SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 22, 1999
SIGNAL APPAREL COMPANY, INC.
(Exact name of Registrant as specified in its charter)
Indiana 1-2782 62-0641635
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Indentification No.)
of incorporation)
34 Englehard Avenue, Avenel, New Jersey 07001
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (732) 382-2882
200 Manufacturers Road, Chattanooga, Tennessee 37405
(Former name or former address, if changed since last report.)
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Item 2. Acquisition or Disposition of Assets
On March 22, 1999, the Company completed the acquisition of substantially
all of the assets of Tahiti Apparel, Inc. ("Tahiti"), a New Jersey corporation
engaged in the design and marketing of swimwear, body wear and active wear for
ladies and girls. Pursuant to the terms of an Asset Purchase Agreement dated
December 18, 1998 between the Company, Tahiti and the majority stockholders of
Tahiti, as amended by agreement dated [March 16, 1999] (as amended, the
"Acquisition Agreement"), the purchase price for the assets and business of
Tahiti is $15,872,500, payable in shares of the Company's Common Stock having an
agreed value (for purposes of such payment only) of $1.18750 per share.
Additionally, the Company assumed, generally, the liabilities of the business
set forth on Tahiti's audited balance sheet as of June 30, 1998 and all
liabilities incurred in the ordinary course of business during the period
commencing July 1, 1998 and ending on the Closing Date (including Tahiti's
liabilities under a separate agreement (as described below) between Tahiti and
Ming-Yiu Chan, Tahiti's minority shareholder).
The acquisition will result in the issuance of 13,366,316 shares of the
Company's Common Stock to Tahiti in payment of the purchase price under the
Acquisition Agreement. The Acquisition Agreement also provides that 1,000,000 of
such shares will be placed in escrow with Tahiti's counsel, Wachtel & Masyr, LLP
(acting as escrow agent under the terms of a separate escrow agreement) for a
period commencing on the Closing Date and ending on the earlier of the second
anniversary of the Closing Date or the completion of Signal's annual audit for
its 1999 fiscal year. This escrow will be used exclusively to satisfy the
obligations of Tahiti and its majority stockholders to indemnify the Company
against certain potential claims as specified in the Acquisition Agreement. Any
shares not used to satisfy such indemnification obligations will be released to
Tahiti at the conclusion of the escrow period. As discussed below, the Company
also issued 1,000,000 additional shares of Common Stock under the terms of the
Chan Agreement. During the course of negotiations leading to the execution of
the Acquisition Agreement, and in order to enable Tahiti to obtain working
capital financing needed to support its ongoing operations, the Company
guaranteed repayment by Tahiti of certain amounts owed by Tahiti under one of
its loans from Bank of New York Financial Corporation ("BNYFC"), which also is
the Company's senior lender.
At a meeting held January 29, 1999, the Company's shareholders approved the
issuance of up to 10,070,000 shares of the Company's Common Stock in connection
with the Acquisition Agreement and the Chan Agreement, which shares were issued
in connection with the closing. Under the rules of the New York Stock Exchange,
on which the Company's Common Stock is traded, issuance of the additional
4,296,316 shares of Common Stock called for by the March 12 amendment to the
Acquisition Agreement will be subject to approval by the Company's shareholders
at the Company's 1999 annual meeting, which the Company expects to hold not
later than June 15, 1999. The Company's principal shareholder, WGI, LLC, has
executed a proxy in favor of Zvi Ben-Haim to vote in favor of the issuance of
such additional 4,296,316 shares of the Company's Common Stock at the Company's
1999 Annual Meeting.
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The Chan Agreement
In connection with the acquisition, Tahiti and Tahiti's majority
stockholders reached an agreement with Tahiti's minority shareholder, Ming-Yiu
Chan (the "Chan Agreement"), pursuant to which Tahiti executed a promissory note
to Chan in the principal amount of $6,770,000 (the "Chan Note"), bearing
interest at the rate of 8% per annum, and payable as follows:
(a) $3,500,000 payable in cash (with accrued interest thereon) in the
following installments:
$250,000 payable 90 days following the closing,
$250,000 payable 180 days following closing,
$250,000 payable 270 days following closing,
$250,000 payable 360 days following closing;
$312,500 payable on June 1, 2000;
$312,500 payable on September 1, 2000;
$312,500 payable on December 1, 2000;
$312,500 payable on March 1, 2000;
$312,500 payable on June 1, 2001;
$312,500 payable on September 1, 2001;
$312,500 payable on December 1, 2001; and
$312,500 payable on March 1, 2002.
(b) Balance of $3,270,000 plus accrued interest payable, at the option of
Tahiti, through either: (1) delivery of 1,000,000 shares of Common Stock of
the Company within five (5) business days of the closing or (2) payment of
the such amount (including accrued interest) in cash in eight quarterly
installments, beginning on the first anniversary of the closing under the
Asset Purchase Agreement.
Under the terms of the Acquisition Agreement, the Company assumed the Chan Note
following Closing. Effective March 22, 1999, the Company exercised its right to
pay the $3,270,000 portion of the Chan Note through the issuance of 1,000,000
shares of Common Stock of the Company to Chan.
Potential Repurchase of Tahiti Assets by Certain Tahiti Stockholders
The Acquisition Agreement gives Tahiti's former majority stockholders, Zvi
Ben-Haim and Michael Harary, the right (jointly) to repurchase Taiti's assets
from the Company if, at any time prior to the fifth anniversary of the closing,
the Company is unable to provide sufficient financing to its subsidiary or
division operating the business purchased from Tahiti to support a level of
sales at least equal to the sales of such business for the preceding season plus
a reasonable rate of growth (a "Financing Default"). If this right were
exercised, the repurchase price would consist of repayment to the Company of the
original $15,872,500 purchase price (payable in shares of Common Stock which
would then be valued at the greater of $1.1875 per share or the average market
price over the 20 preceding trading days), plus assumption of liabilities
incurred in the ordinary course of business.
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Restrictions on Resale of Company Common Stock; Registration Rights
The shares of Company Common Stock issued pursuant to the acquisition were
not registered under the Securities Act of 1933, as amended, and, accordingly,
may not be sold, transferred or otherwise disposed of by the recipients except:
(1) pursuant to an effective registration statement; (2) in compliance with
Securities Act Rule 144; or (3) if, in the opinion of counsel reasonably
acceptable to the Company or pursuant to a "no action" letter obtained by the
selling shareholder from the staff of the Commission, such sale, transferor
other disposition is otherwise exempt from registration under the Securities
Act. Moreover, any sale of such shares is further restricted pursuant to the
terms of a Stock Resale Agreement among the parties (described below).
Under the terms of a separate Registration Rights Agreement executed in
connection with the Acquisition Agreement, Tahiti and/or its shareholders (and
certain permitted assignees) have the right for a period of ten years following
the Closing Date, under certain circumstances, to have shares of the Company's
Common Stock issued pursuant to the Acquisition Agreement registered for resale
if the Company otherwise registers shares of its Common Stock for sale. Such
"piggy back" registration rights will not apply, however, in the case of any
registration by the Company of (A) securities issued or issuable to the holders
of the Company's 5% Series G1 Convertible Preferred Stock (B) securities to be
issued pursuant to a stock option or other employee benefit or similar plan or
(C) in connection with any transaction (such as another acquisition)
contemplated by Rule 145 under the Securities Act. The Company also has agreed
that Tahiti's majority shareholders (and certain permitted assignees) will be
entitled to one "demand" registration during each of the first five (5) years
following the Closing Date, and to one additional demand registration between
the fifth and tenth anniversaries of the Closing Date, provided that they are
still serving in their respective capacities as employees of Signal at such
time. The Company generally will be responsible for the expenses of any resale
registration of the shares issued under the Acquisition Agreement while Tahiti's
former majority shareholders continue to serve as employees of the Company,
except that, in the case of a "piggy back" registration, the selling
shareholders will be required to pay any underwriter's and/or brokers
commissions that the Company would not have incurred if their shares had not
been included in the registration. In the case, however, of any demand
registration effected during the first five years following the Closing Date but
while the registering shareholder is no longer an employee of Signal, the
registering shareholder shall be responsible for all such expenses.
The parties also entered into a Stock Resale Agreement concerning the
shares issued in the acquisition, whereby Tahiti's majority stockholders and
Chan agreed (subject to certain limited exceptions) to limit their transfers of
Company Common Stock during each of the first five (5) years following the
Closing Date (two (2) years in the case of the shares issued under the Chan
Agreement) to no more than five percent (5%) of the number of shares held by
each of them during each such year. This agreed limitation will expire as to
either of Tahiti's majority stockholders if his employment with the Company
should be terminated prior to the end of such five year period either (A) by the
Company, without cause, or (B) by the employee under circumstances amounting to
a constructive termination as set forth in each shareholder's employment
agreement.
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Employment Agreements
Messrs. Zvi Ben-Haim and Michael Harary, Tahiti's majority stockholders
prior to the acquisition, both have been employed by the Company under 5-year
employment agreements to continue to manage Tahiti's business following closing,
with Mr. Ben-Haim serving as President and CEO of Tahiti and its Premier Active
Group as well as President of the newly formed Signal Branded Division and Mr.
Harary serving as Executive Vice President of Tahiti and Executive Vice
President of the Signal Branded Division. The agreements also provide that
Messrs. Ben-Haim and Harary both will be appointed to the Company's Executive
Management Committee, and that (subject to the fiduciary duties of its Board of
Directors) the Company will use its reasonable best efforts to cause Ben-Haim to
be nominated for election as a director of the Company at the 1999 Annual
Meeting. In the meantime, Mr. Ben-Haim has been appointed to serve as a director
of the Company.
Each of these agreements provides for a signing bonus of $250,000, a base
salary of $500,000 per year, with annual bonuses based on a sliding scale tied
to the annual amount of net operating income ("NOI") generated by the Signal
Branded Division, expense allowances, automobile allowances and additional
fringe benefits generally commensurate with those of the Company's other senior
executives, and participation in all insurance, retirement and other benefit
programs available to the Company's employees generally. No bonus will be
payable under these agreements unless Tahiti's NOI reaches an annual level of at
least $4.5 million.
The employment agreements also provide certain payments in the event of any
Change in Control of the Company (as defined) and for excise tax gross up
payments to each of Messrs. Ben-Haim and Harary if it is determined that, as a
result of any payment made by the Company to either executive (including any
payments under the change in control provision), such executive would be liable
for the excise tax imposed on "excess parachute payments" by Section 4999 of the
Code. The agreements also contain covenants not to compete with the Company,
subject to certain conditions, in the event of certain terminations of the
employment of either executive.
Upon any termination of employment due to death or disability, either of
Messrs. Ben-Haim or Harary (or his beneficiary) would receive any then-earned
salary and bonus plus six months base salary and any reimbursable expenses. Upon
termination without cause or due to a constructive termination or certain
extraordinary corporate events, each of the employment agreements provides for
(A) the immediate vesting of any incentive compensation benefits or compensatory
option grants, (B) the payment, in a lump sum, of all base salary that would
have continued for a period equal to the shorter of two years or the remaining
term of the agreement (the "Post Termination Period"), (C) a continuation of all
benefits through the Post Termination Period, and (D) payment of any bonus which
otherwise would have been applicable as if the executive were employed through
December 31 of the year in which such termination occurs. No additional
compensation would be payable for any period following a voluntary termination
or a termination for cause.
Pursuant to the terms of separate Securities Transfer Agreements executed
in conjunction with their Employment Agreements, each of Messrs. Ben-Haim and
Harary received warrants,
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effective at closing and exercisable from November 1, 1999 through March 22,
2009, to purchase 500,000 shares of the Company's Common Stock at $1.75 per
share. Additionally, for each of three fiscal year measurement periods ending on
March 31, 2000, March 31, 2001 and March 31, 2002, each of Messrs. Ben-Haim and
Harary shall have the opportunity to receive warrants warrants to purchase up to
an additional 500,000 shares of Common Stock for each such period (for a total
of up to 1,500,000 additional warrants for each of Messrs. Ben-Haim and Harary).
The number of shares (if any) as to which these additional warrants will be
granted will depend upon the achievement of specified levels of net operating
income for the Signal Branded Division during the relevant measurement period
and/or the achievement of specified increases in the market price for the
Company's Common Stock as of March 31, 2001 and March 31, 2002. In lieu of
exercising any warrants granted as described above, the Securities Transfer
Agreements give Messrs. Ben-Haim and Harary the right to elect to receive shares
of Common Stock equal to the value of any warrants they choose to surrender to
the Company in accordance with the following formula:
X = Y(A-B)
------
A
where: X = the number of shares of Common Stock to be issued to the holder.
Y = the number of shares of Common Stock then subject to the
warrant.
A = the then fair market value of one share of the Common Stock.
B = the purchase price per share under the warrant (as adjusted,
if applicable).
As with the additional shares of Common Stock to be issued under the amended
Acquisition Agreement, the issuance of the shares subject to the warrants
described above will be subject to approval by the Company's shareholders at the
Company's 1999 annual meeting, in order to comply with the rules of the New York
Stock Exchange. The Company's principal shareholder, WGI, LLC, has executed a
proxy in favor of Zvi Ben-Haim to vote in favor of the issuance of such shares
at the Company's 1999 Annual Meeting.
Item 5. Other Events.
Effective March 22, 1999, pursuant to a Revolving Credit, Term Loan and
Security Agreement dated March 12, 1999 (the "Credit Agreement"), the Company
completed a new financing arrangement with its senior lender, BNY Financial
Corporation (in its own behalf and as agent for other participating lenders).
This arrangement provides the Company with funding of up to $98,000,000 (the
"Maximum Facility Amount") under a combined facility that includes a $50,000,000
Term Loan (supported in part by $25,500,000 of collateral pledged by an
affiliate of WGI, LLC, the Company's principal shareholder) and a Revolving
Credit Line of up to $48,000,000 (the "Maximum Revolving Advance Amount").
Subject to the lenders' approval and to continued compliance with the terms of
the original facility, the Company may elect to increase the Maximum Revolving
Advance Amount from $48,000,000 up to $65,000,000, in increments of not less
than $5,000,000. In no event, however, can the Maximum Facility Amount (after
taking such increase into account) exceed $115,000,000.
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The Term Loan portion of the new facility is divided into two segments with
differing payment schedules: (i) $27,500,000 ("Term Loan A") payable, with
respect to principal, in a single installment on March 12, 2004 and (ii)
$22,500,000 ("Term Loan B") payable, with respect to principal, in 47
consecutive monthly installments on the first business day of each month
commencing April 1, 2000, with the first 46 installments to equal $267,857.14
and the final installment to equal the remaining unpaid balance of Term Loan B.
The Credit Agreement allows the Company to prepay either term loan, in whole or
in part, without premium or penalty.
In connection with the Revolving Credit Line, the Credit Agreement also
provides (subject to certain conditions) that the senior lender will issue
Letters of Credit on behalf of the Company, subject to a maximum L/C amount of
$40,000,000 and further subject to the requirement that the sum of all advances
under the revolving credit line (including any outstanding L/Cs) may not exceed
the lesser of the Maximum Revolving Advance Amount or an amount (the "Formula
Amount") equal to the sum of:
(1) up to 85% of Eligible Receivables, as defined, plus
(2) up to 50% of the value of Eligible Inventory, as defined (excluding
L/C inventory and subject to a cap of $30,000,000 availability), plus
(3) up to 60% of the first cost of Eligible L/C Inventory, as defined,
plus
(4) 100% of the value of collateral and letters of credit posted by the
Company's principal shareholders, minus
(5) the aggregate undrawn amount of outstanding Letters of Credit, minus
(6) Reserves (as defined).
In addition to the secured revolving advances represented by the Formula
Amount, and subject to the overall limitation of the Maximum Revolving Advance
Amount, the agreement provides the Company with an additional, unsecured
Overformula Facility of $17,000,000 (the outstanding balance of which must be
reduced to not more than $10,000,000 for at least one business day during a five
business day cleanup period each month) through December 31, 2000. Between
December 31, 2000 and June 1, 2001, both the maximum overall balance and the
maximum "cleanup period" balance under this Overformula Facility are gradually
reduced to zero in six equal monthly increments. Subject to the limitations of
the Maximum Revolving Advance Amount and the Formula Amount, as well as the
Maximum Facility Amount, the agreement also provides that the senior lender (in
its individual capacity) may make Swingline Loans of up to $5,000,000 to the
Company for periods not to exceed seven (7) days for any one such loan.
Interest on all amounts advanced under the facility (pursuant to the either
Term Loan or Revolving Advances (including any outstanding Letters of Credit))
is payable in arrears on the last day of each month. The facility allows the
Company to select (separately) interest rates for
<PAGE>
both the Term Loan and Revolving Advances based on either a Domestic Rate or a
Eurodollar Rate. Interest on Domestic Rate Loans is payable at a fluctuating
Alternate Base Rate equal to the higher of the prime rate (as defined) or the
federal funds rate plus 0.5%, plus the Applicable Margin (as defined). Interest
on Eurodollar Rate Loans is payable at a fluctuating Eurodollar Rate equal to
the daily average of the 30-day London Interbank Offered Rate as published in
The Wall Street Journal (calculated as prescribed in the agreement), plus the
Applicable Margin (as defined). The Applicable Margin for both Domestic Rate
Loans and Eurodollar Rate Loans is tied to the Company's ratio of Funded Debt to
Free Cash Flow (each as defined in the agreement), and ranges (A) in the case of
Domestic Rate Loans, from zero for a ratio less than or equal to 1.0:1 to 1.25%
for a ratio greater than 5.0:1 and (B) in the case of Domestic Rate Loans, from
1.5% for a ratio less than or equal to 1.0:1 to 3.5% for a ratio greater than
5.0:1.
Notwithstanding the foregoing, the Credit Agreement provides that (x) from
and after the Closing Date through and including the earlier of (i) the first
anniversary of the Closing Date and (ii) the date on which the senior lender
receives the Company's 1999 annual audited financial statements as required, the
Applicable Margin shall be 1.25% for Domestic Rate Loans and 3.5% for Eurodollar
Rate Loans, and (y) from and after the date that the Company (i) repays in full
Term Loan B and (ii) the date at which advances are no longer permitted under
the Overformula Facility, the Applicable Margin in effect from time to time for
both Domestic Rate Loans and Eurodollar Rate Loans shall be increased by .50%.
In addition to the amounts due for interest, the Company is obligated to
pay: (i) a monthly unused facility fee, computed at the rate of 0.25% per annum,
on the difference between the Maximum Revolving Advance Amount and the average
daily balance of outstanding Revolving Advances (plus the aggregate undrawn
amount of outstanding Letters of Credit) during that month; (ii) a monthly fee
computed at the rate of 0.25% per annum on the outstanding face amount of any
Letters of Credit (plus certain customary fees charged by The Bank of New York
in connection with issuing letters of credit); and (iii) certain administrative
fees payable to the senior lender under a fee letter executed in connection with
the Credit Agreement.
The Credit Agreement requires, among other things, maintenance by the
Company of prescribed minimum amounts of tangible net worth, ratios of current
assets to current liabilities, working capital and net operating results
(excluding extraordinary items). The Credit Agreement also limits (i) the
Company's ability to pay dividends, (ii) the Company's future capital
expenditures and (iii) the amount of indebtedness the Company may incur, and
effectively prohibits future acquisition or business combination transactions by
the Company without the lenders' consent. As the Company has not yet closed its
books on the first quarter of fiscal 1999, the Company at present is not able to
determine whether it was in compliance with all of the applicable covenants
under the Credit Agreement as of the end of such quarter.
In consideration of the provision of the additional, unsecured Overadvance
Facility prescribed in the Credit Agreement, the Company permitted the senior
lender to purchase (at the par value of $.01 per share) a total of 1,791,667
shares of the Company's Common Stock (the "Issued Shares") under the terms of a
separate Subscription and Stock Purchase Agreement
<PAGE>
executed in conjunction with the Credit Agreement. The Company also issued to
the senior lender a Warrant to purchase up to 375,000 additional shares of its
Common Stock (the "Warrant Shares") at an exercise price of $1.50 per share.
Subject to certain requirements for advance notice to the Company by the holder
regarding the number of Warrant Shares which the holder intends to purchase, the
Warrant becomes exercisable over a three-year period beginning December 31, 1999
with respect to a maximum of 125,000 shares per year. The Subscription and Stock
Purchase Agreement also gives the senior lender the right to have both the
Issued Shares and the Warrant Shares registered for resale under the Securities
Act of 1933 in prescribed installments over a staggered period of time, and
provides certain customary antidilution protections with respect to the Warrant
Shares and the 625,000 Issued Shares for which resale registration is delayed.
The Subscription and Stock Purchase Agreement also provides for certain put
and call options with respect to the Issued Shares. Under the put option, the
senior lender will have the right (upon specified advance written notice) once
each calendar year for three years, beginning December 31, 1999, to require the
Company to purchase up to 388,889 of the Issued Shares at a price of $1.50 per
share. This right will only be exercisable, however, if the average closing bid
price of the Company's Common Stock for the five trading days prior to the date
of the exercise of the put option is less than $1.50. Under the call option, the
Company has the right (but not the obligation), exercisable at any time while
the senior lender holds the 1,166,667 issued shares for which registration is
not delayed under the agreement, to purchase all or any portion of such shares
at $3.00 per share.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Businesses Acquired.
The financial statements of the Acquired Companies that are required
pursuant to Article 3 of Regulation S-X are not currently available,
but will be filed as an amendment to this Report (together with any
additional required exhibits) as soon as practicable, but in no event
later than sixty (60) days after the latest date on which this Report
is required to be filed.
(b) Pro Forma Financial Information.
The pro forma financial information required pursuant to Article 11 of
Regulation S-X is not currently available, but will be filed as an
amendment to this Report (together with any additional required
exhibits) as soon as practicable, but in no event later than sixty
(60) days after the latest date on which this Report is required to be
filed.
<PAGE>
(c) Exhibits.
(10.1) Asset Purchase Agreement dated as of December 17, 1998, by and
among the Company, Tahiti Apparel, Inc. and the stockholders of
Tahiti Apparel, Inc.
(10.2) Amendment, dated March 16, 1999, to Asset Purchase Agreement
dated as of December 17, 1998, by and among the Company, Tahiti
Apparel, Inc. and the stockholders of Tahiti Apparel, Inc.
(10.3) Escrow Agreement, dated March 16, 1999, by and among the
Company, Tahiti Apparel, Inc. and Wachtel & Masyr, LLP
(10.4) Agreement, dated March 16, 1999, between Tahiti Apparel, Inc.
and Ming Yiu Chan, together with related Form of Promissory Note
(assumed by the Company at closing)
(10.5) Stock Resale Agreement, dated March 16, 1999, between the
Company, Tahiti Apparel, Inc., Zvi Ben-Haim, Michael Harary and
Ming Yiu Chan
(10.6) Registration Rights Agreement, dated March 16, 1999, between the
Company, Tahiti Apparel, Inc., Zvi Ben-Haim, Michael Harary and
Ming Yiu Chan
(10.7) Employment Agreement, dated March 16, 1999, between the Company
and Zvi Ben-Haim
(10.8) Employment Agreement, dated March 16, 1999, between the Company
and Michael Harary
(10.9) Securities Transfer Agreement, dated March 16, 1999, between the
Company and Zvi Ben-Haim
(10.10) Securities Transfer Agreement, dated March 16, 1999, between the
Company and Michael Harary
(10.11) Form of Warrants to be issued to each of Zvi Ben-Haim and
Michael Harary under Securities Transfer Agreements dated March
16, 1999
(10.12) Revolving Credit, Term Loan and Security Agreement, dated March
12, 1999, between the Company and BNY Financial Corporation
(individually and as Agent)
(10.13) Second Amended and Restated Factoring Agreement, dated March 12,
1999, between the Company and BNY Financial Corporation
<PAGE>
(10.14) Subscription and Stock Purchase Agreement, dated March 12, 1999,
between the Company and BNY Financial Corporation
(10.15) Form of Warrants to purchase the Company's Common Stock issued
to BNY Financial Corporation, dated March 12, 1999
[THIS SPACE INTENTIONALLY LEFT BLANK]
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: April 6, 1999 SIGNAL APPAREL COMPANY, INC.
By: /s/ Robert J. Powell
-------------------------------
Robert J. Powell
Vice President,
General Counsel & Secretary
AMENDMENT TO THE ASSET PURCHASE AGREEMENT BY AND AMONG
SIGNAL APPAREL COMPANY, INC., TAHITI APPAREL, INC. AND THE
STOCKHOLDERS OF TAHITI APPAREL, INC., DATED AS OF DECEMBER 18, 1998
In the event of any conflict between this Amendment and the provisions of
the Asset Purchase Agreement (the "Agreement"), to which this Amendment is
annexed, the provisions of this Amendment shall be deemed to control. Any
reference to "the Agreement" or "this Agreement" shall be deemed to include the
provisions set forth in this Amendment.
1. Section 2.01 of the Agreement, relating to the purchase price of the
Assets, is hereby amemded as follows: For purposes of determining the number of
shares of Buyer Common Stock issuable to the Company under Section 2.04 of the
Agreement, it is agreed that each share of Buyer Common Stock has a value of
$1.18750 and the number of shares of Buyer Common Stock issuable shall be
determined by dividing the Purchase Price by $1.18750.
2. Unless otherwise defined herein, capitalized terms used herein shall
have the meanings given them in the Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
16th day of March, 1999.
SIGNAL APPAREL COMPANY, INC.
By: /s/ Thomas A. McFall
----------------------------------
Name: Thomas A. McFall
Title: CEO
TAHITI APPAREL, INC.
By: /s/ Zvi Ben-Haim
----------------------------------
Name: Zvi Ben-Haim
Title: President
/s/ Zvi Ben-Haim
----------------------------------
Zvi Ben-Haim
/s/ Michael Harary
----------------------------------
Michael Harary
ESCROW AGREEMENT
ESCROW AGREEMENT dated as of March 16, 1999 ("Agreement") by and among
Tahiti Apparel, Inc., a New Jersey corporation ("Seller") and Signal Apparel
Company, Inc., an Indiana corporation ("Buyer") and Wachtel and Masyr, LLP, a
New York limited liability partnership ("Escrow Agent").
W I T N E S S E T H
WHEREAS, pursuant to that certain Asset Purchase Agreement between Buyer
and Seller dated December 17, 1998 (the "Asset Purchase Agreement"), the Buyer
has purchased substantially all of the assets of the Seller;
WHEREAS, the Buyer has agreed to pay to Seller, and Seller has agreed to
accept from Buyer, shares of the Buyer's common stock in consideration for its
assets; and
WHEREAS, Buyer and Seller have agreed to deposit One Million (1,000,000)
shares of the Buyer's common stock in escrow with the Escrow Agent for
disposition in accordance with this Escrow Agreement (the "Escrowed Shares").
NOW THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereto hereby agree as follows:
<PAGE>
1. Appointment of Escrow Agent. The Escrow Agent is hereby appointed to act
as the Escrow Agent hereunder in accordance with the terms set forth herein, and
the Escrow Agent hereby accepts such appointment.
2. Deposit. Upon execution of this Escrow Agreement, pursuant to the Asset
Purchase Agreement, the Buyer shall deliver to the Escrow Agent, for deposit
into escrow, stock certificates for the Escrowed Shares together with stock
powers duly endorsed in blank. The Escrow Agent shall maintain an account (the
"Escrow Account") for the Buyer showing the number of the Escrowed Shares held
by the Escrow Agent. The initial balance in the Escrow Account shall be
1,000,000 shares of the Buyer's Common Stock.
3. Valuation of Escrowed Shares. For all purposes of this Agreement, the
value of each share of the Escrowed Shares shall be equal to the greater of
$1.75 per share and the average of the Closing Prices during the 10 consecutive
trading days immediately preceding the date that any amount is due and payable
to the Buyer under Section 10.1(a) of the Asset Purchase Agreement (or such date
as otherwise agreed by the parties) ("Valuation Price"). "Closing Price" on any
day when used with respect to the Buyer's Common Stock means the reported last
sale price regular way on composite tape, or, if the shares of the Buyer's
Common Stock are not quoted on the composite tape, the reported last sale price
on the New York or the American Stock Exchange or, if the shares of the Buyer's
Common Stock are not listed or admitted to trading on either such Exchange, as
reported on the National Association of Securities Dealers Automated Quotation
System, or if the shares of the Buyer's Common Stock are not quoted on such
system, the average of the closing bid and asked prices as furnished by any
member of
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the National Association of Securities Dealers, Inc. selected by the Company for
that purpose.
4. Reservations of Escrowed Shares. Whenever the Buyer gives a Notice (as
defined in the Asset Purchase Agreement) to the Seller, it shall send a copy
thereof to the Escrow Agent. Promptly after receipt of a Notice, the Escrow
Agent shall reserve on the records of the Escrow Agent such number of shares of
the Escrowed Shares (rounded to the nearest whole share) as is equal to the
amount of the claim set forth in such Notice (the "Claim Amount") divided by
$1.75 or, if the Claim Amount is greater than product of $1.75 multiplied by the
amount of all unreserved shares, all remaining shares of the Escrowed Shares
("Reserved Shares").
5. Distributions of Escrowed Shares. The Escrow Agent shall distribute the
Escrowed Shares in accordance with the following provisions:
a. The Escrow Agent shall distribute shares of the Escrowed Shares at such
time and in such manner as is set forth in any written agreement or written
instructions signed by the Buyer and the Seller and delivered to the Escrow
Agent.
b. Whenever the Buyer gives a "Payment Notice" to the Seller, it shall send
a copy thereof to the Escrow Agent. A Payment Notice shall be a demand for
payment by the Seller to the Buyer of amounts owed under Section 10.1(a) of the
Asset Purchase Agreement (the "Indemnification Amount") which notice may only be
given by the Buyer to the Seller after the entry of a final judgment (without
further rights of appeal) is entered determining the amount owed or after a
final settlement or agreement is executed by the Buyer and Seller. Within ten
(10) business day after receipt of a Payment Notice, the Escrow Agent shall
distribute from the Escrow Account to the Buyer (by delivery of a
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proper share certificate therefor) such number of shares of the Escrowed Shares
(rounded to the nearest whole share) as is equal to the Indemnification Amount
set forth in such Payment Notice divided by the Valuation Price, or, if
Indemnification Amount is greater that the Valuation Price of the remaining
Escrow Shares, all remaining shares of the Escrowed Shares, provided that the
Seller has not objected to the release of the Escrowed Shares within such ten
(10) day period on the grounds that a proper Payment Notice has not been given.
If the Seller timely delivers an objection notice as provided in sub-section
4(b) hereof, then the Escrow Agent shall continue to hold the Escrowed Shares,
or portion thereof, in escrow and thereafter deliver it to the party entitled
thereto when the Escrow Agent receives: (a) a notice from the Seller withdrawing
the objection notice, (b) a notice signed by the Seller and Buyer directing
disposition of all or such portion of the Escrowed Shares as to which the
objection notice was given or, in neither (a) nor (b) is applicable, (c) a
judgment or order from a court of competent jurisdiction directing the Escrow
Agent to deliver all or a portion of the Escrowed Shares to the Buyer or the
Seller. The Escrow Agent shall have the right in the event of any dispute to
deposit such Escrowed Shares with the clerk of the court in the jurisdiction in
which it maintains its principal office.
c. If there are no Claim Notices outstanding on June 30, 2000 (the
"Expiration Date"), then, within five (5) business days after the Expiration
Date, the Escrow Agent shall distribute to the Seller (by delivery of a proper
share certificate therefor) any remaining shares of the Escrowed Shares then
held in the Escrow Account.
d. If there are Claim Notices outstanding on the Expiration Date, then (i)
within five (5) business days after the Expiration Date, the Escrow Agent shall
distribute to the Seller (by delivery of a proper share certificate therefor)
any remaining
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shares of the Escrowed Shares then held in his Escrow Account other than
Reserved Shares, (ii) as each such outstanding Notice is resolved, the Escrow
Agent shall (A) distribute to the Buyer any Escrowed Shares to which the Buyer
becomes entitled in accordance with Section 5 hereof with respect to a resolved
Notice with respect to which a Payment Notice is given and (B) if applicable,
distribute to the Seller (by delivery of a proper share certificate therefor) a
number of the Reserved Shares reserved in respect of the resolved Notice equal
to the difference between the Reserved Shares in respect of said Notice minus
the number of shares of the Escrowed Shares delivered under Section 5(d)(ii)(A),
and (iii) within five (5) business days after the last such outstanding Notice
is resolved and any corresponding distributions to the Buyer are made, the
Escrow Agent shall distribute to the Seller (by delivery of a proper share
certificate therefor) any remaining shares of the Escrowed Shares then held in
the Escrow Account.
5. Exchange of Collateral. At any time, the Seller may, at its option
deposit with the Escrow Agent an equivalent value, based upon the Valuation
Price on such date, of cash ("Escrowed Cash") in exchange for all remaining
Escrowed Shares in the Escrow Account. Upon exercise of such option, references
to the Escrowed Shares and reservations and distributions therefor shall
thereafter be deemed to refer instead to equivalent amounts of the Escrowed Cash
and reservations thereof.
7. Term. The term of this Escrow Agreement shall commence on the receipt by
the Escrow Agent of the Escrowed Shares and shall terminate upon the complete
distribution (which will include the deposit of all of the Escrowed Shares then
held into a court of proper jurisdiction) of the Escrowed Shares.
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8. The Escrow Agent. The acceptance by the Escrow Agent of the Escrow
Agent's duties under this Escrow Agreement is expressly subject to the following
terms and conditions, which the parties hereto agree shall govern and control
with respect to their respective rights, duties, liabilities and immunities:
(a) The Escrow Agent is acting solely as a stakeholder at the request of
the Seller and the Buyer and for their convenience and shall not incur any
liability whatsoever, except for its own willful misconduct or bad faith.
(b) The Escrow Agent may consult with, and obtain advice from, counsel of
its own choice in the event of any bona fide question as to any of the
provisions hereof or the Escrow Agent's duties hereunder. The Escrow Agent shall
incur no liability and shall be fully protected in acting in good faith in
accordance with the opinion and instructions of such counsel.
(c) The Escrow Agent or any member of its firm shall be permitted to act as
counsel for the Seller in any dispute relating to, or arising from, this Escrow
Agreement or the Asset Purchase Agreement, or any other agreement contemplated
thereby.
(d) The Escrow Agent shall not be bound or affected in any way by any
notice of modification or cancellation of this Escrow Agreement unless written
notice thereof is given to the Escrow Agent by the Seller and the Buyer in
accordance with Section 11 hereof. The Escrow Agent shall not be bound by any
modifications of its obligations hereunder unless the Escrow Agent consents in
writing thereto. The Escrow Agent shall be entitled to rely upon any judgment,
certification, demand, notice or other writing delivered to it hereunder without
being required to determine the authenticity or the
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correctness of any fact stated therein or the propriety or validity of the
service thereof, provided that the Escrow Agent is delivered proof of service of
notice as provided in Section 11 hereof.
(e) The Escrow Agent may act in reliance upon any instrument or signature
reasonably believed by it to be genuine and the Escrow Agent may assume that any
person purporting to give any notice or receipt of advice or make any statement
in connection herewith has been duly authorized so to do.
(f) The Seller and the Buyer, jointly and severally, agree to indemnify and
hold harmless the Escrow Agent from and against any loss, liability, cost and
expense (including attorneys' fees under Section 7(b) hereof or otherwise),
claim or demand arising out of, or in connection with, the performance of its
obligations in accordance with the provisions of this Escrow Agreement, except
for any of the foregoing arising out of the gross negligence, willful misconduct
or bad faith of the Escrow Agent.
(g) Upon ten (10) days prior written notice to the Seller and the Buyer,
the Escrow Agent shall have the absolute right at any time to resign as the
Escrow Agent hereunder. If the Escrow Agent exercises such right, the Seller and
the Buyer shall designate a new Escrow Agent hereunder within such ten (10) day
period. Upon the effective date of such resignation, the Escrow Agent shall
deliver all property then held by it to such person or entity as may be
designated in writing by the Seller and the Buyer, whereupon all of the Escrow
Agent's duties and obligations hereunder shall cease and terminate. If no such
person shall have been designated by such time, all duties and obligations of
the Escrow Agent shall
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nevertheless terminate and the Escrow Agent shall deposit the Escrowed Shares
with the clerk of the court in the jurisdiction in which it maintains its
principal office.
9. Amendments. This Escrow Agreement may be waived, amended or terminated
only by written notice signed by the Seller and the Buyer to the Escrow Agent,
but the duties or responsibilities of the Escrow Agent may not be changed
without the Escrow Agent's prior written consent.
10. Partial Invalidity. This Escrow Agreement shall be construed so that
each of its provisions shall be valid and enforceable to the fullest extent
permitted by law, and any such invalidity or unenforceability shall not affect
or render invalid or unenforceable any other provision of this Escrow Agreement.
11. Survival of Escrow Agreement. This Escrow Agreement is irrevocable and
is made for the benefit of the Seller and the Buyer. The obligations of the
Seller and the Buyer hereunder shall not be terminated by any act of any of them
or by operation of law and the Escrow Agent shall be authorized and directed to
hold and dispose of the Escrowed Shares in accordance with this Escrow Agreement
as if such event had not occurred.
12. Notices. All notices, demands, consents or other communications
provided for hereunder shall be in writing and shall be deemed to have been duly
given when delivered personally or one business day after being sent by a
nationally recognized overnight delivery service, or three business days after
being sent by registered or certified mail, return receipt requested, in each
case postage or delivery charges prepaid. All such communication shall be made
at the following addresses:
8
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To Seller: Tahiti Apparel, Inc.
500 Seventh Avenue
New York, New York 10018
With a Copy to: Wachtel & Masyr, LLP
110 East 59th Street
New York, New York 10022
Attention: Morris Missry, Esq.
To Purchaser: Signal Apparel Company, Inc.
500 Seventh Avenue
New York, New York 10018
To Escrow Agent: Wachtel & Masyr, LLP
110 East 59th Street
New York, New York 10022
Attention.: Morris Missry, Esq.
Each of the foregoing shall be entitled to specify a different address by giving
notice in writing thereof to the other parties in the manner specified above.
13. Successors and Assigns. This Escrow Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs, personal
representatives, distributees, successors and assigns. This Escrow Agreement
contains the entire understanding of the parties hereto with respect to the
subject matter hereof.
14. Governing Law. This Escrow Agreement shall be construed (both as to
validity and performance) and enforced in accordance with, and governed by, the
laws of the State of New York applicable to contracts to be performed entirely
within that State, without giving effect to the principles of conflicts of law.
Any and all proceedings in court with respect to this Escrow Agreement shall
only be initiated and pursued in the state or federal courts located in the
City, County or State of New York and the parties hereto specifically hereby
consent to such jurisdiction and venue. The parties hereto each waive
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<PAGE>
any claim that such jurisdiction is not a convenient forum for any such suit or
proceeding and the defense of lack of personal jurisdiction.
IN WITNESS WHEREOF, the parties hereto have duly executed this Escrow
Agreement as of the date first above written.
Buyer:
Signal Apparel Company, Inc.
By: /s/ Thomas A. McFall
-----------------------------
Name: Thomas A. McFall
Title: CEO
Seller:
Tahiti Apparel, Inc.
By: /s/ Zvi Ben-Haim
-----------------------------
Name: Zvi Ben-Haim
Title: President
Escrow Agent:
Wachtel & Masyr, LLP
By: /s/ Morris Missry
-----------------------------
Name: Morris Missry, Esq.
Title: Partner
10
AGREEMENT
Agreement, dated as of March 15, 1999, by and between Tahiti Apparel, Inc.,
a New Jersey corporation with its principal executive offices at 500 Seventh
Avenue, New York, New York 10018 (the "Company"), and Ming-Yiu Chan, with
offices c/o Manley, Ltd. 8/F, HK Spinners International Building 818 Cheung Sha
Wan Road, Kowloon, Hong Kong ("Chan").
RECITALS:
WHEREAS, Chan is a stockholder of the Company and currently owns fifty (50)
shares (the "Chan Shares") of common stock, of the Company (the "Common Stock")
representing 33% of the issued and outstanding shares of Common Stock;
WHEREAS, as of the date hereof, the Company has an aggregate of Six Million
Seven Hundred and Seventy Thousand ($6,770,000) Dollars of outstanding
indebtedness owed to Chan (the "Company Debt");
WHEREAS, the Company has entered into an asset purchase agreement (the
"Purchase Agreement") with Signal Apparel Company, Inc., an Indiana corporation
("Signal"), providing for Signal's, or its subsidiary's, purchase of
substantially all of the assets, and assumption of certain of the liabilities,
of the Company;
WHEREAS, the parties desire to settle certain differences between them,
including but not limited to, the management of the business of Tahiti and the
repayment of the Company Debt; and
WHEREAS, the execution of this Agreement as of the date hereof and the
consummation of the transactions contemplated hereby on or prior to the closing
of the transactions contemplated by the Purchase Agreement (the "Closing") is a
condition precedent to Signal's execution of the Purchase Agreement and
consummation of the transactions contemplated thereby.
NOW, THEREFORE, in consideration of the foregoing premises and for other
good and valuable consideration, the adequacy and receipt of which are hereby
acknowledged, the parties hereto agree as follows:
1. Company Debt.
(a) Upon execution of this Agreement the Company shall execute that certain
promissory note (the "Note"), in the form and substance attached hereto as
Exhibit 1, for the benefit of Chan, which Note shall be delivered to the escrow
agent (the "Escrow Agent") who shall hold the Note in accordance with the terms
of the escrow agreement (the "Escrow Agreement") annexed hereto as Exhibit 2,
evidencing the obligation to repay Chan the Company Debt in accordance with the
terms of the Note.
<PAGE>
Additionally, upon the execution of this Agreement, the Company shall
execute a general release (the "Company Release"), in the form attached hereto
as Exhibit 3 releasing Chan from any liability to the Company which may have
arisen through the date thereof which Company Release shall be shall be
deposited in escrow with the Escrow Agent and released in accordance with the
Escrow Agreement.
2. Chan Release.
(a) In consideration for the delivery of the Note and the Company Release
to the Escrow Agent, upon execution of this Agreement, Chan shall simultaneously
deliver to the Escrow Agent a general release executed by Chan (the "Chan
Release"), in the form attached hereto as Exhibit 4 whereby, in consideration
for repayment of the Company Debt Chan agrees to release Tahiti, its
stockholders, officers, directors, successors and assigns from any and all
liability which may have arisen through the date thereof.
3. Documents to be Held in Escrow.
(a) The Chan Release, the Note and the Company Release shall be held in
escrow pending the Closing and shall be released by the Escrow Agent in
accordance with the terms set forth in the Escrow Agreement. At the Closing, the
Escrow Agent shall (i) deliver the Note and Company Release to Chan and (ii) the
Chan Release to the Company.
4. Termination.
(a) This Agreement may be terminated and the transactions contemplated
herein abandoned at any time prior to the Closing (i) by written agreement of
Chan, the Company and/or its successors and/or assigns or (ii) by Chan or the
Company if the Closing shall not have occurred on or before March 31, 1999.
(b) In the event that this Agreement shall be terminated pursuant to the
foregoing provisions, all obligations of the parties hereto under this Agreement
shall terminate and there shall be no liability of any party hereto to any other
party except as expressly provided herein and the parties shall direct the
Escrow Agent to deliver the Chan Release to Chan and the Note and the Company
Release to the Company. Notwithstanding the foregoing, nothing herein shall
relieve any party from liability for any breach of this Agreement.
6. Representations.
(a) Chan hereby represents and warrants to the Company as follows: (i) the
Company has no debt, liabilities or obligations of any nature, whether accrued,
absolute, contingent or otherwise, to him or any of his affiliates other than
for the Company Debt or in his capacity as a stockholder of the Company, or the
Time Deposit in the face amount of $142,000 plus accrued and unpaid interest,
(ii) this Agreement has been, and the agreements, documents and instruments
contemplated hereby (the "Related Documents") being executed by him will be,
duly executed and delivered by him and, assuming this Agreement and the Related
Documents
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constitute valid and binding obligations of the other parties thereto, this
Agreement constitutes, and the Related Documents being executed by him will
constitute, valid and binding obligations of his, enforceable against him in
accordance with their respective terms except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting rights of creditors generally or equitable principles, and (iii)
except for this Agreement, he has not bound or committed the Company to any
agreement of any kind nor incurred any debt, obligation or liability or entered
into any contract or commitment on behalf of the Company.
(b) The Company hereby represents and warrants to Chan that it has the
requisite corporate power and authority to execute and deliver this Agreement
and the Related Agreements being executed by it, and to consummate the
transactions contemplated hereby and thereby; the execution, delivery and
performance of this Agreement and the Related Agreements by the Company and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the Company and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement and the Related Agreements or to consummate the
transactions so contemplated; this Agreement has been, and the Related
Agreements will be, duly executed and delivered by the Company and, assuming
this Agreement and the Related Agreements constitute valid and binding
obligations of Chan, this Agreement constitutes, and the Related Agreements
being executed by it will constitute, valid and binding obligations of the
Company, enforceable against the Company in accordance with their respective
terms; this Agreement will not result in the breach of, or constitute a default
under any agreement, contract, indenture or order to which the Company is a
party, including its Certificate of Incorporation and By-Laws.
7. Miscellaneous.
(a) From and after the Closing, neither the Company nor Signal shall have
any further liability or obligation to Chan with respect to either the Chan
Shares or the Company Debt or otherwise, except as expressly provided herein or
in the Note.
(b) Any fees and costs of the Escrow Agent shall be the responsibility of
the Company.
(c) Subject headings are included for convenience only and shall not affect
the interpretation of any provision of this Agreement.
(d) Any notice, demand, request, waiver, or other communication under this
Agreement shall be in writing and shall be deemed to have been duly given on the
date of service if personally served or sent by telecopy, on the business day
after notice is delivered to a courier or mailed by express mail if sent by
courier delivery service or express mail for next day delivery, and on the third
day after mailing if mailed to the party to whom notice is to be given, by first
class mail, registered, return receipt requested, postage prepaid and addressed
as follows:
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If to the Company, to:
Tahiti Apparel, Inc.
500 Seventh Avenue
New York, NY 10018
Attention: Zvi Ben-Haim
Telecopy: (212) 354-5314
Telephone: (212) 944-7117
with a copy to:
Wachtel & Masyr, LLP
110 East 59th Street
New York, NY 10022
Attention: Morris Missry, Esq.
Telecopy: (212) 909-9448
Telephone: (212) 909-9557
If to Chan, to:
c/o Manley, Ltd. 8/F
HK Spinners International Building
818 Cheung Sha Wan Road, Kowloon, Hong Kong
Telecopy: 011-852-2742-2352
with a copy to:
Robert T. Lincoln, Esq.
Dunnington, Barthlow & Miller, LLP
666 Third Avenue
New York, New York 10017
Telecopy: (212) 661-7769
Telephone: (212) 682-8811
Any party may change its address for the purposes of this Section by giving
written notice to the other parties hereto in accordance with the provisions
hereof.
(e) None of the parties hereto shall assign any rights or delegate any
duties hereunder without the prior written consent of the other, except that in
connection with the Closing under the Asset Purchase Agreement, Signal has
agreed to fulfill the Company's obligations hereunder. Signal shall be deemed a
third party beneficiary of this Agreement and may assert the rights of any party
hereunder without such other party's consent. A true copy of the Agreement
pursuant to which Signal assumes the Company's obligations hereunder will be
delivered to Chan on the Closing Date.
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(f) This Agreement shall be binding upon and inure to the benefit of the
permitted successors and assigns of the parties, and shall further inure to the
benefit of Signal.
(g) This Agreement shall be construed in accordance with, and governed by,
the laws of the State of New York as applied to contracts made and to be
performed entirely in the State of New York without regard to principles of
conflicts of law. Each of the parties hereto hereby irrevocably and
unconditionally submits to the exclusive jurisdiction of any court of the State
of New York or any federal court sitting in the State of New York for purposes
of any suit, action or other proceeding arising out of this Agreement (and
agrees not to commence any action, suit or proceedings relating hereto except in
such courts). Each of the parties hereto agrees that service of any process,
summons, notice or document by U.S. registered mail at its address set forth
herein shall be effective service of process for any action, suit or proceeding
brought against it in any such court. Each of the parties hereto hereby
irrevocably and unconditionally waives any objection to the laying of venue of
any action, suit or proceeding arising out of this Agreement, which is brought
by or against it, in the courts of the State of New York or any federal court
sitting in the State of New York and hereby further irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.
(h) This Agreement, including the exhibits hereto, sets forth the entire
understanding and agreement and supersedes any and all other understandings,
negotiations or agreements between Chan and the Company relating to the Chan
Shares and/or the Company Debt.
(i) This Agreement may be executed in counterparts, each of which shall be
deemed an original, and all of which together shall constitute a single
agreement.
(j) In the event that any one or more of the immaterial provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable, the same shall not affect any other provision of this
Agreement, but this Agreement shall be construed in a manner which, as nearly as
possible, reflects the original intent of the parties.
(k) Nothing expressed or implied in this Agreement is intended or shall be
construed to confer upon or give to any person or entity other than the parties
hereto any rights or remedies under or by reason of this Agreement or any
transaction contemplated hereby except for Signal.
(l) This Agreement may be amended or modified only by written agreement
executed by Chan, the Company and Signal.
(m) Each party hereto agrees to execute and deliver such documents as may
be reasonably requested in order to consummate the transactions contemplated
hereby.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above.
TAHITI APPAREL, INC.
By: /s/ Zvi Ben-Haim
---------------------------------------
Name: Zvi Ben-Haim
Title: President
/s/ Ming-Yiu Chan,
---------------------------------------
By Robert T. Lincoln, Attorney-in-Fact
---------------------------------------
Ming-Yiu Chan
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<PAGE>
EXHIBIT 1 -- NOTE
PROMISSORY NOTE
$6,770,000 March 15, 1999
FOR VALUE RECEIVED, Tahiti Apparel, Inc. ("Borrower"), a New Jersey
corporation with its principal executive offices at 500 Seventh Avenue, New
York, New York 10018, promises to pay to the order of Ming-Yiu Chan, with
offices c/o Manley, Ltd. 8/F, HK Spinners International Building 818 Cheung Sha
Wan Road, Kowloon, Hong Kong ("Holder"), or registered assigns, the principal
sum of Six Million Seven Hundred Seventy Thousand Dollars ($6,770,000) and,
together with such amount, all interest accrued under the terms of this Note as
provided herein.
1. Loan and Terms of Payment.
1.1 The Loan. Borrower acknowledges receipt of Six Million Seven Hundred
Seventy Thousand Dollars ($6,770,000) loaned from Holder (the "Loan").
1.2 Interest. The Loan shall accrue interest from the date hereof at a rate
equal to eight percent (8%) per annum (based on a three hundred and sixty five
(365) day year) until the Loan is paid in full, and the interest shall be
payable as set forth below in Section 1.3.
1.3 Principal Repayment. The principal amount of this Note shall be due and
payable as follows: (a) Three Million Five Hundred Thousand Dollars
($3,500,000), plus any accrued interest thereon, shall be due and payable on the
following dates: (i) $250,000 on the date which is ninety (90) days following
the Closing Date, (ii) $250,000 on the date which is one hundred eighty (180)
days following the Closing Date; (iii) $250,000 on the date which is two hundred
seventy (270) days following the Closing Date; (iv) $250,000 on the date which
is 360 days following the Closing Date,, as that term is defined in that certain
Asset Purchase Agreement dated December 18, 1998, between the Borrower and
Signal Apparel Company, Inc. ("Signal"), (v) $312,500 on June 1, 2000, (vi)
$312,500 on September 1, 2000, (vii) $312,500 on December 1, 2000, (viii)
$312,500 on March 1, 2001, (ix) $312,500 on June 1, 2001, (x) $312,500 on
September 1, 2001, (xi) $312,500 on December 1, 2001, and (xii) $312,500 on
March 1, 2002, all of the foregoing principal installments will be accompanied
by accrued and unpaid interest to the date of such installment; all of the
foregoing installments will include accrued and unpaid interest to the date of
such installment; and (b) Three Million Two Hundred Seventy Thousand
($3,270,000) Dollars, payable at any time, by the delivery of One Million Common
Shares of Signal (which shares shall be subject to the same lockup provisions as
set forth in that certain Stock Resale Agreement of even date herewith, except
that the lockup period shall only be extended for a period of two (2) years from
the Closing Date), within five (5) business days of the Closing Date under the
Asset Purchase Agreement dated December 18, 1998 or in Eight (8) quarterly
installments beginning on the first anniversary of the Closing Date which shall
be accompanied by interest at an annual rate of eight (8%) percent, which
interest shall accrue from the Closing Date.
<PAGE>
1.4 Form of Payment.
(a) Except for the issuance of Common Shares of Signal as provided in 1.3
herein, both the principal amount of this Note and all interest accrued thereon
shall be paid in such currency of the United States of America as shall be legal
tender at the time of payment. All payments or prepayments of principal and
interest and other sums due pursuant to this Note shall be made by certified
check to Holder at his address set forth above, or in immediately available
funds by wire transfer to Holder's account at such bank as Holder shall have
previously designated to Borrower. When any date on which principal and interest
are due and payable falls on a Saturday, Sunday or legal holiday, then such
payment shall be due and payable on the first business day immediately following
such date and interest shall be payable at the rate set forth herein for the
period of such extension.
1.5 Optional Prepayment. This Note may be prepaid by Borrower, in whole or
in part, at any time or from time to time, without premium or penalty. All
prepayments made on this Note shall be applied first to the payment of all
unpaid interest accrued on this Note, and then to the outstanding and unpaid
principal amount of this Note as of the date of the payment. The amount of
interest payable as part of each quarterly payment of interest shall be adjusted
to reflect any prepayment of principal made prior to the date of such quarterly
payment of interest.
2. Events of Default.
2.1 Definition of Event of Default. Any one or more of the following events
shall constitute an Event of Default:
(a) Borrower fails to make any payment of principal or interest on
this Note, or any other amount payable by Borrower under this Note, within
fifteen (15) days after the date any such payment is due by the provisions
of this Note, by acceleration or otherwise;
(b) Borrower becomes insolvent; fails or ceases to pay its debts as
they mature; makes an assignment for the benefit of creditors; files a
petition in bankruptcy; is adjudicated insolvent or bankrupt; petitions or
applies to any tribunal for the appointment of any receiver or trustee; or
commences any proceeding under law or statutes of any jurisdiction, whether
now or hereafter in effect, relating to reorganization, arrangement,
readjustment of debt, dissolution or liquidation, or there is commenced
against Borrower any such proceeding which shall not be dismissed within a
period of sixty (60) days, or Borrower by any act indicates its consent to,
approval of, or acquiescence in any such proceeding or the appointment of
any receiver of or any trustee for it or any substantial part of its
property, or suffers any such receivership or trusteeship to continue
undischarged for a period of sixty (60) days; or
<PAGE>
(c) Borrower admits in writing its inability to, or generally becomes
unable to, pay its debts as such debts become due.
2.2 Rights upon Event of Default. Upon the occurrence of any Event of
Default, Holder, at his option, may declare the entire principal amount of this
Note then outstanding, together with accrued and unpaid interest thereon,
immediately due and payable without presentment, demand, protest or notice or
other formality of any kind. Holder also may exercise from time to time any
rights and remedies available to him by law and under any agreement or other
instrument relating to the amounts owed under this Note.
2.3 Collection Costs; Attorney's Fees. Borrower shall pay, on demand, all
of the reasonable costs and expenses of Holder incurred in the collection of
this Note, including reasonable attorney's fees and expenses, whether or not a
suit to enforce such rights is actually instituted.
3. Miscellaneous.
3.1 Unconditional Obligation; Waivers. The obligations of Borrower to make
the payments provided for in this Note are absolute and unconditional and not
subject to any defense, set-off, counterclaim, rescission, recoupment or
adjustment whatsoever. Borrower hereby waives presentment and demand for
payment, notice of non-payment, notice of dishonor, protest, notice of protest,
bringing of suit and diligence in taking any action to collect any amount called
for under this Note, and shall be directly and primarily liable for the payment
of all amounts owing and to be owing hereon, regardless of and without any
notice, diligence, act or omission with respect to the collection of any amount
called for hereunder. No waiver of any provision of this Note made by agreement
of Holder and any other person shall constitute a waiver of any other terms
hereof, or otherwise release or discharge the liability of Borrower under this
Note. No failure to exercise and no delay in exercising, on the part of Holder,
any right, power or privilege under this Note shall operate as a waiver thereof
nor shall partial exercise of any right, power or privilege. The rights and
remedies herein provided are cumulative and are not exclusive of any rights or
remedies provided by law.
3.2 Notices and Addresses. Any notice, demand, request, waiver, or other
communication under this Note shall be in writing and shall be deemed to have
been duly given on the date of service, if personally served or sent by
telecopy; on the business day after notice is delivered to a courier or mailed
by express mail, if sent by courier delivery service or express mail for next
day delivery; and on the third day after mailing, if mailed to the party to whom
notice is to be given, by first class mail, registered, return receipt
requested, postage prepaid and addressed as follows:
To Holder: Ming-Yiu Chan
c/o Manley, Ltd. 8/F,
HK Spinners International Building
818 Cheung Sha Wan Road, Kowloon, Hong Kong
Telecopy: 011-852-2742-2352
<PAGE>
With a copy to: Robert T. Lincoln, Esq.
Dunnington, Barthlow & Miller, LLP
666 Third Avenue
New York, New York 10017
Telecopy: (212) 661-7769
Telephone: (212) 682-8811
To Borrower: Tahiti Apparel, Inc.
