by and between BNY
Financial Corp. and the Company, dated July
25, 1991 by and between BNY Financial Corp.
and Shirt Shed and dated November 22, 1994 by
and between BNY Financial Corp. and AMW
waiving compliance with certain provisions
thereof. Incorporated by reference to
Exhibit 10.48 to Form 10-K for the year ended
December 31, 1995. (S.E.C. File No. 1-2782)
(10.49) Letter Amendment dated March 14,
1996 amending the Factoring Agreements dated
as of May 23, 1991 by and between BNY
Financial Corp. and the Company, and dated
July 25, 1991 by and between BNY Financial
Corp. and Shirt Shed waiving compliance with
certain provisions thereof. Incorporated by
reference to Exhibit 10.49 to Form 10-K for
the year ended December 31, 1995. (S.E.C.
File No. 1-2782)
(10.50) Letter Amendment dated March 29,
1996, amending the Factoring Agreements dated
as of May 23, 1991, by and between BNY
Financial Corp. and the Company, and dated
July 25, 1991, by and between BNY Financial
Corp. and Shirt Shed waiving compliance with
certain provisions thereof. Incorporated by
reference to Exhibit 10.1 to Form 10.Q for
the quarter ended March 31, 1996. (S.E.C.
File No. 1-2782)
(10.51) Letter Amendment dated April 24,
1996, amending the Factoring Agreements dated
as of May 23, 1991, by and between BNY
Financial Corp. and the Company, and dated
July 25, 1991, by and between BNY Financial
Corp. and Shirt Shed, amending certain
provisions thereof. Incorporated by
reference to Exhibit 10.2 to Form 10.Q for
the quarter ended March 31, 1996. (S.E.C.
File No. 1-2782)
(10.52) Letter Amendment dated August 9,
1996, amending the Factoring Agreements dated
as of May 23, 1991, by and between BNY
Financial Corp. and the Company, and dated
July 25, 1991, by and between BNY Financial
Corp. and Shirt Shed waiving compliance with
certain provisions thereof. Incorporated by
reference to Exhibit 10.1 to Form 10.Q for
the quarter ended June 30, 1996. (S.E.C. File
No. 1-2782)
(10.53) Letter Amendment dated October
31, 1996, amending the Factoring Agreements
dated as of May 23, 1991, by and between BNY
Financial Corp. and the Company, and dated
July 25, 1991, by and between BNY Financial
Corp. and Shirt Shed waiving compliance with
certain provisions thereof. Incorporated by
reference to Exhibit 10 to Form 10.Q for the
quarter ended September 30, 1996. (S.E.C.
File No. 1-2782)
(10.54) Letter Amendment dated March 19,
1997, amending the Factoring Agreements dated
as of May 23, 1991, by and between BNY
Financial Corp. and the Company, and dated
July 25, 1991, by and between BNY Financial
Corp. and Shirt Shed waiving compliance with
certain provisions thereof. Incorporated by
reference to Exhibit 10.54 to Form 10-K for
the year ended December 31, 1997. (S.E.C.
File No. 1-2782)
(10.55) Letter Amendment dated March 19,
1997, amending the Factoring Agreements dated
as of May 23, 1991, by and between BNY
Financial Corp. and the Company, and dated
July 25, 1991, by and between BNY Financial
Corp. and Shirt Shed waiving compliance with
certain provisions thereof. Incorporated by
reference to Exhibit 10.54 to Form 10-K for
the year ended December 31, 1996. (S.E.C.
File No. 1-2782)
(10.56) Waiver Letter, dated as of April
14, 1997, pertaining to Factoring Agreements
dated as of (i) May 23, 1991 between the
Company and BNY Financial Corporation and
(ii) July 25, 1991 between The Shirt Shed,
Inc. and BNY Financial Corporation.
Incorporated by reference to Exhibit 10.1 to
Form 10.Q for the quarter ended March 31,
1997. (S.E.C. File No. 1-2782)
(10.57) Letter Amendment dated as of
August 9, 1997, amending the Factoring
Agreements dated as of (i) May 23, 1991
between the Company and BNY Financial
Corporation and (ii) July 25, 1991 between
The Shirt Shed, Inc. and BNY Financial
Corporation. Incorporated by reference to
Exhibit 10.1 to Form 10.Q for the quarter
ended June 30, 1997. (S.E.C. File No. 1-2782)
(10.58) Waiver Letter, dated as of
November 12, 1997, pertaining to Factoring
Agreements dated as of (i) May 23, 1991
between the Company and BNY Financial
Corporation and (ii) July 25, 1991 between
The Shirt Shed, Inc. and BNY Financial
Corporation. Incorporated by reference to
Exhibit 10.1 to Form 10.Q for the quarter
ended September 30, 1997. (S.E.C. File No. 1-
2782)
(10.59) Amended and Restated Factoring
Agreement dated as of October 31, 1997, by
and between BNY Financial Corp. and the
Company.
(10.60) Forbearance Agreement dated as
of October 31, 1997, by and between BNY
Financial Corp., the Company and The Shirt
Shed, Inc.
(10.61) Factoring Agreement, dated as of
January 30, 1998, by and among Big Ball
Sports, Inc. and BNY Financial Corporation.
(10.62) Letter Amendment, dated March
25, 1998, to Amended and Restated Factoring
Agreement dated as of October 31, 1997, by
and between BNY Financial Corp. and the
Company.
(10.63) Warrant Purchase Agreement,
dated as of March 1, 1991, between the
Company, The Shirt Shed, Inc. and Licensing
Corporation of America. Incorporated by
reference to Exhibit 10.25 to Form 10-K for
the year ended December 31, 1991. (S.E.C.
File No. 1-2782)
(10.64) Warrant No. 002 issued to
Licensing Corporation of America, covering
193,386 shares of the Company's Common Stock,
dated as of July 27, 1991 and expiring July
22, 2001. Incorporated by reference to
Exhibit 10.1 to the Form 10.Q for the quarter
ended September 30, 1994. (S.E.C. File No. 1-
2782)
(10.65) Warrant No. 003 issued to
Licensing Corporation of America, covering
38,674 shares of the Company's Common Stock,
dated as of April 30, 1993 and expiring April
30, 2003. Incorporated by reference to
Exhibit 10.2 to the Form 10.Q for the quarter
ended September 30, 1994. (S.E.C. File No. 1-
2782)
(10.66) Restructuring Agreement, dated
as of August 13, 1993 by and among the
Company, FS Signal Associates, and Walsh
Greenwood & Co. Incorporated by reference to
Exhibit 10.3 to Form 10.Q for the quarter
ended September 30, 1993. (S.E.C. File No. 1-
2782)
(10.67) Waiver Letter, dated as of June
12, 1992, pertaining to Credit Agreement
dated as of October 23, 1991, as amended,
between the Company and FS Signal Associates.
Incorporated by reference to Exhibit 10.1 to
Form 10.Q for the quarter ended September 30,
1992. (S.E.C. File No. 1-2782)
(10.68) Subordination Agreement, dated
as of June 12, 1992, between the Company, FS
Signal Associates and BNY Financial
Corporation. Incorporated by reference to
Exhibit 10.3 to Form 10.Q for the quarter
ended September 30, 1992. (S.E.C. File No. 1-
2782)
(10.69) Subordination Agreement, dated
March 30, 1994, between the Company, FS
Signal Associates and BNY Financial
Corporation. Incorporated by reference to
Exhibit 10.47 to Form 10-K for the year ended
December 31, 1993. (S.E.C. File No. 1-2782)
(10.70) Promissory Note dated March 31,
1994 between the Company and FS Signal
Associates I. Incorporated by reference to
Exhibit 10.2 to Form 10.Q for the quarter
ended March 31, 1994. (S.E.C. File No. 1-
2782)
(10.71) Warrant Certificate covering
2,047,500 shares of Common Stock of the
Company, issued to FS Signal Associates in
connection with the Restructuring Agreement
dated as of August 13, 1993. Incorporated by
reference to Exhibit 10.4 to Form 10.Q for
the quarter ended September 30, 1993. (S.E.C.
File No. 1-2782)
(10.72) Warrant Certificate covering
2,000,000 shares of Common Stock of the
Company, issued to FS Signal Associates in
connection with the Restructuring Agreement
dated as of August 13, 1993. Incorporated by
reference to Exhibit 10.5 to Form 10.Q for
the quarter ended September 30, 1993. (S.E.C.
File No. 1-2782)
(10.73) Warrant Certificate dated April
1, 1994 to purchase 300,000 shares of Common
Stock of the Company, issued to FS Signal
Associates I in connection with the
promissory note dated March 31, 1994.
Incorporated by reference to Exhibit 10.4 to
Form 10.Q for the quarter ended March 31,
1994. (S.E.C. File No. 1-2782)
(10.74) Warrant Certificate covering
675,000 shares of Common Stock of the
Company, issued to Walsh Greenwood in
connection with the Restructuring Agreement
dated as of August 13, 1993. Incorporated by
reference to Exhibit 10.6 to Form 10.Q for
the quarter ended September 30, 1993. (S.E.C.
File No. 1-2782)
(10.75) Warrant Certificate covering
200,000 shares of Common Stock of the Company
issued to Grissanti, Galef & Goldress, Inc.
in connection with their engagement.
Incorporated by reference to Exhibit 10.1 to
Form 10.Q for the quarter ended September 30,
1993. (S.E.C. File No. 1-2782)
(10.76) Amendment to Warrant Certificate
dated October 18, 1994 reducing the shares
issuable from 200,000 to 100,000 to Grisanti,
Galef & Goldress, Inc. Incorporated by
reference to Exhibit 10.3 to Form 10.Q for
the quarter ended September 30, 1994. (S.E.C.
File No. 1-2782)
(10.77) Registration Rights Agreement
dated November 22, 1994, between the Company
and Kidd, Kamm Equity Partners, Inc.
Incorporated by reference to Exhibit 10.2 to
current report on Form 8-K dated November 22,
1994. (S.E.C. File No. 1-2782)
(10.78) Agreement dated May 10, 1995 by
and between the Company and Sherri Winkler
and MW Holdings, Inc. Incorporated by
reference to Exhibit 10.4 to Form 10.Q for
the quarter ended March 31, 1995 . (S.E.C.
File No. 1-2782)
(10.79) Tennessee Deed of Trust and
Security Agreement dated March 31, 1995
between the Company and Walsh Greenwood.
Incorporated by reference to Exhibit 10.2 to
current report on Form 8-K filed on May 10,
1995. (S.E.C. File No. 1-2782)
(10.80) Deed to Secure Debt and Security
Agreement dated March 31, 1995 between the
Company and Walsh Greenwood. Incorporated by
reference to Exhibit 10.3 to current report
on Form 8-K filed on May 10, 1995. (S.E.C.
File No. 1-2782)
(10.81) Real Estate Mortgage, Security
Agreement, Assignment of Lease and Rents and
Fixture filing dated March 31, 1995 between
The Shirt Shed and Walsh Greenwood.
Incorporated by reference to Exhibit 10.4 to
current report on Form 8-K filed on May 10,
1995. (S.E.C. File No. 1-2782)
(10.82) First Amendment dated August 10,
1995, to Tennessee Deed of Trust and Security
Agreement dated March 31, 1995, between the
Company and Walsh Greenwood. Incorporated by
reference to Exhibit 10.100 to Form 10-K for
the year ended December 31, 1995. (S.E.C.
File No. 1-2782)
(10.83) First Amendment dated August 10,
1995, to Secured Debt and Security Agreement
dated March 31, 1995, between the Company and
Walsh Greenwood. Incorporated by reference
to Exhibit 10.101 to Form
10-K for the year ended December 31,
1995. (S.E.C. File No. 1-2782)
(10.84) First Amendment dated August 10,
1995, to Real Estate Mortgage, Security
Agreement, Assignment of Lease and Rents and
Fixture Filing dated March 31, 1995, between
The Shirt Shed and Walsh Greenwood.
Incorporated by reference to Exhibit 10.102
to Form 10-K for the year ended December 31,
1995. (S.E.C. File No. 1-2782)
(10.85) Reimbursement Agreement and
related Promissory Note dated January 30,
1997, among the Company, FS Signal Associates
Limited Partnership and FS Signal Associates
II Limited Partnership, concerning renewal
and guaranty arrangements with respect to
certain letters of credit. Incorporated by
reference to Exhibit 10.108 to Form 10-K for
the year ended December 31, 1996. (S.E.C.
File No. 1-2782)
(10.86) Letter Agreement dated March 27,
1998 between the Company and WGI, LLC re:
balance on open debt not to be called before
January 1, 1999.
(10.87) Stock Purchase Agreement, dated
October 31, 1997, by and among the Company,
Lee Ellis and Jimmy Metyko. Incorporated by
reference to Exhibit 2-1 to Current Report on
Form 8-K dated November 5, 1997. (S.E.C. File
No. 1-2782)
(10.88) Stock Purchase Agreement, dated
October 31, 1997, by and among the Company
and Elizabeth Miller. Incorporated by
reference to Exhibit 2-2 to Current Report on
Form 8-K dated November 5, 1997. (S.E.C. File
No. 1-2782)
(10.89) Employment Agreement with Leon
Ruchlamer dated as of March 27, 1995.
Incorporated by reference to Exhibit 10.5 to
Form 10.Q for the quarter ended March 31,
1995. (S.E.C. File No. 1-2782)
(10.90) Severance Agreement dated
November 5, 1995 with Marvin Winkler.
Incorporated by reference to Exhibit 10.93 to
Form 10-K for the year ended December 31,
1995. (S.E.C. File No. 1-2782)
(10.91) Employment Agreement with Barton
Bresky, dated January 7, 1997. Incorporated
by reference to Exhibit 10.109 to Form 10-K
for the year ended December 31, 1996. (S.E.C.
File No. 1-2782)
(10.92) Employment Agreement with David
E. Houseman, dated October 1, 1997.
(10.93) Employment with John Prutch,
dated October 2, 1997.
(21) List of Subsidiaries
(23) Consent of Arthur Andersen LLP,
Independent Public Accountants
(27) Financial Data Schedule
SIGNAL APPAREL COMPANY, INC.
AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Additions
-----------------
Balance at Charged to Balance
Beginning Costs and at End
of Period Expense Other Deductions of Period
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Deducted from asset accounts:
Allowance to reduce inventories
to net realizable value $ 3,544 $ 4,202 0 $ 3,185 $ 4,561
Allowance for doubtful accounts 1,573 417 859(2) 184(1) 2,665
------- ------- ----- ------- -------
$ 5,117 $ 4,619 $ 859 $ 3,369 $ 7,226
======= ======= ===== ======= =======
Year ended December 31, 1996
Deducted from asset accounts:
Allowance to reduce inventories
to net realizable value $ 3,179 $ 2,355 $ $ 1,990 $ 3,544
Allowance for doubtful 1,703 55 185(1) 1,573
accounts ------- ------- ----- ------- -------
$ 4,882 $ 2,410 $ $ 2,175 $ 5,117
======= ======= ===== ======= =======
Year ended December 31, 1995
Deducted from asset accounts:
Allowance to reduce
inventories to net $ 5,933 $ 1,804 $ $ 4,558 $ 3,179
realizable value
Allowance for doubtful 1,787 264 348(1) 1,703
accounts ------- ------- ----- ------- -------
$ 7,720 $ 2,068 $ $ 4,906 $ 4,882
======= ======= ===== ======= =======
</TABLE>
(1) Uncollectible accounts written off, net of recoveries.
(2) Represents allowance for doubtful accounts acquired in acquisition.
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 there unto duly authorized.
SIGNAL APPAREL COMPANY, INC.
------------------------------
(Registrant)
Date: March 25, 1998 /s/ David E. Houseman
------------------ ----------------------------
David E. Houseman
Chief Executive Officer,
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
and Shareholders of Signal Apparel Company, Inc.:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in Part
II, Item 8 of this Form 10-K and have issued our report thereon
dated March 27, 1998. Our audits were made for the purpose of
forming an opinion on those statements taken as a whole. Our
report on the consolidated financial statements includes an
explanatory paragraph with respect to the Company's ability to
continue as a going concern as described in Note 1 to the
financial statements. Schedule II is the responsibility of the
Company's management and is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not
part of the basic financial statements. This schedule has been
subjected to the audition procedures applied in the audits of the
basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a
whole.
/s/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chattanooga, Tennessee
March 27, 1998
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SIGNAL APPAREL COMPANY, INC.
BY /s/ David E. Housemen
--------------------------
David E. Houseman
Chief Executive Officer
Date: March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below or on counterparts
thereof by the following person on behalf of the registrant in
the capacities and on the dates indicated.
Name Capacity Date
- - ---- -------- ----
/s/ Dave E. Houseman Chief Executive Officer March 31, 1998
- - -------------------- --------------
David E. Houseman
/s/ James V. Elkins Controller March 31, 1998
- - ------------------- --------------
James V. Elkins
/s/ Jacob B. Feigenbaum Director March 31, 1998
- - --------------------- --------------
Jacob Feigenbaum
/s/ Paul R. Greenwood Director March 31, 1998
- - --------------------- --------------
Paul Greenwood
/s/ John W. Prutch Director March 31, 1998
- - --------------------- --------------
John Prutch
/s/ Leon Ruchlamer Director March 31, 1998
- - --------------------- --------------
Leon Ruchlamer
/s/ Stephen Walsh Director March 31, 1998
- - --------------------- --------------
Steve Walsh
/s/ Thomas A. McFall Director March 31, 1998
- - --------------------- --------------
Thomas McFall
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.
Subject to the rights of the holders of any series of
Preferred Stock then outstanding
1
<PAGE>
to elect directors pursuant to any resolution adopted by the
Board of Directors pursuant to the authority granted thereby,
newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause shall be
filled by a majority vote of the directors then in office, and
any director so chosen shall hold office for a term expiring at
the next annual meeting of stockholders. No decrease in the
number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
Meetings of the Board of Directors may be conducted through
the use of any means of communication by which all the Directors
participating may simultaneously hear each other during the
meeting, including telephone conference calls. A director
participating in a meeting by such means is deemed to be present
in person at the meeting.
Whenever these Restated Articles require the affirmative
vote 75% of the members of the Board of Directors to take any
action, if 75% of the number of members of the Board of Directors
is not a whole number, then the number of votes required shall be
determined in accordance with the following sentence. If 75% of
the number of members of the Board of Directors is greater than a
whole number but less than such whole number plus .5, then the
number of votes required shall be such whole number. If 75% of
the number of members of the Board of Directors is greater than
or equal to .5 plus such whole number, then the number of
affirmative votes required shall be the next higher whole number.
SIXTH: In furtherance and not in limitation of the powers
conferred by the laws of the State of Indiana, the Board of
Directors is expressly authorized to adopt, amend or repeal the
Bylaws of the Corporation by majority vote.
SEVENTH: Special Meetings of stockholders of the
Corporation may be called upon not less than 10 nor more than 60
days' written notice by the Board of Directors pursuant to a
resolution approved by 75% of the entire Board of Directors.
EIGHTH: Indemnification and Insurance.
(a) Right to Indemnification. Each person who was or is
made a party or threatened to be made a party to or was or is
involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a
director or officer, of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee
or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such
proceeding is alleged action in an official capacity while
serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the
2
<PAGE>
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
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
3
<PAGE>
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.
4
<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
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.
1
<PAGE>
SECTION 2
DIVIDEND RIGHTS
2.1. DIVIDEND RATE. From the date of issuance,
dividends shall accrue on each share of Series A Preferred at an
annual rate equal to fifteen percent (15%) multiplied by the
Stated Value, compounded quarterly. The annual rate at which
such dividends shall accrue is hereinafter referred to as the
"DIVIDEND RATE."
2.2. ACCRUAL AND PAYMENT. Dividends on each share of
Series A Preferred shall be payable in cash, shall be cumulative
and compounded quarterly and shall accrue from the date of
original issuance of such share, whether or not declared by the
Board of Directors or a committee thereof, and except as
otherwise provided herein, dividends on the Series A Preferred
shall be payable, when and as declared by the Board of Directors
or a committee thereof, on December 31, March 31, June 30 and
September 30 (or, if such day is not a Business Day, on the next
Business Day thereafter) of each year, commencing on September
30, 1993 (each such date being hereinafter referred to as a
"DIVIDEND PAYMENT DATE"), to holders of record as they appear on
the books of the Corporation on such record date, not exceeding
60 days preceding the relevant Dividend Payment Date, as may be
determined by the Board of Directors or a committee thereof in
advance of the payment of the particular dividend. Dividends
shall be paid on each Dividend Payment Date with respect to the
quarterly period ending on such Dividend Payment Date. Dividends
in arrears may be declared and paid at any time, without
reference to any regular Dividend Payment Date, to holders of
record on such date, not exceeding 60 days preceding the payment
date thereof, as may be fixed by the Board of Directors or a
committee thereof. Dividends payable on the Series A Preferred
for any period less than a full quarterly period shall be
computed at the Dividend Rate per annum based on a 360-day year
of twelve 30-day months. "BUSINESS DAY" shall mean any day
excluding Saturday, Sunday and any day which shall be, in the
State of New York, a legal holiday or a day on which banking
institutions are authorized by law to close. In the event that
the Corporation fails to declare and pay full quarterly dividends
on any given Dividend Payment Date, such dividends shall be
compounded as follows: additional dividends, in an amount equal
to the accrued and unpaid dividends on such share of Series A
Preferred multiplied by the Dividend Rate, shall accrue with
respect to each share of Series A Preferred until all accrued and
unpaid dividends shall have been paid. Any reference herein to
accrued dividends shall include the additional dividends payable
with respect to the Series A Preferred pursuant to the preceding
sentence.
2.3. DIVIDENDS OR DISTRIBUTIONS TO JUNIOR STOCK. So
long as any shares of Series A Preferred are outstanding, no
dividend or distribution shall be declared or paid or set aside
for payment on the common stock of the Corporation or on any
other stock of the Corporation ranking junior to the Series A
Preferred as to dividends, nor shall any common stock or any
other stock of the
2
<PAGE>
Corporation ranking junior to the Series A Preferred be redeemed,
purchased or otherwise acquired for any consideration (or any
moneys paid to or made available for a sinking fund for the
redemption of any shares of any such stock) by the Corporation
(except by conversion into or exchange for shares of common stock
or other stock of the Corporation ranking junior to the Series A
Preferred as to dividends) unless, in each case, full cumulative
dividends on all outstanding shares of the Series A Preferred
shall have been declared and paid through and including the most
recent Dividend Payment Date.
SECTION 3
LIQUIDATION RIGHTS
3.1. PREFERENCES OF SERIES A SHARES ON WINDING-UP OF
THE CORPORATION. In the event of any voluntary or involuntary
liquidation, dissolution, winding-up of affairs of the
Corporation or other similar event, before any distribution is
made upon any class of stock of the Corporation ranking junior to
the Series A Preferred, the holders of shares of Series A
Preferred shall be entitled to be paid, out of the assets of the
Corporation available for distribution to its shareholders, an
amount per share equal to the Stated Value, plus all accrued and
unpaid dividends (the Stated Value plus such accrued and unpaid
dividends constituting the "LIQUIDATED VALUE"). Neither the
consolidation nor merger of the Corporation with or into any
other corporation or corporations, nor the sale or lease of all
or substantially all of the assets of the Corporation, shall
itself be deemed to be a liquidation, dissolution or winding-up
of the affairs of the Corporation within the meaning of any of
the provisions of this Section 3.
3.2. PRO RATA DISTRIBUTION. If, upon distribution of
the Corporation's assets in liquidation, dissolution, winding-up
or other similar event, the net assets of the corporation to be
distributed among the holders of shares of Series A Preferred and
any other class or series of stock of the Corporation ranking on
a parity with the Series A Preferred as to distributions upon
liquidation are insufficient to permit payment in full to such
holders of the preferential amounts to which they are entitled,
then the entire net assets of the Corporation shall be
distributed among the holders of shares of Series A Preferred and
such other class or series of stock ratably in proportion to the
full amounts to which they would otherwise be respectively
entitled and such distributions may be made in cash or in
property taken at its fair value (as determined in good faith by
the Board of Directors), or both, at the election of the Board of
Directors.
3.3. PRIORITY. All of the preferential amounts to be
paid to the holders of the Series A Preferred and the holders of
any other class or series of stock of the Corporation ranking on
a parity with the Series A Preferred as to distributions upon
liquidation shall be paid or set apart for payment before the
payment or setting apart for payment of any amount for, or the
distribution of any assets of the Corporation to, the holders of
3
<PAGE>
the common stock of the Corporation and any other class or series
of stock of the Corporation which is junior to the Series A
Preferred as to distributions upon liquidation.
SECTION 4
VOTING RIGHTS
4.1. GENERAL. The holders of shares of Series A
Preferred shall have only such voting rights as are expressly set
forth herein or otherwise provided by law.
4.2. CONSENT FOR CERTAIN ACTIONS. So long as any of
the shares of the Series A Preferred are outstanding, except
where the vote or written consent of the holders of a greater
number of shares of the Corporation is required by law or by the
Restated Articles of Incorporation, and in addition to any other
vote required by law, without the prior consent of the holders of
two-thirds (2/3) of the outstanding shares of Series A Preferred,
given in person or by proxy, either in writing or at a special
meeting called for that purpose, neither the Corporation nor any
of the Corporation's direct or indirect subsidiaries shall take
any of the following actions:
(a) the amendment or repeal of any provision of, or
the
addition of any provision to, the Restated Articles of
Incorporation or By-Laws of the Corporation if such action
would alter or change the preferences, rights, privileges or
powers of, or the restrictions provided for the benefit of,
the Series A Preferred;
(b) the reclassification of any common stock into
shares
having any preference or priority as to dividends or the
distribution of assets upon liquidation superior to or on a
parity with any such preference or priority of the Series A
Preferred;
(c) the application of any of its assets (in excess of
one percent (1%) of its net worth on an annual basis) to the
redemption, retirement, purchase or other acquisition
directly
or indirectly, through subsidiaries or otherwise, of any
shares of common stock, except for purchases of the
Corporation's Common Stock on the open market or purchases
from employees of the Corporation upon termination of
employment or pursuant to any rights of first refusal held
by
the Corporation; or
(d) the creation, authorization or issuance, directly
or
indirectly, of any equity security having any preference or
priority as to dividends or the distribution of assets upon
liquidation superior to any such preference or priority of
the
Series A Preferred.
The holders of the Series A Preferred shall be entitled to notice
of any meeting of the stockholders of the Corporation.
4
<PAGE>
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.
5
<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
all other series and classes of preferred stock of the
Corporation,
1
<PAGE>
whether such series and classes are now existing or are created
in the future, and shall be senior to all other series and
classes of capital stock of the Corporation, whether such series
and classes are now existing or are created in the future.
SECTION 2
DIVIDEND RIGHTS
2.1. DIVIDEND RATE. From the date of issuance
dividends shall accrue on each share of Series B Preferred at an
annual rate equal to twelve and one-half percent (12.5%)
multiplied by the Stated Value, compounded quarterly. The annual
rate at which such dividends shall accrue is hereinafter referred
to as the "DIVIDEND RATE."
2.2. ACCRUAL AND PAYMENT. Dividends on each share of
Series B Preferred shall be payable in cash, shall be cumulative,
compounded quarterly and shall accrue from the date of original
issuance of such share, whether or not declared by the Board of
Directors or a committee thereof, and except as otherwise
provided herein, dividends on the Series B Preferred shall be
payable, when and as declared by the Board of Directors or a
committee thereof, on December 31, March 31, June 30 and
September 30 (or, if such day is not a Business Day, on the next
Business Day thereafter) of each year, commencing on September
30, 1993 (each such date being hereinafter referred to as A
"DIVIDEND PAYMENT DATE"), to holders of record as they appear on
the books of the Corporation on such record date, not exceeding
60 days preceding the relevant Dividend Payment Date, as may be
determined by the Board of Directors or a committee thereof in
advance of the payment of the particular dividend. Dividends
shall be paid on each Dividend Payment Date with respect to the
quarterly period ending on such Dividend Payment Date. Dividends
in arrears may be declared and paid at any time, without
reference to any regular Dividend Payment Date, to holders of
record on such date, not exceeding 60 days preceding the payment
date thereof, as may be fixed by the Board of Directors or a
committee thereof. Dividends payable on the Series B Preferred
for any period less than a full quarterly period shall be
computed at the Dividend Rate per annum based on a 360-day year
of twelve 30-day months. "BUSINESS DAY" shall mean any day
excluding Saturday, Sunday and any day which shall be, in the
State of New York, a legal holiday or a day on which banking
institutions are authorized by law to close. In the event that
the Corporation fails to declare and pay full quarterly dividends
on any given Dividend Payment Date, such dividends shall be
compounded quarterly, as follows: additional dividends, in an
amount equal to the accrued and unpaid dividends on such share of
Series B Preferred multiplied by the Dividend Rate, shall accrue
with respect to each share of Series B Preferred until all
accrued and unpaid dividends shall have been paid. Any reference
herein to
2
<PAGE>
accrued dividends shall include the additional dividends payable
with respect to the Series B Preferred pursuant to the preceding
sentence.
2.3. DIVIDENDS OR DISTRIBUTIONS TO JUNIOR STOCK. So
long as any shares of Series B Preferred are outstanding, no
dividend or distribution shall be declared or paid or set aside
for payment on the common stock of the Corporation or on any
other stock of the Corporation ranking junior to the Series B
Preferred as to dividends, nor shall any common stock or any
other stock of the Corporation ranking junior to the Series B
Preferred be redeemed, purchased or otherwise acquired for any
consideration (or any moneys paid to or made available for a
sinking fund for the redemption of any shares of any such stock)
by the Corporation (except by conversion into or exchange for
shares of common stock or other stock of the Corporation ranking
junior to the Series B Preferred as to dividends) unless, in each
case, full cumulative dividends on all outstanding shares of the
Series B Preferred shall have been declared and paid through and
including the most recent Dividend Payment Date.
SECTION 3
LIQUIDATION RIGHTS
3.1. PREFERENCES OF SERIES B SHARES ON WINDING-UP OF
THE CORPORATION. In the event of any voluntary or involuntary
liquidation, dissolution, winding-up of affairs of the
Corporation or other similar event, before any distribution is
made upon any class of stock of the Corporation ranking junior to
the Series B Preferred, the holders of shares of Series B
Preferred shall be entitled to be paid, out of the assets of the
Corporation available for distribution to its shareholders, an
amount per share equal to the Stated Value, plus all accrued and
unpaid dividends (the Stated Value plus such accrued and unpaid
dividends constituting the "LIQUIDATION VALUE"). Neither the
consolidation nor merger of the Corporation with or into any
other corporation or corporations, nor the sale or lease of all
or substantially all of the assets of the Corporation, shall
itself be deemed to be a liquidation, dissolution or winding-up
of the affairs of the Corporation within the meaning of any of
the provisions of this Section 3.
3.2. PRO RATA DISTRIBUTION. If, upon distribution of
the Corporation's assets in liquidation, dissolution, winding-up
or other similar event, the net assets of the Corporation to be
distributed among the holders of shares of Series B Preferred and
any other class or series of stock of the Corporation ranking on
a parity with the Series B Preferred as to distributions upon
liquidation are insufficient to permit payment in full to such
holders of the preferential amounts to which they are entitled,
then the entire net assets of the Corporation remaining after all
3
<PAGE>
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
4
<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.