500 Seventh Avenue
New York, NY 10018
Attention: Zvi Ben-Haim
Fax: (212) 354-5314
With a copy to Wachtel & Masyr, LLP
110 East 59th Street
New York, New York 10022
Attention: Morris Missry
Fax: (212) 909-9448
Any party may change its address for the purposes of this Section by giving
written notice to the other parties hereto in accordance with the provisions
hereof.
3.3 Lost, Stolen or Mutilated Note. Upon receipt by Borrower of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this Note or
any Note exchanged for it, and (in the case of loss, theft or destruction) of
indemnity satisfactory to it, and upon reimbursement to Borrower of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
such Note, if mutilated, Borrower will make and deliver in lieu of such Note a
new Note of like tenor and unpaid principal amount and dated as of the original
date of the Note.
3.4 Severability; Binding Effect; Assignment. Any provision of this Note
which is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Note or affecting the validity or unenforceability of any
of the terms and provisions of this Note in any other jurisdiction. This Note
shall be binding upon and inure to the benefit of the parties hereto and their
legal representatives, successors and assigns. Neither this Note nor any rights
hereunder may be assigned by either party hereto without the other party's
consent, which consent shall not be unreasonably withheld or delayed; provided,
however, that Borrower will assign this Note and delegate its duties hereunder
to Signal Apparel Company, Inc., an Indiana corporation ("Signal"), and Signal
will assume the Borrower's obligations hereunder, in connection with Signal's
purchase of substantially all of the assets, and assumption of certain of the
liabilities, of Borrower. From and after the assumption of this Note by Signal,
the term "Borrower" shall be deemed to mean Signal, and thereafter Tahiti shall
be released and relieved of any liability under the Note.
<PAGE>
3.5 Governing Law; Forum. This Note and any dispute, disagreement, or issue
of construction or interpretation arising hereunder whether relating to its
execution, its validity, the obligations provided therein or performance shall
be governed and interpreted according to the internal laws of the State of New
York, without giving effect to the principles of conflicts of laws thereof. Each
of the parties hereto hereby irrevocably and unconditionally submits to the
exclusive jurisdiction of any court of the State of New York or any federal
court sitting in the State of New York for purposes of any suit, action or other
proceeding arising out of this Note (and agrees not to commence any action, suit
or proceedings relating hereto except in such courts). Each of the parties
hereto agrees that service of any process, summons, notice or document by U.S.
registered mail at its address set forth herein shall be effective service of
process for any action, suit or proceeding brought against it in any such court.
Each of the parties hereto hereby irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding arising out
of this Note, which is brought by or against it, in the courts of the State of
New York or any federal court sitting in the State of New York and hereby
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
3.6 Amendments. This Note cannot be changed orally or terminated orally.
Any amendment of, or supplement to, or other modification of, this Note must be
in a written instrument executed by both parties hereto.
3.7 Section Headings. Section headings herein have been inserted for
reference only and shall not be deemed to limit or otherwise affect, in any
matter, or be deemed to interpret in whole or in part any of the terms or
provisions of this Note.
IN WITNESS WHEREOF, this Note has been executed and delivered as of the
date specified above.
TAHITI APPAREL, INC.
By __________________________________
Name:
Title:
STOCK RESALE AGREEMENT
THIS STOCK RESALE AGREEMENT (the "Agreement"), dated as of March 16, 1999,
is by and among Signal Apparel Company, Inc., an Indiana corporation ("Signal"),
Tahiti Apparel, Inc., a New Jersey corporation ("Tahiti"), Zvi Ben-Haim
("Ben-Haim"), Michael Harary ("Harary") and Ming-Yiu Chan ("Chan") (each of
Ben-Haim, Harary and Chan being referred to herein as a "Stockholder" and
collectively as the "Stockholders"). Any reference herein to any Stockholder
shall be deemed to also include a reference to the heirs, estate and personal
representatives of such Stockholder. Unless otherwise indicated herein, each
capitalized term used herein but not defined herein shall have the meaning
attributed to it in the Asset Purchase Agreement, dated as of December 18, 1998,
by and among Signal, Tahiti, Ben-Haim and Harary (the "Asset Purchase
Agreement").
W I T N E S S E T H :
WHEREAS, in connection with the closing of the transactions contemplated by
the Asset Purchase Agreement, Tahiti has on the date hereof received an
aggregate of 13,366,316 shares (the "Shares") of common stock, par value $0.01
per share, of Signal (the "Common Stock");
WHEREAS, it is intended that as soon as practicable Tahiti will transfer,
after adjustment all of the remaining 12,266,316 Shares to the Stockholders as
contemplated by the Asset Purchase Agreement; and
WHEREAS, the parties desire to make certain representations, covenants and
agreements relating to the Shares.
NOW, THEREFORE, in consideration of the mutual agreements hereinafter set
forth, the parties hereto, intending to be legally bound, do hereby agree as
follows:
1. Initial Transfer by Tahiti. In accordance with Section 2.04 of the Asset
Purchase Agreement, Tahiti shall Transfer (as defined in Section 2) the
remaining Shares to the Stockholders and such Shares shall be subject to the
restrictions set forth in this Agreement.
2. General Restriction on Transfer of Shares. No Stockholder shall Transfer
any Shares except in accordance with the terms and provisions of this Agreement.
Any purported Transfer in violation of this Agreement shall be null and void and
of no force and effect and the purported transferees shall have no rights or
privileges in or with respect to the Shares purported to have been so
transferred. Signal shall refuse to recognize any such Transfer and shall not
reflect on its records any change in record ownership of such Shares purported
to have been so transferred.
For purposes of this Agreement, "Transfer" shall mean the sale, assignment,
transfer, pledge, hypothecation, gift or other disposition of all or a portion
of the Shares, whether pursuant to that certain Registration Rights Agreement,
dated as of the date hereof, by and
<PAGE>
among Signal, Tahiti and the Stockholders, or otherwise, or the encumbrance or
granting of any rights, options or interests whatsoever in such Shares.
3. Permitted Transferees. Each of the Stockholders may Transfer in a
private transaction any or all of its Shares to any Permitted Transferee (as
defined below), provided that such Permitted Transferee agrees in writing to be
bound by the provisions of this Agreement and to deliver, if appropriate, an
appropriate investment representation for purposes of compliance with the
Securities Act of 1933, as amended (the "Securities Act").
For purposes of this Agreement, "Permitted Transferee" shall mean the
Stockholders and any immediate family member of an individual Stockholder
including, without limitation, any spouse or former spouse, child or trust for
the benefit of such individuals, or any charitable organizations or charitable
trusts.
4. Permitted Transfers. During each twelve (12) month period commencing on
(i) the date hereof and (ii) each of the first four (4) anniversaries of the
date hereof, each Stockholder and his Permitted Transferees shall have the right
to Transfer up to five percent (5%) of the Shares held by such Stockholder on
the date hereof. There shall be excluded from the calculation the number of
Shares as to which the Stockholder and his Permitted Transferees have the right
to Transfer pursuant to the foregoing five percent (5%) limitation any of the
Shares as to which a Stockholder makes a Transfer to a Permitted Transferee. In
addition, the five percent (5%) limitation on a Stockholder's right to Transfer
shall be cumulative so that, if, in any year during the five (5)-year period,
the Stockholder and his Permitted Transferees have made Transfers aggregating
less than five percent (5%) of the Shares, he and his Permitted Transferees may
make a Transfer or Transfers in subsequent years, in addition to the five
percent (5%) permitted for each such year, equal to the amountof the Shares in a
previous twelve (12) month periods that were not transferred and which were less
than the five percent (5%) per year as to which he and his Permitted Transferees
were permitted to Transfer. Further, should any member of the WGI Group (as
defined in Section 7hereof) Transfer shares of the Common Stock in any year in
an amount greater than five percent (5%) of the shares of the Common Stock which
the WGI Group (collectively) owns, the Stockholder may Transfer such additional
percentage of his Shares in addition to the five percent (5%) of the Shares he
is otherwise permitted to Transfer hereunder (provided, however, that this
sentence shall not apply to any Transfer of shares between one member of the WGI
Group and another member of the WGI Group). In addition to the "5% per year"
Transfers described above, each of the Stockholders shall be permitted to make
one or more Transfers of an aggregate of not more than 100,000 of his Shares
during the period commencing on the date hereof and ending on the fifth
anniversary of the date hereof, provided that such Transfer or Transfers are not
made in an exchange for value. The Shares shall be free of all restrictions set
forth in this Agreement (A) upon the expiration of such five (5) year period or
(B) if earlier with respect to any Stockholder, upon termination of such
Stockholder's employment with the Company (if any) under the circumstances
contemplated in Section 8(D) of the Employment Agreement (if any) between the
Company and such Stockholder dated March 16, 1999.
5. Restrictive Stock Legend. Signal shall cause each certificate of any
Stockholder evidencing the Shares outstanding during the period the restrictions
set forth in this Agreement are in effect to bear a legend in the following
form:
2
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, EXCHANGED OR
OTHERWISE TRANSFERRED OR DISPOSED OF EXCEPT IN COMPLIANCE WITH THE TERMS
AND CONDITIONS OF THE STOCK RESALE AGREEMENT DATED MARCH 16, 1999, AS IT
MAY BE AMENDED, AMONG SIGNAL APPAREL COMPANY, INC., TAHITI APPAREL, INC.
ZVI BEN-HAIM. MICHAEL HARARY AND MING-YIU CHAN, A COPY OF WHICH IS ON
FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF SIGNAL APPAREL COMPANY, INC.
Upon the expiration of the restrictions on Transfer set forth in this Agreement,
Signal shall, upon the written request of the Stockholder, issue to the
Stockholder a new certificate evidencing such shares without the legend required
by this Section 5. Shares Transferred in accordance with Section 4 hereof shall
be issued without such legend.
6. Representations and Warranties of the Stockholders. Each Stockholder
represents and warrants to Signal as follows: This Agreement has been duly
executed and delivered by such Stockholder and constitutes the valid and binding
agreement of such Stockholder, enforceable against such Stockholder in
accordance with its terms.
7. WGI Group. As used herein, the "WGI Group" shall be deemed to included
WGI, LLC, Stephen Walsh, Paul R. Greenwood, any spouse or child of any member of
the WGI Group who is a natural person, and any other individual or entity which
is an "affiliate" of any other member of the WGI Group as defined in the
regulations of the S.E.C. promulgated under the Securities Act.
8. Notices. Any notice, demand, request, waiver, or other communication
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if personally served or sent by telecopy, on the
business day after notice is delivered to a courier or mailed by express mail
for next day delivery, and on the third day after mailing if mailed to the party
to whom notice is given, by first class mail, registered, return receipt
requested, postage prepaid and addressed as follows:
If to Tahiti and the Stockholders, to:
Tahiti Apparel, Inc.
500 Seventh Avenue
New York, New York 10018
Att'n: Zvi Ben-Haim and Michael Harary
Telecopy: (212) 354-5314
Telephone: (212) 944-7117
3
<PAGE>
with a copy to:
Wachtel & Masyr, LLP
110 East 59th Street
New York, NY 10022
Attention: Morris Missry, Esq.
Telecopy: (212) 909-9500
Telephone: (212) 909-9490
and
Robert T. Lincoln, Esq.
Dunnington, Barthlow & Miller, LLP
666 Third Avenue
New York, New York 10017
Telecopy: (212) 661-7769
Telephone: (212) 682-8811
If to Signal, to:
Signal Apparel Company, Inc.
500 Seventh Avenue
New York, New York 10018
Attention: Chief Financial Officer
Telecopy: (212) 354-5314
Telephone: (212) 944-7117
with a copy to:
Witt, Gaither & Whitaker, P.C.
1100 SunTrust Bank Bldg.
736 Market Street
Chattanooga, TN 37402
Attention: Steven R. Barrett, Esq.
Telecopy: (423) 266-4138
Telephone: (423) 265-8881
Any party may change its address for the purposes of this Section by giving
written notice to the other parties hereto in accordance with the provisions
hereof.
9. Amendments, Waivers, Etc. This Agreement may not be amended, changed,
supplemented, waived or otherwise modified or terminated except by an instrument
in writing signed by each of the parties hereto.
10. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of and be enforceable by the parties and their respective
successors and assigns,
4
<PAGE>
including, without limitation, in the case of any corporate party hereto any
corporate successor by merger or otherwise.
11. Entire Agreement. This Agreement embodies the entire agreement and
understanding among the parties relating to the subject matter hereof and
supersedes all prior agreements and understandings relating to such subject
matter. There are no representations, warranties or covenants by the parties
hereto relating to such subject matter other than those expressly set forth in
this Agreement.
12. Severability. Each party agrees that, should any court or other
competent authority hold any provision of this Agreement or part hereof to be
null, void or unenforceable, or order any party to take any action inconsistent
herewith or not to take an action consistent herewith or required hereby, the
validity, legality and enforceability of the remaining provisions and
obligations contained or set forth herein shall not in any way be affected or
impaired thereby.
13. Remedies Cumulative. All rights, powers and remedies provided under
this Agreement, or otherwise available in respect hereof at law or in equity
shall be cumulative and not alternative, and the exercise or beginning of the
exercise of any thereof by any party shall not preclude the simultaneous or
later exercise of any right, power or remedy by such party.
14. No Waiver. The failure of any party hereto to exercise any right, power
or remedy provided under this Agreement or otherwise available in respect hereof
at law or in equity, or to insist upon compliance by any other party hereto with
its obligations hereunder, and any custom or practice of the parties at variance
with the terms hereof, shall not constitute a waiver by such party of its right
to exercise any such or other right, power or remedy or to demand such
compliance.
15. Third Party Beneficiaries. Except as expressly provided herein, this
Agreement is not intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder.
16. Governing Law. This Agreement shall be governed by, and interpreted
under, the laws of the State of New York applicable to contracts made and to be
performed therein without regard to conflict of laws principles.
17. Name, Captions, Gender. The name assigned this Agreement and the
section captions used herein are for convenience of reference only and shall not
affect the interpretation or construction hereof. Whenever the context may
require, any pronoun used herein shall include the corresponding masculine,
feminine or neuter forms.
18. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together constitute an instrument. Each counterpart may consist of a number of
copies each signed by less than all, but together signed by all, the parties
hereto.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
SIGNAL APPAREL COMPANY, INC.
By: /s/ Thomas McFall
---------------------------
Name: Thomas McFall
Title: CEO
TAHITI APPAREL, INC.
By: /s/ Zvi Ben-Haim
---------------------------
Name: Zvi Ben-Haim
Title: President
STOCKHOLDERS:
/s/ Zvi Ben-Haim
---------------------------
Zvi Ben-Haim
/s/ Michael Harary
---------------------------
Michael Harary
/s/ Ming-Yiu Chan,
by Robert T. Lincoln, Attorneyin-Fact
---------------------------
Ming-Yiu Chan
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
into as of March 16, 1999, among Signal Apparel Company, Inc., an Indiana
corporation (the "Company"), Tahiti Apparel, Inc., a New Jersey Corporation
("Tahiti"), and the individual stockholders of Tahiti, Ming-Yiu Chan ("Chan"),
Zvi Ben-Haim ("Ben-Haim") and Michael Harary ("Harary"). Tahiti, Chan, Ben-Haim
and Harary are each referred to herein as a "Seller" and are collectively
referred to herein as the "Sellers."
This Agreement is made pursuant to the Asset Purchase Agreement, as
amended, dated as of the date hereof among the Company and the Sellers (the
"Purchase Agreement").
The Company and the Sellers hereby agree as follows:
1. Definitions.
Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Purchase Agreement. As used in this Agreement,
the following terms shall have the following meanings:
"Advice" shall have meaning set forth in Section 3(o).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," controlling" and "controlled" have meanings
correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
New York generally are authorized or required by law or other government actions
to close.
"Closing Date" shall have the meaning set forth in the Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, par value $.01 per share.
"Effective Date" means the date any such registration statement referred to
in Section 2 is declared effective by the Commission.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
<PAGE>
"Holder" or "Holders" means the holder or holders, as the case may be, from
time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 2.
"Indemnifying Party" shall have the meaning set forth in Section 2.
"Losses" shall have the meaning set forth in Section 2.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Stock" means the shares of Series I Preferred, no par value, of
the Company issued to the Sellers pursuant to the Purchase Agreement.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by the
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference in such Prospectus.
"Registrable Securities" means the shares of Common Stock to be issued on
the Closing Date to Tahiti pursuant to the Purchase Agreement (including any
shares to be held in escrow pursuant to Section 2.06 of the Purchase Agreement).
"Registration Statement" means the registration statements contemplated by
Section 2(a), including (in each case) the Prospectus, amendments and
supplements to such registration statement or Prospectus, including pre- and
post-effective amendments, all exhibits thereto, and all material incorporated
by reference in such registration statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
2
<PAGE>
"Rule 158" means Rule 158 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means any special counsel to the Holders, for which the
Holders will be reimbursed by the Company pursuant to Section 4.
"Underwritten Registration or Underwritten Offering" means a registration
in connection with which securities of the Company are sold to an underwriter
for reoffering to the public pursuant to an effective registration statement.
2. Piggy-Back Rights.
(a) If, at any time prior to ten years from the Closing Date (the
"Registration Period") the Company proposes to register any of its securities
under the Securities Act (other than (i) securities issued or issuable to the
holders of the Company's Series G1 Convertible Preferred Stock or Series G2
Convertible Preferred Stock, (ii) securities to be issued pursuant to a stock
option or other employee benefit or similar plan or (iii) in connection with a
transaction contemplated by Rule 145 under the Securities Act), the Company
shall, promptly give written notice (the "Registration Notice") to Holder of the
Company's intention to effect such registration. If, within 15 days after
receipt of such Registration Notice, Holder submits a written request to the
Company specifying the number of shares of Common Stock which it received or
will receive (as applicable) under the Purchase Agreement or upon any agreed
exchange of Preferred Stock for Common Stock , (the "Registrable Shares") the
Company shall include the Registrable Shares in such registration statement. If
the offering by the Company of the Company's securities pursuant to such
registration statement is to be made by or through an underwriter or
underwriters, the Company shall not be required to include Registrable Shares
therein if and to the extent that the underwriter managing the offering advises
the Company in writing that such inclusion would materially adversely affect
such offering and, in such event, the Company may delay the effectiveness of the
registration of, or cause Holder to delay the sale of, the Registrable Shares
for a period of not more than 60 days after completion of the distribution of
securities being underwritten on behalf of the Company (but in no event for more
than 180 days after the registration statement first becomes effective, and in
no event beyond the termination of any similar "lock up" period applicable to
sales by other officers and directors of the Company in connection with such
offering) and the Company shall thereupon promptly file such supplements and
post-effective amendments and take such other steps as may be necessary to
permit Holder to make its proposed offering following the end of such period of
delay.
(b) In connection with any offering of shares of Registrable Shares
registered pursuant to this Agreement the Company (i) shall furnish to Holder
such number of copies of each registration statement, each prospectus and each
preliminary prospectus, and of each amendment and supplement to any thereof as
Holder may reasonably request in order to effect the offering and sale of the
Registrable Shares to be offered and sold, but only while the
3
<PAGE>
Company shall be required under the provisions hereof to cause the registration
statement to remain current and (ii) take such action as shall be necessary to
qualify the shares covered by such registration statement under such blue sky or
other state securities laws for offer and sale as Holder shall request;
provided, however, that the Company shall not be obligated to qualify as a
foreign corporation to do business under the laws of any jurisdiction in which
it shall not then be qualified or to file any general consent to service of
process in any jurisdiction in which such a consent has not been previously
filed. To the extent the Company shall enter into an underwriting agreement (the
"Agreement") with a managing underwriter or underwriters selected by it
containing representations, warranties, indemnities and agreements then
customarily included by an issuer in underwriting agreements with respect to
secondary distributions, Holder agrees as a condition to participation in such
offering to make such representations and warranties with respect to information
as to it as a selling stockholder, and as to its holdings, which is furnished in
writing to the underwriter for use in the registration statement as are
customary and appropriate. In connection with any offering of Registrable Shares
registered pursuant to this Agreement, the Company shall furnish to the
underwriter, at the Company's expense, unlegended certificates representing
ownership of the Registrable Shares being sold in such denominations as
requested and instruct any transfer agent and registrar of the Registrable
Shares to release any stop transfer orders with respect to such Registrable
Shares .
(c) In connection with any registration pursuant to this Agreement all
expenses of registration shall be borne by the Company (unless contrary to the
federal securities laws or the laws of any state where the Registrable Shares is
to be offered), provided, however, in connection with any such registration,
Holder shall be obligated to pay any and all underwriter's and/or brokers
commissions, to the extent that such commissions would not have been so incurred
in the absence of the registration of such Registrable Shares. Under no
circumstances shall the Company have any liability for any fees and expenses of
underwriters, counsel, accountants or other agents of Holder relating to the
Registrable Shares with respect to any registration statement filed pursuant
hereto, including but not limited to any out-of-pocket expenses, securities
liability insurance policies, the costs of any investigations by or on behalf of
Holder of the accuracy and completeness of such registration statement or
related to the furnishing of information by Holder in connection with such
registration statement.
(d) For a period until the earlier of (i) one (1) year from and after the
effective date of any registration statement filed pursuant hereto in which any
of the Registrable Shares is included (provided that such one-year period shall
be extended by the length of any period during which the Holder's right to offer
is delayed pursuant to Section 2(a) or Section 2(j)(v) hereof) and (ii) the sale
of the Registrable Shares subject to such registration statement, the Company
shall from time to time amend or supplement the registration statement and the
prospectus used in connection therewith as may be necessary to permit such sale
and disposition and to the extent necessary in order to keep such registration
statement effective and such prospectus current under the Act so that neither
the registration statement nor the prospectus contains any untrue statement as
to any material fact, omits any statements necessary to make the statements
contained therein not misleading.
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(e) In the case of any offering registered pursuant to this Agreement, the
Company agrees to indemnify and hold harmless Holder and each controlling person
of Holder within the meaning of Section 15 of the Securities Act, and the
directors and officers of Holder, against any and all losses, claims, damages or
liabilities to which they or any of them may become subject under the Securities
Act or any other statute or common law or otherwise, and to reimburse them, from
time to time upon request, for any legal or other expenses reasonably incurred
by them in connection with investigating any claims and defending any actions,
insofar as any such losses, claims, damages, liabilities or actions shall arise
out of or shall be based upon any untrue statement or alleged untrue statement
contained in the registration statement relating to the sale of such Registrable
Shares in any preliminary prospectus or in any prospectus or in any supplement
or amendment to any of the foregoing of a material fact, or the omission or
alleged omission to state therein a material fact required to be stated or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, provided, however, that the
indemnification agreement contained in this paragraph shall not apply to such
losses, claims, damages, liabilities or actions which shall arise from (i) the
sale of Registrable Shares if such losses, claims, damages, liabilities or
actions shall arise out of or shall be based upon any such untrue statement or
alleged untrue statement, or any such omission or alleged omission, if such
statement or omission shall have been made in reliance upon and in conformity
with information furnished in writing to the Company by Holder specifically for
use in connection with the preparation of the registration statement or any
preliminary prospectus or prospectus contained in the registration statement or
any amendment thereof or supplement thereto; or (ii) if the Common Stock is not
then listed on a national securities exchange, any actual or alleged untrue
statement of a material fact or any actual or alleged omission of a material
fact required to be stated in any preliminary prospectus if Holder sells
Securities to a Person to whom there was not sent or given, at or prior to the
written confirmation of such sale, a copy of the final prospectus or of the
final prospectus as then amended or supplemented, whichever is most recent, if
the Company had previously furnished copies thereof to Holder or its
representatives and such final prospectus, as then amended or supplemented,
corrected any such misstatement or omission; or (iii) the use of any
preliminary, final or summary prospectus by or on behalf of Holder after the
Company has notified Holder that such prospectus contains an untrue statement of
a material fact or omits to state a material fact required to be stated therein,
in the light of the circumstances under which they were made, not misleading; or
(iv) the use of any final prospectus, as amended or supplemented, by or on
behalf of Holder after such time as the obligation of the Company under this
Agreement to keep the related registration statement effective has expired; or
(v) any violation of any federal or state securities laws, rules or regulations
committed by Holder (other than any violation that arises out of or is based
upon the circumstances described above and as to which Holder would otherwise be
entitled to indemnification hereunder).
(f) In connection with any registration statement in which Holder is
participating, Holder will indemnify, to the extent permitted by law, the
Company, controlling persons of the Company under Section 15 of the Securities
Act and its directors and officers against any and all losses, claims, damages,
liabilities and expenses resulting, and to reimburse them, from time to time
upon request, for any legal or other expenses reasonably incurred by them in
connection with investigating any claims and defending any actions, solely by
reason of (i) any untrue
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statement of a material fact or any omission of a material fact necessary to
make the statements therein not misleading, in the registration statement or any
prospectus or preliminary prospectus or any amendment or supplement thereto, but
only to the extent that such untrue statement is contained in, or such omission
is omitted from, information so furnished to the Company by Holder in writing;
(ii) the use of any prospectus by or on behalf of Holder (x) after the Company
has notified Holder that such prospectus contains an untrue statement of a
material fact or omits to state a material fact required to be stated therein,
in light of the circumstances under which they were made, not misleading or (y)
after such time as the obligation of the Company to keep the related
registration statement effective and current has expired; (iii) if the Common
Stock is not then listed on a national securities exchange, the failure to send
or deliver to a party to whom Holder sells the Securities, at or prior to the
written confirmation of sale, a copy of the final prospectus or of the final
prospectus as then amended or supplemented, whichever is most recent, if the
Company had previously furnished copies thereof to Holder or its
representatives; or (iv) any violation by Holder of any federal or state
securities law or rule or regulation thereunder (other than any violation that
arises out of or is based upon the circumstances described above and as to which
Holder is entitled to indemnification hereunder).
(g) Each party indemnified under paragraph (e) or (f) of Section 2 of this
Agreement shall, promptly after receipt of notice of the commencement of any
action against such indemnified party in respect of which indemnity may be
sought hereunder, notify the indemnifying party in writing of the commencement
thereof. The omission of any indemnified party to so notify an indemnifying
party of any such action shall not relieve the indemnifying party from any
liability in respect of such action which it may have to such indemnified party
on account of the indemnity agreement contained in paragraph (e) or (f) of
Section 2 of this Agreement, unless the indemnifying party was prejudiced by
such omission, and in no event shall relieve the indemnifying party from any
other liability which it may have to such indemnified party. In case any such
action shall be brought against any indemnified party and it shall notify an
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it may desire to assume
the defense thereof through counsel satisfactory to the indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under paragraph (e) or (f) of Section 2 of this
Agreement for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof, other than reasonable
costs of investigation (unless such indemnified party reasonably objects to such
assumption on the grounds that (i) there may be defenses available to it which
are different from or in addition to such indemnifying party or (ii) in the
opinion of counsel to the indemnifying party, there is another conflict of
interest between it and such indemnifying party, in which event the indemnified
party shall be reimbursed by the indemnifying party for the expenses incurred in
connection with retaining one separate legal counsel).
(h) Nothing in paragraph (e) or (f) of Section 2 of this Agreement shall
prevent the indemnified party from retaining counsel of its own choosing, at its
own expense, to defend or cooperate in the defense or investigation of any claim
in respect of which indemnification is available hereunder. No indemnifying
party will consent to entry of any judgment or enter into
6
<PAGE>
any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation.
(i) If recovery is not available under the foregoing indemnification
provisions, for any reason other than as specified therein, the parties entitled
to indemnification by the terms thereof shall be entitled to contribution for
any losses, claims, damages, or liabilities, joint or several, and expenses to
which they may become subject, in such proportion as is appropriate to reflect
the relative fault of the parties entitled to indemnification, on the one hand,
and the indemnifying parties, on the other, in connection with the matter out of
which such losses, claims, damages, liabilities or expenses arise or result
from. In determining the amount of contribution to which the respective parties
are entitled, there shall be considered the parties' relative knowledge and
access to information concerning the matter with respect to which the action was
asserted, the opportunity to correct and prevent any statement or omission, and
any other equitable considerations appropriate under the circumstances.
(j) Notwithstanding the foregoing, Holder shall furnish to the Company such
information regarding Holder, its intended method of distribution of the
Securities and such other information as the Company may from time to time
reasonably request for purposes of preparation of any registration statement
pursuant to this Agreement and to maintain the effectiveness of such
registration statement.
(i) At least five business days prior to any disposition of Securities
(other than pursuant to an underwritten offering) by Holder, Holder will
orally advise the Company (and promptly confirm such advice in writing) of
the dates on which such disposition is expected to commence and terminate,
the number of Securities expected to be sold, the method of disposition and
such other information as the Company may reasonably request in order to
supplement the prospectus contained in the registration statement in
accordance with the rules and regulations of the Commission. Promptly after
receiving such advice, the Company will, if necessary, (x) prepare a
supplement to the prospectus based upon such advice and file the same with
the Commission pursuant to Rule 424(b) under the Securities Act and (y), if
necessary, qualify the Securities to be sold under the securities or blue
sky laws of such jurisdiction in the United States as Holder shall
reasonably request (subject to the proviso of Section (b) of Section 2 of
this Agreement).
(ii) Holder agrees that, upon receipt of any notice from the Company
of any event of the kind described in Section (d) of Section 2 of this
Agreement, Holder will forthwith discontinue disposition of the Securities
pursuant to such registration statement until receipt of copies of the
supplemented or amended prospectus contemplated by Section (d), and, if so
directed by the Company, will deliver to the Company all copies of the
prospectus covering the Securities in its possession at the time of receipt
of such notice.
(iii) Holder shall, at any time it is engaged in a distribution of
Securities, comply with all applicable requirements of Regulation M (or any
successor provisions then in force) promulgated under the Securities
Exchange Act of 1934 (the "Exchange Act") and (x) will
7
<PAGE>
not engage in any stabilization activity in connection with the securities
of the Company in contravention of such rules, (y) will distribute the
Securities solely in the manner described in the registration statement and
(z) will not bid for or purchase any securities of the Company or attempt
to induce any person to purchase any securities of the Company other than
as permitted under the Exchange Act.
(iv) Holder shall provide such information and materials, execute all
such documents and take all such other actions as the Company shall
reasonably request in order to permit the Company to comply with all
applicable requirements of law and to effect the registration of Holder's
Securities.
(v) If Securities are registered for sale pursuant to Rule 415 under
the Securities Act, Holder shall cease any distribution of such shares
under the registration statement upon the request of the Company if: (x)
such distribution would require the public disclosure of material
non-public information concerning any transaction or negotiations involving
the Company or any of its affiliates that, in the good faith judgment of
the Company's Board of Directors (or the executive committee thereof),
would materially interfere with such transaction or negotiations, (y) such
distribution would otherwise require premature disclosure of information
that; in the good faith judgment of the Company's Board of Directors, would
materially adversely affect or otherwise be materially detrimental to the
Company or (z) the Company proposes to file a registration statement under
the Securities Act for the offering and sale of securities for its own
account in an underwritten offering and the managing underwriter therefor
shall advise the Company in writing that in its opinion the continued
distribution of the Securities would materially adversely affect the
success of the offering of the securities proposed to be registered for the
account of the Company. The Company shall promptly notify Holder at such
time as (i) such transactions or negotiations have been otherwise publicly
disclosed or terminated, (ii) such non-public information has been publicly
disclosed or counsel to the Company has determined that such disclosure is
not required due to subsequent events or (iii) the completion of such
underwritten offering.
3. Demand Rights.
During the Registration Period (and subject to the further limitations set
forth below), the first of Ben-Haim or Harary to provide a Demand Notice (as
defined below) in any year shall have the right (which right is in addition to
the registration rights under Section 2 hereof), exercisable by written notice
to the Company (the "Demand Notice") to have the Company prepare, file and use
its reasonable efforts to have declared effective a registration statement (the
"Demand Registration Statement"), and such other documents, including a
prospectus, as may be necessary to comply with the Securities Act so as to
permit a public offering and sale of such number of Registrable Securities
requested to be registered in the Demand Notice. Promptly upon receipt of the
Demand Notice, the Company shall give notice to each other Holder of the
Registrable Securities and shall include in the Demand Registration Statement
all shares of the Registrable Securities as to which such other Holders demand
registration. Subsections (b), (c), (d), (e), (f), (g), (h), (i) and (j) of
Section 2 hereof shall be applicable to the Demand Registration Statement. The
Company shall be required to effect a
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<PAGE>
total of only one such registration pursuant to this Section 3 for all Holders
(collectively) each year during a period (the "Demand Period") ending on the
earlier of (A) the fifth (5th) anniversary of the Closing Date and (B) with
respect to either Ben-Haim or Harary individually, the first date on which such
Seller is no longer employed by the Company under the terms of the Employment
Agreement entered into by the Company with such Seller pursuant to the Purchase
Agreement. In addition, the Company shall be required (upon receipt of a Demand
Notice as specified above) to effect one additional registration pursuant to
this Section 3 for all Holders (collectively) between the expiration of the
Demand Period and the expiration of the Registration Period.
4. Rule 144.
As long as any Holder owns Shares, the Company covenants to timely file (or
obtain extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the date hereof
pursuant to Section 13(a) or l5(d) of the Exchange Act and to promptly furnish
the Holders with true and complete copies of all such filings. As long as any
Holder owns Shares, if the Company is not required to file reports pursuant to
Section 13(a) or l5(d) of the Exchange Act, it will prepare and furnish to the
Holders and make publicly available in accordance with Rule 144(c) promulgated
under the Securities Act annual and quarterly financial statements, together
with a discussion and analysis of such financial statements in form and
substance substantially similar to those that would otherwise be required to be
included in reports required by Section 13(a) or 15(d) of the Exchange Act, as
well as any other information required thereby, in the time period that such
filings would have been required to have been made under the Exchange Act.
5. Miscellaneous.
(a) Remedies. In the event of a breach by the Company or by a Holder, of
any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(b) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the same shall be in writing and signed by the Company and the Holders of
at least two-thirds of the then outstanding Registrable Securities; provided,
however, that, for the purposes of this sentence, Registrable Securities that
are owned, directly or indirectly, by the Company, or an Affiliate of the
Company (other than Ben-Haim or Harary, should either of them be deemed
Affiliates of the Company) are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from
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the provisions hereof with respect to a matter that relates exclusively to the
rights of Holders and that does not directly or indirectly affect the rights of
other Holders may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates; provided, however, that the
provisions of this sentence may not be amended, modified, or supplemented except
in accordance with the provisions of the immediately preceding sentence.
(c) Notices. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earlier of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 7:00 p.m. (New York City
time) on a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the facsimile
telephone number specified in the Purchase Agreement later than 7:00 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service or (iv) actual receipt by the
party to whom such notice is required to be given to each Holder at its address
set forth under its name on Schedule 1 attached hereto or such other address as
may be designated in writing hereafter, in the same manner, by such Person.
Copies of notices shall be sent as indicated on Schedule 1.
(d) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties
and shall inure to the benefit of each Holder. The Company may not assign its
rights or obligations hereunder without the prior written consent of each
Holder. Each Purchaser may assign its rights hereunder in the manner and to the
Persons as permitted under the Purchase Agreement.
(e) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(f) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of law.
(g) Cumulative Remedies. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law.
(h) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their reasonable efforts to find and employ an alternative means to
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achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(i) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(j) Shares Held by The Company and its Affiliates. Whenever the consent or
approval of Holders of a specified percentage of Registrable Securities is
required hereunder, Registrable Securities held by the Company or its Affiliates
(other than any Holder or transferees or successors or assigns thereof if such
Holder is deemed to be an Affiliate solely by reason of its holdings of such
Registrable Securities or because he or she is a director or executive officer
of the Company) shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth above.
SIGNAL APPAREL COMPANY, INC.
By: /s/ Thomas A. McFall
----------------------------------
Name: Thomas A. McFall
Title: CEO
TAHITI APPAREL, INC.
By: /s/ Zvi Ben-Haim
----------------------------------
Name: Zvi Ben-Haim
Title: President
/s/ Zvi Ben-Haim
---------------------------------------
Zvi Ben-Haim
/s/ Michael Harary
---------------------------------------
Michael Harary
/s/ Ming-Yiu Chan,
By Robert T. Lincoln, Attorney-in-Fact
---------------------------------------
Ming-Yiu Chan
12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of March 16, 1999, is made between
SIGNAL APPAREL COMPANY, INC., an Indiana corporation with its principal offices
at 500 Seventh Avenue, New York, New York 10018 (the "Company"), and Zvi
Ben-Haim, residing at 27 Shadow Lawn Drive, Oakhurst, New Jersey 07755 (the
"Executive").
RECITALS:
WHEREAS, on the date hereof the Company has acquired (the "Acquisition")
substantially all of the assets of Tahiti Apparel, Inc. ("Tahiti") pursuant to
an Asset Purchase Agreement, dated December 18, 1998 (the "Asset Purchase
Agreement");
WHEREAS, the Executive was the President of Tahiti prior to the Acquisition
and the Company desires to employ the Executive in an executive capacity;
WHEREAS, the Company intends to operate the business of Tahiti as part of
the Signal Branded Division of the Company or through a wholly owned subsidiary
of the Company (such division or subsidiary is hereafter referred to as the
"Signal Branded Division"); and
WHEREAS, the Company and the Executive have reached an understanding with
respect to the employment of the Executive by the Company and 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 Executive as its President for
the Signal Branded Division, which shall include overseeing and managing the
activities of the Tahiti, Umbro, Big Ball and Signal Sports divisions, and the
Executive shall work for the Company in such capacity upon the terms and
conditions set forth herein and shall perform such duties, and have such powers,
authority, functions, duties and responsibilities for the Company as are
commensurate and consistent with such position and as may be assigned to the
Executive by the Company's Chief Executive Officer (the "CEO") or Chairman (the
"Chairman of the Board") of the Company's board of directors (the "Board") from
time to time. Notwithstanding the foregoing, the Employee, together with Michael
Harary, if Michael Harary is employed by the Company, shall have the authority
to manage and operate the day to day activities of the Signal Branded Division
subject to being in compliance with the annual budget of the Signal Branded
Division adopted by the Board. Without limiting the generality of the foregoing,
the Employee and Michael Harary do not require the approval or consent of the
CEO or Chairman of the Board for any day to day activities of the Signal Branded
Division, including purchases of raw materials, manufacturing of goods,
merchandising, sales, and hiring and firing of employees of the Signal Branded
Division. A new division or business (a "New Division") may only be added to the
Signal Branded Division with the prior written consent of the Executive. The
Company may not reassign the Tahiti division, New Division or Big Ball division
from the Signal Branded Division to another division, subsidiary or affiliate of
the Company without the
<PAGE>
prior written consent of the Executive. The Company may reassign the Signal
Sports division from the Signal Branded Division to another division, subsidiary
or affiliate of the Company without the prior written consent of the Executive.
The Company may only reassign the Umbro division from the Signal Branded
Division to another division, subsidiary or affiliate prior to January 1, 2001
with the prior written consent of the Executive. The Company may reassign, upon
prior written notice to the Executive, the Umbro division from the Signal
Branded Division to another division, subsidiary or affiliate after December 31,
2000 without the prior written consent of the Executive. If the reassignment of
the Umbro division occurs within sixty (60) days of the end of the prior
calendar year and in the prior calendar year the Umbro division did not operate
substantially within the annual calendar year budget for the Umbro division
reasonably adopted by the Board for the prior calendar year (the "Budget"),
then, the positive NOI of the Umbro division shall be included in the NOI for
the Signal Branded Division for purposes of calculating the Bonus under Section
5(b) hereof during the calendar year in which the reassignment occurs. In the
event that the Company reassigns the Umbro division at any time after December
31, 2000 either (x) more than sixty (60) days after the end of a calendar year
or (y) within sixty (60) days after the end of a calendar year, notwithstanding
that the Umbro division operated substantially within Budget during the prior
calendar year, then the positive NOI of the Umbro division during the calendar
year in which the reassignment takes place and for an additional eighteen months
shall be included in the NOI of the Signal Branded Division for purposes of
calculating the Bonus under Section 5(b), not to exceed the later of the fiscal
year ending March 31, 2004 and the date that the term of this agreement is
extended, if any. Any notice of reassignment on the basis that the Umbro
division did not operate within the Budget shall be accompanied by a reasonably
detailed statement (the "Budget Statement") stating the basis for the conclusion
that the Umbro division did not operate within the Budget. Within thirty (30)
days after the delivery of the Budget Statement, the Executive may notify the
Company of any objections thereto, specifying in reasonable detail any such
objections. If the Executive does not notify the Company of any objections
thereto or if within twenty (20) days of the delivery of an objection notice the
Executive and the Company agree on the resolution of all objections, then such
statements delivered by the Company, with such changes as are agreed upon, shall
be final and binding. If the parties shall fail to reach an agreement with
respect to all objections within such twenty (20) day period, then all disputed
objections shall, not later than ten (10) days after the expiration of such
twenty (20) day period, be submitted for resolution to an impartial certified
public accounting firm of national standing which is reasonably acceptable to
the parties (the "Independent Auditor"). All of the parties shall use reasonable
efforts to cause such Independent Auditor, within sixty (60) days of its
appointment, to use its best judgment in resolving the disputes submitted to it.
The statements delivered by the Company, as adjusted by the parties or the
Independent Auditor, shall be final and binding. The fees and costs of such
Independent Auditor shall be paid by the Company if the Independent Auditor
concludes that the Umbro division did operate substantially within the Budget
and by the Executive if the Independent Auditor concludes that the Umbro
division did not operate substantially within the Budget. The Company agrees to
permit the Executive and his legal counsel and accounting firm and the
Independent Auditor, if any, to have reasonable access upon prior notice during
normal business hours to its books and records (including, without limitation,
the work papers of its accountants) and its representatives and accountants, in
each case in connection with the Executive's review of the Budget Statement. If
the Independent Auditor concludes that the Umbro division did operate within the
Budget, the reassignment shall be deemed to be under The
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Executive shall be the senior executive officer of the Signal Branded Division
and shall only report directly to the CEO and the Chairman of the Board.
The principal location of the Executive's employment shall be within a 50
mile radius of New York County in the State of New York or New Jersey, although
the Executive understands and agrees that he shall be required to travel from
time to time for business reasons.
2. Exclusive Agreement.
(A) During the term of this Agreement, the Executive shall (i) devote all
of his working time, attention and energies to the affairs of the Company and
its subsidiaries, affiliates and divisions, (ii) use his best efforts to promote
its and their best interests, (iii) diligently perform his duties and
responsibilities hereunder and (iv) comply with, and be bound by the operational
policies, procedures and practices of the Company from time to time in effect
during the term, provided such procedures are not hereinafter enacted so as to
discriminate against the Executive's religious observance and, further provided,
such procedures are applied to all senior executive officers.
(B) Section 2(A) shall not be construed to prevent the Executive from
having other investments and personal ventures and being a member of the board
of directors of other entities and industry groups and doing charity work,
which, from time to time, may require minimal portions of his time, but which
ventures, investments, directorships, charity work, and/or the time associated
therewith shall not (i) interfere or be in conflict with his duties hereunder,
(ii) be in competition in any way with the business of the Company, (iii)
involve the Executive's active participation in such business investments or
ventures for more than minimal portions of his time or (iv) be in violation of,
or in conflict with, any of the restrictions set forth in Section 11 hereof.
3. Employment Term. Unless earlier terminated in accordance with the terms
of this Agreement, the Executive's term of employment by the Company (the
"Employment Term") shall be for the five (5) year period commencing on the date
hereof and ending on the earlier of March 31, 2004 (the "End Date") or the
effective closing date of the exercise by the Employee or Tahiti of their
repurchase option under Section 13.16 of the Asset Purchase Agreement (the
"Repurchase Date").
4. Confidential Information. The Executive acknowledges that any use of the
Confidential Information (as defined below) by the Executive, other than for the
sole benefit of the Company or its subsidiaries, affiliates and divisions, would
be wrongful and cause irreparable harm to the Company. Accordingly, the
Executive shall not, at any time during or within one (1) year subsequent to the
termination of his employment by the Company for any reason, without the express
written consent of the Company publish, disclose or divulge to any person, firm
or company, or use, directly or indirectly, for his own benefit or for the
benefit of any person, firm or company, for use other than for the Company or
its subsidiaries, affiliates and divisions, any of the Company's trade secrets
or Confidential Information.
For purposes of this Section 4, "Confidential Information" includes, but is
not limited to, all data, reports, interpretations, forecasts, records,
statements (written and oral) and
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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 the Executive during the Executive's employment by
the Company. In addition, all other information disclosed to the Executive or
which the Executive shall obtain during such employment with the Company which
the Executive has a reasonable basis to believe to be confidential, or which the
Executive has a reasonable basis to believe the Company treats as confidential,
shall be presumed to be Confidential Information.
The Executive's obligation under this Section 4 shall not apply to any
information which (i) is generally available to and known by the public other
than as a result of disclosure by the Executive in violation of this Agreement,
(ii) was or becomes available to the Executive on a non-confidential basis from
a third party not under an obligation of confidence in respect thereof or (iii)
the Executive is required to disclose as a matter of law or court order;
provided that the Executive give the Company prior notice of such disclosure so
that the Company may attempt to obtain a protective court order to prevent the
disclosure thereof.
5. Salary and Expenses.
(A) Base Salary. The Company shall pay the Executive an annual base salary
of Five Hundred Thousand ($500,000) Dollars in accordance with the normal
payroll practices of the Company, but no less frequently then bi-weekly.
(B) Bonus. The Executive shall be paid an annual bonus (the "Bonus") equal
to the product of the percentage set forth below multiplied by the "NOI" for the
Signal Branded Division for each fiscal year during the Employment Term
commencing with the fiscal year ending March 31, 2000. The term "NOI" means
earnings before interest expense on long term debt and income taxes increased or
decreased by any reasonable intercompany allocations of general and
administrative expenses. Notwithstanding the foregoing, for the purposes of
determining NOI for the year ending March 31, 2000, no net losses attributable
to either of the Umbro, Signal Sport or Big Ball divisions of the Signal Branded
Division shall be used to determine the NOI for such year.
Fiscal Year Commencing April 1, 1999 and Ending March 31, 2000
NOI Percentage
--- ----------
$0 - 4,500,000 0
$4,500,001 - $6,000,000 2.5% of amount in excess of $4,500,00
$6,000,001 - $8,000,000 2.5% of $6,000,000 plus
5% of amount in excess of $$6,000,000
$8,000,001 - $10,000,000 5% of $8,000,000 plus 7.5% of amount in
excess of $8,000,000
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over $10,000,000 7.5% of all NOI
Fiscal Years Ending on March 31, 2000, 2002, 2005 and 2004
NOI Percentage
--- ----------
$0 - 5,000,000 0
$5,000,001 - $6,000,000 2.5% of amount in excess of $5,000,00
$6,000,001 - $8,000,000 2.5% of $6,000,000 plus
5% of amount in excess of $$6,000,000
$8,000,001 - $10,000,000 5% of $8,000,000 plus 7.5% of amount in
excess of $8,000,000
over $10,000,000 7.5% of all NOI
NOI shall be calculated in accordance with generally accepted accounting
principles as all such amounts are set forth in the internal unaudited financial
statements of the Company. The Bonus shall be paid within ten days of the
completion of the Company's quarterly periodic report on Form 10-Q, but in no
event later than May 30, of the year succeeding the fiscal year for which the
Bonus is earned (the "Payment Date"). Together with the payment of the Bonus, or
if no Bonus is due, on the Payment Date, the Company shall deliver to the
Executive a detailed statement calculating NOI for the prior fiscal year and the
calculation of the Bonus, if any. Within thirty (30) days after the delivery of
the statement of NOI and Bonus calculation, the Executive may notify the Company
of any objections or changes thereto, specifying in reasonable detail any such
objections or changes. If the Executive does not notify the Company of any
objections or changes thereto or if within twenty (20) days of the delivery of
an objection notice the Executive and the Company agree on the resolution of all
objections or changes, then such statements delivered by the Company, with such
changes as are agreed upon, shall be final and binding. If the parties shall
fail to reach an agreement with respect to all objections or changes within such
twenty (20) day period, then all disputed objections or changes shall, not later
than ten (10) days after the expiration of such twenty (20) day period, be
submitted for resolution to an impartial certified public accounting firm of
national standing which is reasonably acceptable to the parties (the
"Independent Auditor"). All of the parties shall use reasonable efforts to cause
such Independent Auditor, within twenty (20) days of its appointment, to use its
best judgment in resolving the disputes submitted to it. The statements
delivered by the Company, as adjusted by the parties or the Independent Auditor,
shall be final and binding. The fees and costs of such Independent Auditor shall
be paid by the Executive if the adjustment to the amount of the Bonus by the
Independent Auditor is less than two (2%) percent and by the Company if the
adjustment to the amount of the Bonus by the Independent Auditor is greater than
two (2%) percent. The Company agrees to permit the Executive and his legal
counsel and accounting firm and the Independent Auditor, if any, to have
reasonable access upon prior notice during normal business hours to its books
and records (including, without
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limitation, the work papers of its accountants) and its representatives and
accountants, in each case in connection with the Executive's review of the
statement calculating the Bonus and NOI. The Bonus shall be deemed earned in
full on March 31 of each year and shall be paid notwithstanding a subsequent
termination for any reason and, except as is set forth in Sections 8(C)(ii) and
8(D)(g) shall not be paid in respect of any fiscal year in which the Executive
is terminated prior to March 31.
(C) The Company shall reimburse the Executive 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 on senior
executive officers from time to time as set forth in the Company's standard
practices and procedures. The Executive shall be provided with a Company credit
card to be used solely for business expenses if other senior executive officers
are provided with such a card. The Executive shall provide the Company with
detailed evidence reasonably satisfactory to the Company of all expenses charged
to the Company credit card.
(D) Signing Bonus. Upon the execution hereof, and in consideration for
entering into the Employment Agreement, the Company shall pay to Executive the
sum of Two Hundred and Fifty Thousand ($250,000.00).
6. Additional Benefits. In addition to the compensation described in
Section 5, the Executive shall be entitled during the Employment Term to receive
the following additional benefits:
(A) Health Insurance. The Executive shall participate during the Employment
Term in such life insurance, health, disability, dental and major medical
insurance plans, and in such other employee benefit plans and programs, for the
benefit of the senior executive officers of the Company, as may be maintained
from time during the Employment Term in each case to the extent and in the
manner available to other senior executive officers of the Company and subject
to the terms and provisions of such plans or programs.
(B) Retirement Plans. The Executive shall be eligible to participate in the
Company's 401(k) retirement plan and such other retirement plans as may be
established by the Company from time to time in accordance with the provisions
of the applicable plan and to the extent permitted under applicable law.
(C) Holidays and Vacations. The Executive shall be entitled to such paid
holidays as may be designated by the Company. In addition to holidays during
which the Company's offices are closed, the Executive shall be entitled to the
following paid holidays and to observe the Jewish Sabbath: Yom Kippur, Rosh
Hashanah (2 days), Succoth (first 2 days), Shemini Atzeret, Simchat Torah,
Passover (4 days), and Shavuoth (2 days). In addition, the Executive shall be
entitled to four (4) weeks of paid vacation for each calendar year during the
Employment Term; such vacation to be taken at such time or times as are
consistent with the business needs of the Company and the performance of the
Executive's duties and responsibilities hereunder. The Executive shall be
entitled to accumulate, carry forward and use for a period of six (6) months any
vacation not used during a calendar year.
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(D) Sick leave. The Executive shall be entitled to sick leave in accordance
with Company practices related to senior executive officers as they may exist
from time to time.
(E) Automobile Allowance. The Company will reimburse the Executive, an
amount up to One Thousand Six Hundred Ninety Nine Dollars and Fifty Cents
($1,699.50) per month during the Employment Term for automobile expenses (car,
maintenance, gas, insurance) incurred by him in connection with the performance
of his duties hereunder during the Employment Term.
(F) Travel. The Executive shall travel on a first class basis during all
business trips required for Company business. All airline miles earned on such
trips shall be for the account of the Company. The Executive shall exercise
reasonable efforts to use such miles to obtain upgrades to first class.
7. Designees on the Board and Executive Committee. From and after the date
hereof and so long as the Executive is employed by the Company pursuant to the
terms of this Agreement the Company shall use its reasonable best efforts
(subject to the Board's fiduciary responsibilities) to cause the Executive to be
nominated for election as a director of the Company and (B) the Executive and
Michael Harary to be appointed to the Executive Committee of the Board.
8. Termination Of Employment.
(A) The Executive's employment pursuant to this Agreement (i) shall
terminate upon the death of the Executive, (ii) may be terminated upon his
inability, by reason of a mental or physical illness, to perform his duties
hereunder for a period of one hundred twenty (120) consecutive days
("Disability") upon written notice of termination given by the Company to the
Executive, (iii) may be terminated for "Cause" (as defined below) by the Company
at any time prior to the End Date immediately upon written notice of termination
(except as provided otherwise below) given by the Company to the Executive
describing such Cause and (iv) may be terminated for a "Change in Control" (as
defined below) by the Executive immediately upon written notice of termination
(except as otherwise provided below) given by the Executive to the Company.
For purposes of this Agreement, "Cause" for termination shall be deemed to
exist if: (i) the Executive is convicted of, or enters a plea of guilty or nolo
contendre to a criminal felony; (ii) the Executive is convicted of, or enters a
plea of guilty or nolo contende to a serious criminal misdemeanor involving
theft, dishonesty or moral turpitude; (iii) the Executive engages in material
dishonesty or fraud involving the Company or any of its subsidiaries, affiliates
or divisions; (iv) the Executive breaches any of his material obligations as an
employee (or as an officer or director, as applicable) of the Company, or any
material obligations assigned to the Executive by the CEO or the Chairman of the
Board in accordance with the terms of this Agreement, or any fiduciary duties or
responsibilities to the Company or its stockholders; or (v) the Executive
breaches any material provisions of this Agreement, including, without
limitation, the provisions set forth in Section 4, 10 or 11.
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Any written notice of termination for Cause pursuant to this Section 8
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 the Executive'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 the Executive's employment is
terminated for Cause pursuant to subsection (iv) or (v) of the definition of
Cause above, the Executive shall have a period of thirty (30) days to cure the
breach of the Executive's obligations under this Agreement as described in the
notice of termination. In the event that the Executive cures such breach within
said thirty (30) day period, the notice of termination shall be considered
rescinded. In the event that the Executive fails to cure such breach, then this
Agreement shall terminate without further notice to the Executive as set forth
in the notice of termination, and the provisions of Section 8(B) shall be
applicable. The Executive shall not have the opportunity to cure any termination
for Cause pursuant to subsection (i), (ii) or (iii) of the definition of Cause
above. In the event that the Company terminates the Executive under subsection
(ii), the Executive may within fifteen (15) days of the effective date of the
notice of termination dispute in writing that the misdemeanor was "serious". In
the event such a timely dispute notice is given, the Executive shall be deemed
to be suspended with full pay and benefits and the issue of whether or not the
misdemeanor is serious shall be submitted to arbitration as provided in Section
16 hereof. In the event that the arbitrator determines that the misdemeanor was
"serious" the termination shall be effective as of the date of the confirmation
of the arbitrator's ruling by a court of competent jurisdiction. In the event
that the arbitrator determines that the misdemeanor is not "serious" the notice
of termination shall be deemed withdrawn and suspension vacated as of the date
of the confirmation of the arbitrator's ruling by a court of competent
jurisdiction and, the Executive's employment shall be reinstated hereunder as
the President of the Signal Branded Division as of such date. Any termination
for Cause or Disability must be approved by the affirmative vote of a majority
of the Board after giving the Executive notice of the meeting and an
opportunity, together with counsel, to be heard on such issue.
(B) In the event (i) the Executive's employment under this Agreement is
terminated for Cause as provided above, or (ii) the Executive voluntarily
terminates his employment with the Company other than as described in or
pursuant to Section 8(D), in each case prior to the End Date, the Company shall
promptly pay to the Executive (or to his beneficiaries or legal representatives)
the amount of any unpaid compensation in respect of the period prior to such
termination pursuant to Sections 5(A) and (B) plus the amount of any
reimbursable expenses. No other payments shall be due the Executive (or his
beneficiaries or legal representatives).
(C) In the event the Executive's employment under this Agreement is
terminated as a result of his death or his Disability pursuant to Section 8(A),
prior to the End Date, the Company shall promptly pay to the Executive (or to
his beneficiaries or legal representatives) (i) the amount of any unpaid
compensation attributable to periods prior to such termination pursuant to
Sections 5 (A) and (B) plus six (6) months base salary; and (ii) a pro rata
amount of the Bonus under Section 5(B) for the year in which the termination
occurs calculated as follows: an amount equal to the Bonus that would have been
paid had the Executive been employed on March 31 of the year in which he was
terminated multiplied by a fraction, the
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<PAGE>
numerator of which is the number of days during the year prior to termination
and the denominator of which is 365, and (iii) the amount of any reimbursable
expenses. No other payments shall be due the Executive (or his beneficiaries or
legal representatives).