5
<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."
1
<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 Preferred as to dividends) unless, in each
case, full cumulative dividends on all outstanding shares of the
Series C Preferred shall
2
<PAGE>
have been declared and paid through and including the most recent
Dividend Payment Date.
SECTION 3
LIQUIDATION RIGHTS
3.1. PREFERENCES OF SERIES C SHARES ON WINDING-UP OF
THE CORPORATION. In the event of any voluntary or involuntary
liquidation, dissolution, winding-up of affairs of the
Corporation or other similar event, before any distribution is
made upon any class of stock of the Corporation ranking junior to
the Series C Preferred, the holders of shares of Series C
Preferred shall be entitled to be paid, out of the assets of the
Corporation available for distribution to its shareholders, an
amount per share equal to the Stated Value, plus all accrued and
unpaid dividends (the Stated Value plus such accrued and unpaid
dividends constituting the "LIQUIDATION VALUE"). Neither the
consolidation nor merger of the Corporation with or into any
other corporation or corporations, nor the sale or lease of all
or substantially all of the assets of the Corporation, shall
itself be deemed to be a liquidation, dissolution or winding-up
of the affairs of the Corporation within the meaning of any of
the provisions of this Section 3.
3.2. PRO RATA DISTRIBUTION. If, upon distribution of
the Corporation's assets in liquidation, dissolution, winding-up
or other similar event, the net assets of the Corporation to be
distributed among the holders of shares of Series C Preferred and
any other class or series of stock of the Corporation ranking on
a parity with the Series C Preferred as to distributions upon
liquidation are insufficient to permit payment in full to such
holders of the preferential amounts to which they are entitled,
then the entire net assets of the Corporation remaining after all
required distributions have been made to holders of shares of
Series A Preferred Stock, Series B Preferred Stock and of any
other class or series of Stock of the Corporation ranking senior
to the Series C Preferred shall be distributed among the holders
of shares of Series C Preferred and any other class or series of
stock ranking on a parity with the Series C Preferred ratably, in
proportion to the full amounts to which they would otherwise be
respectively entitled and such distributions may be made in cash
or in property taken at its fair value (as determined in good
faith by the Board of Directors), or both, at the election of the
Board of Directors.
3.3. PRIORITY. All of the preferential amounts to be
paid to the holders of the Series C Preferred and the holders of
any other class or series of stock of the Corporation ranking on
a parity with the Series C Preferred as to distributions upon
liquidation shall be paid or set apart for payment before the
payment or setting apart for payment of any amount for, or the
3
<PAGE>
distribution of any assets of the Corporation to, the holders of
the common stock of the Corporation and any other class or series
of stock of the Corporation which is junior to the Series C
Preferred as to distributions upon liquidation.
SECTION 4
VOTING RIGHTS
4.1. GENERAL. The holders of shares of Series C
Preferred shall have only such voting rights as are expressly set
forth herein or otherwise provided by law.
4.2. CONSENT FOR CERTAIN ACTIONS. So long as any of
the shares of the Series C Preferred are outstanding, except
where the vote or written consent of the holders of a greater
number of shares of the Corporation is required by law or by the
Restated Articles of Incorporation, and in addition to any other
vote required by law, without the prior consent of the holders of
two-thirds (2/3) of the outstanding shares of Series C Preferred,
given in person or by proxy, either in writing or at a special
meeting called for that purpose, neither the Corporation nor any
of the Corporation's direct or indirect subsidiaries shall take
any of the following actions:
(a) the amendment or repeal of any provision of, or the
addition of any provision to, the Restated Articles of
Incorporation or By-Laws of the Corporation if such action would
alter or change the preferences, rights, privileges or powers of,
or the restrictions provided for the benefit of, the Series C
Preferred;
(b) the reclassification of any common stock into shares
having any preference or priority as to dividends or the
distribution of assets upon liquidation superior to or on a
parity with any such preference or priority of the Series C
Preferred;
(c) the application of any of its assets (in excess of one
percent (1%) of its net worth on an annual basis) to the
redemption, retirement, purchase or other acquisition directly or
indirectly, through subsidiaries or otherwise, of any shares of
common stock, except for purchase of the Corporation's Common
Stock on the open market or purchases from employees of the
Corporation upon termination of employment or pursuant to any
rights of first refusal held by the Corporation; or
(d) the creation, authorization or issuance, directly or
indirectly, of any equity security having any preference or
priority as to dividends or the distribution of assets upon
4
<PAGE>
liquidation superior to any such preference or priority of the
Series C Preferred, other than any such creation, authorization
or issuance of shares of the Corporation's Series A Preferred
Stock or Series B Preferred Stock.
The holders of Series C Preferred shall be entitled to notice of
any meeting of the stockholders of the Corporation.
ANNEX 4
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.
(i)
<PAGE>
1.2. RANK. With respect to the payment of dividends
and other distributions with respect to the capital stock of the
Corporation, including the distribution of the assets of the
Corporation upon liquidation, the Series D Preferred shall be
junior to the Corporation's Series A Preferred Stock, the
Corporation's Series B Preferred Stock and the Corporation's
Series C Preferred Stock and senior to all other series and
classes of preferred stock of the Corporation, whether such
series and classes are now existing or are created in the future,
and shall be senior to all other series and classes of capital
stock of the Corporation, whether such series and classes are now
existing or are created in the future.
SECTION 2
DIVIDEND RIGHTS
2.1. DIVIDEND RATE. From the date of issuance,
dividends shall accrue on each share of Series D Preferred at an
annual rate equal to ten percent (10%) multiplied by the Stated
Value, compounded quarterly. The annual rate at which such
dividends shall accrue is hereinafter referred to as the
"DIVIDEND RATE".
2.2. ACCRUAL AND PAYMENT. Dividends on each share of
Series D Preferred shall be payable in cash, shall be 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
(ii)
<PAGE>
computed at the Dividend Rate per annum based on a 360-day year
of twelve 30-day months. "BUSINESS DAY" shall mean any day
excluding Saturday, Sunday and any day which shall be, in the
State of New York, a legal holiday or a day on which banking
institutions are authorized by law to close. In the event that
the Corporation fails to declare and pay full quarterly dividends
on any given Dividend Payment Date, such dividends shall be
compounded quarterly, as follows: additional dividends, in an
amount equal to the accrued and unpaid dividends on such share of
Series D Preferred multiplied by the Dividend Rate, shall accrue
with respect to each share of Series D Preferred until all
accrued and unpaid dividends shall have been paid. Any reference
herein to accrued dividends shall include the additional
dividends payable with respect to the Series D Preferred pursuant
to the preceding sentence.
2.3. DIVIDENDS OR DISTRIBUTIONS TO JUNIOR STOCK. So
long as any shares of Series D Preferred are outstanding, no
dividend or distribution shall be declared or paid or set aside
for payment on the common stock of the Corporation or on any
other stock of the Corporation ranking junior to the Series D
Preferred as to dividends, nor shall any Common Stock or any
other stock of the Corporation ranking junior to the Series D
Preferred be redeemed, purchased or otherwise acquired for any
consideration (or any moneys paid to or made available for a
sinking fund for the redemption of any shares of any such stock)
by the Corporation (except by conversion into or exchange for
shares of common stock or other stock of the Corporation ranking
junior to the Series D Preferred as to dividends) unless, in each
case, full cumulative dividends on all outstanding shares of the
Series D Preferred shall have been declared and paid through and
including the most recent Dividend Payment Date.
SECTION 3
LIQUIDATION RIGHTS
3.1. PREFERENCES OF SERIES D SHARES ON WINDING-UP OF
THE CORPORATION. In the event of any voluntary or involuntary
liquidation, dissolution, winding-up of affairs of the
Corporation or other similar event, before any distribution is
made upon any class of stock of the Corporation ranking junior to
the Series D Preferred, the holders of shares of Series D
Preferred shall be entitled to be paid, out of the assets of the
Corporation available for distribution to its shareholders, an
amount per share equal to the Stated Value, plus all accrued and
unpaid dividends (the Stated Value plus such accrued and unpaid
dividends constituting the "LIQUIDATION VALUE"). Neither the
(iii)
<PAGE>
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
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.
(iv)
<PAGE>
4.2. CONSENT FOR CERTAIN ACTIONS. So long as any of
the shares of the Series D Preferred are outstanding, except
where the vote or written consent of the holders of a greater
number of shares of the Corporation is required by law or by the
Restated Articles of Incorporation, and in addition to any other
vote required by law, without the prior consent of the holders of
two-thirds (2/3) of the outstanding shares of Series D Preferred,
given in person or by proxy, either in writing or at a special
meeting called for that purpose, neither the Corporation nor any
of the Corporation's direct or indirect subsidiaries shall take
any of the following actions:
(a) the amendment or repeal of any provision of,
or the addition of any provision to, the Restated
Articles of Incorporation or By-Laws of the Corporation
if such action would alter or change the preferences,
rights, privileges or powers of, or the restrictions
provided for the benefit of, the Series D Preferred;
(b) the reclassification of any common stock into
shares having any preference or priority as to
dividends or the distribution of assets upon
liquidation superior to or on a parity with any such
preference or priority of the Series D Preferred;
(c) the application of any of its assets (in
excess of one percent (1%) of its net worth on an
annual basis) to the redemption, retirement, purchase
or other acquisition directly or indirectly, through
subsidiaries or otherwise, of any shares of common
stock, except for purchase of the Corporation's Common
Stock on the open market or purchases from employees of
the Corporation upon termination of employment or
pursuant to any rights of first refusal held by the
Corporation; or
(d) the creation, authorization or issuance,
directly or indirectly, of any equity security having
any preference or priority as to dividends or the
distribution of assets upon liquidation superior to any
such preference or priority of the Series D Preferred,
other than any such creation, authorization or issuance
of shares of the Corporation's Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred
Stock.
The holders of Series D Preferred shall be entitled to notice of
any meeting of the stockholders of the Corporation
(v)
<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
(vi)
<PAGE>
status of authorized but unissued shares of Preferred Stock,
unclassified as to series, and shall not be reissued as shares of
Series D Preferred, and all rights of the holders thereof as
holders of the Series D Preferred (except the right to receive
from the Corporation the Redemption Price) shall cease. Upon
surrender in accordance with said notice of the certificates for
any shares of Series D Preferred so redeemed (properly endorsed
or assigned for transfer, if the Board of Directors of the
Corporation shall so require and the notice shall so state), such
shares shall be redeemed by the Corporation at the Redemption
Price.
SECTION 6
MISCELLANEOUS
6.1. HEADINGS OF SUBDIVISIONS. The headings of the
various Sections and subdivisions hereof are for convenience of
reference only and shall not affect the interpretation of any of
the 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.
(vii)
<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.
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."
1
<PAGE>
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 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
2
<PAGE>
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
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
<PAGE>
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-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
4
<PAGE>
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.
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
5
<PAGE>
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
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
6
<PAGE>
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
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
7
<PAGE>
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
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
8
<PAGE>
certificates to be mailed (by first-class mail, postage prepaid)
to each holder of the Series E Preferred at its address shown on
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.
9
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
1.1. 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.
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 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
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."
1
<PAGE>
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
(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.
2
<PAGE>
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 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
3
<PAGE>
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 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
4
<PAGE>
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 Series 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.
5
March 29, 1996
Signal Apparel Company Inc.
Manufacturer's Road
Chattanooga, Tennessee
Gentlemen:
The June 1, 1992 Agreement between Joan Vass Inc.
("Vass") and you ("Signal") by which Signal is granted
a license to use the "Joan Vass u.s.a" trademark and
Vass' designs in connection with the manufacture and
sale of certain men's and women's garments more
particularly described therein (the "License
Agreement") by its terms expires May 31, 1996 (the
"Termination Date"). The designs for the final
"Collection" - Summer 1996 - provided under the License
Agreement have been delivered by Vass. Vass and Signal
have been discussing an interim extension of the
License Agreement to cover the Fall 1996 Season (June
1, 1996 - August 31, 1996) and Holiday 1996 Season
(September 1, 1996 - November 30, 1996) pending the
effort of parties to work out the terms of a long term
extension of the License Agreement.
Signal at present is in default of the License
Agreement in that the Royalty payment for the Contract
Year quarter ended November 30, 1995 was not made on
the due date thereof, December 29, 1995, and continued
to remain partially unpaid through this date.
Nonetheless, Vass is willing to enter into this letter
agreement providing for a conditional
interim extension of the Termination Date upon the
conditions hereinafter set forth:
1. In the event the following conditions
precedent shall all have been satisfied, the
Termination Date shall on May 31, 1996 be deemed
extended to November 30, 1996 (subject to the
provisions of Section 4.2 of the License Agreement
dealing with payment of Royalties and of Section 9 of
the License Agreement dealing with the "Disposal
Period" following the Termination Date of the License
Agreement, modified as provided in Paragraph 4 of this
letter agreement).
a. Signal shall pay the balance of $78,697
currently due to Vass for the November 30, 1995 Royalty
payment, in full upon execution of this Agreement,
together with interest as provided in Schedule "A"
hereto attached. Such payment shall be made by wire
transfer in accordance with wire transfer instructions
set forth in Schedule "B" hereto attached.
b. On or before execution of this letter
agreement, Signal shall furnish schedule confirming
payment in full of the expenses of Vass' November 1995
Fashion Show and shall pay or have paid the sum of
$25,000 to Vass to cover the expense of Vass' April
1996 Fashion Show, to be held at Vass' showroom.
Notwithstanding the provisions of Section 4.5(c)(iv) of
the License Agreement, the composition
of garments included in the Fashion Show shall be at
Vass' sole discretion, but shall be consistent with
past practices concerning the composition of garments.
c. Signal shall make payment of the
following obligations as specified, payment to Vass to
be made by wire transfer pursuant to the instructions
set forth in Schedule "B":
<TABLE>
<CAPTION>
DATE OF PAYMENT OBLIGATION TO BE PAID
<S> <C>
Upon Execution Payment to Vass of Royalty
computed pursuant to 4.1
of the License Agreement
upon all "Net Sales"
( 4.6) of Joan Vass
u.s.a. ("u.s.a.") garments
between December 1, 1995
and February 29, 1996, in
the sum of $189,547.
Upon Execution Payment to Vass of the sum
of $62,500, plus interest
thereon at 10.5% from
March 1, 1996 to date of
payment.
April 30, 1996 Payment to Vass of Royalty
on Net Sales of u.s.a.
garments in the month of
March 1996
May 30, 1996 Payment to Vass of Royalty
on net Sales of u.s.a.
garments in the month of
April 1996
</TABLE>
d. In addition to the foregoing payments,
(i) no uncured event of default specified in Section 10
of the License Agreement shall be in effect as at May
31, 1996, and (ii) as at May 31, 1996, no proceeding by
or against Signal shall be pending under the Bankruptcy
Code.
In the event any one or more of the foregoing
conditions precedent shall have not been complied with,
the
conditional interim extension of the Termination Date
shall be of no force and effect and the License
Agreement shall expire according to its terms on May
31, 1996 (subject to the post-termination provisions of
Sections 4.2 and 9 of the License Agreement, modified
as provided in Paragraph 4 of this letter agreement).
2. In the event that the License Agreement shall
not have terminated on May 31, 1996, and Signal has
complied with the provisions of Paragraph 1 of this
letter on the dates and in the manner specified, then
and only then the Term of the License Agreement shall
be deemed extended to November 30, 1996 with the same
force and effect as if the Termination Date originally
set forth in the License Agreement had been November
30, 1996, subject, however, to the satisfaction of the
following conditions subsequent:
a. Signal shall make payment of the
following obligations to Vass on the dates specified,
by wire transfer pursuant to the instructions set forth
in Schedule "B":
<TABLE>
<CAPTION>
DATE OF PAYMENT OBLIGATION TO BE PAID
<S> <C>
June 1, 1996 Payment of the sum of
$62,500
June 30, 1996 Payment of Royalty on
Net Sales of u.s.a.
garments between March
1, 1996 and May 31,
1996, in excess of the
payments scheduled to be
made April 30, 1995 and
May 30, 1996
July 30, 1996 Payment of Royalty on
Net Sales of u.s.a.
garments in the month of
June 1996
August 30, 1996 Payment of Royalty on
Net Sales of u.s.a.
garments in the month of
July 1996
September 1, 1996 Payment of the sum of
$62,500
September 30, 1996 Payments of Royalty on
Net Sales of u.s.a.
garments between June 1,
1996 and August 30,
1996, in excess of the
payments scheduled to be
made July 30, 1996 and
August 30, 1996
October 30, 1996 Payment of Royalty on
Net Sales of u.s.a.
garments in the month of
September 1996
November 30, 1996 Payment of Royalty on
Net Sales of u.s.a.
garments in the month of
October 1996
</TABLE>
b. In addition to the foregoing payments,
Signal shall not have failed to cure any event of
default specified in Section 10 of the License
Agreement within the grace periods provided.
In the event of the breach of any one or more of
the foregoing conditions subsequent, the License
Agreement shall forthwith terminate with the same force
and effect as if the date on which the breach occurred
had been the date originally set forth in the License
Agreement as the Termination Date (subject to the post-
termination provisions of Section 4.2 and 9 of the
License Agreement, modified as provided in Paragraph 4
of this letter agreement).
3. The parties recognize that in order that
prototypes of Joan Vass u.s.a. garments for Fall 1996
be available to permit Signal to manufacture sales
samples for Fall selling in a timely fashion, it was
necessary that Vass work on the development of the Fall
1996 prototypes for Vass' Fall 1996 designs at Signal's
Heritage facility in Marion, South Carolina. Vass has
heretofore undertaken the development of the prototypes
for Fall 1996 in the absence of an applicable license
agreement and shall continue such work subject to this
letter agreement upon the following conditions:
a. Signal acknowledges that Vass' designs
for Fall 1996 and Holiday 1996 are and at all times
shall be and remain the property of Vass.
b. All prototypes, patterns and
specification sheets for Fall 1996 and Holiday 1996
garments developed by Vass and Signal (Heritage) shall
at all times be and remain the property of Vass. Upon
the termination of the License Agreement, the same
shall be delivered to Vass at its offices in New York
within five (5) days of Vass' written demand therefor.
Vass shall be responsible for the expense of shipping
and shall have the option to credit Signal for such
shipping expense and the direct expense of preparation
of the prototypes, patterns and specification sheets
against
the amounts due and to come due to it as Royalties
under the License Agreement.
c. The provisions of Section 4.5(a) and (o)
shall not be applicable during the period from June 1,
1996 to November 30, 1996; except that Signal shall
continue the program of cooperative advertising for
Fall 1996 and Holiday 1996 of u.s.a. garments
customarily offered by it during the Term of the
License Agreement to Signal customers.
d. So long as Signal is in compliance with
the License Agreement and the terms of this letter
agreement, Signal shall be entitled to offer for sale
and accept any orders for Fall or Holiday 1996 garments
without further approval of Vass.
e. Upon termination of the License
Agreement, (i) Vass shall have the option to purchase
all Fall and/or Holiday 1996 samples manufactured by it
to Vass at Signal's (Heritage's) direct cost; (ii) Vass
shall have the option to purchase at Signal's
(Heritage's) cost all inventoried yarns and other
materials and accessories, allocated to u.s.a. garments
and (iii) Vass shall also have the option to assume any
yarn contracts held by Signal (Heritage) allocated to
u.s.a. garments.
Such options shall be exercised by Vass by written
notice following the termination of the License
Agreement given within twenty days (20) after receipt
of notice from
Signal (Heritage) of the (a) inventory of samples
available for Vass' purchase and Signal's (Heritage's)
cost, (b) inventory of yarn, other materials and
accessories available for Vass' purchase and Signal's
(Heritage's) cost and (c) a description of the yarn
contracts held by Heritage which Vass may assume. Vass
shall also have the option to make any payment required
to be made by credit against the amounts due and to
come due to it as Royalties under the License
Agreement.
4. The applicability of the provisions of Section
9 of the License Agreement are conditioned upon timely
compliance by Signal with the provisions of Section 4.2
of the License Agreement governing the payment of
Royalties during the Disposal Period as well as payment
on December 30, 1996 of Royalty on Net Sales of u.s.a.
garments between September 1, 1996 and November 30,
1996 in excess of the payments scheduled to be made
October 30, 1996 and November 30, 1996. If Signal
shall fail to make the required payment in full when
due, the provisions of Section 9 of the License
Agreement shall be deemed null and void, and Signal
shall forthwith cease all further work on Vass garments
(with or without u.s.a. label) in progress and shall
not sell or offer for sale any Vass garment (with or
without u.s.a. label) so long as the default in payment
of the Royalty continues.
5. It shall also be a condition of the extension
of the License Agreement that Signal shall restore the
monthly retainer for Sara Vass public relations
services contracted for pursuant to Section 4.5(e) of
the License Agreement to $3,500 per month retroactive
to January 1, 1996 and shall make such monthly payment
for each month of the period of extension of the
Termination Date. Payment to Sara Vass of $3,000 upon
the execution of this letter agreement and payment of
the sum of $3,500 to Sara Vass on or before the third
business day of April and May 1996 shall be further
conditions precedent pursuant to Paragraph 1 hereof.
Payment of the full retainer on or before the third
business day of each month commencing June 1996 and
continuing for the balance of the Term of the License
Agreement shall be conditions subsequent, in default of
which the License Agreement shall terminate as provided
in Paragraph 2 hereof. Payment of the $3,000 due upon
the execution of this letter agreement shall be wired
to Sara Vass c/o Rose & Boxer, as provided in Schedule
"B".
6. This letter agreement shall not be deemed
delivered by Vass until the funds required to be wired
to Vass and Sara Vass upon execution of this letter
agreement have been received in the escrow account
specified in Schedule "B".
Please signify your consent to and approval of the
foregoing by signing at the foot hereof.
Very truly yours,
JOAN VASS INC.
By /S/ Joan Vass
--------------------
Joan Vass, President
Consented to and Agreed
SIGNAL APPAREL COMPANY INC.
By /s/ Robert Powell
------------------
Vice President
September 11, 1996
Signal Apparel Company, Inc.
Manufacturer's Road
Chattanooga, Tennessee
Gentlemen:
This will serve to modify the letter agreement
dated March 29, 1996 ("Interim Extension Agreement")
between Joan Vass Inc. ("Vass") and you ("Signal")
pursuant to which the June 1, 1992 License Agreement
("License Agreement") between Vass and Signal was
agreed to be extended beyond its May 31, 1996
termination date, as follows:
1. Subject to the provision of Paragraph 6
hereof, the notice of termination of the License
Agreement dated August 8, 1996 served by Rose & Boxer,
Esqs. on behalf of Vass is hereby rescinded effective
August 8, 1996 ("Notice of Termination") and Vass
hereby waives the claims, if any, which it may
otherwise have sought to have asserted against Signal
by reason of the breaches of the License Agreement
alleged in the Notice of Termination.
2. Paragraph 2 of the Interim Extension
Agreement is modified so that the Term of the License
Agreement shall be deemed extended to May 30, 1997 and
shall be applicable to the following Collections:
Spring 1997 and Summer 1997 (the "Extended
Collections").
3. Subparagraph a of Paragraph 2 of the Interim
Extension Agreement is amended by adding the following
payment obligations to said paragraph in addition to
those set forth therein:
<TABLE>
<CAPTION>
DATE OF PAYMENT OBLIGATION TO BE PAID
<S> <C>
No later than the due Payment of third party
dates reflected on the expenses (as determined
invoices. and approved by Vass) for
Vass' Spring 1997 Fashion
Show to be held on
October 31, 1997, up to a
maximum of $70,000
("Fashion Show
Expenses"). (Signal
hereby indemnifies Vass
from liability for non-
payment of such Fashion
Show Expenses).
December 1, 1996 Payment of the sum of
$62,500, less the amount
expended by Signal as
Fashion Show Expenses in
excess of $60,000 but not
in excess of $65,000
December 30, 1996 Payment of Royalty on Net
Sales of u.s.a. garments
between September 1, 1996
and November 30, 1996, in
excess of the payments
scheduled to be made
October 30, 1996 and
November 30, 1996
January 30, 1997 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of December
1996
February 28, 1997 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of January,
1997
March 1, 1997 Payment of the sum of
$62,500, less the amount
expended by Signal as
Fashion Show Expenses in
excess of $65,000 but not
in excess of $70,000
March 30, 1997 Payments of Royalty on
Net Sales of u.s.a.
garments between December
1, 1997 and February 28,
1997, in excess of the
payments scheduled to be
made January 30, 1997 and
February 28, 1997
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
DATE OF PAYMENT OBLIGATION TO BE PAID
<S> <C>
April 30, 1997 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of March
1997
May 30, 1997 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of April
1997.
June 30, 1997 Payments of Royalty on
Net Sales of u.s.a.
garments between March 1,
1997 and May 30, 1997, in
excess of the payments
scheduled to be made
April 30, 1997 and May
30, 1997
July 30, 1997 Payment of Royalty on Net
Sales during the
"Disposal Period" (as
defined in the License
Agreement) of u.s.a.
garments in the month of
June 1997
August 30, 1997 Payment of Royalty on Net
Sales during the Disposal
Period of u.s.a. garments
in the month of July 1997
September 30, 1997 Payments of Royalty on
Net Sales during the
Disposal Period of u.s.a.
garments between June 1,
1997 and August 30, 1997,
in excess of the payments
scheduled to be made July
30, 1997 and August 30,
1997
4. Paragraph 3 of the Interim Extension
Agreement is hereby revised to read as follows:
"3. The parties recognize that in order that
prototypes of Joan Vass u.s.a. garments for the
Extended Collections be available to permit Signal to
manufacture sales samples for selling in a timely
fashion, it is necessary that Vass periodically work on
the development of the Extended Collections prototypes
at Signal's Heritage facility in Marion, South
Carolina. Vass agrees to undertake the development of
the prototypes subject to this letter agreement upon
the following conditions:
-3-
"a. Signal acknowledges that Vass'
designs for each of the seasons of the Extended
Collections are and at all times shall be and remain
the property of Vass.
"b. All prototypes, patterns and
specification sheets for garments for the Extended
Collections developed by Vass and Signal (Heritage)
shall at all times be and remain the property of Vass.
Upon the termination of the License Agreement, the same
shall be delivered to Vass at its offices in New York
within five (5) days of Vass' written demand therefore.
Vass shall be responsible for the expense of shipping
and shall have the option to credit Signal for such
shipping expense and the direct expense of preparation
of prototypes, patterns and specification sheets
against the amounts due and to come due to it as
Royalties under the License Agreement, which direct
expense shall be the responsibility of Vass if the
above option is exercised by Vass.
"c. The provisions of Section 4.5(a)
and (o) shall not be applicable during the period
covered by this Agreement except that Signal shall
continue the program of cooperative advertising of
u.s.a. garments for Fall 1996, Holiday 1996 and the
Extended Collections customarily offered by it during
the Term of the License Agreement to Signal customers.
"d. So long as Signal is in compliance
with the License Agreement and the terms of this letter
agreement, Signal shall be entitled to offer for sale
and accept any orders for Fall or Holiday 1996 and the
Extended Collections garments without further approval
of Vass.
"e. Upon termination of the License
Agreement, (i) Vass shall have the option to purchase
all samples manufactured by Signal for the Extended
Collections, or any one or more of them, at Signal's
(Heritage's) direct cost; (ii) Vass shall have the
option to purchase at Signal's (Heritage's) cost all
inventoried yarns and other materials and accessories,
allocated to u.s.a. garments and (iii) Vass shall also
have the option to assume any yarn contracts held by
Signal (Heritage) allocated to u.s.a. garments.
"Such options shall be exercised by Vass by
written notice following the termination of the License
Agreement given within twenty days (20) after receipt
of notice from Signal (Heritage) of the (a) inventory
of samples available for Vass' purchase and Signal's
(Heritage's) cost, (b) inventory of yarn, other
materials and accessories available for Vass' purchase
and Signal's (Heritage's) cost and (c) a description of
the yarn contracts held by Heritage which Vass may
assume. Vass shall also have the option to make any
payment required to be made by credit against the
amounts due and to come due to it as Royalties under
the License Agreement."
5. The first sentence of Paragraph 4 of the
Interim Extension Agreement as modified to read as
follows:
"The applicability of the provisions of
Section 9 of the License Agreement are conditioned upon
timely compliance by Signal with the provisions of
Section 4.2 of the License Agreement governing the
payment of Royalties during the Disposal Period."
6. The rescission of the Notice of Termination
of the License Agreement, as extended, as provided in
Paragraph 5 hereof is conditioned upon the following:
a. Signal shall indemnify, save and hold
Vass harmless, and hereby agrees to indemnify, save and
hold Vass harmless, from and against any and all
claims, liabilities, damages and expenses (including
reasonable attorney's fees) which may be asserted
against it by reason of the cessation of manufacture by
Signal of garments for Chelsea Gray Apparel, Inc.
("Chelsea Gray") or any related entity (the "Grounds"),
provided, however this indemnification for expenses
shall not apply to expenses (including reasonably
attorney's fees) (i) incurred by Vass in defending a
counterclaim brought by Chelsea Gray asserting the
Grounds should Vass initiate litigation against Chelsea
Gray or any related entity on any ground or (ii)
incurred by Vass prior to the date hereof.
b. Signal agrees that on and after October
15, 1996 it shall permanently cease the manufacture and
distribution of garments for Chelsea Gray or any other
entity which are derived, in whole or in any part, from
fabrications and/or designs contained in garments
designed by Vass for one or more Collections previously
(or hereafter) submitted by Vass to Signal and not
rejected by Signal. Vass agrees to and does hereby
waive and release Signal from any claims it may have
asserted or sought to have asserted against Signal by
reason of the manufacture by Signal of any garment for
Chelsea Gray prior to October 15, 1996.
c. Signal agrees that it shall not
manufacture garments for Chelsea Gray in the absence of
Vass' prior approval and verification that the garment
so proposed to be manufactured by Signal is not derived
in whole or in part from fabrications and/or designs
contained in garments designed by Vass for one or more
Collections previously (or hereafter) submitted by Vass
to Signal and not rejected by Signal, which approval
shall not unreasonably be withheld and shall be given
or denied within 5 business days of the request to
Vass' for such approval; otherwise such garments shall
be approved.
7. The terms and provisions of the License
Agreement as modified by the Interim Extension
Agreement and as further modified by the provisions of
this Agreement are hereby ratified, affirmed and
approved.
-6-
<PAGE>
Please signify your consent to and approval of the
foregoing by signing at the foot hereof.
Very truly yours,
JOAN VASS, INC.
By /s/ Joan Vass
---------------------
Joan Vass, President
Consented to and Agreed
SIGNAL APPAREL COMPANY, INC.
By /s/ Bruce Krebs
--------------------------
Bruce Krebs, President
</TABLE>
January 31, 1997
Signal Apparel Company, Inc.
Manufacturer's Road
Chattanooga, Tennessee
Re: THIRD INTERIM EXTENSION
Gentlemen:
This will serve to modify the letter agreement
dated September 11, 1996 ("Second Interim Extension
Agreement") between Joan Vass Inc. ("Vass") and you
("Signal") pursuant to which the June 1, 1992 License
Agreement ("License Agreement") between Vass and
Signal, as extended by March 29, 1996 Interim Extension
Agreement ("First Interim Extension Agreement"), was
agreed to be extended further beyond its May 31, 1996
termination date, as follows:
1. Paragraph 2 of the First Interim Extension
Agreement is modified so that the Term of the License
Agreement shall be deemed extended to August 30, 1997
and shall be applicable to the Fall 1997 Collection
(the "Second Extended Collection").
2. Subparagraph a of Paragraph 2 of the First
Interim Extension Agreement is amended to provide for
the following payment obligations due on and after the
date hereof, in place of the payment obligations set
forth therein:
<TABLE>
<CAPTION>
DATE OF PAYMENT OBLIGATION TO BE PAID
<S> <C>
No later than the due Payment of third party
dates reflected on the expenses (as determined
invoices and approved by Vass) for
Vass' Fall 1997 Fashion
Show to be held the first
week in April 1997, up to
a maximum of $70,000
("Fashion Show
Expenses"). (Signal
hereby indemnifies Vass
from liability for non-
payment of such Fashion
Show Expenses.)
February 28, 1997 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of January
1997
March 1, 1997 Payment of the sum of
$62,500
March 30, 1997 Payments of Royalty on
Net Sales of u.s.a.
garments between December
1, 1996 and February 28,
1997 in excess of the
payments scheduled to be
made January 30, 1997 and
February 28, 1997
April 30, 1997 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of March
1997
May 30, 1997 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of April
1997
June 1, 1997 Payment of the sum of
$62,500
June 30, 1997 Payment of Royalty on Net
Sales of u.s.a. garments
between March 1, 1997 and
May 30, 1997, in excess
of the payments scheduled
to be made April 30, 1997
and May 30, 1997
July 30, 1997 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of June 1997
August 30, 1997 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of July 1997
September 30, 1997 Payment of Royalty on Net
Sales of u.s.a. garments
between June 1, 1997 and
August 30, 1997, in
excess of the payments
scheduled to be made
July 30, 1997 and
August 30, 1997
October 30, 1997 Payment of Royalty on Net
Sales during the
"Disposal Period" (as
defined in the License
Agreement) of u.s.a.
garments in the month of
September 1997
November 30, 1997 Payment of Royalty on Net
Sales during the Disposal
Period of u.s.a. garments
in the month of October
1997
December 30, 1997 Payment of Royalty on Net
Sales during the
"Disposal Period" of
u.s.a. garments between
September 1, 1997 and
November 30, 1997, in
excess of the payments
scheduled to be made
September 30, 1997 and
October 30, 1997
</TABLE>
3. Paragraph 3 of the First Interim Extension
Agreement is hereby revised to read as follows:
"3. The parties recognize that in order that
prototypes of Joan Vass u.s.a. garments for the Second
Extended Collection be available to permit Signal to
manufacture sales samples for selling in a timely
fashion, it is necessary that Vass periodically work on
the development of the Second Extended Collection
prototypes at Signal's Heritage facility in Marion,
South Carolina. Vass agrees to undertake the
development of the prototypes subject to this letter
agreement upon the following conditions:
"a. Signal acknowledges that Vass'
designs for the Second Extended Collection are and at
all times shall be and remain the property of Vass.
"b. All prototypes, patterns and
specification sheets for garments for the Second
Extended Collection developed by Vass and Signal
(Heritage) shall at all times be and remain the
property of Vass. Upon the termination of the License
Agreement, the same shall be delivered to Vass at its
offices in New York within five (5) days of Vass'
written demand therefore. Vass shall be responsible
for the expense of shipping and shall have the option
to credit Signal for such shipping expense and the
direct expense of preparation of prototypes, patterns
and specification sheets against the amounts due and to
come due to it as Royalties under the License
Agreement, which direct expenses shall be the
responsibility of Vass if the above option is exercised
by Vass.
"c. The provisions of Section 4.5(a)
and (o) of the License Agreement shall not be
applicable during the period covered by this Agreement
except that Signal shall continue the program of
cooperative advertising of u.s.a. garments for the
Second Extended Collection customarily offered by it
during the Term of the License Agreement to Signal
customers.
"d. So long as Signal is in compliance
with the License Agreement and the terms of this letter
agreement, Signal shall be entitled to offer for sale
and accept any orders for the Fall 1997 Collection
garments without further approval of Vass.
"e. Upon termination of the License
Agreement, (i) Vass shall have the option to purchase
all samples manufactured by Signal for the Second
Extended Collection, at Signal's (Heritage's) direct
cost; (ii) Vass shall have the option to purchase at
Signal's (Heritage's) cost all inventoried yarns and
other materials and accessories, allocated to u.s.a.
garments and (iii) Vass shall also have the option to
assume any yarn contracts held by Signal (Heritage)
allocated to u.s.a. garments.
"Such options shall be exercised by Vass by
written notice following the termination of the License
Agreement given within twenty (20) days after receipt
of notice from Signal (Heritage) of the (a) inventory
of samples available for Vass' purchase and Signal's
(Heritage's) cost, (b) inventory of yarn, other
materials and accessories available for Vass' purchase
and Signal's (Heritage's) cost and (c) a description of
the yarn contracts held by Heritage which Vass may
assume. Vass shall also have the option to make any
payment required to be made by credit against the
amounts due and to come due to it as Royalties under
the License Agreement."
4. The first sentence of Paragraph 4 of the
First Interim Extension Agreement as modified to read
as follows:
"The applicability of the provisions of
Section 9 of the License Agreement are conditioned upon
timely compliance by Signal with the provisions of
Section 4.2 of the License Agreement governing the
payment of Royalties during the Disposal Period."
5. The provisions of Paragraph 6 of the Second
Interim Extension Agreement shall continue in full
force and effect.
6. The terms and provisions of the License
Agreement as modified by the First Interim Extension
Agreement, the Second Interim Extension Agreement and
as further modified by the provisions of this Third
Interim Extension Agreement are hereby ratified,
affirmed and approved.
Please signify your consent to and approval of the
foregoing by signing at the foot hereof.
Very truly yours,
JOAN VASS, INC.
By /s/ Joan Vass
---------------------
Joan Vass, President
Consented to and Agreed
SIGNAL APPAREL COMPANY, INC.
By /s/ Robert J. Powell
--------------------------
Vice President
May 1, 1997
Signal Apparel Company, Inc.
Manufacturer's Road
Chattanooga, Tennessee 37405
Re: Fourth Interim Extension
Gentlemen:
This will serve to modify the letter agreement
dated January 31, 1997 ("Third Interim Extension
Agreement") between Joan Vass Inc. ("Vass") and you
("Signal") pursuant to which the June 1, 1992 License
Agreement ("License Agreement") between Vass and
Signal, as extended by March 29, 1996 Interim Extension
Agreement ("First Interim Extension Agreement") and
September 11, 1996 Interim Extension Agreement ("Second
Interim Extension Agreement"), was extended beyond its
May 31, 1996 termination date, as follows:
1. Paragraph 2 of the First Interim Extension
Agreement is modified so that the Term of the License
Agreement shall be deemed extended to May 30, 1998 and
shall be applicable to the Holiday 1997, Resort 1997,
Spring 1998 and Summer 1998 Collections (the "Third
Extended Collections").
2. Paragraph 2 of the Third Interim Extension
Agreement is amended to provide for the following
payment obligations due on and after the date hereof,
in place of the payment obligations set forth therein:
<TABLE>
<CAPTION>
DATE OF PAYMENT OBLIGATION TO BE PAID
<S> <C>
No later than the due Payment of third party
dates reflected on the expenses (as determined
invoices and approved by Vass) for
Vass' Spring 1998 Fashion
Show to be held in
November 1997, up to
a maximum of $70,000
("Fashion Show
Expenses"). (Signal
hereby indemnifies Vass
from liability for non-
payment of such Fashion
Show Expenses.)
May 30, 1997 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of April
1997
June 1, 1997 Payment of the sum of
$62,500
June 30, 1997 Payment of Royalty on Net
Sales of u.s.a. garments
between March 1, 1997 and
May 30, 1997, in excess
of the payments scheduled
to be made April 30, 1997
and May 30, 1997
July 30, 1997 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of June 1997
August 30, 1997 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of July 1997
September 1, 1997 Payment of the sum of
$62,500
September 30, 1997 Payment of Royalty on Net
Sales of u.s.a. garments
between June 1, 1997 and
August 30, 1997, in
excess of the payments
scheduled to be made
July 30, 1997 and
August 30, 1997
October 30, 1997 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of September
1997
November 30, 1997 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of October
1997
December 1, 1997 Payment of the sum of
$62,500
December 30, 1997 Payment of Royalty on Net
Sales of u.s.a. garments
between September 1, 1997
and November 30, 1997, in
excess of the payments
scheduled to be made
October 30, 1997 and
November 30, 1997
January 30, 1998 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of December
1997
February 28, 1998 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of January
1998
March 1, 1998 Payment of the sum of
$62,500
March 30, 1998 Payment of Royalty on Net
Sales of u.s.a. garments
between December 1, 1997
and February 28, 1998, in
excess of the payments
scheduled to be made
January 30, 1998 and
February 28, 1998
April 30, 1998 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of March
1998
May 30, 1998 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of April
1998
June 30, 1998 Payment of Royalty on Net
Sales of u.s.a. garments
between March 1, 1998
and May 30, 1998, in
excess of the payments
scheduled to be made
April 30, 1998 and
May 30, 1998
July 30, 1998 Payment of Royalty on Net
Sales during the
"Disposal Period" (as
defined in the License
Agreement) of u.s.a.
garments in the month of
June 1998
August 30, 1998 Payment of Royalty on Net
Sales during the Disposal
Period of u.s.a. garments
in the month of July 1998
September 30, 1998 Payment of Royalty on Net
Sales during the
Disposal Period of
u.s.a. garments between
June 1, 1998 and
August 30, 1998, in
excess of the payments
scheduled to be made
July 30, 1998 and
August 30, 1998
</TABLE>
3. Paragraph 3 of the First Interim Extension
Agreement is hereby revised to read as follows:
"3. The parties recognize that in order that
prototypes of Joan Vass u.s.a. garments for the Third
Extended Collections be available to permit Signal to
manufacture sales samples for selling in a timely
fashion, it is necessary that Vass periodically work on
the development of the Third Extended Collections
prototypes at Signal's Heritage facility in Marion,
South Carolina. Vass agrees to undertake the
development of the prototypes subject to this letter
agreement upon the following conditions:
"a. Signal acknowledges that Vass'
designs for the Third Extended Collections are and at
all times shall be and remain the property of Vass.
"b. All prototypes, patterns and
specification sheets for garments for the Third
Extended Collections developed by Vass and Signal
(Heritage) shall at all times be and remain the
property of Vass. Upon the termination of the License
Agreement, the same shall be delivered to Vass at its
offices in New York within five (5) days of Vass'
written demand therefore. Vass shall be responsible
for the expense of shipping and shall have the option
to credit Signal for such shipping expense and the
direct expense of preparation of prototypes, patterns
and specification sheets against the amounts due and to
come due to it as Royalties under the License
Agreement, which direct expenses shall be the
responsibility of Vass if the above option is exercised
by Vass.
"c. The provisions of Section 4.5(a)
and (o) shall not be applicable during the period
covered by this Agreement except that Signal shall
continue the program of cooperative advertising of
u.s.a. garments for the Third Extended Collections
customarily offered by it during the Term of the
License Agreement to Signal customers.
"d. So long as Signal is in compliance
with the License Agreement and the terms of this letter
agreement, Signal shall be entitled to offer for sale
and accept any orders for the Holiday 1997, Resort
1997, Spring 1998 and Summer 1998 Collections garments
without further approval of Vass.
"e. Upon termination of the License
Agreement, (i) Vass shall have the option to purchase
all samples manufactured by Signal for the Third
Extended Collections, or any one or more of them, at
Signal's (Heritage's) direct cost; (ii) Vass shall have
the option to purchase at Signal's (Heritage's) cost
all inventoried yarns and other materials and
accessories, allocated to u.s.a. garments and (iii)
Vass shall also have the option to assume any yarn
contracts held by Signal (Heritage) allocated to u.s.a.
garments.
"Such options shall be exercised by Vass by
written notice following the termination of the License
Agreement given within twenty days (20) after receipt
of notice from Signal (Heritage) of the (a) inventory
of samples available for Vass' purchase and Signal's
(Heritage's) cost, (b) inventory of yarn, other
materials and accessories available for Vass' purchase
and Signal's (Heritage's) cost and (c) a description of
the yarn contracts held by Heritage which Vass may
assume. Vass shall also have the option to make any
payment required to be made by credit against the
amounts due and to come due to it as Royalties under
the License Agreement."
4. The first sentence of Paragraph 4 of the
First Interim Extension Agreement as modified to read
as follows:
"The applicability of the provisions of
Section 9 of the License Agreement are conditioned upon
timely compliance by Signal with the provisions of
Section 4.2 of the License Agreement governing the
payment of Royalties during the Disposal Period."
5. The provisions of Paragraph 6 of the Second
Interim Extension Agreement shall continue in full
force and effect.
6. Paragraph 13 of the License Agreement is
modified to read as follows:
"This Agreement may not be transferred,
assigned, pledged, mortgaged or otherwise disposed of
by Designer or Licensee in whole or in part."
7. Vass has been informed by Signal that it is
endeavoring to sell substantially all of the assets of
its Heritage Division, which assets are used in the
manufacture of the Licensed Products. The parties
agree that, upon the sale of the Heritage Division and
Vass entering into a license agreement with such
purchaser, this Fourth Interim Extension Agreement will
be modified so that Signal will have no responsibility
to manufacture the Licensed Products following the
effective date of sale of the assets of the Division.
The parties also recognize that an adjustment to
Signal's obligations to pay the $62,500 quarterly fee
also may be necessary in the event such a transaction
occurs.
8. The terms and provisions of the License
Agreement as modified by the First Interim Extension
Agreement, the Second Interim Extension Agreement, the
Third Interim Extension Agreement, and as further
modified by the provisions of this Fourth Interim
Extension Agreement are hereby ratified, affirmed and
approved.
Please signify your consent to and approval of the
foregoing by signing at the foot hereof.
Very truly yours,
JOAN VASS, INC.
By /s/ Joan Vass
---------------------
Joan Vass, President
Consented to and Agreed
SIGNAL APPAREL COMPANY, INC.
By /s/ Robert J. Powell
--------------------------
Vice President
January 2, 1998
Signal Apparel Company, Inc.
Manufacturer's Road
Chattanooga, Tennessee 37405
Re: Fifth Interim Extension
Gentlemen:
This will serve to modify the letter agreement
dated May 1, 1997 ("Fourth Interim Extension
Agreement") between Joan Vass Inc. ("Vass") and you
("Signal") pursuant to which the June 1, 1992 License
Agreement ("License Agreement") between Vass and
Signal, as extended by March 29, 1996 Interim Extension
Agreement ("First Interim Extension Agreement"),
September 11, 1996 Interim Extension Agreement ("Second
Interim Extension Agreement") and January 31, 1997
Interim Extension Agreement ("Third Interim Extension
Agreement"), was extended beyond its May 31, 1996
termination date, as follows:
1. Paragraph 2 of the First Interim Extension
Agreement is modified so that the Term of the License
Agreement shall be deemed extended to November 30, 1998
and shall be applicable to the Fall 1998 and Holiday
1998 Collections (the "Fourth Extended Collections").
2. Paragraph 2 of the Fourth Interim Extension
Agreement is amended to provide for the following
payment obligations due on and after the date hereof,
in place of the payment obligations set forth therein:
<TABLE>
<CAPTION>
DATE OF PAYMENT OBLIGATION TO BE PAID
<S> <C>
No later than the due Payment of third party
dates reflected on the expenses (as determined
invoices and approved by Vass) for
Vass' Fall 1998 Fashion
Show to be held in
April 1998, up to
a maximum of $70,000
("Fashion Show
Expenses"). (Signal
hereby indemnifies Vass
from liability for non-
payment of such Fashion
Show Expenses.)
January 30, 1998 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of December
1997
February 28, 1998 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of January
1998
March 1, 1998 Payment of the sum of
$62,500
March 30, 1998 Payment of Royalty on Net
Sales of u.s.a. garments
between December 1, 1997
and February 28, 1998, in
excess of the payments
scheduled to be made
January 30, 1998 and
February 28, 1998
April 30, 1998 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of March
1998
May 30, 1998 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of April
1998
June 1, 1998 Payment of the sum of
$62,500
June 30, 1998 Payment of Royalty on Net
Sales of u.s.a. garments
between March 1, 1998
and May 30, 1998, in
excess of the payments
scheduled to be made
April 30, 1998 and
May 30, 1998
July 30, 1998 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of June
1998
August 30, 1998 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of July 1998
September 1, 1998 Payment of the sum of
$62,500
September 30, 1998 Payment of Royalty on Net
Sales of u.s.a. garments
between June 1, 1998
and August 30, 1998, in
excess of the payments
scheduled to be made
July 30, 1998 and
August 30, 1998
October 30, 1998 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of September
1998
November 30, 1998 Payment of Royalty on Net
Sales of u.s.a. garments
in the month of October
1998
December 30, 1998 Payment of Royalty on Net
Sales of u.s.a. garments
between September 1, 1998
and November 30, 1998, in
excess of the payments
scheduled to be made
October 30, 1998 and
November 30, 1998
January 30, 19998 Payment of Royalty on Net
Sales during the
"Disposal Period" (as
defined in the License
Agreement) of u.s.a.
garments in the month of
December 1998
February 28, 1999 Payment of Royalty on Net
Sales during the Disposal
Period of u.s.a. garments
in the month of January
1999
March 30, 1999 Payment of Royalty on Net
Sales during the
Disposal Period of
u.s.a. garments between
December 1, 1998 and
February 28, 1999, in
excess of the payments
scheduled to be made
January 30, 1999 and
February 28, 1999
</TABLE>
3. Paragraph 3 of the First Interim Extension
Agreement is hereby revised to read as follows:
"3. The parties recognize that in order that
prototypes of Joan Vass u.s.a. garments for the Fourth
Extended Collections be available to permit Signal to
manufacture sales samples for selling in a timely
fashion, it is necessary that Vass periodically work on
the development of the Fourth Extended Collections
prototypes at Signal's Heritage facility in Marion,
South Carolina. Vass agrees to undertake the
development of the prototypes subject to this letter
agreement upon the following conditions:
"a. Signal acknowledges that Vass'
designs for the Fourth Extended Collections are and at
all times shall be and remain the property of Vass.
"b. All prototypes, patterns and
specification sheets for garments for the Fourth
Extended Collections developed by Vass and Signal
(Heritage) shall at all times be and remain the
property of Vass. Upon the termination of the License
Agreement, the same shall be delivered to Vass at its
offices in New York within five (5) days of Vass'
written demand therefore. Vass shall be responsible
for the expense of shipping and shall have the option
to credit Signal for such shipping expense and the
direct expense of preparation of prototypes, patterns
and specification sheets against the amounts due and to
come due to it as Royalties under the License
Agreement, which direct expenses shall be the
responsibility of Vass if the above option is exercised
by Vass.
"c. The provisions of Section 4.5(a)
and (o) shall not be applicable during the period
covered by this Agreement except that Signal shall
continue the program of cooperative advertising of
u.s.a. garments for the Fourth Extended Collections
customarily offered by it during the Term of the
License Agreement to Signal customers.
"d. So long as Signal is in compliance
with the License Agreement and the terms of this letter
agreement, Signal shall be entitled to offer for sale
and accept any orders for the Resort 1997, Spring 1998,
Summer 1998, Fall 1998 and Holiday 1998 Collections
garments without further approval of Vass.
"e. Upon termination of the License
Agreement, (i) Vass shall have the option to purchase
all samples manufactured by Signal for the Fourth
Extended Collections, or any one or more of them, at
Signal's (Heritage's) direct cost; (ii) Vass shall have
the option to purchase at Signal's (Heritage's) cost
all inventoried yarns and other materials and
accessories, allocated to u.s.a. garments and (iii)
Vass shall also have the option to assume any yarn
contracts held by Signal (Heritage) allocated to u.s.a.
garments.
"Such options shall be exercised by Vass by
written notice following the termination of the License
Agreement given within twenty days (20) after receipt
of notice from Signal (Heritage) of the (a) inventory
of samples available for Vass' purchase and Signal's
(Heritage's) cost, (b) inventory of yarn, other
materials and accessories available for Vass' purchase
and Signal's (Heritage's) cost and (c) a description of
the yarn contracts held by Heritage which Vass may
assume. Vass shall also have the option to make any
payment required to be made by credit against the
amounts due and to come due to it as Royalties under
the License Agreement."
4. The first sentence of Paragraph 4 of the
First Interim Extension Agreement as modified to read
as follows:
"The applicability of the provisions of
Section 9 of the License Agreement are conditioned upon
timely compliance by Signal with the provisions of
Section 4.2 of the License Agreement governing the
payment of Royalties during the Disposal Period."
5. The provisions of Paragraph 6 of the Second
Interim Extension Agreement shall continue in full
force and effect.
6. Paragraph 13 of the License Agreement is
modified to read as follows:
"This Agreement may not be transferred,
assigned, pledged, mortgaged or otherwise disposed of
by Designer or Licensee in whole or in part."
7. Vass has been informed by Signal that it is
endeavoring to sell substantially all of the assets of
its Heritage Division, which assets are used in the
manufacture of the Licensed Products. The parties
agree that, upon the sale of the Heritage Division and
Vass entering into a license agreement with such
purchaser, this Fifth Interim Extension Agreement will
be modified so that Signal will have no responsibility
to manufacture the Licensed Products following the
effective date of sale of the assets of the Division.
The parties also recognize that an adjustment to
Signal's obligations to pay the $62,500 quarterly fee
also may be necessary in the event such a transaction
occurs.
8. The terms and provisions of the License
Agreement as modified by the First Interim Extension
Agreement, the Second Interim Extension Agreement, the
Third Interim Extension Agreement, the Fourth Interim
Extension Agreement, and as further modified by the
provisions of this Fifth Interim Extension Agreement
are hereby ratified, affirmed and approved.
Please signify your consent to and approval of the
foregoing by signing at the foot hereof.
Very truly yours,
JOAN VASS, INC.
By /s/ Joan Vass
---------------------
Joan Vass, President
Consented to and Agreed
SIGNAL APPAREL COMPANY, INC.
By /s/ Robert J. Powell
--------------------------
Vice President
[SIGNAL]
BNY FINANCIAL CORPORATION
AMENDED AND RESTATED FACTORING AGREEMENT
As of October 31, 1997
SIGNAL APPAREL COMPANY, INC.
P.O. Box 4296
200A Manufacturers Road
Chattanooga, TN 37405
This agreement amends, restates, replaces and supersedes,
without a break in continuity, that certain Factoring Agreement
between us bearing the effective date May 23, 1991 ("Effective
Date") as heretofore amended, supplemented or otherwise modified
("Existing Factoring Agreement), PROVIDED, HOWEVER, that all
defaults under the Existing Factoring Agreement as of the date
hereof are preserved as provided in that certain Forbearance
Agreement dated the date hereof among BNY Financial Corporation,
Signal Apparel Company, Inc. and The Shirt Shed, Inc.
("Forbearance Agreement").
This agreement states the terms and conditions upon which we
will act as your sole factor.
1. COVERED SALES; SECURITY INTEREST
(a) You hereby assign and sell to us, as absolute
owner, and we hereby purchase from you, all "Receivables" (as
hereinafter defined), created before, on or after the Effective
Date, which arose or arise from your sale of merchandise or
rendition of services. Our purchase of and acquisition of title
to each Receivable will be effective as of the date of its
creation and will be entered on our books when you furnish us
with a copy of the respective invoice.
(b) You hereby grant to us a continuing security
interest in all of your present and future Receivables, as
security for all "Obligations" (as hereinafter defined).
2. CUSTOMER CREDIT APPROVAL
You shall submit to us the principal terms of each of your
customers' orders for our written credit approval. We may, in
our discretion, approve in writing all or a portion of your
customers' orders, either by establishing a credit line limited
to a specific amount for a specific customer, or by approving all
or a portion of a proposed purchase order submitted by you. No
credit approval shall be effective unless in writing and unless
the goods are shipped or the services rendered within the time
specified in our written credit approval or within 45 days after
the approval is given, if no time is specified. Upon the earlier
to occur of (i) the customer
<PAGE>
having accepted delivery of the goods or performance of the
services or (ii) the goods have been deposited by you with a
common carrier for delivery to such customer on "f.o.b. point of
origin" terms, we shall then have the "Credit Risk" as
hereinafter defined (but not the risk of non-payment for any
other reason), to the extent of the dollar amount specified in
the credit approval, on all Receivables evidenced by invoices
which arise from orders approved by us in writing except for
those Receivables evidenced by invoices less than $150.00 and
invoices evidencing charges for samples supplied to your
customers. We shall have neither the Credit Risk nor the risk of
non-payment for any other reason on Receivables arising from
orders not approved by us in writing. We may withdraw our credit
approval or withdraw or adjust a credit line at any time before
the earliest to occur of (a) your delivery or deposit of the
goods with a common carrier on "f.o.b. point of origin" terms, as
contemplated above, or (b) rendition of the services, as the case
may be.
3. PURCHASE PRICE OF RECEIVABLES
(a) The purchase price of Receivables is the net face
amount thereof less our commission. The term "net face amount"
means the gross face amount of the invoice, less returns,
discounts (which shall be determined by us where optional terms
are given), anticipation reductions or any other unilateral
deductions taken by customers, and credits, and allowances to
customers of any nature. The purchase price will be payable on
the "Maturity Date" (hereinafter described). At the close of
each month, we will compute the average due date of all
Receivables purchased by us during the month. In computing the
average due date we will take into account all credits issued to
customers. The Maturity Date for all such Receivables will be
five (5) business days after the average due date. We may
deduct, from the amount payable to you on any Maturity Date,
reserves for all Obligations then chargeable to your account and
Obligations which, in our sole judgment, may be chargeable to
your account thereafter including, but not limited to, ineligible
Receivables, Receivables which are not credit approved, disputes,
deductions, allowances, credits, bill and hold and consignment
sales, other offsets asserted or granted, ineligible Inventory
and such additional amounts as we in our sole judgment deem
appropriate (collectively, "Reserves").
(b) Notwithstanding anything to the contrary contained
in this agreement, if, when you submit to us (for our prior
written approval), the amount, terms and delivery date of a
proposed sale of goods, (i) you identify such proposed sale with
the special number that we give you for this purpose, and (ii)
you advise us in writing and if we concur that the order for the
goods is a special order by the customer which will require you
to have the goods manufactured according to the customer's
specifications and that the goods cannot be sold readily to
buyers other than such customer at a price reasonably close to
the contract price for such goods (such goods being hereinafter
referred to as the "Special Goods"), and (iii) our approval,
having been given by us, is thereafter withdrawn by us pursuant
to the terms hereof after the Special Goods have been
manufactured but prior to completion of your delivery thereof,
then
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you shall have the following options, provided that the Special
Goods are available for delivery by you on or before the delivery
date specified in our approval, free and clear of all liens and
encumbrances: (a) you may complete your sale of the Special
Goods to the customer at your own risk; or (b) you may use your
best efforts promptly to re-sell the Special Goods, at the best
price available, after first obtaining our written consent to any
such re-sale (the "Re-sale"). If you proceed under option (b),
we shall, upon consummation of the Re-sale, or upon the original
invoice due date under the selling terms specified in the credit
approval (whichever is later), credit your account with a sum
equal to the amount by which your "Standard Cost" for the Special
Goods as published by you and approved by us (hereinafter, the
"Manufacturing Cost") exceeds the proceeds of the Re-sale. We
may at our option elect to purchase the Special Goods from you
for a purchase price equal to the Manufacturing Cost. However,
our obligation hereunder, to you and the Other Client on a
combined basis, shall not exceed $50,000 per annum.
(c) We shall not be obligated to pay you, or make any
Advances or loans against, the purchase price of any Receivable
which arises out of your delivery of inventory to any of your
licensors for which you receive no consideration other than a
credit toward your obligations to such licensor to advertise the
products which are the subject of such agreement, and we shall
not be entitled to charge our commission on such Receivables
provided, however, that the gross face amount of such Receivables
(measured by the amount of such credit against your said
advertising obligations) shall not exceed the aggregate amount of
$500,000 per annum.
(d) Until we notify you otherwise, you may retain the
proceeds of any sales made on the basis of cash before or on
delivery. In no event shall we be obligated to make any payments
(including, but not limited to, Advances or loans) against any
such transactions. You warrant and represent that such
transactions will not exceed the aggregate amount of $3,000,000
per annum for you and the Other Client, on a combined basis.
4. ADVANCES; INTEREST; COMMISSIONS; LATE PAYMENT CHARGES
(a) I. If you request, we shall, subject to the
other provisions of this agreement, make payments to you of the
purchase price of Receivables in advance of the Maturity Date
("Advances") and additional amounts, subject to our right to
withhold Reserves. All amounts, if any, which we pay or make
available to you or for your account in excess of the purchase
price of Receivables are loans and shall be chargeable to your
account when paid or made available to you. However, at no time
shall the aggregate amount of then outstanding Obligations of you
and the Other Client on a combined basis, including but not
limited to Obligations under the $4,157,000 Promissory Note dated
July 29, 1994 and the $1,480,000 Promissory Note dated July 29,
1994, each by Signal Apparel Company, Inc. as maker to us as
payee, as each may now exist or may hereafter be amended,
restated, replaced, substituted, extended, or otherwise modified
(collectively, the "Notes"; outstanding Obligations under the
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<PAGE>
Notes, as the same may change from time to time, are hereinafter
called collectively, the "Note Amounts") but excluding amounts
owing by you and the Other Client to any present or future client
of ours on invoices purchased by us ("Ledger Debt"), and
including without limitation, all advances, other loans and all
other amounts charged or chargeable to your account and the Other
Client's account, exceed the Facility Amount (as defined herein),
subject in all respects to availability under the Borrowing Base
(as defined herein). The Borrowing Base shall be calculated for
you and the Other Client on a combined basis. Obligations of you
and the Other Client other than the Note Amounts and Ledger Debt,
as such Obligations shall change from time to time, are
hereinafter collectively called the "Revolver Amount". At no
time shall the Revolver Amount exceed the Borrowing Base, EXCEPT
THAT, in our sole discretion, we may from time to time at your
request, permit the Revolver Amount to exceed the Borrowing Base
by an amount not to exceed the Special Overadvance amount in
effect from time to time, PROVIDED THAT, notwithstanding anything
to the contrary contained herein, the aggregate amount of
outstanding Obligations of you and the Other Client on a combined
basis, shall not at any one time exceed the Facility Amount.
Furthermore, and without limiting your obligations or our other
rights, you shall forthwith pay us the amount, if any, by which
the Revolver Amount at any time and from time to time exceeds the
Borrowing Base.