(D) In the event, prior to the End Date, (i) the Executive's employment is
terminated without Cause (it being understood that a purported termination for
Cause which is disputed and finally determined not to have been proper shall be
a termination by the Company without Cause) by the Company, or (ii) the
Executive loses his employment for any other reason other than pursuant to
Section 8(A) or by reason of his voluntary termination of employment, including,
but not limited to, the bankruptcy, closure, reorganization, buyout, merger or
consolidation of the Company, or (iii) the Executive's employment is terminated
by the Executive, by written notice to the Company, on the following grounds:
(A) the Executive, without the Executive's approval, receives a material
diminution in responsibilities, title, reporting requirements, authority, or
position from the level of the Executive's responsibilities, title, position,
authority or reporting requirements as of the commencement of the Employment
Term or as amended with the Executive's written consent, and the Executive
elects to terminate his employment in writing as a result of and within thirty
(30) days of written notice of such diminution, or (B) any breach by the Company
of the material provisions of this Agreement which breach shall continue
unremedied for ten (10) days after written notice thereof by the Executive to
the Company or (C) a relocation of the Executive's principal base of operation
to any location other than the locations described in Section 1 and the
Executive elects to terminate his employment in writing as a result of and
within ninety (90) days of such relocation; or (D) a Financing Default by the
Company, as that term is defined in Section 13.16 of the Asset Purchase
Agreement; then the Executive shall be entitled to the following: (a) the amount
of any unpaid compensation attributable to periods prior to such termination
pursuant to Sections 5(A) and (B); (b) the amount of any reimbursable expenses;
(c) the Company shall pay to the Executive in cash, a lump sum payment amount
equal to his base salary for the period commencing on the date of termination
through the earlier of the two (2) year anniversary of the effective date of the
termination and the End Date (the "Post Termination Period"); (d) the Executive
shall continue to be entitled to and shall receive his benefits under Sections
6(A) and (E) hereof during the Post Termination Period; (e) the Company shall
also pay all amounts the Executive would have received under the Company's
pension plan, if any, if the Company had not terminated this Agreement without
Cause or the Executive's employment had not terminated this Agreement under this
Section 8(D), and had the Executive's employment continued through the End Date
at the rate of compensation specified herein; (f) the entire Bonus payable under
Section 5(b) as if the Executive was employed on March 31 of the year in which
the termination occurs; and (g) any incentive compensation and options granted
to Executive that have not vested as of the date of termination shall
immediately vest upon the date of termination. Neither the occurrence of a
termination, nor the vesting in any options as a result thereof shall require
Executive to exercise any options. In the event of a conflict between any
incentive compensation grant agreement or program or any option grant agreement
or plan and this Agreement, the terms of this Agreement shall control. No other
payments shall be due the Executive.
(E) Change in Control. The Executive shall have the right to terminate his
employment hereunder on or within three (3) months following a Change in
Control. For purposes of this Agreement "Change in Control" shall mean that any
of the following events has
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<PAGE>
occurred: (A) any "person" or "group" of persons, as such terms are used in
Sections 13 and 14 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), other than any employee benefit plan sponsored by the Company,
becomes the "beneficial owner", as such term is used in Section 13 of the
Exchange Act (irrespective of any vesting or waiting periods) of (i) common
stock of the Company (the "Common Stock") or any class of stock convertible into
Common Stock in an amount equal to thirty five (35%) percent or more of the
Common Stock (treating all classes of outstanding Common Stock or other
securities convertible into Common Stock as if they were converted into Common
Stock) issued and outstanding immediately prior to such acquisition as if they
were a single class and disregarding any equity raise in connection with the
financing of such transaction; or (B) the dissolution or liquidation of the
Company or the consummation of any merger or consolidation of the Company or any
sale or other disposition of all or substantially all of its assets, if the
shareholders of the Company taken as a whole and considered as one class
immediately before such transaction own, immediately after consummation of such
transaction, equity securities possessing less than fifty (50%) percent of the
surviving or acquiring entity taken as a whole. In the event that the Executive
terminates his employment because of a Change in Control, the Executive shall be
entitled to a lump sum payment equal to the Executive annual base salary.
Additionally, any incentive compensation and options granted to Executive that
have not vested as of the date of a Change in Control shall immediately vest
upon the date of the Change in Control. Neither the occurrence of a Change in
Control, nor the vesting in any options as a result thereof shall require
Executive to exercise any options. In the event of a conflict between any
incentive compensation grant agreement or program or any option grant agreement
or plan and this Agreement, the terms of this Agreement shall control.
(F) Excise Tax Gross Up. In addition, if it is determined by an independent
accountant mutually acceptable to the Company and Executive that as a result of
any payment in the nature of compensation made by the Company to (or for the
benefit of) Executive pursuant to this Agreement or otherwise, an excise tax may
be imposed on Executive pursuant to Section 4999 of the Code (or any successor
provisions) , the Company shall pay Executive in cash an amount equal to X
determined under the following formula: (the "Excise Tax Gross Up")
X = E x P
----------------------------
1 - [(FI x (1-SLI) + E+M]
where
E = the rate at which the excise tax is assessed under Section 4999
of the Code (or any successor (provisions)
P = the amount with respect to which such excise tax is assessed,
determined without regard to the Excise Tax Gross Up;
FI = the highest effective marginal rate of income tax applicable to
Executive under the Code for the taxable year in question
(taking into account any
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<PAGE>
phase-out or loss of deductions, personal exemptions or other
similar adjustments);
SLI = the sum of the highest effective marginal rates of income tax
applicable to Executive under all applicable state and local
laws for the taxable year in question (taking into account any
phase-out or loss of deductions, personal exemptions and other
similar adjustments); and
M = the highest marginal rate of Medicare tax applicable to
Executive under the Code for the taxable year in question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Executive under the terms of this Agreement or otherwise and
on which an excise tax under Section 4999 of the Code (or any successor
provisions) may be assessed, the payment determined under this sub-paragraph
9(d) shall be paid to Executive at the time of the Change in Control but prior
to the consummation of the transaction with any successor. It is the intention
of the parties that the Company provide Executive with a full tax gross-up under
the provisions of this Section, so that on a net after-tax basis, the result to
Executive shall be the same as if the excise tax under Section 4999 of the Code
(or any successor provisions) had not been imposed. The Excise Tax Gross Up may
be adjusted if alternative minimum tax rules are applicable to Executive.
(G) In the event the Executive shall violate any of the provisions of
Section 4, 9, 10 or 11, all compensation and/or benefit continuations which he
is then receiving from the Company shall cease if such violation is not cured
within thirty (30) days of written notice thereof.
(H) The Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise.
Payments to the Executive provided for in this Agreement shall be made without
set off or reduction for compensation received for subsequent employment.
Payments being made pursuant to this Section 8 shall survive the death of the
Executive.
9. Duty Of The Executive Upon Termination. The Executive 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 then in the
Executive's possession.
10. Covenant Not to Solicit. During the Employment Term and the applicable
Restricted Period, the Executive shall not, directly or indirectly, on the
Executive's own behalf or on behalf of any other person, company, partnership or
any other entity, whether as an employee, officer, director, proprietor,
partner, investor, consultant, advisor, agent or in any other capacity, (i)
induce or attempt to induce any customer of the Company to reduce its business
with the Company, (ii) divert from the Company any business or supplier thereto,
(iii) hire any employee of the Company (or any person who was an employee of the
Company at any time during the six (6) months immediately preceding the date of
hire) or (iv) solicit or attempt to solicit any
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employee of the Company to leave the employ of the Company, nor shall the
Executive affiliate or associate with any party engaging in the above actions.
11. Covenant Not To Compete. As a material inducement to the Company to
enter into this Agreement and into that certain Asset Purchase Agreement, dated
as of December 18, 1998 (the "Asset Purchase Agreement"), between the Company,
Tahiti and the stockholders of Tahiti, including the Executive, and in
consideration of the compensation to be paid hereunder and the purchase price
paid under the Asset Purchase Agreement, the Executive agrees, during the
Employment Term and during the applicable Restricted Period, not to compete,
directly or indirectly, in any manner with any business conducted by the
Company. The Executive further agrees, during the Employment Term and during the
applicable Restricted Period, not to enter, directly or indirectly, into the
employ of or render any service to or invest in, any person, corporation,
partnership or any other entity which competes with a any business conducted by
the Company at the time the Employment Term expires or was terminated. The
Executive expressly acknowledges that this covenant does not impose economic
hardship on him. Notwithstanding anything herein to the contrary, this Section
11 shall not prevent the Executive from acquiring securities representing not
more than two percent (2%) of the outstanding voting securities of any
publicly-held corporation.
For purposes hereof the term Restricted Period shall mean the following:
(i) In the event that the Executive's employment is terminated by the
Company without Cause or by the Executive under Section 8(D), the Restricted
Period shall be equal to a period of one (1) year, provided the Company
continues to make those payments required under this Agreement through the Post
Termination Period, and if by reason of the Executive's Disability, there shall
be no Restricted Period.
(ii) In the event that the Executive voluntary terminates his employment or
is terminated by the Company for Cause, the Restricted Period shall be the
lesser of one (1) year and the period ending on the End Date, provided, however,
that if the Restricted Period is less than one (1) year, the Restricted Period
shall continue for a period after the End Date so that the Restricted Period
equals one (1) year if the Price and Liquidity Conditions set forth in (iii)
below are satisfied on the End Date.
(iii) In the event that the Executive's employment terminates on the End
Date, the Restricted Period shall be one (1) year only if the average Closing
Price of the Company's Common Stock for the sixty (60) day period immediately
preceding the End Date is at least $5.00 per share (the "Stock Price") and the
average daily trading volume for the sixty (60) day period immediately preceding
the End Date is 150,000 shares per day (the "Price and Liquidity Conditions").
The Stock Price shall be adjusted for all stock splits, reverse stock splits,
stock dividends, and similar transactions. The term Closing Price shall mean on
any day when used with respect to the Common Stock the reported last sale price
regular way on composite tape, or, if the shares of Common Stock are not quoted
on the composite tape, the reported last sale price on the New York or the
American Stock Exchange or, if the shares of Common Stock are not listed or
admitted to trading on either such Exchange, as reported on The Nasdaq Stock
Market, or if the shares of Common Stock are not quoted on such system, the
average of the
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closing bid and asked prices as reported by the OTB Bulletin Board or the
National Quotation Bureau, Inc.
(iv) In the event that (a) the Executive terminates his employment upon a
Change in Control under Section 8(e) or (b) the Executive's employment
terminates on the Repurchase Date, there shall be no Restricted Period.
(v) The provisions of Sections 10 and 11 hereof shall be void and not
effective if the Company breaches Section 8 (D), (E) or (F).
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 term 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. Injunctive Relief. It is understood and agreed by the parties hereto
that a breach by the Executive under Section 4, 10 or 11 will cause the Company
substantial and irreparable injury and damage which cannot reasonably or
adequately be compensated in damages in any action at law. In recognition
thereof, the Company and the Executive hereby agree that, notwithstanding the
provisions of Section 16 below, in the event of any such breach or threatened
breach, the Company will be entitled to the remedies of injunction, specific
performance, and other equitable relief to prevent a breach or threatened breach
of this Agreement. The parties further agree that this Section 13 shall not in
any way limit remedies at law or in equity otherwise available to the Company.
14. Entire Agreement. The parties understand and agree that this Employment
Agreement constitutes the entire agreement between the parties regarding the
terms and conditions of the Executive's employment by the Company, 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 Executive, unless by
amendment to this Agreement executed in writing by both parties.
15. Governing Law; Forum. This Agreement shall be governed by, construed
and enforced in accordance with the laws of the State of New York. Subject to
the provisions of Section 16 below, each of the parties hereto hereby
irrevocably and unconditionally submits to the exclusive jurisdiction of any
court of the City and State of New York or any federal court sitting in the City
and State of New York for purposes of any suit, action or other proceeding
arising out of this Agreement (and agrees not to commence any action, suit or
proceeding relating hereto except in such courts). Each of the parties hereto
agrees that service of any process, summons, notice or document by U.S.
registered mail at its address set forth herein shall be effective service of
process for any action, suit or proceeding brought against it in any such court.
Each of the parties hereto hereby irrevocably and unconditionally waives any
objection to
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the laying of venue of any action, suit or proceeding arising out of this
Agreement, which is brought by or against it, in the courts of the State of New
York or any federal court sitting in the City and of State of New York and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum.
16. Arbitration. Except as expressly provided herein, 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 New York, New York 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.
17. Survival. Subject to Section 11(v) the covenants of Sections 4, 9, 10,
11, 12, 13, 14, 15 and 16 shall survive any termination or expiration of this
Agreement.
18. Notice. All notices 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 to such other address as a
party may subsequently specify in writing. All such notices and communications
shall be deemed to have been received on the third business day after the
mailing thereof, on the date that the facsimile is confirmed as having been
received, or on the date of personal delivery, as the case may be.
19. Miscellaneous.
(A) Any reference to the Company in Section 4, 9, 10 or 11 shall also
include the Company's subsidiary and/or affiliated companies and divisions.
(B) This Agreement shall be binding upon and inure to the benefit of the
Company and may not be assigned by the Company except to a successor of the
Company. This Agreement is personal to the Executive and may not be assigned or
otherwise transferred by the Executive. This Agreement shall also inure to the
benefit or, and be enforceable by, the Executive and his personal or legal
representatives, executors, administrators, successors, heirs, distributees,
divisees and legatees.
20. Attorney's Fees. In the event of any legal proceeding between the
parties hereto arising out of the subject matter of this Agreement, including
any such proceeding to enforce any right or provision hereunder which proceeding
shall result in the rendering by a court of competent jurisdiction a decision in
favor of a party hereto, the non-prevailing party shall pay to the prevailing
party all reasonable costs and expenses incurred therein by the prevailing
party, including, without
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limitation, reasonable attorney's fees, which costs, expenses and attorneys'
fees shall be included in and be a part of any award or judgment rendered in
such legal proceeding.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first set forth above.
SIGNAL APPAREL COMPANY, INC.
Dated: March 16, 1999 By: /s/ Thomas A. McFall
----------------------------
Its: CEO
----------------------------
Dated: March 16, 1999
/s/ Zvi Ben-Haim
--------------------------------
ZVI BEN-HAIM
15
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated as of March 16, 1999, is made between
SIGNAL APPAREL COMPANY, INC., an Indiana corporation with its principal offices
at 200-A Manufacturers Road, Chattanooga, Tennessee 37405 (the "Company"), and
Michael Harary, residing at 5 Ross Court, Oakhurst, New Jersey 07755 (the
"Executive").
RECITALS:
WHEREAS, on the date hereof the Company has acquired (the "Acquisition")
substantially all of the assets of Tahiti Apparel, Inc. ("Tahiti") pursuant to
an Asset Purchase Agreement, dated December 18, 1998 (the "Asset Purchase
Agreement");
WHEREAS, the Executive was the Vice President of Tahiti prior to the
Acquisition and the Company desires to employ the Executive in an executive
capacity;
WHEREAS, the Company intends to operate the business of Tahiti as part of
the Signal Branded Division of the Company or through a wholly owned subsidiary
of the Company (such division or subsidiary is hereafter referred to as the
"Signal Branded Division"); and
WHEREAS, the Company and the Executive have reached an understanding with
respect to the employment of the Executive by the Company and 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 Executive as its Executive Vice
President of the Signal Branded Division, which shall include overseeing and
managing the activities of the Tahiti, Umbro, Big Ball and Signal Sports
divisions, and the Executive shall work for the Company in such capacity upon
the terms and conditions set forth herein and shall perform such duties, and
have such powers, authority, functions, duties and responsibilities for the
Company as are commensurate and consistent with such position and as may be
assigned to the Executive by the Company's Chief Executive Officer (the "CEO")
or Chairman (the "Chairman of the Board") of the Company's board of directors
(the "Board") from time to time. Notwithstanding the foregoing, the Employee,
together with Zvi Ben-Haim, if Zvi Ben-Haim is employed by the Company, shall
have the authority to manage and operate the day to day activities of the Signal
Branded Division subject to being in compliance with the annual budget of the
Signal Branded Division adopted by the Board. Without limiting the generality of
the foregoing, the Employee and Zvi Ben-Haim do not require the approval or
consent of the Board for any day to day activities of the Signal Branded
Division, including purchases of raw materials, manufacturing of goods,
merchandising, sales, and hiring and firing of employees of the Signal Branded
Division. A new division or business (a "New Division") may only be added to the
Signal Branded Division with the prior written consent of the Executive. The
Company may not reassign the Tahiti division, New Division or Big Ball division
from the Signal Branded Division to another division, subsidiary or affiliate of
the Company without the prior written
<PAGE>
consent of the Executive. The Company may reassign the Signal Sports division
from the Signal Branded Division to another division, subsidiary or affiliate of
the Company without the prior written consent of the Executive. The Company may
only reassign the Umbro division from the Signal Branded Division to another
division, subsidiary or affiliate prior to January 1, 2001 with the prior
written consent of the Executive. The Company may reassign, upon prior written
notice to the Executive, the Umbro division from the Signal Branded Division to
another division, subsidiary or affiliate after December 31, 2000 without the
prior written consent of the Executive. If the reassignment of the Umbro
division occurs within sixty (60) days of the end of the prior calendar year and
in the prior calendar year the Umbro division did not operate substantially
within the annual calendar year budget for the Umbro division reasonably adopted
by the Board for the prior calendar year (the "Budget"), then, the positive NOI
of the Umbro division shall be included in the NOI for the Signal Branded
Division for purposes of calculating the Bonus under Section 5(b) hereof during
the calendar year in which the reassignment occurs. In the event that the
Company reassigns the Umbro division at any time after December 31, 2000 either
(x) more than sixty (60) days after the end of a calendar year or (y) within
sixty (60) days after the end of a calendar year, notwithstanding that the Umbro
division operated substantially within Budget during the prior calendar year,
then the positive NOI of the Umbro division during the calendar year in which
the reassignment takes place and for an additional eighteen months shall be
included in the NOI of the Signal Branded Division for purposes of calculating
the Bonus under Section 5(b), not to exceed the later of the fiscal year ending
March 31, 2004 and the date that the term of this agreement is extended, if any.
Any notice of reassignment on the basis that the Umbro division did not operate
within the Budget shall be accompanied by a reasonably detailed statement (the
"Budget Statement") stating the basis for the conclusion that the Umbro division
did not operate within the Budget. Within thirty (30) days after the delivery of
the Budget Statement, the Executive may notify the Company of any objections
thereto, specifying in reasonable detail any such objections. If the Executive
does not notify the Company of any objections thereto or if within twenty (20)
days of the delivery of an objection notice the Executive and the Company agree
on the resolution of all objections, then such statements delivered by the
Company, with such changes as are agreed upon, shall be final and binding. If
the parties shall fail to reach an agreement with respect to all objections
within such twenty (20) day period, then all disputed objections shall, not
later than ten (10) days after the expiration of such twenty (20) day period, be
submitted for resolution to an impartial certified public accounting firm of
national standing which is reasonably acceptable to the parties (the
"Independent Auditor"). All of the parties shall use reasonable efforts to cause
such Independent Auditor, within sixty (60) days of its appointment, to use its
best judgment in resolving the disputes submitted to it. The statements
delivered by the Company, as adjusted by the parties or the Independent Auditor,
shall be final and binding. The fees and costs of such Independent Auditor shall
be paid by the Company if the Independent Auditor concludes that the Umbro
division did operate substantially within the Budget and by the Executive if the
Independent Auditor concludes that the Umbro division did not operate
substantially within the Budget. The Company agrees to permit the Executive and
his legal counsel and accounting firm and the Independent Auditor, if any, to
have reasonable access upon prior notice during normal business hours to its
books and records (including, without limitation, the work papers of its
accountants) and its representatives and accountants, in each case in connection
with the Executive's review of the Budget Statement. If the Independent Auditor
concludes that the Umbro division did operate within the Budget, the
reassignment shall be deemed to be under Except for Zvi Ben-Haim, the
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Executive shall be the senior executive officer of the Signal Branded Division
and shall only report directly to the Board, and the CEO.
The principal location of the Executive's employment shall be within a 50
mile radius of New York County in the State of New York or New Jersey, although
the Executive understands and agrees that he shall be required to travel from
time to time for business reasons.
2. Exclusive Agreement.
(A) During the term of this Agreement, the Executive shall (i) devote all
of his working time, attention and energies to the affairs of the Company and
its subsidiaries, affiliates and divisions, (ii) use his best efforts to promote
its and their best interests, (iii) diligently perform his duties and
responsibilities hereunder and (iv) comply with, and be bound by the operational
policies, procedures and practices of the Company from time to time in effect
during the term, provided such procedures are not hereinafter enacted so as to
discriminate against the Executive's religious observance and, further provided,
such procedures are applied to all senior executive officers.
(B) Section 2(A) shall not be construed to prevent the Executive from
having other investments and personal ventures and being a member of the board
of directors of other entities and industry groups and doing charity work,
which, from time to time, may require minimal portions of his time, but which
ventures, investments, directorships, charity work, and/or the time associated
therewith shall not (i) interfere or be in conflict with his duties hereunder,
(ii) be in competition in any way with the business of the Company, (iii)
involve the Executive's active participation in such business investments or
ventures for more than minimal portions of his time or (iv) be in violation of,
or in conflict with, any of the restrictions set forth in Section 11 hereof.
3. Employment Term. Unless earlier terminated in accordance with the terms
of this Agreement, the Executive's term of employment by the Company (the
"Employment Term") shall be for the five (5) year period commencing on the date
hereof and ending on the earlier of March 31, 2004 (the "End Date") or the
effective closing date of the exercise by the Employee or Tahiti of their
repurchase option under Section 13.16 of the Asset Purchase Agreement (the
"Repurchase Date").
4. Confidential Information. The Executive acknowledges that any use of the
Confidential Information (as defined below) by the Executive, other than for the
sole benefit of the Company or its subsidiaries, affiliates and divisions, would
be wrongful and cause irreparable harm to the Company. Accordingly, the
Executive shall not, at any time during or within one (1) year subsequent to the
termination of his employment by the Company for any reason, without the express
written consent of the Company publish, disclose or divulge to any person, firm
or company, or use, directly or indirectly, for his own benefit or for the
benefit of any person, firm or company, for use other than for the Company or
its subsidiaries, affiliates and divisions, any of the Company's trade secrets
or Confidential Information.
For purposes of this Section 4, "Confidential Information" includes, but is
not limited to, all data, reports, interpretations, forecasts, records,
statements (written and oral) and
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<PAGE>
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 the Executive during the Executive's employment by
the Company. In addition, all other information disclosed to the Executive or
which the Executive shall obtain during such employment with the Company which
the Executive has a reasonable basis to believe to be confidential, or which the
Executive has a reasonable basis to believe the Company treats as confidential,
shall be presumed to be Confidential Information.
The Executive's obligation under this Section 4 shall not apply to any
information which (i) is generally available to and known by the public other
than as a result of disclosure by the Executive in violation of this Agreement,
(ii) was or becomes available to the Executive on a non-confidential basis from
a third party not under an obligation of confidence in respect thereof or (iii)
the Executive is required to disclose as a matter of law or court order;
provided that the Executive give the Company prior notice of such disclosure so
that the Company may attempt to obtain a protective court order to prevent the
disclosure thereof.
5. Salary and Expenses.
(A) Base Salary. The Company shall pay the Executive an annual base salary
of Five Hundred Thousand ($500,000) Dollars in accordance with the normal
payroll practices of the Company, but no less frequently then bi-weekly.
(B) Bonus. The Executive shall be paid an annual bonus (the "Bonus") equal
to the product of the percentage set forth below multiplied by the "NOI" for the
Signal Branded Division for each fiscal year during the Employment Term
commencing with the fiscal year ending March 31, 2000. The term "NOI" means
earnings before interest expense on long term debt and income taxes increased or
decreased by any reasonable intercompany allocations of general and
administrative expenses. Notwithstanding the foregoing, for the purposes of
determining NOI for the year ending March 31, 1999, no net losses attributable
to either of the Umbro, Signal Sport or Big Ball divisions of the Signal Branded
Division shall be used to determine the NOI for such year.
Fiscal Years Commencing April 1, 1999 and Ending March 31, 2000
NOI Percentage
--- ----------
$0 - 4,500,000 0
$4,500,001 - $6,000,000 2.5% of amount in excess of $4,500,00
$6,000,001 - $8,000,000 2.5% of $6,000,000 plus
5% of amount in excess of $$6,000,000
$8,000,001 - $10,000,000 5% of $8,000,000 plus 7.5% of amount in
excess of $8,000,000
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<PAGE>
over $10,000,000 7.5% of all NOI
Fiscal Years Ending March 31, 2000, 2002, 2003 and 2004
NOI Percentage
--- ----------
$0 - 5,000,000 0
$5,000,001 - $6,000,000 2.5% of amount in excess of $5,000,00
$6,000,001 - $8,000,000 2.5% of $6,000,000 plus
5% of amount in excess of $$6,000,000
$8,000,001 - $10,000,000 5% of $8,000,000 plus 7.5% of amount in
excess of $8,000,000
over $10,000,000 7.5% of all NOI
NOI shall be calculated in accordance with generally accepted accounting
principles as all such amounts are set forth in the internal unaudited financial
statements of the Company. The Bonus shall be paid within ten days of the
completion of the Company's quarterly periodic report on Form 10-Q, but in no
event later than May 30, of the year succeeding the calendar year for which the
Bonus is earned (the "Payment Date"). Together with the payment of the Bonus, or
if no Bonus is due, on the Payment Date, the Company shall deliver to the
Executive a detailed statement calculating NOI for the prior fiscal year and the
calculation of the Bonus, if any. Within thirty (30) days after the delivery of
the statement of NOI and Bonus calculation, the Executive may notify the Company
of any objections or changes thereto, specifying in reasonable detail any such
objections or changes. If the Executive does not notify the Company of any
objections or changes thereto or if within twenty (20) days of the delivery of
an objection notice the Executive and the Company agree on the resolution of all
objections or changes, then such statements delivered by the Company, with such
changes as are agreed upon, shall be final and binding. If the parties shall
fail to reach an agreement with respect to all objections or changes within such
twenty (20) day period, then all disputed objections or changes shall, not later
than ten (10) days after the expiration of such twenty (20) day period, be
submitted for resolution to an impartial certified public accounting firm of
national standing which is reasonably acceptable to the parties (the
"Independent Auditor"). All of the parties shall use reasonable efforts to cause
such Independent Auditor, within twenty (20) days of its appointment, to use its
best judgment in resolving the disputes submitted to it. The statements
delivered by the Company, as adjusted by the parties or the Independent Auditor,
shall be final and binding. The fees and costs of such Independent Auditor shall
be paid by the Executive if the adjustment to the amount of the Bonus by the
Independent Auditor is less than two (2%) percent and by the Company if the
adjustment to the amount of the Bonus by the Independent Auditor is greater than
two (2%) percent. The Company agrees to permit the Executive and his legal
counsel and accounting firm and the Independent Auditor, if any, to have
reasonable access upon prior notice during normal business hours to its books
and records (including, without limitation, the work papers of its accountants)
and its representatives and accountants, in each case in connection with the
Executive's review of the statement calculating the Bonus and NOI.
5
<PAGE>
The Bonus shall be deemed earned in full on March 31 of each year and shall be
paid notwithstanding a subsequent termination for any reason and, except as is
set forth in Sections 8(C)(ii) and 8(D)(g) shall not be paid in respect of any
fiscal year in which the Executive is terminated prior to March 31.
(C) The Company shall reimburse the Executive 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 on senior
executive officers from time to time as set forth in the Company's standard
practices and procedures. The Executive shall be provided with a Company credit
card to be used solely for business expenses if other senior executive officers
are provided with such a card. The Executive shall provide the Company with
detailed evidence reasonably satisfactory to the Company of all expenses charged
to the Company credit card.
(D) Signing Bonus. Upon the execution hereof, and in consideration for
entering into the Employment Agreement the Company shall pay to Executive the
sum of Two Hundred and Fifty Thousand ($250,000.00) Dollars and issue to the
Executive _____ shares of the Company's common stock, $.___ par value per share
(the "Bonus Shares"). The Bonus Shares shall be subject to the terms and
conditions of a Registration Rights Agreement and Stock Resale Agreement, both
of even date herewith.
6. Additional Benefits. In addition to the compensation described in
Section 5, the Executive shall be entitled during the Employment Term to receive
the following additional benefits:
(A) Health Insurance. The Executive shall participate during the Employment
Term in such life insurance, health, disability, dental and major medical
insurance plans, and in such other employee benefit plans and programs, for the
benefit of the senior executive officers of the Company, as may be maintained
from time during the Employment Term in each case to the extent and in the
manner available to other senior executive officers of the Company and subject
to the terms and provisions of such plans or programs.
(B) Retirement Plans. The Executive shall be eligible to participate in the
Company's 401(k) retirement plan and such other retirement plans as may be
established by the Company from time to time in accordance with the provisions
of the applicable plan and to the extent permitted under applicable law.
(C) Holidays and Vacations. The Executive shall be entitled to such paid
holidays as may be designated by the Company. In addition to holidays during
which the Company's offices are closed, the Executive shall be entitled to the
following paid holidays and to observe the Jewish Sabbath: Yom Kippur, Rosh
Hashanah (2 days), Succoth (first 2 days), Shemini Atzeret, Simchat Torah,
Passover (4 days), and Shavuoth (2 days). In addition, the Executive shall be
entitled to four (4) weeks of paid vacation for each calendar year during the
Employment Term; such vacation to be taken at such time or times as are
consistent with the business needs of the Company and the performance of the
Executive's duties and
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<PAGE>
responsibilities hereunder. The Executive shall be entitled to accumulate, carry
forward and use for a period of six (6) months any vacation not used during a
calendar year.
(D) Sick leave. The Executive shall be entitled to sick leave in accordance
with Company practices related to senior executive officers as they may exist
from time to time.
(E) Automobile Allowance. The Company will reimburse the Executive, an
amount up to One Thousand Six Hundred Ninety Nine Dollars and Fifty Cents
($1,699.50) per month during the Employment Term for automobile expenses (car,
maintenance, gas, insurance) incurred by him in connection with the performance
of his duties hereunder during the Employment Term.
(F) Travel. The Executive shall travel on a first class basis during all
business trips required for Company business. All airline miles earned on such
trips shall be for the account of the Company. The Executive shall exercise
reasonable efforts to use such miles to obtain upgrades to first class.
7. Designees on the Board and Executive Committee. From and after the date
hereof and so long as the Executive is employed by the Company pursuant to the
terms of this Agreement the Company shall use its reasonable best efforts
(subject to the Board's fiduciary responsibilities) to cause the Executive and
Zvi Ben-Haim to be appointed to the Executive Committee of the Board.
8. Termination Of Employment.
(A) The Executive's employment pursuant to this Agreement (i) shall
terminate upon the death of the Executive, (ii) may be terminated upon his
inability, by reason of a mental or physical illness, to perform his duties
hereunder for a period of one hundred twenty (120) consecutive days
("Disability") upon written notice of termination given by the Company to the
Executive, (iii) may be terminated for "Cause" (as defined below) by the Company
at any time prior to the End Date immediately upon written notice of termination
(except as provided otherwise below) given by the Company to the Executive
describing such Cause and (iv) may be terminated for a "Change in Control" (as
defined below) by the Executive immediately upon written notice of termination
(except as otherwise provided below) given by the Executive to the Company.
For purposes of this Agreement, "Cause" for termination shall be deemed to
exist if: (i) the Executive is convicted of, or enters a plea of guilty or nolo
contendre to a criminal felony; (ii) the Executive is convicted of, or enters a
plea of guilty or nolo contende to a serious criminal misdemeanor involving
theft, dishonesty or moral turpitude; (iii) the Executive engages in material
dishonesty or fraud involving the Company or any of its subsidiaries, affiliates
or divisions; (iv) the Executive breaches any of his material obligations as an
employee (or as an officer or director, as applicable) of the Company, or any
material obligations assigned to the Executive by the CEO or the Chairman of the
Board in accordance with the terms of this Agreement, or any fiduciary duties or
responsibilities to the Company or its stockholders; or (v) the Executive
breaches any material provisions of this Agreement, including, without
limitation, the provisions set forth in Section 4, 10 or 11.
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Any written notice of termination for Cause pursuant to this Section 8
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 the Executive'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 the Executive's employment is
terminated for Cause pursuant to subsection (iv) or (v) of the definition of
Cause above, the Executive shall have a period of thirty (30) days to cure the
breach of the Executive's obligations under this Agreement as described in the
notice of termination. In the event that the Executive cures such breach within
said thirty (30) day period, the notice of termination shall be considered
rescinded. In the event that the Executive fails to cure such breach, then this
Agreement shall terminate without further notice to the Executive as set forth
in the notice of termination, and the provisions of Section 8(B) shall be
applicable. The Executive shall not have the opportunity to cure any termination
for Cause pursuant to subsection (i), (ii) or (iii) of the definition of Cause
above. In the event that the Company terminates the Executive under subsection
(ii), the Executive may within fifteen (15) days of the effective date of the
notice of termination dispute in writing that the misdemeanor was "serious". In
the event such a timely dispute notice is given, the Executive shall be deemed
to be suspended with full pay and benefits and the issue of whether or not the
misdemeanor is serious shall be submitted to arbitration as provided in Section
16 hereof. In the event that the arbitrator determines that the misdemeanor was
"serious" the termination shall be effective as of the date of the confirmation
of the arbitrator's ruling by a court of competent jurisdiction. In the event
that the arbitrator determines that the misdemeanor is not "serious" the notice
of termination shall be deemed withdrawn and suspension vacated as of the date
of the confirmation of the arbitrator's ruling by a court of competent
jurisdiction and, the Executive's employment shall be reinstated hereunder as
the Executive Vice President of the Signal Branded Division as of such date. Any
termination for Cause or Disability must be approved by the affirmative vote of
a majority of the Board after giving the Executive notice of the meeting and an
opportunity, together with counsel, to be heard on such issue.
(B) In the event (i) the Executive's employment under this Agreement is
terminated for Cause as provided above, or (ii) the Executive voluntarily
terminates his employment with the Company other than as described in or
pursuant to Section 8(D), in each case prior to the End Date, the Company shall
promptly pay to the Executive (or to his beneficiaries or legal representatives)
the amount of any unpaid compensation in respect of the period prior to such
termination pursuant to Sections 5(A) and (B) plus the amount of any
reimbursable expenses. No other payments shall be due the Executive (or his
beneficiaries or legal representatives).
(C) In the event the Executive's employment under this Agreement is
terminated as a result of his death or his Disability pursuant to Section 8(A),
prior to the End Date, the Company shall promptly pay to the Executive (or to
his beneficiaries or legal representatives) (i) the amount of any unpaid
compensation attributable to periods prior to such termination pursuant to
Sections 5 (A) and (B) plus six (6) months base salary; and (ii) a pro rata
amount of the Bonus under Section 5(B) for the year in which the termination
occurs calculated as follows: an amount equal to the Bonus that would have been
paid had the Executive been employed on March 31 of the year in which he was
terminated multiplied by a fraction, the
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<PAGE>
numerator of which is the number of days during the year prior to termination
and the denominator of which is 365, and (iii) the amount of any reimbursable
expenses. No other payments shall be due the Executive (or his beneficiaries or
legal representatives).
(D) In the event, prior to the End Date, (i) the Executive's employment is
terminated without Cause (it being understood that a purported termination for
Cause which is disputed and finally determined not to have been proper shall be
a termination by the Company without Cause) by the Company, or (ii) the
Executive loses his employment for any other reason other than pursuant to
Section 8(A) or by reason of his voluntary termination of employment, including,
but not limited to, the bankruptcy, closure, reorganization, buyout, merger or
consolidation of the Company, or (iii) the Executive's employment is terminated
by the Executive, by written notice to the Company, on the following grounds:
(A) the Executive, without the Executive's approval, receives a material
diminution in responsibilities, title, reporting requirements, authority, or
position from the level of the Executive's responsibilities, title, position,
authority or reporting requirements as of the commencement of the Employment
Term or as amended with the Executive's written consent, and the Executive
elects to terminate his employment in writing as a result of and within thirty
(30) days of written notice of such diminution, or (B) any breach by the Company
of the material provisions of this Agreement which breach shall continue
unremedied for ten (10) days after written notice thereof by the Executive to
the Company or (C) a relocation of the Executive's principal base of operation
to any location other than the locations described in Section 1 and the
Executive elects to terminate his employment in writing as a result of and
within ninety (90) days of such relocation or (D) a Financing Default by the
Company, as that term is defined in Section 13.16 of the Asset Purchase
Agreement; then the Executive shall be entitled to the following: (a) the amount
of any unpaid compensation attributable to periods prior to such termination
pursuant to Sections 5(A) and (B); (b) the amount of any reimbursable expenses;
(c) the Company shall pay to the Executive in cash, a lump sum payment amount
equal to his base salary for the period commencing on the date of termination
through the earlier of the two (2) year anniversary of the effective date of the
termination and the End Date (the "Post Termination Period"); (d) the Executive
shall continue to be entitled to and shall receive his benefits under Sections
6(A) and (E) hereof during the Post Termination Period; (e) the Company shall
also pay all amounts the Executive would have received under the Company's
pension plan, if any, if the Company had not terminated this Agreement without
Cause or the Executive's employment had not terminated this Agreement under this
Section 8(D), and had the Executive's employment continued through the End Date
at the rate of compensation specified herein; (f) the entire Bonus payable under
Section 5(b) as if the Executive was employed on March 31 of the year in which
the termination occurs; and (g) any incentive compensation and options granted
to Executive that have not vested as of the date of termination shall
immediately vest upon the date of termination. Neither the occurrence of a
termination, nor the vesting in any options as a result thereof shall require
Executive to exercise any options. In the event of a conflict between any
incentive compensation grant agreement or program or any option grant agreement
or plan and this Agreement, the terms of this Agreement shall control. No other
payments shall be due the Executive.
(E) Change in Control. The Executive shall have the right to terminate his
employment hereunder on or within three (3) months following a Change in
Control. For purposes of this Agreement "Change in Control" shall mean that any
of the following events has
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occurred: (A) any "person" or "group" of persons, as such terms are used in
Sections 13 and 14 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), other than any employee benefit plan sponsored by the Company,
becomes the "beneficial owner", as such term is used in Section 13 of the
Exchange Act (irrespective of any vesting or waiting periods) of (i) common
stock of the Company (the "Common Stock") or any class of stock convertible into
Common Stock in an amount equal to thirty five (35%) percent or more of the
Common Stock (treating all classes of outstanding Common Stock or other
securities convertible into Common Stock as if they were converted into Common
Stock) issued and outstanding immediately prior to such acquisition as if they
were a single class and disregarding any equity raise in connection with the
financing of such transaction; or (B) the dissolution or liquidation of the
Company or the consummation of any merger or consolidation of the Company or any
sale or other disposition of all or substantially all of its assets, if the
shareholders of the Company taken as a whole and considered as one class
immediately before such transaction own, immediately after consummation of such
transaction, equity securities possessing less than fifty (50%) percent of the
surviving or acquiring entity taken as a whole. In the event that the Executive
terminates his employment because of a Change in Control, the Executive shall be
entitled to a lump sum payment equal to the Executive annual base salary.
Additionally, any incentive compensation and options granted to Executive that
have not vested as of the date of a Change in Control shall immediately vest
upon the date of the Change in Control. Neither the occurrence of a Change in
Control, nor the vesting in any options as a result thereof shall require
Executive to exercise any options. In the event of a conflict between any
incentive compensation grant agreement or program or any option grant agreement
or plan and this Agreement, the terms of this Agreement shall control.
(F) Excise Tax Gross Up. In addition, if it is determined by an independent
accountant mutually acceptable to the Company and Executive that as a result of
any payment in the nature of compensation made by the Company to (or for the
benefit of) Executive pursuant to this Agreement or otherwise, an excise tax may
be imposed on Executive pursuant to Section 4999 of the Code (or any successor
provisions) , the Company shall pay Executive in cash an amount equal to X
determined under the following formula: (the "Excise Tax Gross Up")
X = E x P
---------------------------
1 - [(FI x (1-SLI) + E+M]
where
E = the rate at which the excise tax is assessed under Section 4999
of the Code (or any successor (provisions)
P = the amount with respect to which such excise tax is assessed,
determined without regard to the Excise Tax Gross Up;
FI = the highest effective marginal rate of income tax applicable to
Executive under the Code for the taxable year in question
(taking into account any
10
<PAGE>
phase-out or loss of deductions, personal exemptions or other
similar adjustments);
SLI = the sum of the highest effective marginal rates of income tax
applicable to Executive under all applicable state and local
laws for the taxable year in question (taking into account any
phase-out or loss of deductions, personal exemptions and other
similar adjustments); and
M = the highest marginal rate of Medicare tax applicable to
Executive under the Code for the taxable year in question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Executive under the terms of this Agreement or otherwise and
on which an excise tax under Section 4999 of the Code (or any successor
provisions) may be assessed, the payment determined under this sub-paragraph
9(d) shall be paid to Executive at the time of the Change in Control but prior
to the consummation of the transaction with any successor. It is the intention
of the parties that the Company provide Executive with a full tax gross-up under
the provisions of this Section, so that on a net after-tax basis, the result to
Executive shall be the same as if the excise tax under Section 4999 of the Code
(or any successor provisions) had not been imposed. The Excise Tax Gross Up may
be adjusted if alternative minimum tax rules are applicable to Executive.
(G) In the event the Executive shall violate any of the provisions of
Section 4, 9, 10 or 11, all compensation and/or benefit continuations which he
is then receiving from the Company shall cease if such violation is not cured
within thirty (30) days of written notice thereof.
(H) The Executive shall not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise.
Payments to the Executive provided for in this Agreement shall be made without
set off or reduction for compensation received for subsequent employment.
Payments being made pursuant to this Section 8 shall survive the death of the
Executive.
9. Duty Of The Executive Upon Termination. The Executive 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 then in the
Executive's possession.
10. Covenant Not to Solicit. During the Employment Term and the applicable
Restricted Period, the Executive shall not, directly or indirectly, on the
Executive's own behalf or on behalf of any other person, company, partnership or
any other entity, whether as an employee, officer, director, proprietor,
partner, investor, consultant, advisor, agent or in any other capacity, (i)
induce or attempt to induce any customer of the Company to reduce its business
with the Company, (ii) divert from the Company any business or supplier thereto,
(iii) hire any employee of the Company (or any person who was an employee of the
Company at any time during the six (6) months immediately preceding the date of
hire) or (iv) solicit or attempt to solicit any employee of the Company to leave
the employ of the Company, nor shall the Executive affiliate or associate with
any party engaging in the above actions.
11
<PAGE>
11. Covenant Not To Compete. As a material inducement to the Company to
enter into this Agreement and into that certain Asset Purchase Agreement, dated
as of December 18, 1998 (the "Asset Purchase Agreement"), between the Company,
Tahiti and the stockholders of Tahiti, including the Executive, and in
consideration of the compensation to be paid hereunder and the purchase price
paid under the Asset Purchase Agreement, the Executive agrees, during the
Employment Term and during the applicable Restricted Period, not to compete,
directly or indirectly, in any manner with any business conducted by the
Company. The Executive further agrees, during the Employment Term and during the
applicable Restricted Period, not to enter, directly or indirectly, into the
employ of or render any service to or invest in, any person, corporation,
partnership or any other entity which competes with a any business conducted by
the Company at the time the Employment Term expires or was terminated. The
Executive expressly acknowledges that this covenant does not impose economic
hardship on him. Notwithstanding anything herein to the contrary, this Section
11 shall not prevent the Executive from acquiring securities representing not
more than two percent (2%) of the outstanding voting securities of any
publicly-held corporation.
For purposes hereof the term Restricted Period shall mean the following:
(i) In the event that the Executive's employment is terminated by the
Company without Cause or by the Executive under Section 8(D), the Restricted
Period shall be equal to a period of one (1) year, provided the Company
continues to make those payments required under this Agreement through the Post
Termination Period, and if by reason of the Executive's Disability, there shall
be no Restricted Period.
(ii) In the event that the Executive voluntary terminates his employment or
is terminated by the Company for Cause, the Restricted Period shall be the
lesser of one (1) year and the period ending on the End Date, provided, however,
that if the Restricted Period is less than one (1) year, the Restricted Period
shall continue for a period after the End Date so that the Restricted Period
equals one (1) year if the Price and Liquidity Conditions set forth in (iii)
below are satisfied on the End Date.
(iii) In the event that the Executive's employment terminates on the End
Date, the Restricted Period shall be one (1) year only if the average Closing
Price of the Company's Common Stock for the sixty (60) day period immediately
preceding the End Date is at least $5.00 per share (the "Stock Price") and the
average daily trading volume for the sixty (60) day period immediately preceding
the End Date is 150,000 shares per day (the "Price and Liquidity Conditions").
The Stock Price shall be adjusted for all stock splits, reverse stock splits,
stock dividends, and similar transactions. The term Closing Price shall mean on
any day when used with respect to the Common Stock the reported last sale price
regular way on composite tape, or, if the shares of Common Stock are not quoted
on the composite tape, the reported last sale price on the New York or the
American Stock Exchange or, if the shares of Common Stock are not listed or
admitted to trading on either such Exchange, as reported on The Nasdaq Stock
Market, or if the shares of Common Stock are not quoted on such system, the
average of the closing bid and asked prices as reported by the OTB Bulletin
Board or the National Quotation Bureau, Inc.
12
<PAGE>
(iv) In the event that (a) the Executive terminates his employment upon a
Change in Control under Section 8(e) or (b) the Executive's employment
terminates on the Repurchase Date, there shall be no Restricted Period.
(v) The provisions of Sections 10 and 11 hereof shall be void and not
effective if the Company breaches Section 8 (D), (E) or (F).
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 term 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. Injunctive Relief. It is understood and agreed by the parties hereto
that a breach by the Executive under Section 4, 10 or 11 will cause the Company
substantial and irreparable injury and damage which cannot reasonably or
adequately be compensated in damages in any action at law. In recognition
thereof, the Company and the Executive hereby agree that, notwithstanding the
provisions of Section 16 below, in the event of any such breach or threatened
breach, the Company will be entitled to the remedies of injunction, specific
performance, and other equitable relief to prevent a breach or threatened breach
of this Agreement. The parties further agree that this Section 13 shall not in
any way limit remedies at law or in equity otherwise available to the Company.
14. Entire Agreement. The parties understand and agree that this Employment
Agreement constitutes the entire agreement between the parties regarding the
terms and conditions of the Executive's employment by the Company, 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 Executive, unless by
amendment to this Agreement executed in writing by both parties.
15. Governing Law; Forum. This Agreement shall be governed by, construed
and enforced in accordance with the laws of the State of New York. Subject to
the provisions of Section 16 below, each of the parties hereto hereby
irrevocably and unconditionally submits to the exclusive jurisdiction of any
court of the City and State of New York or any federal court sitting in the City
and State of New York for purposes of any suit, action or other proceeding
arising out of this Agreement (and agrees not to commence any action, suit or
proceeding relating hereto except in such courts). Each of the parties hereto
agrees that service of any process, summons, notice or document by U.S.
registered mail at its address set forth herein shall be effective service of
process for any action, suit or proceeding brought against it in any such court.
Each of the parties hereto hereby irrevocably and unconditionally waives any
objection to the laying of venue of any action, suit or proceeding arising out
of this Agreement, which is brought by or against it, in the courts of the State
of New York or any federal court sitting in the
13
<PAGE>
City and of State of New York and hereby further irrevocably and unconditionally
waives and agrees not to plead or claim in any such court that any such action,
suit or proceeding brought in any such court has been brought in an inconvenient
forum.
16. Arbitration. Except as expressly provided herein, 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 New York, New York 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.
17. Survival. Subject to Section 11(v) the covenants of Sections 4, 9, 10,
11, 12, 13, 14, 15 and 16 shall survive any termination or expiration of this
Agreement.
18. Notice. All notices 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 to such other address as a
party may subsequently specify in writing. All such notices and communications
shall be deemed to have been received on the third business day after the
mailing thereof, on the date that the facsimile is confirmed as having been
received, or on the date of personal delivery, as the case may be.
19. Miscellaneous.
(A) Any reference to the Company in Section 4, 9, 10 or 11 shall also
include the Company's subsidiary and/or affiliated companies and divisions.
(B) This Agreement shall be binding upon and inure to the benefit of the
Company and may not be assigned by the Company except to a successor of the
Company. This Agreement is personal to the Executive and may not be assigned or
otherwise transferred by the Executive. This Agreement shall also inure to the
benefit or, and be enforceable by, the Executive and his personal or legal
representatives, executors, administrators, successors, heirs, distributees,
divisees and legatees.
20. Attorney's Fees. In the event of any legal proceeding between the
parties hereto arising out of the subject matter of this Agreement, including
any such proceeding to enforce any right or provision hereunder which proceeding
shall result in the rendering by a court of competent jurisdiction a decision in
favor of a party hereto, the non-prevailing party shall pay to the prevailing
party all reasonable costs and expenses incurred therein by the prevailing
party, including, without limitation, reasonable attorney's fees, which costs,
expenses and attorneys' fees shall be included in and be a part of any award or
judgment rendered in such legal proceeding.
14
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first set forth above.
SIGNAL APPAREL COMPANY, INC.
Dated: March 16, 1999 By: /s/ Thomas A. McFall
----------------------------
Its: CEO
----------------------------
Dated: March 16, 1999
/s/ Michael Harary
----------------------------
MICHAEL HARARY
15
SIGNAL APPAREL COMPANY, INC.
SECURITIES TRANSFER AGREEMENT
This Securities Transfer Agreement (this "Agreement") is entered into as of
the 16th day of March, 1999, by and between Signal Apparel Company, Inc., an
Indiana corporation (the "Company"), and Zvi Ben-Haim (the "Purchaser").
The parties hereto agree as follows:
1. Purchase and Sale. In consideration for the Purchaser entering into
employment agreement (the "Employment Agreement"), dated as of March 16, 1999,
between Purchaser and the Company and subject to the terms and conditions set
forth in this Agreement:
a. Initial Warrants. The Company agrees to issue a warrant to the
Purchaser on the Closing Date (each an "Initial Warrant") in the form
attached hereto as Exhibit A (the "Warrant Certificate"), to purchase
shares of the Company's common stock, par value $0.01 per share (the
"Common Stock"). Each Initial Warrant shall entitle the holder thereof to
purchase up to 500,000 Warrant Shares (as defined below) at the price of
$1.75 per share.
b. Additional Warrants. The Company agrees to issue additional
Warrants to the Purchaser in accordance with Schedule I attached hereto
(the "Additional Warrants"; and together with each Initial Warrant, the
"Warrants"). All Additional Warrants issued pursuant to this Agreement
shall be in the form of the Warrant Certificate. The shares of Common Stock
issuable pursuant to the Warrants are referred to herein as the "Warrant
Shares".
c. In lieu of exercising the Warrants in the manner herein provided,
the Purchaser may elect to receive shares equal to the value of the
Warrants by surrender of this Warrant at the principal office of the
Company together with notice of such election in which event the Company
shall issue to the Purchaser a number of shares of the Common Stock
computed using the following formula:
X= Y(A-B)
------
A
Where: X = the number of shares of the Common Stock to be issued to
the Purchaser.
Y = the number of shares of the Common Stock purchasable
under this Warrant (at the date of such calculation).
A = the fair market value of one share of the Common Stock
(at the date of such calculation)
<PAGE>
B = the purchase price (as adjusted to the date of such
calculation)
2. Closing Date Purchase. The delivery of the Initial Warrants shall occur
at a closing (the "Closing") to be held at 10:00 a.m., New York time, on March
22, 1999 at the offices of Wachtel & Masyr, LLP, 110 East 59th Street, New York,
New York 10022, (such date of the Closing referred to hereinafter as the
"Closing Date").
3. Representations and Warranties of the Company. The Company represents
and warrants to the Purchasers as follows:
a. Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Indiana and has all requisite corporate power and authority to own
or lease and operate its properties and assets and to carry on its business
as now conducted and as proposed to be conducted. The Company is duly
qualified or licensed to do business and is in good standing as a foreign
corporation in all jurisdictions in which it owns or leases property or in
which the conduct of its business requires it to be so qualified or
licensed, except where the failure to be so qualified or licensed would
not, individually or in the aggregate, have a material adverse effect on
the business, assets, results of operations or condition (financial or
otherwise) of the Company.
b. Authorization. All corporate action on the part of the Company
necessary for the authorization, execution, delivery and performance of
this Agreement by the Company, and for the authorization, issuance and
delivery of the Shares and the Warrant being sold under this Agreement, has
been taken. This Agreement has been duly executed and delivered by the
Company, and assuming that this Agreement has been duly executed and
delivered by each of the other parties hereto, shall constitute the valid
and legally binding obligation of the Company, enforceable against the
Company in accordance with its terms, except to the extent the
enforceability thereof may be limited by bankruptcy laws, insolvency laws,
reorganization laws, moratorium laws or other laws affecting creditors'
rights generally or by general equitable principles.
c. Validity of Shares. Each Warrant, when issued, sold and delivered
in accordance with the terms of this Agreement, shall be duly and validly
issued, and fully paid.
d. Securities Act. The issuance of each Warrant in accordance with the
terms of this Agreement (assuming the accuracy of the representations and
warranties of the Purchaser contained in Section 5 hereof) is exempt from
the registration requirements of the Securities Act of 1933, as amended
(the "Securities Act").
e. The Company has reserved 4,000,000 shares for issuance pursuant to
the Warrants. When issued to the Purchaser in accordance with the terms of
this Agreement and each Warrant Certificate, each Warrant and each Warrant
Share:
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<PAGE>
(1) will have been duly and validly authorized, duly and validly
issued, fully paid and non-assessable;
(2) will be free and clear of any security interests, liens, claims
or other encumbrances (other than those resulting solely from
actions by the Purchaser); and
(3) will not have been issued or sold in violation of any preemptive
or other similar rights of the holders of any securities of the
Company.
4. Registration Provisions.
a. The Company shall, at its own expense, file a registration
statement (the "Registration Statement") under the Securities Act covering
the sale or resale of the Warrant Shares, and shall use its commercially
reasonable best efforts to cause such Registration Statement to be declared
effective not later than November 1, 1999 (i) with respect to the Initial
Warrants, and (ii) with respect to the Additional Warrants, the date such
Additional Warrants are issued to the Purchaser, provided that the
Purchaser shall have provided such information and cooperation in
connection therewith as the Company may request.
b. The Company will use its commercially reasonable best efforts to:
(i) provide a transfer agent and registrar for all Warrant Shares and a
CUSIP number for all Warrant Shares; (ii) use its commercially reasonable
best efforts to comply with all applicable rules and regulations of the
Securities and Exchange Commission (the "SEC"); and (iii) file the
documents required of the Company.
c. The Company may postpone, for up to three (3) months, the filing or
the effectiveness of any registration required by Section 4.a. if the board
of directors of the Company determines in good faith that such registration
would have a material adverse effect on any proposal or plan of the Company
to engage in any transaction involving an acquisition, financing or similar
transactions not in the ordinary course of business.
d. The Company may include in any registration pursuant to Section
4.a. newly-issued shares of Common Stock to be sold by the Company on a
primary basis.
e. It shall be a condition precedent to the obligation of the Company
to take any action pursuant to this Section 4 in respect of the securities
which are to be registered that the Purchaser shall furnish to the Company
such information regarding the securities held by the Purchaser and the
intended method of disposition thereof as the Company shall reasonably
request and as shall be required in connection with the action taken by the
Company.
3
<PAGE>
f. Notwithstanding any other provisions of this Section 4, the Company
shall not be obligated to register any Warrant Shares of any holder after
such Warrant Shares are deemed to be freely tradable securities pursuant to
Rule 144(k) under the Securities Act.
5. Representations, Warranties and Agreements of the Purchaser. The
Purchaser represents and warrants to the Company as follows:
a. Authorization. The execution and delivery by the Purchaser of this
Agreement and the consummation by the Purchaser of this Agreement and the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of the Purchaser. The Purchaser represents and warrants
that this Agreement, when executed and delivered by it, will constitute its
valid and legally binding obligation, enforceable against the Purchaser in
accordance with its terms, except to the extent the enforceability thereof
may be limited by bankruptcy laws, insolvency laws, reorganization laws,
moratorium laws or other laws affecting creditors' rights generally or by
general equitable principles.
b. Investment Representations.
i. This Agreement is made in reliance upon the Purchaser's
representations to the Company, which by execution hereof the
Purchaser hereby confirms, that (A) each Warrant to be received by it
will be acquired by it for investment for its own account, not as a
nominee or agent, and not with a view to the sale or distribution of
any part thereof in violation of applicable federal or state
securities laws, and (B) it has no current intention of selling,
granting participation in or otherwise distributing the same in
violation of applicable federal or state securities laws. By executing
this Agreement, each Purchaser further represents that it does not
have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person, or to
any third person, with respect to each Warrant in violation of
applicable federal or state securities laws.
ii. The Purchaser understands that each Warrant, when issued,
shall not be registered under the Securities Act on the basis that the
sale provided for in this Agreement and the issuance of securities
hereunder is exempt from registration under the Securities Act
pursuant to Section 4(2) thereof and regulations issued thereunder,
and that the reliance of the Company on such exemption is predicated
on representations of the Purchaser set forth herein.
6. Legends.
a The Purchaser acknowledges that all certificates evidencing each
Warrant
4
<PAGE>
shall bear the following legend:
"TRANSFER RESTRICTED
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR
UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT."
The legend set forth above shall be removed and the Company shall
issue a certificate without such legend if, unless otherwise required by
state securities laws, (a) such shares are sold pursuant to an effective
registration statement under the Securities Act, or (b) such holder
provides the Company with assurances satisfactory to the Company that such
shares may be publicly sold pursuant to Rule 144 (or similar regulation
hereinafter adopted) without restriction.
b. The certificates evidencing each Warrant shall also bear any legend
required by any applicable state securities law.
7. Adjustments. In the event that the Company shall declare a dividend or
make a distribution on or with respect to the outstanding shares of its Common
Stock in the form of shares of its Common Stock, subdivide its outstanding
shares of Common Stock into a greater number of shares, combine its outstanding
shares of Common Stock into a smaller number of shares or sell shares of Common
Stock for a price less than the fair market value for such shares, then, in each
such event, the number of Warrant Shares issuable and the per share price of
such Warrant Shares stated in this Agreement in effect at the time of the record
date for such dividend or distribution or the effective date of such subdivision
or combination shall be proportionately adjusted, if necessary, as determined in
good faith by the Board of Directors of the Company, so that the Purchaser shall
be entitled to receive the aggregate number of shares of Common Stock for the
aggregate price that the Purchaser would have received immediately following
such action if the Purchaser had exercised his rights immediately prior to such
action. Such adjustment shall be made successively whenever any event specified
above shall occur.