II. The "Facility Amount" means, for you and the
Other Client, on a combined basis, the sum of $55,000,000.
III. The "Borrowing Base" means, at any time for
you and the Other Client on a combined basis, the sum of (i) the
then "Applicable Percentage" (as hereinafter defined) of the net
face amount of then outstanding credit approved "Eligible
Receivables" (as hereinafter defined) plus, to the extent
included in our sole and absolute discretion, the then Applicable
Percentage of the net face amount of then outstanding non-credit
approved Receivables, less Reserves, plus (ii) the lesser of (A)
$16,000,000 or (B) 50% of "Eligible Inventory" (as hereinafter
defined) less Reserves plus (iii) the amount of cash or cash
equivalents satisfactory to us ("Pledged Amount") pledged to us
as security for your Obligations on terms and conditions
satisfactory to us, so long as (A) we hold the Pledged Amount
pursuant to said pledge, (B) said pledge and the validity and
enforceability thereof are not subject to attack by any entity,
(C) the pledgor is not in a bankruptcy proceeding, and (D) the
pledgor is not in any other proceeding in which the pledge or its
validity or enforceability is the subject of attack by any
entity. However, we may at any time and from time to time, in
our reasonable discretion, increase or decrease any of the
percentages referred to in the preceding sentence.
Notwithstanding anything to the contrary contained herein, the
Borrowing Base shall not include, without limitation, the
Applicable Percentage of the net face amount of outstanding non-
credit approved Receivables owing by any account debtor where
fifty (50%) percent or more of such outstanding non-credit
approved Receivables owing by any such account debtor are more
than sixty (60) days past due.
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<PAGE>
IV. "Applicable Percentage" means, subject to our
right to withhold Reserves, 85% except that said percentage shall
be 90% after the expiry of two consecutive calendar quarters
during which less than 3% of all Receivables (measured by gross
face amount) becoming due during those quarters fail to be paid
in full in accordance with their terms; provided, however, that
said percentage shall revert to 85% after the passage of one
calendar quarter during which 3% or more of all Receivables
(measured by gross face amount) becoming due during those
quarters fail to be paid in full in accordance with their terms.
V. "Eligible Receivables" means each Receivable
arising in the ordinary course of your business and the Other
Client's business and which we, in our sole credit judgment,
shall deem to be an Eligible Receivable, based on such
considerations as we may from time to time deem appropriate. In
general, a Receivable shall not be deemed eligible unless such
Receivable is subject to our perfected security interest and no
other lien and is evidenced by an invoice or other documentary
evidence satisfactory to us. In addition, no Receivable shall be
an Eligible Receivable if:
(a) it arises out of a sale made by you or
the Other Client to an affiliate of yours or to an entity
controlled by an affiliate of yours or the Other Client's;
(b) it is not credit approved by us;
(c) fifty (50%) percent or more of the
Receivables from the account debtor are not deemed Eligible
Receivables hereunder; such percentage may, in our sole
discretion, be increased or decreased from time to time;
(d) any covenant, representation or warranty
contained in this Agreement with respect to such Receivable has
been breached;
(e) the account debtor is also your creditor
or supplier or a creditor or supplier of the Other Client, or the
account debtor has disputed liability, or the account debtor has
made any claim with respect to any other Receivable due from such
account debtor to you or the Other Client, or the Receivable
otherwise is or may become subject to any right of setoff by the
account debtor;
(f) the account debtor has commenced a
voluntary case under the federal bankruptcy laws, as now
constituted or hereafter amended, or made an assignment for the
benefit of creditors, or if a decree or order for relief has been
entered by a court having jurisdiction in the premises in respect
of the account debtor in an involuntary case under any state or
federal bankruptcy laws, as now constituted or hereafter amended,
or if any other petition or other application for relief under
any state or federal bankruptcy law has been filed against the
account debtor, or if the account debtor has failed, suspended
business, ceased to be
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<PAGE>
solvent, called a meeting of its creditors, or consented to or
suffered a receiver, trustee, liquidator or custodian to be
appointed for it or for all or a significant portion of its
assets or affairs;
(g) the sale is to an account debtor outside
the continental United States, unless the sale is on letter of
credit, guaranty or acceptance terms, in each case acceptable to
us in our sole discretion;
(h) the sale to the account debtor is on a
bill-and-hold, guaranteed sale, sale-and return, sale on
approval, consignment or any other repurchase or return basis or
is evidenced by chattel paper;
(i) the account debtor is the United States
of America, any state or any department, agency or
instrumentality or any of them, unless you assign your right to
payment of such Receivable to us pursuant to the Assignment of
Claims Act of 1940, as amended (31 U.S.C. sub-Section 203 ET
SEQ.) or have otherwise complied with other applicable statutes
or ordinances;
(j) (i) the goods giving rise to such
Receivable have not been shipped and delivered to and accepted by
the account debtor or (ii) the goods giving rise to such
Receivable have not been deposited with a common carrier for
delivery to the account debtor on "f.o.b. point of origin terms";
or (iii) the services giving rise to such receivable have not
been performed by you or the Other Client and accepted by the
account debtor or (iv) the Receivable otherwise does not
represent a final sale;
(k) the Receivables of the account debtor
exceed a credit limit determined by us in our sole discretion, to
the extent such Receivable exceeds such limit;
(l) the Receivable is subject to any offset,
deduction, defense, dispute, or counterclaim or if the Receivable
is contingent in any respect or for any reason;
(m) you or the Other Client have made any
agreement with any account debtor for any deduction therefrom,
except for discounts or allowances made in the ordinary course of
business for prompt payment, all of which discounts or allowances
are reflected in the calculation of the face value of each
respective invoice related thereto;
(n) any return, rejection or repossession of
the merchandise has occurred;
(o) such Receivable is not payable to you or
the Other Client;
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<PAGE>
(p) such Receivable is not otherwise
satisfactory to us as determined in good faith by us in the
exercise of our discretion in a reasonable manner; or
(q) more than one hundred-twenty (120) days
have elapsed after the date of the invoice.
VI. "Special Overadvance" means, for you and the
Other Client, on a combined basis, an amount determined by us in
our sole discretion, which amount shall not exceed at any one
time outstanding, the aggregate sum of $15,000,000.
VII. "Eligible Inventory" means for you and the
Other Client on a combined basis, T-Shirt and fleece blanks which
are then work-in-process and finished goods (other than inventory
in retail stores) located in the U.S.A., valued at the lower of
cost or market value, determined on a first-in first-out basis,
(it being understood that with respect to finished goods, cost
shall mean your "Standard Cost" as published by you from time to
time subject to our approval thereof) which is not, in our
opinion, obsolete, slow moving, in unacceptable condition or
unmerchantable or merchantable only at a price less than cost and
which we, in our sole discretion, shall not deem ineligible
inventory, based on such considerations as we may from time to
time deem appropriate including, without limitation, whether the
inventory is subject to a perfected, first priority security
interest in favor of us and whether the inventory conforms to all
standards imposed by any governmental agency, division or
department thereof which has regulatory authority over such goods
or the use or sale thereof. Without limiting the foregoing, so
long as you are in default under any licensing agreement relating
to any inventory, or so long as the licensor thereunder shall not
have entered into an agreement in form and substance acceptable
to us relating to such inventory and our rights therein, the
respective inventory may, in our sole discretion, be ineligible.
Our making loans to you related to the value of such inventory
despite its ineligibility shall not be deemed a waiver of any of
our rights to deem such inventory ineligible at any time or times
before or after December 31, 1997 (the date specified in
paragraph 11(c) hereof), or your obligation hereunder to pay us
forthwith the amount by which outstanding Obligations shall
exceed the Borrowing Base as a result of such ineligibility.
(b) For our services, we shall charge to your account
and the Other Client's account, on a combined basis, without
duplication:
(i) monthly, as of the last day of each month,
interest on the average daily balance of all Advances (which do
not include the Note Amounts) and amounts charged and chargeable
to your account hereunder (said Advances, loans, which do not
include the Note Amounts, and amounts being herein collectively
called "Interest Bearing Obligations") which are outstanding
during such month at a rate per annum which exceeds the average
"Alternate Base Rate" (as hereinafter defined) in effect during
such month by the then "Applicable Margin" (as
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hereinafter defined); provided, however, that said interest rate
shall not be less than six percent (6%) per annum and shall in no
event be higher than the highest rate permitted by New York law.
"Alternate Base Rate" shall mean, for any day, a rate per annum
equal to the higher of (i) the Prime Rate in effect on such day
and (ii) the Federal Funds Rate in effect on such day plus 1/2 of
1%. "Prime Rate" shall mean the prime commercial lending rate of
the "Bank" as publicly announced to be in effect from time to
time, such rate to be adjusted automatically, without notice, on
the effective date of any change in such rate. "Bank" shall mean
The Bank of New York, New York, New York. "Federal Funds Rate"
shall mean, for any day, the weighted average of the rates on
overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published
for such day (or if such day is not a business day, for the next
preceding business day) by the Federal Reserve Bank of New York,
or if such rate is not so published for any day which is a
business day, the average of quotations for such day on such
transactions received by the Bank from three Federal funds
brokers of recognized standing selected by the Bank. Interest
shall be calculated on the basis of the actual number of days
elapsed over a year of 360 days. "Applicable Margin" shall mean
one and one-quarter percent (1 1/4%); provided, however, that for
each period during which the Revolver Amount does not exceed an
amount equal to 85% of the net face amount of the then
outstanding Eligible Receivables, plus (i) an amount equal to 25%
of the then Eligible Inventory, the Applicable Margin shall be
one (1%) percent, or (ii) an amount greater than 25% of the then
Eligible Inventory, but less than 36% of the then Eligible
Inventory, the Applicable Margin shall be one and one-eighth
(1_%) percent, provided further that, if the Interest Bearing
Obligations and amounts due under letters of credit issued
pursuant to the Letter of Credit Supplement outstanding for a
period of five (5) or more days in any month during the Initial
Term, including any Renewal Term, exceed the sum of the Borrowing
Base less Reserves (such excess, an "Overadvance") plus the
amount of the Special Overadvance, on such days, the Applicable
Margin pertaining to all Interest Bearing Obligations shall be
increased by one half of one (1/2%) percent. Furthermore,
"Applicable Margin" shall mean three and three-quarters percent
(3 3/4%) with respect to all Obligations not paid when due
hereunder so long as they remain unpaid.
(ii) monthly, as of the 15th day of each month, a
commission at the rate of sixty-five one hundredths of one
percent (.65%) of the gross face amount of each invoice
evidencing a Receivable purchased hereunder during such month on
terms not exceeding 90 days (including dating), plus an
additional one-quarter of one percent (1/4%) for each additional
thirty (30) days or portion thereof of selling terms. Our
commission on any invoice evidencing a receivable purchased
hereunder shall not be less than $4.50. Furthermore, the
aggregate amount of Receivables with respect to which you and the
Other Client, on a combined basis, are obligated to pay
commissions and which you sell and assign to us ("Volume") shall
not be less than $40,000,000 ("Minimum") per Contract Year (each
successive period of twelve consecutive months the first of which
periods shall start on the Effective Date) during which this
agreement is in effect, EXCEPT THAT, (y) for the first Contract
Year, the Minimum shall be $30,000,000 and
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(z) for the second Contract Year, the Minimum shall be
$35,000,000. If the Volume in any Contract Year is less than the
Minimum, we shall charge to your account the difference ("Minimum
Volume Charge") between the commission on the Minimum and the
commission on the Volume for the Contract Year. We shall compute
the Minimum Volume Charge, if any, on a calendar quarterly basis
and charge your account and the Other Client's account therefor
for each calendar quarter in the month following the end of such
calendar quarter, or in the month following the effective date of
termination of this agreement, whichever is earlier. If you do
not meet the Minimum Volume with respect to any particular
calendar quarter period within a Contract Year and you therefore
pay to us a yearly Minimum Volume Charge for such particular
calendar quarter period and in the subsequent calendar quarter
period in the same Contract Year, your Minimum Volume for which
commissions have been paid by you to us under this agreement then
exceeds the Minimum applicable to such subsequent calendar
quarter period, by reason of such Minimum Volume Charge
previously paid, you shall then be entitled to receive a rebate
from us to your account, to the extent of the lesser of such
excess or the Minimum Volume Charges previously paid to us in any
such prior calendar quarter period of the same Contract Year.
Similarly, if for any calendar quarter period within a particular
Contract Year, the commissions paid to us under this agreement
exceed the Minimum applicable to such calendar quarter period and
in any subsequent calendar quarter period we otherwise would have
been entitled to receive and you would have been responsible for
paying to us any Minimum Volume Charge applicable to such
subsequent calendar quarter period, in calculating the amount of
such Minimum Volume Charge payable in such subsequent calendar
quarter period you shall be entitled to a credit against the same
to the extent of the lesser of such excess or the Minimum Volume
Charge that would otherwise then have been due from you to us in
relation to such subsequent calendar quarter period within the
same Contract Year. Except however to the extent specifically
set forth above, nothing contained herein is or shall be deemed
to change, limit or otherwise adversely affect our right to
charge and receive and your obligation to pay to us commissions
and/or any Minimum Volume Charges payable with respect to any
Contract Year or part thereof during which this agreement remains
in effect, or to entitle you to receive any rebate and/or credit
with respect to any commissions payable to us hereunder.
Notwithstanding the foregoing, should the Volume during any
Contract Year or part thereof during which this agreement remains
in effect, exceed the Minimum applicable thereto, nothing
contained herein shall entitle you to receive any rebate and/or
credit other than strictly as provided for above. However, if an
Event of Default occurs, and if we so elect, and whether or not
we then or thereafter exercise any of our rights of termination
hereunder (including but not limited to our rights under
Paragraph 9(a)(ii)), we may on or at any time after the
occurrence of such Event of Default compute and charge your
account for the Minimum Volume Charge for the period starting on
such occurrence and ending on the next date as of which you may
terminate this agreement under Paragraph 9(a)(i), and, for the
purpose only of computing such Minimum Volume Charge, we may
assume that your Volume for the period will be zero, subject, of
course, to subsequent adjustment if such Volume in fact is more
than zero.
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<PAGE>
(iii) all bank charges for wire transfers.
(iv) quarterly, as of the 15th day of the month
next occurring after the end of each of your fiscal quarters, a
fee at the rate of one quarter of one percent (1/4%) per annum,
calculated and payable quarterly, on the difference between the
Facility Amount and the sum of (x) average outstanding Revolver
Amount during such quarter, and (y) the average outstanding Note
Amounts during such quarter.
(v) Customer late payment charges, not paid by
the customer, but only if the charge exceeds five ($5.00) dollars
and the payment is five (5) business days or more past due, said
charges are to be computed at the rate specified in paragraph
4(b)(i) of this Agreement (subject to change as indicated
therein).
5. MATURED FUNDS
On the last day of each month, we shall credit your account
with interest at the Matured Funds Rate in effect during such
month on the average daily balance during such month of any
amounts payable by us to you or the Other Client, as the case may
be, hereunder (as confirmed by us by appropriate credit to your
account with us or the Other Client's account, as the case may
be) which are not drawn by you on the Maturity Date, while held
by us after the Maturity Date. "Matured Funds Rate" shall mean
the rate of interest, announced by us from time to time, as the
rate applicable to matured funds, such rate to be adjusted
automatically on the effective date of any change in such rate
announced by us.
6. CHARGES; BALANCES; RESERVES
We may charge to your account all Obligations. Recourse to
security will not be required at any time. All credit balances
or other sums at any time standing to your credit and all
Reserves on our books, and all of your property in our possession
at any time or in the possession of any parent, affiliate or
subsidiary of ours or on or in which we or any of them have a
lien or security interest, may be held and reserved by us as
security for all Obligations. We will account to you monthly and
each monthly accounting statement will be fully binding on you
and will constitute an account stated, unless, within thirty (30)
days after such statement is mailed to you or within thirty (30)
days after the mailing of any adjustment thereof we may make, you
give us specific written notice of exceptions.
7. REPRESENTATIONS AND WARRANTIES; DISPUTES; RETURNS;
CHARGEBACKS
(a) You warrant and represent that you have good title
to the Receivables free of any encumbrance except in our favor;
each Receivable purchased hereunder is a bona fide,
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enforceable obligation created by the absolute sale and delivery
of goods (including, without limitation, the deposit of goods
with a common carrier as contemplated in Paragraph 2 hereof) or
the rendition of services in the ordinary course of business;
when you assign each Receivable to us your customer is
unconditionally obligated to pay at maturity the full amount of
each Receivable purchased hereunder without defense, counterclaim
or offset, real or alleged; all documents in connection therewith
are genuine; and when you assign each Receivable to us the
customer will accept the goods or services without alleging any
defense, counterclaim, offset, dispute or other claim whether
arising from or relating to the sale of such goods or services or
arising from or relating to any other transaction or occurrence
(a "Dispute").
(b) You further represent and warrant that (i) your
address set forth above is that of your chief place of business
and chief executive office and the location of all "Collateral"
(as hereinafter defined) and of your books and records relating
to the Receivables; (ii) by a separate writing you have disclosed
to us the locations of all of your other places of business as
well as all trade names or styles, trademarks, divisions or other
names under which you conduct business (hereinafter collectively
defined as the "Trade Names"); and (iii) except after 30 days
prior written notice to us of your intention to do so, you will
not make any change in your name or corporate structure (whether
by merger, reorganization or otherwise) or sell or acquire any
assets except in the ordinary course of your business, nor make
any change which would have the effect of rendering inaccurate or
incomplete the representations contained in this subparagraph
(b). If you make or propose to make any changes referred to in
the immediately preceding subdivision (iii), we may, before or at
any time after such change occurs, terminate this agreement
effective immediately by giving you written notice of such
termination.
(c) You shall promptly provide us with duplicate
originals of all credits which you issue to your customers and
immediately notify us of any merchandise returns or Disputes.
You will settle all Disputes at no cost or expense to us; our
practice is to allow you a reasonable time to do so. If you so
request, provided no Event of Default has occurred and is
continuing, you may enforce your rights against any of your
customers on any Receivable which is subject to a Dispute if we
have charged your account for such Receivable. We will
reasonably cooperate with you in such enforcement but at your
sole cost and expense. However, the settlement of any such claim
shall be subject to our prior written approval. Furthermore, all
proceeds of such enforcement shall be promptly delivered to us
for credit to your account. Should we so elect, we may at any
time in our discretion (i) withdraw your authority to issue
credits to your customers without our prior written consent; (ii)
litigate Disputes or settle them directly with the customers on
terms acceptable to us; or (iii) direct you to set aside,
identify as our property and procure insurance satisfactory to us
on any returned or repossessed merchandise or other goods which
by sale resulted in Receivables theretofore assigned to us
("Retained Goods"). All Retained Goods (and the proceeds
thereof) shall be (A) held by you in trust for us as our
property; and (B) subject to a security interest in our favor as
security for the Obligations; and (C) disposed of only in
accordance with our express written instructions.
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(d) Our Credit Risk, if any, on a Receivable shall
immediately terminate without any action on our part in the event
that (i) your customer asserts a Dispute (regardless of merit) as
a ground for non-payment of the Receivable or returns or attempts
to return the goods represented thereby; or (ii) any warranty as
to the Receivable is breached. We may charge to your account at
any time the gross face amount of any Receivable purchased
hereunder (or portion thereof) on which we do not then have the
Credit Risk, whether or not we had the Credit Risk before we make
such charge, together with interest thereon from the due date of
such Receivable to the date of chargeback; such action on our
part shall not be deemed a reassignment of such Receivable and
will not impair our rights thereto or security interest therein,
which will continue to be effective until all Obligations are
fully satisfied.
(e) YOU WARRANT THAT YOU WILL NOT GRANT A SECURITY
INTEREST IN ANY OF YOUR RECEIVABLES OR IN ANY OF YOUR INVENTORY
TO ANYONE EXCEPT US WITHOUT OUR PRIOR WRITTEN CONSENT.
(f) You warrant and represent that you are now and
will at all times hereafter be and remain in compliance with all
laws, rules and regulations of all federal, state and local
governmental agencies having jurisdiction, including but not
limited to those relating to environmental protection (including
EPA) and employees (including ERISA, FLSA and PBGC).
(g) You warrant and represent that (x) you are not a
party to any litigation or proceeding the adverse outcome of
which could have a material adverse effect on your business, and
(y) the only litigation and proceedings to which your are party
as set forth on Exhibit A hereto.
(h) You may sell equipment which in your reasonable
opinion is obsolete, but no such sale shall be for less than the
reasonable value of such equipment. You agree not to make during
any calendar year any such sales of equipment, the receivable
value of which exceeds $50,000 per sale or $500,000 in the
aggregate, without our prior written consent. You will promptly
deliver the proceeds of such sales to us for application against
installments of the $4,157,000 Promissory Note dated July 29,
1994 by Signal Apparel Company, Inc., as maker, to us as payee,
as hereafter amended or supplemented, in inverse order of
maturity.
8. INVOICING; PAYMENTS; RETURNS
Each of your invoices and all copies thereof shall bear a
notice (in form satisfactory to us) that it is owned by and
payable directly and only to us at locations designated by us,
and you shall furnish us with duplicate originals of your
invoices accompanied by a confirmatory assignment thereof. Your
failure to furnish such specific assignments shall not diminish
our rights. You shall procure and hold in trust for us and
furnish to us at our request satisfactory evidence of each
shipment and delivery or rendition of services. Each invoice
shall bear the
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terms stated on the customer's order, as submitted to us, whether
or not the order has been approved by us, and no change from the
original terms of the order shall be made without our prior
written consent. Any such change not so approved by us shall
automatically terminate our Credit Risk, if any, on the
Receivable arising from your performance of the order. You will
hold in trust for us and deliver to us any payments received from
your customers in the form received, and hereby irrevocably
authorize us to endorse your name on all checks and other forms
of payment. Each payment made by a customer shall first be
applied to Receivables, if any, on which we have the Credit Risk,
and the balance, if any, of such payment shall be applied to
other Receivables due from such customer. You understand that we
shall not be liable for any selling expenses, orders, purchases,
contracts or taxes of any kind resulting from any of your
transactions, and you agree to indemnify us and hold us harmless
with respect thereto, which indemnity shall survive termination
of this agreement.
9. TERMINATION
(a) This agreement shall remain in full force and
effect until the expiration of the Term unless sooner terminated
as set forth below. The Term shall be automatically extended for
successive periods of one year each unless either party shall
have provided the other with written notice of termination (by
Certified Mail, Return Receipt Requested) not less than sixty
(60) days prior to and effective on expiration of the Initial
Term or any Renewal Term.
(i) You may terminate this agreement effective at
any time by giving written notice of termination to us sixty (60)
days prior to the effective date of such termination, and upon
payment in full of all Obligations, including, but not limited
to, the Minimum Volume Charge for the Contract Year in which such
termination occurs, as well as any Contract Year remaining in the
Initial Term or any Renewal Term (as the case may be), and we may
terminate this agreement effective as of March 31, 2000 or any
time thereafter, by giving you written notice of termination not
less than sixty (60) days prior to the effective date of
termination. You and we each acknowledge and agree that you or
we may exercise the right to terminate under this subdivision (i)
even if the other party is not in breach of or in default under
this agreement.
(ii) If you shall suspend business, sell all or a
significant portion of your assets, become insolvent or unable to
pay debts as they mature, make an assignment for the benefit of
creditors, or apply for an extension from creditors; or if a
meeting of your creditors is called; or if a Receiver or Trustee
shall be appointed for you or your property; or if your property
shall become subject to any lien or attachment; or if a petition
under the Federal Bankruptcy Code shall be filed by or against
you; or if you shall seek relief under any insolvency statute,
federal, state or other; or if a custodian shall be appointed for
all or substantially all of your property; or if any agreement
between ourselves and any of your existing or future parent or
wholly owned subsidiaries including, without limitation, the
Other Client (collectively, the "Related Concerns") or any
instrument now or hereafter held by us or
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to our order and made by you or any of such Related Concerns
shall be breached by any of such Related Concerns or if any
Related Concerns shall be in default thereunder; or if any
separate factoring agreement between ourselves and any of the
Related Concerns is terminated, for any reason whatsoever, or any
event or circumstance exists which would permit us to terminate
any such factoring agreement in accordance with its terms; or if
you shall breach this agreement or any other agreement between
us; or if you are or become in default under this agreement, or
if any warranty, or representation hereunder or any portion of
the contents of any document heretofore or hereafter furnished in
connection with this agreement is or becomes untrue or misleading
(except for future performance against projections heretofore
furnished to us); or if you shall fail to pay any Obligation when
due; or if any guaranty of the Obligations shall be terminated;
then in any such event, we may terminate this agreement at any
time without notice, and this agreement shall automatically
terminate in the event of a filing of a petition under the
Federal Bankruptcy Code by or against you; or
(iii) If this agreement is terminated pursuant
to paragraph 7 (b) above.
(b) On the effective date of termination all
Obligations (including, without limitation, any Overadvance and
any Special Overadvance) shall become immediately due and payable
in full without further notice or demand and we shall have no
further obligation to provide any Advances or loans hereunder.
Our rights with respect to Obligations owing to us, or chargeable
to your account, arising out of transactions having their
inception prior to the effective date of termination, will not be
affected by termination. Without limiting the foregoing, all of
our security interests and other rights in and to all
Receivables, whether then existing or arising thereafter
(including assignments and remittance of payments), Retained
Goods, credit balances, and any other property in our possession
or the possession of any parent, affiliate or subsidiary of ours
and any other security for the Obligations (including but not
limited to inventory and machinery and equipment), whether coming
into existence or into our or their possession before, on or
after the effective date of termination and all proceeds thereof
(collectively "Collateral") shall continue to be operative until
such Obligations have been fully and finally satisfied or you
have furnished us an indemnity from an indemnitor satisfactory to
us.
(c) If you terminate this agreement pursuant to
paragraph 9 (a)(i), effective as of any date prior to March 31,
2000, or if you cease for a period of thirty (30) or more
consecutive calendar days prior to March 31, 2000 to request
Advances or loans from us, or if this agreement is terminated
pursuant to paragraph 9(a)(ii) or (iii), or if we suspend making
Advances, loans or any other extensions of credit to you pursuant
to Paragraph 9(d) of this agreement, then, in any such case, in
addition to your other Obligations, you will pay us on the
effective date of termination, cessation or suspension, as the
case may be, an "Early Termination Fee" in the amount of (x)
$500,000 if the effective date of termination, cessation or
suspension occurs during the period from April 1, 1997 through
and including March 31, 1998; (y)
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$300,000 if the effective date of termination, cessation or
suspension occurs during the period from April 1, 1998 through
and including March 31, 1999; or (z) $200,000 if the effective
date of termination, cessation or suspension occurs during the
period from April 1, 1999 through and including March 31, 2000;
provided, however, that the aforesaid Early Termination Fee
applicable to your termination under Paragraph 9(a)(i) shall be
reduced by fifty (50%) percent if such termination occurs on or
before the effective date of any sale of substantially all of
your assets to any entity which or who is not affiliated with you
in any way and if such termination occurs in connection with such
sale.
(d) If any of the events specified in paragraph
9(a)(ii) hereof occurs, we may, if we so elect, in addition to
our other rights, suspend indefinitely the making of any
additional Advances or loans to you, and/or reduce the Borrowing
Base in a manner and in amounts in our sole discretion, without
at the same time terminating this agreement. However, such
suspension shall not be a waiver of or otherwise deprive us of
any of our other rights, including but not limited to the right
at any time to terminate this agreement because of the occurrence
of such event or any other event, or the right to terminate this
agreement pursuant to paragraph 9 (a)(i) hereof, all of which
rights are now hereby, and then shall be automatically, reserved
without any other action on our part.
10. DEFINITIONS: "RECEIVABLES;" "OBLIGATIONS;" OTHER
CLIENT;" "CREDIT RISK;" "INITIAL TERM"; "RENEWAL TERM"; "TERM";
"LETTER OF CREDIT SUPPLEMENT;
As used herein
(a) "RECEIVABLES" means all amounts and all forms of
obligations now or hereafter owing to you (including but not
limited to accounts, instruments, contract rights, documents and
chattel paper) and general intangibles; all security therefor and
guaranties thereof; all of your rights as an unpaid seller of
goods and your rights to goods sold which may be represented
thereby (including but not limited to your rights of replevin and
stoppage in transit); all of your books of account, records,
files, and documents relating thereto and the equipment
containing said books, records, files and documents; all of your
rights under insurance policies relating to the foregoing; the
right to use the Trade Names in connection with our rights with
respect to the goods; and all proceeds of the foregoing.
(b) "OBLIGATIONS" means all amounts of any nature
whatsoever, direct or indirect, absolute or contingent, due or to
become due, arising or incurred heretofore or hereafter, arising
under this or any other agreement or by operation of law, now or
hereafter owing by you to us or to any parent, subsidiary or
affiliate of ours. Said amounts include, but are not limited to,
loans, debts and liabilities heretofore or hereafter acquired by
purchase or assignment from other present or future clients of
ours, or through participation. Without
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limiting the foregoing, Obligations shall include Advances, loans
(including but not limited to the Note Amounts), amounts due
under letters of credit, interest, commission, bank related
charges, costs, fees, expenses, taxes, and all Receivables and
other amounts charged or chargeable to your account hereunder.
(c) "OTHER CLIENT" means The Shirt Shed, Inc. and its
successors and assigns, as permitted by us in our sole
discretion.
(d) "CREDIT RISK" means the risk of loss resulting
solely and exclusively from the financial inability of your
customer to pay at maturity a Receivable purchased hereunder.
(e) "INITIAL TERM" means the Effective Date through
March 31, 2000.
(f) "RENEWAL TERM" means each annual renewal of this
agreement after the Initial Term.
(g) "TERM" means the Effective Date through March 31,
2000 and each annual renewal of this agreement thereafter,
subject to acceleration upon the occurrence of an Event of
Default or other termination hereunder.
(h) "LETTER OF CREDIT SUPPLEMENT" means the Letter of
Credit Financing Supplement to Factoring Agreement dated January
31, 1992 between us and Signal Apparel Company, Inc., as the same
may be hereafter amended, supplemented or otherwise modified.
11. COVENANTS. You covenant and agree that, until the
later of the termination of this Agreement or the satisfaction in
full of all of the Obligations
(a) you and the Other Client will not
(i) permit any of your or the Other Client's
property (including but not limited to Receivables, inventory,
machinery, equipment, furniture, fixtures, plant, and real
estate) to be encumbered by any security interest, encumbrance,
mortgage, or other lien of any nature whatsoever except (x) in
favor of us or (y) pursuant to a subordination agreement
acceptable to us in our sole and absolute discretion, executed in
our favor.
(ii) permit your and the Other Client's Tangible
Net Worth (equity plus subordinated debt minus goodwill and
intangible assets), on a combined basis, to be less than the
following amounts on the dates indicated;
AS AT AMOUNT
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(a) 09/30/97 ($51,400,000)
12/31/97 ( 54,800,000)
03/31/98 ( 56,100,000)
06/30/98 ( 57,350,000)
09/30/98 ( 58,600,000)
12/31/98 ( 59,850,000)
03/31/99 ( 60,000,000)
06/30/99 ( 60,000,000)
09/30/99 ( 60,000,000)
12/31/99 ( 60,000,000)
03/31/00 ( 60,000,000)
PLUS (b) an amount equal to sixty-five (65%)
percent of the aggregate amount of any capital contribution
and/or equity infusion into or any other additional equity
hereafter derived from any source by you or the Other Client,
excluding the conversion of any subordinated debt existing on the
date hereof into equity of you or the Other Client.