8. Conditions to the Obligations of the Purchaser at Closing. The
obligations of the Purchaser under this Agreement are subject to the fulfillment
of each of the following conditions:
a. Representations and Warranties. The representations and warranties
of the Company contained in Section 5 hereof shall be true and correct as
of the date of this
5
<PAGE>
Agreement and as of the Closing Date, with the same force and effect as if
they had been made on and as of the Closing Date.
b. Performance. The Company shall have performed in all material
respects and materially complied with each and all of its covenants and
agreements contained in this Agreement required to be performed or complied
with by it on or before the Closing Date.
c. Qualifications. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance of each
Warrant pursuant to this Agreement shall have been obtained and shall be
effective on and as of the Closing Date.
9. Conditions to the Obligations of the Company at Closing. The obligations
of the Company under this Agreement are subject to the fulfillment of each of
the following conditions:
a. Representations and Warranties. The representations and warranties
of the Purchaser contained in Section 5 hereof shall be true and correct as
of the date of this Agreement and as of the Closing Date with the same
force and effect as if they had been made on and as of the Closing Date.
b. Performance. The Purchaser shall have performed in all material
respects all of his obligations and materially complied with each and all
of his covenants and agreements contained in this Agreement required to be
performed or complied with on or prior to the Closing, including without
limitation the execution and delivery of the agreements and undertakings
provided for in this Agreement.
c. Qualifications. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance of each
Warrant pursuant to this Agreement shall have been obtained and shall be
effective on and as of the Closing Date.
10. Covenants.
a. Financial Statement. The Company will, and at any time when the
Company has subsidiaries will cause each of its subsidiaries to, maintain a
standard system of accounts in accordance with generally accepted
accounting principles consistently applied, and the Company will, and will
cause each of its subsidiaries to, keep full and complete financial
records.
b. Offer or Sale. Neither the Purchaser nor any of his affiliates nor
any person acting on his behalf will at any time offer or sell any of the
Warrant Shares other than pursuant to registration under the Securities Act
or pursuant to an available exemption therefrom.
6
<PAGE>
c. Further Assurances. Each party hereto shall cooperate with the
other, and execute and deliver, or use all reasonable efforts to cause to
be executed and delivered, all such other instruments, including
instruments of conveyance, assignment and transfer, and to make all filings
with and to obtain all consents, approvals or authorizations of any
governmental or regulatory authority or any other person or entity under
any permit, license, agreement, indenture or other instrument, and take all
such other actions as such party may reasonably be requested to take by the
other parties hereto from time to time, consistent with the terms of this
Agreement, in order to effectuate the provisions and purposes of this
Agreement and the transactions contemplated hereby.
11. Miscellaneous
a. No Waiver; Modifications in Writing. This Agreement, together with
the Exhibits hereto, and the Employment Agreement, sets forth the entire
understanding of the parties, and supersedes all prior agreements,
arrangements and communications, whether oral or written, with respect to
the subject matter hereof. No waiver of or consent to any departure from
any provision of this Agreement shall be effective unless such waiver or
consent is signed in writing by the party entitled to the benefit thereof
and written notice of any such waiver or consent is given to each party
hereto as set forth below. Except as otherwise provided herein, no
amendment, supplement, modification or termination of any provision of this
Agreement shall be effective unless signed in writing by or on behalf of
the Company and the Purchaser. Any amendment, supplement or modification of
or to any provision of this Agreement, any waiver of any provision of this
Agreement, and any consent to any departure by the Company from the terms
of any provision of this Agreement, shall be effective only in the specific
instance and for the specific purpose for which made or given. Except where
notice is specifically required by this Agreement, no notice to or demand
on the Company or the Purchaser in any case shall entitle the Company or
the Purchaser to any other or further notice or demand in similar or other
circumstances.
b. Notices. All notices and other communications necessary or
contemplated under this Agreement shall be in writing and shall be
delivered in the manner specified herein or, in the absence of such
specification, shall be deemed to have been duly given when delivered by
hand, one day after sending by overnight delivery service, upon receipt of
written confirmation if sent by telecopy, or three days after sending by
certified mail, postage prepaid, return receipt requested to the respective
addresses of the parties set forth below:
If to the Purchaser: c/o Wachtel & Masyr, LLP
110 East 59th Street
New York, New York 10022
Telecopy: (212) 371-0320
7
<PAGE>
Attention: Morris Missry, Esq.
If to the Company: Signal Apparel Company, Inc.
500 7th Avenue
7th Floor
New York, NY 10018
Telecopy: (212) 354-5314
Attention: Howard Weinberg
With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
919 3rd Avenue
New York, NY 10022
Telecopy: (212) 735-2000
Attention: Robert Copen
By notice complying with the foregoing provisions of this Section 11.b.,
each party shall have the right to change the mailing address for future
notices and communications to such party.
c. Execution of Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto on separate
counterparts, each of which counterparts, when so executed and delivered,
shall be deemed to be an original and all of which counterparts, taken
together, shall constitute but one and the same Agreement.
d. Binding Effect; Assignment. The rights and obligations of the
Purchaser under this Agreement may only be assigned to another person with
the prior written consent of the Company. Except as expressly provided in
this Agreement, this Agreement shall not be construed so as to confer any
right or benefit upon any person other than the parties to this Agreement
and their respective successors and assigns. This Agreement shall be
binding upon the Company and the Purchaser and their respective successors
and assigns.
e. Governing Law. This Agreement shall be governed by the laws of the
State of New York as to all matters, including but not limited to matters
of validity, construction, effect, performance and remedies.
f. Severability of Provisions. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
g. Exhibits and Headings. All Exhibits to this Agreement shall be
deemed to be a part of this Agreement. The Section headings used or
contained in this Agreement
8
<PAGE>
are for convenience of reference only and shall not affect the construction
of this Agreement.
h. Consent to Jurisdiction. The Company and the Purchaser, by its
execution hereof, (i) hereby irrevocably submit to the exclusive
jurisdiction of the state courts of the State of New York or Federal Court
for the Eastern or Southern District in the State of New York for the
purposes of any claim or action arising out of or based upon this Agreement
or relating to the subject matter hereof, (ii) hereby waives, to the extent
not prohibited by applicable law, and agrees not to assert by way of
motion, as a defense or otherwise, in any such claim or action, any claim
that it is not subject personally to the jurisdiction of the above-named
courts, that its property is exempt or immune from attachment or execution,
that any such proceeding brought in the above-named court is improper, or
that this Agreement or the subject matter hereof may not be enforced in or
by such court, and (iii) hereby agrees not to commence any claim or action
arising out of or based upon this Agreement or relating to the subject
matter hereof other than before the above-named courts nor to make any
motion or take any other action seeking or intending to cause the transfer
or removal of any such claim or action to any court other than the
above-named courts whether on the grounds of inconvenient forum or
otherwise. The Company and the Purchaser hereby consent to service of
process in any such proceeding in any manner permitted by New York law, and
agrees that service of process by registered or certified mail, return
receipt requested, at its address specified pursuant to Section 12.b.
hereof is reasonably calculated to give actual notice.
WAIVER OF RIGHT TO JURY TRIAL. THE COMPANY AND THE PURCHASER, BY THEIR
EXECUTION HEREOF, WAIVES THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY
DEALINGS BETWEEN OR AMONG THEM RELATING TO THE SUBJECT MATTER OF THIS
TRANSACTION AND THE RELATIONSHIP THAT IS BEING ESTABLISHED. THE SCOPE OF
THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT
MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS
AGREEMENT, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THE
COMPANY AND THE PURCHASER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY
RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL
CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH OF
THE COMPANY AND THE PURCHASERS FURTHER WARRANT AND REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. THIS WAIVER IS
9
<PAGE>
IRREVOCABLE, MEANING THAT IT SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTION CONTEMPLATED HEREBY. IN
THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT
TO A TRIAL BY THE COURT.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
SIGNAL APPAREL COMPANY, INC.
By: /s/ Thomas McFall
--------------------------------
Name: Thomas McFall
Title: Chief Executive Officer
ZVI BEN-HAIM
/s/ Zvi Ben-Haim
--------------------------------
SIGNAL APPAREL COMPANY, INC.
SECURITIES TRANSFER AGREEMENT
This Securities Transfer Agreement (this "Agreement") is entered into as of
the 16th day of March, 1999, by and between Signal Apparel Company, Inc., an
Indiana corporation (the "Company"), and Michael Harary (the "Purchaser").
The parties hereto agree as follows:
1. Purchase and Sale. In consideration for the Purchaser entering into
employment agreement (the "Employment Agreement"), dated as of March 16, 1999,
between Purchaser and the Company and subject to the terms and conditions set
forth in this Agreement:
a. Initial Warrants. The Company agrees to issue a warrant to the
Purchaser on the Closing Date (each an "Initial Warrant") in the form
attached hereto as Exhibit A (the "Warrant Certificate"), to purchase
shares of the Company's common stock, par value $0.01 per share (the
"Common Stock"). Each Initial Warrant shall entitle the holder thereof to
purchase up to 500,000 Warrant Shares (as defined below) at the price of
$1.75 per share.
b. Additional Warrants. The Company agrees to issue additional
Warrants to the Purchaser in accordance with Schedule I attached hereto
(the "Additional Warrants"; and together with each Initial Warrant, the
"Warrants"). All Additional Warrants issued pursuant to this Agreement
shall be in the form of the Warrant Certificate. The shares of Common Stock
issuable pursuant to the Warrants are referred to herein as the "Warrant
Shares".
c. In lieu of exercising the Warrants in the manner herein provided,
the Purchaser may elect to receive shares equal to the value of the
Warrants by surrender of this Warrant at the principal office of the
Company together with notice of such election in which event the Company
shall issue to the Purchaser a number of shares of the Common Stock
computed using the following formula:
X= Y(A-B)
------
A
Where: X = the number of shares of the Common Stock to be issued to
the Purchaser.
Y = the number of shares of the Common Stock purchasable
under this Warrant (at the date of such calculation).
A = the fair market value of one share of the Common Stock
(at the date of such calculation)
<PAGE>
B = the purchase price (as adjusted to the date of such
calculation)
2. Closing Date Purchase. The delivery of the Initial Warrants shall occur
at a closing (the "Closing") to be held at 10:00 a.m., New York time, on March
22, 1999 at the offices of Wachtel & Masyr, LLP, 110 East 59th Street, New York,
New York 10022, (such date of the Closing referred to hereinafter as the
"Closing Date").
3. Representations and Warranties of the Company. The Company represents
and warrants to the Purchasers as follows:
a. Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Indiana and has all requisite corporate power and authority to own
or lease and operate its properties and assets and to carry on its business
as now conducted and as proposed to be conducted. The Company is duly
qualified or licensed to do business and is in good standing as a foreign
corporation in all jurisdictions in which it owns or leases property or in
which the conduct of its business requires it to be so qualified or
licensed, except where the failure to be so qualified or licensed would
not, individually or in the aggregate, have a material adverse effect on
the business, assets, results of operations or condition (financial or
otherwise) of the Company.
b. Authorization. All corporate action on the part of the Company
necessary for the authorization, execution, delivery and performance of
this Agreement by the Company, and for the authorization, issuance and
delivery of the Shares and the Warrant being sold under this Agreement, has
been taken. This Agreement has been duly executed and delivered by the
Company, and assuming that this Agreement has been duly executed and
delivered by each of the other parties hereto, shall constitute the valid
and legally binding obligation of the Company, enforceable against the
Company in accordance with its terms, except to the extent the
enforceability thereof may be limited by bankruptcy laws, insolvency laws,
reorganization laws, moratorium laws or other laws affecting creditors'
rights generally or by general equitable principles.
c. Validity of Shares. Each Warrant, when issued, sold and delivered
in accordance with the terms of this Agreement, shall be duly and validly
issued, and fully paid.
d. Securities Act. The issuance of each Warrant in accordance with the
terms of this Agreement (assuming the accuracy of the representations and
warranties of the Purchaser contained in Section 5 hereof) is exempt from
the registration requirements of the Securities Act of 1933, as amended
(the "Securities Act").
e. The Company has reserved 4,000,000 shares for issuance pursuant to
the Warrants. When issued to the Purchaser in accordance with the terms of
this Agreement and each Warrant Certificate, each Warrant and each Warrant
Share:
2
<PAGE>
(1) will have been duly and validly authorized, duly and validly
issued, fully paid and non-assessable;
(2) will be free and clear of any security interests, liens, claims
or other encumbrances (other than those resulting solely from
actions by the Purchaser); and
(3) will not have been issued or sold in violation of any preemptive
or other similar rights of the holders of any securities of the
Company.
4. Registration Provisions.
a. The Company shall, at its own expense, file a registration
statement (the "Registration Statement") under the Securities Act covering
the sale or resale of the Warrant Shares, and shall use its commercially
reasonable best efforts to cause such Registration Statement to be declared
effective not later than November 1, 1999 (i) with respect to the Initial
Warrants, and (ii) with respect to the Additional Warrants, the date such
Additional Warrants are issued to the Purchaser, provided that the
Purchaser shall have provided such information and cooperation in
connection therewith as the Company may request.
b. The Company will use its commercially reasonable best efforts to:
(i) provide a transfer agent and registrar for all Warrant Shares and a
CUSIP number for all Warrant Shares; (ii) use its commercially reasonable
best efforts to comply with all applicable rules and regulations of the
Securities and Exchange Commission (the "SEC"); and (iii) file the
documents required of the Company.
c. The Company may postpone, for up to three (3) months, the filing or
the effectiveness of any registration required by Section 4.a. if the board
of directors of the Company determines in good faith that such registration
would have a material adverse effect on any proposal or plan of the Company
to engage in any transaction involving an acquisition, financing or similar
transactions not in the ordinary course of business.
d. The Company may include in any registration pursuant to Section
4.a. newly-issued shares of Common Stock to be sold by the Company on a
primary basis.
e. It shall be a condition precedent to the obligation of the Company
to take any action pursuant to this Section 4 in respect of the securities
which are to be registered that the Purchaser shall furnish to the Company
such information regarding the securities held by the Purchaser and the
intended method of disposition thereof as the Company shall reasonably
request and as shall be required in connection with the action taken by the
Company.
3
<PAGE>
f. Notwithstanding any other provisions of this Section 4, the Company
shall not be obligated to register any Warrant Shares of any holder after
such Warrant Shares are deemed to be freely tradable securities pursuant to
Rule 144(k) under the Securities Act.
5. Representations, Warranties and Agreements of the Purchaser. The
Purchaser represents and warrants to the Company as follows:
a. Authorization. The execution and delivery by the Purchaser of this
Agreement and the consummation by the Purchaser of this Agreement and the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of the Purchaser. The Purchaser represents and warrants
that this Agreement, when executed and delivered by it, will constitute its
valid and legally binding obligation, enforceable against the Purchaser in
accordance with its terms, except to the extent the enforceability thereof
may be limited by bankruptcy laws, insolvency laws, reorganization laws,
moratorium laws or other laws affecting creditors' rights generally or by
general equitable principles.
b. Investment Representations.
i. This Agreement is made in reliance upon the Purchaser's
representations to the Company, which by execution hereof the
Purchaser hereby confirms, that (A) each Warrant to be received by it
will be acquired by it for investment for its own account, not as a
nominee or agent, and not with a view to the sale or distribution of
any part thereof in violation of applicable federal or state
securities laws, and (B) it has no current intention of selling,
granting participation in or otherwise distributing the same in
violation of applicable federal or state securities laws. By executing
this Agreement, each Purchaser further represents that it does not
have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person, or to
any third person, with respect to each Warrant in violation of
applicable federal or state securities laws.
ii. The Purchaser understands that each Warrant, when issued,
shall not be registered under the Securities Act on the basis that the
sale provided for in this Agreement and the issuance of securities
hereunder is exempt from registration under the Securities Act
pursuant to Section 4(2) thereof and regulations issued thereunder,
and that the reliance of the Company on such exemption is predicated
on representations of the Purchaser set forth herein.
6. Legends.
a The Purchaser acknowledges that all certificates evidencing each
Warrant
4
<PAGE>
shall bear the following legend:
"TRANSFER RESTRICTED
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED
FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR
UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT."
The legend set forth above shall be removed and the Company shall
issue a certificate without such legend if, unless otherwise required by
state securities laws, (a) such shares are sold pursuant to an effective
registration statement under the Securities Act, or (b) such holder
provides the Company with assurances satisfactory to the Company that such
shares may be publicly sold pursuant to Rule 144 (or similar regulation
hereinafter adopted) without restriction.
b. The certificates evidencing each Warrant shall also bear any legend
required by any applicable state securities law.
7. Adjustments. In the event that the Company shall declare a dividend or
make a distribution on or with respect to the outstanding shares of its Common
Stock in the form of shares of its Common Stock, subdivide its outstanding
shares of Common Stock into a greater number of shares, combine its outstanding
shares of Common Stock into a smaller number of shares or sell shares of Common
Stock for a price less than the fair market value for such shares, then, in each
such event, the number of Warrant Shares issuable and the per share price of
such Warrant Shares stated in this Agreement in effect at the time of the record
date for such dividend or distribution or the effective date of such subdivision
or combination shall be proportionately adjusted, if necessary, as determined in
good faith by the Board of Directors of the Company, so that the Purchaser shall
be entitled to receive the aggregate number of shares of Common Stock for the
aggregate price that the Purchaser would have received immediately following
such action if the Purchaser had exercised his rights immediately prior to such
action. Such adjustment shall be made successively whenever any event specified
above shall occur.
8. Conditions to the Obligations of the Purchaser at Closing. The
obligations of the Purchaser under this Agreement are subject to the fulfillment
of each of the following conditions:
a. Representations and Warranties. The representations and warranties
of the Company contained in Section 5 hereof shall be true and correct as
of the date of this
5
<PAGE>
Agreement and as of the Closing Date, with the same force and effect as if
they had been made on and as of the Closing Date.
b. Performance. The Company shall have performed in all material
respects and materially complied with each and all of its covenants and
agreements contained in this Agreement required to be performed or complied
with by it on or before the Closing Date.
c. Qualifications. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance of each
Warrant pursuant to this Agreement shall have been obtained and shall be
effective on and as of the Closing Date.
9. Conditions to the Obligations of the Company at Closing. The obligations
of the Company under this Agreement are subject to the fulfillment of each of
the following conditions:
a. Representations and Warranties. The representations and warranties
of the Purchaser contained in Section 5 hereof shall be true and correct as
of the date of this Agreement and as of the Closing Date with the same
force and effect as if they had been made on and as of the Closing Date.
b. Performance. The Purchaser shall have performed in all material
respects all of his obligations and materially complied with each and all
of his covenants and agreements contained in this Agreement required to be
performed or complied with on or prior to the Closing, including without
limitation the execution and delivery of the agreements and undertakings
provided for in this Agreement.
c. Qualifications. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance of each
Warrant pursuant to this Agreement shall have been obtained and shall be
effective on and as of the Closing Date.
10. Covenants.
a. Financial Statement. The Company will, and at any time when the
Company has subsidiaries will cause each of its subsidiaries to, maintain a
standard system of accounts in accordance with generally accepted
accounting principles consistently applied, and the Company will, and will
cause each of its subsidiaries to, keep full and complete financial
records.
b. Offer or Sale. Neither the Purchaser nor any of his affiliates nor
any person acting on his behalf will at any time offer or sell any of the
Warrant Shares other than pursuant to registration under the Securities Act
or pursuant to an available exemption therefrom.
6
<PAGE>
c. Further Assurances. Each party hereto shall cooperate with the
other, and execute and deliver, or use all reasonable efforts to cause to
be executed and delivered, all such other instruments, including
instruments of conveyance, assignment and transfer, and to make all filings
with and to obtain all consents, approvals or authorizations of any
governmental or regulatory authority or any other person or entity under
any permit, license, agreement, indenture or other instrument, and take all
such other actions as such party may reasonably be requested to take by the
other parties hereto from time to time, consistent with the terms of this
Agreement, in order to effectuate the provisions and purposes of this
Agreement and the transactions contemplated hereby.
11. Miscellaneous
a. No Waiver; Modifications in Writing. This Agreement, together with
the Exhibits hereto, and the Employment Agreement, sets forth the entire
understanding of the parties, and supersedes all prior agreements,
arrangements and communications, whether oral or written, with respect to
the subject matter hereof. No waiver of or consent to any departure from
any provision of this Agreement shall be effective unless such waiver or
consent is signed in writing by the party entitled to the benefit thereof
and written notice of any such waiver or consent is given to each party
hereto as set forth below. Except as otherwise provided herein, no
amendment, supplement, modification or termination of any provision of this
Agreement shall be effective unless signed in writing by or on behalf of
the Company and the Purchaser. Any amendment, supplement or modification of
or to any provision of this Agreement, any waiver of any provision of this
Agreement, and any consent to any departure by the Company from the terms
of any provision of this Agreement, shall be effective only in the specific
instance and for the specific purpose for which made or given. Except where
notice is specifically required by this Agreement, no notice to or demand
on the Company or the Purchaser in any case shall entitle the Company or
the Purchaser to any other or further notice or demand in similar or other
circumstances.
b. Notices. All notices and other communications necessary or
contemplated under this Agreement shall be in writing and shall be
delivered in the manner specified herein or, in the absence of such
specification, shall be deemed to have been duly given when delivered by
hand, one day after sending by overnight delivery service, upon receipt of
written confirmation if sent by telecopy, or three days after sending by
certified mail, postage prepaid, return receipt requested to the respective
addresses of the parties set forth below:
If to the Purchaser: c/o Wachtel & Masyr, LLP
110 East 59th Street
New York, New York 10022
Telecopy: (212) 371-0320
7
<PAGE>
Attention: Morris Missry, Esq.
If to the Company: Signal Apparel Company, Inc.
500 7th Avenue
7th Floor
New York, NY 10018
Telecopy: (212) 354-5314
Attention: Howard Weinberg
With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
919 3rd Avenue
New York, NY 10022
Telecopy: (212) 735-2000
Attention: Robert Copen
By notice complying with the foregoing provisions of this Section 11.b.,
each party shall have the right to change the mailing address for future
notices and communications to such party.
c. Execution of Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto on separate
counterparts, each of which counterparts, when so executed and delivered,
shall be deemed to be an original and all of which counterparts, taken
together, shall constitute but one and the same Agreement.
d. Binding Effect; Assignment. The rights and obligations of the
Purchaser under this Agreement may only be assigned to another person with
the prior written consent of the Company. Except as expressly provided in
this Agreement, this Agreement shall not be construed so as to confer any
right or benefit upon any person other than the parties to this Agreement
and their respective successors and assigns. This Agreement shall be
binding upon the Company and the Purchaser and their respective successors
and assigns.
e. Governing Law. This Agreement shall be governed by the laws of the
State of New York as to all matters, including but not limited to matters
of validity, construction, effect, performance and remedies.
f. Severability of Provisions. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
g. Exhibits and Headings. All Exhibits to this Agreement shall be
deemed to be a part of this Agreement. The Section headings used or
contained in this Agreement
8
<PAGE>
are for convenience of reference only and shall not affect the construction
of this Agreement.
h. Consent to Jurisdiction. The Company and the Purchaser, by its
execution hereof, (i) hereby irrevocably submit to the exclusive
jurisdiction of the state courts of the State of New York or Federal Court
for the Eastern or Southern District in the State of New York for the
purposes of any claim or action arising out of or based upon this Agreement
or relating to the subject matter hereof, (ii) hereby waives, to the extent
not prohibited by applicable law, and agrees not to assert by way of
motion, as a defense or otherwise, in any such claim or action, any claim
that it is not subject personally to the jurisdiction of the above-named
courts, that its property is exempt or immune from attachment or execution,
that any such proceeding brought in the above-named court is improper, or
that this Agreement or the subject matter hereof may not be enforced in or
by such court, and (iii) hereby agrees not to commence any claim or action
arising out of or based upon this Agreement or relating to the subject
matter hereof other than before the above-named courts nor to make any
motion or take any other action seeking or intending to cause the transfer
or removal of any such claim or action to any court other than the
above-named courts whether on the grounds of inconvenient forum or
otherwise. The Company and the Purchaser hereby consent to service of
process in any such proceeding in any manner permitted by New York law, and
agrees that service of process by registered or certified mail, return
receipt requested, at its address specified pursuant to Section 12.b.
hereof is reasonably calculated to give actual notice.
WAIVER OF RIGHT TO JURY TRIAL. THE COMPANY AND THE PURCHASER, BY THEIR
EXECUTION HEREOF, WAIVES THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY
DEALINGS BETWEEN OR AMONG THEM RELATING TO THE SUBJECT MATTER OF THIS
TRANSACTION AND THE RELATIONSHIP THAT IS BEING ESTABLISHED. THE SCOPE OF
THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT
MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS
AGREEMENT, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THE
COMPANY AND THE PURCHASER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY
RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL
CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH OF
THE COMPANY AND THE PURCHASERS FURTHER WARRANT AND REPRESENT THAT EACH HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. THIS WAIVER
9
<PAGE>
IS IRREVOCABLE, MEANING THAT IT SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTION CONTEMPLATED HEREBY. IN
THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT
TO A TRIAL BY THE COURT.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
SIGNAL APPAREL COMPANY, INC.
By: /s/ Thomas McFall
--------------------------------
Name: Thomas McFall
Title: Chief Executive Officer
MICHAEL HARARY
/s/ Michael Harary
--------------------------
EXHIBIT A
(Form of Warrant Certificate)
The Securities represented by this certificate were issued on
_____________, _______ (the "Closing Date") pursuant to the Securities
Transfer Agreement dated March ___, 1999 between Signal Apparel
Company, Inc. and Zvi Ben-Haim. The securities represented by this
certificate have not been registered under the Securities Act of 1933,
as amended (the "Act"), or applicable state securities laws. The
securities have been acquired for investment and may not be offered
for sale, sold, transferred or assigned in the absence of an effective
registration statement for the securities under the act and applicable
state securities laws, or unless sold pursuant to rule 144 under said
act."
Warrant No. ____________________
Warrant Certificate
SIGNAL APPAREL COMPANY, INC.
This Warrant Certificate certifies that [__________________________] (the
"Purchaser"), or its registered assigns, is the registered holder of one Warrant
(the "Warrant") expiring on March 31, 2009 (the "Termination Date") to purchase
shares of common stock, par value $.01 per share (the "Common Stock"), of SIGNAL
APPAREL COMPANY, INC., an Indiana corporation (the "Issuer"). The Warrant
entitles the holder to purchase from the Issuer [__________________] Warrant
Shares (as defined below) at $1.75 per share (the "Exercise Price"). The
Exercise Price multiplied by the Exercise Amount (as defined below) is referred
to as the "Warrant Purchase Price." A "Warrant Share" initially represents one
fully paid and nonassessable share of Common Stock, subject to adjustment
pursuant to Section 10 hereof.
The Warrant represented hereby was issued on [_____________] (the "Closing
Date") pursuant to the Securities Transfer Agreement, dated March _______, 1999
(the "Transfer Agreement"), between the Issuer and Zvi Ben-Haim, and is subject
to the terms and conditions thereof. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings set forth in the Transfer
Agreement. A copy of the Transfer Agreement may be obtained by the registered
holder hereof upon written request to the Issuer.
<PAGE>
The Warrant represented hereby shall have the following additional terms:
1. To exercise the Warrant, the registered holder must, prior to the
Termination Date, surrender this Warrant Certificate to the Issuer at
its principal office with the Exercise Notice attached hereto (an
"Exercise Notice") duly completed and signed by the registered holder
hereof and stating the total number of Warrant Shares in respect of
which the Warrant is then exercised (the "Exercise Amount") and tender
the applicable Warrant Purchase Price. The Warrant shall be
exercisable only in the minimum amount of 10,000 Warrant Shares and
integral multiples of 10,000 Warrant Shares in excess thereof (or such
lesser amount as shall constitute the full amount remaining of this
Warrant). As used herein, the term "Business Day" means any day on
which banks in the City of New York are open for business.
2. Within five days following an Exercise Date (an "Issue Date"), the
Issuer shall issue and cause to be delivered to the registered holder
hereof at such address as such holder shall specify in the Exercise
Notice a certificate or certificates for the number of full Warrant
Shares issuable upon the exercise of such Warrant, registered in such
holder's name, together with cash (if any) as provided in paragraph 4.
Such certificate or certificates shall be deemed to have been issued
and any person so designated to be named therein shall be deemed to
have become a holder of record of such Warrant Shares as of such
Exercise Date.
3. If on such Issue Date the number of Warrant Shares to be delivered
shall be less than the total number of Warrant Shares deliverable
hereunder, there shall be issued to the holder hereof or his assignee
on such Issue Date a new warrant certificate substantially identical
to this Warrant Certificate, except that such new warrant certificate
shall evidence the right to purchase the number of Warrant Shares
equal to (x) the total number of Warrant Shares deliverable hereunder
less (y) the number of Warrant Shares so delivered or previously
delivered under the Warrant.
4. The Issuer shall not be required to issue fractional Warrant Shares on
the exercise of the Warrant represented hereby. The number of full
Warrant Shares which shall be issuable upon the exercise of the
Warrant shall be computed on the basis of the aggregate number of
Warrant Shares purchasable on exercise of the Warrant so presented. If
any fraction of a Warrant Share would, except for the provisions of
this paragraph 4, be issuable on the exercise of the Warrant, the
Issuer shall pay an amount in cash equal to $1.50 multiplied by such
fraction (subject to adjustment pursuant to Section 10).
5. For so long as the Warrant represented hereby has not been exercised
in full, the Issuer shall at all times prior to the Termination Date
reserve and keep available, free from pre-emptive rights, out of its
authorized but unissued Common Stock, for issuance upon exercise of
the Warrant represented hereby, the number of
<PAGE>
shares of Common Stock then so issuable. In the event the number of
shares of Common Stock issuable in respect of the Warrant Shares
exceeds the authorized number of shares of Common Stock, the Issuer
shall promptly take all actions necessary to increase the authorized
number, including causing its Board of Directors to call a special
meeting of stockholders and recommend such increase.
6. By accepting delivery of this Warrant Certificate, the registered
holder hereof covenants and agrees with the Issuer not to exercise or
transfer the Warrant or any Warrant Shares except in compliance with
the terms of the Transfer Agreement and this Warrant Certificate.
7. By accepting delivery of this Warrant Certificate, the registered
holder hereof covenants and agrees with the Issuer that the Warrant
may not be sold, assigned, conveyed, encumbered, pledged, hypothecated
or in any other manner disposed of or transferred, in whole or in
part, unless and until such holder shall deliver to the Issuer: (i)
written notice thereof and of the name and address of the transferee,
(ii) a written agreement, in form and substance reasonably
satisfactory to the Issuer, of the transferee to comply with the
applicable terms of the Transfer Agreement and this Warrant
Certificate, (iii) assurances reasonably satisfactory to the Issuer
that the Warrant and the Warrant Shares are exempt from registration
under the Act and (iv) an opinion of counsel to the effect that the
Warrant and the Warrant Shares have been registered under the Act or
are exempt from registration thereunder. If a portion of the Warrant
is transferred, all rights of the registered holder hereunder may be
exercised by the transferee (subject to the requirement that such
transferee shall provide an opinion of counsel to the effect that the
Warrant and the Warrant Shares have been registered under the Act or
are exempt from registration thereunder) in respect of the number of
Warrant Shares transferred with the portion of the Warrant, provided
that any registered holder of the Warrant may deliver an Exercise
Notice only with respect to the Warrant Shares subject to such
holder's portion of the Warrant.
8. The Issuer will pay all documentary stamp taxes (if any) attributable
to the issuance of Warrant Shares upon the exercise of the Warrant by
the registered holder hereof; provided, however, that the Issuer shall
not be required to pay any tax or taxes which may be payable in
respect of any transfer involved in the registration of the Warrant
Certificate or any certificates for Warrant Shares in a name other
than that of the registered holder of the Warrant Certificate
surrendered upon the exercise of a Warrant, and the Issuer shall not
be required to issue or deliver the Warrant Certificate or
certificates for Warrant Shares unless or until the person or persons
requesting the issuance thereof shall have paid to the Issuer the
amount of such tax or shall have established to the satisfaction of
the Issuer that such tax has been paid.
9. In case this Warrant Certificate shall be mutilated, lost, stolen or
destroyed, the Issuer shall, upon request and in compliance with the
terms hereof, issue in exchange and substitution for and upon
cancellation of the mutilated Warrant
<PAGE>
Certificate, or in lieu of and substitution for the lost, stolen or
destroyed Warrant Certificate, a new Warrant Certificate of like
tenor, but only upon receipt of evidence reasonably satisfactory to
the Issuer of such loss, theft or destruction of such Warrant
Certificate and indemnity, if requested, reasonably satisfactory to
the Issuer. Applicants for a substitute Warrant Certificate shall also
comply with such other reasonable regulations and pay such other
reasonable charges as the Issuer may prescribe.
10. The number of shares of Common Stock issuable in respect of each
Warrant Share upon the exercise of the Warrant and the terms and
conditions of the Warrant are subject to adjustment by the Issuer
pursuant to Section 7 of the Transfer Agreement.
11. The Issuer shall serve as warrant agent (the "Warrant Agent") under
this Agreement. The Warrant Agent hereunder shall at all times
maintain a register (the "Warrant Register") of the holders of
Warrants. Upon 30 days' notice to the registered holder hereof, the
Issuer may appoint a new Warrant Agent. Such new Warrant Agent shall
be a corporation doing business and in good standing under the laws of
the United States or any state thereof, and having a combined capital
and surplus of not less than $50,000,000. The combined capital and
surplus of any such new Warrant Agent shall be deemed to be the
combined capital and surplus as set forth in the most recent annual
report of its condition published by such Warrant Agent prior to its
appointment; provided that such reports are published at least
annually pursuant to law or to the requirements of a federal or state
supervising or examining authority. After acceptance in writing of
such appointment by the new Warrant Agent, it shall be vested with the
same powers, rights, duties and responsibilities as if it had been
originally named herein as the Warrant Agent, without any further
assurance, conveyance, act or deed; but if for any reason it shall be
reasonably necessary or expedient to execute and deliver any further
assurance, conveyance, act or deed, the same shall be done at the
expense of the Issuer and shall be legally and validly executed and
delivered by the Issuer.
12. Any corporation into which the Issuer or any new Warrant Agent may be
merged or any corporation resulting from any consolidation to which
the Issuer or any new Warrant Agent shall be a party or any
corporation to which the Issuer or any new Warrant Agent transfers
substantially all of its corporate trust or shareholders services
business shall be a successor Warrant Agent under this Agreement
without any further act; provided that such a corporation (i) would be
eligible for appointment as successor to the Warrant Agent under the
provisions of this paragraph 11 or (ii) is a wholly owned subsidiary
of the Warrant Agent. Any such successor Warrant Agent shall promptly
cause notice of its succession as Warrant Agent to be mailed (by first
class mail, postage prepaid) the registered holder hereof at such
holder's last address as shown on the Warrant Register.
<PAGE>
13. (i) In the event of any registration of the Warrant Shares under the
Securities Act, the Issuer shall indemnify and hold harmless the
holder of such Warrant Shares, such holder's directors and officers,
and each other person (including each underwriter) who participated in
the offering of such Warrant Shares and each other person, if any, who
controls such holder or such participating person within the meaning
of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such holder or any such
director or officer or participating person or controlling person may
become subject under the Securities Act or any other statute or at
common law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon (A) any
untrue statement or alleged untrue statement of any material fact
contained, on the effective date thereof, in any Registration
Statement under which such securities were registered under the
Securities Act, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto, or (B) any
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and shall reimburse such holder or such director, officer
or participating person or controlling person for any legal or any
other expenses reasonably incurred by such holder or such director,
officer or participating person or controlling person in connection
with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Issuer shall not be
liable in any such case to the extent that any such loss, claim,
damage, liability or action arises out of or is based upon any alleged
untrue statement or alleged omission made in such Registration
Statement, preliminary prospectus, prospectus or amendment or
supplement in reliance upon and in conformity with written information
furnished to the Issuer by such holder specifically for use therein or
so furnished for such purposes by any underwriter. Such indemnity
shall remain in full force and effect regardless of any investigation
made by or on behalf of such holder or such director, officer or
participating person or controlling person, and shall survive the
transfer of such securities by such holder.
(ii) Purchaser, by acceptance of the Warrant and the Warrant Shares,
agrees to indemnify and hold harmless the Issuer, its directors and
officers, and each other person (including each underwriter) who
participated in the offering of the Warrant Shares and each other
person, if any, who controls the Issuer or such participating person
within the meaning of the Act, against any losses, claims, damages or
liabilities, joint or several, to which the Issuer or any such
director or officer or participating person or controlling person may
become subject under the Act or any other statute or at common law,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (A) any untrue
statement or alleged untrue statement of any material fact contained,
on the effective date thereof, in any Registration Statement under
which such securities were registered under the Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereof, or (B) any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, but only
<PAGE>
to the extent that such untrue statement or alleged untrue statement
or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Issuer by or on
behalf of Purchaser specifically for use therein, and shall reimburse
the Issuer or such director, officer or participating person or
controlling person for any legal or any other expenses reasonably
incurred by the Issuer or such director, officer or participating
person or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Issuer or such director,
officer or participating person or controlling person, and shall
survive the transfer of the Warrant or the Warrant Shares by the
holder thereof.
(iii) If the indemnification provided for in this Section 13 from the
indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses
referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party, shall contributed to the amount
or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses in such proportion as is
appropriate to reflect the relative fault of the indemnified party and
indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any
other relevant equitable considerations. The relative fault of such
indemnifying party and indemnifying parties shall be determined by
reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact, ahs been made
by, or relates to information supplied by, such indemnifying party of
such indemnified parties, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above
shall be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with any investigation
or proceeding.
(iv) The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 13 were determined by pro
rata allocation or by any other method of allocation which does not
take account of the equitable considerations referred to in the
immediately preceding paragraph. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation.
14. This Warrant Certificate shall not be valid unless signed by the
Issuer.
<PAGE>
IN WITNESS WHEREOF, Signal Apparel Company, Inc. has caused this Warrant
Certificate to be signed by its duly authorized officer.
SIGNAL APPAREL COMPANY, INC.
By:
-------------------------
Name:
Title:
REVOLVING CREDIT, TERM LOAN
AND
SECURITY AGREEMENT
BNY FINANCIAL CORPORATION,
as Lender and as Agent for the Lenders
and
The Lenders Signatory Hereto From Time to Time,
as Lenders
with
SIGNAL APPAREL COMPANY, INC.
as Borrower
March 12, 1999
<PAGE>
REVOLVING CREDIT, TERM LOAN AND SECURITY AGREEMENT
Revolving Credit, Term Loan and Security Agreement dated March 12, 1999
among Signal Apparel Company, Inc. a corporation organized under the laws of the
State of Indiana ("Borrower"), the undersigned financial institutions
(collectively, the "Lenders" and individually a "Lender") and BNY FINANCIAL
CORPORATION ("BNYFC"), a corporation organized under the laws of the State of
New York, as agent for Lenders (BNYFC, in such capacity, the "Agent").
IN CONSIDERATION of the mutual covenants and undertakings herein contained,
each of Borrower, Lenders and Agent hereby agree as follows:
I. DEFINITIONS.
1.1. Accounting Terms. As used in this Agreement, the Notes or any certificate,
report or other document made or delivered pursuant to this Agreement,
accounting terms not defined in Section 1.2 or elsewhere in this Agreement and
accounting terms partly defined in Section 1.2 to the extent not defined, shall
have the respective meanings given to them under GAAP, provided, however,
whenever such accounting terms are used for the purposes of determining
compliance with financial covenants in this Agreement, such accounting terms
shall be defined in accordance with GAAP applied in preparation of the audited
financial statements of Borrower for the fiscal year ended December 31, 1997.
1.2. General Terms. For purposes of this Agreement the following terms
shall have the following meanings:
"Accountants" shall have the meaning set forth in Section 9.7 hereof.
"Acquisition Agreement" shall mean the Asset Purchase Agreement including
all exhibits and schedules thereto dated as of December 18, 1998 by and among
Tahiti Apparel, Inc., a New Jersey corporation and the stockholders of Tahiti
Apparel, Inc. (individually and collectively, "Seller") as seller and Signal
Apparel Company, Inc., as buyer.
"Advances" shall mean and include the Revolving Advances, the Term Loans
and Letters of Credit.
"Advance Rates" shall have the meaning set forth in Section 2.1(a)(y)(iv)
hereof.
<PAGE>
"Affiliate" of any Person shall mean (a) any Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with such Person, or (b) any Person who is a director
or officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii) of
any Person described in clause (a) above. For purposes of this definition,
control of a Person shall mean the power, direct or indirect, (x) to vote 5% or
more of the securities having ordinary voting power for the election of
directors of such Person, or (y) to direct or cause the direction of the
management and policies of such Person whether by contract or otherwise. As used
herein, the term "Affiliate" shall exclude FS Signal Associates II.
"Agent" shall have the meaning set forth in the preamble to this Agreement
and shall include its successors and assigns.
"Agent's security interest" or words of similar import shall have the
meaning set forth in Section 4.1 hereof.
"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 one-half of one percent (1/2%).
"Applicable Margin for Domestic Rate Loans" shall mean, at any given time,
if the ratio of Borrower's Funded Debt (determined as at the last day of
Borrower's immediately preceding fiscal quarter) to Free Cash Flow (determined
for the immediately preceding four (4) fiscal quarters), each as determined from
the Borrower's financial statements most recently delivered from time to time in
accordance with Section 9.8 hereof, is (a) greater than 5.0:1, then the
Applicable Margin for Domestic Rate Loans for such fiscal quarter shall be
1.25%; (b) greater than 4.0:1 but less than or equal to 5.0:1, then the
Applicable Margin for Domestic Rate Loans for such fiscal quarter shall be 1%;
(c) greater than 3.0:1 but less than or equal to 4.0:1, then the Applicable
Margin for Domestic Rate Loans for such fiscal quarter shall be 0.75%; (d)
greater than 2.0:1 but less than or equal to 3.0:1, then the Applicable Margin
for Domestic Rate Loans shall be 0.5%; (e) greater than 1.0:1 but less than or
equal to 2.0:1, then the Applicable Margin for Domestic Rate Loans for such
fiscal quarter shall be 0.25%; and (f) equal to or less than 1.0:1, then the
Applicable Margin for Domestic Rate Loans for such fiscal quarter shall be 0%.
Notwithstanding anything to the contrary set forth herein, (x) from and after
the Closing Date through and including the earlier of (i) the first anniversary
of the Closing Date and (ii) the date on which Agent receives Borrower's 1999
annual audited financial statements in accordance with Section 9.7 hereof, the
Applicable Margin for Domestic Rate Loans shall be 1.25% and (y) from and after
the date that the Borrower repays in full Term Loan B and the date that the
Borrower has no right to request and Agent has no obligation to permit any
Permitted Overformula Advances pursuant to
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<PAGE>
Section 2.1(d), the Applicable Margin for Domestic Rate Loans, in effect from
time to time, shall be increased by .50%.
"Applicable Margin for Eurodollar Rate Loans" shall mean, at any given
time, if the ratio of Borrower's Funded Debt (determined as at the last day of
Borrower's immediately preceding fiscal quarter) to Free Cash Flow (determined
for the immediately preceding four (4) fiscal quarters), each as determined from
the Borrower's financial statements most recently delivered from time to time in
accordance with Section 9.8 hereof, is (a) greater than 5.0:1, then the
Applicable Margin for Eurodollar Rate Loans for such fiscal quarter shall be
3.5%; (b) greater than 4.0:1 but less than or equal to 5.0:1, then the
Applicable Margin for Eurodollar Rate Loans for such fiscal quarter shall be
3.25%; (c) greater than 3.0:1 but less than or equal to 4.0:1, then the
Applicable Margin for Eurodollar Rate Loans for such fiscal quarter shall be 3%;
(d) greater than 2.0:1 but less than or equal to 3.0:1, then the Applicable
Margin for Eurodollar Rate Loans shall be 2.5%; (e) greater than 1.0:1 but less
than or equal to 2.0:1, then the Applicable Margin for Eurodollar Rate Loans for
such fiscal quarter shall be 2%; and (f) equal to or less than 1.0:1, then the
Applicable Margin for Eurodollar Rate Loans for such fiscal quarter shall be
1.5%. Notwithstanding anything to the contrary set forth herein, (x) from and
after the Closing Date through and including the earlier of (i) the first
anniversary of the Closing Date and (ii) the date on which Agent receives
Borrower's 1999 annual audited financial statements in accordance with Section
9.7 hereof, the Applicable Margin for Eurodollar Rate Loans shall be 3.5%. and
(y) from and after the date that the Borrower repays in full Term Loan B and the
date that the Borrower has no right to request and Agent has no obligation to
permit any Permitted Overformula Advances pursuant to Section 2.1(d), the
Applicable Margin for Eurodollar Rate Loans, in effect from time to time, shall
be increased by .50%.
"Assignment of Factoring Proceeds" shall mean the Assignment of Factoring
Proceeds dated the Closing Date between Borrower and Factor.
"Authority" shall have the meaning set forth in Section 4.19(d) hereof.
"Bank" shall mean The Bank of New York, and its successors and assigns.
"Blocked Accounts" shall have the meaning set forth in Section 4.15(h)
hereof.
"BNYFC" shall have the meaning set forth in the preamble to this Agreement
and shall include its successors and assigns.
-3-
<PAGE>
"Borrower" shall have the meaning set forth in the preamble to this
Agreement and shall include its permitted successors and assigns.
"Business Day" shall mean any day other than a day on which commercial
banks in New York are authorized or required by law to close.
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, 42 U.S.C. ss.9601 et seq.
"Change of Ownership" shall mean (a) 30% or more of the common stock of
Borrower is no longer owned or controlled by (including for the purposes of the
calculation of percentage ownership, any shares of common stock into which any
capital stock of Borrower held by any of the Original Owners is convertible or
for which any such shares of the capital stock of Borrower or of any other
Person may be exchanged and any shares of common stock issuable to such Original
Owners upon exercise of any warrants, options or similar rights which may at the
time of calculation be held by such Original Owners) a Person who is either an
Original Owner or an Affiliate of an Original Owner or (b) any merger,
consolidation or sale of substantially all of the property or assets of
Borrower.
"Charges" shall mean all taxes, charges, fees, imposts, levies or other
assessments, including, without limitation, all net income, gross income, gross
receipts, sales, use, ad valorem, value added, transfer, franchise, profits,
inventory, capital stock, license, withholding, payroll, employment, social
security, unemployment, excise, severance, stamp, occupation and property taxes,
custom duties, fees, assessments, liens, claims and charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts, imposed by any taxing or other authority, domestic or
foreign (including, without limitation, the PBGC or any environmental agency or
superfund), upon the Collateral, the Borrower or any of its Affiliates.
"Cleanup Date" shall have the meaning set forth in Section 2.1(d) hereof.
"Closing Date" shall mean the date hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time and the regulations promulgated thereunder.
"Collateral" shall mean and include:
(a) all Receivables;
(b) all Equipment;
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<PAGE>
(c) all General Intangibles;
(d) all Inventory;
(e) all Real Property;
(f) all Subsidiary Stock;
(g) all of Borrower's right, title and interest in and to (i) its
goods and other property including, but not limited to, all merchandise returned
or rejected by Customers, relating to or securing any of the Receivables; (ii)
all of Borrower's rights as a consignor, a consignee, an unpaid vendor,
mechanic, artisan, or other lienor, including stoppage in transit, setoff,
detinue, replevin, reclamation and repurchase; (iii) all additional amounts due
to Borrower from any Customer relating to the Receivables; (iv) other property,
including warranty claims, relating to any goods securing this Agreement; (v)
all of Borrower's contract rights, rights of payment which have been earned
under a contract right, credit balances and factoring proceeds due from Factor
under the Factoring Agreement, instruments, documents, chattel paper, warehouse
receipts, deposit accounts, money, securities and investment property; (vi) if
and when obtained by Borrower, all real and personal property of third parties
in which Borrower has been granted a lien or security interest as security for
the payment or enforcement of Receivables; and (vii) any other goods, personal
property or real property now owned or hereafter acquired in which Borrower has
expressly granted a security interest or may in the future grant a security
interest to Agent hereunder, or in any amendment or supplement hereto or
thereto, or under any other agreement between Agent and Borrower;
(h) all of Borrower's ledger sheets, ledger cards, files,
correspondence, records, books of account, business papers, computers, computer
software (whether owned by Borrower or in which it has an interest), computer
programs, tapes, disks and documents relating to (a), (b), (c), (d), (e), (f) or
(g) of this Paragraph; and
(i) all proceeds and products of (a), (b), (c), (d), (e), (f), (g) and
(h) in whatever form, including, but not limited to: cash, deposit accounts
(whether or not comprised solely of proceeds), certificates of deposit,
insurance proceeds (including hazard, flood and credit insurance), negotiable
instruments and other instruments for the payment of money, chattel paper,
claims by Borrower against any third parties for infringement of intellectual
property, security agreements, documents, eminent domain proceeds, condemnation
proceeds and tort claim proceeds.
-5-
<PAGE>
Notwithstanding anything to the contrary set forth above, Collateral shall not
include any rights or interests of Borrower in any license or under any license
agreement where Borrower is the licensee and where such license and/or license
agreement, pursuant to its stated terms, prohibits the assignment or the
granting of a security interest or lien therein to Lender and such prohibition
has not been or is not waived or the consent of the other party to such license
agreement has not been or is not otherwise obtained or, under applicable law,
such prohibition cannot be waived.
"Commitment Percentage" of any Lender shall mean the percentage set forth
below such Lender's name on the signature page hereof as same may be adjusted
upon any assignment by a Lender pursuant to Section 15.3(c) hereof.
"Commitment Transfer Supplement" shall mean a document in the form of
Exhibit 15.3 hereto, properly completed and otherwise in form and substance
satisfactory to Agent by which the Purchasing Lender purchases and assumes a
portion of the obligation of Lenders to make Advances under this Agreement.
"Consents" shall mean all filings and all licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental authorities
and other third parties, domestic or foreign, necessary to carry on Borrower's
business, including, without limitation, any Consents required under all
applicable federal, state or other applicable law.
"Contract Rate" shall mean, as applicable, the Revolving Interest Rate or
the Term Loan Interest Rate.
"Controlled Group" shall mean all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with Borrower, are treated as a single employer
under Section 414 of the Code.
"Credit Risk" means the risk of loss resulting solely and exclusively from
a Customer's inability to pay at maturity with respect to any Receivable
purchased hereunder.
"Current Assets" at a particular date, shall mean all cash, cash
equivalents, accounts (including Receivables) and inventory of Borrower, on a
consolidated basis, and all other items which would, in conformity with GAAP, be
included under current assets on a balance sheet of Borrower, on a consolidated
basis, as at such date; provided, however, that such amounts shall not include
(a) any amounts for any Indebtedness owing by an Affiliate of Borrower, unless
such Indebtedness arose in connection with the sale of goods or rendition of
services in the ordinary course of business and would otherwise constitute
current assets in
-6-
<PAGE>
conformity with GAAP, (b) any shares of stock issued by an Affiliate of
Borrower, or (c) the cash surrender value of any life insurance policy.
"Current Liabilities" at a particular date, shall mean all Revolving
Advances and all amounts which would, in conformity with GAAP, be included under
current liabilities on a balance sheet of Borrower, as at such date, but in any
event including, without limitation, the amounts of (a) all Indebtedness of
Borrower payable on demand, or, at the option of the Person to whom such
Indebtedness is owed, not more than twelve (12) months after such date, (b) any
payments in respect of any Indebtedness of Borrower (whether installment, serial
maturity, sinking fund payment or otherwise) required to be made not more than
twelve (12) months after such date, (c) all reserves in respect of liabilities
or Indebtedness payable on demand or, at the option of the Person to whom such
Indebtedness is owed, not more than twelve (12) months after such date, the
validity of which is not contested at such date, and (d) all accruals for
federal or other taxes measured by income payable within a twelve (12) month
period.
"Customer" shall mean and include the account debtor with respect to any
Receivable and/or the prospective purchaser of goods, services or both with
respect to any contract or contract right, and/or any party who enters into or
proposes to enter into any contract or other arrangement with Borrower, pursuant
to which Borrower is to deliver any personal property or perform any services.
"Default" shall mean an event which, with the giving of notice or passage
of time or both, would constitute an Event of Default.
"Default Rate" shall mean a rate equal to two percent (2%) per annum in
excess of (a) the Letter of Credit Fees and (b) the Contract Rate.
"Defaulting Lender" shall have the meaning set forth in Section 2.15(a)
hereof.
"Depository Accounts" shall have the meaning set forth in Section 4.15(h)
hereof.
"Dispute" shall have the meaning set forth in the Factoring Agreement.
"Documents" shall have the meaning set forth in Section 8.1(c) hereof.
"Dollars" and the sign "$" shall mean lawful money of the United States of
America.
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"Domestic Rate Loan" shall mean any Advance that bears interest based upon
the Alternate Base Rate.
"Eligible Inventory" shall mean and include raw material and finished goods
Inventory of Borrower located in the continental United States, excluding work
in process, valued at the lower of cost or market value, determined on a
first-in-first-out basis, which is not, in Agent's opinion reasonably exercised
in good faith, obsolete, slow moving or unmerchantable and which Agent, in its
sole discretion, reasonably exercised in good faith, shall not deem ineligible
Inventory, based on such considerations as Agent may from time to time deem
appropriate in Agent's reasonable judgment exercised in good faith including,
without limitation, whether the Inventory is subject to a perfected, first
priority security interest in favor of Agent for the ratable benefit of Lenders,
and whether the Inventory conforms in all material respects 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. Notwithstanding
anything to the contrary contained herein, Eligible Inventory shall include
Eligible L/C Inventory and shall not include (a) Inventory bearing the
trademark, trade name, trade style or other name of a third party unless such
third party has executed an agreement permitting Agent to dispose of such
Inventory on terms and conditions satisfactory to Agent, and such Inventory
otherwise satisfies Agent's other standards of eligibility set forth herein and
(b) Inventory located in any public warehouse or other rented or leased location
unless (i) such rented or leased location is located in the continental United
States, (ii) the warehousemen, lessor or other third party owner of such
location has executed a waiver with respect to such Person's rights to the
Inventory located at such premises, in form and content reasonably satisfactory
to Agent.
"Eligible L/C Inventory" shall mean all finished goods Inventory owned or
to be owned by Borrower and covered by Letters of Credit, and which raw material
and finished goods Inventory are or will be in transit to one of the Borrower's
locations in the Continental United States, and which raw material and finished
goods Inventory (a) as of the date such Inventory is owned by the Borrower (i)
are fully insured, (ii) are subject to a first priority security interest in and
lien upon such goods in favor of Agent, for the ratable benefit of Lenders
(except for any possessory lien upon such goods in the possession of a freight
carrier or shipping company securing only the freight charges for the
transportation of such goods to such Borrower) and (iii) all documents, notices,
instruments, statements and bills of lading relating thereto, if any, which
Agent may deem necessary or reasonably desirable to evidence ownership by
Borrower and/or to give effect to and protect the liens, security interests and
other rights of Agent in connection therewith, are delivered to Agent; and (b)
are and remain acceptable to Agent for lending purposes in its discretion
reasonably exercised in good faith.
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"Eligible Receivables" shall mean and include each Receivable of Borrower
arising in the ordinary course of Borrower's business and which Agent, in its
sole credit judgment reasonably exercised in good faith, shall deem to be an
Eligible Receivable, based on such considerations as Agent may from time to time
deem appropriate. A Receivable shall be eligible if the Factor has assumed and
retained the Credit Risk on such Receivable and the proceeds of such Receivables
have been assigned to Agent for the ratable benefit of Lenders. In addition to,
and not in limitation of the foregoing, a Receivable upon which Factor has not
assumed and retained the Credit Risk shall not be deemed eligible unless such
Receivable (a) is subject to Agent's perfected security interest and no other
Lien other than Permitted Encumbrances, (b) it has been assigned to Agent for
the ratable benefit of Lenders by Factor under the Factoring Agreement, and (c)
is evidenced by an invoice, bill of lading or other documentary evidence
satisfactory to Agent. In addition, no Receivable upon which Factor has not
assumed and retained the Credit Risk shall be an Eligible Receivable if:
(a) it arises out of a sale made by Borrower to an Affiliate of Borrower or
to a Person controlled by an Affiliate of Borrower;
(b) it is due or unpaid more than ninety (90) days after the original
invoice date or more than sixty (60) days after the original due date;
(c) fifty percent (50%) or more of the Receivables from the Customer are
not deemed Eligible Receivables hereunder. Such percentage may, in Agent's sole
discretion reasonably exercised in good faith, be increased or decreased from
time to time;
(d) any covenant, representation or warranty contained in this Agreement or
the Factoring Agreement with respect to such Receivable has been breached;
(e) the Customer shall (i) apply for, suffer, or consent to the appointment
of, or the taking of possession by, a receiver, custodian, trustee or liquidator
of itself or of all or a substantial part of its property or call a meeting of
its creditors, (ii) admit in writing its inability, or be generally unable, to
pay its debts as they become due or cease operations of its present business,
(iii) make a general assignment for the benefit of creditors, (iv) commence a
voluntary case under any state or federal bankruptcy laws (as now or hereafter
in effect), (v) be adjudicated a bankrupt or insolvent, (vi) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vii) acquiesce to, or fail to have dismissed, any petition which is filed
against it in any involuntary case under such bankruptcy laws, or (viii) take
any action for the purpose of effecting any of the foregoing;
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(f) the sale or rendition of services is to a Customer outside the
continental United States of America, unless the sale is on letter of credit,
guaranty or acceptance terms, in each case acceptable to Agent in its sole
discretion;
(g) the sale to the Customer 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;
(h) the Customer is the United States of America, any state or any
department, agency or instrumentality of any of them, unless Borrower
effectuates an assignment of its right to payment of such Receivable to Agent
pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C.
Sub-Section 3727 et seq. and 41 U.S.C. Sub-Section 15 et seq.) or has otherwise
complied with other applicable statutes or ordinances;
(i) the goods giving rise to such Receivable have not been shipped and
delivered to and accepted by the Customer or the services giving rise to such
Receivable have not been performed by Borrower and accepted by the Customer or
the Receivable otherwise does not represent a final sale or completed rendition
of service;
(j) the Receivables of the Customer exceed a credit limit determined by
Agent, in its sole discretion reasonably exercised in good faith, to the extent
such Receivable exceeds such limit;
(k) the Receivable is subject to any offset, deduction, defense, Dispute,
or counterclaim, the Customer is also a creditor or supplier of Borrower or the
Receivable is contingent in any respect or for any reason;
(l) Borrower has made any agreement with a Customer 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;
(m) shipment of the merchandise or the rendition of services has not been
completed;
(n) any return, rejection or repossession of the merchandise whose sale
gave rise to the Receivable has occurred;
(o) such Receivable is not payable to Borrower; or
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(p) such Receivable is not otherwise satisfactory to Agent as determined in
good faith by Agent in the exercise of its discretion in a reasonable manner.
"Environmental Complaint" shall have the meaning set forth in Section
4.19(d) hereof.
"Environmental Laws" shall mean all federal, state and local environmental,
land use, zoning, health, chemical use, safety and sanitation laws, statutes,
ordinances and codes relating to the protection of the environment and/or
governing the use, storage, treatment, generation, transportation, processing,
handling, production or disposal of Hazardous Substances and the rules,
regulations, policies, guidelines, interpretations, decisions, orders and
directives of federal, state and local governmental agencies and authorities
with respect thereto, including, without limitation, CERCLA and RCRA.
"Equipment" shall mean and include all of Borrower's goods (excluding
Inventory) whether now owned or hereafter acquired and wherever located
including, without limitation, all equipment, machinery, apparatus, motor
vehicles, fittings, furniture, furnishings, fixtures, parts, accessories and all
replacements and substitutions therefor or accessions thereto.
"ERISA Plan" shall mean any employee benefit plan within the meaning of
Section 3(3) of ERISA, maintained for employees of Borrower or any member of the
Controlled Group or any such Plan to which Borrower or any member of the
Controlled Group is required to contribute on behalf of any of its employees.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended from time to time and the rules and regulations promulgated thereunder.
"Eurodollar Rate Loan" shall mean an Advance that at any time bears
interest based upon the Eurodollar Rate.
"Eurodollar Rate" shall mean, as to any one month interest period, for any
Eurodollar Rate Loan, the rate of interest equal to the daily average of the
thirty (30) day London Interbank Offered Rate as published in The Wall Street
Journal, averaged and calculated on a monthly basis for actual days elapsed over
a 360 day year.
"Event of Default" shall mean the occurrence of any of the events set forth
in Article X hereof.
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"Factor" shall mean BNY Financial Corporation and its successors and
assigns.
"Factoring Agreement" shall mean the Second Amended And Restated Factoring
Agreement dated the date hereof between Borrower and Factor.
"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 immediately 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.
"Fee Letter" shall mean the fee letter dated as of the Closing Date between
Borrower and BNYFC.
"Formula Amount" shall have the meaning set forth in Section 2.1(a) hereof.
"Free Cash Flow" shall mean, for any fiscal period, the sum of Borrower's
(a) Net Income, on a consolidated basis (excluding extraordinary and
non-recurring items), plus (b) all non-cash expenses incurred by Borrower, less
(c) the cash portion of all capital expenditures made by Borrower, as permitted
hereunder during such period, less (d) all payments made by Borrower in respect
of the Term Loans during such period, less (e) all cash dividends made by
Borrower as permitted hereunder during such period, in each case in accordance
with GAAP consistently applied.
"Funded Debt" shall mean, for Borrower on a consolidated basis, all
liabilities for borrowed money including, without limitation, Letters of Credit
(to the extent such Letters of Credit are not funded by Advances to Borrower
hereunder and are not specifically fully secured by cash or cash equivalents
acceptable to Agent) and all of Borrower's capitalized lease obligations, as
determined in accordance with GAAP consistently applied.
"GAAP" shall mean generally accepted accounting principles in the United
States of America in effect from time to time.
"General Intangibles" shall mean and include all of Borrower's general
intangibles, whether now owned or hereafter acquired including, without
limitation, all choses in action, causes of action, corporate or other business
records, inventions, designs, patents, patent applications, formulations,
manufacturing procedures, quality
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control procedures, trademarks, service marks, trade secrets, goodwill
(including the goodwill of the business symbolized by each of such trademarks,
servicemarks and trade names), copyrights, design rights, registrations,
licenses, franchises, customer lists, tax refunds, tax refund claims, computer
programs, all claims under guaranties, security interests or other security held
by or granted to Borrower to secure payment of any of the Receivables by a
Customer, all rights of indemnification and all other intangible property of
every kind and nature (other than Receivables).
"Governmental Body" shall mean any nation or government, any state or other
political subdivision thereof or any entity exercising the legislative,
judicial, regulatory or administrative functions of or pertaining to a
government.
"Guarantor" shall mean, individually and collectively, each of The Shirt
Shed, Inc., American Marketing Works, Inc., Big Ball Sports, Inc. and WG Trading
Company, LP, and their respective successors and assigns.
"Guaranty" shall mean, individually and collectively, each guaranty of the
obligations of Borrower executed by a Guarantor in favor of Lenders.
"Hazardous Discharge" shall have the meaning set forth in Section 4.19(d)
hereof.
"Hazardous Substance" shall mean, without limitation, any flammable
explosives, radon, radioactive materials, asbestos, urea formaldehyde foam
insulation, polychlorinated biphenyls, petroleum and petroleum products,
methane, hazardous materials, Hazardous Wastes, hazardous or toxic substances or
related materials as defined in CERCLA, the Hazardous Materials Transportation
Act, as amended (49 U.S.C. Sections 1801, et seq.), RCRA, Articles 15 and 27 of
the New York State Environmental Conservation Law or any other applicable
Environmental Law and in the regulations adopted pursuant thereto.
"Hazardous Wastes" shall mean all waste materials subject to regulation
under CERCLA, RCRA or applicable state law, and any other applicable Federal and
state laws now in force or hereafter enacted relating to hazardous waste
disposal.
"Indebtedness" of a Person at a particular date shall mean, without
duplication, all obligations and indebtedness, debt and other similar monetary
obligations of such Person whether direct or guaranteed, and all premiums, if
any, due at the required prepayment dates of such indebtedness, and all
indebtedness secured by a Lien on assets owned by such Person, whether or not
such indebtedness actually shall have been created, assumed or incurred by such
Person. Any indebtedness of such Person resulting from the acquisition by such
Person of any assets subject to any Lien shall be deemed, for the purposes
hereof, to be the equivalent of the creation,
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assumption and incurring of the indebtedness secured thereby, whether or not
actually so created, assumed or incurred.
"Inventory" shall mean and include all of Borrower's now owned or hereafter
acquired goods, merchandise and other personal property, wherever located, to be
furnished under any contract of service or held for sale or lease, all raw
materials, work in process, finished goods and materials and supplies of any
kind, nature or description which are or might be used or consumed in Borrower's
business or used in selling or furnishing such goods, merchandise and other
personal property, and all documents of title or other documents representing
them.
"Inventory Advance Rate" shall have the meaning set forth in Section
2.1(a)(y)(ii) hereof.
"L/C Inventory Advance Rate" shall have the meaning set forth in Section
2.1(a)(y)(iii) hereof.
"Lender" and "Lenders" shall have the meaning ascribed to such term in the
preamble to this Agreement and shall include each Person which is a transferee,
successor or assign of any Lender.
"Letters of Credit" shall have the meaning set forth in Section 2.8 hereof.
"Letter of Credit Fees" shall have the meaning set forth in Section 3.2
hereof.
"Lien" shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, security interest, lien (whether statutory or otherwise), claim or
encumbrance, or preference, priority or other security agreement or preferential
arrangement held or asserted in respect of any asset of any kind or nature
whatsoever including, without limitation, any conditional sale or other title
retention agreement, any lease having substantially the same economic effect as
any of the foregoing, and the filing of, or agreement to give, any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction.
"Material Adverse Effect" shall mean a material adverse effect upon (a) the
condition, operations, assets or business of the applicable Person or Persons,
(b) Borrower's ability to pay the Obligations in accordance with the terms
thereof, (c)(i) the value of the Collateral or (ii) the Liens on Collateral,
with an aggregate fair market value in excess of $700,000, or (d) the practical
realization of the benefits of Lender's rights and remedies under this Agreement
and the Other Documents.
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"Maximum Loan Amount" shall mean $98,000,000; except that, subject to the
written approval of each Lender, as of each Step Up Effective Date, the Maximum
Loan Amount shall be permanently increased in an amount equal to the increase of
the Maximum Revolving Advance Amount as of such Step Up Effective Date, provided
that, in no event shall the Maximum Loan Amount be greater than $115,000,000.
"Maximum Revolving Advance Amount" shall mean with respect to Advances
(other than the Term Loan), $48,000,000; except that, from and after the Closing
Date, Borrower may, from time to time, request, by delivery to Agent of a Step
Up Notice, that the Maximum Revolving Advance Amount be permanently increased to
an amount not to exceed $65,000,000, provided, that, each requested increase
shall be in increments of not less than $5,000,000 each, and as of each Step Up
Effective Date, (a) no Default or Event of Default has occurred or would occur
after giving effect to any such requested increase in the Maximum Revolving
Advance Amount and no notice of termination of this Agreement has been issued,
(b) Borrower has paid to Agent an arranging fee for such increase as more fully
set forth in the Fee Letter, (c) after giving effect to such requested increase,
the Maximum Revolving Advance Amount shall not exceed $65,000,000, and (d) after
giving effect to such requested increase, the Maximum Loan Amount shall not
exceed $115,000,000.
"Maximum Swingline Loan Amount" means the commitment of the Swingline
Lender to make the Swingline Loans in an aggregate principal amount at any time
outstanding of up to the Swingline Loan Amount.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Sections 3(37) and 4001(a)(3) of ERISA.
"Net Income" means, for any period, net income of Borrower (excluding
extraordinary items and non-operating gains and losses (including, without
limitation, currency gains and losses)), after taxes for such period, determined
on a consolidated basis.
"Notes" shall mean the Revolving Credit Notes.
"Obligations" shall mean and include all loans, indebtedness, liabilities,
obligations, covenants and duties of Borrower to Agent and/or Lenders, of every
kind, nature and description, arising under or relating to this Agreement, the
Other Documents, or the transactions hereunder or relating hereto or under any
of the foregoing, including principal, interest, charges, fees, costs and
expenses, however evidenced, whether as principal, surety, endorser, guarantor
or otherwise, whether arising under this Agreement or the Other Documents,
whether now existing or hereafter arising, whether arising before, during or
after the initial Term or any renewal
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Term of this Agreement or after the commencement of any case with respect to
Borrower under the United States Bankruptcy Code or any similar statute
(including, without limitation, the payment of interest and other amounts which
would accrue and become due but for the commencement of such case), whether
direct or indirect, absolute or contingent, joint or several, due or not due,
primary or secondary, liquidated or unliquidated, secured or unsecured,
original, renewed or extended, and whether arising directly or acquired from
others, and including, without limitation, Lenders' and Agent's fees, charges,
commissions, interest, expenses, costs and attorneys' fees chargeable to
Borrower under this Agreement, the Other Documents or in connection with any of
the foregoing.
"Original Owners" shall mean WGI, LLC, Zvi BenHaim, Michael Harrary and
Samson Chan.
"Other Documents" shall mean the Notes, the Questionnaire, the Assignment
of Factoring Proceeds and any and all other agreements, instruments and
documents, including, without limitation, notes, guaranties, pledges, additional
security agreements, powers of attorney, consents, and all other writings
heretofore, now or hereafter executed by Borrower and/or delivered to Agent or
any Lender in respect of the transactions contemplated by this Agreement.
"Parent" of any Person shall mean a corporation or other entity owning,
directly or indirectly, at least fifty percent (50%) of the shares of stock or
other ownership interests having ordinary voting power to elect a majority of
the directors of the Person, or other Persons performing similar functions for
any such Person.
"Payment Office" shall mean initially Agent's office at 1290 Avenue of the
Americas, Third Floor, New York, New York; thereafter, such other office of
Agent, if any, which it may designate by notice to Borrower to be the Payment
Office.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Permitted Encumbrances" shall mean (a) Liens in favor of Agent for itself
and the ratable benefit of Lenders; (b) Liens for taxes, assessments or other
governmental charges not delinquent or being contested in good faith and by
appropriate proceedings and with respect to which proper reserves have been
taken by Borrower; (c) deposits or pledges of cash to secure obligations under
worker's compensation, social security or similar laws, or under unemployment
insurance; (d) deposits or pledges of cash to secure bids, tenders, contracts
(other than contracts for the payment of money), leases, statutory obligations,
surety and appeal bonds and other obligations of like nature arising in the
ordinary course of Borrower's business; (e) judgment Liens that have been stayed
or bonded and mechanics', workers', materialmen's or other like Liens arising in
the ordinary course of Borrower's business
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with respect to obligations which are not due or which are being contested in
good faith by Borrower; (f) Liens placed upon fixed assets hereafter acquired to
secure a portion of the purchase price thereof, provided that (x) any such lien
shall not encumber any other property of the Borrower and (y) the aggregate
amount of Indebtedness secured by such Liens incurred as a result of such
purchases during any fiscal year shall not exceed the amount provided for in
Section 7.6; (g) other Liens incidental to the conduct of Borrower's business or
the ownership of its property and assets which were not incurred in connection
with the borrowing of money or the obtaining of advances or credit, and which do
not in the aggregate exceed in any given year $250,000 or which do not in the
aggregate materially detract from Lender's rights in and to the Collateral or
the value of Borrower's property or assets or which do not materially impair the
use thereof in the operation of Borrower's business; and (h) Liens disclosed on
Schedule 4.20.
"Permitted Overformula Advances" shall have the meaning set forth in
Section 2.1(d) hereof.
"Permitted Overformula Amount A" shall mean (a) from the Closing Date up to
and including December 31, 2000, $17,000,000; (b) from the Cleanup Date with
respect to the Permitted Overformula Advance for the calendar month of December,
2000 up to and including January 31, 2001, $14,166,667; (c) from the Cleanup
Date with respect to the Permitted Overformula Advance for the calendar month of
January, 2001 up to and including February 28, 2001, $11,333,334; (d) from the
Cleanup Date with respect to the Permitted Overformula Advance for the calendar
month of February, 2001 up to and including March 31, 2001, $8,500,000; (e) from
the Cleanup Date with respect to the Permitted Overformula Advance for the
calendar month of March, 2001 up to and including April 30, 2001, $5,666,667;
(f) from the Cleanup Date with respect to the Permitted Overformula Advance for
the calendar month of April, 2001 up to and including May 31, 2001, $2,833,333
and (g) from and after June 1, 2001, $0.
"Permitted Overformula Amount B" shall mean (a) for each calendar month
commencing from the Closing Date up to and including December, 2000,
$10,000,000; (b) for the calendar month of January, 2001, $8,333,333; (c) for
the calendar month of February, 2001, $6,666,666; (d) for the calendar month of
March, 2001, $5,000,000; (e) for the calendar month of April, 2001, $3,333,333;
(f) for the calendar month of May, 2001, $1,666,666 and (g) for the calendar
month of June, 2001, and for each calendar month thereafter, $0.
"Person" shall mean any individual, sole proprietorship, partnership,
corporation, business trust, joint stock company, trust, unincorporated
organization association, limited liability company, institution, public benefit
corporation, joint venture, entity or government (whether Federal, state,
county, city, municipal or
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otherwise, including any instrumentality, division, agency, body or department
thereof).
"Plan" shall mean any employee benefit plan within the meaning of Section
3(3) of ERISA, maintained for employees of Borrower or any member of the
Controlled Group or any such Plan to which Borrower or any member of the
Controlled Group is required to contribute on behalf of any of its employees.
"Prepayment Date" shall have the meaning set forth in Section 13.1 hereof.
"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.
This rate of interest is determined from time to time by the Bank as a means of
pricing some loans to its customers and is neither tied to any external rate of
interest or index nor does it necessarily reflect the lowest rate of interest
actually charged by the Bank to any particular class or category of customers of
the Bank.
"Pro Forma Balance Sheet" shall have the meaning set forth in Section
5.5(a) hereof.
"Pro Forma Financial Statements" shall have the meaning set forth in
Section 5.5(b) hereof.
"Projections" shall have the meaning set forth in Section 5.5(b) hereof.
"Purchasing Lender" shall have the meaning set forth in Section 15.3(c)
hereof.
"Questionnaire" shall mean each Questionnaire and the responses thereto
provided by Borrower and Guarantors and delivered to Agent.
"RCRA" shall mean the Resource Conservation and Recovery Act, 42 U.S.C.
ss.6901 et seq., as same may be amended from time to time.
"Real Property" shall mean all of Borrower's right, title and interest in
and to its existing and future owned or leased real property.
"Receivables" shall mean and include all of Borrower's accounts, contract
rights, instruments (including those evidencing indebtedness among Borrower and
its Affiliates), documents, chattel paper, general intangibles relating to
accounts, drafts and acceptances, all amounts due from Factor and all other
forms of obligations owing
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to Borrower arising out of or in connection with the sale or lease of Inventory
or the rendition of services, all guarantees and other security therefor,
whether secured or unsecured, now existing or hereafter created.
"Receivables Advance Rate" shall have the meaning set forth in Section
2.1(a)(y)(i) hereof.
"Releases" shall have the meaning set forth in Section 5.7(c)(i) hereof.
"Reportable Event" shall mean a reportable event described in Section
4043(b) of ERISA or the regulations promulgated thereunder.
"Required Lenders" shall mean Lenders holding at least fifty-one percent
(51%) of the Advances.
"Reserves" shall mean the sum, from time to time, of all deductions,
allowances, credits, bill and hold and consignment sales, standby and
documentary Letters of Credit, airway releases, steamship guarantees, and any
other offsets asserted or granted and such additional reserves as are deemed
appropriate in Agent's sole discretion, in each case without duplication of any
such deduction, offset or reserve taken into account in excluding any item or
portion thereof from Eligible Receivables, Eligible L/C Inventory or Eligible
Inventory.
"Revolving Advances" shall mean Advances made other than the Term Loans and
Letters of Credit.
"Revolving Credit Notes" shall have the meaning set forth in Section 2.1(a)
hereof.
"Revolving Interest Rate" shall mean at any time and from time to time, an
interest rate per annum equal to, as applicable, (a) with respect to Domestic
Rate Loans, the sum of the Alternate Base Rate plus the Applicable Margin for
Domestic Rate Loans then in effect, or (b) with respect to Eurodollar Rate
Loans, the sum of the Eurodollar Rate plus the Applicable Margin for Eurodollar
Rate Loans then in effect.
"Seller" shall have the meaning as set forth in the definition of
Acquisition Agreement.
"Settlement Date" shall mean the Closing Date and thereafter Wednesday of
each week unless such day is not a Business Day in which case it shall be the
next succeeding Business Day.
"Side Collateral Advance Rate" shall have the meaning set forth in Section
2.1(a)(y)(iv) hereof.
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"Special Overadvance Facility" shall mean all Advances made from time to
time by Agent for the ratable benefit of Lenders under Section 2.1(a)(y)(iv)(B)
hereof.
"Step Up Effective Date" shall mean the date, if any, that Agent notifies
Borrower that the Maximum Loan Amount is increased to an amount not to exceed
the amount requested in a Step Up Notice.
"Step Up Notice" shall mean any written notice delivered from time to time
by Borrower to Agent, at a time other than when any Event of Default has
occurred and is continuing, in accordance with the terms hereof requesting an
increase in the Maximum Revolving Advance Amount, which written notice shall
state the amount of the requested increase in the Maximum Revolving Advance
Amount.
"Subordinated Debt Documentation" shall mean the Intercreditor and
Subordination Agreement dated the date hereof between Borrower and Subordinated
Lender, the Credit Agreement among Borrower, The Shirt Shed, Inc., Big Ball
Sports, Inc. and Subordinated Lender dated May 8, 1988, and all other notes,
instruments, mortgages, agreements and documents executed and/or delivered in
connection therewith.
"Subordinated Lender" shall mean WGI, LLC and its successors and assigns.
"Subsidiary" shall mean a corporation or other entity of whose shares of
stock or other ownership interests having ordinary voting power (other than
stock or other ownership interests having such power only by reason of the
happening of a contingency) to elect a majority of the directors of such
corporation, or other Persons performing similar functions for such entity, are
owned, directly or indirectly, by such Person.
"Subsidiary Stock" shall mean (i) all of the issued and outstanding shares
of capital stock of each domestic Subsidiary of Borrower owned by Borrower, and
(ii) sixty-five percent (65%) of all of the issued and outstanding shares of
capital stock of each non-domestic Subsidiary of Borrower owned by Borrower.
"Swingline Lender" means BNY Financial Corporation, and its successors and
assigns.
"Swingline Loan" shall have the meaning assigned to such term in Section
2.1(b)(i).
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"Swingline Loan Amount" shall have the meaning assigned to such term in
Section 2.1(b)(i).
"Tangible Net Worth" at a particular date, shall mean (a) all amounts which
would be included under shareholders' equity on a balance sheet of the Borrower
determined in accordance with GAAP as at such date, plus (b) any liabilities
which are subordinated to Agent and Lenders minus (c) all intangible assets,
including but not limited to, goodwill and deferred financing costs.
"Term" shall mean the Closing Date through March 12, 2004, as same may be
extended in accordance with the provisions of Section 13.1 hereof.
"Term Loan A" shall have the meaning set forth in Section 2.4(a) hereof.
"Term Loan B" shall have the meaning set forth in Section 2.4(b) hereof.
"Term Loan Interest Rate" shall mean at any time and from time to time, an
interest rate per annum equal to, as applicable, (a) with respect to Term Loan
A, (i) the sum of the Alternate Base Rate plus the Applicable Margin for
Domestic Rate Loans then in effect minus one percent (1%) or (ii) the sum of the
Eurodollar Rate plus the Applicable Margin for Eurodollar Rate Loans then in
effect minus one percent (1%), and (b) with respect to Term Loan B, (i) the sum
of the Alternate Base Rate plus the Applicable Margin for Domestic Rate Loans
then in effect plus one half of one percent (1/2%) or (ii) the sum of the
Eurodollar Rate plus the Applicable Margin for Eurodollar Rate Loans then in
effect plus one-half of one percent (1/2%).
"Term Loans" shall have the meaning set forth in Section 2.4(b) hereof.
"Termination Event" shall mean (i) a Reportable Event with respect to any
Plan or Multiemployer Plan; (ii) the withdrawal of Borrower or any member of the
Controlled Group from a Plan or Multiemployer Plan during a plan year in which
such entity was a "substantial employer" as defined in Section 4001(a)(2) of
ERISA; (iii) the providing of notice of intent to terminate a Plan in a distress
termination described in Section 4041(c) of ERISA; (iv) the institution by the
PBGC of proceedings to terminate a Plan or Multiemployer Plan; (v) any event or
condition (a) which could reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan or Multiemployer Plan, or (b) that could reasonably be
expected to result in termination of a Multiemployer Plan pursuant to Section
4041A of ERISA; or (vi) the partial or complete withdrawal within the meaning of
Sections 4203 and 4205 of ERISA, of Borrower or any member of the Controlled
Group from a Multiemployer Plan. Whenever used in connection with the definition
of "Termination Event," the term "Plan" means an ERISA Plan that is an
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employee pension plan within the meaning of Section 3(2) of ERISA that is
subject to Title IV of ERISA.
"Toxic Substance" shall mean and include any material present on the Real
Property which has been shown to have significant adverse effect on human health
or which is subject to regulation under the Toxic Substances Control Act (TSCA),
15 U.S.C. ss.2601 et seq., applicable state law, or any other applicable Federal
or state laws now in force or hereafter enacted relating to toxic substances.
"Toxic Substance" includes but is not limited to asbestos, polychlorinated
biphenyls (PCBs) and lead-based paints.
"Transactions" shall have the meaning set forth in Section 5.5(a) hereof.
"Transferee" shall have the meaning set forth in Section 15.3(b) hereof.
"Umbro License Agreement" shall mean that certain Umbro License Agreement
dated November 23, 1998 between Borrower and Umbro International, Inc., which
was assigned by Borrower to Soccer Holdings, Inc. pursuant to that letter
agreement dated February 1, 1999 among Umbro International, Inc., Borrower and
Soccer Holdings, Inc.
"Undrawn Availability" at a particular date shall mean an amount equal to
(a) the lesser of (i) the Formula Amount or (ii) the Maximum Revolving Advance
Amount, minus (b) the sum of (i) the outstanding amount of Advances (other than
the Term Loans) plus (ii) all amounts due and owing to Borrower's trade
creditors which are outstanding beyond normal trade terms. Notwithstanding
anything to the contrary contained herein, for the purposes of calculating
Undrawn Availability immediately prior to the closing of the transactions
hereunder, no Permitted Overformula Advances shall be included in the
calculation thereof.
"Week" shall mean the time period commencing with a Wednesday and ending on
the following Tuesday.
"Working Capital" at a particular date, shall mean the excess, if any, of
Current Assets over Current Liabilities at such date.
"Year 2000 Compliant" shall mean the ability of the software and other
processing capabilities of Borrower to correctly interpret and manipulate all
data, in whatever form including printed form, screen displays, financial
records, calculations and data, so that (i) successful transition to the year
2000 using the correct date shall occur without human intervention, (ii) correct
results shall be produced in forward or backward date calculations spanning
century boundaries, and there shall be no errors in processing that may
otherwise occur because of the inability of the software or other processing
capabilities to recognize accurately the year 2000 or subsequent
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dates, and (iii) all regulatory guidelines regarding the change of the century
and year 2000 compliance are complied with.
1.3. Uniform Commercial Code Terms. All terms used herein and defined in the
Uniform Commercial Code as adopted in the State of New York shall have the
meaning given therein unless otherwise defined herein.
1.4. Certain Matters of Construction. The terms "herein", "hereof" and
"hereunder" and other words of similar import refer to this Agreement as a whole
and not to any particular section, paragraph or subdivision. Any pronoun used
shall be deemed to cover all genders. Wherever appropriate in the context, terms
used herein in the singular also include the plural and vice versa. All
references to statutes and related regulations shall include any amendments of
same and any successor statutes and regulations. All references to any
instruments or agreements, including, without limitation, references to any of
the Other Documents shall include any and all modifications or amendments
thereto and any and all extensions or renewals thereof.
II ADVANCES, PAYMENTS.
2.1. (a) Total Revolving Advances. Subject to the terms and conditions set forth
in this Agreement, including, without limitation, Section 2.1(b), Section 2.1(c)
and Section 2.1(d), each Lender, severally and not jointly, will make Revolving
Advances to Borrower in aggregate amounts outstanding at any time not greater
than such Lender's Commitment Percentage of the lesser of (x) the Maximum
Revolving Advance Amount less the aggregate undrawn amount of outstanding
Letters of Credit and (y) an amount equal to the sum of:
(i) up to eighty-five percent (85%), subject to the provisions of Section
2.1(c) hereof ("Receivables Advance Rate"), of Eligible Receivables, plus
(ii) up to fifty percent (50%), subject to the provisions of Section 2.1(c)
hereof ("Inventory Advance Rate"), of the value of the Eligible Inventory (other
than Eligible L/C Inventory); provided that the aggregate outstanding amount of
Revolving Advances made with respect to Eligible Inventory shall not exceed at
any time $30,000,000, plus
(iii) up to sixty percent (60%), subject to the provisions of Section
2.1(c) hereof (the "L/C Inventory Advance Rate") of the first cost of Eligible
L/C Inventory; plus
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(iv) one hundred percent (100%) ("Side Collateral Advance Rate"; and
together with the Receivables Advance Rate, the Inventory Advance Rate and the
L/C Inventory Advance Rate, collectively, the "Advance Rate") of (A) cash and
cash equivalents pledged in favor of Agent for the ratable benefit of Lenders in
respect of the Revolving Advances (and not the Term Loans) and (B) the face
amount of any letter of credit naming BNY Financial Corporation as beneficiary
and delivered to Agent, which letter of credit shall be in form and substance
acceptable to Agent in its sole discretion; minus
(v) the aggregate undrawn amount of outstanding Letters of Credit, minus
(vi) Reserves.
The amount derived from the sum of Section 2.1(a)(y)(i), plus Section
2.1(a)(y)(ii), plus Section 2.1(a)(y)(iii), plus Section 2.1(a)(y)(iv), minus
Section 2.1(a)(y)(v) minus Section 2.1(a)(y)(vi) at any time and from time to
time shall be referred to as the "Formula Amount". The Revolving Advances made
by each Lender shall be evidenced by the secured promissory note payable to the
order of each such Lender substantially in the form attached hereto as Exhibit
2.1(a) (collectively, "Revolving Credit Notes"), appropriately completed, in a
principal amount equal to Maximum Revolving Advance Amount multiplied by such
Lender's Commitment Percentage. The Borrower may from time to time borrow, repay
and re-borrow under this Section 2.1 without penalty or premium.
(b) Swingline Loan Subfacility.
(i) Swingline Commitment. Subject to the terms and conditions hereof and in
reliance upon the representations and warranties set forth herein, during the
Term, the Swingline Lender, in its individual capacity, may, in its sole
discretion, make certain Revolving Advances to Borrower, for the benefit of
Borrower (each a "Swingline Loan" and, collectively, the "Swingline Loans") from
time to time for the purposes hereinafter set forth; provided, however, that the
aggregate principal amount of Swingline Loans outstanding at any time shall not
exceed Five Million Dollars ($5,000,000) (the "Maximum Swingline Loan Amount");
provided, further, that the aggregate principal amount of outstanding Revolving
Advances plus the aggregate principal amount of outstanding Swingline Loans plus
outstanding amounts due under Letters of Credit (i) shall not exceed the lesser
of (x) the Maximum Revolving Amount or (y) the Formula Amount and (ii) plus the
aggregate principal amount outstanding under the Term Loans shall not exceed the
Maximum Loan Amount.
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(ii) Disbursement. Each Swingline Loan shall be made as a Revolving Advance
and shall bear interest at the rate applicable to Domestic Rate Loans. Swingline
Lender shall initiate the transfer of funds representing any Swingline Loan to
the Borrower by 3:00 P.M. (New York City time) on the Business Day of the
requested borrowing.
(iii) Repayment of Swingline Loans. The principal amount of all Swingline
Loans shall be due and payable on the earlier of (A) the Settlement Date next
occurring after the making of such Swingline Loan or Swingline Loans (which date
shall not be a date more than seven (7) days from the date of advance thereof)
or (B) the last day of the Term. Swingline Lender may, at any time, in its sole
discretion, by notice to the Agent, demand repayment of its Swingline Loans
which Swingline Loans shall then be repaid by way of a Revolving Advance, in
which case the Borrower shall be deemed to have requested a Revolving Advance
comprised solely of Domestic Rate Loans in the amount of such Swingline Loans,
provided, however, that any such notice shall be deemed to have been given one
(1) Business Day prior to the earlier to occur of (x) the last day of the Term
or (y) the date of the occurrence of any Event of Default described in Article
X. Each Lender hereby irrevocably agrees to make its pro rata share of each such
Revolving Advance in the amount, in the manner and on the date specified in the
preceding sentence notwithstanding (1) that the making of such Revolving
Advances may not comply with the borrowing procedures or requirements of
disbursement of Advance proceeds hereunder, (2) whether any conditions specified
in Section 2.12 are then satisfied, (3) whether a Default or an Event of Default
then exists, (4) failure of any such request or deemed request for a Revolving
Advance to be made by the time otherwise required hereunder, (5) whether the
date of such borrowing is a date on which Revolving Advances are otherwise
permitted to be made hereunder or (6) any termination of the commitments of any
Lender relating thereto immediately prior to or contemporaneously with such
borrowing. In the event that any Revolving Advance cannot for any reason be made
on the date otherwise required above (including, without limitation, as a result
of the commencement of a case under the Bankruptcy Code with respect to Borrower
or any Guarantor), then each Lender hereby agrees that it shall forthwith
purchase (as of the date such borrowing would otherwise have occurred, but
adjusted for any payments received from Borrower on or after such date and prior
to such purchase) from Swingline Lender such participations in the outstanding
Swingline Loans as shall be necessary to cause each such Lender to share in such
Swingline Loans ratably based upon its Commitment Percentage of the Maximum Loan
Amount.
(iv) Payment of Interest. Interest on Swingline Loans shall be payable
monthly in arrears to Swingline Lender on the last day of each month.
(c) Discretionary Rights. The Reserves may be increased or decreased by
Agent at any time and from time to time in the exercise of its reasonable
discretion.
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Borrower consents to any such increases or decreases and acknowledges that
increasing the Reserves may limit or restrict Advances requested by a Borrower.
(d) Permitted Overformula Facility. So long as no Event of Default has
occurred and is continuing, Agent, on behalf of Lenders, shall permit the
aggregate amount of Revolving Advances outstanding from time to time to exceed
the sum of the Formula Amount plus the applicable Permitted Overformula Amount A
as determined by Agent in accordance with Agent's standard accounting,
recordkeeping and bookkeeping procedures (the "Permitted Overformula Advances"),
provided that, (i) the aggregate amount of outstanding Revolving Advances at any
one time shall not exceed the Maximum Revolving Advance Amount and (ii) for at
least one (1) Business Day during each period commencing on the last day of each
calendar month through and including the fifth (5th) consecutive Business Day of
each immediately subsequent calendar month (such date being the "Cleanup Date"),
the Permitted Overformula Advances shall be equal to or less than the Formula
Amount plus the applicable Permitted Overformula Amount B, as determined by
Agent in accordance with Agent's standard accounting, recordkeeping and
bookkeeping procedures. In the event that, in any given month, Borrower breaches
the provisions of Section 2.1(d)(ii) above, the same shall constitute an Event
of Default hereunder. For the purposes of this Section 2.1(d), in calculating
the outstanding amount of the Permitted Overfomula Advances outstanding as of
the Cleanup Date, only Collateral and assets of the Borrower shall be included
in such calculation and no assets of any Guarantor or other Person shall be
included in such calculation.
2.2. Procedure for Borrowing Revolving Advances.
(a) Borrower may notify Agent prior to 2:00 p.m. on a Business Day of
Borrower's request to incur, on that day, a Revolving Advance hereunder. Should
any amount required to be paid as interest hereunder, or as fees or other
charges under this Agreement, or with respect to any other Obligation, become
due, same shall be deemed a request for a Revolving Advance as of the date such
payment is due, in the amount required to pay in full such interest, fee, charge
or Obligation under this Agreement or any other agreement with Agent or Lenders,
and such request shall be irrevocable and such Revolving Advance shall be added
to the Obligations and shall bear interest at the Revolving Advance Rate
applicable to Domestic Rate Loans hereunder.
(b) Notwithstanding anything to the contrary set forth herein, from and
after the occurrence of an Event of Default (i) Borrower may not elect that
Revolving Advances be made as Eurodollar Rate Loans, and (ii) at Agent's option,
in its sole discretion, all Eurodollar Rate Loans shall be converted to Domestic
Rate Loans.
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(c) Notwithstanding any other provision hereof, if any applicable law,
treaty, regulation or directive, or any change therein or in the interpretation
or application thereof, shall make it unlawful for any Lender (for purposes of
this subsection (c), the term "Lender" shall include any Lender and the office
or branch where any Lender or any corporation or bank controlling such Lender
makes or maintains any Eurodollar Rate Loans) to make or maintain its Eurodollar
Rate Loans, the obligation of Lender to make Eurodollar Rate Loans hereunder,
shall forthwith be cancelled and Borrower shall, if any Eurodollar Rate Loans
are then outstanding, promptly upon request from Agent, either pay all such
Eurodollar Rate Loans or convert such Eurodollar Rate Loans into Domestic Rate
Loans. Borrower shall pay Lenders, upon Agent's request, such amount or amounts
as may be necessary to compensate Lenders for any loss or expense sustained or
incurred by Lenders in respect of such Eurodollar Rate Loan as a result of such
payment or conversion, including, but not limited to, any interest or other
amounts payable by Lenders to lenders of funds obtained by Lenders in order to
make or maintain such Eurodollar Rate Loan. A certificate as to any additional
amounts payable pursuant to the foregoing sentence submitted by Agent to
Borrower shall be conclusive absent manifest error.
2.3. Disbursement of Advance Proceeds. All Advances shall be disbursed from
whichever office or other place Agent may designate from time to time and,
together with any and all other Obligations of Borrower to Agent or Lenders,
shall be charged to Borrower's account on Agent's books. During the Term,
Borrower may use the Revolving Advances by borrowing, prepaying and reborrowing,
all in accordance with the terms and conditions of this Agreement. The proceeds
of each Revolving Advance requested by Borrower or deemed to have been requested
by Borrower under Section 2.2(a) hereof shall, with respect to requested
Revolving Advances to the extent Lenders make such Revolving Advances, be made
available to Borrower on the day so requested by way of credit to Borrower's
operating account at The Bank of New York, or such other bank as Borrower may
designate following notification to Agent, in federal funds or other immediately
available funds or, with respect to Revolving Advances deemed to have been
requested by Borrower, be disbursed to Agent to be applied to the outstanding
Obligations giving rise to such deemed request.
2.4. Term Loans.
(a) Term Loan A. Subject to the terms and conditions of this Agreement,
each Lender, severally and not jointly, will make a Term Loan to Borrower in the
sum equal to such Lender's Commitment Percentage of $27,500,000 ("Term Loan A").
Term Loan A shall be advanced on the Closing Date and shall be, with respect to
principal, payable in one (1) installment of $27,500,000 on March 12, 2004,
subject to acceleration upon the occurrence of an Event of Default under this
Agreement or termination of this Agreement.
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(b) Term Loan B. Subject to the terms and conditions of this Agreement,
each Lender, severally and not jointly, will make a Term Loan to Borrower in the
sum equal to such Lender's Commitment Percentage of $22,500,000 ("Term Loan B",
and together with Term Loan A, collectively, the "Term Loans"). Term Loan B
shall be advanced on the Closing Date and shall be, with respect to principal,
payable in forty-seven (47) consecutive monthly installments on the first
Business Day of each month commencing on April 1, 2000, of which the first
forty-six (46) installments shall each be in the amount of two hundred
sixty-seven thousand eight hundred fifty-seven and 14/100 dollars ($267,857.14)
and the final and forty-seventh (47th) installment shall be in the amount of the
then unpaid balance of Term Loan B, subject to acceleration upon the occurrence
of an Event of Default under this Agreement or termination of this Agreement.
(c) Notwithstanding anything to the contrary set forth herein, amounts due
under the Term Loans may be prepaid in whole or in part without (i) premium or
penalty, or (ii) any fees which may be applicable solely to any termination of
the Revolving Advances.
2.5. Repayment of Advances.
(a) The Advances shall be due and payable in full on the last day of the
Term subject to earlier prepayment as herein provided.
(b) Borrower recognizes that the amounts evidenced by checks, notes, drafts
or any other items of payment relating to and/or proceeds of Collateral may not
be collectible by Agent on the date received. In consideration of Agent's
agreement to conditionally credit Borrower's account as of the Business Day on
which Agent receives those items of payment, Borrower agrees that, in computing
the charges under this Agreement, all items of payment shall be deemed applied
by Agent on account of the Obligations four (4) Business Days after confirmation
to Agent by the Blocked Account bank or Depository Account bank, as provided for
in Section 4.15(h) hereof, that such items of payment have been collected in
good funds and finally credited to Agent's account. Agent is not, however,
required to credit Borrower's account for the amount of any item of payment
which is unsatisfactory to Agent and Agent may also charge Borrower's account
for the amount of any item of payment which is returned to Agent unpaid.
(c All payments of principal, interest and other amounts payable hereunder,
or under any of the related agreements shall be made to Agent for itself and the
other Lenders at the Payment Office not later than 1:00 P.M. (New York Time) on
the due date therefor in lawful money of the United States of America in federal
funds or other funds immediately available to Agent. Agent shall, subject to the
lending formulas and limits set forth herein, use its best efforts to effectuate
payment on any
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and all Obligations due and owing hereunder by charging Borrower's account or by
making Advances as provided in Section 2.2 hereof.
(d Borrower shall pay principal, interest, and all other amounts payable
hereunder, or under any Other Documents, without any deduction whatsoever,
including, but not limited to, any deduction for any setoff or counterclaim.
2.6. Repayment of Excess Advances. The aggregate balance of Advances
outstanding at any time in excess of the maximum amount of Advances permitted
hereunder, including any Permitted Overformula Advances, shall be immediately
due and payable without the necessity of any notice demand or other formality,
at the Payment Office, whether or not a Default or Event of Default has
occurred; except that, in the event Agent charges Borrower's account for any
Obligations due hereunder, and as a direct result thereof, the aggregate balance
of Advances outstanding exceeds the maximum amount of Advances permitted
hereunder, then, in such event, the amount of such Advances which are in excess
of the maximum amount of Advances permitted hereunder shall be due and payable
by Borrower within five (5) days after Agent demands payment thereof.
2.7. Statement of Account. Agent shall maintain, in accordance with its
customary procedures, a loan account in the name of Borrower in which shall be
recorded the date and amount of each Advance made by Lenders and the date and
amount of each payment in respect thereof; provided, however, the failure by
Agent to record the date and amount of any Advance shall not adversely affect
Agent or any Lender. Each month, Agent shall send to Borrower a statement
showing the accounting for the Advances made, payments made or credited in
respect thereof, and other transactions between Lenders and Borrower during such
month. The monthly statements shall be deemed correct and binding upon Borrower
in the absence of manifest error and shall constitute an account stated between
Lenders and Borrower unless Agent receives a written statement of Borrower's
specific exceptions thereto within thirty (30) days after such statement is
received by Borrower. The records of Agent with respect to the loan account
shall be prima facie evidence of the amounts of Advances and other charges
thereto and of payments applicable thereto.
2.8. Letters of Credit. Subject to the terms and conditions hereof, Agent
shall issue or cause the issuance of Letters of Credit ("Letters of Credit") on
behalf of Borrower; provided, however, that Agent will not be required to issue
or cause to be issued any Letters of Credit to the extent that the face amount
of such Letters of Credit would then cause sum of (i) the outstanding Revolving
Advances plus (ii) the outstanding Letters of Credit (with the requested Letter
of Credit being deemed to be outstanding for purposes of this calculation) to
exceed the lesser of (x) the Maximum Revolving Advance Amount or (y) the Formula
Amount. Notwithstanding anything to the contrary contained herein, the maximum
amount of outstanding Letters of Credit
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shall not exceed $40,000,000 in the aggregate at any time. All disbursements or
payments related to Letters of Credit shall be deemed to be Revolving Advances
and shall bear interest at the Revolving Interest Rate with respect to Domestic
Rate Loans; Letters of Credit that have not been drawn upon shall not bear
interest but shall be subject to payment of the Letter of Credit Fees.
2.9. Issuance of Letters of Credit.
(a Borrower may request Agent to issue or cause the issuance of a Letter of
Credit by delivering to Agent at the Payment Office, Bank's standard form of
Letter of Credit Application (the "Letter of Credit Application") completed to
the satisfaction of Agent and Bank; and, such other certificates, documents and
other papers and information as Agent and Bank may reasonably request.
(b Each Letter of Credit shall, among other things, (i) provide for the
payment of sight drafts when presented for honor thereunder in accordance with
the terms thereof and when accompanied by the documents described therein and
(ii) have an expiry date not later than six (6) months after such Letter of
Credit's date of issuance for documentary Letters of Credit and one (1) year
after such Letter of Credit's date of issuance for standby Letters of Credit,
and, in each case, in no event later than the last day of the Term. Each Letter
of Credit Application and each Letter of Credit shall be subject to the Uniform
Customs and Practice for Documentary Credits (1993 Revision), International
Chamber of Commerce Publication No. 500, and any amendments or revision thereof
and, to the extent not inconsistent therewith, the laws of the State of New
York.
2.10. Requirements For Issuance of Letters of Credit.
(a In connection with the issuance of any Letter of Credit, Borrower shall
indemnify, save and hold Agent and each Lender harmless from any loss, cost,
expense or liability, including, without limitation, payments made by Agent and
any Lender, and expenses and reasonable attorneys' fees incurred by Agent or any
Lender arising out of, or in connection with, any Letter of Credit to be issued
or created for Borrower. Borrower shall be bound by Agent's or any issuing or
accepting bank's regulations and good faith interpretations of any Letter of
Credit issued or created for its account, although this interpretation may be
different from its own; and, neither Agent nor any Lender, the bank which opened
the Letter of Credit, nor any of its correspondents shall be liable for any
error, negligence, or mistakes, whether of omission or commission, in following
Borrower's instructions or those contained in any Letter of Credit or of any
modifications, amendments or supplements thereto or in issuing or paying any
Letter of Credit, except for Agent's or such Lender's or such correspondents'
own willful misconduct.
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(b Borrower shall authorize and direct any bank which issues a Letter of
Credit to name Borrower as the "Account Party" therein and to deliver to Agent
all instruments, documents, and other writings and property received by the bank
pursuant to the Letter of Credit and to accept and rely upon Agent's
instructions and agreements with respect to all matters arising in connection
with the Letter of Credit, the application therefor or any acceptance
thereunder.
(c In connection with all Letters of Credit issued or caused to be issued
by Agent under this Agreement, Borrower hereby appoints Agent, or its designee,
as its attorney, with full power and authority (i) to sign and/or endorse
Borrower's name upon any warehouse or other receipts, letter of credit
applications and acceptances; (ii) to sign Borrower's name on bills of lading;
(iii) to clear Inventory through the United States of America Customs Department
("Customs") in the name of Borrower or Agent or Agent's designee, and to sign
and deliver to Customs officials powers of attorney in the name of Borrower for
such purpose; and (iv) to complete in Borrower's name or Agent's name, or in the
name of Agent's designee, any order, sale or transaction, obtain the necessary
documents in connection therewith, and collect the proceeds thereof. Neither
Agent nor its attorneys will be liable for any acts or omissions nor for any
error of judgment or mistakes of fact or law, except for Agent's or its
attorney's own gross negligence or willful misconduct. This power, being coupled
with an interest, is irrevocable during the Term and as long thereafter as any
Letters of Credit remain outstanding.
(d Each Lender shall be deemed to have irrevocably purchased an undivided
participation in Agent's credit support enhancement provided to the issuing bank
of any Letter of Credit and each Revolving Advance made as a consequence of the
issuance of a Letter of Credit and all disbursements thereunder in an amount
equal to such Lender's applicable Commitment Percentage multiplied by the
outstanding amount of the Letters of Credit and disbursements thereunder. In the
event that at the time a disbursement under a Letter of Credit is made the
unpaid balance of Revolving Advances exceeds or would exceed, with the making of
such disbursement, the lesser of the Maximum Revolving Advance Amount or the
Formula Amount, and such disbursement is not reimbursed by Borrower within two
(2) Business Days, Agent shall promptly notify each Lender and upon Agent's
demand each Lender shall pay to Agent such Lender's pro rata share of such
unreimbursed disbursement together with such Lender's pro rata share of Agent's
unreimbursed costs and expenses relating to such unreimbursed disbursement. Upon
receipt by Agent of a repayment from Borrower of any amount disbursed under a
Letter Credit by Agent for which Agent had already been reimbursed by Lenders,
Agent shall deliver to each Lender that Lender's pro rata share of such
repayment. Each Lender's participation commitment shall continue until the last
to occur of any of the following events: (A) Agent ceases to be obligated to
issue Letters of Credit hereunder; (B) no Letter of Credit issued hereunder
remains
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outstanding and uncancelled or (C) all Persons (other than Borrower) have been
fully reimbursed for all payments made under or relating to Letters of Credit.
2.11. Additional Payments. Any sums expended by Agent or any Lender due to
Borrower's failure to perform or comply with its Obligations under this
Agreement or any of the Other Documents including, without limitation,
Borrower's obligations under Sections 4.2, 4.4, 4.12, 4.13, 4.14 and 6.1 hereof,
may be charged to Borrower's account as a Revolving Advance, shall bear interest
at the Revolving Interest Rate applicable to Domestic Rate Loans and shall be
added to the Obligations.
2.12. Manner of Borrowing and Payment.
(a Each borrowing of Revolving Advances shall be advanced according to the
applicable Commitment Percentages of Lenders. The Term Loans shall be advanced
according to the Applicable Commitment Percentages of Lenders.
(b Each payment (including each prepayment) by Borrower on account of the
principal of and interest on the Revolving Advances, shall be applied to the
Revolving Advances pro rata according to the applicable Commitment Percentages
of Lenders. Each payment (including each prepayment) by Borrower on account of
the principal of and interest on a Term Loan shall be applied to the Term Loan
designated by Borrower at the time of making such payment, pro rata according to
the Commitment Percentage of Lenders. Except as expressly provided herein, all
payments (including prepayments) to be made by Borrower on account of principal,
interest and fees shall be made without set off or counterclaim and shall be
made to Agent on behalf of the Lenders to the Payment Office, in each case on or
prior to 1:00 P.M., New York time, in Dollars and in immediately available
funds.
(c (i) Notwithstanding anything to the contrary contained in Sections
2.12(a) and (b) hereof, commencing with the first Business Day following the
Closing Date, each borrowing of Revolving Advances shall be advanced by Agent
and each payment by Borrower on account of Revolving Advances shall be applied
first to those Revolving Advances made by Agent. On or before 1:00 P.M., New
York time, on each Settlement Date commencing with the first Settlement Date
following the Closing Date, Agent and Lenders shall make certain payments as
follows: (1) if the aggregate amount of new Revolving Advances made by Agent
during the preceding Week (if any) exceeds the aggregate amount of repayments
applied to outstanding Revolving Advances during such preceding Week, then each
Lender shall provide Agent with funds in an amount equal to its applicable
Commitment Percentage of the difference between (x) such Revolving Advances and
(y) such repayments and (2) if the aggregate amount of repayments applied to
outstanding Revolving Advances during such Week exceeds the aggregate amount of
new Revolving Advances made during such Week, then Agent shall provide each
Lender with funds in an amount
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equal to its applicable Commitment Percentage of the difference between (x) such
repayments and (y) such Revolving Advances.
(ii) Each Lender shall be entitled to earn interest at the applicable
Contract Rate on outstanding Advances which it has funded.
(iii) Promptly following each Settlement Date, Agent shall submit to each
Lender a certificate with respect to payments received and Advances made during
the Week immediately preceding such Settlement Date. Such certificate of Agent
shall be conclusive in the absence of manifest error.
(d If any Lender or any Transferee (a "benefitted Lender") shall at any
time receive any payment of all or part of its Advances, or interest thereon, or
receive any Collateral in respect thereof (whether voluntarily or involuntarily
or by set-off) in a greater proportion than any such payment to and Collateral
received by any other Lender, if any, in respect of such other Lender's
Advances, or interest thereon, and such greater proportionate payment or receipt
of Collateral is not expressly permitted hereunder, such benefitted Lender shall
purchase for cash from the other Lenders such portion of each such other
Lender's Advances, or shall provide such other Lender with the benefits of any
such Collateral, or the proceeds thereof, as shall be necessary to cause such
benefitted Lender to share the excess payment or benefits of such Collateral or
proceeds ratably with each of Lenders; provided, however, that if all or any
portion of such excess payment or benefits is thereafter recovered from such
benefitted Lender, such purchase shall be rescinded, and the purchase price and
benefits returned in cash, to the extent of such recovery, but without interest.
Each Lender so purchasing a portion of another Lender's Advances may exercise
all rights of payment (including, without limitation, rights of set off) with
respect to such portion as fully as if such Lender were the direct holder of
such portion.
(e Unless Agent shall have been notified by telephone, confirmed in
writing, by any Lender that such Lender will not make the amount which would
constitute its applicable Commitment Percentage of the Advances available to
Agent, Agent may (but shall not be obligated to) assume that such Lender shall
make such amount available to Agent and, in reliance upon such assumption, make
available to Borrower a corresponding amount. Agent will promptly notify
Borrower of its receipt of any such notice from a Lender. If such amount is made
available to Agent on a date after a Settlement Date, such Lender shall pay to
Agent on demand an amount equal to the product of (i) the daily average Federal
Funds Rate (computed on the basis of a year of 360 days) during the first three
(3) Business Days of such period as quoted by Agent and thereafter at the rate
applicable to the Borrower as set forth below, times (ii) such amount, times
(iii) the number of days from and including such Settlement Date to the date on
which such amount becomes immediately available to Agent. A certificate of Agent
submitted to any Lender with respect to any amounts
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owing under this paragraph (e) shall be conclusive, in the absence of manifest
error. If such amount is not in fact made available to Agent by such Lender
within three (3) Business Days after such Settlement Date, Agent shall be
entitled to recover such an amount, with interest thereon at the rate per annum
then applicable to such Revolving Advances hereunder, on demand from Borrower;
provided, however, that Agent's right to such recovery shall not prejudice or
otherwise adversely affect Borrower's rights (if any) against such Lender.
2.13. Mandatory Prepayments. Subject to Section 4.3, when Borrower sells or
otherwise disposes of any Collateral (other than Inventory in the ordinary
course of business) Borrower shall repay the Advances in an amount equal to the
net proceeds of such sale (i.e., gross proceeds less the reasonable costs of
such sales or other dispositions), such repayments to be made promptly but in no
event more than one (1) Business Day following receipt of such net proceeds, and
until the date of payment, such proceeds shall be held in trust for Agent. The
foregoing shall not be deemed to be implied consent to any such sale or
disposition otherwise prohibited by the terms and conditions hereof.
2.14. Use of Proceeds. Borrower shall apply the proceeds of Advances to (i)
repay existing indebtedness owed to BNY Financial Corporation (ii) pay fees and
expenses relating to this transaction, and (iii) to provide for its general
corporate purposes including working capital needs.
2.15. Defaulting Lender.
(a Notwithstanding anything to the contrary contained herein, in the event
any Lender (x) has refused (which refusal constitutes a breach by such Lender of
its obligations under this Agreement) to make available its portion of any
Advance or (y) notifies either Agent or Borrower that it does not intend to make
available its portion of any Advance (if the actual refusal would constitute a
breach by such Lender of its obligations under this Agreement) (each, a "Lender
Default"), all rights and obligations hereunder of such Lender (a "Defaulting
Lender") as to which a Lender Default is in effect and of the other parties
hereto shall be modified to the extent of the express provisions of this Section
2.15 while such Lender Default remains in effect.
(b Advances shall be incurred pro rata from Lenders (the "Non-Defaulting
Lenders") which are not Defaulting Lenders based on their respective Commitment
Percentages, and no Commitment Percentage of any Lender or any pro rata share of
any Advances required to be advanced by any Lender shall be increased as a
result of such Lender Default. Amounts received in respect of principal of any
type of Advances shall be applied to reduce the applicable Advances of each
Lender pro rata based on the aggregate of the outstanding Advances of that type
of all
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Lenders at the time of such application; provided, that, such amount shall not
be applied to any Advances of a Defaulting Lender at any time when, and to the
extent that, the aggregate amount of Advances of any Non-Defaulting Lender
exceeds such Non-Defaulting Lender's Commitment Percentage of all Advances then
outstanding.
(c A Defaulting Lender shall not be entitled to give instructions to Agent
or to approve, disapprove, consent to or vote on any matters relating to this
Agreement and the Other Documents. All amendments, waivers and other
modifications of this Agreement and the Other Documents may be made without
regard to a Defaulting Lender and, for purposes of the definition of "Required
Lenders", a Defaulting Lender shall be deemed not to be a Lender and not to have
Advances outstanding.
(d Other than as expressly set forth in this Section 2.15, the rights and
obligations of a Defaulting Lender (including the obligation to indemnify Agent)
and the other parties hereto shall remain unchanged. Nothing in this Section
2.15 shall be deemed to release any Defaulting Lender from its obligations under
this Agreement and the Other Documents, shall alter such obligations, shall
operate as a waiver of any default by such Defaulting Lender hereunder, or shall
prejudice any rights which Borrower, Agent or any Lender may have against any
Defaulting Lender as a result of any default by such Defaulting Lender
hereunder.
(e In the event a Defaulting Lender retroactively cures to the satisfaction
of Agent the breach which caused a Lender to become a Defaulting Lender, such
Defaulting Lender shall no longer be a Defaulting Lender and shall be treated as
a Lender under this Agreement.
III. INTEREST AND FEES.
3.1. Interest. Interest on Advances shall be payable in arrears on the last day
of each month. Interest charges shall be computed on the actual principal of
Advances outstanding during the month at a rate per annum equal to (i) with
respect to Revolving Advances, the applicable Revolving Interest Rate and (ii)
with respect to the Term Loans, at the applicable Term Loan Interest Rate.