Intangible assets include write-ups,
unamortized debt discount and expense, unamortized deferred
charges, patents, licenses, R&D expenses, and other intangible
items.
(iii) permit your and the Other Client's
Working Capital (the amount by which your current assets exceed
your current liabilities) to be less than the following amounts
on the dates indicated:
AS AT AMOUNT
(a) 09/30/97 ($35,000,000)
12/31/97 ( 38,000,000)
03/31/98 ( 41,000,000)
06/30/98 ( 43,000,000)
09/30/98 ( 45,000,000)
02/31/98 ( 47,000,000)
03/31/99 ( 47,000,000)
06/30/99 ( 47,000,000)
09/30/99 ( 47,000,000)
12/31/99 ( 47,000,000)
03/31/00 ( 47,000,000)
PLUS (b) an amount equal to eighty (80%) percent
of the aggregate amount of any capital contribution and/or equity
infusion into or any other additional equity
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hereafter derived from any source by you or the Other Client,
excluding the conversion of any subordinated debt existing on the
date hereof into equity of you or the Other Client.
Current assets means cash and marketable
securities, accounts receivable and inventory. Current
liabilities are accounts payable, accrued expenses, the Advances
and our loans to you (other than the then current portions of the
Note Amounts), short term debt and other short term liabilities.
(iv) permit your and the Other Client's Cumulative
Pre-Tax Operating Earnings (net income or loss-taken as a
cumulative whole-and amortization of goodwill before taxes, from
operations only, excluding (x) gains or losses from the sales of
assets and (y) and extraordinary items), on a combined basis, to
be less than the following amounts for the periods indicated:
PERIOD AMOUNT
01/01/97 to 09/30/97 ($18,000,000)
01/01/97 to 12/31/97 ( 25,000,000)
01/01/98 to 03/31/98 ( 3,000,000)
01/01/98 to 06/30/98 ( 5,000,000)
01/01/98 to 09/30/98 ( 7,000,000)
01/01/98 to 12/31/98 ( 10,000,000)
01/01/99 to 03/31/99 ( 2,000,000)
01/01/99 to 06/30/99 ( 3,000,000)
01/01/99 to 09/30/99 ( 4,000,000)
01/01/99 to 12/31/99 ( 5,000,000)
01/01/00 to 03/31/00 -0-
PROVIDED THAT, notwithstanding anything to the contrary contained
herein, your and the Other Client's Cumulative Pre-Tax Operating
Earnings (as defined above), on a combined basis, shall not be
less than (A) commencing with the fiscal quarter beginning
October 1, 1997, ($6,500,000) during any one fiscal quarter
occurring in fiscal year 1997, (B) ($3,000,000) during any one
fiscal quarter occurring in fiscal year 1998 and (C) ($2,000,000)
during any one fiscal quarter occurring in fiscal year 1999.
(v) permit your and the Other Client's Capital
Expenditures to exceed the following applicable amounts during
the years indicated:
PERIOD AMOUNT
1997 - $2,000,000
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1998 - 1,000,000
1999 - 1,000,000
(vi) incur or permit to exist any indebtedness or
guaranty by you of the obligations of any other entity, except
that you and the Other Client, on a combined basis may incur (i)
unsecured debt to suppliers in the ordinary course of your
business; (ii) such other indebtedness and guaranties, if any,
which are subordinated in our favor on terms and conditions
acceptable to us (iii) indebtedness to us, and guaranties to us
of the Obligations to us of others, including, but not limited
to, the Other Client and American Marketing Works, Inc., and (iv)
unsecured debt for Capital Expenditures but only to the extent
permitted by Paragraph 11(a)(v) hereof.
(vii) pay or permit the payment (either with
Advances, loans or other amounts, if any, extended to you under
either this agreement or with any other funds) or your capital
stock now or hereafter outstanding of, for or on account of any
indebtedness which is the subject of any subordination agreement
to which you are a party unless you give us (i) advance written
notice of the proposed payment, and (ii) financial and other
statements, in form and substance acceptable to us, certified by
your Chief Financial Officer, confirming that before and after
giving effect to such payment, you are and will be in compliance
with all of the provisions of the agreement and that no event has
occurred or will have occurred which, with or without notice or
the passage of time, would constitute a breach or default under,
or would permit us to terminate this agreement.
(b) you will give us
(i) twice in each calendar year (but not more
than six months shall elapse between the first and second report
in each calendar year) a physical count of your inventory
observed by an independent public accountant acceptable to us in
a manner consistent with procedures followed in connection with
the certification of your annual financial statements.
(ii) not later than five (5) business days after
the end of each week, fifteen business days after the close of
each month and twenty (20) business days after the close of each
quarter, inventory designations certified by your Chief Financial
Officer or Treasurer, all in form and substance satisfactory to
us.
(iii) from time to time at our request
financial projections in form and substance satisfactory to us;
(iv) prompt written notice of any breach or
default under this agreement or any of your Obligations to us, or
any other agreement material to your business (including but not
limited to all license agreements relating to inventory), your
failure to comply with any
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applicable law, rule or regulation of any governmental agency
having jurisdiction, and the commencement by or against you of
any suit, action or proceeding of a civil, criminal or an
administrative nature. We may, but shall not be obligated to
cure any such breach or default and, if elect to do so, you will
on demand reimburse us for the cost thereof.
(v) within 30 days after the close of each month,
except January, and within 45 days after the close of January and
each of the first three quarters in each of your fiscal years
consolidated and consolidating balance sheets of you and your
subsidiaries as at the end of such month or quarter,
respectively, and the related consolidated and consolidating
statements of income, retained earnings and statement of cash
flows of you and your subsidiaries for the elapsed portion of the
fiscal year ended with the last day of such month or quarter,
respectively, setting forth in each case in comparative form the
figures for the corresponding periods of the previous fiscal
year, each of which shall be accompanied by a certificate of your
Chief Financial Officer in form and substance satisfactory to us.
(vi) within 90 days after the end of each of your
fiscal years, consolidated and consolidating balance sheets of
you and your subsidiaries as at the end of such fiscal year and
the related consolidated and consolidating statements of income,
retained earnings and statement of cash flows of you and your
subsidiaries for such fiscal year, setting forth in comparative
form the figures as at the end of and for the previous fiscal
year, in each case certified by independent certified public
accountants of recognized standing satisfactory to us, whose
certificates shall be in scope and substance satisfactory to us.
Together with such financial statements you shall deliver a
certificate of your Chief Financial Officer in form and substance
satisfactory to us and a certificate of such accountants
addressed to us (x) stating that you are authorized to deliver
such financial statements and their certifications thereof to us
pursuant to this agreement and that they have caused this
agreement to be reviewed and that, in making the examination
necessary for the certification of such financial statements,
nothing has come to their attention to lead them to believe that
any default hereunder or breach hereof exists, or, if such is not
the case, specifying such default or breach and its nature, when
it occurred and whether it is continuing and (y) having attached
the calculations required to establish whether or not you and
your subsidiaries were in compliance with the covenants contained
in paragraph 11(a)(ii) through 11(a)(v).
(vii) such other reports as and when we
reasonably request
(c) you will, not later than December 31, 1997 cause
each licensor of any trademark, trade style, copyright or other
property (collectively "Properties") you use or will use in your
business under licenses heretofore granted to enter into an
agreement with us, in form and substance acceptable to us, giving
us such rights as we may request with respect to the Properties
in connection with your inventory. With respect to future such
licenses, you will use your best efforts to cause the licensors
to enter into such agreements with us when or before you
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enter into such licenses, PROVIDED THAT, if after exercise of
your best efforts you are unable to cause the licensors to enter
into the aforementioned agreements with us, when or before you
enter into such licenses, you shall nevertheless cause each such
licensor to execute and deliver such an agreement with us within
90 days after you have entered into a license with each such
licensor. You will at all times be in full compliance with, and
perform timely all of your obligations under your agreements with
each such licensor.
12. PLACE OF PAYMENT; NEW YORK LAW AND COURT
(a) All Obligations shall be paid at our office in New
York, New York.
(b) This agreement shall be governed by and construed
according to the laws of the State of New York. All terms used
herein, unless otherwise defined herein, shall have the meanings
given in the New York Uniform Commercial Code.
(c) Each of us expressly submits and consents to the
exclusive jurisdiction of the Supreme Court of the State of New
York, and the United States District Court for the Southern
District of New York, with respect to any controversy arising out
of or relating to this agreement or any supplement hereto or to
any transactions in connection therewith and hereby waives
personal service of the summons, complaint or other process or
papers to be issued therein and hereby agrees that service of
such summons, complaint, process or papers may be made by
registered or certified mail addressed to the other party at the
address appearing herein.
13. REPORTS; RECORDS; ASSURANCES; WAIVERS; REMEDIES; ETC.
(a) We may at all times during business hours have
access to, and inspect, audit, and make extracts from, all of
your records, files and books of account, and we may charge your
account with the costs, fees or expenses incurred in connection
therewith and our then standard charges for each examiner or
auditor.
(b) You shall perform all acts requested by us to
perfect and maintain our security interest and other rights in
the Collateral.
(c) Failure by us to exercise any right, remedy or
option under this agreement or delay by us in exercising the same
will not operate as a waiver; no waiver by us will be effective
unless we confirm it in writing and then only to the extent
specifically stated.
(d) We may charge to your account, when incurred by
us, the amount of reasonable legal fees (including fees, expenses
and costs payable or allocable to attorneys retained or employed
by us) and other costs, fees and expenses incurred by us in
negotiating or preparing this agreement and any legal
documentation required by us or requested by you in
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connection with this agreement or any amendments or supplements
thereof, or in enforcing our rights hereunder or in connection
with the litigation of any controversy arising out of this
agreement, or in protecting, preserving or perfecting our
interest in, any Collateral, including without limitation all
taxes assessed or payable with respect to any Collateral, and the
costs of all public record filings, appraisals and searches
relating to any Collateral. We may file Financing Statements
under the Uniform Commercial Code without your signature or, if
we so elect, sign and file them as your agent.
(e) Our rights and remedies under this agreement will
be cumulative and not exclusive of any other right or remedy we
may have hereunder or under the Uniform Commercial Code or
otherwise. Without limiting the foregoing, if we exercise our
rights as a secured party we may, at any time or times, without
demand, advertisement or notice, all of which you hereby waive,
sell the Collateral, or any part of it, at public or private
sale, for cash, upon credit, or otherwise, at our sole option and
discretion, and we may bid or become purchaser at any such sale,
free of any right of redemption which you hereby waive. After
application of all Collateral to your Obligations (in such order
and manner as we in our sole discretion shall determine), you
shall remain liable to us for any deficiency.
(f) We shall have no liability hereunder (i) for any
losses or damages (including indirect, special or consequential
damages) resulting from our refusal to assume, or delay in
assuming, the Credit Risk, or any malfunction, failure or
interruption of communication facilities, or labor difficulties,
or other causes beyond our control; or (ii) for indirect, special
or consequential damages arising from accounting errors with
respect to your account with us. Our liability for any default
by us hereunder shall not exceed a refund to you of any
commission paid by you during the period starting on the
occurrence of the default and ending when it is cured or waived,
or when this agreement is terminated, whichever is earlier.
(g) This agreement cannot be changed or terminated
orally and is for the benefit of and binding upon the parties and
their respective successors and assigns. However, you may not
assign any of your rights hereunder without our prior written
consent. This agreement, and any concurrent or subsequent
written supplements thereto or amendments thereof signed by both
of us, represent our entire understanding and supersede all
inconsistent agreements and communications, written or oral,
between your and our officers, employees, agents and other
representatives.
(h) This agreement shall not be effective unless
signed by you below, and signed by us at the place for our
acceptance.
(i) TO THE EXTENT LEGALLY PERMISSIBLE, BOTH YOU AND WE
WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY LITIGATION RELATING TO
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TRANSACTIONS UNDER THIS AGREEMENT, WHETHER SOUNDING IN CONTRACT,
TORT OR OTHERWISE.
(j) References herein to written notice shall include
but shall not be limited to notice by telecopier, mail, messenger
or any courier service.
(k) This agreement is subject in all respect to the
Forbearance Agreement. In the event of any conflict of any term
or provision of this agreement with any term or provision of the
Forbearance Agreement, the term or provision of the Forbearance
Agreement shall control.
Very truly yours,
BNY FINANCIAL CORPORATION
By:/s/ Joseph A. Grimaldi
Title:President
AGREED TO as of the 31st day of October, 1997.
ATTEST: /s/ Robert J. Powell
SIGNAL APPAREL COMPANY, INC.
By: /s/ David E. Houseman
Title: Chief Executive Officer
[SEAL]
FORBEARANCE AGREEMENT
WHEREAS, BNY Financial Corporation ("Factor") and
Signal Apparel Company, Inc. ("Signal") have heretofore entered
into a Factoring Agreement bearing an effective date of May 21,
1991 and various documents, notes, instruments, guaranties and
agreements executed and delivered in connection therewith (all of
the foregoing, as heretofore amended, amended and restated,
supplemented or otherwise modified, collectively, the "Existing
Signal Factoring Agreements"); and
WHEREAS, Factor and The Shirt Shed, Inc. ("Shed") have
heretofore entered into a Factoring Agreement bearing an
effective date of July 25, 1991 and various documents, notes,
instruments, guaranties and agreements executed and delivered in
connection therewith (all of the foregoing, as amended, amended
and restated, supplemented or otherwise modified, collectively,
the "Existing Shed Factoring Agreements"; together with the
Existing Signal Factoring Agreements, collectively, the "Existing
Factoring Agreements"); and
WHEREAS, Signal and Shed (collectively, the "Clients")
acknowledge, confirm and agree that (a) defaults have occurred
under the Existing Factoring Agreements, which defaults continue
to exist and which the Factor has suffered to exist, including
without limitation, paragraphs 11(a)(iii) [TANGIBLE NET WORTH],
11(a)(iv) [WORKING CAPITAL] and 11(a)(v) [PRE-TAX OPERATING
EARNINGS], (collectively, the "Existing Defaults"); and (b) as a
result of the Existing Defaults, the Factor is entitled, as of
the date hereof, to terminate the Existing Factoring Agreements
and to exercise any and all of its rights and remedies under the
Existing Factoring Agreements, applicable law or otherwise to
realize upon its collateral and to collect the Obligations (as
such term is defined in the Existing Factoring Agreements); and
WHEREAS, in order for the Clients to continue to
operate their businesses and to make efforts to meet their
respective financial obligations to the Factor and other
creditors, the Clients have requested that the Factor forbear for
a limited period of time from exercising its rights and remedies
under the Existing Factoring Agreements; and
WHEREAS, the Factor has advised the Clients that Factor
desires to preserve the Existing Defaults and the rights and
remedies arising under the Existing Factoring Agreements as a
result of the existence and continuance of the Existing Defaults;
and
WHEREAS, subject to the terms and conditions set forth
herein, Factor has agreed to accommodate the Clients' request to
forbear from exercising its rights and remedies under the
Existing Factoring Agreements.
<PAGE>
NOW THEREFORE, in consideration of the foregoing, and
for good and other valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. ACKNOWLEDGMENT OF OUTSTANDING OBLIGATIONS. Each
of the Clients hereby acknowledges, confirms and agrees that as
of October 31, 1997, the Obligations due and owing to the Factor,
jointly and severally by the Clients, are in the aggregate
principal amount of not less than $____________, plus accrued and
unpaid interest, plus all costs, fees, expenses and other sums
and charges due and owing to the Factor under the Existing
Factoring Agreements, including, without limitation, all costs
and expenses incurred by the Factor in connection with the
negotiation, preparation and execution of this Forbearance
Agreement, and all documents, instruments and agreements
delivered in connection with this Forbearance Agreement (all of
the foregoing is collectively referred to as the "Existing
Debt"). Each of the Clients hereby acknowledges, confirms and
agrees that as of the date hereof, the Existing Debt is due and
owing by the Clients to the Factor without offset, defense or
counterclaim of any kind, nature or description whatsoever.
2. BINDING EFFECT OF EXISTING FACTORING AGREEMENTS.
Each of the Clients hereby acknowledges, confirms and agrees
that: (a) each of the Existing Factoring Agreements to which such
Client is a party has been duly executed and delivered to the
Factor, and each is in full force and effect as of the date
hereof; (b) the covenants, agreements and Obligations of each
Client contained in or incurred under the respective Existing
Factoring Agreements to which such Client is a party constitute
the legal, valid and binding Obligations of such Client,
enforceable against such Client in accordance with the terms and
conditions of the Existing Factoring Agreements to which such
Client is a party, and each such Client has no valid defense to
the enforcement of such Obligations or such Existing Factoring
Agreements to which it is a party; and (c) the Factor is and
shall be entitled to the rights, remedies and benefits provided
for in the Existing Factoring Agreements and pursuant to
applicable law, subject to the terms and conditions of this
Forbearance Agreement.
3. ACKNOWLEDGEMENT OF LIENS AND SECURITY INTERESTS BY
CLIENTS. Each of the Clients hereby ratifies and confirms its
grant to the Factor of the liens upon and security interests in
the properties and assets of the Clients heretofore mortgaged,
pledged, granted or assigned to the Factor under the Existing
Factoring Agreements and the New Factoring Agreements (as defined
herein), and acknowledges and confirms that such liens and
security interests secure and shall continue to secure the
Obligations.
4. PRESERVATION OF EXISTING DEFAULTS. Each of the
Clients hereby acknowledges, confirms and agrees that
notwithstanding the execution and delivery of the New Factoring
Agreements, (a) the Existing Defaults are preserved and shall
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continue to exist after the execution and delivery of the New
Factoring Agreements; and (b) subject to the conditions set forth
in this Forbearance Agreement, the Factor's rights and remedies
arising by reason of the Existing Defaults are preserved in all
respects without prejudice to the Factor.
5. FORBEARANCE.
(a) Factor and each of the Clients agree that,
until the occurrence of an Additional Default (as defined in
paragraph 7 below), the Factor will forbear from exercising any
of its rights and/or remedies arising by reason of the Existing
Defaults or applicable law to realize upon its collateral, or any
part thereof, and/or to commence any action against the Clients,
individually or collectively, to collect the Obligations or any
part thereof. The period commencing as of the date hereof and
terminating on the date of the occurrence of an Additional
Default is hereinafter referred to as the "Forbearance Period".
(b) Upon the termination of the Forbearance
Period, the agreement of the Factor to forbear shall
automatically and without further action or notice terminate and
be of no further force or effect, it being expressly agreed that
the effect of such termination of the Forbearance Period will be
to permit the Factor, without notice, demand or advertisement
(all of which are expressly waived by the Clients), to exercise
its rights and remedies arising by reason of the Existing
Defaults or applicable law with respect to the collateral and the
Obligations, all without further notice, passage of time or
forbearance of any kind or nature.
6. EXECUTION AND DELIVERY OF NEW FACTORING
AGREEMENTS.
(a) As an inducement to the Factor to enter into
this Forbearance Agreement, the Clients have agreed to,
simultaneously with the execution and delivery of this
Forbearance Agreement, execute and deliver (or causing to be
executed and delivered) and comply with the terms and provisions
of the following:
(i) Amended and Restated
Factoring Agreement between Factor and
Signal;
(ii) Amended and
Restated Factoring Agreement
between Factor and Shed;
(iii)
Termination of Right to Request
Advances and Incur Obligations
Under Factoring Agreement between
Factor and American Marketing
Works, Inc. ("AMW");
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<PAGE>
(iv) Amendment to
Inventory Security Agreement
between Factor and Signal;
(v) Amendment to Inventory
Security Agreement between Factor and
Shed;
(vi) Amendment to
Inventory Security Agreement
between Factor and AMW;
(vii) Amendment
to Equipment Security Agreement
between Factor and Signal;
(viii) Amendment
to Equipment Security Agreement
between Factor and Shed;
(ix) Amendment to
Equipment Security Agreement
between Factor and AMW;
(x) Secretary's Certificate
of Directors' Resolutions for Signal;
(xi) Secretary's
Certificate of Directors'
Resolutions for Shed;
(xii)
Secretary's Certificate of
Directors' Resolutions for AMW;
(xiii) Letter re:
Cash Deposits between Factor and WG
Trading Company Limited
Partnership; and
(xiv) Amended
and Restated Intercreditor and
Subordination Agreement among WG
Trading Company Limited
Partnership, WG Partner, L.P.,
Walsh Greenwood & Co., and Factor;
and
the various documents, notes, instruments, guaranties and
agreements executed and delivered in connection with the
foregoing (all of the foregoing, as amended, amended and
restated, supplemented or otherwise modified, collectively, the
"New Factoring Agreements").
7. ADDITIONAL DEFAULTS; REMEDIES.
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<PAGE>
(a) The occurrence of any one or more of the
following shall constitute an "Additional Default" under this
Forbearance Agreement and a default under the New Factoring
Agreements:
(i) the breach of any representations,
warranties, covenants or agreements contained in this Forbearance
Agreement, which breach shall be material, as determined in
Factor's sole discretion;
(ii) the occurrence of a default under
the New Factoring Agreements;
(iii) any payment made by either or both
of the Clients to any entity which is a party to a subordination
agreement as of the date hereof in favor of the Factor regarding
obligations of either or both of the Clients to such entity and
Factor; or
(iv) initiation of any action against either
or both of the Clients to collect monies allegedly owed by any
entity which is a party to a subordination agreement as of the
date hereof in favor of the Factor regarding obligations of
either or both of the Clients to such entity and Factor.
(b) Upon the occurrence of any Additional Default
hereunder, and notwithstanding anything to the contrary contained
in the New Factoring Agreements, the Factor may thereupon, and at
any time and from time to time thereafter, demand immediate
payment of the Obligations, in full or in part, exercise any and
all of its rights and remedies under this Forbearance Agreement,
the New Factoring Agreements, applicable law or otherwise, all of
which rights and remedies shall be non-exclusive and cumulative
and exercisable in whatever order or manner as the Factor, in its
sole discretion, may deem appropriate.
8. GENERAL PROVISIONS.
(a) Upon the request of the Factor, the Clients
shall execute and deliver to Factor, or cause to be executed and
delivered, all such additional documents, instruments and
agreements as the Factor may determine, in its sole discretion,
are necessary or desirable to effectuate the purposes and intent
of this Forbearance Agreement.
(b) This Forbearance Agreement shall be binding
upon each of the Clients and their respective successors and
assigns.
(c) The validity of this Forbearance Agreement,
its construction, interpretation and enforcement, shall be
determined under and according
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<PAGE>
to the laws of the State of New York, without any reference to
its principles of conflicts of law. The Clients hereby consent
to the non-exclusive jurisdiction of the Supreme Court of the
State of New York for the County of New York and the United
States District Court for the Southern District of New York in
any action or proceeding under, arising out of or related to this
Forbearance Agreement, the Existing Factoring Agreements and the
New Factoring Agreements.
(d) THE CLIENTS AND THE FACTOR HEREBY WAIVE ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING UNDER, ARISING
OUT OF OR RELATED TO THIS FORBEARANCE AGREEMENT.
(e) The unenforceability or invalidity of any one
or more provisions hereof shall not render any other provisions
herein contained unenforceable or invalid.
(f) This Forbearance Agreement is the result of a
full and complete negotiation at arm's length by all parties
hereto. No term sheets or prior drafts or memoranda prepared by
any parties shall be used to construe or interpret any provision
hereof, nor shall any one party hereto be considered the
"drafter" of this Forbearance Agreement for the purposes of
construing the terms, conditions and obligations set forth
herein. This Forbearance Agreement sets forth the entire
understanding of the parties with respect to the matters set
forth herein and supersedes in their entirety any and all
understandings and agreements, whether written or oral, of the
parties with respect to the foregoing. Except as expressly
amended or otherwise modified hereby (including, without
limitation, the preservation of the Existing Defaults), the New
Factoring Agreements remain in full force and effect in
accordance with their existing terms and provisions as of the
date hereof, EXCEPT THAT, in the event of any conflict between
any term or provision of this Forbearance Agreement and any term
or provision of the New Factoring Agreements, the term or
provision of this Forbearance Agreement shall control. This
Forbearance Agreement cannot be changed, modified, amended,
waived or terminated in any respect, except by a writing executed
by the party to be charged.
(g) This Forbearance Agreement may be executed in
one or more counterparts, each of which shall constitute but one
and the same Forbearance Agreement.
IN WITNESS WHEREOF, the parties hereto have duly
executed this Forbearance Agreement as of the 31st day of
October, 1997.
BNY FINANCIAL CORPORATION
By:/s/ Frank Imperati
Title: Vice President
[SIGNATURES CONTINUED ON NEXT PAGE]
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[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
SIGNAL APPAREL COMPANY, INC.
By: /s/ David E. Houseman
Title: Chief Executive Officer
THE SHIRT SHED, INC.
By: /s/ Robert Powell
Title: Vice President
BNY FINANCIAL CORPORATION
FACTORING AGREEMENT
January 30, 1998
BIG BALL SPORTS, INC.
5708 North Shepherd, #B6
Houston, Texas 77091
This agreement states the terms and conditions
upon which we will act as your sole factor,
effective as of January 30, 1998 ("Effective Date").
1.COVERED SALES; SECURITY INTEREST
(a)You hereby assign and sell to us, as
absolute owner, and we hereby purchase
from you, all "Receivables" (as hereinafter defined),
created before, on or after the Effective Date,
which arose or arise from your sale of merchandise or
rendition of services. Our purchase of and
acquisition of title to each Receivable will be
effective as of the date of its creation and will be
entered
on our books when you furnish us with a copy of the
respective invoice.
(b)You hereby grant to us a continuing security
interest in all of your present and
future Receivables, as security for all "Obligations"
(as hereinafter defined).
2.CUSTOMER CREDIT APPROVAL
You shall submit to us the principal terms of
each of your customers' orders for our written
credit approval. We may, in our discretion, approve
in writing all or a portion of your customers'
orders, either by establishing a credit line limited
to a specific amount for a specific customer, or by
approving all or a portion of a proposed purchase
order submitted by you. No credit approval shall
be effective unless in writing and unless the goods
are shipped or the services rendered within the time
specified in our written credit approval or within 45
days after the approval is given, if no time is
specified. Upon the earlier to occur of (i) the
customer having accepted delivery of the goods or
performance of the services or (ii) the goods have
been deposited by you with a common carrier for
delivery to such customer on "f.o.b. point of origin"
terms, we shall then have the "Credit Risk" as
hereinafter defined (but not the risk of non-payment
for any other reason), to the extent of the dollar
amount specified in the credit approval, on all
Receivables evidenced by invoices which arise from
orders approved by us in writing except for those
invoices evidencing charges for samples supplied
to your customers. We shall have neither the Credit
Risk nor the risk of non-payment for any other
reason on Receivables arising from orders not
approved by us in writing. We may withdraw our
credit approval or withdraw or adjust a credit line
at any time before the earliest to occur of (a) your
delivery or deposit of the goods with a common
carrier on "f.o.b. point of origin" terms, as
contemplated above, or (b) rendition of the services,
as the case may be.
3.PURCHASE PRICE OF RECEIVABLES
(a)The purchase price of Receivables is the net
face amount thereof less our
commission. The term "net face amount" means the
gross face amount of the invoice, less returns,
discounts (which shall be determined by us where
optional terms are given), anticipation reductions
or any other unilateral deductions taken by
customers, and credits, and allowances to customers
of
any nature. The purchase price will be payable on
the "Maturity Date" (hereinafter described). At
the close of each month, we will compute the average
due date of all Receivables purchased by us
during the month. In computing the average due date
we will take into account all credits issued to
customers. The Maturity Date for all such
Receivables will be five (5) business days after the
average
due date. We may deduct, from the amount payable to
you on any Maturity Date, reserves for all
Obligations then chargeable to your account and
Obligations which, in our sole judgment, may be
chargeable to your account thereafter including, but
not limited to, ineligible Receivables, Receivables
which are not credit approved, disputes, deductions,
allowances, credits, bill and hold and
consignment sales, other offsets asserted or granted,
ineligible Inventory and such additional amounts
as we in our sole judgment deem appropriate
(collectively, "Reserves").
(b)Notwithstanding anything to the contrary
contained in this agreement, if, when
you submit to us (for our prior written approval),
the amount, terms and delivery date of a proposed
sale of goods, (i) you identify such proposed sale
with the special number that we give you for this
purpose, and (ii) you advise us in writing and if we
concur that the order for the goods is a special
order by the customer which will require you to have
the goods manufactured according to the
customer's specifications and that the goods cannot
be sold readily to buyers other than such
customer at a price reasonably close to the contract
price for such goods (such goods being
hereinafter referred to as the "Special Goods"), and
(iii) our approval, having been given by us, is
thereafter withdrawn by us pursuant to the terms
hereof after the Special Goods have been
manufactured but prior to completion of your delivery
thereof, then you shall have the following
options, provided that the Special Goods are
available for delivery by you on or before the
delivery
date specified in our approval, free and clear of all
liens and encumbrances: (a) you may complete
your sale of the Special Goods to the customer at
your own risk; or (b) you may use your best efforts
promptly to re-sell the Special Goods, at the best
price available, after first obtaining our written
consent to any such re-sale (the "Re-sale"). If you
proceed under option (b), we shall, upon
consummation of the Re-sale, or upon the original
invoice due date under the selling terms specified
in the credit approval (whichever is later), credit
your account with a sum equal to the amount by
which your "Standard Cost" for the Special Goods as
published by you and approved by us
(hereinafter, the "Manufacturing Cost") exceeds the
proceeds of the Re-sale. We may at our option
elect to purchase the Special Goods from you for a
purchase price equal to the Manufacturing Cost.
However, our obligation hereunder, to you and the
Other Client on a combined basis, shall not exceed
$50,000 per annum.
(c)We shall not be obligated to pay you, or
make any Advances or loans against,
the purchase price of any Receivable which arises out
of your delivery of inventory to any of your
licensors for which you receive no consideration
other than a credit toward your obligations to such
licensor to advertise the products which are the
subject of such agreement, and we shall not be
entitled to charge our commission on such Receivables
provided, however, that the gross face amount
of such Receivables (measured by the amount of such
credit against your said advertising obligations)
shall not exceed the aggregate amount of $50,000 per
annum for you.
(d)Until we notify you otherwise, you may
retain the proceeds of any sales made
on the basis of cash before or on delivery. In no
event shall we be obligated to make any payments
(including, but not limited to, Advances or loans)
against any such transactions. You warrant and
represent that such transactions will not exceed the
aggregate amount of $3,000,000 per annum for
you and the Other Client, on a combined basis.