Whenever, subsequent to the date of this Agreement, the Alternate Base Rate
and/or the Eurodollar Rate is increased or decreased, the Revolving Interest
Rate with respect to Domestic Rate Loans and/or Eurodollar Rate Loans, as the
case may be, and the Term Loan Interest Rate with respect to Domestic Rate Loans
and/or Eurodollar Rate Loans, as the case may be, shall be similarly changed
without notice or demand of any kind by an amount equal to the amount of such
change in the Alternate Base Rate and/or the Eurodollar Rate, as the case may
be, during the time such change or changes remain in effect. Upon
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and after the occurrence of an Event of Default, and during the continuation
thereof, the Obligations shall bear interest at the Default Rate. Without
limiting the foregoing, if at any time during the Term, Borrower, as of the
Cleanup Date for any given calendar month, fails to reduce the Permitted
Overformula Advances in accordance with Section 2.1(d), then all Revolving
Advances for such calendar month shall bear interest at the Default Rate.
3.2. Letter of Credit Fees.
(a Borrower shall pay Agent (i) for the ratable benefit of Lenders a fee
computed at a rate per annum of one-quarter of one percent (1/4%) on the
outstanding face amount of Letters of Credit during such month and (ii) Bank,
for its own account, Bank's customary charges payable in connection with Letters
of Credit as in effect from time to time (the "Letter of Credit Fees"). Such
fees and charges shall be payable (i) in the case of any Letter of Credit, on
its opening (ii) in the case of a standby Letter of Credit, (A) monthly
thereafter in advance and (B) upon each increase in the outstanding amount
thereof, and (iii) in the case of any Letter of Credit that is not a standby
Letter of Credit, at the time of each increase in face amount thereto. Any such
charge in effect at the time of a particular transaction shall be the charge for
that transaction, notwithstanding any subsequent change in Bank's prevailing
charges for that type of transaction. All Letter of Credit Fees payable
hereunder shall be deemed earned in full on the date when the same are due and
payable hereunder and shall not be subject to rebate or proration upon the
termination of this Agreement for any reason.
(b Upon termination of this Agreement or upon the occurrence and
continuance of an Event of Default, Borrower will cause cash to be deposited and
maintained in an account with Agent, as cash collateral for the ratable benefit
of Lenders, in an amount equal to outstanding Letters of Credit, and Borrower
hereby irrevocably authorizes Agent, in its discretion, on Borrower's behalf and
in Borrower's name, to open such an account and to make and maintain deposits
therein, or in an account opened by Borrower, in the amounts required to be made
by Borrower, out of the proceeds of Receivables or other Collateral or out of
any other funds of Borrower coming into Agent's possession at any time. Agent
will invest such cash collateral (less applicable reserves) in such short-term
money-market items as to which Agent and Borrower mutually agree and the net
return on such investments shall be credited to such account and constitute
additional cash collateral. Borrower may not withdraw amounts credited to any
such account except upon payment and performance in full of all Obligations and
termination of this Agreement.
3.3. Fees Per Fee Letter. Upon the execution of this Agreement and
thereafter as and when provided in the Fee Letter, Borrower shall pay to Agent
for its own account the fees set forth in the Fee Letter.
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3.4. Unused Facility Fee. If, for any month during the Term, the average
daily outstanding balance of the Revolving Advances for each day of such month
during such month plus the aggregate undrawn amount of outstanding Letters of
Credit during such month is less than the Maximum Revolving Advance Amount, then
Borrower shall pay to Agent, for the ratable benefit of Lenders, a fee at a rate
equal to the product of one-quarter of one percent (0.25%) multiplied by the
amount by which the Maximum Revolving Advance Amount in effect during such month
exceeds such average daily outstanding balance of the Revolving Advances [plus
the aggregate undrawn amount of outstanding Letters of Credit], provided, that,
such fee shall be payable to Agent, for the ratable benefit of Lenders, in
arrears on the last day of each month.
3.5. Computation of Interest and Fees. Interest and fees hereunder shall be
computed on the basis of a year of 360 days and for the actual number of days
elapsed. If any payment to be made hereunder becomes due and payable on a day
other than a Business Day, the due date thereof shall be extended to the next
succeeding Business Day and interest thereon shall be payable at the applicable
Contract Rate during such extension.
IV. COLLATERAL: GENERAL TERMS
4.1. Security Interest in the Collateral. To secure the prompt payment and
performance to Agent and each Lender of the Obligations, Borrower hereby
assigns, pledges and grants to Agent for itself and the ratable benefit of each
Lender a continuing security interest in and to all of its Collateral, whether
now owned or existing or hereafter acquired or arising and wheresoever located.
Borrower shall mark its books and records as may be necessary or reasonably
appropriate to evidence, protect and perfect Agent's security interest ("Agent's
security interest") and shall cause its financial statements to reflect such
security interest.
4.2. Perfection of Security Interest. Borrower shall take all action that
may be necessary or desirable, or that Agent may request, so as at all times to
maintain the validity, perfection, enforceability and priority of Agent's
security interest in the Collateral or to enable Agent to protect, exercise or
enforce its rights hereunder and in the Collateral, including, but not limited
to, (a) immediately discharging all Liens other than Permitted Encumbrances, (b)
delivering to Agent, endorsed or accompanied by such instruments of assignment
as Agent may specify, and stamping or marking, in such manner as Agent may
specify, any and all chattel paper, instruments, letters of credits and advices
thereof and documents evidencing or forming a part of the Collateral, (c)
entering into warehousing, lockbox and other custodial arrangements
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satisfactory to Agent, and (d) executing and delivering financing statements,
instruments of pledge, mortgages, notices and assignments, in each case in form
and substance satisfactory to Agent, relating to the creation, validity,
perfection, maintenance or continuation of Agent's security interest under the
Uniform Commercial Code or other applicable law. Agent is hereby authorized to
file financing statements signed by Agent instead of Borrower in accordance with
Section 9-402(2) of the Uniform Commercial Code as adopted in the State of New
York. All charges, expenses and fees Agent may incur in doing any of the
foregoing, and any local taxes relating thereto, shall be charged to Borrower's
account as a Revolving Advance, shall bear interest at the Revolving Interest
Rate applicable to Domestic Rate Loans, and shall be added to the Obligations,
or, at Agent's option, shall be paid to Agent for the ratable benefit of Lenders
immediately upon demand.
4.3. Disposition of Collateral. Borrower will safeguard and protect all
Collateral for Agent's general account and make no disposition thereof whether
by sale, lease or otherwise except (a) the sale of Inventory in the ordinary
course of business and (b) (i) the sale of Real Property and (ii) the
disposition or transfer of obsolete and worn-out Equipment in the ordinary
course of business during any fiscal year having an aggregate fair market value
of not more than $100,000 and only to the extent that the proceeds of any such
disposition are used to acquire replacement Equipment which is subject to
Agent's first priority security interest. The net proceeds from the sale of Real
Property and Equipment as permitted under Section 4.3(b) shall be remitted to
Agent as a prepayment in respect of Term Loan B, and from and upon full and
indefeasible payment of Term Loan B, in respect of Term Loan A, and all such
proceeds shall be applied against the unpaid principal balance of Term Loan B or
Term Loan A, as the case may be, in the inverse order of maturity thereof.
4.4. Preservation of Collateral. In addition to the rights and remedies set
forth in Section 11.1 hereof, Agent: (a) may at any time take such steps as
Agent deems necessary to protect Agent's security interest in and to preserve
the Collateral, including, after the occurrence of a Default, the hiring of such
security guards or the placing of other security protection measures as Agent
may deem appropriate; (b) may, after the occurrence of a Default, employ and
maintain at Borrower's premises a custodian who shall have full authority to do
all acts necessary to protect Agent's security interests in the Collateral; (c)
may, after the occurrence of an Event of Default, lease warehouse facilities to
which Agent may move all or part of the Collateral; (d) may, after the
occurrence of an Event of Default, use Borrower's owned or leased lifts, hoists,
trucks and other facilities or equipment for handling or removing the
Collateral; and (e) shall have, and is hereby granted, a right of ingress and
egress at all reasonable times prior to the occurrence or Default, or at any
time after the occurrence of a Default, to the places where the Collateral is
located, and may proceed over and through Borrower's owned or leased property.
Borrower shall cooperate fully with all of Agent's efforts to preserve the
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Collateral and will take such actions to preserve the Collateral as Agent may
direct. All of Agent's expenses of preserving the Collateral, including any
costs, fees and expenses relating to the bonding of a custodian, shall be
charged to Borrower's account as a Revolving Advance shall bear interest at the
Revolving Interest Rate applicable to Domestic Rate Loans and shall be added to
the Obligations.
4.5. Ownership of Collateral. With respect to the Collateral, at the time
the Collateral becomes subject to Agent's security interest: (a) Borrower shall
be the sole owner of and fully authorized and able to sell, transfer, pledge
and/or grant a security interest in each and every item of its respective
Collateral to Agent; and, except for Permitted Encumbrances, the Collateral
shall be free and clear of all Liens and encumbrances whatsoever and Agent shall
have a first priority security interest therein; (b) all signatures and
endorsements of Borrower that appear on such documents and agreements shall be
genuine and Borrower shall have full capacity to execute same; and (c)
Borrower's Equipment and Inventory shall be located as set forth on Schedule 4.5
and shall not be removed from such location(s) without the prior written consent
of Agent except to the extent permitted in Section 4.3 hereof.
4.6. Defense of Agent's and Lender's Interests. Until (a) payment and
performance in full of all of the Obligations and (b) termination of this
Agreement, Agent's security interests in the Collateral shall continue in full
force and effect. During such period Borrower shall not, without Agent's prior
written consent, pledge, sell (except to the extent permitted in Section 4.3
hereof), assign, transfer, create or suffer to exist a Lien upon or encumber or
allow or suffer to be encumbered in any way except for Permitted Encumbrances,
any part of the Collateral. Borrower shall defend Agent's security interests in
the Collateral against any and all Persons whatsoever. At any time following an
Event of Default and subsequent demand by Agent for payment of all Obligations,
Agent shall have the right to take possession of the indicia of the Collateral
and the Collateral in whatever physical form contained, including without
limitation: labels, stationery, documents, instruments and advertising
materials. If Agent exercises this right to take possession of the Collateral,
Borrower shall, upon demand, assemble it in the best manner possible and make it
available to Agent at a place reasonably convenient to Agent. In addition, with
respect to all Collateral, Agent and Lenders shall be entitled to all of the
rights and remedies set forth herein and further provided by the Uniform
Commercial Code or other applicable law. Borrower shall, and Agent may, at its
option, instruct all suppliers, carriers, forwarders, warehouses or others
receiving or holding cash, checks, Inventory, documents or instruments in which
Agent holds a security interest to deliver same to Agent and/or subject to
Agent's order and if they shall come into Borrower's possession, they, and each
of them, shall be held by Borrower in trust as Agent's trustee, and Borrower
will immediately deliver them to Agent in their original form together with any
necessary endorsement.
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4.7. Books and Records. Borrower shall (a) keep proper books of record and
account in which full, true and correct entries will be made of all dealings or
transactions of or in relation to its business and affairs; (b) set up on its
books accruals with respect to all taxes, assessments, charges, levies and
claims; and (c) on a reasonably current basis set up on its books, from its
earnings, allowances against doubtful Receivables, advances and investments and
all other proper accruals (including without limitation by reason of
enumeration, accruals for premiums, if any, due on required payments and
accruals for depreciation, obsolescence, or amortization of properties), which
should be set aside from such earnings in connection with its business. All
determinations pursuant to this subsection shall be made in accordance with, or
as required by, GAAP consistently applied in the opinion of the Accountants, as
shall then be regularly engaged by Borrower.
4.8. Financial Disclosure. Borrower hereby irrevocably authorizes and
directs all accountants and auditors employed by Borrower at any time during the
Term to exhibit and deliver to Agent and each Lender copies of any of the
Borrower's financial statements, trial balances or other accounting records of
any sort in the accountant's or auditor's possession, and to disclose to Agent
and each Lender any information such accountants may have concerning Borrower's
financial status and business operations. Borrower hereby authorizes all
federal, state and municipal authorities to furnish to Agent and each Lender
copies of reports or examinations relating to Borrower, whether made by Borrower
or otherwise; however, Agent and each Lender will attempt to obtain such
information or materials directly from Borrower prior to obtaining such
information or materials from such accountants or such authorities.
4.9. Compliance with Laws. Borrower shall comply with all acts, rules,
regulations and orders of any legislative, administrative or judicial body or
official applicable to its respective Collateral or any part thereof or to the
operation of Borrower's business the non-compliance with which could reasonably
be expected to have a Material Adverse Effect on Borrower.
4.10. Inspection of Premises. At all reasonable times prior to the
occurrence of a Default and at any time after the occurrence of a Default, Agent
and each Lender shall have full access to and the right to audit, check, inspect
and make abstracts and copies from Borrower's books, records, audits,
correspondence and all other papers relating to the Collateral and the operation
of Borrower's business. Agent, any Lender and their agents may enter upon
Borrower's premises at any time during business hours and at any other
reasonable time, and from time to time, for the purpose of inspecting the
Collateral and any and all records pertaining thereto and the operation of
Borrower's business.
4.11. Insurance. Borrower shall bear the full risk of any loss of any
nature whatsoever with respect to the Collateral except to the extent that
Factor has
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assumed and retained the Credit Risk on any Receivable pursuant to the Factoring
Agreement. At Borrower's own cost and expense in amounts and with carriers
acceptable to Agent, Borrower shall (a) keep all its insurable properties and
properties in which Borrower has an interest insured against the hazards of
fire, flood, sprinkler leakage, those hazards covered by extended coverage
insurance and such other hazards, and for such amounts, as is customary in the
case of companies engaged in businesses similar to Borrower's including, without
limitation, business interruption insurance; (b) maintain a bond in such amounts
as is customary in the case of companies engaged in businesses similar to
Borrower insuring against larceny, embezzlement or other criminal
misappropriation of insured's officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of Borrower
either directly or through authority to draw upon such funds or to direct
generally the disposition of such assets; (c) maintain public and product
liability insurance against claims for personal injury, death or property damage
suffered by others; (d) maintain all such worker's compensation or similar
insurance as may be required under the laws of any state or jurisdiction in
which Borrower is engaged in business; (e) furnish Agent with (i) copies of all
policies and evidence of the maintenance of such policies by the renewal thereof
at least thirty (30) days before any expiration date, and (ii) appropriate loss
payable endorsements in form and substance satisfactory to Agent, naming Agent
as a co-insured and loss payee as its interests may appear with respect to all
insurance coverage referred to in clauses (a) and (b) above, and providing (A)
that all proceeds thereunder shall be payable to Agent, (B) no such insurance
shall be affected by any act or neglect of the insured or owner of the property
described in such policy, and (C) that such policy and loss payable clauses may
not be cancelled, amended or terminated unless at least thirty (30) days' prior
written notice is given to Agent. In the event of any loss thereunder, the
carriers named therein hereby are directed by Agent and Borrower to make payment
for such loss to Agent and not to Borrower and Agent jointly. If any insurance
losses are paid by check, draft or other instrument payable to Borrower and
Agent jointly, Agent may endorse Borrower's name thereon and do such other
things as Agent may deem advisable to reduce the same to cash. Agent is hereby
authorized to adjust and compromise claims under insurance coverage referred to
in clauses (a) and (b) above, except that, Agent shall not adjust or compromise
any such claims prior to the occurrence of an Event of Default without first
obtaining the Borrower's prior consent, which consent shall not be unreasonably
withheld. All loss recoveries received by Agent upon any such insurance may be
applied to the Obligations, in such order as Agent in its sole discretion shall
determine. Any surplus shall be paid by Agent to Borrower or applied as may be
otherwise required by law. Any deficiency thereon shall be paid by Borrower to
Agent, on demand.
4.12. Failure to Pay Insurance. If Borrower fails to obtain insurance as
hereinabove provided, or to keep the same in force, Agent, if Agent so elects,
may obtain such insurance and pay the premium therefor for Borrower's account,
and
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charge Borrower's account therefor and such expenses so paid shall be part
of the Obligations.
4.13. Payment of Taxes. Borrower will pay, when due, all taxes, assessments
and other Charges lawfully levied or assessed upon Borrower or any of the
Collateral including, without limitation, real and personal property taxes,
assessments and charges and all franchise, income, employment, social security
benefits, withholding, and sales taxes; except that, Borrower shall be permitted
to contest or dispute the amount of any such tax, assessment or other Charges in
good faith, provided that, Borrower establishes adequate reserves therefor in
the full amount thereof and diligently pursues the resolution thereof. If any
Charge by any governmental authority is or may be imposed on or as a result of
any transaction between Borrower, Agent and Lenders which Agent or any Lender
may be required to withhold or pay or if any Charges remain unpaid after the
date fixed for their payment, or if any claim shall be made which, in Agent's or
Lenders' judgment reasonably exercised in good faith, would reasonably be
expected to create a valid Lien on the Collateral, Agent may without notice to
Borrower pay the Charges and Borrower hereby indemnifies and holds Agent and
each Lender harmless in respect thereof. In the event Agent pays such Charges,
Agent shall use its best efforts to notify Borrower of such payments, except
that, Agent shall have no liability to Borrower in the event that Agent fails to
provide such notice. The amount of any payment by Agent under this Section 4.13
shall be charged to the Borrower's account as a Revolving Advance and added to
the Obligations and, until Borrower shall furnish Agent and each Lender with an
indemnity therefor (or supply Agent with evidence satisfactory to Agent and each
Lender that due provision for the payment thereof has been made), Agent may hold
without interest any balance standing to Borrower's credit and Agent shall
retain Agent's security interest in any and all Collateral held by Agent.
4.14. Payment of Leasehold Obligations. Borrower shall at all times pay,
when and as due, its rental obligations under all leases under which it is a
tenant, and shall otherwise comply, in all material respects, with all other
terms of such leases and keep them in full force and effect and, at Agent's
request, will provide evidence of having done so.
4.15. Receivables.
(a Nature of Receivables. Each of the Receivables shall be a bona fide and
valid account representing a bona fide indebtedness incurred by the Customer
therein named, for a fixed sum as set forth in the invoice relating thereto
(provided immaterial invoice errors shall not be deemed to be a breach hereof)
with respect to an absolute sale or lease and delivery of goods upon stated
terms of Borrower, or work, labor or services theretofore rendered by Borrower
as of the date each Receivable is created. Each Receivable shall be due and
owing in accordance with
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Borrower's standard terms of sale for such Customer without dispute, setoff or
counterclaim except as may be stated on the accounts receivable schedules
delivered by Borrower to Agent.
(b Solvency of Customers. Each Customer, to the extent of Borrower's actual
knowledge, as of the date each Receivable is created, is and will be solvent and
able to pay all Receivables on which the Customer is obligated in full when due
or with respect to such Customers of Borrower who, to Borrower's actual
knowledge, are not solvent Borrower has set up on its books and in its financial
records bad debt reserves adequate to cover such Receivables.
(c Locations of Borrower. Borrower's chief executive office is located at
the address set forth on Schedule 4.15(c) hereto. Until written notice is given
to Agent by Borrower of any other office at which Borrower keeps its records
pertaining to Receivables, all such records shall be kept at such executive
office.
(d Collection of Receivables. Subject to the rights of Factor under the
Factoring Agreement, until Borrower's authority to do so is terminated by Agent
(which notice Agent may give at any time following the occurrence of an Event of
Default or a Default or when Agent in its sole discretion deems it to be in
Lenders' best interests to do so), Borrower will, at Borrower's sole cost and
expense, but on Agent's behalf and for Agent's account, collect as Agent's
property and in trust for Agent all amounts received on Receivables, and shall
not commingle such collections with Borrower's funds or use the same except to
pay Obligations. Borrower shall, upon request, deliver to Agent, the Blocked
Account or the Depository Account in original form and on the date of receipt
thereof, all checks, drafts, notes, money orders, acceptances, cash and other
evidences of Indebtedness.
(e Notification of Assignment of Receivables. Subject to the rights of
Factor under the Factoring Agreement, at any time, Agent shall have the right to
send notice of the assignment of, and Agent's security interest in, the
Receivables to any and all Customers or any third party holding or otherwise
concerned with any of the Collateral. Thereafter, Agent shall have the sole
right to collect the Receivables, take possession of the Collateral, or both.
Agent's actual collection expenses, including, but not limited to, stationery
and postage, telephone and telegraph, secretarial and clerical expenses and the
salaries of any collection personnel used for collection, may be charged to
Borrower's account and added to the Obligations.
(f Power of Agent to Act on Borrower's Behalf. Subject to the rights of
Factor under the Factoring Agreement, Agent shall have the right to receive,
endorse, assign and/or deliver in the name of Agent or Borrower any and all
checks, drafts and other instruments for the payment of money relating to the
Receivables, and Borrower hereby waives notice of presentment, protest and
non-payment of any instrument so endorsed. Borrower hereby constitutes Agent or
Agent's designee as
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Borrower's attorney with power (i) to endorse Borrower's name upon any notes,
acceptances, checks, drafts, money orders or other evidences of payment or
Collateral; (ii0 to sign Borrower's name on any invoice or bill of lading
relating to any of the Receivables, drafts against Customers, assignments and
verifications of Receivables; (iii0 to send verifications of Receivables to any
Customer; (iv) to sign Borrower's name on all financing statements or any other
documents or instruments deemed necessary or appropriate by Agent to preserve,
protect, or perfect Agent's security interest in the Collateral and to file
same; (v) after the occurrence of an Event of Default and during its
continuance, to demand payment of the Receivables; (vi) after the occurrence of
an Event of Default and during its continuance, to enforce payment of the
Receivables by legal proceedings or otherwise; (vii) after the occurrence of an
Event of Default and during its continuance, to exercise all of Borrower's
rights and remedies with respect to the collection of the Receivables and any
other Collateral; (viii) after the occurrence of an Event of Default and during
its continuance, to settle, adjust, compromise, extend or renew the Receivables;
(ix) after the occurrence of an Event of Default and during its continuance, to
settle, adjust or compromise any legal proceedings brought to collect
Receivables; (x) after the occurrence of an Event of Default and during its
continuance, to prepare, file and sign Borrower's name on a proof of claim in
bankruptcy or similar document against any Customer; (xi) after the occurrence
of an Event of Default and during its continuance, to prepare, file and sign
Borrower's name on any notice of Lien, assignment or satisfaction of Lien or
similar document in connection with the Receivables; and (xii) to do all other
acts and things necessary in the good faith judgment of Agent, reasonably
exercised, to carry out this Agreement. All acts of said attorney or designee
are hereby ratified and approved, and said attorney or designee shall not be
liable for any acts of omission or commission nor for any error of judgment or
mistake of fact or of law, unless done maliciously or with gross (not mere)
negligence; this power being coupled with an interest is irrevocable during the
Term and thereafter while any of the Obligations are or may remain unpaid. Agent
shall have the right at any time following the occurrence of an Event of Default
to change the address for delivery of mail addressed to Borrower to such address
as Agent may designate and to receive, open and dispose of all mail addressed to
Borrower.
(g No Liability. Neither Agent nor any Lender shall, under any
circumstances or in any event whatsoever, have any liability for any error or
omission or delay of any kind occurring in the settlement, collection or payment
of any of the Receivables or any instrument received in payment thereof, or for
any damage resulting therefrom. Agent may, without notice or consent from
Borrower, sue upon or otherwise collect, extend the time of payment of,
compromise or settle for cash, credit or upon any terms any of the Receivables
or any other securities, instruments or insurance applicable thereto and/or
release any obligor thereof. Agent is authorized and empowered to accept the
return of the goods represented by any of the
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Receivables, without notice to or consent by Borrower, all without discharging
or in any way affecting Borrower's liability hereunder.
(h Establishment of a Lockbox Account, Dominion Account. All proceeds of
Collateral shall, at the direction of Agent, be deposited by Borrower into a
lockbox account, dominion account or such other blocked account ("Blocked
Accounts") as Agent may require pursuant to an arrangement with such bank as may
be selected by Borrower and be acceptable to Agent. Borrower shall issue to any
such bank, an irrevocable letter of instruction directing said bank to transfer
such funds so deposited to Agent, either to any account maintained by Agent at
said bank or by wire transfer to appropriate account(s) of Agent. All funds
deposited in such Blocked Account shall immediately become the property of Agent
and Borrower shall obtain the agreement by such bank to waive any offset rights
against the funds so deposited. Neither Agent nor any Lender assumes any
responsibility for any Blocked Account arrangement, including, without
limitation, any claim of accord and satisfaction or release with respect to
deposits accepted by any bank thereunder. Alternatively, Agent may after the
occurrence of an Event of Default establish depository accounts ("Depository
Accounts") in the name of Agent at a bank or banks for the deposit of such funds
and Borrower shall deposit all proceeds of Collateral or cause same to be
deposited, in kind, in such Depository Accounts of Agent in lieu of depositing
same to the Blocked Accounts.
(i) Adjustments. Borrower will not, without Agent's consent, compromise or
adjust any Receivables (or extend the time for payment thereof) or accept any
returns of merchandise or grant any additional discounts, allowances or credits
thereon except for those compromises, adjustments, returns, discounts, credits
and allowances as may, from time to time, be customary in the business of
Borrower.
4.16. Inventory. All Inventory, to the extent manufactured by Borrower, has
been, and will be, produced by Borrower in accordance with the Federal Fair
Labor Standards Act of 1938, as amended, and all rules, regulations and orders
thereunder.
4.17. Maintenance of Equipment. The Equipment shall be maintained in good
operating condition and repair (reasonable wear and tear excepted) and all
necessary replacements of and repairs thereto shall be made so that the value
and operating efficiency of the Equipment shall be maintained and preserved.
Borrower shall have the right to sell Equipment to the extent set forth in
Section 4.3 hereof.
4.18. Exculpation of Liability. Nothing herein contained shall be construed
to constitute Agent or any Lender as Borrower's agent for any purpose
whatsoever, nor shall Agent or any Lender be responsible or liable for any
shortage, discrepancy, damage, loss or destruction of any part of the Collateral
wherever the same may be located and regardless of the cause thereof. Neither
Agent nor any Lender, whether
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by anything herein or in any assignment or otherwise, assume Borrower's
obligations under any contract or agreement assigned to Agent or such Lender,
and neither Agent nor any Lender shall be responsible in any way for the
performance by Borrower of any of the terms and conditions thereof.
4.19. Environmental Matters. (a) Borrower shall ensure that the Real
Property remains in compliance with all applicable Environmental Laws and shall
not place or permit to be placed any Hazardous Substances on any Real Property
except as authorized by applicable Environmental Laws.
(b) Borrower shall establish and maintain a system to assure and monitor
continued compliance with all applicable Environmental Laws which system shall
include periodic reviews of such compliance.
(c) In the event Borrower obtains, gives or receives notice of any Release
or threat of Release of a reportable quantity of any Hazardous Substances at the
Real Property (any such event being hereinafter referred to as a "Hazardous
Discharge") or receives any notice of violation, request for information or
notification that it is potentially responsible for investigation or cleanup of
environmental conditions at the Real Property, demand letter or complaint,
order, citation, or other written notice with regard to any Hazardous Discharge
or violation of Environmental Laws affecting the Real Property or Borrower's
interest therein (any of the foregoing is referred to herein as an
"Environmental Complaint") from any Person, including any state agency
responsible in whole or in part for environmental matters in the state in which
the Real Property is located or the United States Environmental Protection
Agency (any such person or entity hereinafter the "Authority") in each case,
that would cause a Material Adverse Effect, then Borrower shall promptly, and in
any event within ten (10) Business Days, give written notice of same to Agent
detailing facts and circumstances of which Borrower is aware giving rise to the
Hazardous Discharge or Environmental Complaint. Such information is to be
provided to allow Agent to protect its security interest in the Collateral and
is not intended to create nor shall it create any obligation upon Agent or any
Lender with respect thereto.
(d) Borrower shall promptly forward to Agent copies of any request for
information, notification of potential liability, demand letter relating to
potential responsibility with respect to the investigation or cleanup of
Hazardous Substances at any other site owned, operated or used by Borrower to
dispose of Hazardous Substances that would cause a Material Adverse Effect and
shall continue to forward copies of material correspondence between Borrower and
the Authority regarding such claims to Agent until the claim is settled.
Borrower shall promptly forward to Agent copies of all material documents and
reports concerning a Hazardous Discharge at the Real Property that Borrower is
required to file under any Environmental Laws. Such
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information is to be provided solely to allow Agent to protect Agent's security
interest in the Collateral.
(e) Borrower shall respond promptly to any Hazardous Discharge or
Environmental Complaint and take all necessary action in order to safeguard the
health of any Person and to avoid subjecting the Collateral or Real Property to
any Lien. If Borrower shall fail to respond promptly to any Hazardous Discharge
or Environmental Complaint or Borrower shall fail to comply with any of the
requirements of any Environmental Laws that, in each case, would cause a
Material Adverse Effect, Agent on behalf of Lenders may, but without the
obligation to do so, for the sole purpose of protecting Agent's security
interest in Collateral: (A) give such notices or (B) enter onto the Real
Property (or authorize third parties to enter onto the Real Property) and take
such actions as Agent (or such third parties as directed by Agent) deem
reasonably necessary or advisable, to clean up, remove, mitigate or otherwise
deal with any such Hazardous Discharge or Environmental Complaint. All
reasonable costs and expenses incurred by Agent and Lenders (or such third
parties) in the exercise of any such rights, including any sums paid in
connection with any judicial or administrative investigation or proceedings,
fines and penalties, together with interest thereon from the date expended at
the Default Rate for Domestic Rate Loans constituting Revolving Advances shall
be paid upon demand by Borrower, and until paid shall be added to and become a
part of the Obligations secured by the Liens created by the terms of this
Agreement or any other agreement between Agent, any Lender and Borrower.
(f) Promptly upon the written request of Agent if Agent in good faith
believes a Hazardous Discharge or Environmental Complaint that could cause a
Material Adverse Effect exists, Borrower shall provide Agent, at Borrower's
expense, with an environmental site assessment or environmental audit report
prepared by an environmental engineering firm acceptable in the reasonable
opinion of Agent, to assess with a reasonable degree of certainty the existence
of a Hazardous Discharge and the potential costs in connection with abatement,
cleanup and removal of any Hazardous Substances found on, under, at or within
the Real Property. Any report or investigation of such Hazardous Discharge
proposed and acceptable to an appropriate Authority that is charged to oversee
the clean-up of such Hazardous Discharge shall be acceptable to Agent. If such
estimates, individually or in the aggregate, exceed $100,000, Agent shall have
the right to require Borrower to post a bond, letter of credit or other security
reasonably satisfactory to Agent to secure payment of these costs and expenses.
(g) Borrower shall defend and indemnify Agent and Lenders and hold Agent,
Lenders and their respective employees, agents, directors and officers harmless
from and against all loss, liability, damage and expense, claims, costs, fines
and penalties, including attorney's fees, suffered or incurred by Agent or
Lenders under or
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on account of any Environmental Laws related to this Agreement, including,
without limitation, the assertion of any Lien thereunder, with respect to any
Hazardous Discharge, the presence of any Hazardous Substances affecting the Real
Property, whether or not the same originates or emerges from the Real Property
or any contiguous real estate, including any loss of value of the Real Property
as a result of the foregoing except to the extent such loss, liability, damage
and expense is attributable to any Hazardous Discharge resulting from actions on
the part of Agent or any Lender. Borrower's obligations under this Section 4.19
shall arise upon the discovery of the presence of any Hazardous Substances at
the Real Property, whether or not any federal, state, or local environmental
agency has taken or threatened any action in connection with the presence of any
Hazardous Substances. Borrower's obligation and the indemnifications hereunder
shall survive the termination of this Agreement.
(h) For purposes of Section 4.19 and 5.7, all references to Real Property
shall be deemed to include all of Borrower's right, title and interest in and to
its owned and leased premises.
4.20. Financing Statements. Except as respects the financing statements
filed by Agent and the financing statements described on Schedule 4.20, no
financing statement covering any of the Collateral or any proceeds thereof is on
file in any public office.
V. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to the Agent and each of the Lenders as
follows:
5.1. Authority. Borrower has full power, authority and legal right to enter into
this Agreement and the Other Documents and to perform all its Obligations
hereunder and thereunder. The execution, delivery and performance of this
Agreement and of the Other Documents (a) are within Borrower's corporate powers,
have been duly authorized, are not in contravention of law or the terms of
Borrower's by-laws, certificate of incorporation or other applicable documents
relating to Borrower's formation or to the conduct of Borrower's business or of
any material agreement or undertaking to which Borrower is a party or by which
Borrower is bound, and (b) will not conflict with nor result in any breach in
any of the provisions of or constitute a default under or result in the creation
of any Lien except Permitted Encumbrances upon any asset of Borrower under the
provisions of any agreement, charter document, instrument, by-law, or other
instrument to which Borrower or its property is a party or by which it may be
bound.
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5.2. Formation and Qualification. (a) Borrower is duly incorporated and in
good standing under the laws of the state listed on Schedule 5.2 and is
qualified to do business and is in good standing in the states listed on
Schedule 5.2 which constitute all states in which qualification and good
standing are necessary for Borrower to conduct its business and own its property
and where the failure to so qualify could reasonably be expected to have a
Material Adverse Effect on Borrower. Borrower has delivered to Agent true and
complete copies of its certificate of incorporation and by-laws and will
promptly notify Agent of any amendment or changes thereto.
(b) The only Subsidiaries of Borrower are listed on Schedule 5.2.
5.3. Survival of Representations and Warranties. All representations and
warranties of Borrower contained in this Agreement and the Other Documents shall
be true at the time of Borrower's execution of this Agreement and the Other
Documents, and shall survive the execution, delivery and acceptance thereof by
the parties thereto and the closing of the transactions described therein or
related thereto.
5.4. Tax Returns. Borrower's federal tax identification number is set forth
on Schedule 5.4. Borrower has filed all federal, state and local tax returns and
other reports each is required by law to file except where the failure to do so
would not have a Material Adverse Effect and has paid all taxes, assessments,
fees and other governmental charges prior to the date on which any fine,
penalty, interest, late charge or loss may be added thereto for non-payment
thereof except where diligently contested in good faith and by appropriate
proceedings. Borrower has filed all Federal, state and local income tax returns
of Borrower through fiscal year 1997 and Borrower has not received any notice of
audit or investigation with respect to any such returns. The provision for taxes
on the books of Borrower are adequate for all years not closed by applicable
statutes, and for its current fiscal year, and Borrower no has knowledge of any
deficiency or additional assessment in connection therewith not provided for on
its books.
5.5. Financial Statements.
(a) The consolidated and consolidating pro forma balance sheets of Borrower
(the "Pro Forma Balance Sheet") furnished to Agent on the Closing Date reflects
the consummation of the transactions contemplated under the Acquisition
Agreement, the Subordinated Debt Documentation and this Agreement (collectively,
the "Transactions") and is accurate, complete and correct and fairly reflects
the financial condition of Borrower as of the Closing Date after giving effect
to the Transactions, and has been prepared in accordance with GAAP, consistently
applied. The Pro Forma Balance Sheet has been certified as accurate, complete
and correct in all material respects by the President and Chief Financial
Officer of Borrower. All financial statements referred to in this subsection
5.5(a), including the related
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schedules and notes thereto, have been prepared, in accordance with GAAP, except
as may be disclosed in such financial statements.
(b) The twelve-month cash flow projections of Borrower and its projected
balance sheets as of the Closing Date, copies of which are annexed hereto as
Exhibit 5.5(b) (the "Projections") were prepared by the Chief Financial Officer
of Borrower, are based on underlying assumptions which provide a reasonable
basis for the projections contained therein and reflect Borrower's judgment
based on present circumstances of the most likely set of conditions and course
of action for the projected period. The cash flow Projections together with the
Pro Forma Balance Sheet, are referred to as the "Pro Forma Financial
Statements". Notwithstanding any of the foregoing, the Pro Forma Financial
Statements are estimated in good faith by the Borrower based upon assumptions
believed to be reasonable at the time made, it being understood that the same
are subject to significant uncertainties and contingencies beyond the control of
the Borrower, and that no assurance can be given that the same will be realized.
5.6. Corporate Name. Borrower has not been known by any other corporate
name in the past five years and does not sell Inventory or perform services
under any other name except as set forth on Schedule 5.6, nor has Borrower been
the surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any Person during the preceding five (5)
years.
5.7. O.S.H.A. and Environmental Compliance.
(a) Except to the extent non-compliance would not have a Material Adverse
Effect, Borrower has duly complied with, and its facilities, business, assets,
property, leaseholds and Equipment are in compliance in all material respects
with, the provisions of the Federal Occupational Safety and Health Act, the
Environmental Protection Act, RCRA and all other applicable Environmental Laws;
there are no outstanding citations, notices or orders of non-compliance issued
to Borrower or relating to its business, assets, property, leaseholds or
Equipment under any such laws, rules or regulations.
(b) Except to the extent non-compliance would not have a Material Adverse
Effect, Borrower has been issued all required federal, state and local licenses,
certificates or permits relating to all applicable Environmental Laws.
(c) To the best of Borrower's knowledge (i) there are no visible signs of
releases, spills, discharges, leaks or disposal (collectively referred to as
"Releases") of Hazardous Substances at, upon, under or within any Real Property
that would result in a Material Adverse Effect; (ii) there are no underground
storage tanks or polychlorinated biphenyls on the Real Property; (iii) the Real
Property has never been
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used as a treatment, storage or disposal facility of Hazardous Waste; and (iv)
no Hazardous Substances are present on the Real Property, excepting such
quantities as are handled in accordance with all applicable manufacturer's
instructions and governmental regulations and in proper storage containers and
as are necessary for the operation of the commercial business of Borrower or of
its tenants.
5.8. Solvency; No Litigation, Violation, Indebtedness or Default.
(a) After giving effect to the Transactions, Borrower will be able to pay
its debts as they mature, will have capital sufficient to carry on its business
and all businesses in which it is about to engage.
(b) Except as disclosed in Schedule 5.8(b), Borrower does not have (i) any
pending or, to the Borrower's knowledge, threatened, litigation, arbitration,
actions or proceedings which involve the possibility of having a Material
Adverse Effect on Borrower, and (ii) any material liabilities nor indebtedness
other than the Obligations.
(c) Borrower is not in violation of any applicable statute, regulation or
ordinance in any respect which could reasonably be expected to have a Material
Adverse Effect on Borrower, nor is Borrower in violation of any order of any
court, governmental authority or arbitration board or tribunal.
(d) Neither Borrower nor any member of the Controlled Group maintains or
contributes to any ERISA Plan other than those listed on Schedule 5.8(d) hereto.
Material ERISA Plans are indicated as such on the Schedule. Except as set forth
in Schedule 5.8(d), (i) no Plan has incurred any "accumulated funding
deficiency," as defined in Section 302(a)(2) of ERISA and Section 412(a) of the
Code, whether or not waived, and Borrower and each member of the Controlled
Group has met all applicable minimum funding requirements under Section 302 of
ERISA in respect of each Plan, (ii) each Plan which is intended to be a
qualified plan under Section 401(a) of the Code as currently in effect has been
determined by the Internal Revenue Service to be qualified under Section 401(a)
of the Code and the trust related thereto is exempt from federal income tax
under Section 501(a) of the Code, (iii) neither Borrower nor any member of the
Controlled Group has incurred any material liability to the PBGC other than for
the payment of premiums, and there are no premium payments which have become due
which are unpaid, (iv) no Plan has been terminated by the plan administrator
thereof nor by the PBGC, and there is no occurrence which would cause the PBGC
to institute proceedings under Title IV of ERISA to terminate any Plan, (v) at
this time, the current value of the assets of each Plan exceeds the present
value of the accrued benefits and other liabilities of such Plan and neither
Borrower nor any member of the Controlled
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Group knows of any facts or circumstances which would materially change the
value of such assets and accrued benefits and other liabilities, (vi) neither
Borrower or any member of the Controlled Group has breached any of the
responsibilities, obligations or duties imposed on it by ERISA with respect to
any Plan, (vii) neither Borrower or any member of a Controlled Group has
incurred any liability for any excise tax arising under Section 4972 or 4980B of
the Code, and no fact exists which could give rise to any such liability, (viii)
neither Borrower nor any member of the Controlled Group or any fiduciary of, or
any trustee to, any Plan, has engaged in a "prohibited transaction" described in
Section 406 of the ERISA or Section 4975 of the Code where such prohibited
transaction would materially change the value of the assets or liabilities of
the Borrower or of the Controlled Group or taken any action which would
constitute or result in a Termination Event with respect to any such Plan which
is subject to ERISA, (ix) Borrower and each member of the Controlled Group has
made all contributions due and payable with respect to each Plan, (x) there
exists no event described in Section 4043(b) of ERISA, for which the thirty (30)
day notice period contained in 29 CFR ss.2615.3 has not been waived, and (xi)
during the last three years neither Borrower nor any member of the Controlled
Group has withdrawn, completely or partially, from any Multiemployer Plan so as
to incur liability under the Multiemployer Pension Plan Amendments Act of 1980.
In the preceding sentence, all references to "Plan" means an ERISA Plan that is
an employee pension plan within the meaning of Section 3(2) of ERISA that is
subject to Title IV of ERISA, except that clause (vii) and the prohibition
against prohibited transactions in clause (viii) are not so limited.
5.9. Patents, Trademarks, Copyrights and Licenses. All patents, patent
applications, trademarks, trademark applications, service marks, service mark
applications, copyrights, copyright applications, design rights, tradenames,
assumed names, trade secrets and licenses owned or utilized by Borrower are set
forth on Schedule 5.9, are valid and have been duly registered or filed with all
appropriate governmental authorities and constitute all of the intellectual
property rights which are necessary for the operation of its business; there is
no pending or to the knowledge of Borrower threatened challenge to the validity
of any such material patent, trademark, copyright, design right, tradename,
trade secret or license and Borrower is not aware of any grounds for any
challenge, except as set forth in Schedule 5.9 hereto.
5.10. Licenses and Permits. Except as set forth in Schedule 5.10, Borrower
(a) is in compliance with and (b) has procured and is now in possession of, all
material licenses or permits required by any applicable federal, state or local
law or regulation for the operation of its business in each jurisdiction wherein
it is now conducting or proposes to conduct business and where the failure to
procure such licenses or permits could reasonably be expected to have a Material
Adverse Effect on Borrower.
5.11. Intentionally Omitted.
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5.12. No Default. To Borrower's knowledge, Borrower is not in default in
the payment or performance of any of its material contractual obligations and no
Default has occurred.
5.13. Intentionally Omitted.
5.14. No Labor Disputes. Borrower is not involved in any labor dispute;
there are no strikes or walkouts or union organization of Borrower's employees
threatened or in existence and no labor contract is scheduled to expire during
the Term other than as set forth on Schedule 5.14 hereto.
5.15. Margin Regulations. Borrower is not engaged, nor will it engage,
principally or as one of its important activities, in the business of extending
credit for the purpose of "purchasing" or "carrying" any "margin stock" within
the respective meanings of each of the quoted terms under Regulation U of the
Board of Governors of the Federal Reserve System as now and from time to time
hereafter in effect. No part of the proceeds of any Advance will be used for
"purchasing" or "carrying" "margin stock" as defined in Regulation U of such
Board of Governors.
5.16. Investment Company Act. Borrower is not an "investment company"
registered or required to be registered under the Investment Company Act of
1940, as amended, nor is it controlled by such a company.
5.17. Disclosure. Except as disclosed on Schedule 5.17, no representation
or warranty made by Borrower in this Agreement or in the Acquisition Agreement
or in any financial statement, report, certificate or any other document
furnished in connection herewith or therewith contains any untrue statement of
fact or omits to state any fact necessary to make the statements herein or
therein not misleading. There is no fact known to Borrower or which reasonably
should be known to Borrower which Borrower have not disclosed to Agent in
writing with respect to the Transactions which could reasonably be expected to
have a Material Adverse Effect on Borrower.
5.18. Regarding the Acquisition Agreement and Subordinated Debt
Documentation. Agent has received complete copies of the Acquisition Agreement
and the Subordinated Debt Documentation (including all exhibits, schedules and
disclosure letters referred to therein or delivered pursuant thereto, if any)
and all amendments thereto, waivers relating thereto and other side letters or
agreements affecting the terms thereof. None of such documents and agreements
has been amended or supplemented, nor have any of the provisions thereof been
waived, except pursuant to a written agreement or instrument which has
heretofore been delivered to Agent.
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5.19. Swaps. Borrower is not a party to, nor will it be a party to, any
swap agreement whereby Borrower has agreed or will agree to swap interest rates
or currencies unless same provides that damages upon termination following an
event of default thereunder are payable on an unlimited "two-way basis" without
regard to fault on the part of either party.
5.20. Intentionally Omitted.
5.21. Application of Certain Laws and Regulations. Neither Borrower or any
Affiliate of Borrower is subject to any statute, rule or regulation which
regulates the incurrence of any Indebtedness.
5.22. Business and Property of Borrower. Upon and after the Closing Date,
Borrower does not propose to engage in any business other than the importing,
manufacturing, marketing and sale of apparel, footwear and related accessories
and activities necessary to conduct the foregoing. On the Closing Date, Borrower
will own all the property and possess all of the rights and Consents necessary
for the conduct of the business of Borrower.
VI. AFFIRMATIVE COVENANTS.
Borrower shall, until payment in full of the Obligations and termination of
this Agreement:
6.1. Payment of Fees. Pay to Agent when due all fees and expenses which Agent
incurs in connection with (a) the forwarding of Advance proceeds and (b) the
establishment and maintenance of any Blocked Accounts or Depository Accounts as
provided for in Section 4.15(h). Agent may, without making demand, charge the
account of Borrower for all such fees and expenses.
6.2. Conduct of Business and Maintenance of Existence and Assets. (a)
Conduct continuously and operate actively its business according to good
business practices and maintain all of its properties useful or necessary in its
business in good working order and condition (reasonable wear and tear excepted
and except as may be disposed of in accordance with the terms of this
Agreement), including, without limitation, all licenses, patents, copyrights,
design rights, tradenames, trade secrets and trademarks and take all actions
reasonably necessary to enforce and protect the validity of any intellectual
property right or other right included in the Collateral; (b) keep in full force
and effect its existence and comply in all material respects with the laws and
regulations governing the conduct of its business; and (c) except to the extent
non-compliance could not reasonably be expected to have a Material Adverse
Effect, make all such reports and pay all such franchise and other taxes and
license
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fees and do all such other acts and things as may be lawfully required to
maintain its rights, licenses, leases, powers and franchises under the laws of
the United States or any political subdivision thereof.
6.3. Violations. Promptly notify Agent in writing of any violation of any
law, statute, regulation or ordinance of any Governmental Body, or of any agency
thereof, applicable to Borrower which could be reasonably expected to have a
Material Adverse Effect on Borrower.
6.4. Government Receivables. Take all steps necessary to protect Agent's
interest in the Collateral under the Federal Assignment of Claims Act or other
applicable state or local statutes or ordinances and deliver to Agent
appropriately endorsed, any instrument or chattel paper connected with any
Receivable arising out of contracts between Borrower and the United States, any
state or any department, agency or instrumentality of any of them.
6.5. Tangible Net Worth. Maintain a Tangible Net Worth in an amount not
less than:
($65,000,000) for quarter ending 3/31/99
($67,000,000) " " " 6/30/99
($70,000,000) " " " 9/30/99
($74,000,000) " " " 12/31/99
($71,500,000) " " " 3/31/00
($71,000,000) " " " 6/30/00
($73,000,000) " " " 9/30/00
($74,500,000) " " " 12/31/00
($72,500,000) " " " 3/31/01
($71,500,000) " " " 6/30/01
($72,000,000) " " " 9/30/01
($72,500,000) " " " 12/31/01
($68,000,000) " " " 3/31/02
($66,000,000) " " " 6/30/02
($66,000,000) " " " 9/30/02
($66,000,000) " " " 12/31/02
($63,000,000) " " " 3/31/03
and thereafter.
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This covenant (a) will be adjusted to the extent of 90% of the net proceeds
of any new stock or subordinated debt issue and (b) will be adjusted upward or
downward to the extent that the "Restructuring Charges" to be reflected on the
December 31, 1998 audited annual statement are greater than or less than
$5,000,000. In addition, this covenant will be increased, on a dollar for dollar
basis, to the extent that with the consent of Agent, in its sole discretion,
non-cash dividends are declared and paid in kind in respect of any class of
preferred stock and/or payments of interest, in the form of preferred stock, are
paid to Subordinated Lender.
6.6. Current Ratio. Maintain a ratio of Current Assets to Current
Liabilities of not less than:
0.70:1.00 for the quarter ending 3/31/99
0.70:1.00 " " " 6/30/99
0.65:1.00 " " " 9/30/99
0.60:1.00 " " " 12/31/99
0.70:1.00 " " " 3/31/00
0.70:1.00 " " " 6/30/00
0.65:1.00 " " " 9/30/00
0.60:1.00 " " " 12/31/00
0.70:1.00 " " " 3/31/01
0.70:1.00 " " " 6/30/01
0.65:1.00 " " " 9/30/01
0.60:1.00 " " " 12/31/01
0.70:1.00 " " " 3/31/02
0.75:1.00 " " " 6/30/02
0.75:1.00 " " " 9/30/02
0.75:1.00 " " " 12/31/02
0.85:1.00 " " " 3/31/03
and thereafter.
This covenant will be increased by increasing the Current Assets component
by 0.25 in the event of a secondary stock sale with net proceeds in excess of
$30 million.
For the purposes hereof, Current Liabilities shall include all restructuring
reserves to the extent they are considered Current Liabilities in accordance
with GAAP and to the extent that such restructuring reserves are in excess of
$5,000,000.
6.7. Working Capital. Maintain Working Capital, computed in accordance with
GAAP and including all direct Obligations hereunder as current liabilities, in
an amount not less than:
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($2,000,000) for quarter ending 3/31/99
($3,000,000) " " " 6/30/99
($6,500,000) " " " 9/30/99
($10,500,000) " " " 12/31/99
($5,500,000) " " " 3/31/00
($6,000,000) " " " 6/30/00
($8,500,000) " " " 9/30/00
($11,250,000) " " " 12/31/00
($9,250,000) " " " 3/31/01
($9,000,000) " " " 6/30/01
($9,500,000) " " " 9/30/01
($9,500,000) " " " 12/31/01
($5,750,000) " " " 3/31/02
($3,000,000) " " " 6/30/02
($2,750,000) " " " 9/30/02
($2,500,000) " " " 12/31/02
$2,000,000 " " " 3/31/03
and thereafter.
This covenant will be adjusted to the extent of 20% of the net proceeds of
any new stock or subordinated debt issue, provided that a minimum of 70% of such
net proceeds is applied to long term debt. To the extent that the % applied to
long term debt is less than 70%, the 20% will be increased in an equal amount up
to 90% if none of the proceeds are applied to long term debt.
For the purposes hereof, Current Liabilities shall include all restructuring
reserves to the extent they are considered Current Liabilities in accordance
with GAAP and to the extent that such restructuring reserves are in excess of
$5,000,000.
6.8. Execution of Supplemental Instruments. Execute and deliver to Agent
from time to time, upon demand, such supplemental agreements, statements,
assignments and transfers, or instructions or documents relating to the
Collateral, and such other instruments as Agent may reasonably request, in order
that the full intent of this Agreement and the Other Documents may be carried
into effect.
6.9. Payment of Indebtedness. Pay, discharge or otherwise satisfy at or
before maturity (subject, where applicable, to specified grace periods and, in
the case of the trade payables, to normal payment practices) all its obligations
and liabilities of whatever nature, except when the amount or validity thereof
is currently being contested in good faith by appropriate proceedings and
Borrower shall have provided for such reserves as Agent may reasonably deem
proper and necessary, subject at all times to any applicable subordination
arrangement in favor of Lenders.
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6.10. Standards of Financial Statements. Cause all financial statements
referred to in Sections 9.7, 9.8, 9.9, 9.10, 9.11, 9.12 and 9.13 as to which
GAAP is applicable to be complete and correct in all material respects (subject,
in the case of interim financial statements, to normal year-end audit
adjustments) and to be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein (except as
concurred in by such reporting accountants or officer, as the case may be, and
disclosed therein).
6.11. Exercise of Rights. Enforce all of its rights under the Acquisition
Agreement executed in connection therewith including, but not limited to, all
indemnification rights and pursue all remedies available to it with diligence
and in good faith in connection with the enforcement of any such rights.
6.12. Year 2000 Compliance. Be fully Year 2000 Compliant on or before
September 30, 1999 and at all times thereafter.
6.13. Additional Financial Covenants.
(a) Net loss, excluding any extraordinary or non-recurring items, computed
in accordance with GAAP, shall not exceed:
($1,000,000) for quarter ending 3/31/99
($2,750,000) " " " 6/30/99
($3,500,000) " " " 9/30/99
($5,000,000) " " " 12/31/99
$0 " " " 3/31/00
($500,000) " " " 6/30/00
($2,250,000) " " " 9/30/00
($2,500,000) " " " 12/31/00
$0 " " " 3/31/01
$0 " " " 6/30/01
($750,000) " " " 9/30/01
($1,500,000) " " " 12/31/01
$0 " " " 3/31/02
$0 " " " 6/30/02
($500,000) " " " 9/30/02
($1,000,000) " " " 12/31/02
($250,000) " " " 3/31/03
and thereafter.
(b) The financial covenants as set forth in Sections 6.5, 6.6, 6.7 and 6.13
shall each be tested quarterly.
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VII. NEGATIVE COVENANTS.
Borrower shall not, until satisfaction in full of the Obligations and
termination of this Agreement:
7.1. Merger, Consolidation, Acquisition and Sale of Assets.
(a) Enter into any merger, consolidation or other reorganization with or
into any other Person or acquire all or a substantial portion of the assets or
stock of any Person or permit any other Person to consolidate with or merge with
it, provided, however, that, so long as no Event of Default exists and is
continuing, any Subsidiary of Borrower may merge with or into Borrower, provided
that, (i) Borrower provides Agent with ten (10) days prior written notice; (ii)
Borrower is the surviving corporation and (iii) after giving effect to such
merger, such merger could not reasonably be expected to have a Material Adverse
Effect.
(b) Sell, lease, transfer or otherwise dispose of any of its properties or
assets, except (i) in the ordinary course of its business and (ii) to the extent
any such sale, lease, transfer or other disposal is not in excess of $250,000.
7.2. Creation of Liens. Create or suffer to exist any Lien or transfer upon
or against any of its property or assets now owned or hereafter acquired, except
Permitted Encumbrances.
7.3. Guarantees. Become liable upon the obligations of any Person by
assumption, endorsement or guaranty thereof or otherwise (other than to Lenders)
except (a) as disclosed on Schedule 7.3, (b) guarantees made in the ordinary
course of business up to an aggregate amount of $200,000 outstanding at any one
time and (c) the endorsement of checks in the ordinary course of business.
7.4. Investments. Purchase or acquire obligations or stock of, or any other
interest in, any Person, except (a) obligations issued or guaranteed by the
United States of America or any agency thereof; (b) commercial paper with
maturities of not more than 180 days and a published rating of not less than A-1
or P-1 (or the equivalent rating); (c) certificates of time deposit and bankers'
acceptances having maturities of not more than 180 days and repurchase
agreements backed by United States government securities of a commercial bank if
(i) such bank has a combined capital and surplus of at least $500,000,000, or
(ii) its debt obligations, or those of a holding company of which it is a
Subsidiary, are rated not less than A (or the equivalent rating) by a nationally
recognized investment rating agency; (d) U.S. money market funds that invest
solely in obligations issued or guaranteed by the United States of America or an
agency thereof; (e) investments listed in Schedule 7.4; (f)
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loans and advances by the Borrower to employees, officers and directors of the
Borrower in connection with relocations and for other ordinary course of
business purposes (including travel and entertainment expenses) in an aggregate
amount outstanding at any time not to exceed $200,000 in the aggregate and not
to exceed $25,000 per employee, officer and director; (g) loans and advances by
the Borrower to employees of the Borrower in connection with the purchase by
such employees of common stock of Borrower or options or similar rights to
purchase Borrower common stock, provided that, (i) such loans and advances are
used by such employee to purchase Borrower's common stock directly from Borrower
and not to purchase such common stock from any Person and (ii) the aggregate
amount of such loans and advances outstanding at any time shall not exceed
$1,000,000 in the aggregate and shall not exceed $100,000 per employee; and (h)
in addition to investments permitted by this Agreement, loans, advances and
investments to or in a Person in an aggregate amount for all loans, advances and
investments made pursuant to this clause not to exceed $100,000 in the aggregate
outstanding at any time.
7.5. Loans. Make advances, loans or extensions of credit to any Person,
including without limitation, any Parent, Subsidiary or Affiliate except with
respect to the extension of commercial trade credit in connection with the sale
of Inventory in the ordinary course of its business and except for, in addition
to the loans outstanding as of the Closing Date as more particularly described
on Schedule 7.5 hereof, loans or advances to each of Big Ball Sports, Inc. or
Grand Illusion Designs, Inc. in an aggregate amount outstanding at any given
time of not greater than $1,000,000 in each case.
7.6. Capital Expenditures. Make any cash expenditures in connection with
the purchase or acquisition of fixed or capital assets (including capitalized
leases) in any fiscal year in an amount in excess of $1,000,000.
7.7. Dividends. Declare, pay or make any dividend or distribution on any
shares of the common stock or preferred stock of Borrower (other than dividends
or distributions payable in its stock, or split-ups or reclassifications of its
stock) or apply any of its funds, property or assets to the purchase, redemption
or other retirement of any common or preferred stock, or of any options to
purchase or acquire any such shares of common or preferred stock of Borrower.