4.ADVANCES; INTEREST; COMMISSIONS; LATE PAYMENT
CHARGES
(a)I.If you request, we shall, subject to the
other provisions of this
agreement, make payments to you of the purchase price
of Receivables in advance of the Maturity
Date ("Advances") and additional amounts, subject to
our right to withhold Reserves. All amounts,
if any, which we pay or make available to you or for
your account in excess of the purchase price of
Receivables are loans and shall be chargeable to your
account when paid or made available to you.
However, at no time shall the aggregate amount of
then outstanding Obligations of you and the Other
Client on a combined basis, including but not limited
to Obligations under the $4,157,000 Promissory
Note dated July 29, 1994 executed by Signal Apparel
Company, Inc. as maker, to us as payee, as the
same may now exist or may hereafter be amended,
restated, replaced, substituted, extended, or
otherwise modified (the "Note"; outstanding
Obligations under the Note, as the same may change
from time to time, are hereinafter called
collectively, the "Note Amount") but excluding
amounts
owing by you and the Other Client to any present or
future client of ours on invoices purchased by
us ("Ledger Debt"), and including without limitation,
all advances, other loans and all other amounts
charged or chargeable to your account and the Other
Client's account, exceed the Facility Amount
(as defined herein), subject in all respects to
availability under the Borrowing Base (as defined
herein).
The Borrowing Base shall be calculated for you and
the Other Client on a combined basis.
Obligations of you and the Other Client other than
the Note Amount and Ledger Debt, as such
Obligations shall change from time to time, are
hereinafter collectively called the "Revolver
Amount".
At no time shall the Revolver Amount exceed the
Borrowing Base, except that, in our sole discretion,
we may from time to time at your request, permit the
Revolver Amount to exceed the Borrowing
Base by an amount not to exceed the Special
Overadvance amount in effect from time to time,
provided that, notwithstanding anything to the
contrary contained herein, the aggregate amount of
outstanding Obligations of you and the Other Client
on a combined basis, shall not at any one time
exceed the Facility Amount. Furthermore, and without
limiting your obligations or our other rights,
you shall forthwith pay us the amount, if any, by
which the Revolver Amount at any time and from
time to time exceeds the Borrowing Base.
II.The "Facility Amount" means, for you and the
Other Client, on a
combined basis, the sum of $55,000,000.
III.The "Borrowing Base" means, at any time for
you and the Other Client
on a combined basis, the sum of (i) the then
"Applicable Percentage" (as hereinafter defined) of
the
net face amount of then outstanding credit approved
"Eligible Receivables" (as hereinafter defined)
plus, to the extent included in our sole and absolute
discretion, the then Applicable Percentage of the
net face amount of then outstanding non-credit
approved Receivables, less Reserves, plus (ii) the
lesser of (A) $16,000,000 or (B) 50% of "Eligible
Inventory" (as hereinafter defined) less Reserves
plus (iii) the amount of cash or cash equivalents
satisfactory to us ("Pledged Amount") pledged to
us as security for your Obligations on terms and
conditions satisfactory to us, so long as (A) we hold
the Pledged Amount pursuant to said pledge, (B) said
pledge and the validity and enforceability
thereof are not subject to attack by any entity, (C)
the pledgor is not in a bankruptcy proceeding, and
(D) the pledgor is not in any other proceeding in
which the pledge or its validity or enforceability is
the subject of attack by any entity. However, we may
at any time and from time to time, in our
reasonable discretion, increase or decrease any of
the percentages referred to in the preceding
sentence. Notwithstanding anything to the contrary
contained herein, the Borrowing Base shall not
include, without limitation, the Applicable
Percentage of the net face amount of outstanding non-
credit approved Receivables owing by any account
debtor where fifty (50%) percent or more of such
outstanding non-credit approved Receivables owing by
any such account debtor are more than sixty
(60) days past due.
IV."Applicable Percentage" means, subject to
our right to withhold
Reserves, 85% except that said percentage shall be
90% after the expiry of two consecutive calendar
quarters during which less than 3% of all Receivables
(measured by gross face amount) becoming due
during those quarters fail to be paid in full in
accordance with their terms; provided, however, that
said percentage shall revert to 85% after the passage
of one calendar quarter during which 3% or
more of all Receivables (measured by gross face
amount) becoming due during those quarters fail to
be paid in full in accordance with their terms.
V."Eligible Receivables" means each Receivable
arising in the ordinary
course of your business and the Other Client's
business and which we, in our sole credit judgment,
shall deem to be an Eligible Receivable, based on
such considerations as we may from time to time
deem appropriate. In general, a Receivable shall not
be deemed eligible unless such Receivable is
subject to our perfected security interest and no
other lien and is evidenced by an invoice or other
documentary evidence satisfactory to us. In
addition, no Receivable shall be an Eligible
Receivable
if:
(a)it arises out of a sale made by you or the
Other Client to an
affiliate of yours or to an entity controlled by an
affiliate of yours or the Other Client's;
(b)it is not credit approved by us;
(c)fifty (50%) percent or more of the
Receivables from the account
debtor are not deemed Eligible Receivables hereunder;
such percentage may, in our sole discretion,
be increased or decreased from time to time;
(d)any covenant, representation or warranty
contained in this
Agreement with respect to such Receivable has been
breached;
(e)the account debtor is also your creditor or
supplier or a creditor
or supplier of the Other Client, or the account
debtor has disputed liability, or the account debtor
has
made any claim with respect to any other Receivable
due from such account debtor to you or the
Other Client, or the Receivable otherwise is or may
become subject to any right of setoff by the
account debtor;
(f)the account debtor has commenced a voluntary
case under the
federal bankruptcy laws, as now constituted or
hereafter amended, or made an assignment for the
benefit of creditors, or if a decree or order for
relief has been entered by a court having
jurisdiction
in the premises in respect of the account debtor in
an involuntary case under any state or federal
bankruptcy laws, as now constituted or hereafter
amended, or if any other petition or other
application for relief under any state or federal
bankruptcy law has been filed against the account
debtor, or if the account debtor has failed,
suspended business, ceased to be solvent, called a
meeting
of its creditors, or consented to or suffered a
receiver, trustee, liquidator or custodian to be
appointed
for it or for all or a significant portion of its
assets or affairs;
(g)the sale is to an account debtor outside the
continental United
States, unless the sale is on letter of credit,
guaranty or acceptance terms, in each case acceptable
to
us in our sole discretion;
(h)the sale to the account debtor is on a bill-
and-hold, guaranteed
sale, sale-and return, sale on approval, consignment
or any other repurchase or return basis or is
evidenced by chattel paper;
(i)the account debtor is the United States of
America, any state
or any department, agency or instrumentality or any
of them, unless you assign your right to payment
of such Receivable to us pursuant to the Assignment
of Claims Act of 1940, as amended (31 U.S.C.
sub-Section 203 et seq.) or have otherwise complied
with other applicable statutes or ordinances;
(j)(i) the goods giving rise to such Receivable
have not been
shipped and delivered to and accepted by the account
debtor or (ii) the goods giving rise to such
Receivable have not been deposited with a common
carrier for delivery to the account debtor on
"f.o.b. point of origin terms"; or (iii) the services
giving rise to such receivable have not been
performed by you or the Other Client and accepted by
the account debtor or (iv) the Receivable
otherwise does not represent a final sale;
(k)the Receivables of the account debtor exceed
a credit limit
determined by us in our sole discretion, to the
extent such Receivable exceeds such limit;
(l)the Receivable is subject to any offset,
deduction, defense,
dispute, or counterclaim or if the Receivable is
contingent in any respect or for any reason;
(m)you or the Other Client have made any
agreement with any
account debtor for any deduction therefrom, except
for discounts or allowances made in the ordinary
course of business for prompt payment, all of which
discounts or allowances are reflected in the
calculation of the face value of each respective
invoice related thereto;
(n)any return, rejection or repossession of the
merchandise has
occurred;
(o)such Receivable is not payable to you or the
Other Client;
(p) such Receivable is not otherwise
satisfactory to us as
determined in good faith by us in the exercise of our
discretion in a reasonable manner; or
(q)more than one hundred-twenty (120) days have
elapsed after
the date of the invoice.
VI."Special Overadvance" means, for you and the
Other Client, on a
combined basis, an amount determined by us in our
sole discretion, which amount shall not exceed
at any one time outstanding, the aggregate sum of
$15,000,000.
VII."Eligible Inventory" means for you and the
Other Client on a combined
basis, T-Shirt and fleece blanks which are then work-
in-process and finished goods (other than
inventory in retail stores) located in the U.S.A.,
valued at the lower of cost or market value,
determined on a first-in first-out basis, (it being
understood that with respect to finished goods, cost
shall mean your "Standard Cost" as published by you
from time to time subject to our approval
thereof) which is not, in our opinion, obsolete, slow
moving, in unacceptable condition or
unmerchantable or merchantable only at a price less
than cost and which we, in our sole discretion,
shall not deem ineligible inventory, based on such
considerations as we may from time to time deem
appropriate including, without limitation, whether
the inventory is subject to a perfected, first
priority
security interest in favor of us and whether the
inventory conforms to all standards imposed by any
governmental agency, division or department thereof
which has regulatory authority over such goods
or the use or sale thereof. Without limiting the
foregoing, so long as you are in default under any
licensing agreement relating to any inventory, or so
long as the licensor thereunder shall not have
entered into an agreement in form and substance
acceptable to us relating to such inventory and our
rights therein, the respective inventory may, in our
sole discretion, be ineligible. Our making loans
to you related to the value of such inventory despite
its ineligibility shall not be deemed a waiver of
any of our rights to deem such inventory ineligible
at any time or times, or your obligation hereunder
to pay us forthwith the amount by which outstanding
Obligations shall exceed the Borrowing Base
as a result of such ineligibility.
(b)For our services, we shall charge to your
account and the Other Client's
account, on a combined basis, without duplication:
(i)monthly, as of the last day of each month,
interest on the average daily
balance of all Advances (which do not include the
Note Amounts) and amounts charged and
chargeable to your account hereunder (said Advances,
loans, which do not include the Note
Amounts, and amounts being herein collectively called
"Interest Bearing Obligations") which are
outstanding during such month at a rate per annum
which exceeds the average "Alternate Base Rate"
(as hereinafter defined) in effect during such month
by the then "Applicable Margin" (as hereinafter
defined); provided, however, that said interest rate
shall not be less than six percent (6%) per annum
and shall in no event be higher than the highest rate
permitted by New York law. "Alternate Base
Rate" shall mean, for any day, a rate per annum equal
to the higher of (i) the Prime Rate in effect on
such day and (ii) the Federal Funds Rate in effect on
such day plus 1/2 of 1%. "Prime Rate" shall
mean the prime commercial lending rate of the "Bank"
as publicly announced to be in effect from time
to time, such rate to be adjusted automatically,
without notice, on the effective date of any change
in such rate. "Bank" shall mean The Bank of New
York, New York, New York. "Federal Funds
Rate" shall mean, for any day, the weighted average
of the rates on overnight Federal funds
transactions with members of the Federal Reserve
System arranged by Federal funds brokers, as
published for such day (or if such day is not a
business day, for the next preceding business day) by
the Federal Reserve Bank of New York, or if such rate
is not so published for any day which is a
business day, the average of quotations for such day
on such transactions received by the Bank from
three Federal funds brokers of recognized standing
selected by the Bank. Interest shall be calculated
on the basis of the actual number of days elapsed
over a year of 360 days. "Applicable Margin" shall
mean one and one-quarter percent (1 1/4%); provided,
however, that for each period during which the
Revolver Amount does not exceed an amount equal to
85% of the net face amount of the then
outstanding Eligible Receivables, plus (i) an amount
equal to 25% of the then Eligible Inventory, the
Applicable Margin shall be one (1%) percent, or (ii)
an amount greater than 25% of the then Eligible
Inventory, but less than 36% of the then Eligible
Inventory, the Applicable Margin shall be one and
one-eighth (1 %) percent, provided further that, if
the Interest Bearing Obligations and amounts due
under letters of credit issued pursuant to the Letter
of Credit Supplement outstanding for a period
of five (5) or more days in any month during the
Initial Term, including any Renewal Term, exceed
the sum of the Borrowing Base less Reserves (such
excess, an "Overadvance") plus the amount of
the Special Overadvance, on such days, the Applicable
Margin pertaining to all Interest Bearing
Obligations shall be increased by one half of one
(1/2%) percent. Furthermore, "Applicable Margin"
shall mean three and three-quarters percent (3 3/4%)
with respect to all Obligations not paid when
due hereunder so long as they remain unpaid.
(ii) monthly, as of the 15th day of each month,
(x) with respect to all
Receivables on which J.C. Penney is the account
debtor which are purchased hereunder during each
Contract Year ("J.C. Penney Receivables") (A) from
$0.00 up to an aggregate amount of $5,000,000
of such J.C. Penney Receivables, a commission at the
rate of four tenths of one (.4%) percent, and
(B) in excess of the aggregate amount of $5,000,000
of such J.C. Penney Receivables, a commission
at the rate of sixty-five one hundredths of one
(.65%) percent; and (y) with respect to all other
Receivables purchased hereunder which are not J.C.
Penney Receivables, a commission at the rate
of sixty-five one hundredths of one percent (.65%),
in each case, of the gross face amount of each
invoice evidencing any such Receivable purchased
hereunder during such month on terms not
exceeding 90 days (including dating), plus an
additional one-quarter of one percent (1/4%) for each
additional thirty (30) days or portion thereof of
selling terms. Our commission on any invoice
evidencing a Receivable purchased hereunder shall not
be less than $3.00, except that, with respect
to all J.C. Penney Receivables purchased hereunder
during any Contract Year up to an aggregate
amount of $5,000,000 during such Contract Year, the
commission on any invoice evidencing such
J.C. Penney Receivable purchased hereunder shall be
$0.00. Furthermore, the aggregate amount of
Receivables with respect to which you are obligated
to pay commissions and which you sell and
assign to us ("Volume") shall not be less than
$20,000,000 ("Minimum") per Contract Year (each
successive period of twelve consecutive months
commencing on January 1 of each year) during which
this agreement is in effect, except that, for the
first Contract Year, the Minimum shall be
$15,000,000.
If the Volume in any Contract Year is less than the
Minimum, we shall charge to your and the Other
Client's account the difference ("Minimum Volume
Charge") between the commission on the
Minimum and the commission on the Volume for the
Contract Year, provided, that, in no event shall
the aggregate amount(s) charged to your and the Other
Client's account for your Minimum Volume
Charge obligation under this Paragraph 4(b)(ii)
exceed the amount of your Minimum Volume Charge
for the applicable period. You and the Other Client
shall be jointly and severally liable to us for any
Minimum Volume Charge. We shall compute the Minimum
Volume Charge, if any, on a calendar
quarterly basis and charge your account and the Other
Client's account therefor for each calendar
quarter in the month following the end of such
calendar quarter, or in the month following the
effective date of termination of this agreement,
whichever is earlier. The Other Client's Volume
shall
not be added to your Volume for the purposes of
calculating your Minimum Volume for any period
or calculating your Minimum Volume Charge for any
period. If you do not meet the Minimum
Volume with respect to any particular calendar
quarter period within a Contract Year and you
therefore pay to us a yearly Minimum Volume Charge
for such particular calendar quarter period and
in the subsequent calendar quarter period in the same
Contract Year, your Minimum Volume for
which commissions have been paid by you to us under
this agreement then exceeds the Minimum
applicable to such subsequent calendar quarter
period, by reason of such Minimum Volume Charge
previously paid, you shall then be entitled to
receive a rebate from us to your account, to the
extent
of the lesser of such excess or the Minimum Volume
Charges previously paid to us in any such prior
calendar quarter period of the same Contract Year.
Similarly, if for any calendar quarter period
within a particular Contract Year, the commissions
paid to us under this agreement exceed the
Minimum applicable to such calendar quarter period
and in any subsequent calendar quarter period
we otherwise would have been entitled to receive and
you would have been responsible for paying
to us any Minimum Volume Charge applicable to such
subsequent calendar quarter period, in
calculating the amount of such Minimum Volume Charge
payable in such subsequent calendar quarter
period you shall be entitled to a credit against the
same to the extent of the lesser of such excess or
the Minimum Volume Charge that would otherwise then
have been due from you to us in relation to
such subsequent calendar quarter period within the
same Contract Year. Except however to the
extent specifically set forth above, nothing
contained herein is or shall be deemed to change,
limit or
otherwise adversely affect our right to charge and
receive and your obligation to pay to us
commissions and/or any Minimum Volume Charges payable
with respect to any Contract Year or part
thereof during which this agreement remains in
effect, or to entitle you to receive any rebate
and/or
credit with respect to any commissions payable to us
hereunder. Notwithstanding the foregoing,
should the Volume during any Contract Year or part
thereof during which this agreement remains
in effect, exceed the Minimum applicable thereto,
nothing contained herein shall entitle you to receive
any rebate and/or credit other than strictly as
provided for above. However, if an Event of Default
occurs, and if we so elect, and whether or not we
then or thereafter exercise any of our rights of
termination hereunder (including but not limited to
our rights under Paragraph 9(a)(ii)), we may on
or at any time after the occurrence of such Event of
Default compute and charge your account for
the Minimum Volume Charge for the period starting on
such occurrence and ending on the next date
as of which you may terminate this agreement under
Paragraph 9(a)(i), and, for the purpose only of
computing such Minimum Volume Charge, we may assume
that your Volume for the period will be
zero, subject, of course, to subsequent adjustment if
such Volume in fact is more than zero.
(iii) all bank charges for wire transfers.
(iv) quarterly, as of the 15th day of the month
next occurring after the end
of each of your fiscal quarters, a fee at the rate of
one quarter of one percent (1/4%) per annum,
calculated and payable quarterly, on the difference
between the Facility Amount and the sum of (x)
average outstanding Revolver Amount during such
quarter, and (y) the average outstanding Note
Amounts during such quarter.
(v) Customer late payment charges, not paid by
the customer, but only if
the charge exceeds five ($5.00) dollars and the
payment is five (5) business days or more past due,
said charges are to be computed at the rate specified
in paragraph 4(b)(i) of this Agreement (subject
to change as indicated therein).
(c) Notwithstanding anything to the contrary
contained in this agreement or in any
other agreement entered into in connection herewith
or securing the indebtedness evidenced hereby,
whether now existing or hereafter arising and whether
written or oral, it is agreed that the aggregate
of all interest and any other charges constituting
interest, or adjudicated as constituting interest,
and
contracted for, chargeable or receivable under this
agreement or otherwise in connection with any
of the Obligations at any time and from time to time
more as fully described herein, shall under no
circumstances exceed the maximum amount of interest
permitted by applicable law. In the event the
maturity date of any Obligations arising under or in
connection with this agreement is accelerated by
us, whether reason of our election made in accordance
with the terms and provisions hereof resulting
from your breach or default hereunder or under any
other document executed as security herefor or
in connection herewith or otherwise, or by voluntary
prepayment by you or otherwise, then earned
interest may never include more than the maximum rate
of interest permitted by applicable law. If
from any circumstance we shall ever receive interest
or any other charges constituting interest, or
adjudicated as constituting interest, the amount, if
any, which would exceed the maximum rate of
interest permitted by applicable law (the "Excess
Interest") shall be applied to the reduction of the
principal amount of Obligations owing under or in
connection with this agreement or on account of
any other principal indebtedness of yours to us, and
not to the payment of interest. If the Excess
Interest exceeds the unpaid balance of principal of
your Obligations to us arising under or in
connection with this agreement and the principal
balance of any other such Indebtedness, then that
portion of the Excess Interest that exceeds such
unpaid principal balance of your Obligations under
or in connection with this agreement and such other
principal indebtedness, shall be refunded to you.
All sums paid or agreed to be paid us for the use,
forbearance or detention of any of your Obligations
to us shall be amortized, prorated, allocated and
spread throughout the Term of such Obligations until
payment in full, so that the actual rate of interest
on account of such Indebtedness is uniform
throughout the Term hereof. If the applicable law is
amended in the future to allow a greater rate of
interest to be charged under this agreement than is
presently allowed by such applicable law, then the
limitation of interest hereunder shall be increased
to the maximum rate of interest may be increased
to the maximum rate of interest allowed by such
applicable law as amended, which increase shall be
effective hereunder on the effective date of such
amendment.
5. MATURED FUNDS
On the last day of each month, we shall credit
your account with interest at the Matured
Funds Rate in effect during such month on the average
daily balance during such month of any
amounts payable by us to you or the Other Client, as
the case may be, hereunder (as confirmed by
us by appropriate credit to your account with us or
the Other Client's account, as the case may be)
which are not drawn by you on the Maturity Date,
while held by us after the Maturity Date.
"Matured Funds Rate" shall mean the rate of interest,
announced by us from time to time, as the rate
applicable to matured funds, such rate to be adjusted
automatically on the effective date of any
change in such rate announced by us.
6. CHARGES; BALANCES; RESERVES
We may charge to your account all Obligations.
Recourse to security will not be required at
any time. All credit balances or other sums at any
time standing to your credit and all Reserves on
our books, and all of your property in our possession
at any time or in the possession of any parent,
affiliate or subsidiary of ours or on or in which we
or any of them have a lien or security interest, may
be held and reserved by us as security for all
Obligations. We will account to you monthly and each
monthly accounting statement will be fully binding on
you and will constitute an account stated,
unless, within thirty (30) days after such statement
is mailed to you or within thirty (30) days after
the mailing of any adjustment thereof we may make,
you give us specific written notice of exceptions.
7. REPRESENTATIONS AND WARRANTIES; DISPUTES;
RETURNS;
CHARGEBACKS
(a) You warrant and represent that you have
good title to the Receivables free of
any encumbrance except in our favor; each Receivable
purchased hereunder is a bona fide,
enforceable obligation created by the absolute sale
and delivery of goods (including, without
limitation, the deposit of goods with a common
carrier as contemplated in Paragraph 2 hereof) or the
rendition of services in the ordinary course of
business; when you assign each Receivable to us your
customer is unconditionally obligated to pay at
maturity the full amount of each Receivable purchased
hereunder without defense, counterclaim or offset,
real or alleged; all documents in connection
therewith are genuine; and when you assign each
Receivable to us the customer will accept the goods
or services without alleging any defense,
counterclaim, offset, dispute or other claim whether
arising
from or relating to the sale of such goods or
services or arising from or relating to any other
transaction or occurrence (a "Dispute").
(b) You further represent and warrant that (i)
your address set forth above is that
of your chief place of business and chief executive
office and the location of all "Collateral" (as
hereinafter defined) and of your books and records
relating to the Receivables; (ii) by a separate
writing you have disclosed to us the locations of all
of your other places of business as well as all
trade names or styles, trademarks, divisions or other
names under which you conduct business
(hereinafter collectively defined as the "Trade
Names"); and (iii) except after 30 days prior written
notice to us of your intention to do so, you will not
make any change in your name or corporate
structure (whether by merger, reorganization or
otherwise) or sell or acquire any assets except in
the
ordinary course of your business, nor make any change
which would have the effect of rendering
inaccurate or incomplete the representations
contained in this subparagraph (b). If you make or
propose to make any changes referred to in the
immediately preceding subdivision (iii), we may,
before or at any time after such change occurs,
terminate this agreement effective immediately by
giving you written notice of such termination.
(c) You shall promptly provide us with
duplicate originals of all credits which you
issue to your customers and immediately notify us of
any merchandise returns or Disputes. You will
settle all Disputes at no cost or expense to us; our
practice is to allow you a reasonable time to do
so. If you so request, provided no Event of Default
has occurred and is continuing, you may enforce
your rights against any of your customers on any
Receivable which is subject to a Dispute if we have
charged your account for such Receivable. We will
reasonably cooperate with you in such
enforcement but at your sole cost and expense.
However, the settlement of any such claim shall be
subject to our prior written approval. Furthermore,
all proceeds of such enforcement shall be
promptly delivered to us for credit to your account.
Should we so elect, we may at any time in our
discretion (i) withdraw your authority to issue
credits to your customers without our prior written
consent; (ii) litigate Disputes or settle them
directly with the customers on terms acceptable to
us; or
(iii) direct you to set aside, identify as our
property and procure insurance satisfactory to us on
any
returned or repossessed merchandise or other goods
which by sale resulted in Receivables theretofore
assigned to us ("Retained Goods"). All Retained
Goods (and the proceeds thereof) shall be (A) held
by you in trust for us as our property; and (B)
subject to a security interest in our favor as
security
for the Obligations; and (C) disposed of only in
accordance with our express written instructions.
(d) Our Credit Risk, if any, on a Receivable
shall immediately terminate without
any action on our part in the event that (i) your
customer asserts a Dispute (regardless of merit) as
a ground for non-payment of the Receivable or returns
or attempts to return the goods represented
thereby; or (ii) any warranty as to the Receivable is
breached. We may charge to your account at any
time the gross face amount of any Receivable
purchased hereunder (or portion thereof) on which we
do not then have the Credit Risk, whether or not we
had the Credit Risk before we make such charge,
together with interest thereon from the due date of
such Receivable to the date of chargeback; such
action on our part shall not be deemed a reassignment
of such Receivable and will not impair our
rights thereto or security interest therein, which
will continue to be effective until all Obligations
are
fully satisfied.
(e) YOU WARRANT THAT YOU WILL NOT GRANT A
SECURITY
INTEREST IN ANY OF YOUR RECEIVABLES OR IN ANY OF YOUR
INVENTORY TO
ANYONE EXCEPT US WITHOUT OUR PRIOR WRITTEN CONSENT.
(f) You warrant and represent that you are now
and will at all times hereafter be
and remain in compliance with all laws, rules and
regulations of all federal, state and local
governmental agencies having jurisdiction, including
but not limited to those relating to environmental
protection (including EPA) and employees (including
ERISA, FLSA and PBGC).
(g) You warrant and represent that (x) you are
not a party to any litigation or
proceeding the adverse outcome of which could have a
material adverse effect on your business, and
(y) the only litigation and proceedings to which you
are party as set forth on Exhibit A hereto.
(h) You may sell equipment which in your
reasonable opinion is obsolete, but no
such sale shall be for less than the reasonable value
of such equipment. You agree not to make during
any calendar year any such sales of equipment, the
receivable value of which exceeds $25,000 per sale
or $100,000 in the aggregate, without our prior
written consent. You will promptly deliver the
proceeds of such sales to us for application against
installments of the $4,157,000 Promissory Note
dated July 29, 1994 by Signal Apparel Company, Inc.,
as maker, to us as payee, as hereafter amended
or supplemented, in inverse order of maturity.
8. INVOICING; PAYMENTS; RETURNS
Each of your invoices and all copies thereof
shall bear a notice (in form satisfactory to us) that
it is owned by and payable directly and only to us at
locations designated by us, and you shall furnish
us with duplicate originals of your invoices
accompanied by a confirmatory assignment thereof.
Your
failure to furnish such specific assignments shall
not diminish our rights. You shall procure and hold
in trust for us and furnish to us at our request
satisfactory evidence of each shipment and delivery
or
rendition of services. Each invoice shall bear the
terms stated on the customer's order, as submitted
to us, whether or not the order has been approved by
us, and no change from the original terms of
the order shall be made without our prior written
consent. Any such change not so approved by us
shall automatically terminate our Credit Risk, if
any, on the Receivable arising from your performance
of the order. You will hold in trust for us and
deliver to us any payments received from your
customers in the form received, and hereby
irrevocably authorize us to endorse your name on all
checks and other forms of payment. Each payment made
by a customer shall first be applied to
Receivables, if any, on which we have the Credit
Risk, and the balance, if any, of such payment shall
be applied to other Receivables due from such
customer. You understand that we shall not be liable
for any selling expenses, orders, purchases,
contracts or taxes of any kind resulting from any of
your
transactions, and you agree to indemnify us and hold
us harmless with respect thereto, which
indemnity shall survive termination of this
agreement.
9.TERMINATION
(a) This agreement shall remain in full force
and effect until the expiration of the
Term unless sooner terminated as set forth below.
The Term shall be automatically extended for
successive periods of one year each unless either
party shall have provided the other with written
notice of termination (by Certified Mail, Return
Receipt Requested) not less than sixty (60) days
prior
to and effective on expiration of the Initial Term or
any Renewal Term.
(i) You may terminate this agreement effective
at any time by giving
written notice of termination to us sixty (60) days
prior to the effective date of such termination, and
upon payment in full of all Obligations, including,
but not limited to, the Minimum Volume Charge
for the Contract Year in which such termination
occurs, as well as any Contract Year remaining in
the Initial Term or any Renewal Term (as the case may
be), and we may terminate this agreement
effective as of March 31, 2000 or any time
thereafter, by giving you written notice of
termination not
less than sixty (60) days prior to the effective date
of termination. You and we each acknowledge
and agree that you or we may exercise the right to
terminate under this subdivision (i) even if the
other party is not in breach of or in default under
this agreement.
(ii) If you shall suspend business, sell all or
a significant portion of your
assets, become insolvent or unable to pay debts as
they mature, make an assignment for the benefit
of creditors, or apply for an extension from
creditors; or if a meeting of your creditors is
called; or
if a Receiver or Trustee shall be appointed for you
or your property; or if your property shall become
subject to any lien or attachment; or if a petition
under the Federal Bankruptcy Code shall be filed by
or against you; or if you shall seek relief under any
insolvency statute, federal, state or other; or if a
custodian shall be appointed for all or substantially
all of your property; or if any agreement between
ourselves and any of your existing or future parent
or wholly owned subsidiaries including, without
limitation, the Other Client (collectively, the
"Related Concerns") or any instrument now or
hereafter
held by us or to our order and made by you or any of
such Related Concerns shall be breached by any
of such Related Concerns or if any Related Concerns
shall be in default thereunder; or if any separate
factoring agreement between ourselves and any of the
Related Concerns is terminated, for any reason
whatsoever, or any event or circumstance exists which
would permit us to terminate any such
factoring agreement in accordance with its terms; or
if you shall breach this agreement or any other
agreement between us; or if you are or become in
default under this agreement, or if any warranty,
or representation hereunder or any portion of the
contents of any document heretofore or hereafter
furnished in connection with this agreement is or
becomes untrue or misleading (except for future
performance against projections heretofore furnished
to us); or if you shall fail to pay any Obligation
when due; or if any guaranty of the Obligations shall
be terminated; then in any such event, we may
terminate this agreement at any time without notice,
and this agreement shall automatically terminate
in the event of a filing of a petition under the
Federal Bankruptcy Code by or against you; or
(iii) If this agreement is terminated pursuant
to paragraph 7 (b) above.
(b) On the effective date of termination all
Obligations (including, without
limitation, any Overadvance and any Special
Overadvance) shall become immediately due and payable
in full without further notice or demand and we shall
have no further obligation to provide any
Advances or loans hereunder. Our rights with respect
to Obligations owing to us, or chargeable to
your account, arising out of transactions having
their inception prior to the effective date of
termination, will not be affected by termination.
Without limiting the foregoing, all of our security
interests and other rights in and to all Receivables,
whether then existing or arising thereafter
(including assignments and remittance of payments),
Retained Goods, credit balances, and any other
property in our possession or the possession of any
parent, affiliate or subsidiary of ours and any
other security for the Obligations (including but not
limited to inventory and machinery and
equipment), whether coming into existence or into our
or their possession before, on or after the
effective date of termination and all proceeds
thereof (collectively "Collateral") shall continue to
be
operative until such Obligations have been fully and
finally satisfied or you have furnished us an
indemnity from an indemnitor satisfactory to us.
(c) If you terminate this agreement pursuant to
Paragraph 9 (a)(i), effective as of
any date prior to March 31, 2000, or if you cease for
a period of thirty (30) or more consecutive
calendar days prior to March 31, 2000 to request
Advances or loans from us, or if this agreement is
terminated pursuant to Paragraph 9(a)(ii) or (iii),
or if we suspend making Advances, loans or any
other extensions of credit to you pursuant to
Paragraph 9(d) of this agreement, then, in any such
case,
in addition to your other Obligations, you and/or the
Other Client will pay us on the effective date
of termination, cessation or suspension, as the case
may be, an "Early Termination Fee", which Early
Termination Fee shall be a joint and several
obligation of you and the Other Client, in the
aggregate
amount for you and the Other Client not to exceed the
amount of (x) $500,000 if the effective date
of termination, cessation or suspension occurs during
the period from April 1, 1997 through and
including March 31, 1998; (y) $300,000 if the
effective date of termination, cessation or
suspension
occurs during the period from April 1, 1998 through
and including March 31, 1999; or (z) $200,000
if the effective date of termination, cessation or
suspension occurs during the period from April 1,
1999 through and including March 31, 2000; provided,
however, that the aforesaid Early Termination
Fee applicable to your termination under Paragraph
9(a)(i) shall be reduced by fifty (50%) percent
if such termination occurs on or before the effective
date of any sale of substantially all of your assets
to any entity which or who is not affiliated with you
in any way and if such termination occurs in
connection with such sale.
(d) If any of the events specified in paragraph
9(a)(ii) hereof occurs, we may, if
we so elect, in addition to our other rights, suspend
indefinitely the making of any additional
Advances or loans to you, and/or reduce the Borrowing
Base in a manner and in amounts in our sole
discretion, without at the same time terminating this
agreement. However, such suspension shall not
be a waiver of or otherwise deprive us of any of our
other rights, including but not limited to the right
at any time to terminate this agreement because of
the occurrence of such event or any other event,
or the right to terminate this agreement pursuant to
paragraph 9 (a)(i) hereof, all of which rights are
now hereby, and then shall be automatically, reserved
without any other action on our part.
10. DEFINITIONS: "RECEIVABLES"; "OBLIGATIONS";
OTHER CLIENT";
"CREDIT RISK"; "INITIAL TERM"; "RENEWAL TERM";
"TERM"; "LETTER OF
CREDIT SUPPLEMENT";
As used herein
(a) "Receivables" means all amounts and all
forms of obligations now or hereafter
owing to you (including but not limited to accounts,
instruments, contract rights, documents and
chattel paper) and general intangibles; all security
therefor and guaranties thereof; all of your rights
as an unpaid seller of goods and your rights to goods
sold which may be represented thereby
(including but not limited to your rights of replevin
and stoppage in transit); all of your books of
account, records, files, and documents relating
thereto and the equipment containing said books,
records, files and documents; all of your rights
under insurance policies relating to the foregoing;
the
right to use the Trade Names in connection with our
rights with respect to the goods; and all
proceeds of the foregoing.
(b) "Obligations" means all amounts of any
nature whatsoever, direct or indirect,
absolute or contingent, due or to become due, arising
or incurred heretofore or hereafter, arising
under this or any other agreement or by operation of
law, now or hereafter owing by you to us or to
any parent, subsidiary or affiliate of ours. Said
amounts include, but are not limited to, loans, debts
and liabilities heretofore or hereafter acquired by
purchase or assignment from other present or future
clients of ours, or through participation. Without
limiting the foregoing, Obligations shall include
Advances, loans (including but not limited to the
Note Amount), amounts due under letters of credit,
interest, commission, bank related charges, costs,
fees, expenses, taxes, and all Receivables and other
amounts charged or chargeable to your account
hereunder.
(c) "Other Client" means, individually and
collectively, The Shirt Shed, Inc. and
Signal Apparel Company, Inc. and their respective
successors and assigns, as permitted by us in our
sole discretion.
(d) "Credit Risk" means the risk of loss
resulting solely and exclusively from the
financial inability of your customer to pay at
maturity a Receivable purchased hereunder.
(e) "Initial Term" means the Effective Date
through March 31, 2000.
(f) "Renewal Term" means each annual renewal of
this agreement after the Initial
Term.
(g) "Term" means the Effective Date through
March 31, 2000 and each annual
renewal of this agreement thereafter, subject to
acceleration upon the occurrence of an Event of
Default or other termination hereunder.
(h)"Letter of Credit Supplement" means the
Letter of Credit Financing
Supplement to Factoring Agreement dated January 31,
1992 between us and Signal Apparel
Company, Inc., as the same may be hereafter amended,
supplemented or otherwise modified.
11.Covenants. You covenant and agree that,
until the later of the termination of this
Agreement or the satisfaction in full of all of the
Obligations
(a)you and the Other Client will not
(i)permit any of your or the Other Client's
property (including but not
limited to Receivables, inventory, machinery,
equipment, furniture, fixtures, plant, and real
estate) to
be encumbered by any security interest, encumbrance,
mortgage, or other lien of any nature
whatsoever except (x) in favor of us or (y) pursuant
to a subordination agreement acceptable to us
in our sole and absolute discretion, executed in our
favor.
(ii)permit your and the Other Client's Tangible
Net Worth (equity plus
subordinated debt minus goodwill and intangible
assets), on a combined basis, to be less than the
following amounts on the dates indicated;
As At Amount
(a)09/30/97 $51,400,000
12/31/97 54,800,000
03/31/98 56,100,000
06/30/98 57,350,000
09/30/98 58,600,000
12/31/98 59,850,000
03/31/99 60,000,000
06/30/99 60,000,000
09/30/99 60,000,000
12/31/99 60,000,000
03/31/00 60,000,000
plus(b)an amount equal to sixty-five (65%)
percent of the aggregate
amount of any capital contribution and/or equity
infusion into or any other additional equity
hereafter
derived from any source by you or the Other Client,
excluding the conversion of any subordinated
debt existing on the date hereof into equity of you
or the Other Client.
Intangible assets include write-ups, unamortized
debt discount
and expense, unamortized deferred charges, patents,
licenses, R&D expenses, and other intangible
items.
(iii)permit your and the Other Client's Working
Capital (the amount by
which your current assets exceed your current
liabilities) to be less than the following amounts on
the
dates indicated:
As At Amount
(a)09/30/97 $35,000,000
12/31/97 38,000,000
03/31/98 41,000,000
06/30/98 43,000,000
09/30/98 45,000,000
12/31/98 47,000,000
03/31/99 47,000,000
06/30/99 47,000,000
09/30/99 47,000,000
12/31/99 47,000,000
03/31/00 47,000,000
plus(b)an amount equal to eighty (80%) percent
of the aggregate
amount of any capital contribution and/or equity
infusion into or any other additional equity
hereafter
derived from any source by you or the Other Client,
excluding the conversion of any subordinated
debt existing on the date hereof into equity of you
or the Other Client.
Current assets means cash and marketable
securities, accounts
receivable and inventory. Current liabilities are
accounts payable, accrued expenses, the Advances
and our loans to you (other than the then current
portions of the Note Amounts), short term debt and
other short term liabilities.
(iv)permit your and the Other Client's
Cumulative Pre-Tax Operating
Earnings (net income or loss-taken as a cumulative
whole-and amortization of goodwill before taxes,
from operations only, excluding (x) gains or losses
from the sales of assets and (y) extraordinary
items), on a combined basis, to be less than the
following amounts for the periods indicated:
PeriodAmount
01/01/97 to 09/30/97 $18,000,000
01/01/97 to 12/31/97 25,000,000
01/01/98 to 03/31/98 3,000,000
01/01/98 to 06/30/98 5,000,000
01/01/98 to 09/30/98 7,000,000
01/01/98 to 12/31/98 10,000,000
01/01/99 to 03/31/99 2,000,000
01/01/99 to 06/30/99 3,000,000
01/01/99 to 09/30/99 4,000,000
01/01/99 to 12/31/99 5,000,000
01/01/00 to 03/31/00 -0-
provided that, notwithstanding anything to the
contrary contained herein, your and the Other
Client's
Cumulative Pre-Tax Operating Earnings (as defined
above), on a combined basis, shall not be less
than (A) commencing with the fiscal quarter beginning
October 1, 1997, $6,500,000 during any one
fiscal quarter occurring in fiscal year 1997, (B)
$3,000,000 during any one fiscal quarter occurring
in fiscal year 1998 and (C) $2,000,000 during any
one fiscal quarter occurring in fiscal year 1999.
(v)permit your and the Other Client's Capital
Expenditures to exceed the
following applicable amounts during the years
indicated:
PeriodAmount
1997 - $2,000,000
1998 - 1,000,000
1999 - 1,000,000
(vi)incur or permit to exist any indebtedness
or guaranty by you of the
obligations of any other entity, except that you and
the Other Client, on a combined basis may incur
(i) unsecured debt to suppliers in the ordinary
course of your business; (ii) such other indebtedness
and guaranties, if any, which are subordinated in our
favor on terms and conditions acceptable to us;
(iii) indebtedness to us, and guaranties to us of the
Obligations to us of others, including, but not
limited to, the Other Client and American Marketing
Works, Inc., and (iv) unsecured debt for Capital
Expenditures but only to the extent permitted by
Paragraph 11(a)(v) hereof.
(vii)pay or permit the payment (either with
Advances, loans or other
amounts, if any, extended to you under either this
agreement or with any other funds) on account of
your capital stock now or hereafter outstanding of,
for or on account of any indebtedness which is
the subject of any subordination agreement to which
you are a party unless you give us (i) advance
written notice of the proposed payment, and (ii)
financial and other statements, in form and substance
acceptable to us, certified by your Chief Financial
Officer, confirming that before and after giving
effect to such payment, you are and will be in
compliance with all of the provisions of the
agreement
and that no event has occurred or will have occurred
which, with or without notice or the passage
of time, would constitute a breach or default under,
or would permit us to terminate this agreement.
(b)you will give us
(i)twice in each calendar year (but not more
than six months shall elapse
between the first and second report in each calendar
year) a physical count of your inventory
observed by an independent public accountant
acceptable to us in a manner consistent with
procedures followed in connection with the
certification of your annual financial statements;
(ii)not later than five (5) business days after
the end of each week, fifteen
business days after the close of each month and
twenty (20) business days after the close of each
quarter, inventory designations certified by your
Chief Financial Officer or Treasurer, all in form and
substance satisfactory to us;
(iii)from time to time at our request financial
projections in form and
substance satisfactory to us;
(iv)prompt written notice of any breach or
default under this agreement
or any of your Obligations to us, or any other
agreement material to your business (including but
not
limited to all license agreements relating to
inventory), your failure to comply with any
applicable law,
rule or regulation of any governmental agency having
jurisdiction, and the commencement by or
against you of any suit, action or proceeding of a
civil, criminal or an administrative nature. We may,
but shall not be obligated to cure any such breach or
default and, if elect to do so, you will on demand
reimburse us for the cost thereof;
(v)within 30 days after the close of each
month, except January, and
within 45 days after the close of January and each of
the first three quarters in each of your fiscal
years consolidated and consolidating balance sheets
of you and your subsidiaries as at the end of such
month or quarter, respectively, and the related
consolidated and consolidating statements of income,
retained earnings and statement of cash flows of you
and your subsidiaries for the elapsed portion of
the fiscal year ended with the last day of such month
or quarter, respectively, setting forth in each
case in comparative form the figures for the
corresponding periods of the previous fiscal year,
each
of which shall be accompanied by a certificate of
your Chief Financial Officer in form and substance
satisfactory to us;
(vi)within 90 days after the end of each of
your fiscal years, consolidated
and consolidating balance sheets of you and your
subsidiaries as at the end of such fiscal year and
the
related consolidated and consolidating statements of
income, retained earnings and statement of cash
flows of you and your subsidiaries for such fiscal
year, setting forth in comparative form the figures
as at the end of and for the previous fiscal year, in
each case certified by independent certified public
accountants of recognized standing satisfactory to
us, whose certificates shall be in scope and
substance satisfactory to us. Together with such
financial statements you shall deliver a certificate
of your Chief Financial Officer in form and substance
satisfactory to us and a certificate of such
accountants addressed to us (x) stating that you are
authorized to deliver such financial statements
and their certifications thereof to us pursuant to
this agreement and that they have caused this
agreement to be reviewed and that, in making the
examination necessary for the certification of such
financial statements, nothing has come to their
attention to lead them to believe that any default
hereunder or breach hereof exists, or, if such is not
the case, specifying such default or breach and
its nature, when it occurred and whether it is
continuing and (y) having attached the calculations
required to establish whether or not you and your
subsidiaries were in compliance with the covenants
contained in paragraph 11(a)(ii) through 11(a)(v).
(vii)such other reports as and when we
reasonably request
(c)you will cause each licensor of any
trademark, trade style, copyright or other
property (collectively "Properties") you use or will
use in your business under licenses heretofore
granted to enter into an agreement with us, in form
and substance acceptable to us, giving us such
rights as we may request with respect to the
Properties in connection with your inventory. With
respect to future such licenses, you will use your
best efforts to cause the licensors to enter into
such
agreements with us when or before you enter into such
licenses, provided that, if after exercise of
your best efforts you are unable to cause the
licensors to enter into the aforementioned agreements
with us, when or before you enter into such licenses,
you shall nevertheless cause each such licensor
to execute and deliver such an agreement with us
within 90 days after you have entered into a license
with each such licensor. You will at all times be in
full compliance with, and perform timely all of
your obligations under your agreements with each such
licensor.
12.PLACE OF PAYMENT; NEW YORK LAW AND COURT
(a)All Obligations shall be paid at our office
in New York, New York.
(b)This agreement shall be governed by and
construed according to the laws of
the State of New York. All terms used herein, unless
otherwise defined herein, shall have the
meanings given in the New York Uniform Commercial
Code.
(c)Each of us expressly submits and consents to
the exclusive jurisdiction of the
Supreme Court of the State of New York, and the
United States District Court for the Southern
District of New York, with respect to any controversy
arising out of or relating to this agreement or
any supplement hereto or to any transactions in
connection therewith and hereby waives personal
service of the summons, complaint or other process or
papers to be issued therein and hereby agrees
that service of such summons, complaint, process or
papers may be made by registered or certified
mail addressed to the other party at the address
appearing herein.
13.REPORTS; RECORDS; ASSURANCES; WAIVERS;
REMEDIES; ETC.
(a)We may at all times during business hours
have access to, and inspect, audit,
and make extracts from, all of your records, files
and books of account, and we may charge your
account with the costs, fees or expenses incurred in
connection therewith and our then standard
charges for each examiner or auditor.
(b)You shall perform all acts requested by us
to perfect and maintain our security
interest and other rights in the Collateral.
(c)Failure by us to exercise any right, remedy
or option under this agreement or
delay by us in exercising the same will not operate
as a waiver; no waiver by us will be effective
unless we confirm it in writing and then only to the
extent specifically stated.
(d)We may charge to your account, when incurred
by us, the amount of
reasonable legal fees (including fees, expenses and
costs payable or allocable to attorneys retained
or employed by us) and other costs, fees and expenses
incurred by us in negotiating or preparing this
agreement and any legal documentation required by us
or requested by you in connection with this
agreement or any amendments or supplements thereof,
or in enforcing our rights hereunder or in
connection with the litigation of any controversy
arising out of this agreement, or in protecting,
preserving or perfecting our interest in, any
Collateral, including without limitation all taxes
assessed
or payable with respect to any Collateral, and the
costs of all public record filings, appraisals and
searches relating to any Collateral. We may file
Financing Statements under the Uniform Commercial
Code without your signature or, if we so elect, sign
and file them as your agent.
(e)Our rights and remedies under this agreement
will be cumulative and not
exclusive of any other right or remedy we may have
hereunder or under the Uniform Commercial
Code or otherwise. Without limiting the foregoing,
if we exercise our rights as a secured party we
may, at any time or times, without demand,
advertisement or notice, all of which you hereby
waive,
sell the Collateral, or any part of it, at public or
private sale, for cash, upon credit, or otherwise, at
our sole option and discretion, and we may bid or
become purchaser at any such sale, free of any right
of redemption which you hereby waive. After
application of all Collateral to your Obligations (in
such order and manner as we in our sole discretion
shall determine), you shall remain liable to us for
any deficiency.
(f)We shall have no liability hereunder (i) for
any losses or damages (including
indirect, special or consequential damages) resulting
from our refusal to assume, or delay in assuming,
the Credit Risk, or any malfunction, failure or
interruption of communication facilities, or labor
difficulties, or other causes beyond our control; or
(ii) for indirect, special or consequential damages
arising from accounting errors with respect to your
account with us. Our liability for any default by
us hereunder shall not exceed a refund to you of any
commission paid by you during the period
starting on the occurrence of the default and ending
when it is cured or waived, or when this
agreement is terminated, whichever is earlier.
(g)THIS AGREEMENT CANNOT BE CHANGED OR
TERMINATED
ORALLY AND IS FOR THE BENEFIT OF AND BINDING UPON THE
PARTIES AND THEIR
RESPECTIVE SUCCESSORS AND ASSIGNS. HOWEVER, YOU MAY
NOT ASSIGN ANY
OF YOUR RIGHTS HEREUNDER WITHOUT OUR PRIOR WRITTEN
CONSENT. THIS
AGREEMENT, AND ANY CONCURRENT OR SUBSEQUENT WRITTEN
SUPPLEMENTS
THERETO OR AMENDMENTS THEREOF SIGNED BY BOTH OF US,
REPRESENT OUR
ENTIRE UNDERSTANDING AND SUPERSEDE ALL INCONSISTENT
AGREEMENTS AND
COMMUNICATIONS, WRITTEN OR ORAL, BETWEEN YOUR AND OUR
OFFICERS,
EMPLOYEES, AGENTS AND OTHER REPRESENTATIVES. THERE
ARE NO ORAL
AGREEMENTS BETWEEN THE PARTIES. YOU HEREBY
ACKNOWLEDGE AND AGREE
THAT THE STATEMENT SET FORTH IN THIS SUBPARAGRAPH (g)
SATISFIES THE
REQUIREMENTS OF SECTION 26.02 OF THE BUSINESS AND
COMMERCE CODE OF THE
STATE OF TEXAS AND SHALL BE DEEMED INCORPORATED INTO
THE AGREEMENT
AND ALL OTHER APPROPRIATE AGREEMENTS BY YOU WITH, TO
OR IN OUR FAVOR.
(h)This agreement shall not be effective unless
signed by you below, and signed
by us at the place for our acceptance.
(i)TO THE EXTENT LEGALLY PERMISSIBLE, BOTH YOU
AND WE
WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY LITIGATION
RELATING TO
TRANSACTIONS UNDER THIS AGREEMENT, WHETHER SOUNDING
IN CONTRACT,
TORT OR OTHERWISE.
(j)References herein to written notice shall
include but shall not be limited to
notice by telecopier, mail, messenger or any courier
service.
(k)This agreement is subject in all respect to
the Forbearance Agreement. In the
event of any conflict of any term or provision of
this agreement with any term or provision of the
Forbearance Agreement, the term or provision of the
Forbearance Agreement shall control.
Very truly yours,
BNY FINANCIAL CORPORATION
By: /s/ Joseph A. Grimaldi
Title: President
[SIGNATURES CONTINUED ON NEXT PAGE]
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
AGREED TO as of the 30th day of January, 1998.
ATTEST:
BIG BALL SPORTS, INC.
By: /s/ David Houseman
Title: President
[SEAL]
Acknowledgement and Agreement
Each of the undersigned, each an "Other Client"
referenced to and defined in the foregoing
Factoring Agreement between BNY Financial Corporation
and Big Ball Sports, Inc. ("Factoring
Agreement"), hereby acknowledges each of the terms
and provisions of the foregoing Factoring
Agreement.
SIGNAL APPAREL COMPANY, INC.
THE SHIRT SHED, INC.
By: /s/ David E. Houseman
Title: CEO of Signal Apparel Company, Inc.
of each
President of The Shirt Shed, Inc.
BNY FINANCIAL CORPORATION
A WHOLLY OWNED SUBSIDIARY OF THE BANK OF NEW YORK
NEW YORK'S FIRST BANK - FOUNDED 1784 BY ALEXANDER
HAMILTON
1290 AVENUE OF THE AMERICAS, NEW YORK, N.Y. 10104
212-408-7000
March 25, 1998
Signal Apparel Company, Inc.
P.O. Box 4296
200A Manufacturers Road
Chattanooga, Tennessee 37405
Attention: Mr. Jim Elkins, Controller
Re: Your letter of 3/24/98/Request for 12/31/97
covenant waivers
Gentlemen:
By your recent letter, you have requested us to waive
your compliance with the
following financial covenants set forth in the Amended
and Restated Factoring
Agreement between us, bearing the effective date of
5/23/91, as restated as of October
31, 1997 (as amended and supplemented, herein, the
"Agreement"), to the extent
herein described - namely, Paragraphs 11(a) (iii)
[pertaining to minimum Working
Capital for you and the Other Client (with all
initially capitalized terms not defined
herein to have the meaning set forth in the
Agreement); herein, the "Minimum Working
Capital Covenant"] and 11 (a) (iv) [pertaining to
minimum Cumulative Pre-Tax
Operating Earnings for you and other Client (herein,
the "Minimum Cumulative Pre-Tax
Operating Earnings Covenant") ]. You have quested
that we waive compliance with the
Minimum Working Capital Covenant as of 12/31/97 (the
"Waiver Date") and with the
Minimum Cumulative Pre-Tax Operating Earnings Covenant
for the calendar year
ended on such Waiver Date, to the extent and as more
fully specifically described in
this letter.
Subject to the matters set forth in the paragraph
which immediately follows, we hereby
waive compliance with: (a) the Minimum Working Capital
Covenant, to the extent such
non-compliance arose solely as a result of your
failure to have as at the Waiver Date,
minimum Working Capital for you and the Other Client
of not less than
($38,000,000.00), provided that such minimum Working
Capital as of such Waiver Date
was not less than ($42,284,000.00); and (b) the
Minimum Cumulative pre-Tax
Operating Earnings Covenant, to the extent such non-
compliance arose solely as a
result of your failure to have for the calendar year
ended on such Waiver Date,
minimum Working Capital for you and the Other Client
of not less than
($25,000,000.00), provided that such minimum
Cumulative Pre-Tax Operating Earnings
for such calendar year did not exceed
($29,388,000.00).
The limited waiver herein set forth shall not,
however, become effective until we shall
have received back an copy of this Amendment duly
executed by you, and you have
signed below also confirming our entitlement to charge
and receive a fee in connection
with the matters herein set forth in the amount of
$10,000, for which fee we shall be
entitled to immediately charge your account (s).
Except to the limited extent set forth herein: (a) no
waiver of any other term, condition,
covenant, agreement or any other aspect of the
Agreement is intended or implied; and
(b) and except for the specific period of time and
circumstances covered by this letter,
no other aspect of the Minimum Working Capital
Covenant and/or the Minimum
Cumulative Pre-Tax Operating Earnings Covenant is or
shall be deemed waived,
including without limitation for any other period or
circumstance, and no such additional
waiver is intended or implied. This waiver is
therefore limited exclusively to the specific
purposes and time period(s) for which it is given.
If the foregoing is in accordance with your
understanding, would you kindly sign below
to so indicate.
Very truly yours,
BNY FINANCIAL CORPORATION
By /s/ Wayne Miller
--------------------------------
Title: V.P.
AGREED
Signal Apparel Company, Inc.
By /s/ David E. Houseman
- - --------------------------------------
Title: Chief Executive Officer
March 27, 1998
Robert J. Powell
Signal Apparel Company, Inc.
200-A Manufacturers Road
Chattanooga, TN 37405
Dear Mr. Powell:
This letter is to confirm the Agreement between
WGI,LLC and Signal Apparel Company, Inc. whereby
WGI,LLC has agreed that the amounts loaned to Signal
by WGI,LLC as of the date of this letter will not be
called for payment by WGI,LLC prior to January 1,
1999.
Agreed to on behalf of WGI,LLC
/s/ Stephen Walsh
- - ---------------------
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made between SIGNAL
APPAREL COMPANY, INC., an Indiana corporation, with its
principal offices at 200-A Manufacturers Road,
Chattanooga, Tennessee (the "COMPANY") and DAVID
HOUSEMAN (the "EMPLOYEE").
RECITALS:
The Company and the Employee have reached an
understanding with respect to the employment of the
Employee by the Company. The parties desire to set
forth their understanding with respect to such
employment fully and completely in writing.
NOW, THEREFORE, the parties agree as follows:
1. EMPLOYMENT. The Company shall employ the
Employee as its Chief Executive Officer, Chief
Operating Officer and Chief Financial Officer, and the
Employee shall work for the Company in such capacity
upon the terms and conditions set forth herein.
2. EXCLUSIVE AGREEMENT. During the term of this
Agreement, the Employee shall devote his full time and
best effort to the business of the Company.
3. EMPLOYMENT TERM. Unless earlier terminated in
accordance with the terms of this Agreement, the
Employee's term of employment by the Company (the
"Employment Term") shall be for the period commencing
June 2, 1997 and ending June 1, 2000.
4. CONFIDENTIAL INFORMATION. The Employee
acknowledges that any use of the Company's Confidential
Information (defined below) by the Employee other than
for the sole benefit of the Company would be wrongful
and cause irreparable harm to the Company.
Accordingly, the Employee shall not, at any time during
or subsequent to his employment by the Company, without
the express written consent of the Company, publish,
disclose or divulge to any person, firm or corporation,
or use, directly or indirectly, for his own benefit or
for the benefit of any person, firm or corporation for
use other than for the Company, any property, trade
secrets, or Confidential Information (defined below) of
the Company or its affiliates.
<PAGE> 1
"Confidential Information" includes, but is not limited
to all data, reports, interpretations, forecasts,
records, statements (written and oral) and documents of
any kind relating to the Company's costs and financial
information, manufacturing methods or processes, market
studies, products, existing and potential customers,
pricing methods and strategies, new product plans and
sources of supply acquired by Employee during
Employee's employment by the Company. In addition, all
other information disclosed to the Employee or which
the Employee shall obtain during such employment with
the Company which the Employee has a reasonable basis
to believe to be confidential, or which the Employee
has a reasonable basis to believe the Company treats as
confidential, shall be presumed to be Confidential
Information.
5. SALARY AND EXPENSES. The Company shall pay
the Employee a base salary in accordance with the
normal payroll practices of the Company according to
the following schedule:
June 2, 1997 - June 1, 1998 $175,000
June 2, 1998 - June 1, 1999 $200,000
June 2, 1999 - June 1, 2000 $225,000
The Company shall also reimburse the Employee for all
reasonable, legitimate and documented business expenses
incurred by him, on behalf of the Company, upon
submission of accounts in satisfactory form, subject to
such reasonable limitations as the Company may impose
in its discretion from time to time as set forth in the
Company's standard practices and procedures.
6. ADDITIONAL BENEFITS. In addition to the
compensation described in Section 5, the Employee shall
be entitled during the Employment Term to receive the
following additional benefits:
(A) HEALTH INSURANCE. The Company will make
health insurance coverage available to Employee
consistent with the coverage available to other
employees of the Company from time to time. In
addition, the Company agrees to reimburse Employee for
the premium cost of procuring term Life Insurance with
death benefits in the amount of $1,000,000.
(B) RETIREMENT PLANS. The Employee will be
eligible to participate in the Company's 401(k)
retirement plan starting in January, 1998 and such
other retirement
<PAGE> 2
plans as may be established by the Company from time to
time in accordance with the provisions of the
applicable plan.
(C) HOLIDAYS AND VACATIONS. The Employee
shall be entitled to such paid holidays as may be
designated by the Company. In addition, the Employee
shall be entitled to three weeks of paid vacation for
each year during which time his compensation shall be
paid in full. Notwithstanding any other provisions of
this Agreement, in the event Employee is terminated
from the Company for any reason, Employee will be
entitled to a payment reflecting Employee's unused
accrued vacation through such date of termination.
(D) SICK LEAVE. The Employee shall be
entitled to sick leave in accordance with Company
practices.
(E) AUTOMOBILE. The Company shall provide
the Employee with a $667 per month car allowance for
the lease or purchase of an automobile plus the
reimbursement of the reasonable operating, maintenance
and insurance expenses of said automobile.
(F) RELOCATION. Subject to a cap of
$75,000, and the submission of appropriate support
documentation, Employee will be reimbursed for the
reasonable direct costs of relocating Employee and his
family to the Chattanooga, Tennessee vicinity. Such
costs shall include the following: the transport of
household furnishings and other personal belongings,
real estate commission on the sale of Employee's
current residence, initial mortgage points for the
procurement of a new residence in the Chattanooga
vicinity, closing costs for the sale of Employee's
existing residence and the procurement of said new
residence, a "tax gross-up" and other reasonable direct
costs in accordance with Company practices.
In addition to the above, Employee shall be
entitled to a reasonable number of "house hunting"
trips from his current residence to Chattanooga,
Tennessee for the selection/procurement of a new
residence as well as reasonable, temporary living
expenses in accordance with Company practices in the
Chattanooga area for a period not to exceed six months
pending the procurement of a new residence. The
expenses of this paragraph will not be applied to the
$75,000 cap.
(G) TUITION. The Company agrees to
reimburse Employee in the aggregate annual amount of
$35,000 for the private school tuition costs for
Employee's son and daughter
<PAGE> 3
through the high school level.
(H) OPTIONS. Effective with the
commencement of Employee's employment with the Company,
Employee will be granted options to purchase 350,000
shares of the Company's Common Stock at an exercise
price of $2.50 per share (also referred to below as
"Original Options"). Such options will remain
exercisable for a period of five years from grant date
and at the Company's election, will be issued pursuant
to the Company's 1985 Stock Option Plan (the "1985
Plan") or independently of said plan and the Company
will use its best efforts to cause the registration of
such shares pursuant to the Securities Act of 1933.
The Company acknowledges Employee's desire that the
options and shares issued on exercise thereof be
subject to the exemptions provided by Rule 16b-3 of the
Securities Exchange Act of 1934 and the Company will
attempt to grant options (both Original Options and
Additional Options) in accordance with that Rule to the
maximum extent possible.
Such options will become exercisable/vest in
accordance with the following schedule:
1. Options to purchase 50,000 shares will be
exercisable on grant date;
2. Options to purchase 200,000 additional
shares will become exercisable two years
from grant date; and
3. Options to purchase the remaining 100,000
shares will become exercisable three
years from grant date.
As of the date of this Agreement, the Company has
11,578,046 common shares outstanding, and Employee's
options reflect approximately 3.00% of such outstanding
shares. Upon the issuance of additional Common Stock
by the Company from time to time other than to
Employee, (such issuance hereinafter referred to as the
"Triggering Event"), Employee shall be issued options
to purchase additional common shares ("Additional
Options") so that the total options held by Employee
always equal a minimum of 3.00% of the Company's
outstanding Common Stock. Employee's rights to receive
Additional Options will accrue until such time as
Employee is entitled to receive Additional Options to
purchase a minimum of 50,000 additional shares at which
time all Additional Options then due will be issued.
The Company's obligations to issue future Additional
Options will accrue and be issued in the same manner.
<PAGE> 4
The Additional Options will be exercisable for five
years from grant date and will be issued at the fair
market value of the Company's Common Stock on the date
of grant as determined in accordance with the 1985
Plan.
The Additional Options will vest in accordance with the
following schedule:
1. If the Triggering Event is the issuance of
stock for which there is no increase in the
asset value of the Company, or in the debt or
equity funding provided to the Company, or
there is no other consideration provided to
the Company for the issuance of such stock,
the Additional Options will vest pro-rata on
the same schedule as the "Original Options"
with credit being given for time already
elapsed in said vesting schedule.
For example, if Additional Options are issued
eighteen months into the term of this
Agreement, 15% of the Additional Options will
be immediately exercisable, 55% will become
exercisable two years from the commencement of
this Agreement, and the remaining 30% of the
Additional Options will become exercisable
three years from the commencement of this
Agreement.
2. If the Triggering Event involves an
acquisition by the Company of additional
assets, or the receipt by the Company of
additional funding in the form of debt or
equity or the receipt of other consideration,
then the Additional Options will vest as
follows:
a. 15% upon the grant date of the Additional
Options;
b. An additional 55% two years from grant
date; and
c. The final 30% three years from grant
date.
All Additional Options issued to Employee will, at the
Company's election, be issued in accordance with the
1985 Plan, or if independent of the 1985 Plan, the
Company will use its best efforts to register such
shares pursuant to the Securities Act of 1933.
To the maximum extent permitted by law, Original
Options and
<PAGE> 5
Additional Options will be Incentive Stock Options.
The Company will consult with Employee concerning which
options will be incentive stock options.
All options granted pursuant to this Agreement will be
subject to the generally applicable anti-dilution
provisions adopted by the Company's Compensation
Committee.
(I) BONUS. Employee shall be entitled to
participate in an annual bonus plan based upon the
Company's performance and Employee's individual
performance. Under this plan, Employee shall be
eligible to receive an annual lump sum bonus payment
equal up to 50% of Employee's annual base salary based
upon a formula, criteria and performance standards to
be mutually agreed upon by Employee and the Company
prior to the commencement of the Company's 1998 fiscal
year.
Notwithstanding the foregoing, for the period
commencing June 2, 1997 and ending June 1, 1998,
Employee shall be entitled to a supplemental bonus
payment of $75,000 which will be paid in a lump-sum no
later than June 30, 1998.
Prior to the commencement of the Company's 1998
fiscal year, the Company and Employee will mutually
agree upon the manner and amount by which the above
supplemental bonus payment may be offset against the
annual bonus for the 1998 fiscal year, if any.
(j) Employee will receive directors and
officers insurance coverage reasonably equivalent to
the insurance coverage in effect as of the date of this
Agreement. Employee also will be indemnified by the
Company in accordance with the Restated Articles of
Incorporation of the Company.
7. TERMINATION OF EMPLOYMENT.
(A) The Employee's employment pursuant to
this Agreement shall terminate upon the death of the
Employee or upon his inability, by reason of a mental
or physical condition, to perform his duties hereunder
for an uninterrupted period of sixty (60) days
("Disability"), and may be terminated for "cause" (as
defined below) by the Company at any time during the
Term immediately upon written notice of termination
(except as provided otherwise below) given by the
Company to the Employee describing such cause. For
purposes of this Agreement, "cause" for termination
<PAGE> 6
shall be deemed to exist if: (i) the Employee is
convicted of a felony which involves an intentional act
of the Employee; (ii) the Employee engages in
dishonesty or fraud which relates to the Company; or
(iii) the Employee breaches any of his material
obligations as Chief Executive Officer, Chief Operating
Officer and Chief Financial Officer of the Company.
Any written notice of termination for cause
pursuant to this Section shall be a written notice
which (a) indicates the specific termination provision
relied upon, (b) sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for
termination of Employee's employment, and (c) if the
date of termination is other than the date of receipt
of such notice, specifies the termination date. In the
event that Employee's employment is terminated pursuant
to subsection (iii) above, Employee shall have a period
of thirty (30) days to cure the breach of Employee's
obligations under this Agreement as described in the
Notice of Termination. In the event that Employee
cures such breach within said thirty (30) day period,
the notice of termination shall be considered
rescinded. In the event that Employee fails to cure
such breach, then this Agreement will terminate without
further notice to Employee as set forth in the notice
of termination, and the provisions of 7(b) shall be
applicable. Employee shall not have the opportunity to
cure any termination for cause pursuant to subsections
(i) and (ii) above.
(B) In the event (i) the Employee's
employment under this Agreement is terminated for cause
as provided above, or (ii) the Employee voluntary
terminates his employment with the Company other than
pursuant to Section 7(c) or 7(d), prior to the end of
the Employment Term, the Company shall promptly pay to
the Employee (or to the Employee's legal
representatives) the amount of any compensation
attributable to periods prior to such termination
pursuant to Section 5 (included accrued vacation pay),
plus the amount of any reimbursable expenses. No other
payments shall be due Employee. In addition, all
outstanding stock options held by Employee will
terminate as of the effective date of Employee's
termination if termination is for cause. If Employee
voluntarily terminates his employment, all options
vested as of the date of termination shall terminate
ninety days after the date of termination.
(C) In the event the Employee's employment
is terminated without cause, or the Employee loses his
employment for any other reason other than pursuant to
<PAGE> 7
Section 7(a) and/or (b), including but not limited to
the bankruptcy, closure, reorganization, buyout,
merger, consolidation of the Company or for any other
reason, or Employee, without Employee's approval,
receives a material diminution in responsibilities,
title, or position from the level of employee's
responsibilities, title or position as of October 1,
1997, and Employee elects to terminate his employment
in writing as a result of and within thirty days of
such diminution, or in the event of the sale of all or
substantially all of the assets of the Company, (all of
the foregoing hereinafter referred to as "Loss of
Employment"), then the following provisions shall be
applicable:
1. If the Loss of Employment occurs during the
initial two years of this Agreement, the following
provisions shall apply:
(a) Employee shall be entitled to payments
equal to the greater of one year's base
salary plus the continuation of benefits
provided in Sections 6(a), (b), (c), (e)
and (g) for one year; or Employee's base
salary through June 1, 1999 plus the
continuation of the benefits provided in
Sections 6(a), (b), (c), (e) and (g)
through June 1, 1999. Base salary
payments will be paid in such
installments as Employee was receiving
his base salary prior to the Loss of
Employment.
(b) Unvested Original Options (subject to a
minimum vesting of options for 100,000
shares) and Additional Options will
become proportionately exercisable based
upon the number of months Employee is
employed relative to the vesting
schedule set forth in Section 6(h). For
example, if the Loss of Employment
occurs at the conclusion of 18 months of
employment, Original Options for 200,000
shares will become exercisable
consisting of the initial 50,000 shares
vested plus 18/24th's of the next
200,000 shares to become vested or
150,000 additional shares. The same
formula will apply to the applicable
vesting schedule of any Additional
Options granted Employee. Incentive
Stock Options (ISO's), if any, vested in
accordance with their respective terms
or in accordance with the above will
remain exercisable for three months
following the Loss of Employment and
Non-Incentive Stock Options (NSO's) will
remain exercisable
<PAGE> 8
for one year following the Loss of
Employment.
(c) Employee will be paid a pro-rata share
of any annual bonus otherwise payable
based upon the number of complete months
Employee is employed during the
Company's fiscal year. Said pro-rata
bonus will be paid, in a lump sum at the
time the Company traditionally pays its
annual bonuses or no later than June 30
of the subsequent fiscal year.
Notwithstanding the foregoing, Employee
shall be paid the $75,000 supplemental
bonus in accordance with Section 6(i)
regardless of when the Loss of
Employment occurs.
2. If the Loss of Employment occurs subsequent to
June 1, 1999, but prior to June 2, 2000, then
the following provisions shall apply:
(a) Employee shall be entitled to payments
equal to one years base salary payable
in such installments as Employee was
receiving his base salary prior to the
Loss of Employment plus a continuation
for one year of the benefits set forth
in Sections 6(a), (b), (c), (e) and (g).
(b) Unvested Stock Options will vest and
remain exercisable in accordance with
the provisions of Section 7(c)(1)(b)
above; and
(c) A pro-rata bonus payment determined and
payable in accordance with Section
7(c)(1)(c) above.
(d) In the event the Company, without the
written approval of Employee, elects not to be listed
for trading on a recognized United States stock
exchange, the NASD National Market System or the NASD
Small Cap market, or an event, initiated or approved by
the Company, is announced (and subsequently occurs)
which will result in the Company not being so listed
(in either case a "Going Private Transaction") Employee
shall have the option to terminate his employment by
written notice to the Company and receive the severance
benefits set forth in Section 7(c)(1) or 7(c)(2),
whichever is applicable. Employee shall have 30 days
from the date of the closing of such Going Private
Transaction or his knowledge of the Going Private
Transaction, whichever is later, to exercise said
<PAGE> 9
termination option. Upon exercise of said termination
option, Employee, at Employee's election shall be
entitled to one of the following:
1. A lump sum payment equal to the amount by
which the closing price of the Company's
Common Stock on the last trading day prior to
the date of the Company's first public
announcement pertaining to the Going Private
Transaction exceeds the exercise price of each
respective stock option held by Employee times
the number of shares for which each respective
stock option is exercisable on such last
trading date. Stock Options subject to
accelerated vesting pursuant to Sections
7(c)(1) or 7(c)(2) shall be considered
exercisable for the purposes of this Section;
or
2. In lieu of such lump sum payment, Employee may
elect to exercise all exercisable stock
options in accordance with the terms of the
respective options, including those options
subject to accelerated vesting pursuant to
Section 7(c)(1) or 7(c)(2).
(e) Severance or other post-termination
payments will not be reduced by amounts earned, or
earnable, by Houseman from any other source.
8. DUTY OF THE EMPLOYEE UPON TERMINATION. The
Employee shall, upon termination of this Agreement,
return to the Company all of the Company's records of
any type and all literature, supplies, letters, written
or printed forms, and/or memorandum pertaining to the
Company's business.
9. COVENANTS ON TERMINATION.
(A) During the Employment Term, and for a
period of one (1) year thereafter so long as the
Company remains in compliance with this Agreement, the
Employee shall not, directly or indirectly, on
Employee's own behalf or on behalf of any other person,
corporation, partnership or any other entity, whether
as an employee, officer, director, proprietor, partner,
investor, consultant, advisor, agent or in any other
capacity, induce or attempt to induce any customer of
the Company to reduce its business with the Company, or
solicit or attempt to solicit any employees of the
Company to leave the employ of the Company, nor shall
Employee affiliate with any party engaging in the above
actions.
<PAGE> 10
(B) The Employee acknowledges that the
restrictions contained in this Section are reasonable
and necessary to protect the business and interests of
the Company and that any violation of these
restrictions will cause substantial and irreparable
injury to the Company. Therefore, notwithstanding the
provisions of Section 14 below, the Employee agrees
that the Company is entitled, in addition to any other
remedies, to preliminary and permanent injunctive
relief to secure specific performance, and to prevent a
breach or contemplated breach of this Agreement.
10. DIRECTOR. Employee will be elected to the
Company's Board of Directors as soon as practicable and
be nominated to that position at subsequent elections
so long as Employee remains an employee.
11. SEVERABILITY. In the event any clause or
provision of this Agreement shall be held to be invalid
or unenforceable, the same shall not affect the
validity or enforceability of any other provision
herein, and this Agreement shall remain in full force
and effect in all other respects. If a claim of
invalidity or unenforceability of any provision of this
Agreement is predicated upon the length of the terms of
any covenant or the area covered thereby, such
provision shall not be deemed to be invalid or
unenforceable; rather, such provision shall be deemed
to be modified to the maximum area or the maximum
duration as any court of competent jurisdiction shall
deem reasonable, valid and enforceable.
12. ENTIRE AGREEMENT. The parties understand and
agree that this Employment Agreement is the entire
Agreement between the parties regarding the terms and
conditions of the Employee's employment and there are
no other agreements. The terms of this Agreement may
not be varied, modified, supplemented or in any other
way changed by extraneous verbal or written
representations by the Company or its agents to the
Employee, unless by amendment to this Agreement
executed in writing by both parties. There are no
third party beneficiaries of the Company's rights under
this Agreement.
13. GOVERNING LAW. The Agreement shall be
governed by, construed and enforced in accordance with
the laws of the state of Tennessee.
14. ARBITRATION. Each party agrees not to bring
suit
<PAGE> 11
against the other party in the courts of any
jurisdiction in connection with any dispute which might
be the subject of a civil action arising from the
interpretation or application of this Agreement. Each
party agrees that any such dispute shall be finally
resolved by submission to compulsory commercial
arbitration to be held in Chattanooga, Tennessee
according to the American Arbitration Association
rules, by one or several arbitrators appointed. The
parties agree to be bound by the decision of the
arbitration and that a judgment of any court of
competent jurisdiction may be rendered upon the award
made pursuant to said submission to arbitration.
15. SURVIVAL. The Covenants of Paragraphs 4, 9,
11, 12, 13 and 14 shall survive the termination of this
Agreement.
16. NOTICE. All notices, demands, requests,
consents, reports, approvals, or other communications
which may be or are required to be given, served, or
sent pursuant to this Agreement shall be in writing and
shall be mailed by first class, registered or certified
mail, return receipt requested, postage prepaid, or
transmitted by facsimile or hand delivery, addressed as
first set forth above, or such other address as a party
may subsequently specify in writing.
IN WITNESS WHEREOF, the parties have executed this
Agreement this 1 day of October, 1997.
SIGNAL APPAREL COMPANY, INC.
Dated: October 1, 1997 By: /S/ Robert J. Powell
Its: Vice President
Dated: October 1, 1997 /S/ David Houseman
DAVID HOUSEMAN
<PAGE> 12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made between SIGNAL
APPAREL COMPANY, INC., an Indiana corporation, with its
principal offices at 200-A Manufacturers Road, Chattanooga,
Tennessee (the "COMPANY") and JOHN W. PRUTCH (the
"EMPLOYEE").
RECITALS:
The Company and the Employee have reached an
understanding with respect to the employment of the Employee
by the Company. The parties desire to set forth their
understanding with respect to such employment fully and
completely in writing.
NOW, THEREFORE, the parties agree as follows:
1. EMPLOYMENT. The Company shall employ the Employee
as its President, and the Employee shall work for the
Company in such capacity upon the terms and conditions set
forth herein. Employee's primary responsibilities will be
to provide advice concerning the sales and marketing
activities of the Company (which shall include its
affiliated and subsidiary companies) and to develop
incremental sales opportunities through acquisition
activities and new sales ventures. In this capacity,
Employee will report to the Company's Chief Executive
Officer, or if there is no Chief Executive Officer, to such
other person as the Company's Board of Directors shall
designate. Subject to the fiduciary responsibilities of the
Company's Board of Directors, Employee will be nominated for
election to the Company's Board of Directors so long as
Employee remains an employee.
2. EXCLUSIVE AGREEMENT. During the term of this
Agreement, the Employee shall devote his full time and best
effort to the business of the Company. Employee agrees to
sign and adhere to the Company's Corporate Code of Conduct.
3. EMPLOYMENT TERM. Unless earlier terminated in
accordance with the terms of this Agreement, the Employee's
term of employment by the Company (the "Employment Term")
shall be for the period commencing with the closing of the
Company's acquisition of GIDI Holdings, Inc./Grand Illusion
Sportswear and ending December 31, 1999. In the event
Signal elects not to close such acquisition, this Agreement
shall be null and void.
4. CONFIDENTIAL INFORMATION. The Employee
acknowledges that any use of the Company's Confidential
Information (defined below) by the Employee other than for
the sole benefit of the Company would be wrongful and cause
irreparable harm to the Company. Accordingly, the Employee
shall not, at any time during or subsequent to his
employment by the Company, without the express written
consent of the Company, publish, disclose or divulge to any
person, firm or corporation, or use, directly or indirectly,
for his own benefit or for the benefit of any person, firm
or corporation, for use other than for the Company, any
property, trade secrets, or Confidential Information
(defined below) of the Company or its affiliates.
"Confidential Information" includes, but
1
<PAGE>
is not limited to all data, reports, interpretations,
forecasts, records, statements (written and oral) and
documents of any kind relating to the Company's costs and
financial information, manufacturing methods or processes,
market studies, products, existing and potential customers,
pricing methods and strategies, new product plans and
sources of supply acquired by Employee during Employee's
employment by the Company. In addition, all other
information disclosed to the Employee or which the Employee
shall obtain during such employment with the Company which
the Employee has a reasonable basis to believe to be
confidential, or which the Employee has a reasonable basis
to believe the Company treats as confidential, shall be
presumed to be Confidential Information.
5. ACQUISITION/FINANCING ACTIVITIES. It is
acknowledged that the Company entered into an agreement with
the Weatherly Financial Group ("Weatherly") dated May 9,
1997 (the "Agreement") pursuant to which Employee, as an
associate of Weatherly, was entitled to receive certain
compensation in return for Employee's services as an
acquisition and financial advisor.
Beginning with the commencement of this Agreement, in
consideration of Employee becoming an employee of the
Company and rendering acquisition and financial services to
the Company, it is agreed, subject to the written agreement
of Weatherly, that one-half of the compensation (including
the issuance of warrants) otherwise payable to Weatherly
under the Agreement will be paid directly to Employee in the
same manner and time as such compensation would have been
payable to Weatherly. The Company and Employee agree to
execute an addendum to this Agreement as soon as practicable
reflecting the above arrangement. Said addendum will also
reflect the compensation to which Employee is entitled under
this Section 5 in the event of the termination of Employee's
employment.
6. SALARY AND EXPENSES. The Company shall pay the
Employee an annual base salary of $150,000 in accordance
with the normal payroll practices of the Company. The
Company shall also reimburse the Employee for all
reasonable, legitimate and documented business expenses
incurred by him, on behalf of the Company, upon submission
of accounts in satisfactory form, subject to such reasonable
limitations as the Company may impose in its discretion from
time to time as set forth in the Company's standard
practices and procedures.
7. ADDITIONAL BENEFITS. In addition to the
compensation described in Sections 5 and 6, the Employee
shall be entitled during the Employment Term to receive the
following additional benefits:
(a) HEALTH INSURANCE. The Company will provide
the Employee with health insurance coverage consistent with
the coverage provided to other employees of the Company from
time to time.
(b) RETIREMENT PLANS. The Employee will be
eligible to participate in
2
<PAGE>
the Company's 401(k) retirement plan and such other
retirement plans as may be established by the Company from
time to time.
(c) HOLIDAYS AND VACATIONS. The Employee shall
be entitled to such paid holidays as may be designated by
the Company. In addition, the Employee shall be entitled to
three weeks of paid vacation for each year during which time
his compensation shall be paid in full. For the remainder
of calendar year 1997, Employee shall be entitled to one
week of paid vacation.
(d) SICK LEAVE. The Employee shall be entitled
to sick leave in accordance with Company practices.
(e) OPTIONS. Employee will be granted options to
purchase 150,000 shares of Signal Common Stock. Such
options will be granted in accordance with the Company's
1985 Stock Option Plan and will have terms and conditions
consistent with options granted to other senior executives
of the Company and the following specific terms:
(1) An exercise price of $2.375 per share,
subject to adjustment;
(2) Two-thirds of the option will vest two
years from date of grant and the option
will be fully exercisable three years
from date of grant;
(3) If employee is terminated for cause or
resigns within the Employment Term, all
outstanding options will be canceled;
(4) If Employee is terminated without cause
during the Employment Term, two-thirds
of the option will become exercisable
and remain exercisable for three months
if incentive options, and for one year
if non-incentive options;
(5) If Employee is terminated or resigns at
the conclusion of the Employment Term,
the option will become fully exercisable
and remain exercisable for three months
if incentive options, and for one year
if non-incentive options.
(f) BONUS. As soon as practicable, the Company
and the Employee will agree upon a bonus program for
Employee to be in effect during the term of this Agreement.
The terms and conditions of said bonus program will be added
to this Agreement by subsequent amendment.
Unless changed by said amendment, the bonus program
will be subject to the following conditions:
3
<PAGE>
Any bonus payment payable pursuant to this Section
shall be made in a lump sum payment within two weeks of the
finalization of the Company's year-end audit.
Notwithstanding the foregoing, Employee must be
employed with the Company on December 31 of any given year
in order to be eligible to receive the above bonus for that
year. In the event Employee is not so employed, the
following provisions shall apply:
(1) If Employee is terminated for cause by the
Company, Employee shall receive no bonus for that
year or any other year regardless of whether such
bonus is otherwise payable. If Employee
voluntarily terminates Employee's employment with
the Company prior to December 31 of any given
year (except as described under the circumstances
in Section 8(c)), Employee shall receive no bonus
for that year or any subsequent year;
(2) If Employee is terminated by the Company without
cause, prior to December 31 of any given year, or
if Employee exercises Employee's rights under
Section 8(c) prior to December 31 of any given
year, or if this Agreement is terminated prior to
December 31 of any given year upon the death or
disability of Employee as provided in Section
8(a), Employee shall receive only a prorata
portion of any bonus earned pursuant to this
Section 7 which prorata portion shall be based
upon the percentage of 365 calendar year days for
which Employee is employed during said calendar
year. Any bonus due pursuant to this subsection
(2) shall be paid as provided in this Section 7.
Any direct or indirect payments made by the Company to
or on behalf of the Employee determined by the Company's
accountants to be reportable for tax purposes shall be
treated as compensation to the Employee.
8. TERMINATION OF EMPLOYMENT.
(a) The Employee's employment pursuant to this
Agreement shall terminate upon the death of the Employee or
upon his inability, by reason of a mental or physical
condition, to perform his duties hereunder for an
uninterrupted period of sixty (60) days ("Disability"), and
may be terminated for "cause" (as defined below) by the
Company at any time during the Employment Term immediately
upon written notice of termination (except as provided
otherwise below) given by the Company to the Employee
describing such cause. For purposes of this Agreement,
"cause" for termination shall be deemed to exist if: (i)
the Employee is convicted of a felony; (ii) the Employee
engages in dishonesty or fraud involving the Company; or
(iii) the Employee breaches any of his material obligations
as President or any material obligations reasonably assigned
to the Employee by the Company's Chief Executive Officer or
Board of Directors.
4
<PAGE>
Any written notice of termination for cause pursuant to
this Section shall be a written notice which (a) indicates
the specific termination provision relied upon, (b) sets
forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Employee's
employment, and (c) if the date of termination is other than
the date of receipt of such notice, specifies the
termination date. In the event that Employee's employment
is terminated pursuant to subsection (iii) above and
Employee's breach of said material obligations is of type
which is subject to cure, then Employee shall have a period
of thirty (30) days to cure the breach of Employee's
obligations under this Agreement as described in the notice
of termination. In the event that Employee cures such
breach within said thirty (30) day period, the notice of
termination shall be considered rescinded. In the event
that Employee fails to cure such breach or such breach is
not of a type which is subject to cure, then this Agreement
will terminate without further notice to Employee as set
forth in the notice of termination, and the provisions of
8(b) shall be applicable. Employee shall not have the
opportunity to cure any termination for cause pursuant to
subsections (i) and (ii) above.
(b) In the event (i) the Employee's employment
under this Agreement is terminated for cause as provided
above, or (ii) the Employee voluntary terminates his
employment with the Company, prior to the end of the
Employment Term, the Company shall promptly pay to the
Employee (or to the Employee's legal representatives) the
amount of any compensation attributable to periods prior to
such termination pursuant to Section 6, plus the amount of
any reimbursable expenses. No other payments shall be due
Employee.
(c) In the event the Employee's employment is
terminated without cause, or the Employee loses his
employment for any other reason other than pursuant to
Section 8(a) and/or (b), including but not limited to
bankruptcy, closure, reorganization, buyout, merger,
consolidation or for any other reason, or Employee, without
Employee's approval, receives a material diminution in
responsibilities, title, or position from the level of
employee's responsibilities, title or position as of the
commencement of this Agreement, and Employee elects to
terminate his employment in writing as a result of and
within thirty days of such diminution, then unless the
Company rectifies such diminution within said thirty-day
period, Employee will be entitled to severance payments
equal only to one year's salary as provided in Section 6
above and continuation of existing health care benefits for
one year. No other payments shall be due Employee except
any bonus payments which may be due pursuant to Section
7(f). Said severance payments shall be paid in the same
manner and on the same schedule (i.e. monthly, weekly, etc.)
as Employee was being paid on the date of termination. To
the extent possible under the Company's Stock Option Plan,
all previously granted stock options shall automatically
vest and become immediately exercisable under this
provision. Severance payments being made pursuant to this
Section shall survive the death of Employee.
9. DUTY OF THE EMPLOYEE UPON TERMINATION. The
Employee shall, upon termination of this Agreement, return
to the Company all of the Company's records of any
5
<PAGE>
type and all literature, supplies, letters, written or
printed forms, and/or memorandum pertaining to the Company's
business.
10. COVENANTS ON TERMINATION.
(a) During the Employment Term and for a period
of one (1) year thereafter, the Employee shall not, directly
or indirectly, on Employee's own behalf or on behalf of any
other person, corporation, partnership or any other entity,
whether as an employee, officer, director, proprietor,
partner, investor, consultant, advisor, agent or in any
other capacity, induce or attempt to induce any customer of
the Company to reduce its business with the Company, or
solicit or attempt to solicit any employees of the Company
to leave the employ of the Company, nor shall Employee
affiliate with any party engaging in the above actions.
(b) The Employee acknowledges that the
restrictions contained in this Section are reasonable and
necessary to protect the business and interests of the
Company and that any violation of these restrictions will
cause substantial and irreparable injury to the Company.
Therefore, notwithstanding the provisions of Section 14
below, the Employee agrees that the Company is entitled, in
addition to any other remedies, to seek preliminary and
permanent injunctive relief to secure specific performance,
and to prevent a breach or contemplated breach of this
Agreement.
11. COVENANT NOT TO COMPETE.
(a) As a material inducement for the Company to enter
into this Agreement and in consideration of the compensation
to be paid hereunder, Employee agrees not to compete,
directly or indirectly, in any manner with the business
conducted by the Company during the Employment Term and
through any period Employee is receiving severance payments
pursuant to Section 8(c). Employee further agrees, during
the Employment Term and through any period Employee is
receiving severance payments pursuant to Section 8(c), not
to enter, directly or indirectly, into the employ of or
render any service to, any person, firm or corporation which
competes with the Company. Employee acknowledges that he is
fully aware of the nature of the Company's business as a
result of Employee's independent investigation, and that
Employee has been given full opportunity to consult with the
Company's executives concerning the nature and scope of such
business. Employee expressly acknowledges that this
condition does not impose economic hardship on him. It is
expressly agreed that any reference to the Company in this
Section 11(a) will also include the Company's affiliated
and/or subsidiary companies.
(b) In the event of the resignation of Employee upon
the expiration of this Agreement or the termination of
Employee's employment upon the expiration of this Agreement,
the Company, in its sole discretion, shall have the option,
but not the obligation, to extend for up to one year the
period during which the above covenant not to compete shall
be applicable by providing severance payments during such
period
6
<PAGE>
equivalent to the payments Employee would have received had
Employee remained employed at his then current salary for a
like period. As an example, if the Company desires to
extend the covenant for six months beyond the termination of
Employee upon the expiration of the Agreement, Employee will
be paid his annual base salary for six additional months at
the same time(s) monthly and in the same manner Employee was
last paid during the Employment Term. Said option shall be
exercised by written notice to Employee stating the period
during which said covenant will remain in effect.
(c) In the event of the termination of Employee for
cause pursuant to Section 8(a) or the resignation of
Employee at any time during the Employment Term, Employee
will be bound by the provisions of Section 11(a) above for
the greater of one from the effective date of such
termination or resignation or the period remaining in the
Employment Term.
12. SEVERABILITY. In the event any clause or
provision of this Agreement shall be held to be invalid or
unenforceable, the same shall not affect the validity or
enforceability of any other provision herein, and this
Agreement shall remain in full force and effect in all other
respects. If a claim of invalidity or unenforceability of
any provision of this Agreement is predicated upon the
length of the terms of any covenant or the area covered
thereby, such provision shall not be deemed to be invalid or
unenforceable; rather, such provision shall be deemed to be
modified to the maximum area or the maximum duration as any
court of competent jurisdiction shall deem reasonable, valid
and enforceable.
13. ENTIRE AGREEMENT. The parties understand and
agree that this Employment Agreement is the entire Agreement
between the parties regarding the terms and conditions of
the Employee's employment and there are no other agreements.
The terms of this Agreement may not be varied, modified,
supplemented or in any other way changed by extraneous
verbal or written representations by the Company or its
agents to the Employee, unless by amendment to this
Agreement executed in writing by both parties.
14. GOVERNING LAW. The Agreement shall be governed
by, construed and enforced in accordance with the laws of
the state of Tennessee.
15. ARBITRATION. Each party agrees not to bring suit
against the other party in the courts of any jurisdiction in
connection with any dispute which might be the subject of a
civil action arising from the interpretation or application
of this Agreement. Each party agrees that any such dispute
shall be finally resolved by submission to compulsory
commercial arbitration to be held in Chattanooga, Tennessee
according to the American Arbitration Association rules, by
one or several arbitrators appointed. The parties agree to
be bound by the decision of the arbitration and that a
judgment of any court of competent jurisdiction may be
rendered upon the award made pursuant to said submission to
arbitration.
7
<PAGE>
16. SURVIVAL. The Covenants of Paragraphs 4, 10, 11,
12 and 14 shall survive the termination of this Agreement.
17. NOTICE. All notices, demands, requests, consents,
reports, approvals, or other communications which may be or
are required to be given, served, or sent pursuant to this
Agreement shall be in writing and shall be mailed by first
class, registered or certified mail, return receipt
requested, postage prepaid, or transmitted by telegram or
hand delivery, addressed as first set forth above, or such
other address as a party may subsequently specify in
writing.
IN WITNESS WHEREOF, the parties have executed this
Agreement this 2 day of October, 1997.
SIGNAL APPAREL COMPANY, INC.
Dated: Oct. 2, 1997 By: /S/ Robert J. Powell
Its: Vice President & General Counsel
Dated: 10/2/97 /S/ John W. Prutch
JOHN W. PRUTCH
EXHIBIT 21
LIST OF SUBSIDIARIES
NAME JURISDICTION
- - ---- ------------
The Shirt Shed, Inc. Delaware
American Marketing Delaware
Works, Inc.
GIDI Holdings, Inc. Illinois
Big Ball Sports, Inc. Texas
Print the Planet, Inc. Texas
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our reports included (or incorporated by
reference) in this Form 10-K into the Company's previously filed
Registration Statements on Form S-8 (File No. 33-27325, File
No. 33-43808 and File No. 33-84106).
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chattanooga, Tennessee
March 27, 1998
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