7.8. Indebtedness. Create, incur, assume or suffer to exist any
Indebtedness (exclusive of trade debt) except in respect of (a) Obligations to
Lenders; (b) Indebtedness incurred for capital expenditures permitted under
Section 7.6 hereof; (c) Indebtedness due under the Subordinated Debt
Documentation; (d) Indebtedness assumed under the Acquisition Agreement;
provided, however, that the maximum aggregate amount outstanding at any time of
such Indebtedness assumed under the Acquisition Agreement shall not exceed
$4,000,000; (e) Indebtedness listed in Schedule 7.8; (f) Indebtedness with
respect to performance bonds, surety bonds,
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appeal bonds or customs bonds required in the ordinary course of business or in
connection with the judgments that do not result in an Event of Default,
provided that, (i) the aggregate outstanding amount of all such performance
bonds, surety bonds and appeal bonds permitted by this clause shall not at any
time exceed $100,000 in the aggregate and (ii) the aggregate outstanding amount
of all such customs bonds permitted by this clause shall not at any time exceed
$250,000; and (g) Indebtedness of the Borrower not otherwise permitted by this
Agreement in an aggregate principal amount at any time outstanding not exceeding
$25,000.
7.9. Nature of Business. Substantially change the nature of the business in
which it is presently engaged, nor except as specifically permitted herein
purchase or invest, directly or indirectly, in any assets or property other than
in the ordinary course of business for assets or property which are useful in,
necessary for and are to be used in its business as presently conducted.
7.10. Transactions with Affiliates. Directly or indirectly, purchase,
acquire or lease any property from, or sell, transfer or lease any property to,
or otherwise deal with, any Affiliate, except transactions in the ordinary
course of business, on an arm's-length basis on terms no less favorable than
terms which would have been obtainable from a Person other than an Affiliate.
7.11. Leases. Enter as lessee into any lease arrangement for real or
personal property (unless capitalized and permitted under Section 7.6 hereof) if
after giving effect thereto, aggregate annual rental payments for all leased
property would exceed $1,000,000 in any one fiscal year.
7.12. Subsidiaries.
(a) Form any Subsidiary.
(b) Enter into any partnership, joint venture or similar arrangement.
7.13. Fiscal Year and Accounting Changes. Change its fiscal year from
December 31 or make any change (i) in accounting treatment and reporting
practices except as required by GAAP or (ii) in tax reporting treatment except
as required by law.
7.14. Pledge of Credit. Now or hereafter use any portion of any Advance in
or for any business other than Borrower's business as conducted on the date of
this Agreement.
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7.15. Amendment of Articles of Incorporation, By-Laws. Amend, modify or
waive any material term or material provision which would have a Material
Adverse Effect of its Articles of Incorporation or By-Laws unless required by
law.
7.16. Compliance with ERISA. (i) (x) Maintain, or permit any member of the
Controlled Group to maintain, or (y) become obligated to contribute, or permit
any member of the Controlled Group to become obligated to contribute, to any
material ERISA Plan, other than those material ERISA Plans disclosed on Schedule
5.8(d), if such maintenance or obligation to contribute would create a material
liability for Borrower or the Controlled Group; (ii) engage, or permit any
member of the Controlled Group to engage, in any non-exempt "prohibited
transaction", as that term is defined in section 406 of ERISA and Section 4975
of the Code where such prohibited transaction would create a material liability
for Borrower or the Controlled Group; (iii) incur, or permit any member of the
Controlled Group to incur, any "accumulated funding deficiency", as that term is
defined in Section 302 of ERISA or Section 412 of the Code; (iv) terminate, or
permit any member of the Controlled Group to terminate, any material ERISA Plan
that is a defined benefit pension plan where such event could reasonably result
in any material ERISA liability of Borrower or any member of the Controlled
Group or the imposition of a lien on the property of Borrower or any member of
the Controlled Group pursuant to Section 4068 of ERISA; (v) except for payments
due at Closing which shall not exceed $100,000, incur, or permit any member of
the Controlled Group to incur, any withdrawal liability to any Multiemployer
Plan; (vi) fail promptly to notify Agent of the occurrence of any Termination
Event; (vii) fail to comply, or permit a member of the Controlled Group to fail
to comply in any material respects, with the requirements of ERISA or the Code
or other applicable laws in respect of any material ERISA Plan where such
failure could reasonably result in a liability for the Borrower or the
Controlled Group which liability could reasonably be expected to have a Material
Adverse Effect on the Borrower or the Controlled Group; (viii) fail to meet, or
permit any member of the Controlled Group to fail to meet, all minimum funding
requirements under ERISA.
7.17. Prepayment of Indebtedness. At any time, directly or indirectly,
prepay any Indebtedness (other than to Lenders), or repurchase, redeem, retire
or otherwise acquire any Indebtedness of Borrower, except that, (a) Borrower may
repay the Indebtedness set forth in Schedule 7.17, from legally available funds,
at any time commencing from the Closing Date up to and including the date which
is thirty (30) days after the Closing Date, and (b) Borrower may make payments
to Subordinated Lender in the form of preferred stock of Borrower, subject to
the provisions of the Intercreditor and Subordination Agreement between Agent
and Subordinated Lender.
VIII. CONDITIONS PRECEDENT.
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8.1. Conditions to Initial Advances. The agreement of Lenders to make the
initial Advances requested to be made on the Closing Date is subject to the
satisfaction, or waiver by Lenders, immediately prior to or concurrently with
the making of such Advances, of the following conditions precedent:
(a) Notes. Agent shall have received the Notes duly executed and delivered
by an authorized officer of Borrower;
(b) Filings, Registrations and Recordings. Each document (including,
without limitation, any Uniform Commercial Code financing statement) required by
this Agreement, any Other Document or under law or reasonably requested by the
Agent to be filed, registered or recorded in order to create, in favor of Agent,
a perfected security interest in or lien upon the Collateral shall have been
properly filed, registered or recorded in each jurisdiction in which the filing,
registration or recordation thereof is so required or requested, and Agent shall
have received an acknowledgment copy, or other evidence satisfactory to it, of
each such filing, registration or recordation and satisfactory evidence of the
payment of any necessary fee, tax or expense relating thereto;
(c) Corporate Proceedings of Borrower and Guarantors. Agent shall have
received, in form and substance satisfactory to Agent in its sole discretion, a
copy of the resolutions in form and substance satisfactory to Agent in its sole
discretion, of the Board of Directors of Borrower and each Guarantor authorizing
(i) the execution, delivery and performance of this Agreement and the Other
Documents, the Notes, the Subordinated Debt Documentation and the Acquisition
Agreement and any related agreements to any of the foregoing, (collectively the
"Documents") and (ii) the granting by Borrower and each Guarantor of the Liens
upon the Collateral in favor of Agent for itself and the ratable benefit of
Lenders, in each case certified by the Secretary or an Assistant Secretary of
Borrower and each Guarantor as of the Closing Date; and, such certificate shall
state that the resolutions thereby certified have not been amended, modified,
revoked or rescinded as of the date of such certificate;
(d) Incumbency Certificate of Borrower and Guarantors. Agent shall have
received, in form and substance satisfactory to Agent in its sole discretion, a
certificate of the Secretary or an Assistant Secretary of Borrower and each
Guarantor, dated the Closing Date, as to the incumbency and signature of the
officers of Borrower executing this Agreement, and Borrower and each Guarantor
executing any of the Other Documents or any certificate or other documents to be
delivered by it pursuant hereto, together with evidence of the incumbency of
such Secretary or Assistant Secretary;
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(e) Certificates. Agent shall have received, in form and substance
satisfactory to Agent in its sole discretion, a copy of the Articles or
Certificate of Incorporation or other charter documents of Borrower and each
Guarantor and all amendments thereto, certified by the Secretary of State or
other appropriate official of its jurisdiction of incorporation together with
copies of the By-Laws of Borrower and each Guarantor, and all agreements of
Borrower's and each Guarantor's shareholders certified as accurate and complete
by the Secretary of Borrower and each Guarantor, respectively;
(f) Good Standing Certificates. Agent shall have received, in form and
substance satisfactory to Agent in its sole discretion, good standing
certificates for Borrower dated not more than thirty (30) days prior to the
Closing Date, issued by the Secretary of State or other appropriate official of
Borrower's and each Guarantor's jurisdiction of incorporation and each
jurisdiction where the conduct of Borrower's and each Guarantor's business
activities or the ownership of its properties necessitates qualification;
(g) Legal Opinions. Agent shall have received the executed legal opinion of
Skadden, Arps, Slate, Meagher & Flom LLP and Bob Powell, Esq., general counsel
of Borrower, in form and substance satisfactory to Agent in its sole discretion,
the executed legal opinions of Borrower's and Guarantors' counsel which shall
cover such matters incident to the transactions contemplated by this Agreement,
the Notes, and related agreements as Agent may reasonably require and Borrower
and each Guarantor hereby authorizes and directs such counsel to deliver such
opinions to Agent and Lenders;
(h) No Litigation. (i) No litigation, investigation or proceeding before or
by any arbitrator or Governmental Body shall be continuing or threatened against
Borrower or any Guarantor against the officers or directors of Borrower or any
Guarantor (A) in connection with the Documents or any of the Transactions and
which, in the reasonable opinion of Agent, is deemed material or (B) which if
adversely determined, could reasonably be expected to have a Material Adverse
Effect on Borrower or any Guarantor; and (ii) no injunction, writ, restraining
order or other order of any nature materially adverse to Borrower or any
Guarantor or the conduct of its business or inconsistent with the due
consummation of the Transactions shall have been issued by any Governmental Body
which could reasonably be expected to have a Material Adverse Effect;
(i) Financial Condition Certificates. Agent shall have received executed
Officers Certificates satisfactory in form and substance satisfactory to Agent
in its sole discretion, executed Officers Certificates certifying the solvency
of Borrower after giving effect to the Transactions and the Indebtedness
contemplated hereby and by the Subordinated Debt Documentation and as to
Borrower's financial resources and
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its ability to meet their obligations and liabilities as they become due; to the
effect that as of the Closing Date and after giving effect to the Transactions:
(i) the assets of Borrower at a fair valuation, exceed the total
liabilities (including contingent, subordinated, unmatured and unliquidated
liabilities) of Borrower;
(ii) current monthly projections for fiscal year 1999, including
Borrower's projected income statement, balance sheet and cash flow
statement in form and substance satisfactory to Agent in its sole
discretion, and which are based on underlying assumptions which provide a
reasonable basis for the projections and which reflect Borrower's judgment
based on present circumstances of the most likely set of conditions and
Borrower's most likely course of action for the period projected,
demonstrate Borrower will have sufficient cash flow to enable it to pay its
debts as they mature; and
(iii) Borrower does not have an unreasonably small capital base with
which to engage in its anticipated business.
For purposes of this subsection (i), the "fair valuation" of the assets of
Borrower shall be determined on the basis of the amount which may be realized
within a reasonable time, either through collection or sale of such assets at
market value, conceiving the latter as the amount which could be obtained for
the property in question within such period by a capable and diligent
businessman from an interested buyer who is willing to purchase under ordinary
selling conditions;
(j) Collateral Examination. Agent shall have completed Collateral
examinations, the results of which shall be satisfactory in form and substance
to Agent, of the Receivables, Inventory, General Intangibles, Real Property, and
Equipment and other Collateral of Borrower and all books and records in
connection therewith;
(k) Fees. Agent shall have received all fees payable to Agent and Lenders
on or prior to the Closing Date pursuant to Article III hereof;
(l) Pro Forma Financial Statements and Other Financial Information. Agent
shall have received, in form and substance satisfactory to Agent in its sole
discretion, a copy of the Pro Forma Financial Statements, a copy of a pro forma
statement of sources and uses of cash as of the Closing Date, and a current
aging of accounts receivable and accounts payable for Borrower which shall be
satisfactory in all respects to Agent;
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(m) Other Documents. Agent shall have received (i) final executed copies of
the Acquisition Agreement and the Subordinated Debt Documentation, the Factoring
Agreement and all related agreements, documents and instruments as in effect on
the Closing Date and the transactions contemplated by such documentation shall
be consummated concurrently with the making of the initial Advance, and (ii)
executed Notes and all Other Documents, each in form and substance satisfactory
to Agent in its sole discretion;
(n) Subordination Agreement. Lenders shall have entered into a
Subordination Agreement with Borrower and Subordinated Lender which shall set
forth the basis upon which the Subordinated Lender may receive and Borrower may
make, payments under the Subordinated Note, which basis shall be satisfactory in
form and substance to Agent in its sole discretion;
(o) Guarantees; Pledge Agreements; Other Documents. Agent shall have
received original, executed Guaranties, cash collateral agreements, Stock Pledge
Agreements and all Other Documents, each in form and substance satisfactory to
Agent in its sole discretion;
(p) Insurance. Agent shall have received in form and substance satisfactory
to Agent in its sole discretion, certified copies of Borrower's casualty
insurance policies, together with loss payable endorsements on Agent's standard
form of loss payee endorsement naming Agent as loss payee, and certified copies
of Borrower's liability insurance policies, together with endorsements naming
Agent as a co-insured;
(q) Payment Instructions. Agent shall have received, in form and substance
satisfactory to Agent in its sole discretion, written instructions from Borrower
directing the application of proceeds of the initial Advances made pursuant to
this Agreement;
(r) Blocked and Depository Accounts. Agent shall have received, in form and
substance satisfactory to Agent in its sole discretion, duly executed agreements
establishing the Blocked Accounts or Depository Accounts with financial
institutions acceptable to Agent for the collection or servicing of the
Receivables and proceeds of the Collateral;
(s) Consents. Agent shall have received, in form and substance satisfactory
to Agent in its sole discretion, any and all Consents necessary to permit the
effectuation of the transactions contemplated by this Agreement and the Other
Documents; and, Agent shall have received such Consents and waivers of such
third parties as might assert claims with respect to the Collateral, as Agent
and its counsel shall deem necessary;
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(t) No Adverse Material Change. (i) Since December 31, 1998, there shall
not have occurred (w) any material adverse change in the condition, financial or
otherwise, operations, properties or prospects of Borrower, (x) any material
damage or destruction to any of the Collateral nor any material depreciation in
the value thereof and (y) any event, condition or state of facts which could
reasonably be expected to have a Material Adverse Effect on Borrower, and (z)
any material deviation from the forecasts furnished to Agent with respect to
Borrower, and (ii) no representations made or information supplied to Agent
shall have been proven to be inaccurate or misleading in any material respect;
(u) Leasehold Agreements. Agent shall have received landlord, mortgagee or
warehouseman agreements in form and substance satisfactory to Agent in its sole
discretion with respect to all premises leased by Borrower at which books and
records relating to Receivables are located;
(v) Subordinated Debt Documentation. Agent shall have received, in form and
substance satisfactory to Agent in its sole discretion, final executed copies of
the Subordinated Debt Documentation which shall contain such terms and
provisions including, without limitation, subordination terms, in form and
substance satisfactory to Agent in its sole discretion;
(w) Closing Certificate. Agent shall have received, in form and substance
satisfactory to Agent in its sole discretion, a closing certificate signed by
the Chief Financial Officer of Borrower dated as of the date hereof, stating
that (i) all representations and warranties set forth in this Agreement and the
Other Documents are true and correct on and as of such date, (ii) Borrower are
on such date in compliance with all the terms and provisions set forth in this
Agreement and the Other Documents and (iii) on such date no Default or Event of
Default has occurred or is continuing;
(x) Borrowing Base. Agent shall have received, in form and substance
satisfactory to Agent in its sole discretion, evidence from Borrower that the
aggregate amount of Eligible Receivables and Eligible Inventory is sufficient in
value and amount to support Advances in the amount requested by Borrower on the
Closing Date;
(y) Undrawn Availability. After giving effect to the initial Advances
hereunder, Borrower shall have Undrawn Availability of at least $250,000; and
(z) Cash Collateral. Agent shall have received cash or cash equivalents in
the amount of $25,500,000, together with the pledge agreements in relation
thereto in form and substance satisfactory to Agent in its sole discretion, as
additional security for the Obligations from WG Trading Company, LP.
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(aa) Other. Agent shall have received in form and substance satisfactory to
Agent in its sole discretion, evidence of all corporate and other proceedings,
and all documents, instruments and other legal matters in connection with the
Transactions shall be satisfactory in form and substance to Agent, Lenders and
their counsel.
8.2. Conditions to Each Advance. The agreement of Lenders to make any
Advance requested to be made on any date (including, without limitation, the
initial Advance), is subject to the satisfaction of the following conditions
precedent as of the date such Advance is made:
(a) Representations and Warranties. Each of the representations and
warranties made by Borrower in or pursuant to this Agreement, the Other
Documents and any related agreements to which it is a party, and each of the
representations and warranties contained in any certificate, document or
financial or other statement furnished at any time under or in connection with
this Agreement, the Other Documents or any related agreement shall be true and
correct in all material respects on and as of such date as if made on and as of
such date except to the extent such representation and warranty specifically
relates to an earlier date;
(b) No Default. No Event of Default or Default shall have occurred and be
continuing on such date, or would exist after giving effect to the Advances
requested to be made, on such date, and in the case of the initial Advances,
after giving effect to the consummation of the transactions contemplated by the
Acquisition Agreement; provided, however that Lenders, in their sole discretion,
may continue to make Advances notwithstanding the existence of an Event of
Default or Default and that any Advances so made shall not be deemed a waiver of
any such Event of Default or Default; and
(c) Maximum Advances. In the case of any Advances requested to be made,
after giving effect thereto, the aggregate Advances shall not exceed the maximum
amount of Advances permitted under Section 2.1 hereof.
Each request for an Advance by Borrower hereunder shall constitute a
representation and warranty by Borrower as of the date of such Advance that the
conditions contained in this subsection shall have been satisfied.
IX. INFORMATION AS TO BORROWER.
Borrower shall, until satisfaction in full of the Obligations and the
termination of this Agreement:
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9.1. Disclosure of Material Matters. Promptly upon learning thereof, report to
Agent all matters materially affecting the value, enforceability or
collectibility of any portion of the Collateral having a value in excess of
$1,000,000 including, without limitation, Borrower's reclamation or repossession
of, or the return to Borrower of, a material amount of goods or claims or
disputes asserted by any Customer or other obligor.
9.2. Schedules. Deliver to Agent monthly Inventory reports and, at such
time as Agent shall reasonably request from time to time, deliver to Agent (a)
accounts receivable reports, (b) accounts payable schedules, and (c) cash
collection reports. In addition, Borrower will deliver to Agent at such
intervals as Agent may require: (i) confirmatory assignment schedules, (ii)
copies of Customer's invoices, (iii) evidence of shipment or delivery, and (iv)
such further schedules, documents and/or information regarding the Collateral as
Agent may require including, without limitation, trial balances and test
verifications. Agent shall have the right to confirm and verify all Receivables
by any manner and through any medium it considers advisable and do whatever it
may deem reasonably necessary to protect its interests hereunder. The items to
be provided under this Section are to be in form reasonably satisfactory to
Agent and executed by Borrower and delivered to Agent from time to time solely
for Agent's convenience in maintaining records of the Collateral, and Borrower's
failure to deliver any of such items to Agent shall not affect, terminate,
modify or otherwise limit Agent's security interest with respect to the
Collateral.
9.3. Environmental Reports. Furnish Agent, concurrently with the delivery
of the financial statements referred to in Sections 9.7 and 9.8, with a
certificate signed by the President and/or Chief Financial Officer of Borrower
stating, to the best of his knowledge, that Borrower is in compliance in all
material respects with all federal, state and local laws relating to
environmental protection and control and occupational safety and health. To the
extent Borrower is not in compliance with the foregoing laws, the certificate
shall set forth with specificity all areas of non-compliance and the proposed
action Borrower will implement in order to achieve full compliance.
9.4. Litigation. Promptly notify Agent in writing of any litigation, suit
or administrative proceeding affecting Borrower, whether or not the claim is
covered by insurance, and of any suit or administrative proceeding, which could
reasonably be expected to have a Material Adverse Effect on Borrower.
9.5. Material Occurrences. Promptly notify Agent in writing upon the
occurrence of (a) any Event of Default or Default; (b) any default or event of
default under the Subordinated Debt Documentation; (c) any event, development or
circumstance whereby any financial statements or other reports furnished to
Agent fail in any material respect to present fairly, in accordance with GAAP
consistently applied,
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the financial condition or operating results of Borrower as of the date of such
statements; (d) any accumulated retirement plan funding deficiency which, if
such deficiency continued for two plan years and was not corrected as provided
in Section 4971 of the Code, could subject Borrower to a tax imposed by Section
4971 of the Code; (e) each and every default by Borrower which could reasonably
be expected to result in the acceleration of the maturity of any Indebtedness
having a balance greater than $200,000, including the names and addresses of the
holders of such Indebtedness with respect to which there is a default existing
or with respect to which the maturity has been or could be accelerated, and the
amount of such Indebtedness; and (f) any other development in the business or
affairs of Borrower which could reasonably be expected to have a Material
Adverse Effect; in each case describing the nature thereof and the action
Borrower proposes to take with respect thereto.
9.6. Government Receivables. Notify Agent immediately if any of its
Receivables arise out of contracts between Borrower and the United States, any
state, or any department, agency or instrumentality of any of them.
9.7. Annual Financial Statements. Furnish Agent and each of the Lenders
within ninety (90) days after the end of each fiscal year of Borrower, as the
case may be, financial statements of Borrower on a consolidated and
consolidating basis, including, but not limited to, statements of income and
stockholders' equity and cash flow from the beginning of the current fiscal year
to the end of such fiscal year and the balance sheet as at the end of such
fiscal year, all prepared in accordance with GAAP applied on a basis consistent
with prior practices, and in reasonable detail and reported upon without
qualification by an independent certified public accounting firm satisfactory to
Agent (the "Accountants"). The audit report of such accounting firm with respect
to the Borrower's financial statements shall be accompanied by a statement of
such accounting firm certifying that (i) they have caused the Loan Agreement to
be reviewed, (ii) in making the examination upon which such report was based
either no information came to their attention which to their knowledge
constituted an Event of Default or a Default under this Agreement or any Other
Document or, if such information came to their attention, specifying any such
Default or Event of Default, its nature, when it occurred and whether it is
continuing, and such report shall contain or have appended thereto calculations
which set forth the Borrower's compliance with the requirements or restrictions
imposed by Sections 6.5, 6.6 and 6.7. In addition, the Borrower's reports shall
be accompanied by a certificate of the President and/or Chief Financial Officer
of Borrower which shall state that, based on an examination sufficient to permit
him to make an informed statement, no Default or Event of Default exists, or, if
such is not the case, specifying such Default or Event of Default, its nature,
when it occurred, whether it is continuing and the steps being taken by Borrower
with respect to such default and, such certificate shall have appended thereto
calculations which set forth Borrower's compliance with the requirements or
restrictions imposed by Sections 6.5, 6.6 and 6.7 hereof.
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9.8. Quarterly Financial Statements. Furnish Agent and each of the Lenders,
within sixty (60) days after the end of each fiscal quarter of Borrower, an
unaudited balance sheet of Borrower, on both a consolidated and consolidating
basis, and unaudited statements of income and stockholders' equity and cash flow
of Borrower reflecting results of operations from the beginning of the fiscal
year to the end of such quarter and for such quarter, prepared on a basis
consistent with prior practices and complete and correct in all material
respects, subject to normal year end adjustments. The Borrower's reports shall
be accompanied by a certificate signed by the President and/or Chief Financial
Officer of Borrower, which shall state that, based on an examination sufficient
to permit him to make an informed statement, no Default or Event of Default
exists, or, if such is not the case, specifying such Default or Event of
Default, its nature, when it occurred, whether it is continuing and the steps
being taken by Borrower with respect to such default and, such certificate shall
have appended thereto calculations which set forth Borrower's compliance with
the requirements or restrictions imposed by Sections 6.5, 6.6 and 6.7 hereof.
9.9. Monthly Financial Statements. Furnish Agent and each of the Lenders
within thirty (30) days after the end of each month, an unaudited balance sheet
of Borrower, on a consolidated and consolidating basis, and unaudited statements
of income and stockholders' equity and cash flow of Borrower, on a consolidated
and consolidating basis, reflecting results of operations from the beginning of
the fiscal year to the end of such month and for such month, prepared on a basis
consistent with prior practices and complete and correct in all material
respects, subject to normal year end adjustments. The reports shall be
accompanied by a certificate signed by the President and/or Chief Financial
Officer of Borrower, which shall state that, based on an examination sufficient
to permit him to make an informed statement, no Default or Event of Default
exists, or, if such is not the case, specifying such Default or Event of
Default, its nature, when it occurred, whether it is continuing and the steps
being taken by Borrower with respect to such event and, such certificate shall
have appended thereto calculations which set forth Borrower's compliance with
the requirements or restrictions imposed by Sections 6.5, 6.6 and 6.7 hereof.
9.10. Other Reports. Furnish Agent and each of the Lenders as soon as
available, but in any event within ten (10) days after the issuance thereof,
with (i) copies of such financial statements, reports and returns as Borrower
shall send to its stockholders, and (ii) copies of all notices sent pursuant to
the Subordinated Debt Documentation.
9.11. Additional Information. Furnish Agent and each of the Lenders with
such additional information as Agent shall reasonably request in order to enable
Agent to determine whether the terms, covenants, provisions and conditions of
this Agreement have been complied with by Borrower including, without limitation
and without the
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necessity of any request by Agent, (a) copies of all environmental audits and
reviews that disclose a condition that would cause a Material Adverse Effect,
(b) at least thirty (30) days prior thereto, notice of Borrower's opening of any
new office or place of business or Borrower's closing of any existing office or
place of business, and (c) promptly upon Borrower's learning thereof, notice of
any labor dispute to which Borrower may become a party, any strikes or walkouts
relating to any of its plants or other facilities, and the expiration of any
labor contract to which Borrower is a party or by which Borrower is bound.
9.12. Projected Operating Budget. Furnish Agent and each of the Lenders, no
later than thirty (30) days prior to the beginning of Borrower's fiscal years
commencing with fiscal year 2000, or more frequently as requested by Agent from
time to time a month by month projected operating budget and cash flow of
Borrower, on a consolidated and consolidating basis, for such fiscal year
(including an income statement, statements of cash disbursements, cash
collections and borrowing base projections for each month and a balance sheet as
at the end of the last month in each fiscal quarter), such projections to be
accompanied by a certificate signed by the President or Chief Financial Officer
of Borrower to the effect that such projections have been prepared on the basis
of sound financial planning practice consistent with past budgets and financial
statements and that such officer has no reason to question the reasonableness of
any material assumptions on which such projections were prepared.
9.13. Variances From Operating Budget. Furnish Agent and each of the
Lenders, concurrently with the delivery of the financial statements referred to
in Section 9.7 and each monthly report, a written report summarizing all
material variances from budgets submitted by Borrower pursuant to Section 9.12
and a discussion and analysis by management with respect to such variances.
9.14. Notice of Suits, Adverse Events. Furnish Agent with prompt notice of
(a) any lapse or other termination of any Consent issued to Borrower by any
Governmental Body that could reasonably be expected to have a Material Adverse
Effect, (b) any refusal by any Governmental Body to renew or extend any such
Consent; and (c) copies of any periodic or special reports filed by Borrower
with any Governmental Body, if such reports indicate any material change in the
business, operations, affairs or condition of Borrower, or if copies thereof are
requested by Lender, and (d) copies of any material notices and other
communications from any Governmental Body which specifically relate to Borrower.
9.15. ERISA Notices and Requests. Furnish Agent with prompt written notice
in the event that (a) Borrower or any member of the Controlled Group knows or
has reason to know that a Termination Event has occurred, together with a
written statement describing such Termination Event and the action, if any,
which Borrower or member of the Controlled Group has taken, is taking, or
proposes to take with
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respect thereto and, when known, any material, adverse action taken or
threatened by the Internal Revenue Service, Department of Labor or PBGC with
respect thereto, (b) Borrower or any member of the Controlled Group knows or has
reason to know that a prohibited transaction (as defined in Sections 406 of
ERISA and 4975 of the Code) has occurred together with a written statement
describing such transaction and the action which Borrower or any member of the
Controlled Group has taken, is taking or proposes to take with respect thereto,
(c) a funding waiver request has been filed with respect to any Plan together
with all communications received by Borrower or any member of the Controlled
Group with respect to such request, (d) any material increase in the benefits of
any existing defined benefit pension Plan or the establishment of any new
defined benefit pension Plan or the commencement of contributions to any defined
benefit pension Plan to which Borrower or any member of the Controlled Group was
not previously contributing shall occur, (e) Borrower or any member of the
Controlled Group shall receive from the PBGC a notice of intention to terminate
a Plan or to have a trustee appointed to administer a Plan, together with copies
of each such notice, (f) Borrower or any member of the Controlled Group shall
receive any favorable or unfavorable determination letter from the Internal
Revenue Service regarding the qualification of a Plan under Section 401(a) of
the Code, together with copies of each such letter; (g) Borrower or any member
of the Controlled Group shall receive a notice regarding the imposition of
withdrawal liability, together with copies of each such notice; (h) Borrower or
any member of the Controlled Group shall fail to make a required installment or
any other required payment under Section 412 of the Code on or before the due
date for such installment or payment; (i) Borrower or any member of the
Controlled Group knows that (i) a Multiemployer Plan has been terminated, (ii)
the administrator or plan sponsor of a Multiemployer Plan intends to terminate a
Multiemployer Plan, or (iii) the PBGC has instituted or will institute
proceedings under Section 4042 of ERISA to terminate a Multiemployer Plan.
9.16. Information Regarding WG Trading Company, LP. Furnish Agent and each
of the Lenders (a) within sixty (60) days after the end of each fiscal quarter
of WG Trading Company, LP, an unaudited balance sheet of WG Trading Company, LP
and unaudited statements of income and stockholders' equity and cash flow of WG
Trading Company, LP, prepared by the accountants of WG Trading Company, LP,
reflecting results of operations from the beginning of the fiscal year to the
end of such quarter and for such quarter, prepared on a basis consistent with
prior practices and complete and correct in all material respects, subject to
normal year end adjustments, (b) within ninety (90) days after the end of each
fiscal year of WG Trading Company, LP, a copy of the audited financial
statements of WG Trading Company, LP, from the beginning of the current fiscal
year to the end of such fiscal year and the balance sheet as at the end of such
fiscal year, all prepared in accordance with GAAP applied on a basis consistent
with prior practices, and in reasonable detail and reported upon without
qualification by an independent certified public accounting firm satisfactory to
Agent. The audited financial statements shall be accompanied by an Affirmation
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of General Partner, and (c) such additional information and reports regarding WG
Trading Company, LP as Agent may reasonably request from time to time.
9.17. Additional Documents. Execute and deliver to Agent, upon request,
such documents and agreements as Agent may, from time to time, reasonably
request to carry out the purposes, terms or conditions of this Agreement.
9.18. Borrowing Base Certificate. In the event that Agent has obtained any
commitment to make Advances hereunder from financial institutions in addition to
BNYFC, Borrower shall execute and deliver to Agent and each of the Lenders, at
such times as Agent shall request, a borrowing base certificate duly completed
and executed by an officer of Borrower, in form and substance satisfactory to
Agent and reasonably satisfactory to Borrower.
X. EVENTS OF DEFAULT.
The occurrence of any one or more of the following events shall constitute
an "Event of Default":
10.1. failure by Borrower to pay any principal or interest on the Obligations
when due, whether at maturity or by reason of acceleration pursuant to the terms
of this Agreement or by notice of intention to prepay, or by required prepayment
or failure to pay any other liabilities or make any other payment, fee or charge
provided for herein or any Other Document when due;
10.2. any representation or warranty made by Borrower in this Agreement,
the Other Documents or any related agreement or in any certificate, document or
financial or other statement furnished at any time in connection herewith or
therewith shall prove to have been misleading in any material respect on the
date when made;
10.3. failure by Borrower to (i) furnish financial information when due or
when requested and such failure shall continue for sixty (60) days, or (ii)
permit the inspection of its books or records;
10.4. issuance of a notice of Lien, levy, assessment, injunction or
attachment against a material portion of Borrower's property, which Borrower is
diligently seeking to set aside or vacate, and such shall continue for sixty
(60) days;
10.5. failure or neglect of Borrower to perform, keep or observe any term,
provision, condition, covenant herein contained, or contained in any other
agreement or arrangement, now or hereafter entered into between Borrower and any
Lender, and
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such failure shall continue for sixty (60) days after the earlier to occur of
the Borrower obtaining actual knowledge thereof or the Agent notifying the
Borrower thereof;
10.6. any judgment is rendered or judgment liens filed against Borrower for
an amount in excess of $200,000 which Borrower is diligently seeking to set
aside or vacate, and which within sixty (60) days of such rendering or filing is
not either satisfied, stayed or discharged of record, or which at any time is
unstayed;
10.7. Borrower shall (i) apply for, consent to or suffer the appointment
of, or the taking of possession by, a receiver, custodian, trustee, liquidator
or similar fiduciary of itself or of all or a substantial part of its property,
(ii) make a general assignment for the benefit of creditors, (iii) commence a
voluntary case under any state or federal bankruptcy laws (as now or hereafter
in effect), (iv) be adjudicated a bankrupt or insolvent, (v) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vi) acquiesce to, or fail to have dismissed, within sixty (60) days, any
petition filed against it in any involuntary case under such bankruptcy laws, or
(vii) take any action for the purpose of effecting any of the foregoing;
10.8. Borrower shall admit in writing its inability, or be generally
unable, to pay its debts as they become due or cease operations of its present
business;
10.9. WG Trading Company, LP or any other Guarantor that has outstanding
loans, advances or sums due and owing to Borrower, shall (i) apply for, consent
to or suffer the appointment of, or the taking of possession by, a receiver,
custodian, trustee, liquidator or similar fiduciary of itself or of all or a
substantial part of its property, (ii) admit in writing its inability, or be
generally unable, to pay its debts as they become due or cease operations of its
present business, (iii) make a general assignment for the benefit of creditors,
(iv) commence a voluntary case under any state or federal bankruptcy laws (as
now or hereafter in effect), (v) be adjudicated a bankrupt or insolvent, (vi)
file a petition seeking to take advantage of any other law providing for the
relief of debtors, (vii) acquiesce to, or fail to have dismissed, within thirty
(30) days, any petition filed against it in any involuntary case under such
bankruptcy laws, or (viii) take any action for the purpose of effecting any of
the foregoing;
10.10. any change in Borrower's condition or affairs (financial or
otherwise) which in Lenders' good faith judgment, reasonably exercised, impairs
the Collateral or the ability of Borrower to perform its Obligations under this
Agreement;
10.11. any Lien created hereunder or provided for hereby or under any
related agreement for any reason ceases to be or is not a valid and perfected
Lien having a first priority interest, except to the extent expressly permitted
hereunder;
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10.12. an event of default has occurred and been declared under the
Subordinated Debt Documentation which default has not been cured or waived
within any applicable grace period and for which the Subordinated Lender is
permitted to take action under the Subordination Agreement;
10.13. a default of the obligations of Borrower under any other agreement
to which it is a party (including, without limitation, the Factoring Agreement)
shall occur which adversely affects its condition, affairs or prospects
(financial or otherwise) which default is not cured within any applicable grace
period;
10.14. termination or breach of any Guaranty or similar agreement executed
and delivered to Agent in connection with the obligations of Borrower, or if any
Guarantor, in writing, terminates or purports to terminate or challenges the
validity of, or its liability under, any such Guaranty or similar agreement;
10.15. any Change of Ownership shall occur;
10.16. any material provision of this Agreement or any of the Other
Documents shall, for any reason, cease to be valid and binding on Borrower, or
Borrower shall so claim in writing to Agent;
10.17. if (i) any Governmental Body shall (A) revoke, terminate, suspend or
adversely modify any license, permit, patent, trademark or tradename of
Borrower, or (B) commence proceedings to suspend, revoke, terminate or adversely
modify any such license, permit, trademark, tradename or patent and such
proceedings shall not be dismissed or discharged within sixty (60) days, or (C)
schedule or conduct a hearing on the renewal of any license, permit, trademark,
tradename or patent necessary for the continuation of Borrower's business and
the staff of such Governmental Body issues a report recommending the
termination, revocation, suspension or material, adverse modification of such
license, permit, trademark, tradename or patent; and, with respect to (A), (B)
and (C) above, the effect of any such action or proceeding by any Governmental
Body could reasonably be expected to have a Material Adverse Effect; (ii) any
agreement which is necessary or material to the operation of Borrower's business
shall be revoked or terminated and not replaced by a substitute acceptable to
Agent within sixty (60) days after the date of such revocation or termination,
and such revocation or termination and non-replacement could reasonably be
expected to have a Material Adverse Effect on Borrower;
10.18. any portion of the Collateral shall be seized or taken by a
Governmental Body, or Borrower or the title and rights of Borrower or any other
Person with respect to any material portion of the Collateral shall have become
the subject matter of litigation which might, in the opinion of Lenders, upon
final determination, result in
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impairment or loss of the security provided by this Agreement or the Other
Documents and could reasonably be expected to have a Material Adverse Effect;
10.19. an event or condition specified in Sections 7.16 or 9.15 hereof
shall occur or exist for sixty (60) days with respect to any Plan and, as a
result of such event or condition, together with all other such events or
conditions, Borrower or any member of the Controlled Group shall incur, or in
the opinion of Lenders be reasonably likely to incur, a liability to a Plan or
the PBGC (or both) which, in the reasonable judgment of Lenders, will have a
Material Adverse Effect on Borrower; or
10.20. in the event that any assets of Soccer Holdings, Inc. becomes
subject to any Lien or in the event that Soccer Holdings, Inc. acquires any
assets other than its interests in the Umbro License Agreement.
XI. LENDERS' RIGHTS AND REMEDIES AFTER DEFAULT.
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11.1. Rights and Remedies. Upon the occurrence of (i) a Default pursuant to
Section 10.7(vi) or any other Event of Default pursuant to Section 10.7 all
Obligations shall be immediately due and payable and this Agreement and the
obligation of Lenders to make Advances shall be deemed terminated; and (ii) any
of the other Events of Default and at any time thereafter (such default not
having previously been cured), at the option of Required Lenders all Obligations
shall be immediately due and payable and Lenders shall have the right to
terminate this Agreement and to terminate all obligations of Lenders herewith,
including, without limitation, the obligations to make Advances. Upon the
occurrence of any Event of Default, Agent shall have the right to exercise any
and all other rights and remedies provided for herein, any of the Other
Documents under the Uniform Commercial Code and at law or equity generally,
including, without limitation, the right to foreclose the security interests
granted herein and to realize upon any Collateral by any available judicial
procedure and/or to take possession of and sell any or all of the Collateral
with or without judicial process. Agent may enter Borrower's premises or other
premises without legal process and without incurring liability to Borrower
therefor, and Agent may thereupon, or at any time thereafter, in its discretion
without notice or demand, take the Collateral and remove the same to such place
as Agent may deem advisable and Agent may require Borrower to make the
Collateral available to Lenders at a convenient place. With or without having
the Collateral at the time or place of sale, Agent may sell the Collateral, or
any part thereof, at public or private sale, at any time or place, in one or
more sales, at such price or prices, and upon such terms, either for cash,
credit or future delivery, as Agent may elect. Except as to that part of the
Collateral which is perishable or threatens to decline speedily in value or is
of a type customarily sold on a recognized market, Agent shall give Borrower
reasonable notification of such sale or sales, it being agreed that in all
events written notice mailed to Borrower at least five (5) days prior to such
sale or sales is reasonable notification. At any public sale Agent or any Lender
may bid for and become the purchaser, and Agent, any Lender or any other
purchaser at any such sale thereafter shall hold the Collateral sold absolutely
free from any claim or right of whatsoever kind, including any equity of
redemption and such right and equity are hereby expressly waived and released by
Borrower. In connection with the exercise of the foregoing remedies, Agent is
granted permission, without charge, to use all of Borrower's trademarks, trade
styles, trade names, patents, patent applications, licenses, franchises and
other proprietary rights which are used in connection with (a) Inventory for the
purpose of disposing of such Inventory and (b) Equipment for the purpose of
completing the manufacture of unfinished goods. The proceeds realized from the
sale of any Collateral shall be applied as follows: first, to the reasonable
costs, expenses and attorneys' fees and expenses incurred by Agent and Lenders
for collection and for acquisition, completion, protection, removal, storage,
sale and delivery of the Collateral; second, to interest due upon any of the
Obligations; and, third, to the principal of the Obligations. If any deficiency
shall arise, Borrower shall remain liable to Agent and Lenders therefor.
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11.2. Agent's Discretion. Agent shall have the right in its sole discretion
to determine which rights, Liens, security interests or remedies Agent may at
any time pursue, relinquish, subordinate, or modify or to take any other action
with respect thereto and such determination will not in any way modify or affect
any of Agent's or Lenders' rights hereunder.
11.3. Setoff. In addition to any other rights which Agent or any Lender may
have under applicable law, upon the occurrence of an Event of Default hereunder,
Agent and each Lender shall have a right to apply Borrower's property held by
Agent, such Lender or by the Bank to reduce the Obligations.
11.4. Rights and Remedies not Exclusive. The enumeration of the foregoing
rights and remedies is not intended to be exhaustive and the exercise of any
right or remedy shall not preclude the exercise of any other right or remedies
provided for herein or otherwise provided by law, all of which shall be
cumulative and not alternative.
XII. WAIVERS AND JUDICIAL PROCEEDINGS.
12.1. Waiver of Notice. Borrower hereby waives notice of non-payment of any of
the Receivables, demand, presentment, protest and notice thereof with respect to
any and all instruments, notice of acceptance hereof, notice of loans or
advances made, credit extended, Collateral received or delivered, or any other
action taken in reliance hereon, and all other demands and notices of any
description, except such as are expressly provided for herein.
12.2. Delay. No delay or omission on Agent's or any Lender's part in
exercising any right, remedy or option shall operate as a waiver of such or any
other right, remedy or option or of any default.
12.3. JURY TRIAL WAIVER. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY
WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR
ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY
HEREBY CONSENTS THAT ANY SUCH
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CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR
A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
XIII. EFFECTIVE DATE AND TERMINATION.
13.1. Term. This Agreement, which shall inure to the benefit of and shall be
binding upon the respective successors and permitted assigns of Borrower, Agent
and each Lender, shall become effective on the date hereof and shall continue in
full force and effect until the last day of the Term unless sooner terminated as
herein provided. Upon written request of Borrower, which written request shall
be received by Agent not less than sixty (60) days prior to the end of the
initial Term, and upon consent of Agent and all of the Lenders (which consent
may be withheld in the discretion of Agent or any Lender), the Term shall be
extended for additional period(s) upon terms and conditions agreed to among the
parties at the time of such extension(s). Notwithstanding anything to the
contrary contained herein, Borrower may not extend the Term of this Agreement or
renewal Term of this Agreement, unless Borrower and Factor extend or renew the
Factoring Agreement for the same period of time that this Agreement is so
renewed or extended. Borrower may terminate this Agreement at any time upon
ninety (90) days' prior written notice upon payment in full of the Obligations,
including, without limitation, any Permitted Overformula Advances, any Swingline
Line Loan, and all fees payable hereunder and the Fee Letter for the balance of
the Term. Notwithstanding anything to the contrary contained herein, Borrower
may not terminate this Agreement unless Borrower simultaneously terminates the
Factoring Agreement and indefeasibly pays all Obligations thereunder. In the
event that this Agreement is terminated and the Obligations are prepaid in full
prior to the last day of the Term (the date of such prepayment hereinafter
referred to as the "Prepayment Date") Borrower shall pay to Agent for the
ratable benefit of Lenders an early termination fee in the amount set forth in
the Fee Letter.
13.2. Termination. The termination of the Agreement shall not affect
Borrower's, Agent's or any Lender's rights, or any of the Borrower's Obligations
having their inception prior to the effective date of such termination, and the
provisions hereof shall continue to be fully operative until all transactions
entered into, rights or interests created or Obligations have been fully
disposed of, concluded or liquidated. The Liens and rights granted to Agent and
Lenders hereunder and the financing statements filed hereunder shall continue in
full force and effect, notwithstanding the termination of this Agreement or the
fact that Borrower's respective account may from time to time be temporarily in
a zero or credit position, until all of the Obligations of Borrower have been
paid or performed in full after the
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termination of this Agreement or Borrower has furnished Agent and Lenders with
an indemnification satisfactory to Agent and Lenders with respect thereto.
Accordingly, Borrower waives any rights which it may have under Section 9-504(1)
of the Uniform Commercial Code to demand the filing of termination statements
with respect to the Collateral, and Agent shall not be required to send such
termination statements to Borrower, or to file them with any filing office,
unless and until this Agreement shall have been terminated in accordance with
its terms and all Obligations paid in full in immediately available funds. All
representations, warranties, covenants, waivers and agreements contained herein
shall survive termination hereof until all Obligations are paid or performed in
full.
XIV. REGARDING AGENT.
14.1. Appointment. Each Lender hereby designates BNYFC to act as Agent for such
Lender under this Agreement and the Other Documents. Each Lender hereby
irrevocably authorizes Agent to take such action on its behalf under the
provisions of this Agreement and the Other Documents and to exercise such powers
and to perform such duties hereunder and thereunder as are specifically
delegated to or required of Agent by the terms hereof and thereof and such other
powers as are reasonably incidental thereto and Agent shall hold all Collateral,
payments of principal and interest, fees (except the fees set forth in the Fee
Letter), charges and collections (without giving effect to any collection days)
received pursuant to this Agreement, for the ratable benefit of Lenders. Agent
may perform any of its duties hereunder by or through its agents or employees.
As to any matters not expressly provided for by this Agreement (including,
without limitation, the collection of any note evidencing any of the
Obligations,) Agent shall not be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Required Lenders, and such instructions shall be binding; provided, however,
that Agent shall not be required to take any action which exposes Agent to
liability or which is contrary to this Agreement or the Other Documents or
applicable law unless Agent is furnished with an indemnification reasonably
satisfactory to Agent with respect thereto.
14.2. Nature of Duties. Agent shall have no duties or responsibilities
except those expressly set forth in this Agreement and the Other Documents.
Neither Agent nor any of its officers, directors, employees or agents shall be
(i) liable for any action taken or omitted by them as such hereunder or in
connection herewith, unless caused by their willful misconduct or gross (not
mere) negligence, or (ii) responsible in any manner for any recitals,
statements, representations or warranties made by Borrower or any officer
thereof contained in this Agreement, or in any of the Other Documents or in any
certificate, report, statement or other document referred to or provided for
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in, or received by Agent under or in connection with, this Agreement or any of
the Other Documents or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement, or any of the Other Documents
or for any failure of Borrower to perform its obligations hereunder. Agent shall
not be under any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, or conditions
of, this Agreement or any of the Other Documents, or to inspect the properties,
books or records of Borrower. The duties of Agent as respects the Advances to
Borrower shall be mechanical and administrative in nature; Agent shall not have
by reason of this Agreement a fiduciary relationship in respect of any Lender;
and nothing in this Agreement, expressed or implied, is intended to or shall be
so construed as to impose upon Agent any obligations in respect of this
Agreement except as expressly set forth herein.
14.3. Lack of Reliance on Agent and Resignation. Independently and without
reliance upon Agent or any other Lender, each Lender has made and shall continue
to make (i) its own independent investigation of the financial condition and
affairs of Borrower in connection with the making and the continuance of the
Advances hereunder and the taking or not taking of any action in connection
herewith, and (ii) its own appraisal of the creditworthiness of Borrower. Agent
shall have no duty or responsibility, either initially or on a continuing basis,
to provide any Lender with any credit or other information with respect thereto,
whether coming into its possession before making of the Advances or at any time
or times thereafter except as shall be provided by Borrower pursuant to the
terms hereof. Agent shall not be responsible to any Lender for any recitals,
statements, information, representations or warranties herein or in any
agreement, document, certificate or a statement delivered in connection with or
for the execution, effectiveness, genuineness, validity, enforceability,
collectability or sufficiency of this Agreement or any Other Document, or of the
financial condition of Borrower, or be required to make any inquiry concerning
either the performance or observance of any of the terms, provisions or
conditions of this Agreement, the Other Documents or the financial condition of
Borrower, or the existence of any Event of Default or any Default.
Agent may resign on sixty (60) days' written notice to each of Lenders and
Borrower and upon such resignation, the Required Lenders will promptly designate
a successor Agent, which successor Agent shall, prior to the occurrence of an
Event of Default, be approved by Borrower, which approval shall not be
unreasonably withheld. From and after the occurrence of an Event of Default,
Borrower shall not have any right to approve any successor Agent.
Any such successor Agent shall succeed to the rights, powers and duties of
Agent, and the term "Agent" shall mean such successor agent effective upon its
appointment, and the former Agent's rights, powers and duties as Agent shall be
terminated, without any other or further act or deed on the part of such former
Agent.
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After any Agent's resignation as Agent, the provisions of this Article XIV shall
inure to its benefit as to any actions taken or omitted to be taken by it while
it was Agent under this Agreement.
14.4. Certain Rights of Agent. If Agent shall request instructions from
Lenders with respect to any act or action (including failure to act) in
connection with this Agreement or any Other Document, Agent shall be entitled to
refrain from such act or taking such action unless and until Agent shall have
received instructions from the Required Lenders; and Agent shall not incur
liability to any Person by reason of so refraining. Without limiting the
foregoing, Lenders shall not have any right of action whatsoever against Agent
as a result of its acting or refraining from acting hereunder in accordance with
the instructions of the Required Lenders.
14.5. Reliance. Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, statement,
certificate, telex, teletype or telecopier message, cablegram, order or other
document or telephone message believed by it to be genuine and correct and to
have been signed, sent or made by the proper person or entity, and, with respect
to all legal matters pertaining to this Agreement and the Other Documents and
its duties hereunder, upon advice of counsel selected by it. Agent may employ
agents and attorneys-in-fact and shall not be liable for the default or
misconduct of any such agents or attorneys-in-fact selected by Agent with
reasonable care.
14.6. Notice of Default. Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default hereunder or under
the Other Documents, unless Agent has received notice from a Lender or a
Borrower referring to this Agreement or the Other Documents, describing such
Default or Event of Default and stating that such notice is a "notice of
default". In the event that Agent receives such a notice, Agent shall give
notice thereof to Lenders. Agent shall take such action with respect to such
Default or Event of Default as shall be reasonably directed by the Required
Lenders; provided, that, unless and until Agent shall have received such
directions, Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interests of Lenders.
14.7. Indemnification. To the extent Agent is not reimbursed and
indemnified by Borrower, each Lender will reimburse and indemnify Agent in
proportion to its respective portion of the Advances (or, as to any Defaulting
Lender, if no Advances are outstanding, according to its Commitment Percentage),
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against Agent in performing its duties hereunder, or in any way relating to or
arising out of this Agreement or any Other Loan Document or any
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transaction contemplated herein or therein or referred to herein or therein;
provided that, Lenders shall not be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from Agent's gross negligence (but not mere
negligence) or willful misconduct.
14.8. Agent in its Individual Capacity. With respect to the obligation of
Agent to lend under this Agreement, the Advances made by it shall have the same
rights and powers hereunder as any other Lender and as if it were not performing
the duties as Agent specified herein; and the term "Lender" or any similar term
shall, unless the context clearly otherwise indicates, include Agent in its
individual capacity as a Lender. Agent may engage in business with Borrower as
if it were not performing the duties specified herein, and may accept fees and
other consideration from Borrower for services in connection with this Agreement
or otherwise without having to account for the same to Lenders.
14.9. Delivery of Documents. To the extent Agent receives documents and
information from Borrower pursuant to the terms of this Agreement, Agent will
promptly furnish such documents and information to Lenders.
14.10. Borrower's Undertaking to Agent. Without prejudice to its
obligations to Lenders under the other provisions of this Agreement, Borrower
hereby undertakes with Agent to pay to Agent from time to time on demand all
amounts from time to time due and payable by it for the account of Agent or
Lenders or any of them pursuant to this Agreement to the extent not already
paid. Any payment made pursuant to any such demand shall pro tanto satisfy the
Borrower's obligations to make payments for the account of Lenders pursuant to
this Agreement.
XV. MISCELLANEOUS.
15.1. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLIED TO CONTRACTS TO BE
PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK. ANY JUDICIAL PROCEEDING BROUGHT
BY OR AGAINST ANY OF THE PARTIES HERETO WITH RESPECT TO ANY OF THE OBLIGATIONS,
THIS AGREEMENT OR ANY RELATED AGREEMENT MAY BE BROUGHT IN ANY COURT OF COMPETENT
JURISDICTION IN THE STATE OF NEW YORK, UNITED STATES OF AMERICA, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES HERETO ACCEPTS FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE
BOUND BY ANY
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JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. BORROWER HEREBY
WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL
SUCH SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL (RETURN RECEIPT
REQUESTED) DIRECTED TO BORROWER AT ITS ADDRESS SET FORTH IN SECTION 15.6 AND
SERVICE SO MADE SHALL BE DEEMED COMPLETED FIVE (5) DAYS AFTER THE SAME SHALL
HAVE BEEN SO DEPOSITED IN THE MAILS OF THE UNITED STATES OF AMERICA, OR, AT THE
AGENT'S AND/OR ANY LENDER'S OPTION, BY SERVICE UPON BORROWER WHICH BORROWER
IRREVOCABLY APPOINTS AS BORROWER'S AGENT FOR THE PURPOSE OF ACCEPTING SERVICE
WITHIN THE STATE OF NEW YORK. NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE
PROCESS IN ANY MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF AGENT OR ANY
LENDER TO BRING PROCEEDINGS AGAINST BORROWER IN THE COURTS OF ANY OTHER
JURISDICTION. BORROWER WAIVES ANY OBJECTION TO JURISDICTION AND VENUE OF ANY
ACTION INSTITUTED HEREUNDER AND SHALL NOT ASSERT ANY DEFENSE BASED ON LACK OF
JURISDICTION OR VENUE OR BASED UPON FORUM NON CONVENIENS. ANY JUDICIAL
PROCEEDING BY BORROWER AGAINST AGENT OR ANY LENDER INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER OR CLAIM IN ANY WAY ARISING OUT OF, RELATED TO OR
CONNECTED WITH THIS AGREEMENT OR ANY RELATED AGREEMENT, SHALL BE BROUGHT ONLY IN
A FEDERAL OR STATE COURT LOCATED IN THE CITY OF NEW YORK, STATE OF NEW YORK.
15.2. Entire Understanding. (a) This Agreement and the documents executed
concurrently herewith contain the entire understanding between Borrower, Agent
and each Lender and supersedes all prior agreements and understandings, if any,
relating to the subject matter hereof. Any promises, representations, warranties
or guarantees not herein contained and hereinafter made shall have no force and
effect unless in writing, signed by Borrower's, Agent's and each Lender's
respective officers. Neither this Agreement nor any portion or provisions hereof
may be changed, modified, amended, waived, supplemented, discharged, cancelled
or terminated orally or by any course of dealing, or in any manner other than by
an agreement in writing, signed by the party to be charged. Borrower
acknowledges that it has been advised by counsel in connection with the
execution of this Agreement and Other Documents and is not relying upon oral
representations or statements inconsistent with the terms and provisions of this
Agreement.
(b) The Required Lenders, Agent with the consent in writing of the Required
Lenders, and Borrower may, subject to the provisions of this Section 15.2 (b),
from time to time enter into written supplemental agreements to this Agreement
or the Other Documents executed by Borrower, for the purpose of adding or
deleting any provisions or otherwise changing, varying or waiving in any manner
the rights of Lenders, Agent or Borrower thereunder or the conditions,
provisions or terms thereof
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of waiving any Event of Default thereunder, but only to the extent specified in
such written agreements; provided, however, that no such supplemental agreement
shall, without the consent of all Lenders:
(i) increase the Commitment Percentage of any Lender;
(ii) increase the Maximum Revolving Advance Amount;
(iii) extend the maturity of any instrument evidencing any of the
Obligations or the due date for any amount payable hereunder, or decrease
the rate of interest or reduce any fee payable by Borrower to Lenders
pursuant to this Agreement;
(iv) alter the definition of the term Required Lenders or alter, amend
or modify this Section 15.2(b);
(v) release any Collateral during any calendar year having an
aggregate value in excess of $200,000; or
(vi) change the rights and duties of Agent.
Any such supplemental agreement shall apply equally to each Lender and shall be
binding upon Borrower, Lenders and Agent and all future holders of the
Obligations. In the case of any waiver, Borrower, Agent and Lenders shall be
restored to their former positions and rights, and any Event of Default waived
shall be deemed to be cured and not continuing, but no waiver of a specific
Event of Default shall extend to any subsequent Event of Default (whether or not
the subsequent Event of Default is the same as the Event of Default which was
waived), or impair any right consequent thereon.
15.3. Successors and Assigns; Participations; New Lenders.
(a) This Agreement shall be binding upon and inure to the benefit of
Borrower, Agent, each Lender, all future holders of the Obligations and their
respective successors and assigns, except that Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the prior
written consent of Agent and each Lender.
(b) Borrower acknowledges that in the regular course of commercial banking
business one or more Lenders may at any time and from time to time sell
participating interests in the Advances to other financial institutions (each
such transferee or purchaser of a participating interest, a "Transferee"),
provided that, after giving effect thereto, BNYFC shall at all times maintain a
Commitment Percentage of not less than fifty percent (50%). Each Transferee may
exercise all rights of payment
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(including without limitation rights of set-off) with respect to the portion of
such Advances held by it or other Obligations payable hereunder as fully as if
such Transferee were the direct holder thereof provided that Borrower shall not
be required to pay to any Transferee more than the amount which it would have
been required to pay to Lender which granted an interest in its Advances or
other Obligations payable hereunder to such Transferee had such Lender retained
such interest in the Advances hereunder or other Obligations payable hereunder
and in no event shall Borrower be required to pay any such amount arising from
the same circumstances and with respect to the same Advances or other
Obligations payable hereunder to both such Lender and such Transferee. Borrower
hereby grants to any Transferee a continuing security interest in any deposits,
moneys or other property actually or constructively held by such Transferee as
security for the Transferee's interest in the Advances.
(c) With the prior written consent of the Agent, which shall not be
unreasonably withheld, any Lender may sell, assign or transfer all or any part
of its rights under this Agreement and the Other Documents to one or more
additional banks or financial institutions and one or more additional banks or
financial institutions may commit to make Advances hereunder (each a "Purchasing
Lender"), in minimum amounts of not less than $5,000,000, pursuant to a
Commitment Transfer Supplement, executed by a Purchasing Lender, the transferor
Lender, and Agent and delivered to Agent for recording. Upon such execution,
delivery, acceptance and recording, from and after the transfer effective date
determined pursuant to such Commitment Transfer Supplement, (i) Purchasing
Lender thereunder shall be a party hereto and, to the extent provided in such
Commitment Transfer Supplement, have the rights and obligations of a Lender
thereunder with a Commitment Percentage as set forth therein, and (ii) the
transferor Lender thereunder shall, to the extent provided in such Commitment
Transfer Supplement, be released from its obligations under this Agreement, the
Commitment Transfer Supplement creating a novation for that purpose. Such
Commitment Transfer Supplement shall be deemed to amend this Agreement to the
extent, and only to the extent, necessary to reflect the addition of such
Purchasing Lender and the resulting adjustment of the Commitment Percentages
arising from the purchase by such Purchasing Lender of all or a portion of the
rights and obligations of such transferor Lender under this Agreement and the
Other Documents. Borrower hereby consents to the addition of such Purchasing
Lender and the resulting adjustment of the Commitment Percentages arising from
the purchase by such Purchasing Lender of all or a portion of the rights and
obligations of such transferor Lender under this Agreement and the Other
Documents. Borrower shall execute and deliver such further documents and do such
further acts and things in order to effectuate the foregoing.
(d) Agent shall maintain at its address a copy of each Commitment Transfer
Supplement delivered to it and a register (the "Register") for the recordation
of the names and addresses of the Advances owing to each Lender from time to
time.
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The entries in the Register shall be conclusive, in the absence of manifest
error, and Borrower, Agent and Lenders may treat each Person whose name is
recorded in the Register as the owner of the Advance recorded therein for the
purposes of this Agreement. The Register shall be available for inspection by
Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice. Agent shall receive a fee in the amount of $2,500
payable by the applicable Purchasing Lender upon the effective date of each
transfer or assignment to such Purchasing Lender.
(e) Borrower authorizes each Lender to disclose to any Transferee or
Purchasing Lender and any prospective Transferee or Purchasing Lender any and
all financial information in such Lender's possession concerning Borrower which
has been delivered to such Lender by or on behalf of Borrower pursuant to this
Agreement or in connection with such Lender's credit evaluation of Borrower.
15.4. Application of Payments. Agent shall have the continuing and
exclusive right to apply or reverse and re-apply any payment and any and all
proceeds of Collateral to any portion of the Obligations. To the extent that
Borrower makes a payment or Agent or any Lender receives any payment or proceeds
of the Collateral for Borrower's benefit, which are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee, debtor in possession, receiver, custodian or any other party under
any bankruptcy law, common law or equitable cause, then, to such extent, the
Obligations or part thereof intended to be satisfied shall be revived and
continue as if such payment or proceeds had not been received by Agent or such
Lender.
15.5. Indemnity. Borrower shall indemnify Agent, each Lender and each of
their respective officers, directors, Affiliates, employees and agents from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses and disbursements of any kind or
nature whatsoever (including, without limitation, fees and disbursements of
counsel) which may be imposed on, incurred by, or asserted against Agent or any
Lender in any litigation, proceeding or investigation instituted or conducted by
any governmental agency or instrumentality or any other Person with respect to
any aspect of, or any transaction contemplated by, or referred to in, or any
matter related to, this Agreement or the Other Documents, whether or not Agent
or any Lender is a party thereto, except to the extent that any of the foregoing
arises out of the willful misconduct or gross (not mere) negligence of the party
being indemnified.
15.6. Notice. Any notice or request hereunder may be given to Borrower or
to Agent or any Lender at their respective addresses set forth below or at such
other address as may hereafter be specified in a notice designated as a notice
of change of address under this Section. Any notice or request hereunder shall
be given by (a) hand delivery, (b) overnight courier, (c) registered or
certified mail, return receipt requested,
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(d) telex or telegram, subsequently confirmed by registered or certified mail,
or (e) telecopy to the number set out below (or such other number as may
hereafter be specified in a notice designated as a notice of change of address)
with telephone communication to a duly authorized officer of the recipient
confirming its receipt as subsequently confirmed by registered or certified
mail. Any notice or other communication required or permitted pursuant to this
Agreement shall be deemed given (a) when personally delivered to any officer of
the party to whom it is addressed, (b) on the earlier of actual receipt thereof
or three (3) days following posting thereof by certified or registered mail,
postage prepaid, or (c) upon actual receipt thereof when sent by a recognized
overnight delivery service or (d) upon actual receipt thereof when sent by
telecopier to the number set forth below with telephone communication confirming
receipt and subsequently confirmed by registered, certified or overnight mail to
the address set forth below, in each case addressed to each party at its address
set forth below or at such other address as has been furnished in writing by a
party to the other by like notice:
(A) If to Agent at: BNY Financial Corporation
1290 Avenue of the Americas
New York, New York 10104
Attention: Corporate Loan Administration
Mr. Frank Imperato,
Senior Vice President
Telephone: (212) 408-7026
Telecopier: (212) 408-7162
(B) If to a Lender other than Agent, as specified on the signature pages
hereof
(C) If to Borrower: Signal Apparel Company, Inc.
500 7th Avenue, 7th Floor
New York, New York 10018
Attention: Chief Financial Officer
Telephone: (212) 944-7117
Telecopier: (212) 354-5314
With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Robert Copen, Esq.
Telephone: (212) 735-3000
Telecopier (212) 735-2000
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15.7. Survival. The obligations of Borrower under Sections 3.7, 3.8 and
15.5 shall survive termination of this Agreement and the Other Documents and
payment in full of the Obligations.
15.8. Severability. If any part of this Agreement is contrary to,
prohibited by, or deemed invalid under applicable laws or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be invalidated thereby
and shall be given effect so far as possible.
15.9. Expenses. All costs and expenses including, without limitation,
reasonable attorneys' fees and disbursements incurred by Agent, Agent on behalf
of Lenders and Lenders (a) in all efforts made to enforce payment of any
Obligation or effect collection of any Collateral, or (b) in connection with the
entering into, modification, amendment, administration and enforcement of this
Agreement or any consents or waivers hereunder and all related agreements,
documents and instruments, or (c) in instituting, maintaining, preserving,
enforcing and foreclosing on Agent's security interest in or Lien on any of the
Collateral, whether through judicial proceedings or otherwise, or (d) in
defending or prosecuting any actions or proceedings arising out of or relating
to Agent's or any Lender's transactions with Borrower, or (e) in connection with
any advice given to Agent or any Lender with respect to its rights and
obligations under this Agreement and all related agreements, may be charged to
Borrower's account and shall be part of the Obligations.
15.10. Injunctive Relief. Borrower recognizes that, in the event Borrower
fails to perform, observe or discharge any of its obligations or liabilities
under this Agreement, any remedy at law may prove to be inadequate relief to
Lenders; therefore, each Lender, if such Lender so requests, shall be entitled
to temporary and permanent injunctive relief in any such case without the
necessity of proving that actual damages are not an adequate remedy.
15.11. Consequential Damages. Neither Agent, any Lender nor any agent or
attorney for any of them shall be liable to Borrower for consequential damages
arising from any breach of contract, tort or other wrong relating to the
establishment, administration or collection of the Obligations.
15.12. Captions. The captions at various places in this Agreement are
intended for convenience only and do not constitute and shall not be interpreted
as part of this Agreement.
15.13. Counterparts; Telecopied Signatures. This Agreement may be executed
in any number of and by different parties hereto, on separate counterparts, all
of which when so executed, shall be deemed an original, but all such
counterparts shall
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<PAGE>
constitute one and the same agreement. Any signature delivered by a party by
facsimile transmission shall be deemed to be an original signature hereto.
15.14. Construction. The parties acknowledge that each party and its
counsel have reviewed this Agreement and that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting party
shall not be employed in the interpretation of this Agreement or any amendments,
schedules or exhibits thereto.
Each of the parties has signed this Agreement as of the day and year first
above written.
SIGNAL APPAREL COMPANY, INC.
/s/ Howard Weinberg
-------------------------
By: Howard Weinberg
Its: Chief Financial Officer
BNY FINANCIAL CORPORATION,
as Lender and as Agent
/s/ Joseph Grimaldi
-------------------------
By: Joseph Grimaldi
Its: President
1290 Avenue of the Americas
New York, New York 10104
Commitment Percentage: 100%
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<PAGE>
LIST OF EXHIBITS AND SCHEDULES
Exhibit 2.1(a)
Exhibit 5.5(b)
Exhibit 15.3
Schedule 4.5
Schedule 4.15(c)
Schedule 4.20
Schedule 5.2
Schedule 5.4
Schedule 5.6
Schedule 5.8(b)
Schedule 5.8(d)
Schedule 5.9
Schedule 5.10
Schedule 5.14
Schedule 5.17
Schedule 7.3
Schedule 7.17
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BNY FINANCIAL CORPORATION
SECOND AMENDED AND RESTATED
FACTORING AGREEMENT
March 12, 1999
SIGNAL APPAREL COMPANY, INC.
200-A Manufacturers Road
Chattanooga, Tennessee 37405
We are pleased that you have chosen us to act as your sole factor,
effective as of May 23, 1991 (the "Effective Date"). We are also pleased that
you have entered into a Revolving Credit, Term Loan and Security Agreement with
us as Agent ("Agent") for certain lenders ("Lenders") parties thereto from time
to time dated March 12, 1999 (as amended, amended and restated, supplemented or
otherwise modified from time to time, the "Credit Agreement"), pursuant to which
Credit Agreement Lenders shall make loans and Advances to you subject to the
terms and provisions thereof. Capitalized terms used and not otherwise defined
herein, shall have their respective meanings as set forth in the Credit
Agreement.
This agreement states the terms and conditions upon which we shall 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, created on, prior to, on, or after the
Effective Date, which 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.
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 (a) unless in writing; (b) unless the goods
are shipped or the services rendered within the time specified in our written
credit approval or within forty-five (45) days after
<PAGE>
the approval is given, if no time is specified; and (c) unless the assignment of
the invoice evidencing the applicable Receivable is received by us within five
(5) business days from the date of such invoice. Upon the earlier to occur of
(i) the customer has 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 (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 earlier to
occur of (a) your delivery of deposit of the goods with a common carrier on
"f.o.b. point of origin", as contemplated above, or (b) rendition of the
services, as the case may be.
3. PURCHASE PRICE OF RECEIVABLES
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.
Subject to the Assignment of Factoring Proceeds dated the date hereof among us,
Agent and you, the purchase price will be credited to your account on the
Settlement Date (as hereinafter described). The Settlement Date for each
Receivable on which we have the Credit Risk and which is not due from a
department or chain store shall be four (4) business days after the day on which
the Receivable is actually collected by us or becomes one hundred twenty (120)
days past due, whichever is earlier. The Settlement Date on all other
Receivables shall be four (4) business days after the day on which the
Receivable is actually collected by us. We may deduct, from the amount payable
to you on any Settlement Date, Reserves for all Obligations then chargeable to
your account and Obligations which, in our sole judgment, may be chargeable to
your account thereafter.
4. ADVANCES; INTEREST; COMMISSIONS; LATE PAYMENT CHARGES
(a) All advances made to you in respect of the Receivables shall be made
solely by the Lenders under and subject to the terms and conditions of the
Credit Agreement.
(b) For our services under this agreement, we shall charge to your account:
(i) Monthly, as of the 15th day of each month, a commission at the
rate of six tenths of one percent (0.6%) of the gross face amount of each
invoice evidencing a Receivable
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<PAGE>
purchased hereunder during such month on terms not exceeding sixty (60)
days (including dating), plus an additional one-quarter of one percent
(.25%) for each additional thirty (30) days beyond the sixty (60) day
period or portion thereof of selling terms. Our commission on any invoice
evidencing a Receivable purchased hereunder shall not be less than $5.00;
except that, if such invoice is electronically transmitted to us on a
transmission system acceptable to us, then our commission for such invoice
shall not be less than $2.00.
(ii) For each Contract Year, you shall be obligated to sell and assign
to us a minimum aggregate amount of Receivables ("Minimum") in each
Contract Year during which this agreement is in effect, or the part of the
last Contract Year during which this agreement is in effect if it is
terminated before the end of a Contract Year ("Partial Last Year"). The
minimum shall be (1) for the first Contract Year, $100,000,000; (2) for the
second Contract Year, $115,000,000, (3) for the third Contract Year,
$130,000,000 (4) for the fourth Contract Year, $145,000,000 and (5) for the
fifth Contract Year, or any Contract Year thereafter or any Partial Last
Year, $160,000,000. If the aggregate amount of Receivables which you
actually sell and assign to us in any Contract Year or in any Partial Last
Year ("Volume") is less than the Minimum, we shall charge to your account
the difference between the commission on the Minimum and the commission on
the Volume for that Contract Year or Partial Last Year ("Minimum Volume
Charge"). We shall compute the Minimum Volume Charge, if any, on a
quarterly basis and charge your account therefor for each quarter in the
month following the end of such quarter, or in the month following the
effective date of termination of this agreement in the case of a Partial
Last Year. If you do not meet the Minimum Volume with respect to any
particular quarter within a Contract Year and you therefore pay to us a
Minimum Volume Charge for such particular quarter, and in any subsequent
quarter 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 quarter, 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 quarter of the same Contract Year. Similarly, if for any quarter
within a particular Contract Year, the commissions paid to us under this
agreement exceed the Minimum applicable to such quarter, and in any
subsequent 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 quarter, in calculating the amount of
such Minimum Volume Charge payable in such subsequent 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
within the same Contract Year. However, if (a) you terminate this agreement
prior to the last day of the fifth or any subsequent Contract Year, or (b)
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 any such termination by you, or the occurrence of
such Event of Default compute the Minimum Volume Charge for the period
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<PAGE>
starting on such occurrence and ending on the next date as of which you may
terminate this agreement under Paragraph 9(a)(i) ("Early Termination
Minimum Volume Charge") and charge your account an amount equal to fifty
percent (50%) of such Early Termination Minimum Volume Charge. For the
purpose only of computing such Early Termination 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) Customer late payment charges (computed at the Revolving
Interest Rate applicable to Domestic Rate Loans), but only if the charge
exceeds Five Dollars ($5.00) and the payment is three (3) business days or
more past due, provided, however, that any such customer late payment
charge shall not be charged with respect to any Receivable for more than
one hundred twenty (120) days.
(iv) All bank charges for wire transfers.
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 hereunder (as
confirmed by us by appropriate credit to your account with us) which are not
drawn by you or applied by us on the Settlement Date, while held by us after the
Settlement Date.
6. CHARGES; BALANCES; RESERVES
We may charge to your account all Obligations. Unless otherwise specified
in this agreement or in the Credit Agreement, all Obligations, including any
debit balance in your account, shall be payable on demand. 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 on or in which we 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.
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<PAGE>
7. REPRESENTATIONS AND WARRANTIES; DISPUTES; RETURNS; CHARGEBACKS;
SUPPLEMENTAL FACTOR
(a) You warrant and represent that you have good title to the Receivables
free of any encumbrance except for Permitted Encumbrances; each Receivable
purchased hereunder is a bona fide, enforceable obligation created by the
absolute sale and delivery of goods or the rendition of services in the ordinary
course of business; 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, to the best of your knowledge, the customer will accept the
goods or services without alleging any 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 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, "Trade Names"); and (iii) except after
thirty (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) nor make any other change which would have the
effect of rendering inaccurate or incomplete the representations contained in
this subparagraph (b).
(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
expenses. Should we so elect, we may at any time in our sole 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 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
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<PAGE>
do not then have the Credit Risk, together with interest thereon at the
Revolving Advance Rate 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.
8. INVOICING; PAYMENTS; RETURNS
(a) 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 from that customer, 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.
(i) You may terminate this agreement at any time upon ninety (90) days
prior written notice to us provided that you simultaneously terminate the
Credit Agreement and provided you make payment in full of the Obligations,
including, without limitation, the Minimum Volume Charges described in
Paragraph 4(b)(ii) above; or
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<PAGE>
(ii) Should any Event of Default occur, or should the Credit Agreement
be terminated for any reason, or should the Term of and as defined in the
Credit Agreement expire, then in any of such events, we may terminate this
agreement at any time and without notice.
(b) Except as otherwise provided in the Credit Agreement, on the effective
date of termination of this agreement, all Obligations shall become immediately
due and payable in full without further notice or demand. 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
Collateral shall continue to be operative until such Obligations have been fully
and finally satisfied or you have given us an indemnity satisfactory to us.
10. DEFINITIONS
As used herein:
"Contract Year" shall mean the period of twelve (12) consecutive calendar
months commencing on March 12, 1999 and each successive period of twelve (12)
consecutive calendar months thereafter.
"Credit Agreement" shall have the meaning set forth in the introductory
paragraph of this agreement.
"Credit Risk" shall mean the risk of loss resulting solely and exclusively
from the financial inability of your customer to pay at maturity a Receivable
purchased hereunder.
"Dispute" shall mean any cause for nonpayment of Receivables, including,
without limitation, any alleged defense, counterclaim, offset, dispute or other
claim whether arising from or relating to the sale of goods or rendition of
services or arising from or relating to any other transaction or occurrence,
except for financial inability of your customer to pay a Receivable at maturity.
"Effective Date" shall mean the date set forth in the introductory
paragraph hereto.
"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 as announced by
us.
"Minimum" shall have the meaning set forth in Paragraph 4(b)(ii) hereof.
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<PAGE>
"Minimum Volume Charge" shall have the meaning set forth in Paragraph
4(b)(ii) hereof.
"net face amount" shall have the meaning set forth in Paragraph 3 hereof.
"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 agreement or by operation of law,
now or hereafter owing by you to us Without limiting the foregoing, Obligations
shall include the amounts of all advances, loans, interest, commission, customer
late payment charges and bank related charges, costs, fees, expenses, taxes and
all Receivables charged or chargeable to your account hereunder.
"Partial Last Year" shall have the meaning set forth in Paragraph 4(b)(ii)
hereof.
"Receivables" shall mean and include all of your accounts, contract rights,
instruments, documents, chattel paper, general intangibles relating to accounts,
drafts and acceptances, and all other forms of obligations owing to you arising
out of or in connection with the sale or lease of Inventory or the rendition of
services, all guarantees and other security therefor, whether secured or
unsecured, now existing or hereafter created, and whether or not specifically
sold or assigned to us hereunder, and the right to use the Trade Names in
connection with our rights with respect to goods, the sale of which gave rise to
accounts.
"Reports" shall have the meaning set forth in Paragraph 12(c) hereof.
"Retained Goods" shall mean returned or repossessed merchandise or other
goods which by sale resulted in Receivables theretofore assigned to us.
"Settlement Date" shall have the meaning set forth in paragraph 3 hereof.
"Term" shall mean the Effective Date through March 12, 2004, and each
renewal year thereafter, subject to acceleration upon the occurrence of an Event
of Default or other termination hereunder.
"Trade Names" shall have the meaning set forth in paragraph 7(b) hereof.
"Volume" shall have the meaning set forth in Paragraph 4(b)(iii) hereof.
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<PAGE>
11. 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 (WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAWS RULES).
ALL TERMS USED HEREIN, UNLESS OTHERWISE DEFINED HEREIN, SHALL HAVE THE MEANINGS
GIVEN IN THE NEW YORK UNIFORM COMMERCIAL CODE.
(c) EACH OF US AGREES THAT ALL ACTIONS AND PROCEEDINGS RELATING DIRECTLY OR
INDIRECTLY TO THIS AGREEMENT OR ANY ANCILLARY AGREEMENT OR ANY OTHER OBLIGATIONS
SHALL BE LITIGATED IN ANY FEDERAL OR STATE COURT OF NEW YORK OR, AT OUR OPTION,
IN ANY OTHER COURTS LOCATED ELSEWHERE AS WE MAY SELECT AND THAT SUCH COURTS ARE
CONVENIENT FORUMS AND YOU SUBMIT TO THE PERSONAL JURISDICTION OF SUCH COURTS.
YOU HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS, COMPLAINT OR OTHER PROCESS OR
PAPERS TO BE ISSUED THEREIN AND HEREBY AGREE THAT SERVICE OF SUCH SUMMONS,
COMPLAINT, PROCESS OR PAPERS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL
ADDRESSED TO YOU AT THE ADDRESS APPEARING HEREIN.
12. ASSURANCES; WAIVERS; REMEDIES; ETC.
(a) Our rights and remedies under this agreement will be cumulative and not
exclusive of any other right or remedy we may have hereunder, under the Credit
Agreement 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 as
provided in the Credit Agreement, you shall remain liable to us for any
deficiency.
(b) 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.
(c) We may charge to your account, when incurred by us, the amount of legal
fees (including fees, expenses and costs payable or allocable to attorneys
retained or employed by
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<PAGE>
us) and other costs, fees and expenses incurred by us 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 also charge to your
account our then standard price for furnishing to you or your designees copies
of any statements, records, files or other data (collectively "Reports")
requested by you or them other than Reports of the kind furnished to you and our
other clients on a regular, periodic basis in the ordinary course of our
business. 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.
(d) 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 be limited to 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.
(e) 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 except that you may not assign or transfer any of your rights or
obligations under this agreement without our prior written consent, and no such
assignment or transfer of any such obligation shall relieve you thereof unless
we have consented to such release in writing specifically referring to the
obligation from which you are to be released. 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.
(f) This agreement shall not be effective unless signed by you below, and
signed by us at the place for our acceptance.
(g) EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL
BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (A) ARISING UNDER THIS
AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH, OR (B) IN ANY WAY CONNECTED WITH OR RELATED OR
INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH RESPECT TO
THIS
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AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED
IN CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH
CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT
A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR
A COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF
THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
(h) This agreement amends, restates, replaces and supersedes in its
entirety, without a break in continuity, that certain Amended and Restated
Factoring Agreement between us dated as of October 31, 1997, as heretofore
amended, restated, renewed, extended, supplemented, replaced, substituted or
otherwise modified.
Very truly yours,
BNY FINANCIAL CORPORATION
By: /s/ Joseph Grimaldi
---------------------------
Title: President
-------------------------
AGREED TO on this 12th day of March, 1999.
SIGNAL APPAREL COMPANY, INC.
By: /s/ Howard Weinberg
---------------------------
Title: Chief Financial Officer
---------------------------
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SIGNAL APPAREL COMPANY, INC.
SUBSCRIPTION AND STOCK PURCHASE AGREEMENT
This Subscription and Stock Purchase Agreement (this "Agreement") is
entered into as of the 12th day of March, 1999, by and between Signal Apparel
Company, Inc., an Indiana corporation (the "Company") and BNY Financial
Corporation, an Indiana corporation ABNY@).
The parties hereto agree as follows:
1. Purchase and Sale. In consideration of and upon the basis of the
representations, warranties and agreements and subject to the terms and
conditions set forth in this Agreement:
1. Initial Shares. The Company agrees to issue and sell to BNY, and
BNY agrees to purchase from the Company, on the Closing Date specified in
Section 2 hereof, 1,166,667 newly issued shares of the Company's common
stock, par value $0.01 per share (the "Common Stock"), at a purchase price
equal to ONE CENT ($0.01) per share. The shares of Common Stock purchased
pursuant to this Section 1.a. are referred to herein as the "Initial
Shares".
2. Additional Stock. The Company agrees to issue and sell to BNY, and
BNY agrees to purchase from the Company, on the Closing Date specified in
Section 2 hereof, 625,000 newly issued shares of the Company's Common
Stock, at a purchase price equal to ONE CENT ($0.01) per share. The shares
of Common Stock purchased pursuant to this Section 1.b. are referred to
herein as the "New Shares" and the New Shares together with the Initial
Shares are referred to herein as the "Shares". Without limiting the
transfer restrictions set forth in this Agreement, BNY may not offer, sell,
transfer or otherwise dispose of more than 208,333 of the New Shares per
each succeeding year commencing on December 31, 1999.
3. Warrant. In consideration of the purchase of the New Shares by BNY,
the Company will issue to BNY on the Closing Date a warrant (the "Warrant")
having the terms set forth in the Warrant Certificate in the form attached
hereto as Exhibit A, to purchase shares of Common Stock (the "Warrant
Certificate"). The shares of Common Stock issuable pursuant to the Warrant
are referred to herein as the "Warrant Shares".
2. Closing Date Purchase. The delivery of the Initial Shares, the New
Shares and the Warrant shall occur at a closing (the AClosing@) to be held at
10:00 a.m., New York time, on March 12, 1999 at the offices of Skadden, Arps,
Slate, Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022, or on
such other date or at such other location as agreed to by the Company and BNY
(such date of the Closing referred to hereinafter as the "Closing Date").
Payment shall be made at the Closing by delivery of a wire transfer of same day
funds denominated in U.S. dollars, unless otherwise agreed in writing with the
Company. 1.
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3. Representations and Warranties of the Company. The Company represents
and warrants to BNY as follows:
1. Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Indiana and has all requisite corporate power and authority to own
or lease and operate its properties and assets and to carry on its business
as now conducted and as proposed to be conducted. The Company is duly
qualified or licensed to do business and is in good standing as a foreign
corporation in all jurisdictions in which it owns or leases property or in
which the conduct of its business requires it to be so qualified or
licensed, except where the failure to be so qualified or licensed would
not, individually or in the aggregate, have a material adverse effect on
the business, assets, results of operations or condition (financial or
otherwise) of the Company.
2. Authorization. All corporate action on the part of the Company
necessary for the authorization, execution, delivery and performance of
this Agreement by the Company, and for the authorization, issuance and
delivery of the Shares and the Warrant being sold under this Agreement, has
been taken. This Agreement has been duly executed and delivered by the
Company, and assuming that this Agreement has been duly executed and
delivered by each of the other parties hereto, shall constitute the valid
and legally binding obligation of the Company, enforceable against the
Company in accordance with its terms, except to the extent the
enforceability thereof may be limited by bankruptcy laws, insolvency laws,
reorganization laws, moratorium laws or other laws affecting creditors'
rights generally or by general equitable principles.
3. Validity of Shares. The Shares and the Warrant, when issued, sold
and delivered in accordance with the terms of this Agreement, shall be duly
and validly issued, and fully paid and the Shares shall be nonassessable.
4. Securities Act. The sale of Shares and the Warrant in accordance
with the terms of this Agreement (assuming the accuracy of the
representations and warranties of BNY contained in Section 5 hereof) is
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act").
5. The Company has reserved 375,000 shares for issuance pursuant to
the Warrant. When issued to BNY against payment therefor in accordance with
the terms of this Agreement and the Warrant Certificate, the Warrant and
each Warrant Share:
(1) will have been duly and validly authorized, duly and validly
issued, fully paid and non-assessable;
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(2) will be free and clear of any security interests, liens, claims
or other encumbrances (other than those resulting solely from
actions by BNY); and
(3) will not have been issued or sold in violation of any preemptive
or other similar rights of the holders of any securities of the
Company.
4. Registration Provisions.
a. The Company shall at its own expense, file a registration statement
(the "Registration Statement") under the Securities Act covering the sale
or resale of the Initial Shares and the Warrant Shares, and shall use its
commercially reasonable best efforts to cause such Registration Statement
to be declared effective not later than 270 calendar days after the Closing
Date, provided that BNY shall have provided such information and
cooperation in connection therewith as the Company may request.
b. The Company shall, by each of December 31, 1999, December 31, 2000
and December 31, 2001 (each a "Filing Date"), at its own expense, file a
Registration Statement under the Securities Act covering the sale or resale
of 208,333 New Shares (as such number may be adjusted pursuant to Section 8
hereof), and shall use its commercially reasonable best efforts to cause
such Registration Statement to be declared effective not later than 270
calendar days after the Filing Date, provided that BNY shall have provided
such information and cooperation in connection therewith as the Company may
request.
b. The Company shall use its commercially reasonable best efforts to
cause any Registration Statement filed pursuant to this Section 4 to remain
effective for so long as BNY is the owner of the Shares or the Warrant
Shares.
c. The Company will use its commercially reasonable best efforts to:
(i) provide a transfer agent and registrar for all Shares and Warrant
Shares and a CUSIP number for all Shares and Warrant Shares; (ii) use its
commercially reasonable best efforts to comply with all applicable rules
and regulations of the Security and Exchange Commission (the "SEC"); and
(iii) file the documents required of the Company.
d. The Company may postpone, for up to three (3) months, the filing or
the effectiveness of any registration required by Sections 4.a. or 4.b. if
the board of directors of the Company determines in good faith that such
registration would have a material adverse effect on any proposal or plan
of the Company to engage in any extraordinary transaction.
e. The Company may include in any registration pursuant to Sections
4.a. or 4.b. newly-issued shares of Common Stock to be sold by the Company
on a primary basis.
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f. It shall be a condition precedent to the obligation of the Company
to take any action pursuant to this Section 4 in respect of the securities
which are to be registered that BNY shall furnish to the Company such
information regarding the securities held by BNY and the intended method of
disposition thereof as the Company shall reasonably request and as shall be
required in connection with the action taken by the Company.
g. Notwithstanding any other provisions of this Section 4, the Company
shall not be obligated to register any Warrant Shares of any holder after
such Warrant Shares are deemed to be freely tradable securities pursuant to
Rule 144(k) under the Securities Act.
4. Representations, Warranties and Agreements of BNY. BNY represents and
warrants to the Company as follows:
1. Authorization. The execution and delivery by BNY of this Agreement
and the consummation by BNY of this Agreement and the transactions
contemplated hereby have been duly authorized by all necessary action on
the part of BNY. BNY represents and warrants that this Agreement, when
executed and delivered by it, will constitute its valid and legally binding
obligation, enforceable against BNY in accordance with its terms, except to
the extent the enforceability thereof may be limited by bankruptcy laws,
insolvency laws, reorganization laws, moratorium laws or other laws
affecting creditors= rights generally or by general equitable principles.
2. Investment Representations.
1. This Agreement is made in reliance upon BNY's representations
to the Company, which by execution hereof BNY hereby confirms, that
(A) the Shares and the Warrant to be received by it will be acquired
by it for investment for its own account, not as a nominee or agent,
and not with a view to the sale or distribution of any part thereof in
violation of applicable federal or state securities laws, and (B) it
has no current intention of selling, granting participation in or
otherwise distributing the same in violation of applicable federal or
state securities laws. By executing this Agreement, BNY further
represents that it does not have any contract, undertaking, agreement
or arrangement with any person to sell, transfer or grant
participation to such person, or to any third person, with respect to
any of the Shares or the Warrant in violation of applicable federal or
state securities laws.
2. BNY understands that neither the Shares nor the Warrant has
been registered under the Securities Act on the basis that the sale
provided for in this Agreement and the issuance of securities
hereunder is exempt from registration under the Securities Act
pursuant to Section 4(2) thereof and regulations issued thereunder,
and that the reliance of the Company on such exemption is predicated
on representations of BNY set forth herein.
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5. Legends.
1. BNY acknowledges that all certificates evidencing the Shares and
the Warrant shall bear the following legend:
"TRANSFER RESTRICTED
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, OR UNLESS SOLD PURSUANT TO RULE 144
UNDER SAID ACT".
The legend set forth above shall be removed and the Company shall
issue a certificate without such legend if, unless otherwise required by
state securities laws, (a) such shares are sold pursuant to an effective
registration statement under the Securities Act, or (b) such holder
provides the Company with assurances satisfactory to the Company that such
shares may be publicly sold pursuant to Rule 144 (or similar regulation
hereinafter adopted) without restriction.
2. The certificates evidencing the Shares and the Warrant shall also
bear any legend required by any applicable state securities law.
3. The Company shall make a notation regarding the restrictions on
transfer of the Shares in its stock books, and the Shares shall be
transferred on the books of the Company only if such Shares are transferred
or sold pursuant to an effective registration statement under the
Securities Act or pursuant to an available exemption therefrom.
6. Sale and Repurchase Option.
1. Beginning on December 31, 1999, once each calendar year thereafter
for three such years, BNY shall have the right, but not the obligation, to
have the Company purchase up to 388,889 Initial Shares from BNY at a
purchase price of $1.50 per Share (the "Put Option"); provided, however,
that such Put Option may only be exercised if the average closing bid price
of the Company's Common Stock for the five trading days prior to the date
of the exercise of the Put Option is less than $1.50. When and as permitted
under this Section 7.a., BNY may exercise the Put Option by delivering
written notice (the "Put Notice") to the
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Company which shall include the following: (i) the number of Initial Shares
to be purchased by the Company from BNY (the "Put Shares"), (ii) the
aggregate consideration to be paid for the Put Shares and (iii) the date
and time fixed for the consummation of such sale, which such date shall not
be less than ten business days nor more than thirty business days following
the date of the Put Option Notice.
2. The Company shall have the right, but not the obligation (the "Call
Option"), at any time while BNY is the holder of all or any of the Initial
Shares, to purchase all or any portion of the Initial Shares from BNY for a
purchase price of $3.00 per share. When and as permitted under this Section
7.b., WG Trading Company, LP ("WG") may exercise the Call Option on behalf
of the Company by delivering written notice (the "Call Notice") to BNY and
such notice shall contain the following: (i) the number of Initial Shares
to be acquired by WG from BNY (the "Call Shares"), (ii) the aggregate
consideration to be paid for the Call Shares and (iii) the date and time
fixed for the consummation of such purchase, which such date shall not be
less than ten business days nor more than thirty business days following
the date of the Call Notice.
7. Adjustments. In the event that the Company shall declare a dividend or
make a distribution on or with respect to the outstanding shares of its Common
Stock in the form of shares of its Common Stock, subdivide its outstanding
shares of Common Stock into a greater number of shares, combine its outstanding
shares of Common Stock into a smaller number of shares or sell shares of Common
Stock for a price less than the fair market value for such shares, then, in each
such event, the number of New Shares and Warrant Shares issuable and the per
share price of such New Shares and Warrant Shares stated in this Agreement in
effect at the time of the record date for such dividend or distribution or the
effective date of such subdivision or combination shall be proportionately
adjusted, if necessary, as determined in good faith by the Board of Directors of
the Company, so that BNY shall be entitled to receive the aggregate number of
shares of Common Stock that BNY would have received immediately following such
action if BNY had exercised its rights immediately prior to such action. Such
adjustment shall be made successively whenever any event specified above shall
occur.
8. Conditions to the Obligations of BNY at Closing. The obligations of BNY
under this Agreement are subject to the fulfillment of each of the following
conditions:
1. Representations and Warranties. The representations and warranties
of the Company contained in Section 5 hereof shall be true and correct as
of the date of this Agreement and as of the Closing Date, with the same
force and effect as if they had been made on and as of the Closing Date.
2. Performance. The Company shall have performed in all material
respects and materially complied with each and all of its covenants and
agreements contained in this Agreement required to be performed or complied
with by it on or before the Closing Date.
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3. Qualifications. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale
of the Shares and the Warrant pursuant to this Agreement shall have been
obtained and shall be effective on and as of the Closing Date.
9. Conditions to the Obligations of the Company at Closing. The obligations
of the Company under this Agreement are subject to the fulfillment of each of
the following conditions:
1. Representations and Warranties. The representations and warranties
of BNY contained in Section 5 hereof shall be true and correct as of the
date of this Agreement and as of the Closing Date with the same force and
effect as if they had been made on and as of the Closing Date.
2. Performance. BNY shall have performed in all material respects all
of its obligations and materially complied with each and all of its
covenants and agreements contained in this Agreement required to be
performed or complied with on or prior to the Closing, including without
limitation the execution and delivery of the agreements and undertakings
provided for in this Agreement.
3. Qualifications. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale
of the Shares and the Warrant pursuant to this Agreement shall have been
obtained and shall be effective on and as of the Closing Date.
10. Covenants.
1. Financial Statement. The Company will, and at any time when the
Company has subsidiaries will cause each of its subsidiaries to, maintain a
standard system of accounts in accordance with generally accepted
accounting principles consistently applied, and the Company will, and will
cause each of its subsidiaries to, keep full and complete financial
records.
2. Offer or Sale. Neither BNY nor any of its affiliates nor any person
acting on its or their behalf will at any time offer or sell any of the
Shares or Warrant Shares other than pursuant to registration under the
Securities Act or pursuant to an available exemption therefrom.
3. Restriction on Re-Sale of New Shares. BNY shall not offer, sell or
transfer the New Shares, except as provided in Section 1.b. hereof.
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4. Further Assurances. Each party hereto shall cooperate with the
others, and execute and deliver, or use all reasonable efforts to cause to
be executed and delivered, all such other instruments, including
instruments of conveyance, assignment and transfer, and to make all filings
with and to obtain all consents, approvals or authorizations of any
governmental or regulatory authority or any other person or entity under
any permit, license, agreement, indenture or other instrument, and take all
such other actions as such party may reasonably be requested to take by the
other parties hereto from time to time, consistent with the terms of this
Agreement, in order to effectuate the provisions and purposes of this
Agreement and the transactions contemplated hereby.
11. Miscellaneous
1. No Waiver; Modifications in Writing. This Agreement, together with
the Exhibits hereto, sets forth the entire understanding of the parties,
and supersedes all prior agreements, arrangements and communications,
whether oral or written, with respect to the subject matter hereof. No
waiver of or consent to any departure from any provision of this Agreement
shall be effective unless such waiver or consent is signed in writing by
the party entitled to the benefit thereof and written notice of any such
waiver or consent is given to each party hereto as set forth below. Except
as otherwise provided herein, no amendment, supplement, modification or
termination of any provision of this Agreement shall be effective unless
signed in writing by or on behalf of the Company and BNY. Any amendment,
supplement or modification of or to any provision of this Agreement, any
waiver of any provision of this Agreement, and any consent to any departure
by the Company from the terms of any provision of this Agreement, shall be
effective only in the specific instance and for the specific purpose for
which made or given. Except where notice is specifically required by this
Agreement, no notice to or demand on the Company or BNY in any case shall
entitle the Company or BNY to any other or further notice or demand in
similar or other circumstances.
2. Notices. All notices and other communications necessary or
contemplated under this Agreement shall be in writing and shall be
delivered in the manner specified herein or, in the absence of such
specification, shall be deemed to have been duly given when delivered by
hand, one day after sending by overnight delivery service, upon receipt of
written confirmation if sent by telecopy, or three days after sending by
certified mail, postage prepaid, return receipt requested to the respective
addresses of the parties set forth below:
If to BNY: BNY Financial Corporation
1290 Avenue of the Americas
New York, NY 10104
Telecopy: (212) 408-4384
Attention: Thomas Strachan
If to the Company: Signal Apparel Company, Inc.
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700 5th Avenue
7th Floor
New York, NY 10018
Telecopy: (212) 354-5314
Attention: Howard Weinberg
With a copy to: Skadden, Arps, Slate, Meagher & Flom LLP
919 3rd Avenue
New York, NY 10022
Telecopy: (212) 735-2000
Attention: Robert Copen
By notice complying with the foregoing provisions of this Section 12.b.,
each party shall have the right to change the mailing address for future
notices and communications to such party.
3. Execution of Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto on separate
counterparts, each of which counterparts, when so executed and delivered,
shall be deemed to be an original and all of which counterparts, taken
together, shall constitute but one and the same Agreement.
4. Binding Effect; Assignment. The rights and obligations of BNY under
this Agreement may only be assigned to another person with the prior
written consent of the Company. Except as expressly provided in this
Agreement, this Agreement shall not be construed so as to confer any right
or benefit upon any person other than the parties to this Agreement and
their respective successors and assigns. This Agreement shall be binding
upon the Company and BNY and their respective successors and assigns.
5. Governing Law. This Agreement shall be governed by the laws of the
State of New York as to all matters, including but not limited to matters
of validity, construction, effect, performance and remedies.
6. Severability of Provisions. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
7. Exhibits and Headings. All Exhibits to this Agreement shall be
deemed to be a part of this Agreement. The Section headings used or
contained in this Agreement are for convenience of reference only and shall
not affect the construction of this Agreement.
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8. Consent to Jurisdiction. Each of the Company and BNY, by its
execution hereof, (i) hereby irrevocably submits to the exclusive
jurisdiction of the state courts of the State of New York for the purposes
of any claim or action arising out of or based upon this Agreement or
relating to the subject matter hereof, (ii) hereby waives, to the extent
not prohibited by applicable law, and agrees not to assert by way of
motion, as a defense or otherwise, in any such claim or action, any claim
that it is not subject personally to the jurisdiction of the above-named
courts, that its property is exempt or immune from attachment or execution,
that any such proceeding brought in the above-named court is improper, or
that this Agreement or the subject matter hereof may not be enforced in or
by such court, and (iii) hereby agrees not to commence any claim or action
arising out of or based upon this Agreement or relating to the subject
matter hereof other than before the above-named courts nor to make any
motion or take any other action seeking or intending to cause the transfer
or removal of any such claim or action to any court other than the
above-named courts whether on the grounds of inconvenient forum or
otherwise. The Company and BNY hereby consent to service of process in any
such proceeding in any manner permitted by New York law, and agrees that
service of process by registered or certified mail, return receipt
requested, at its address specified pursuant to Section 12.b. hereof is
reasonably calculated to give actual notice.
9. WAIVER OF RIGHT TO JURY TRIAL. EACH OF THE COMPANY AND BNY, BY ITS
EXECUTION HEREOF, WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY
DEALINGS BETWEEN OR AMONG THEM RELATING TO THE SUBJECT MATTER OF THIS
TRANSACTION AND THE RELATIONSHIP THAT IS BEING ESTABLISHED. THE SCOPE OF
THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT
MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS
AGREEMENT, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. THE
COMPANY AND BNY ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THE
WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY
ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH OF THE COMPANY AND BNY
FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER WITH ITS
LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER
DOCUMENTS OR AGREEMENTS RELATING TO THE TRANSACTION CONTEMPLATED HEREBY. IN
THE EVENT OF LITIGATION, THIS AGREE-
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MENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
SIGNAL APPAREL COMPANY, INC.
By: /s/ Howard Weinberg
---------------------------
Title: Chief Financial Officer
---------------------------
BNY FINANCIAL CORPORATION
By: /s/ Joseph Grimaldi
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Title: President
-------------------------
The Warrant represented by this
certificate was issued on March 12, 1999
(the "Closing Date") pursuant to the
Subscription Agreement dated March 12,
1999 between Signal Apparel Company,
Inc. and BNY Financial Corporation. The
Warrant represented by this certificate
has not been registered under the
Securities Act of 1933, as amended (the
"Act"), or applicable state securities
laws. Neither the Warrant nor the
Warrant Shares have been acquired for
investment and may not be offered for
sale, sold, transferred or assigned in
the absence of an effective registration
statement for the Warrant or Warrant
Shares under the securities act and
applicable state securities laws, or
unless sold pursuant to Rule 144 under
said act.
Warrant No. W300
Warrant Certificate
SIGNAL APPAREL COMPANY, INC.
This Warrant Certificate certifies that BNY FINANCIAL CORPORATION ("BNY"),
or its registered assigns, is the registered holder of one Warrant (the
"Warrant") expiring on December 31, 2001 (the "Termination Date") to purchase
shares of common stock, par value $.01 per share (the "Common Stock"), of SIGNAL
APPAREL COMPANY, INC., an Indiana corporation (the "Issuer"). The Warrant
entitles the holder to purchase from the Issuer 375,000 Warrant Shares (as
defined below) at $1.50 per share (the "Exercise Price"). The exercise price
multiplied by the Exercise Amount (as defined below) is referred to as the
"Warrant Purchase Price". A "Warrant Share" initially represents one fully paid
and nonassessable share of Common Stock, subject to adjustment pursuant to
Section 10 hereof.
The Warrant represented hereby was issued on March 12, 1999 (the "Closing
Date") pursuant to the Subscription Agreement dated as of March 12, 1999 (the
"Subscription Agreement"), between the Issuer and BNY, and is subject to the
terms and conditions thereof. Unless otherwise defined herein, capitalized terms
used herein shall have the meanings set forth in the Subscription Agreement. A
copy of the Subscription Agreement may be obtained by the registered holder
hereof upon written request to the Issuer.
The Warrant represented hereby shall have the following additional terms:
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0.0.1 The Warrant is not exercisable (i) until December 31, 1999, and (ii) in
any case, until 65 days (the "Notice Period") after the holder delivers
a notice (a "65 Day Notice") to the Issuer designating an aggregate
number of Warrant Shares (the "Exercisable Number"). A 65 Day Notice may
be given at any time after November 1, 1999, provided that the
Exercisable Number may not exceed 125,000 (the "Annual Limit") per year
beginning on December 31, 1999. From time to time following the Notice
Period, the Warrant represented hereby may be exercised on any Business
Day prior to the Termination Date (an "Exercise Date") for any quantity
of Warrant Shares, such that the aggregate number of Warrant Shares
issued hereunder is less than or equal to the Exercisable Number. To
exercise the Warrant, the registered holder must, prior to the
Termination Date, surrender this Warrant Certificate to the Issuer at
its principal office with the Exercise Notice attached hereto (an
"Exercise Notice") duly completed and signed by the registered holder
hereof and stating the total number of Warrant Shares in respect of
which the Warrant is then exercised (the "Exercise Amount") and tender
the applicable Warrant Purchase Price. The Warrant shall be exercisable
only in the minimum amount of 10,000 Warrant Shares and integral
multiples of 10,000 Warrant Shares in excess thereof (or such lesser
amount as shall constitute the full amount remaining of this Warrant).
As used herein the term "Business Day" means any day on which banks in
the City of New York are open for business.
0.0.2 Within five days following an Exercise Date (an "Issue Date"), the
Issuer shall issue and cause to be delivered to the registered holder
hereof at such address as such holder shall specify in the Exercise
Notice a certificate or certificates for the number of full Warrant
Shares issuable upon the exercise of such Warrant, registered in such
holder's name, together with cash (if any) as provided in paragraph 4.
Such certificate or certificates shall be deemed to have been issued and
any person so designated to be named therein shall be deemed to have
become a holder of record of such Warrant Shares as of such Exercise
Date.
0.0.3 If on such Issue Date the number of Warrant Shares to be delivered shall
be less than the total number of Warrant Shares deliverable hereunder,
there shall be issued to the holder hereof or his assignee on such Issue
Date a new warrant certificate substantially identical to this Warrant
Certificate, except that such new warrant certificate shall evidence the
right to purchase the number of Warrant Shares equal to (x) the total
number of Warrant Shares deliverable hereunder less (y) the number of
Warrant Shares so delivered or previously delivered under the Warrant.
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0.0.4 The Issuer shall not be required to issue fractional Warrant Shares on
the exercise of the Warrant represented hereby. The number of full
Warrant Shares which shall be issuable upon the exercise of the Warrant
shall be computed on the basis of the aggregate number of Warrant Shares
purchasable on exercise of the Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this paragraph 4, be
issuable on the exercise of the Warrant, the Issuer shall pay an amount
in cash equal to $1.50 multiplied by such fraction (subject to
adjustment pursuant to Section 10).
0.0.5 For so long as the Warrant represented hereby has not been exercised in
full, the Issuer shall at all times prior to the Termination Date
reserve and keep available, free from pre-emptive rights, out of its
authorized but unissued Common Stock, for issuance upon exercise of the
Warrant represented hereby, the number of shares of Common Stock then so
issuable. In furtherance of the foregoing, subject to adjustment
pursuant to Section 10, the Issuer shall reserve for issuance hereunder,
not less than 375,000 shares of Common Stock. In the event the number of
shares of Common Stock issuable in respect of the Warrant Shares exceeds
the authorized number of shares of Common Stock, the Issuer shall
promptly take all actions necessary to increase the authorized number,
including causing its Board of Directors to call a special meeting of
stockholders and recommend such increase.
0.0.6 By accepting delivery of this Warrant Certificate, the registered holder
hereof covenants and agrees with the Issuer not to exercise or transfer
the Warrant or any Warrant Shares except in compliance with the terms of
the Subscription Agreement and this Warrant Certificate.
0.0.7 By accepting delivery of this Warrant Certificate, the registered holder
hereof covenants and agrees with the Issuer that the Warrant may not be
sold, assigned, conveyed, encumbered, pledged, hypothecated or in any
other manner disposed of or transferred, in whole or in part, unless and
until such holder shall deliver to the Issuer: (i) written notice
thereof and of the name and address of the transferee, (ii) a written
agreement, in form and substance reasonably satisfactory to the Issuer,
of the transferee to comply with the applicable terms of the
Subscription Agreement and this Warrant Certificate, (iii) assurances
reasonably satisfactory to the Issuer that the Warrant and the Warrant
Shares are exempt from registration under the Act and (iv) an opinion of
counsel to the effect that the Warrant and the Warrant Shares have been
registered under the Act or are
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exempt from registration thereunder. If a portion of the Warrant is
transferred, all rights of the registered holder hereunder may be
exercised by the transferee (subject to the requirement that such
transferee shall provide an opinion of counsel to the effect that the
Warrant and the Warrant Shares have been registered under the Act or are
exempt from registration thereunder) in respect of the number of Warrant
Shares transferred with the portion of the Warrant, provided that any
registered holder of the Warrant may deliver a 65 Day Notice or an
Exercise Notice only with respect to the Warrant Shares subject to such
holder's portion of the Warrant.
0.0.8 The Issuer will pay all documentary stamp taxes (if any) attributable to
the issuance of Warrant Shares upon the exercise of the Warrant by the
registered holder hereof; provided, however, that the Issuer shall not
be required to pay any tax or taxes which may be payable in respect of
any transfer involved in the registration of the Warrant Certificate or
any certificates for Warrant Shares in a name other than that of the
registered holder of the Warrant Certificate surrendered upon the
exercise of a Warrant, and the Issuer shall not be required to issue or
deliver the Warrant Certificate or certificates for Warrant Shares
unless or until the person or persons requesting the issuance thereof
shall have paid to the Issuer the amount of such tax or shall have
established to the satisfaction of the Issuer that such tax has been
paid.
0.0.9 In case this Warrant Certificate shall be mutilated, lost, stolen or
destroyed, the Issuer may in its discretion issue in exchange and
substitution for and upon cancellation of the mutilated Warrant
Certificate, or in lieu of and substitution for the lost, stolen or
destroyed Warrant Certificate, a new Warrant Certificate of like tenor,
but only upon receipt of evidence reasonably satisfactory to the Issuer
of such loss, theft or destruction of such Warrant Certificate and
indemnity, if requested, reasonably satisfactory to the Issuer.
Applicants for a substitute Warrant Certificate shall also comply with
such other reasonable regulations and pay such other reasonable charges
as the Issuer may prescribe.
0.0.10 The number of shares of Common Stock issuable in respect of each Warrant
Share upon the exercise of the Warrant and the terms and conditions of
the Warrant are subject to adjustment by the Issuer pursuant to Section
8 of the Subscription Agreement.
0.0.11 The Issuer shall serve as warrant agent (the "Warrant Agent") under this
Agreement. The Warrant Agent hereunder shall at all times maintain a
register (the "Warrant Register") of the holders of Warrants. Upon 30
days' notice to the registered holder hereof, the Issuer may appoint a
new Warrant Agent. Such new Warrant Agent shall be a corporation doing
business and in good standing under the laws of the United States or any
state thereof, and having a combined capital and surplus of not less
than $50,000,000. The combined capital and surplus of any such new
Warrant Agent shall be deemed to be the combined capital and surplus as
set forth in the most recent annual report of its condition published by
such Warrant Agent prior to its appoint-
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ment; provided that such reports are published at least annually
pursuant to law or to the requirements of a federal or state supervising
or examining authority. After acceptance in writing of such appointment
by the new Warrant Agent, it shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named
herein as the Warrant Agent, without any further assurance, conveyance,
act or deed; but if for any reason it shall be reasonably necessary or
expedient to execute and deliver any further assurance, conveyance, act
or deed, the same shall be done at the expense of the Issuer and shall
be legally and validly executed and delivered by the Issuer.
0.0.12 Any corporation into which the Issuer or any new Warrant Agent may be
merged or any corporation resulting from any consolidation to which the
Issuer or any new Warrant Agent shall be a party or any corporation to
which the Issuer or any new Warrant Agent transfers substantially all of
its corporate trust or shareholders services business shall be a
successor Warrant Agent under this Agreement without any further act;
provided that such corporation (i) would be eligible for appointment as
successor to the Warrant Agent under the provisions of this paragraph 11
or (ii) is a wholly owned subsidiary of the Warrant Agent. Any such
successor Warrant Agent shall promptly cause notice of its succession as
Warrant Agent to be mailed (by first class mail, postage prepaid) to the
registered holder hereof at such holder's last address as shown on the
Warrant Register.
0.0.13 Indemnification and Contribution. (i) In the event of any registration
of any of the Warrant Shares under the Securities Act, the Issuer shall
indemnify and hold harmless the holder of such Warrant Shares, such
holder's directors and officers, and each other person who participated
in the offering of such Warrant Shares and each other person, if any,
who controls such holder or such participating person within the meaning
of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such holder or any such director
or officer or participating person or controlling person may become
subject under the Securities Act or any other statute or at common law,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon (A) any untrue statement
or alleged untrue statement of any material fact contained, on the
effective date thereof, in any Registration Statement under which such
securities were registered under the Securities Act, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereto, or (B) any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and shall reimburse such
holder or such director, officer or participating person or controlling
person for any legal or any other expenses reasonably incurred by such
holder or such director, officer or participating person or controlling
person in connection with investigating or
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defending any such loss, claim, damage, liability or action; provided,
however, that the Issuer shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or action arises out
of or is based upon any alleged untrue statement or alleged omission
made in such Registration Statement, preliminary prospectus, prospectus
or amendment or supplement in reliance upon and in conformity with
written information furnished to the Issuer by such holder specifically
for use therein or so furnished for such purposes by any underwriter.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such holder or such director,
officer or participating person or controlling person, and shall survive
the transfer of such securities by such holder.
(ii) BNY, by acceptance of the Warrant and the Warrant Shares, agrees to
indemnify and hold harmless the Issuer, its directors and officers, and
each other person (including each underwriter) who participated in the
offering of the Warrant Shares and each other person, if any, who
controls the Issuer or such participating person within the meaning of
the Act, against any losses, claims, damages or liabilities, joint or
several, to which the Issuer or any such director or officer or
participating person or controlling person may become subject under the
Act or any other statute or at common law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon (A) any untrue statement or alleged untrue
statement of any material fact contained, on the effective date thereof,
in any Registration Statement under which such securities were
registered under the Act, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement thereto, or (B) any
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Issuer
by or on behalf of BNY specifically for use therein, and shall reimburse
the Issuer or such director, officer or participating person or
controlling person for any legal or any other expenses reasonably
incurred by the Issuer or such director, officer or participating person
or controlling person in connection with investigating or defending any
such loss, claim, damage, liability or action. Such indemnity shall
remain in full force and effect regardless of any investigation made by
or on behalf of the Issuer or such director, officer or participating
person or controlling person, and shall survive the transfer of the
Warrant or the Warrant Shares by the holder thereof.
(iii) If the indemnification provided for in this Section 13 from the
indemnifying party is unavailable to an indemnified party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred
to therein, then the
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indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities or expenses in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party and indemnified parties in connection with the
actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
relative fault of such indemnifying party and indemnified parties shall
be determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact, has been
made by, or relates to information supplied by, such indemnifying party
or such indemnified parties, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such action. The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above
shall be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with any investigation
or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 13 were determined by pro rata
allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
0.0.14 This Warrant Certificate shall not be valid unless signed by the Issuer.
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IN WITNESS WHEREOF, Signal Apparel Company, Inc. has caused this Warrant
Certificate to be signed by its duly authorized officer.
Dated: March 12, 1999
SIGNAL APPAREL COMPANY, INC.
By: _______________________
Name:
Title:
<PAGE>
FORM OF EXERCISE NOTICE
(To Be Executed Upon Exercise of the Warrant)
[DATE]
Signal Apparel Company, Inc.
700 5th Avenue
7th Floor
New York, NY 10018
Attention: Howard Weinberg
Re: Warrant No.
Ladies and Gentlemen:
The undersigned is the registered holder of the above-referenced warrant
(the "Warrant") issued by Signal Apparel Company, Inc., evidenced by the Warrant
Certificate attached hereto, and hereby elects to exercise the Warrant to
purchase _________ Warrant Shares (as defined in such Warrant Certificate) and
herewith tenders $_____________ by certified or official bank check to the order
of Signal Apparel Company, Inc. as payment for such Warrant Shares in accordance
with the terms of such Warrant Certificate and the Subscription Agreement (as
defined in the Warrant Certificate). The undersigned either to the effect that
the Warrant and the Warrant Shares have been registered under the Act or are
exempt from registration thereunder.
In accordance with the terms of the attached Warrant Certificate, the
undersigned requests that certificates for such Warrant Shares be registered in
the name of and delivered to the undersigned at the following address:
----------------------------
----------------------------
----------------------------
<PAGE>
[If the number of Warrant Shares to be delivered is less than the total
number of Warrant Shares deliverable under the Warrant, insert the following --
The undersigned requests that a new warrant certificate substantially identical
to the attached Warrant Certificate be issued to the undersigned evidencing the
right to purchase the number of Warrant Shares equal to (x) the total number of
Warrant Shares deliverable under the Warrant less (y) the number of Warrant
Shares to be delivered in connection with this exercise and any previous
delivery of Warrant Shares under the Warrant.]
NAME OF REGISTERED HOLDER
[ADDRESS]
By: _____________________________
Name:
Title:
