SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 1999 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________ to__________
Commission file number 1-2782
SIGNAL APPAREL COMPANY, INC.
(Exact name of registrant as specified in its charter)
Indiana 62-0641635
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
34 Engelhard Avenue, Avenel, New Jersey 07001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (732) 382-2882
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at November 10, 1999
----- --------------------------------
Common Stock 44,869,450 shares
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
SIGNAL APPAREL COMPANY, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
October 2, Dec. 31,
1999 1998
--------- ---------
<S> <C> <C>
Assets
Current Assets:
Cash $ 444 $ 403
Receivables, less allowance for doubtful
accounts of $2,790 in 1999 and $1,916 in 1998, respectively 785 1,415
Note receivable 864 283
Inventories 8,069 12,641
Prepaid expenses and other 1,394 539
--------- ---------
Total current assets: 11,556 15,281
Property, plant and equipment, net 3,175 3,001
Goodwill, less accumulated amortization
of $1,359 in 1999 26,718 0
Debt Issuance Costs, net 5,655 0
Other assets 536 182
--------- ---------
Total assets $ 47,640 $ 18,464
========= =========
Liabilities and Shareholders' Deficit
Current Liabilities:
Accounts payable 5,246 8,133
Accrued liabilities 6,669 9,760
Accrued interest 5,872 3,810
Current portion of long-term debt and capital leases 3,803 6,435
Revolving advance account 30,624 44,049
Term Loan 48,031 0
--------- ---------
Total Current Liabilities: 100,245 72,187
Long-term Liabilities:
Convertible Debentures 3,186 0
Capital Leases 200 0
Notes Payable Principally to Related Parties 24,541 13,968
--------- ---------
Total Long-term Liabilities: 27,927 13,968
Shareholders' Deficit:
Preferred Stock 50,478 52,789
Common Stock 534 326
Additional paid-in capital 189,748 165,242
Accumulated deficit (320,175) (284,931)
--------- ---------
Subtotal (79,415) (66,574)
Less: Cost of Treasury shares (140,220 shares) (1,117) (1,117)
--------- ---------
Total Shareholders' Deficit (80,532) (67,691)
--------- ---------
Total Liabilities and
Shareholders' Deficit $ 47,640 $ 18,464
========= =========
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
SIGNAL APPAREL COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 2, October 3, October 2, October 3,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 10,698 $ 15,297 $ 79,319 $ 39,341
Cost of Sales 7,758 14,184 71,232 32,163
-------- -------- -------- --------
Gross Profit 2,940 1,113 8,807 7,178
Royalty Expense 663 1,434 4,056 3,290
Selling, General &
Administrative 6,390 4,728 25,691 13,831
Interest Expense 4,422 3,343 11,410 6,961
Other (Income) net - 0 - (18) - 0 - (555)
-------- -------- -------- --------
Loss Before Income Taxes (8,535) (8,374) (33,070) (16,349)
Income Taxes - 0 - - 0 - - 0 - - 0 -
-------- -------- -------- --------
Net Loss (8,535) (8,374) (33,070) (16,349)
-------- -------- -------- --------
Preferred Stock Dividends 724 - 0 - 2,174 - 0 -
Net Loss Applicable to Common $ (9,259) $ (8,374) $(35,244) $(16,349)
Basic Diluted Net Loss Per Share $ (0.17) $ (0.26) $ (0.72) $ (0.50)
======== ======== ======== ========
Weighted average shares outstanding 53,384 32,662 49,127 32,641
(including shares to be issued)
</TABLE>
See accompanying notes to financial statements.
Page 3
<PAGE>
SIGNAL APPAREL COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
October 2, October 3,
1999 1998
-------- --------
<S> <C> <C>
Operating Activities:
Net loss $(35,244) $(16,349)
Adjustments to reconcile net loss to net cash
used in operating activities, net of the
effect of acquisitions and sales:
Depreciation and amortization 3,488 2,548
Non-cash interest charges 3,227 0
(Gain) on disposal of equipment (52) (402)
Changes in operating assets
and liabilities:
Receivables 104 (2,299)
Inventories 12,837 (2,213)
Prepaid expenses and other assets (761) (21)
Accounts payable and accrued
liabilities (10,158) 3,340
-------- --------
Net cash used in operating
activities (26,559) (15,354)
-------- --------
Investing Activities:
Purchases of property, plant and
equipment (107) (238)
Proceeds from notes receivable 0 176
Restricted Cash 476 0
Proceeds from the sale of Heritage Division 2,000 0
Proceeds from the sale of Grand Illusion Division 435 0
Proceeds from the sale of property,
plant and equipment 0 877
-------- --------
Net cash provided by
investing activities 2,804 815
-------- --------
Financing Activities:
Decrease in Cash in Bank or Bank Overdraft 0 667
Net increase (decrease) in revolving
advance account (27,257) 1,891
Net increase in term loan borrowings 47,672 0
Net increase in borrowings from
related party 0 8,775
Principal payments on borrowings 3,411 (1,784)
Repurchase of preferred stock (2,398) 4,624
Proceeds from sale of convertible debt 2,350 0
New common stock issued 18 0
Net cash provided by
financing activities 23,796 14,173
-------- --------
Increase in cash 41 (366)
Cash at beginning of period 403 384
-------- --------
Cash at end of period $ 444 $ 18
======== ========
</TABLE>
See accompanying notes to financial statements
Page 4
<PAGE>
Part I Item 1. (continued)
SIGNAL APPAREL COMPANY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Un-audited)
1. The accompanying consolidated condensed financial statements have been
prepared on a basis consistent with that of the consolidated financial
statements for the year ended December 31, 1998. The accompanying financial
statements include all adjustments (consisting only of normal recurring
accruals) which are, in the opinion of the Company, necessary to present
fairly the financial position of the Company as of October 2, 1999 and its
results of operations and cash flows for the three months ended October 2,
1999. These consolidated condensed financial statements should be read in
conjunction with the Company's audited financial statements and notes
thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 1998.
2. The results of operations for the three months ended October 2, 1999 are
not necessarily indicative of the results to be expected for the full year.
3. Inventories consisted of the following:
October 2 , December 31,
1999 1998
(In thousands)
Raw materials and supplies $ 0 $ 788
Work in process 0 1,377
Finished goods 8,069 10,262
Supplies 0 214
------- -------
$ 8,069 $12,641
======= =======
4. Pursuant to the terms of various license agreements, the Company is
obligated to pay future minimum royalties of approximately $1.6 million in
1999.
5. The computation of basic net loss per share is based on the weighted
average number of common shares outstanding during the period. Diluted
earnings per share would also include common stock equivalents outstanding
(including shares to be issued upon shareholder consent). See Notes 7 and 9
below. Due to the Company's net loss for all periods presented, all common
stock equivalents would be anti-dilutive to diluted earnings per share.
6. On August 10, 1998, the Company's Board of Directors approved a new Credit
Agreement between the Company and WGI, LLC, to be effective as of May 8,
1998 (the "WGI Credit Agreement"), pursuant to which WGI will lend the
Company up to $25,000,000 on a revolving basis for a three-year term ending
May 8, 2001. Additional material terms of the WGI Credit Agreement are as
follows: (i) maximum funding of $25,000,000, available in increments of
$100,000 in excess of the minimum funding of $100,000; (ii) interest on
outstanding balances payable quarterly at a rate of 10% per annum; (iii)
secured by a security interest in all of the Company's assets (except for
the assets of its Heritage division and certain former plant locations
which were being held for sale), subordinate to the security interests of
the Company's senior lender; (iv) funds borrowed may be used for any
purpose approved by the Company's directors and executive officers,
including repayment of any other existing indebtedness of the Company; (v)
WGI, LLC is entitled to have two designees nominated for election to the
Company's Board of Directors during the term of the agreement; and (vi)
WGI, LLC will receive
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<PAGE>
warrants to purchase up to 5,000,000 shares of the Company's Common Stock
at $1.75 per share.
The warrants issued in connection with the WGI Credit Agreement will vest
at the rate of 200,000 warrants for each $1,000,000 increase in the largest
balance owed at any one time over the life of the credit agreement (as of
October 2, 1999, the largest outstanding balance to date has been
$20,510,000, which means that warrants to acquire 4,102,000 shares of
Common Stock have vested as of such date). These warrants were subject to
shareholder approval which was obtained at the Company's annual meeting.
The warrants have registration rights no more favorable than the equivalent
provisions in the currently outstanding warrants issued to principal
shareholders of the Company, except that such rights include three demand
registrations. The warrants also contain anti-dilution provisions which
require that the number of shares subject to such warrants shall be
adjusted in connection with any future issuance of the Company's Common
Stock (or of other securities exercisable for or convertible into Common
Stock) such that the aggregate number of shares issued or issuable subject
to these warrants (assuming eventual vesting as to the full 5,000,000
shares) will always represent ten percent (10%) of the total number of
shares of the Company's Common Stock on a fully diluted basis. The fair
market value using the Black-Scholes option pricing model of the above
mentioned warrants of approximately $4,467,000 has been capitalized and is
included in the accompanying consolidated balance sheet as a debt discount.
These costs are being amortized over the term of the debt agreement with
WGI. As a result of the anti-dilution protection in the warrants and the
completion of the Tahiti acquisition (including the issuance of the
additional 4.3 million common shares) (see Note 7), the Company anticipates
issuing approximately 4.2 million additional warrants to WGI, LLC.
7. 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. The financial statements reflect the
ownership of Tahiti as of January 1, 1999. The Company exercised dominion
and control over the operations of Tahiti commencing January 1, 1999.
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 and as further amended
post-closing by agreement dated April 15, 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
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<PAGE>
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 16
amendment to the Acquisition Agreement will be subject to approval by the
Company's shareholders at the Company's 1999 annual meeting. 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.
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. 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.
The results of operations of Tahiti are included in the accompanying
consolidated financial statements from the date of acquisition (i.e.
January 1, 1999). The pro forma financial information below is based on the
historical financial statements of Signal Apparel and Tahiti and adjusted
as if the acquisition had occurred on January 1, 1998, with certain
assumptions made that management believes to be reasonable. This
information is for comparative purposes only and does not purport to be
indicative of the results of operations that would have occurred had the
transactions been completed at the beginning of the respective periods or
indicative of the results that may occur in the future.
1998
(Un-audited
In Thousands)
-------------
Operating Revenue $ 43,892
Income from Operations $ 13,456
Net Loss $ (1,570)
Basic/diluted net loss per share $ (0.03)
Weighted average shares outstanding 45,987
8. Effective March 22, 1999, the Company completed a new financing arrangement
with its senior lender, GMAC Financial Corporation (successor in interest
to BNY Financial Corporation) (on its own behalf and as agent for other
participating lenders), which provides the Company with funding of up to
$98,000,000 (the "Maximum Facility Amount") under a combined facility that
includes two Term Loans aggregating $50,000,000 (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.
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
("L/Cs") 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
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<PAGE>
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. In consideration for the unsecured
portion of the credit facility, the Company issued 1,791,667 shares of
Signal Apparel Common Stock and warrants to purchase 375,000 shares of
Common Stock priced at $1.50 per share. The fair market value of the above
mentioned shares of common stock of approximately $2.1 million has been
capitalized and is included in the accompanying consolidated balance sheet
as debt issuance cost. The fair market value, using the Black-Scholes
option pricing model, of the above mentioned warrants of approximately $0.2
million has been capitalized and is included in the accompanying
consolidated balance sheet as a debt discount. These costs are being
amortized over the five year term of the debt agreement with GMAC.
9. During the second quarter of 1999, in order to further assist the Company
in meeting its ongoing liquidity needs, WGI, LLC made direct payments of
$2.1 million to a third party licensor on the Company's behalf and, in
connection with the Company's Revolving Credit and Term Loan facility with
GMAC, executed certain guaranties and pledged certain collateral in the
aggregate amount of $21.6 million. In consideration for the aggregate of
$23.7 million in payments and credit enhancements provided by WGI, LLC, the
Company agreed to issue to WGI, LLC 4,217,956 shares of the Company's
common stock. These shares were valued at the then market price of $1.125
per share for a total value of $4,475,200. Under the rules of the New York
Stock Exchange, on which the Company's Common Stock is traded, issuance of
the 4,217,956 shares of Common Stock called for by the Reimbursement
Agreement will be subject to approval by the Company's shareholders at the
Company's 1999 annual meeting. The Company's principal shareholder, WGI,
LLC, intends to vote in favor of the issuance of such 4,217,956 shares of
the Company's Common Stock at the Company's 1999 Annual Meeting.
During the third quarter of 1999, the Company entered into a Reimbursement
Agreement and related Promissory Note (to be effective as of June 30, 1999)
as a mechanism for reimbursing WGI, LLC for payments made on the Company's
behalf outside of the WGI Credit Agreement, as well as for any loss that it
might suffer as a result of a decision by GMAC to proceed against the
guaranties and/or collateral posted with respect to the Company's senior
loan obligations. The Reimbursement Agreement will remain outstanding for
as long as WGI, LLC is obligated under any guaranties, or has any
collateral posted, with respect to the Company's obligations under
agreements with its senior lender or until all obligations under the
Reimbursement Agreement are repaid, whichever is later. Indebtedness under
the Reimbursement Agreement and Promissory Note will be unsecured, will be
subordinate to the Company's obligations to its senior lender and will bear
interest at the rate of eight percent (8.0%) per annum, payable in annual
installments either in cash or (at the Company's option, subject to
shareholder approval at the 1999 Annual Meeting) with shares Common Stock
valued at the then-current market price. The Company's initial principal
indebtedness of $2.1 million under the note will automatically increase
from time to time (up to a maximum of $53.226 million) in an amount equal
to any payments made by WGI, LLC pursuant to any of the GMAC guaranties,
plus the value of any WGI collateral which is offset by GMAC against the
Company's obligations. The principal amount of such indebtedness will be
payable at any time upon demand of WGI, LLC.
10. On March 3, 1999, the Company completed the private placement of $5 million
of 5% Convertible Debentures due March 3, 2002 with two institutional
investors. The Company utilized the net proceeds from issuance of these
Debentures to redeem all of the remaining outstanding shares of the
Company's 5% Series G1 Convertible Preferred Stock (following the
conversion of $347,685.42 stated value (including accrued dividends) of
such stock into 331,140 shares of the Company's Common Stock effective
February 26, 1999, by two other institutional investors). This transaction
effectively replaced a security convertible into the
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Company's Common Stock at a floating rate (the 5% Series G1 Preferred
Stock) with a security (the Debentures) convertible into Common Stock at a
fixed conversion price of $2.00 per share. The transaction also reflects
the Company's decision to forego the private placement of an additional $5
million of 5% Series G2 Preferred Stock under the original purchase
agreement with the Series G1 Preferred investors. In connection with the
sale of the $5 million of Debentures, the Company issued 2,500,000 warrants
to purchase the Company's Common Stock at $1.00 per share with a term of
five years. The fair market value, using the Black-Scholes option pricing
model, of the above mentioned warrants of approximately $2.25 million has
been capitalized and included in the consolidated balance sheet as a debt
discount. These costs are being amortized over the term of the Debentures.
Effective September 14, 1999, in connection with the Company's late payment
of interest that was due July 1, 1999 and the holders' waiver of the
associated Event of Default, the Company agreed with the two holders of the
Debentures that (A) the Debentures would be amended to eliminate an
election that the Company previously had to make interest payments in
either stock or cash and (B) the conversion price for the debentures would
remain fixed at $2.00 per share of Common Stock until December 31, 1999, at
which time the holders may adjust the conversion price to $1.00 per share
unless Signal procures the posting of not less than $10 million of new
collateral in support of additional funding under its GMAC loan on or
before such date (in which case the Company may elect to adjust the
conversion price to $1.25 per share of Common Stock).
11. In January 1999, the Company completed the sale of its Heritage division, a
woman's fashion knit business, to Heritage Sportswear, LLC, a new company
formed by certain former members of management of the Heritage division.
Additional information regarding the terms of this sale is available in the
Company's Form 10-K Annual Report for the year ended December 31, 1998.
12. In the first quarter of 1999, Signal closed its offices and warehouses in
Chattanooga, Tennessee and its production facilities in Tazewell, Tennessee
and shut down substantially all of its operations located there. Signal
relocated its sales and merchandising offices to New York, New York and
relocated the corporate offices and all accounting and certain related
administrative functions to offices in Avenel, New Jersey.
13. In the second quarter of 1999, Signal closed its warehouse and printing
facility in Houston, Texas and shut down substantially all of its
operations located there (except for certain artist functions). The Houston
facility was the location for the design, manufacture, and sale of the
Company's Big Ball Sports line of products. Signal relocated the sales and
merchandising functions to New York, New York and has outsourced all of the
manufacturing functions for the Big Ball Sports line to third parties. The
Company's negative Gross Profit for the second quarter of 1999 includes
$1.9 million of negative gross margin on closeout goods and $0.5 million of
negative gross margin resulting from customer chargebacks related to the
Big Ball shutdown.
14. In July, 1999, the Company completed the sale of its GIDI Holdings, Inc.
subsidiary (also known as Grand Illusion) to John Prutch, the previous
president of the Company. Under the terms of the sale dated July 31, 1999,
the Company sold all of the issued and outstanding common stock of GIDI
Holdings to John Prutch in consideration of the assumption by the buyer of
$0.9 million of short term liabilities of GIDI Holdings (including the
release of any guaranties of the Company of such obligations). This
resulted in the Company recognizing a gain on sale of $0.4 million. The
Company also retained 35 shares of Series A Preferred Stock in GIDI
Holdings. The Preferred Stock has the following attributes: (a) Par value
of $10,000 per share, (b) senior to all other classes of capital stock in
GIDI Holdings, (c) cumulative 6% cash dividends accrue and are payable
semi-annually on June 30 and December 31 each year, (d) if GIDI Holdings or
its assets are sold within 18 months after the last share of Preferred
Stock has been redeemed, the Preferred Holders are entitled to receive 35%
of all proceeds of sale in excess of $1.0 million, (e) veto rights on any
organic change in GIDI Holdings, (f) convertible (in the aggregate) into
35% of the common stock of GIDI Holdings, and (g) starting December 31,
1999, mandatory redemption of 6 shares each 6 months.
15. In the first quarter of 1999, WGI waived its right to receive $1.5 million
in preferred dividends which would have accrued in relation to the Series H
Preferred Stock during the first quarter of 1999. WGI has not waived any
other right to receive preferred dividends which accrued after the end of
the first quarter of 1999.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS:
Three Months Ended October 2, 1999
Net sales of $10.7 million for the quarter ended October 2, 1999 represents a
decrease of $4.6 million (or 30%) from $15.3 million in net sales for the
corresponding period of 1998. This decrease is mainly attributed to the fact
that third quarter 1999 sales do not reflect any sales from the Heritage
division (sold at 1/1/99) which had provided $3.7 million in sales in the
quarter ended October 3, 1998. In addition, the sale of the Grand Illusion
division resulted in the third quarter 1999 reflecting only $0.3 million in
sales from Grand Illusion compared to $1.1 million in sales from such division
in the comparable 1998 quarter. Moreover, the closing of the Big Ball division
resulted in the third quarter of 1999 reflecting only $ 0.1 million in residual
sales from Big Ball compared to $1.3 million in sales from such division in the
comparable 1998 quarter. Conversely, the 1999 third quarter does reflect $ 5.6
million of sales from the Tahiti and Umbro divisions which did not exist in the
third quarter of 1998.
Total Gross Margin before royalties increased $1.8 million in the third quarter
of 1999 compared to the corresponding period in 1998. Gross Margin percentage
was 27.5% for the third quarter of 1999 compared to 7.3% for the quarter ended
October 3, 1998. The $1.8 million increase in total gross margin is attributable
primarily to an improvement of 20% in the Company's margins on the $10.7 million
of sales in the third quarter of 1999.
Royalty expense related to licensed product sales was 6.2% of sales for the
quarter ended October 2, 1999, compared to 9.4% for the corresponding period of
1998. This decrease resulted primarily from an increase by the Company in sales
of proprietary products.
Selling, general and administrative (SG&A) expenses as a percentage of total
sales were 60% of sales for the quarter ended October 2, 1999 compared to 31% of
sales for the corresponding period of 1998. The total amount of SG&A expenses
increased a total of $1.7 million from $4.7 million in the quarter ended October
3, 1998 to $6.4 million for the comparable quarter of 1999. The change in the
total amount of SG&A between 1998 and 1999 is primarily related to the
acquisition of Tahiti and the different cost structure associated with its
business.
During the third quarter of 1999, the Company continued to implement the revised
business strategy initiated in the last quarter of 1998, which has resulted in a
change from the Company being primarily a manufacturer of products to primarily
a sales, marketing, merchandising and distribution company for activewear and
other clothing. As a result, the Company closed its last operating facility for
the Big Ball division in Houston, Texas during the second quarter.
Depreciation and amortization increased from $0.4 million in the quarter ended
October 3, 1998 to $0.5 million in the comparable 1999 period. However, the
amortization of Goodwill was $0.45 million and depreciation was $0.05 million in
the quarter ended October 2, 1999, whereas the $0.4 million recorded in 1998
consisted entirely of depreciation expense. The reduction of depreciation
expense for the 1999 quarter compared to 1998 resulted primarily from the sale
by the Company of a substantial portion of its fixed assets in connection with
the various plant closings that have occurred.
Interest expense for the quarter ended October 2, 1999 was $4.4 million compared
to $3.3 million in the comparable quarter of 1998. In the third quarter of 1999,
$2.0 million of the $4.4 million of interest expense is non-cash interest
amortization related to the reduction of debt discounts for the WGI, LLC
warrants and the warrants and common stock issued to GMAC (See Notes 6 and 8).
Nine Months Ended October 2, 1999
Net sales of $79.3 million for the nine months ended October 2, 1999 represents
an increase of $40.0 million (or 102%) from $39.3 million in net sales for the
corresponding period of 1998. This increase is mainly attributed to
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$58.3 million in combined new sales from the newly acquired Tahiti division and
the Umbro division. Conversely, the first nine months of 1999 sales do not
reflect any sales from the Heritage division (sold at 1/1/99) which had provided
$9.4 million in sales in the nine months ended October 3, 1998. In addition, the
sale of the Grand Illusion division resulted in the first nine months of 1999
reflecting only $2.0 million in sales from Grand Illusion compared to $2.5
million in sales from such division in the comparable 1998 period. Moreover, the
closing of the Big Ball division during the second quarter of 1999 resulted in
the first nine months of 1999 reflecting only $2.4 million in sales from Big
Ball compared to $7.2 million in sales from such division in the comparable 1998
period.
Total Gross Margin before royalties increased $1.6 million in the first nine
months of 1999 compared to the corresponding period in 1998. Gross Margin
percentage was 11.1% for the first nine months of 1999 compared to 18.2% for the
nine months ended October 3, 1998. The $1.6 million increase in total gross
margin is attributable to a smaller percentage (11.1%) applied to a much larger
sales base ($79.3 million). The reduced gross margin percentage is attributable
in part to $2.4 million of excessive costs to import goods by air freight and
then transport those same goods by overnight courier direct to customer retail
locations, all as a result of late manufacture of such goods. The late
manufacture of goods resulted from delays in opening letters of credit to
foreign manufacturers as a result of limited bank loan availability during the
negotiation of the acquisition of the assets of Tahiti Apparel, Inc. by the
Company. In addition, the gross margin for the first nine months of 1999 was
negatively effected by (a) a $1.9 million net loss on closeout goods and $0.5
million in customer chargebacks related to the Big Ball shutdown and (b)
recognition of an additional $1.5 million loss on the markdown and sale of other
obsolete and slow moving inventory.
Royalty expense related to licensed product sales was 5.1% of sales for the nine
months ended October 2, 1999, compared to 8.4% for the corresponding period of
1998. This decrease resulted primarily from an increase by the Company in sales
of proprietary products.
Selling, general and administrative (SG&A) expenses as a percentage of total
sales were 32.4% of sales for the nine months ended October 2, 1999 compared to
35.2% of sales for the corresponding period of 1998, an 8% improvement. The SG&A
expenses increased a total of $11.9 million from $13.8 million in the nine
months ended October 3, 1998 to $25.7 million for the comparable period of 1999.
The change in the total amount of SG&A between 1998 and 1999 is primarily
related to (a) additional sales expenses resulting from the additional $40.0
million of sales in the first nine months of 1999, (b) over $0.7 million in
consulting fees being paid to third parties for services related to accounting
and systems consulting (c) $1.0 million of professional fees, (d) $1.5 million
of temporary and recruiting costs associated with the move to New Jersey, which
were partially offset by $0.7 million in reduced SG&A expenses at the Houston
facility, compared to the same period for 1998, (e) $0.5 million of employee
termination costs and other administrative exit costs related to the Big Ball
shutdown, and (f) $0.8 million of start-up expenses incurred in the second
quarter of 1999 for the expansion of two divisions.
During the first nine months of 1999, the Company continued to implement the
revised business strategy initiated in the last quarter of 1998, which has
resulted in a change from the Company being primarily a manufacturer of products
to primarily a sales, marketing, merchandising and distribution company for
activewear and other clothing. As a result, the Company closed its last
operating facility for the Big Ball division in Houston, Texas during the second
quarter. The Company's negative Gross Profit for the second quarter of 1999
includes a $1.9 million net loss on closeout goods and $0.5 million in customer
chargebacks related to this shutdown.
Depreciation and Amortization increased from $2.5 million in the nine months
ended October 3, 1998 to $2.7 million in the comparable 1999 period, primarily
as a result of $1.4 million of amortization of goodwill attributable to the new
Tahiti acquisition, amortization of debt issuance costs of $0.7 million and a
$1.8 million reduction in depreciation expense.
Interest expense for the nine months ended October 2, 1999 was $11.4 million
compared to $7.0 million in the comparable period of 1998. In 1999, $1.4 million
of the $11.4 million of interest expense is non-cash interest amortization
related to the reduction of debt discounts for the WGI, LLC warrants and the
warrants issued to GMAC (See Notes 6 and 8).
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FINANCIAL CONDITION
During 1998 and the first nine months of 1999, the Company has undergone a
strategic change from a manufacturing orientation to a sales and marketing
focus. Effective March 22, 1999, Signal Apparel Company, Inc. purchased the
business and assets of Tahiti Apparel Company, Inc., a leading supplier of
ladies and girls activewear, bodywear and swimwear primarily to the mass market
as well as to the mid-tier and upstairs retail channels. Tahiti's products are
marketed pursuant to various licensed properties and brands as well as
proprietary brands of Tahiti. During the fourth quarter of 1998, Signal also
acquired the license and certain assets for the world recognized Umbro soccer
brand in the United States for the department, sporting goods, sports specialty
store and mid-tier retail channels. The acquisition of Tahiti Apparel and the
Umbro license initiative both are part of the Company's ongoing efforts to
improve its operating results. The Company has exited all of its manufacturing
activities to focus exclusively on sales, marketing and merchandising of its
product lines. Following these developments, Signal and its wholly owned
subsidiaries market activewear, bodywear and swimwear in juvenile, youth and
adult size ranges. The Company's products are sold principally to retail
accounts under the Company's proprietary brands, licensed character brands,
licensed sports brands, and other licensed brands. The Company's principal
proprietary brands include G.I.R.L., Bermuda Beachwear, Big Ball and Signal
Sport. Licensed brands include Hanes Sport, BUM Equipment, Jones New York and
Umbro. Licensed character brands include Mickey Unlimited, Winnie the Pooh,
Looney Tunes, Scooby-Doo and Sesame Street; and licensed sports brands include
the logos of Major League Baseball, and the National Hockey League. The
Company's license with the National Football League expired, subject to certain
sell-off rights, on March 31, 1999 and will not be renewed. During the year
ended December 31, 1998, licensed NFL product sales were approximately 15% of
consolidated revenue. The loss of this license could also affect the Company's
ability to sell other professional sports apparel to its customers.
Additional working capital was required in the first nine months of 1999 to fund
the continued losses and payments of interest on the Company's long-term debt to
its secured lenders. The Company's need was met through use of its new credit
facility with its senior lender. At October 2, 1999, the Company had overadvance
borrowings (secured in part by the guarantee of two principal shareholders) of
$53.2 million with its senior lender compared to $34.7 million at October 3,
1998.
The Company's working capital deficit at October 2, 1999 increased $31.7 million
or 56% compared to year end 1998. Excluding the effect of all sales and
acquisitions of divisions, the increase in the working capital deficit was
primarily due to the new term loan being classified as a current liability
($47.7 million), which was partially offset by a decrease in inventories ($12.8
million), a decrease in accounts receivable ($0.1 million), a decrease in
accounts payable and accrued liabilities ($10.2 million), a decrease in the
revolving advance account ($27.3 million), and debt discount associated with the
term loan ($2.3 million). The Company has a "zero base balance" arrangement with
the bank where it maintains its operating account that allows the Company to
cover checks drawn on such account on a daily basis with funds wired from its
senior lender based on the credit facility with the senior lender.
Excluding the effect of all sales and acquisitions of divisions, accounts
receivable decreased $0.1 million or 7% over year-end 1998.
Excluding the effect of all sales and acquisitions of divisions, inventories
decreased $12.8 million compared to year-end 1998. Inventories decreased as a
result of management's focus on selling all slow moving and obsolete inventory
during the first nine months of 1999, the sale of substantially all of the
remaining Big Ball Sports inventory in connection with the closure of the
Houston facility, and the general reduction of inventory related to the Tahiti
division as of the end of the swimwear season at the end of the second quarter,
1999.
Excluding the effect of all sales and acquisitions of divisions, total current
liabilities increased $6.0 million or 33% over year-end 1998, primarily due to
the term loan being classified as a current liability ($47.7 million), which was
partially offset by a decrease in accounts payable and accrued liabilities
($10.2 million), a decrease in the revolving advance account ($27.3 million) ,
and debt discount associated with the term loan ($2.3 million).
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Excluding the effect of all sales and acquisitions of divisions, cash used in
operations was $27.0 million during the first nine months of 1999 compared to
$15.4 million used in operating activities during the same period in 1998. The
increased use of cash during such period was primarily due to the net loss of
$35.2 million during the first nine months of 1999, which was partially offset
by depreciation and amortization ($3.5 million) and non-cash interest ($3.3
million), a decrease in inventories ($12.8 million), a decrease in accounts
receivable ($0.1 million), and a decrease in accounts payable and accrued
liabilities ($10.2 million).
Commitments to purchase equipment totaled less than $0.2 million at October 2,
1999. During the remainder of 1999, the Company anticipates capital expenditures
not to exceed $0.2 million.
Cash provided by investing activities was $2.8 million for the nine months ended
October 2, 1999 compared to cash provided of $0.8 in the comparable period for
1998. This primarily resulted from $2.0 million provided through the sale of the
Heritage division, $0.4 million from the sale of the Grand Illusion Division,
and $0.4 million of restricted cash being released.
Cash provided by financing activities was $23.8 million for the first nine
months of 1999 compared to $14.2 million in the comparable period for 1998.
Excluding the effect of all sales and acquisitions of divisions, the Company had
net borrowings of approximately $20.4 million from its senior lender, after
taking into account borrowings under the new $50 million term loan and the
borrowings under the new revolving credit facility and repayment of the existing
credit facilities maintained by the Company (including those assumed in
connection with the Tahiti acquisition). In addition, the Company sold new 5%
convertible debentures ($5.0 million), which was partially offset by repurchase
of Series G1 Preferred Stock ($2.4 million), and other principal payments on
borrowings (including debt discounts) ($3.4 million).
Approximately $10.0 million was overadvanced under the revolving advance account
at October 2, 1999. The overadvance is secured in part, by the guarantee of two
principal shareholders.
Interest expense for the nine months ended October 2, 1999 was $11.4 million
compared to $7.0 million for the same period in 1998. Excluding the effect of
all sales and acquisitions of divisions, the $11.4 million of interest in this
period included non-cash interest charges of $3.2 million. Total outstanding
debt averaged $92.1 million and $65.9 million for the first nine months of 1999
and 1998, respectively, with average interest rates of 13.5%, and 12.1%,
respectively. The increased interest expense during 1999 reflects non-cash
interest resulting from amortization of debt discount of $2.3 million for the
period.
The Company uses letters of credit to support foreign and some domestic sourcing
of inventory and certain other obligations. Outstanding letters of credit were
$7.9 million at October 2, 1999.
Total Shareholders' Deficit increased $12.8 million to $79.4 million compared to
year-end 1998.
LIQUIDITY AND CAPITAL RESOURCES
As a result of continuing losses, the Company has been unable to fund its cash
needs through cash generated by operations. The Company's liquidity shortfalls
from operations during these periods have been funded through several
transactions with its principal shareholders and with the Company's senior
lender. These transactions are detailed above in the Financial Condition
section.
As of October 2, 1999, the Company's senior lender waived certain covenant
violations (pertaining to quarterly profits and working capital) under the
Company's factoring agreement. Even though these covenant violations have been
waived, the Company has not yet completed the fourth quarter of 1999 and no
determination can yet be made whether one or more covenant violations exist for
the fourth quarter. Accordingly, GAAP requires that the $50 million term loan be
classified as a current liability even though the term of the loan is longer
than one year.
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If the Company's sales and profit margins do not substantially improve in the
near term, the Company will be required to seek additional capital in order to
continue its operations and to move forward with the Company's turnaround plans,
which include seeking appropriate additional acquisitions. To obtain such
additional capital and such financing, the Company may be required to issue
additional securities that may dilute the interests of its stockholders.
At the end of fiscal 1997, the Company implemented a restructuring plan for its
preferred equity and the majority of its subordinated indebtedness (following
approval by shareholders of the issuance of Common Stock in connection
therewith), which resulted in a significant increase in the Company's overall
equity as well as a significant reduction in the Company's level of indebtedness
and ongoing interest expense. In addition, as discussed in Note 10 to the
financial statements, during the first quarter of 1999, the Company sold $5
million of Convertible Debentures to institutional investors, which funds were
used to repurchase the Company's Series G1 Convertible Preferred Stock. The
Company anticipates that funds provided by the WGI Credit Agreement, other
support by WGI LLC and the Bank of New York credit facility will enable the
Company to meet its liquidity needs at least through December 31, 1999.
During the fourth quarter of 1998, the Company reached a decision to close its
printing facility in Chattanooga, Tennessee and it anticipated closing its Big
Ball subsidiary and selling its Grand Illusion subsidiary. The Company recorded
restructuring charges and goodwill write-offs totaling of $7.3 million as a
result of these matters. The Company took this action in an effort to further
improve its cost structure. The Company is considering the sale of certain other
non-essential assets. The Company also has an ongoing cost reduction program
intended to control its general and administrative expenses, and has implemented
an inventory control program to eliminate any obsolete, slow moving or excess
inventory.
On May 12, 1999 the Company issued a WARN notice that the Company would close
its Houston printing facility. The facility was, in fact, shut down on July 11,
1999. The Consolidated Statements of Operations for the nine months ended
October 2, 1999 reflect $1.9 million in negative gross margin on sales of
closeout goods, $0.5 million in negative gross margin on customer chargebacks,
and $0.5 million in employee termination and other administrative exit costs,
all related to the Big Ball shutdown.
Although management believes that the effects of the restructuring, the private
placement of preferred stock and the cost reduction measures described above
have enhanced the Company's opportunities for obtaining the additional funding
required to meet its liquidity requirements beyond December 31, 1999, no
assurance can be given that any such additional financing will be available to
the Company on commercially reasonable terms or otherwise. The Company will need
to significantly improve sales and profit margins or raise additional funds in
order to continue as a going concern.
YEAR 2000
The Company is in the process of updating its current software, developed for
the apparel industry, which will make the information technology ("IT") systems
year 2000 compliant. This software modification, purchased from a third party
vendor, has been installed, tested and is functioning properly. The Company
continues to test the integrity of the system. Although the Company believes
that the modification to the software which runs its core operations is year
2000 compliant, the Company does utilize other third party equipment and
software that may not be year 2000 compliant. If any of this software or
equipment does not operate properly in the year 2000 and thereafter, the Company
could be forced to make unanticipated expenditures to cure these problems, which
could adversely affect the Company's business. The total cost of the new
software and implementation necessary to upgrade the Company's current IT system
and address the year 2000 issues is estimated to be approximately $100,000.
Planned costs have been budgeted in the Company's operating budget. The
projected costs are based on management's best estimates and actual results
could differ as the new system is implemented. Approximately $40,000 has been
expended as of October 2, 1999. The Company has adopted and implemented a formal
year 2000 compliance plan. This effort is being headed by the Company's new MIS
manager and includes members of various operational and functional units of the
Company. To date, letters/inquiries have been sent to suppliers, vendors, and
others to determine their
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compliance status. A significant number of responses have been received. The
Company's principal customers, Wal-Mart, Target and K-Mart, have indicated that
they are Year 2000 compliant. The Company is cognizant of the risk associated
with the year 2000 and has begun a series of activities to reduce the inherent
risk associated with non-compliance. The Company's MIS manager is primarily
responsible to insure that all Company systems are Year 2000 compliant. Among
the activities which the Company has not performed to date include: software
(operating systems, business application systems and EDI system) must be
upgraded and tested (although these systems are integrated and are included in
the Company's core accounting system); a few PC's must be assessed and upgraded
for compliance. In the event that the Company or any of its significant
customers or suppliers does not successfully and timely achieve year 2000
compliance, the Company's business or operations could be adversely affected.
Thus, the Company is in the process of adopting a contingency plan. The Company
is currently developing a "Worst Case Contingency Plan" which will include
generally an environment of utilizing spreadsheets and other "workaround"
programming and procedures. This contingency system will be activated if the
current plans are not successfully implemented and tested by December 1, 1999.
The cost of these alternative measures is estimated to be less than $25,000. The
Company believes that its current operating systems are fully capable (except
for year 2000 data handling) of processing all present and future transactions
of the business. Accordingly, no major efforts have been delayed or avoided
which affect normal business operations as a result of the incomplete
implementation of the year 2000 IT systems. These current systems will become
the foundation of the Company's contingency system.
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10.1) Stock Purchase Agreement dated as of July 31, 1999 by and among
the Company (as Seller) and John Prutch (as Buyer) concerning sale
of all of the outstanding common stock of GIDI Holdings, Inc.
(10.2) Warrant Certificate to purchase 1,536,515 shares of the Company's
Common Stock issued to John Prutch as of August 1, 1999
(10.3) Separation Agreement dated as of July 31, 1999 by and among the
Company and John W. Prutch.
(10.4) Letter Agreement dated as of August 1, 1999 concerning the
Revolving Credit, Term Loan and Security Agreement dated March 12,
1999 between the Company and its senior lender, GMAC Commercial
Credit LLC (as successor to BNY Financial Corporation, in its own
behalf and as agent for other participating lenders), waiving
compliance with certain provisions thereof.
(10.5) Stock Pledge and Security Agreement and Collateral Assignment of
Stock Purchase Agreement, dated as of August 1, 1999 between the
Company and its senior lender, GMAC Commercial Credit LLC (as
successor to BNY Financial Corporation, in its own behalf and as
agent for other participating lenders), concerning Series A
Preferred Stock of GIDI Holdings, Inc.
(10.6) Letter Agreement dated November 15, 1999 amending the Revolving
Credit, Term Loan and Security Agreement dated March 12, 1999
between the Company and its senior lender, BNY Financial
Corporation (in its own behalf and as agent for other
participating lenders), and waiving compliance with certain
provisions thereof.
(10.7) Letter Agreement dated September 14, 1999 regarding the Company's
5% Convertible Subordinated Debentures due March 3, 2002.
(27) Financial Data Schedule (EDGAR version only)
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(b) Reports on Form 8-K:
The Company filed the following Current Reports on Form 8-K during the
quarter:
FINANCIAL
DATE OF REPORT ITEMS REPORTED STATEMENTS FILED
- -------------- -------------- ----------------
July 21, 1999 Item 4 - Changes in Registrant's Certifying None.
Accountant: The resignation of Arthur
Andersen LLP as the Company's independent
public accountants and auditors.
Item 7 - Exhibits: Letter from Arthur None.
Andersen LLP to the Securities and
Exchange Commission concerning its
resignation as the Company's principal
accountant.
August 20, 1999 Item 4 - Changes in Registrant's Certifying None.
Accountant: The appointment of
Goldstein Golub Kessler LLP as the
Company's independent public accountants
and auditors, effective immediately.
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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 thereunto duly authorized.
SIGNAL APPAREL COMPANY, INC.
(Registrant)
Date: November 15, 1999 /s/ Thomas A. McFall
----------------------
Thomas A. McFall
Chief Executive Officer
Date: November 15, 1999 /s/ Howard Weinberg
-----------------------
Howard Weinberg
Chief Financial Officer
Page 17
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of July 31, 1999, by
Signal Apparel Company, Inc., an Indiana corporation ("Seller"), John Prutch, an
individual resident in Palatine, Illinois ("Buyer"), and GIDI Holdings, Inc., an
Illinois corporation (the "Acquired Company").
RECITALS
WHEREAS, Seller desires to sell, and Buyer desires to purchase, all of the
issued and outstanding shares of common stock of the Acquired Company (the
"Shares"), for the consideration and on the terms set forth in this Agreement.
Seller will retain all issued and outstanding shares of Series A Preferred Stock
of GIDI Holdings, Inc., and Buyer will not purchase any shares of preferred
stock at Closing.
NOW, THEREFORE, the parties hereto, intending to be legally bound, agree as
follows:
ARTICLE 1. SALE AND TRANSFER OF SHARES; CLOSING
1.1 SHARES
Subject to the terms and conditions of this Agreement, at the Closing, Seller
will sell and transfer the Shares to Buyer, and Buyer will purchase the Shares
from Seller.
1.2 PURCHASE PRICE
The consideration for the Shares will be Buyer's assumption of the indebtedness
of the Acquired Company, as provided herein (the "Purchase Price").
1.3 CLOSING
The purchase and sale and related transactions (the "Closing") provided for in
this Agreement will take place at the offices of Seller's counsel, Witt, Gaither
& Whitaker, P.C., located at Suite 1100 SunTrust Bank Building, 736 Market
Street, Chattanooga, Tennessee, at 10:00 a.m. (local time) on August 5, 1999
(the "Closing Date"), or at such other time, date and place as the parties may
agree.
1.4 CLOSING OBLIGATIONS
At the Closing:
(a) Seller will deliver or cause to be delivered to Buyer:
(i) certificates representing the Shares, duly endorsed (or accompanied by duly
executed stock
<PAGE>
powers), for transfer to Buyer;
(ii) stock records and minute books of the Acquired Company, and other books,
records and property of the Acquired Company in the possession or under the
control of the Seller; and
(iii) a certificate executed by Seller to the effect that, except as otherwise
stated in such certificate, each of Seller's representations and warranties in
this Agreement was accurate in all respects as of the date of this Agreement and
is accurate in all respects as of the Closing Date as if made on the Closing
Date.
(b) Buyer will deliver or cause to be delivered to Seller:
(i) a certificate executed by Buyer to the effect that, except as otherwise
stated in such certificate, each of Buyer's representations and warranties in
this Agreement was accurate in all respects as of the date of this Agreement and
is accurate in all respects as of the Closing Date as if made on the Closing
Date.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
2.1 ORGANIZATION AND GOOD STANDING
(a) The Acquired Company is a corporation validly existing and in good standing
under the laws of its jurisdiction of incorporation, with full corporate power
and authority to conduct its business as it is now being conducted, to own or
use the properties and assets that it purports to own or use, and to perform all
its obligations under its material contracts.
(b) Seller has delivered to Buyer true and correct copies of the organizational
documents of the Acquired Company, as currently in effect.
2.2 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation of
Seller, enforceable against Seller in accordance with its terms. Seller has the
right, power, and authority to execute and deliver this Agreement and Seller's
closing documents;
(b) Except as set forth in Schedule 2.2 , neither the execution and delivery of
this Agreement nor the consummation or performance of any of the transactions
contemplated by this Agreement by Seller (the "Contemplated Transactions") will,
to Seller's best knowledge, give any person the right to prevent, delay, or
otherwise interfere with any of the Contemplated Transactions pursuant to: (i)
any legal requirement to which Seller may be subject; or (ii) any contract to
which Seller is a party or by which Seller may be bound.
(c) Seller is not and will not be required to obtain any consent from any person
in connection
2
<PAGE>
with the execution and delivery of this Agreement as the consummation or
performance of any of the Contemplated Transactions.
2.3 CAPITALIZATION
(a) The authorized equity securities of the Acquired Company consists of 10,000
shares of common stock, no par value per share, of which 2,000 shares are issued
and outstanding and constitute the Shares, and 35 shares of Series A Preferred
Stock, having a stated value of $10,000 per share, of which 35 shares are issued
and outstanding and owned legally and beneficially by Seller. The resolution of
the Board of Directors of GIDI Holdings, Inc. fixing the voting powers,
designations, preferences and relative, participating, optional or other special
rights, and qualifications, limitations, or restrictions thereof, of the Series
A Preferred Stock is attached hereto as ANNEX A (the "Resolution"). Pursuant to
a recapitalization of the Acquired Company, Seller acquired such shares of
Series A Preferred Stock in consideration for its contribution to capital of the
Acquired Company of Seller's right to payment of $350,000 of the outstanding
indebtedness owing by the Acquired Company to Seller (the "Intercompany Debt")
and Seller then contributed its right to payment of the outstanding balance of
the Intercompany Debt to the Acquired Company as additional paid-in capital, all
of which is so reflected as of the date hereof on the respective books and
records of the Acquired Company and Seller. Except for the Intercompany Debt so
contributed, no Intercompany Debt has been incurred or is outstanding. All of
the outstanding equity securities of the Acquired Company have been duly
authorized and validly issued and are fully paid and nonassessable and free of
preemptive and similar rights. There are no contracts, commitments, agreements,
obligations, options, or other rights relating to the issuance, sale, or
transfer of any equity securities or other securities of the Acquired Company,
except as set forth in this Agreement. The Acquired Company does not own, or
have any contract, commitments, agreements, obligations, options, or other
rights to acquire, any equity securities or other securities of any person or
any direct or indirect equity or ownership interest in any other business.
(b) At the Closing, Seller will duly and validly sell, assign and deliver to
Buyer, whereupon Buyer will be vested with good and marketable title to, all of
the Shares, free and clear of all liens, claims, encumbrances, restrictions and
third party rights.
2.4 BROKERS OR FINDERS
Seller and its agents have incurred no obligation or liability, contingent or
otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement. Seller will indemnify and
hold Buyer harmless from any such payment alleged to be due by or through seller
as a result of the action of seller or his agents.
2.5 DISCLAIMER OF WARRANTIES
Except as expressly set forth in this Article 2, Seller makes no representation
or warranty, express or implied, at law or in equity, in respect of the Acquired
Company, and any such other representations or warranties relating to the
Acquired Company is hereby expressly disclaimed.
3
<PAGE>
Buyer hereby acknowledges and agrees that, except to the extent set forth in
this Article 2, Buyer is acquiring the Acquired Company on an "as-is; where-is"
basis.
2.6 TAXES
All returns of the Acquired Company required by law to be filed have been
properly and accurately prepared and duly filed in a timely manner, and all
Taxes shown on such Returns to be due and payable have been paid or adequate
accruals therefor have been made by it. As used in this Agreement, the term
"Taxes" means all federal and state, income, gross receipts, sales, use, ad
valorem, transfer, franchise, withholding, payroll, employment, excise, stamp,
customs, duties or other taxes, together with any interest and any penalties,
additions to tax or additional amounts with respect thereto, and the term
"Returns" means all returns, declarations, reports, statements and other
documents required to be filed in respect of Taxes.
2.7 CONTRACTS
Except as disclosed in writing or provided to Buyer on or before the date of
this Agreement, the Acquired Company is not a party to, or bound by, or the
issuer or beneficiary of, any undisclosed written or oral: (i) agreement or
arrangement obligating or potentially obligating the Acquired Company to pay an
aggregate amount in excess of $50,000, including, without limitation, any
purchase, sale, supply or distribution or vending agreement or arrangement; (ii)
employment or consulting agreement or arrangement; (iii) plan, contract or
arrangement providing for bonuses, options, deferred compensation, retirement
payments, profit sharing, medical and dental benefits or the like covering
employees of the Acquired Company; (iv) agreement restricting in any manner the
Acquired Company's right to compete with, sell to or purchase from any other
person or entity or the ability of such person or entity to employ any of the
Acquired Company's employees; (v) guaranty, performance, bid or completion bond,
or surety or indemnification agreement; (vi) requirements contract; (vii) loan
or credit agreement, pledge agreement, note, security agreement, mortgage,
debenture, indenture, factoring agreement or letter of credit; (viii) power of
attorney; (ix) partnership or joint venture agreement; (x) insurance contracts;
or (xi) any other agreement not entered into in the ordinary course of business.
2.8 FALSE OR MISLEADING INFORMATION
No information of a factual nature set forth in this Agreement contains or will
contain any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements or
information contained therein, in the light of the circumstances under which
such statements are made, not misleading.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
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3.1 AUTHORITY; NO CONFLICT
(a) This Agreement constitutes the legal, valid, and binding obligation of
Buyer, enforceable against Buyer in accordance with its terms. Buyer has the
right, power, and authority to execute and deliver this Agreement and the
Buyer's closing documents and to perform his obligations under this Agreement
and the Buyer's closing documents.
(b) Neither the execution and delivery of this Agreement by Buyer nor the
consummation or performance of any of the Contemplated Transactions by Buyer
will to Buyer's best knowledge give any person the right to prevent, delay, or
otherwise interfere with any of the Contemplated Transactions pursuant to:
(i) any legal requirement or order to which Buyer may be subject; or
(ii) any contract to which Buyer is a party or by which Buyer may be bound.
(c) Buyer is not and will not be required to obtain any consent from any person
in connection with the execution and delivery of this Agreement or the
consummation or performance of any of the contemplated transactions.
3.2 CERTAIN PROCEEDINGS
There is no pending proceeding that has been commenced against Buyer and that
challenges, or may have the effect of preventing, delaying, making illegal, or
otherwise interfering with, any of the Contemplated Transactions. To Buyer's
knowledge, no such proceeding has been threatened.
3.3 BROKERS OR FINDERS
Buyer has incurred no obligation or liability, contingent or otherwise, for
brokerage or finders' fees or agents' commissions or other similar payment in
connection with this Agreement. Buyer will indemnify and hold Seller harmless
from any such payment alleged to be due by or through Buyer as a result of the
action of Buyer or his agents.
3.4 ACCOUNTS PAYABLE
Buyer represents and warrants that the accounts listed on Annex C are all of the
trade accounts payable by the Acquired Company as of the date hereof.
ARTICLE 4. COVENANTS OF SELLER PRIOR TO CLOSING DATE
4.1 OPERATION OF THE BUSINESSES OF THE ACQUIRED COMPANY
Between the date of this Agreement and the Closing Date, Seller will, and will
cause the Acquired Company to:
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(a) confer with Buyer concerning operational matters of a material nature; and
(b) otherwise report periodically to Buyer concerning the status of the
business, operations, and finances of the Acquired Company.
4.2 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, Seller will, and
will cause the Acquired Company to, make all filings required by legal
requirements to be made in order to consummate the Contemplated Transactions.
Between the date of this Agreement and the Closing Date, Seller will, and will
cause the Acquired Company to: (a) cooperate with Buyer with respect to all
filings that Buyer elects to make or is required by legal requirements to make
in connection with the contemplated transactions, and (b) cooperate with Buyer
in obtaining all required consents.
4.3 NOTIFICATION
Between the date of this Agreement and the Closing Date, Seller will promptly
notify Buyer in writing if Seller or the Acquired Company becomes aware of any
fact or condition that causes or constitutes a breach of any of Seller's
representations and warranties as of the date of this Agreement, or if Seller or
the Acquired Company becomes aware of the occurrence after the date of this
Agreement of any fact or condition that would (except as expressly contemplated
by this Agreement) cause or constitute a breach of any such representation or
warranty had such representation or warranty been made as of the time of
occurrence or discovery of such fact or condition. No such notice shall relieve
Seller of any liability for any such breach, nor shall such notice or the
consummation of the Contemplated Transactions constitute a waiver by Buyer of
any rights or remedies with respect to such breach.
ARTICLE 5. COVENANTS OF BUYER AND ACQUIRED COMPANY
5.1 APPROVALS OF GOVERNMENTAL BODIES
As promptly as practicable after the date of this Agreement, each party will
make all filings required of it by legal requirements to be made to consummate
the Contemplated Transactions. Between the date of this Agreement and the
Closing Date, Buyer, Seller, and the Acquired Company will: (i) cooperate in all
reasonable respects requested by the other party with the other party with
respect to all filings that the other party is required by legal requirements to
make in connection with the Contemplated Transactions, and (ii) cooperate with
the other party in obtaining all required consents.
5.2 LIENS
The Acquired Company will not create nor allow any mortgage, encumbrance, or
lien, whether voluntary or involuntary (collectively "Liens"), on the real or
personal property, assets, effects, undertaking or goodwill of the Acquired
Company, other than liens securing indebtedness to
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Republic Finance or any lender substituted for Republic Finance, without the
consent of the holders of at least two-thirds (2/3) of the outstanding shares of
Series A Preferred.
Notwithstanding the foregoing, the Acquired Company shall be entitled to grant
or permit the following Liens, without any consent of its Series A preferred
shareholder: (i) Liens securing payment of indebtedness incurred in connection
with the acquisition of equipment or other assets and covering only those assets
acquired with the proceeds of such indebtedness, (ii) Liens for taxes,
assessments or other governmental charges or levies not yet due or thereafter
payable without penalty, or Liens of carriers, warehousemen, mechanics,
materialmen and landlords incurred in the ordinary course of business for sums
not overdue, or any such Liens being diligently contested in good faith by
appropriate proceedings and for which adequate reserves in accordance with
generally accepted accounting principles shall have been set aside on its books
(but only if such Liens do not in the aggregate materially adversely affect the
assets or business of the Acquired Company), (iii) Liens incurred in the
ordinary course of business in connection with workmen's compensation,
unemployment insurance or other forms of governmental insurance or benefits, or
to secure performance of statutory obligations, leases and contracts (other than
for borrowed money ) entered into in the ordinary course of business or to
secure obligations on surety or appeal bonds, and (iv) judgment Liens in
existence less than 30 days after the entry thereof or with respect to which
execution has been stayed or the payment of which is covered in full (subject to
a customary deductible) by insurance maintained with responsible insurance
companies.
ARTICLE 6. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Shares and to take the other actions required
to be taken by Buyer at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
in writing by Buyer, in whole or in part):
6.1 ACCURACY OF REPRESENTATIONS
All of Seller's representations and warranties in this Agreement must have been
accurate in all material respects as of the date of this Agreement, and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date.
6.2 SELLER'S PERFORMANCE
(a) All of the covenants and obligations that Seller is required to perform or
to comply with pursuant to this Agreement at or prior to the Closing, and each
of these covenants and obligations, must have been duly performed and complied
with in all material respects.
(b) Each document required to be delivered by this Agreement must have been
delivered, and each of the other covenants and obligations required by this
Agreement must have been performed and complied with in all respects.
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6.3 CONSENTS
Each of the consents required to be obtained must have been obtained and must be
in full force and effect.
6.4 NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
threatened against any party, or against any person affiliated with any party,
any proceeding (a) involving any challenge to, or seeking damages or other
relief in connection with, any of the Contemplated Transactions, or (b) that may
have the effect of preventing, delaying, making illegal, or otherwise
interfering with any of the Contemplated Transactions.
6.5 NO CLAIM REGARDING STOCK OWNERSHIP OR SALE PROCEEDS
There must not have been made or threatened by any person any claim asserting
that such person (a) is the holder or the beneficial owner of, or has the right
to acquire or to obtain beneficial ownership of, any stock of, or any other
voting, equity, or ownership interest in, the Acquired Company, or (b) is
entitled to all or any portion of the Purchase Price payable for the Shares.
6.6 ADDITIONAL DOCUMENTS
Seller shall have delivered to Buyer a Separation Agreement in the form of ANNEX
B (the "Separation Agreement") and the other documents contemplated under this
Agreement and the Separation Agreement, in each case, duly executed by the
parties thereto other than Buyer, the parties thereto other than Buyer shall
have complied in all material respects with their respective obligations
required to be performed at or before the time of the Closing, the transactions
contemplated thereunder to be consummated at or before the time of the Closing
shall have been consummated, and no party (other than Buyer) shall have breached
in any material respect any of its representations, warranties or obligations
thereunder.
ARTICLE 7. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE
Seller's obligation to sell the Shares and to take the other actions required to
be taken by Seller at the Closing is subject to the satisfaction, at or prior to
the Closing, of each of the following conditions (any of which may be waived by
Seller, in whole or in part):
7.1 ACCURACY OF REPRESENTATIONS
All of Buyer's representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), must have been accurate in all material respects as of the date
of this Agreement and must be accurate in all material respects as of the
Closing Date as if made on the Closing Date.
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7.2 BUYER'S PERFORMANCE
(a) All of the covenants and obligations that Buyer is required to perform or to
comply with pursuant to this Agreement at or prior to the Closing (considered
collectively), and each of these covenants and obligations (considered
individually), must have been performed and complied with in all material
respects.
(b) Buyer must have delivered each of the documents required to be delivered by
Buyer pursuant to this Agreement and must have made the cash payments required
to be made by Buyer.
7.3 CONSENTS
Each of the consents required to have been obtained must have been obtained and
must be in full force and effect.
7.4 ADDITIONAL DOCUMENTS
Buyer must have caused the Seller the certificate required by Article 1 of this
Agreement to be delivered to
7.5 NO INJUNCTION
There must not be in effect any legal requirement or any injunction or other
order that (a) prohibits the sale of the Shares by Seller to Buyer, and (b) has
been adopted or issued, or has otherwise become effective, since the date of
this Agreement.
ARTICLE 8. TERMINATION
8.1 TERMINATION EVENTS
This Agreement may, by notice given prior to or at the Closing, be terminated:
(a) by Buyer or Seller if a material breach of any provision of this Agreement
has been committed by the other party and such breach has not been waived (or
cured within five (5) business days of the occurrence of the breach);
(b) (i) by Buyer if any of the conditions in Article 6 has not been satisfied as
of the Closing Date or if satisfaction of such a condition is or becomes
impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition on or
before the Closing Date; or (ii) by Seller, if any of the conditions in Article
7 has not been satisfied of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of Seller to
comply with its obligations under this Agreement) and Seller has not waived such
condition on or before the Closing Date;
(c) by mutual written consent of Buyer and Seller; or
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(d) by either Buyer or Seller if the Closing has not occurred (other than
through the failure of any party seeking to terminate this Agreement to comply
fully with its obligations under this Agreement) on or before August 30, 1999,
or such later date as the parties may agree upon.
8.2 EFFECT OF TERMINATION
Each party's right of termination under Section 8.1 is in addition to any other
rights it may have under this Agreement or otherwise, and the exercise of a
right of termination will not be an election of remedies. If this Agreement is
terminated pursuant to Section 8.1, all further obligations of the parties under
this Agreement will terminate (subject to the preceding sentence), except that
the obligations in Section 9.3 will survive; provided, however, that if this
Agreement is terminated by a party because of the Breach of the Agreement by the
other party or because one or more of the conditions to the terminating party's
obligations under this Agreement is not satisfied as a result of the other
party's failure to comply with its obligations under this Agreement, the
terminating party's right to pursue all legal remedies will survive such
termination unimpaired.
ARTICLE 9. GENERAL PROVISIONS
9.1 EXPENSES
Except as otherwise expressly provided in this Agreement, each party to this
Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants.
9.2 PUBLIC ANNOUNCEMENTS
Any public announcement or similar publicity with respect to this Agreement or
the Contemplated Transactions will be issued, if at all, at such time and in
such manner as Seller and Buyer shall mutually determine (except as required by
legal requirements). Seller and Buyer will consult with each other concerning
the means by which the Acquired Company's employees, customers, and suppliers
and others having dealings with the Acquired Company will be informed of the
contemplated transactions, and Seller will have the right to be present for any
such communication.
9.3 CONFIDENTIALITY
Between the date of this Agreement and the Closing Date, the parties will
maintain in confidence, and will cause the directors, officers, employees,
agents, and advisors of the parties and the Acquired Company to maintain in
confidence, any written information originally furnished by a party in
connection with this Agreement or the contemplated transactions relating to the
Acquired Company or the business of Seller or Buyer, unless (a) such information
is already known to the parties or to others not bound by a duty of
confidentiality or such
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information becomes publicly available through no fault of the parties, (b) the
use of such information is necessary or appropriate in making any filing or
obtaining any consent or approval required for the consummation of the
Contemplated Transactions, or (c) the furnishing or use of such information is
required by or necessary or appropriate in connection with legal proceedings.
If the Contemplated Transactions are not consummated, the recipient party
(unless the disclosing party has breached this Agreement) will return or destroy
as much of such written information as the disclosing party may reasonably
request.
9.4 NOTICES
All notices, consents, approvals, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by telecopier
(with written confirmation of receipt), provided that a copy is mailed by
registered mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight delivery service
(receipt requested), in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
Buyer:
John Prutch
1165 Old Mill Drive
Palatine, Illinois 60067
Facsimile No.: (847) 843-2433
with a required copy to:
Martin P. Marta
D'Ancona & Pflaum, LLC
111 East Wacker Drive, Suite 2800
Chicago, IL 60601
Phone No.: (312) 602-2029
Facsimile No.: (312)602-3029
Seller:
Signal Apparel Company, Inc.
Attention: Robert J. Powell, Esq., General Counsel
200A Manufacturers Road
Chattanooga, TN 37405
Facsimile No.: (423) 752-2040
with a required copy to:
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Witt, Gaither & Whitaker, P.C.
Attention: John F. Henry, Jr., Esq.
1100 SunTrust Bank Bldg.
736 Market Street
Chattanooga, TN 37402
Facsimile No.: (423) 266-4138
9.5 ADDITIONAL AGREEMENTS
For a period of twelve (12) months following the Closing, Buyer and the Acquired
Company shall not compete, directly or indirectly, in any manner with the
business conducted by Seller or solicit or attempt to solicit for hire any
employees of Seller as of the date of this Agreement. Further, for a period of
twelve (12) months following the Closing, Buyer and the Acquired Company shall
not enter, directly or indirectly, into the employ of or render any service to
or become affiliated with, any person, firm, or corporation which competes with
Seller. The term "compete(s)" for the purposes of this Section 9.5 shall mean
any business which is involved in the sale to any customer of Seller as of the
date of Closing of lady's and men's swimwear and/or swimwear cover-ups and/or
lady's activewear and/or bodywear or any business which holds a license for
apparel products from any licensor of Seller as of the date of Closing. Without
in any way limiting the foregoing, Buyer and the Acquired Company expressly
agree that this Section 9.5 prohibits Buyer and the Acquired Company, directly
or indirectly, for a period of twelve (12) months following the Closing, from
purchasing the assets or capital stock of the company holding the Umbro license
for Canada or such company purchasing the assets or capital stock of any company
with which the Buyer or the Acquired Company is affiliated. Any reference to
"Seller" in this Section 9.5 includes Seller's affiliated and/or subsidiary
companies. The foregoing shall not apply to the purchase of Iron Knights by the
Buyer or the Acquired Company, or by a company with which Buyer or the Acquired
Company is affiliated, or the purchase of Iron Knights of the Acquired Company
or the development of a business relationship between the Acquired Company and
Iron Knights.
Buyer and the Acquired Company expressly acknowledge that they are fully aware
of the nature of Seller's business as a result of Buyer's and the Acquired
Company's independent investigations, and that Buyer and the Acquired Company
have been given a full opportunity to consult with Seller's executives
concerning the nature and scope of Seller's business. Buyer and the Acquired
Company expressly acknowledge that the provisions of this Section 9.5 do not
impose economic hardship on them.
9.6 CERTAIN INDEBTEDNESS
As of the date hereof, the Acquired Company is indebted to Republic Acceptance
Corporation in the principal amount of $519,086.71 (The "Republic
Indebtedness"), which indebtedness has been guaranteed by Seller, and Seller has
guaranteed the performance of the obligations by the Acquired Company under a
Lease Agreement dated May 11, 1994 between the Acquired Company and Rose Real
Estate Services, Inc., Agent (the "Lease Agreement"). Effective within 60 days
after the Closing, (i) Buyer shall have provided documentation to Seller
evidencing that
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Buyer shall have been substituted as Guarantor and Seller shall have been
released from its obligation under the guaranty for the Republic Indebtedness,
and (ii) Buyer shall provide documentation that Seller is released from its
guaranty of the Lease Agreement of the Acquired Company's premises at 1028, 1030
and 1088 National Parkway, Schaumburg, Illinois. Additionally, Buyer hereby
expressly guarantees payment of and assumes liability for all accounts payable
of the Acquired Company set forth on Annex C. Buyer shall indemnify and hold
Seller harmless from any liability it may have with respect to the Republic
Indebtedness, the Lease Agreement, and the accounts payable set forth on Annex
C.
Each of Buyer and the Acquired Company agrees, effective at the time of Closing,
to assume and be responsible for all obligations, including making timely rental
payments totaling $75,342.00 to Seller in equal monthly payments of $6,278.50 on
or before the first day of each month with the first such payment being due
August 1, 1999 and performing all required maintenance, of the equipment leased
to Seller under a lease agreement, by and between Information Leasing
Corporation, as Lessor, and Signal Apparel Company, Inc. as Lessee, pursuant to
Rental Schedule No. 46989700 attached to Master Lease Agreement dated February
1, 1997, between Information Leasing Corporation and Seller.
9.7 INDEMNIFICATION
9.7.1 Liability, Loss or Damage
Buyer, and the Acquired Company agree to indemnify Seller and save Seller
harmless from any and all liability, loss, or damage Seller may suffer as a
result of claims, demands, costs, or judgments against Seller arising from any
failure of Buyer or the Acquired Company to perform any and all of their
respective obligations under this Agreement and the Resolution, including, but
not limited to any liability of Seller resulting from Buyer's or the Acquired
Company's failure to discharge when due any liability of the Acquired Company
assumed by Buyer or the Acquired Company, or arising after the Closing Date; and
Seller agrees to indemnify Buyer and/or the Acquired Company and save Buyer
and/or the Acquired Company harmless from any and all liability, loss, or damage
Buyer and/or the Acquired Company may suffer as a result of claims, demands,
costs, or judgments against Buyer and/or the Acquired Company arising from any
failure of Seller to perform any and all of its obligations under this Agreement
and the Resolution . (For the purposes of this Section 9.7, any such party or
parties seeking indemnification shall be referred to as "Indemnitee" and the
party or parties from which indemnification is sought shall be referred to as
"Indemnitor").
9.7.2 Duration
Indemnity under this agreement shall commence on the Closing Date, and
shall continue in full force until one (1) year after all of the obligations of
the Buyer and Acquired Company under this Agreement and the Resolution have been
fully satisfied.
9.7.3 Notice
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Any party seeking indemnification from another party or parties agrees to
notify Indemnitor in writing of any claim made against Indemnitee with respect
to matters for which Indemnitee is entitled to receive indemnification hereunder
at the addresses as disclosed in Section 9.4.
9.7.4 Enforcement; Attorneys Fees
In the event Indemnitee institutes any action to enforce any of the terms
or conditions of this Section 9.7, Indemnitee shall be entitled to recover from
the Indemnitor all costs and reasonable attorney fees incurred by Indemnitee.
9.8 JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based on any
right arising out of, this Agreement may be brought against any of the parties
in the courts of the State of New York, County of New York, or, if it has or can
acquire jurisdiction, in the United States District Court for the Southern
District of New York, and each of the parties consents to the jurisdiction of
such courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to venue laid therein. Process in any action
or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world.
9.9 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.
9.10 WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by any party in exercising any
right, power, or privilege under this Agreement or the documents referred to in
this Agreement will operate as a waiver of such right, power, or privilege, and
no single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, (a) no claim or right arising out of this Agreement
or the documents referred to in this Agreement can be discharged by one party,
in whole or in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other party; (b) no waiver that may be given by a party
will be applicable except in the specific instance for which it is given; and
(c) no notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
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9.11 ENTIRE AGREEMENT AND MODIFICATION
This Agreement and the other agreements referenced herein supersede all prior
agreements between the parties with respect to their subject matter and
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of the agreement between the parties with
respect to their subject matter. This Agreement may not be amended except by a
written agreement executed by the party to be charged with the amendment.
9.12 SCHEDULES
(a) The disclosures in the Schedules must relate only to the representations and
warranties in the Section of the Agreement to which they expressly relate and
not to any other representation or warranty in this Agreement.
(b) In the event of any inconsistency between the statements in the body of this
Agreement and those in the Schedules (other than an exception expressly set
forth as such in the Schedules with respect to a specifically identified
representation or warranty), the statements in the body of this Agreement will
control.
9.13 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
No party may assign any of its rights under this Agreement without the prior
consent of the other parties except that Buyer may assign any of its rights
under this Agreement to any Subsidiary of Buyer. Subject to the preceding
sentence, this Agreement will apply to, be binding in all respects upon, and
inure to the benefit of the successors and permitted assigns of the parties.
Nothing expressed or referred to in this Agreement will be construed to give any
person other than the parties to this Agreement any legal or equitable right,
remedy, or claim under or with respect to this Agreement or any provision of
this Agreement. This Agreement and all of its provisions and conditions are for
the sole and exclusive benefit of the parties to this Agreement and their
successors and permitted assigns.
9.14 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by any court
of competent jurisdiction, the other provisions of this Agreement will remain in
full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
9.15 SECTION HEADINGS, CONSTRUCTION
The headings of Articles and Sections in this Agreement are provided for
convenience only and will not affect its construction or interpretation. All
references to "Section" or "Sections" refer to the corresponding Section or
Sections of this Agreement. All words used in this Agreement will be construed
to be of such gender or number as the circumstances require. Unless otherwise
expressly provided, the word "including" does not limit the preceding words or
terms.
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9.16 TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
9.17 GOVERNING LAW
This Agreement will be governed by the laws of the State of New York without
regard to conflicts of laws principles.
9.18 COUNTERPARTS; FACSIMILE SIGNATURES
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement. This
Agreement may be executed with facsimile signatures.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first written above.
Seller: Buyer:
------ -----
SIGNAL APPAREL COMPANY, INC. /s/ John W. Prutch
-------------------------------
John Prutch
By: /s/ Thomas A. McFall
-------------------------------
Name: Thomas A. McFall
Title: CEO
Attest:
/s/ Robert J. Powell
----------------------------------
Robert J. Powell
Secretary
ACQUIRED COMPANY:
-----------------
GIDI HOLDINGS, INC.
By: /s/ Robert J. Powell
-------------------------------
Title: Vice President
Name: Robert J. Powell
Attest:
----------------------------------
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WARRANT CERTIFICATE
THESE WARRANTS AND ANY SHARES ACQUIRED UPON THE EXERCISE THEREOF HAVE NOT
BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER THE SECURITIES LAWS OF ANY STATE. THESE WARRANTS AND SUCH SHARES MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SUCH ACT AND LAWS. THESE WARRANTS AND SUCH SHARES MAY
NOT BE TRANSFERRED EXCEPT UPON THE CONDITIONS SPECIFIED IN THIS WARRANT
CERTIFICATE, AND NO TRANSFER OF THESE WARRANTS OR SUCH SHARES SHALL BE VALID OR
EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE BEEN COMPLIED WITH.
WARRANT CERTIFICATE
To Purchase Shares of Common Stock of
SIGNAL APPAREL COMPANY, INC.
1,536,515 Warrants
THIS CERTIFIES THAT, for good and valuable consideration, the receipt of
which is hereby acknowledged, John W. Prutch or his registered assignees (the
"Holder" or, together with one or more such registered assignees, the
"Holders"), is the registered owner of the number of Warrants specified above,
each of which Warrants entitles the holder hereof, subject to the vesting
schedule and the additional conditions and limitations hereinafter set forth, to
purchase from SIGNAL APPAREL COMPANY, INC. (the "Company"), a corporation
organized and existing under the laws of the State of Indiana, one share of the
Company's Common Stock, $.01 par value (the "Common Stock"), at a purchase price
of $1.75 per share until the Expiration Date (as defined in Section 2 hereof)
(the "Exercise Price"). The Warrants shall not be terminable by the Company. The
shares of Common Stock issuable upon exercise of the Warrants (and any other or
additional shares, securities or property that may hereafter be issuable upon
exercise of the Warrants) are sometimes referred to herein as the "Warrant
Shares", and the number of shares so issuable at any given time are sometimes
referred to as the "Aggregate Number" as such number may be increased or
decreased, as more fully set forth herein.
The warrants represented hereby are issued as of July 31, 1999 ("Issuance
Date")(such warrants issued
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hereunder, or such lesser number thereof as shall from time to time remain
unexercised, being herein collectively called the "Warrants"). The Warrants are
being issued to John W. Prutch in connection with that certain Separation
Agreement between John W. Prutch and the Company, dated as of July 31, 1999 (the
"Separation Agreement"), and in substitution for and in lieu of any and all
other warrants issued or issuable to John W. Prutch pursuant to the terms of (i)
the unsigned agreement for acquisition and financial advisory services between
the Company, John W. Prutch and Thomas A. McFall dated August 10, 1998 and (ii)
that certain agreement regarding regarding such services between the Company and
Weatherly Financial dated May 9, 1997.
Certain terms used in this Warrant Certificate are defined in Section 12
hereof. Terms and expressions in this Warrant Certificate having a defined or
generally accepted meaning under the securities laws of the United States of
America shall have the same meaning in this Warrant Certificate, unless the
contrary intention appears.
The Warrants are subject to the following provisions, terms and conditions:
1. Vesting and Exercise of Warrants. The Warrants shall vest and become
exercisable as follows:
A. 33.4 % of the Warrants (covering 513,197 shares) shall be fully vested
and exercisable immediately.
B. Additional installments each of 22.2 % of the total Warrants granted
hereby (covering 341,106 shares each) will become vested and
exercisable as the Company (including subsidiary companies) achieves
each of the goals listed below:
Goal 1: $4.0 million in annual pre-tax earnings of the Company on a
consolidated basis, determined in accordance with generally accepted
accounting principles consistently applied, or an average trading
price (based upon the daily closing market price) of at least $2.75
per share for the Company's Common Stock for any period of 120
consecutive calendar days.
Goal 2: $5.0 million in annual pre-tax earnings of the Company on a
consolidated basis, determined in accordance with generally accepted
accounting principles consistently applied, or an average trading
price of at least $4.00 per share for the Company's Common Stock for
any period of 120 consecutive calendar days.
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Goal 3: $6.0 million in annual pre-tax earnings of the Company on a
consolidated basis, determined in accordance with generally accepted
accounting principles consistently applied, or an average trading
price of at least $5.00 per share for the Company's Common Stock for
any period of 120 consecutive calendar days.
More than one of the above goals may be achieved simultaneously,
provided that the threshold(s) of the higher goal(s) is met.
Notwithstanding the foregoing or any other contrary provision of this Warrant
Certificate, none of the Warrants shall be exercisable unless, as of the time of
such exercise, John W. Prutch and GIDI Holdings, Inc. (as well as any successor
to either of the foregoing) (A) are in full compliance with all of their
obligations pursuant to the terms of Section 9.6 of that certain Stock Purchase
Agreement dated as of July 31, 1999 between the Company as "Seller" and John W.
Prutch as "Buyer" concerning the capital stock of GIDI Holdings, Inc., and (B)
are not in default in the performance of any of their obligations under the
terms of Sections 2.2, 3.4 and 6.2 of the Resolutions adopted by the Board of
Directors of GIDI Holdings, Inc. setting forth the terms of the Series A
Preferred Stock of such corporation (the terms of each of which are specifically
incorporated herein by reference).
2. Expiration of Warrants. The Warrants shall, in any event, be void and
all rights represented hereby shall cease on and as of July 31, 2009 (the
"Expiration Date").
3. Exercise; Issue of Certificates; Payment for Shares. The rights
represented by this Warrant Certificate may be exercised by the Holder, in whole
or in part (but not as to fractional shares of Common Stock), to purchase a
total of up to 1,536,515 shares (subject to the expiration date described in
Section 2 and to the adjustments described in Section 6 hereof), by the
surrender of this Warrant Certificate (with the Exercise Form annexed hereto as
Schedule 1 properly completed and executed) to the Company at its principal
office specified in Section 18, or its then current address, and upon payment to
the Company of the Exercise Price for the Warrant Shares being purchased.
Payment of the Exercise Price may be (i) by cash, check or bank draft in New
York Clearing House funds; (ii) subject to approval by the Company, by
cancellation of any indebtedness which may from time to time be owing from the
Company to Holder; (iii) by cancellation of Warrants with such Warrants valued,
for such purposes, at the difference between the Prevailing Market Price at the
time of exercise and the Exercise Price, as adjusted; or (iv) through delivery
of
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other Company securities, valued for such purposes at its then Prevailing Market
Price for any Company securities which are publicly traded. The shares so
purchased shall be and will be deemed to be issued to the Holder hereof as the
record owner of such shares as of the close of business on the date on which
this Warrant Certificate shall have been surrendered and payment made for such
shares as aforesaid. Certificates for the shares so purchased shall be delivered
to the Holder within a reasonable time, not exceeding ten days, after this
Warrant Certificate shall have been so exercised, and unless the Warrants have
expired, a new Warrant Certificate representing the number of shares, if any,
with respect to which this Warrant Certificate shall not then have been
exercised shall also be delivered to the Holder within such time. Such
certificate or certificates shall be deemed to have been issued, and any Person
which may be designated as an assignee therein shall be deemed for all purposes
to have become a holder of record of such certificate, as of the close of
business on the date of the surrender of this Warrant Certificate and payment of
the Exercise Price as aforesaid. The Warrant Shares initially issued upon the
exercise hereof shall be shares of Common Stock.
4. Shares to be Fully Paid; Reservation of Shares; Listing. The Company
covenants and agrees that: (a) all Warrant Shares will, upon issuance, be
original-issue shares (and not treasury stock) fully paid and nonassessable and
free from all taxes, claims, liens, charges and other encumbrances with respect
to the issue thereof; (b) without limiting the generality of the foregoing, the
Company will from time to time take all such action as may be required to assure
that the par value per share of Common Stock shall at all times be less than or
equal to the Exercise Price; (c) during the period within which the rights
represented by this Warrant Certificate may be exercised, the Company will at
all times have authorized and reserved for the purpose of issue or transfer upon
exercise of the Warrants a sufficient number of original-issue shares of its
Common Stock to provide for the exercise of all the Warrants; (d) upon the
exercise of the Warrants represented by this Warrant Certificate, the Company
will, at its expense, promptly notify each securities exchange on which any
shares of Common Stock are at the time listed of such issuance, and maintain a
listing of all shares of Common Stock from time to time issuable upon the
exercise of the Warrants to the extent such shares can be listed.
5. Registration Rights.
(a) Piggy Back Registration Rights.
(i) If at any time the Company proposes to file a registration
statement with the Commission
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(other than in connection with a rights offering to shareholders, an
exchange offer, a registration statement on Form S-8 or Form S-4 or
any successor forms relating to employee benefit plans, an acquisition
of another entity or merger in connection with a dividend reinvestment
plan, the conversion of any convertible securities, or a stand-by
underwriting with respect to the call of a warrant, option, right or
convertible securities for redemption) with respect to shares of
Common Stock which becomes, or which the Company believes will become,
effective at any time prior to the Expiration Date, then the Company
shall in each case give written notice of such proposed filing to the
Holders of the Warrants at least fifteen (15) calendar days before the
anticipated filing date of such registration statement. Such notice
shall offer to such Holders the opportunity to include in such
registration statement such number of Warrant Shares as such Holders
may request (any Holders of Warrant Shares requesting registration
under this Section 5(a) are "Selling Holders"). The Company shall not
be required to honor any such request (A) if, in the opinion of
counsel to the Company reasonably acceptable to such Selling Holder
who wishes to have such Warrant Shares included in such registration
statement, registration under the Securities Act is not required for
the transfer of the Warrant Shares in the manner proposed by such
Selling Holder; or (B) to register in the aggregate fewer than 5,000
Warrant Shares held by the Holders. The Company shall permit, or shall
use its best efforts to cause the managing underwriter of a proposed
offering to permit, the Selling Holders whose Warrant Shares are
requested to be included in the registration (the "Piggy-Back Shares")
to include such Piggy-Back Shares in the proposed offering on the same
terms and conditions as applicable to the shares of Common Stock
offered by the Company and for the account of any person other than
the Company, as the case may be.
(ii) Notwithstanding the foregoing, if any such managing
underwriter shall advise the Company in writing that, in its opinion,
the distribution of all or a portion of the Warrant Shares requested
to be included in the registration concurrently with the shares of
Common Stock being registered by the Company would materially
adversely affect the distribution of such securities by the Company
for its own account, then such Warrant Shares shall be excluded from
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the registration. The exclusion of any portion of such Piggy-Back
Shares shall be made pro rata among the aggregate of the Piggy-Back
Shares for which a proper request was made under this Subsection 5(a).
If other shareholders of the Company are entitled to piggy back
registration rights and the number of includable shares exceeds the
total number of shares that may be registered, the shares shall be
included in the registration in proportion to the number of shares
proposed to be sold by the Selling Holders, and the number of shares
of stock proposed to be registered by such other selling shareholders.
(iii) Notwithstanding the foregoing, if the Board of Directors of
the Company shall determine in good faith that in its opinion, the
inclusion of the Warrant Shares requested to be included in any
registration to be effected by the Company in connection with a
financing transaction would materially adversely affect the ability of
the Company to consummate such financing transaction, then such
Warrant Shares shall be excluded from the registration.
(b) United States Federal and State Approval. The Company shall effect
the registration or qualification of the Warrant Shares registered pursuant
to Sections 5(a)(i) and 5(a)(ii) and give such notifications to, or receive
approvals of, any governmental authority under United States federal or, if
reasonably requested by the Selling Holders, any United States state
securities laws, or any other applicable law, or effect listing with any
securities exchange on which the Common Stock is listed at such time, as
may be necessary to permit the exercise of the Warrants and the sale of
Warrant Shares in the manner proposed by the Selling Holders, provided that
the Company shall not for any such purpose be required to qualify generally
to do business as a foreign corporation in any jurisdiction wherein it is
not so qualified, to subject itself to taxation in any such jurisdiction or
to consent to general service of process in any such jurisdiction.
(c) Expenses. Subject to the limitations contained in this paragraph
(c), and except as otherwise specifically provided in this Section 5, the
entire costs and expenses of each registration and qualification pursuant
to this Section 5, whether or not any such registration shall become
effective or shall be consummated, shall be borne by the Company. Such
costs and expenses shall include the fees and expenses of counsel for the
Company and of its
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accountants (including the cost of any special audit required by or
incidental to such registration), all other costs and expenses of the
Company incident to the preparation, printing and filing under the
Securities Act of the registration statement and all amendments and
supplements thereto, the cost of furnishing copies of each preliminary
prospectus, each final prospectus and each amendment or supplement thereto
to underwriters, dealers and other purchasers of the Warrant Shares, and
the costs and expenses (including fees and disbursements of counsel)
incurred by the Company in connection with the qualification of the Warrant
Shares under the Blue Sky Laws of various jurisdictions; provided, however,
that if registration under the Blue Sky Laws of any jurisdiction requires
selling shareholders to pay a proportionate share of the expenses of
registration, the Selling Holders shall pay for such expense to the extent
required by the applicable law. The Company shall not be required to pay
underwriting discounts or selling commissions in connection with the sale
of Warrant Shares sold in any such registration and qualification pursuant
to this Section 5.
(d) Procedures.
(i) In the case of each registration or qualification pursuant to
Section 5(a), the Company will keep all Holders of Warrants advised in
writing as to the initiation of proceedings for such registration and
qualification and as to the completion thereof, and will advise any
such Holders, upon request, of the progress of such proceedings. At
its expense the Company will promptly prepare (and in any event,
except as otherwise expressly provided herein, within 90 days after
the end of the period within which requests for registration may be
given to the Company) and file with the Commission a registration
statement with respect to the securities to be registered and use its
best efforts to cause such registration statement to become effective
and keep such registration and qualification in effect by such action
as may be necessary or appropriate, including, without limitation, the
filing of post-effective amendments and supplements to any
registration statement or prospectus necessary to keep the
registration statement current and further qualification under any
applicable Blue Sky or other state securities laws to permit such sale
or distribution, all as reasonably requested by the Selling Holders,
for the lesser of (A) completion of the offering or (B) 180 days after
the
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effective date of such registration statement; provided, however, that
the Company will keep such registration and qualification effective
for longer than 180 days if the costs and expenses associated with
such extended registration period are borne by the Selling Holders.
(ii) At its expense the Company will furnish to each Selling
Holder whose Warrants and/or Warrant Shares are included therein such
number of copies of such registration statement and of each such
amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such
registration statement and covering such Selling Holder's Warrants
and/or Warrant Shares (including each preliminary prospectus), in
conformity with the requirements of the Securities Act, and such other
documents as such Selling Holder may reasonable request in order to
facilitate the disposition of such Selling Holder's Warrants and/or
Warrant Shares contemplated in such registration statement. The
Company will notify each Selling Holder of any securities covered by
such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then
existing, or of any other occurrence which, under applicable
securities laws, requires the prospectus to be revised or updated.
Upon receipt of such notice and until a supplemented or amended
prospectus as set forth below is available, each Selling Holder will
cease to offer or sell any securities covered by the registration
statement and will return all copies of the prospectus to the Company
if requested to do so by it and will not sell any security of the
Company until provided with a current prospectus and notice from the
Company that it may resume its selling efforts. At the request of any
such Selling Holder, the Company shall furnish to such Selling Holder
a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered
to the purchasers of such securities, such prospectus shall not
include an untrue statement of a material fact or omit to state a
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material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances
then existing.
(iii) Notwithstanding anything to the contrary herein, any
prospective Selling Holder may withdraw from a registration under this
Section 5 any or all of its Warrant Shares, upon written notice to the
Company given prior to the execution and delivery by such Selling
Holder of a binding underwriting agreement with the prospective
underwriters.
(e) Cross-Indemnity and Contribution Agreements. In connection with
the registration of Warrant Shares in accordance with Section 5(a) above,
the Company hereby agrees to enter into an appropriate cross-indemnity
agreement and a contribution agreement, each in customary form, with each
underwriter, if any, and each Holder of Warrant Shares included in such
registration statement; and, if requested, to enter into an underwriting
agreement containing conventional representations, warranties, allocation
of expenses, and customary closing conditions including, but not limited
to, opinions of counsel and accountants' comfort letters, with any
underwriter who acquires the registerable securities.
(f) Cooperation of Selling Holders. Every Selling Holder who has any
Warrant Shares included in a registration statement shall be required to do
the following:
(i) To furnish the Company, in writing, such appropriate
information and covenants regarding the proposed methods of sale or
other disposition of the Warrant Shares as any underwriter, the
Commission and/or any state or other regulatory authority may request,
together with any such additional written information and covenants as
the Company may reasonably request;
(ii) To execute, deliver and/or file with or supply to the
Company, any underwriter, the Commission and/or any state or other
regulatory authority such information, documents, representations,
undertakings and/or agreements (A) necessary to carry out the
provisions of this Warrant Certificate, (B) necessary to effect the
registration or qualification of the Warrant Shares under the
Securities Act and/or any of the laws and regulations of any
jurisdiction, and (C) as the Company may reasonably require to ensure
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that the transfer or disposition of the Warrant Shares is not in
violation of the Securities Act or any applicable state securities
laws;
(iii) To furnish to the Company, not later than every thirty (30)
days after the date of effectiveness of the registration statement, a
report of the number of Warrant Shares sold during such thirty-day
period; and
(iv) To cancel any orders to sell and/or to reverse any sale of
Warrant Shares which, in the reasonable belief of the Company, based
upon the opinion of legal counsel experienced in securities law
matters, were effected in violation of the Securities Act or any
applicable State securities laws.
6. Adjustments to Aggregate Number.
Under certain conditions, the Aggregate Number is subject to adjustment as
set forth herein.
The Aggregate Number shall be subject to adjustment from time to time as
follows and thereafter as adjusted shall be deemed to be the Aggregate Number
hereunder.
(a) In case at any time or from time to time the Company shall:
(i) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Common Stock;
(ii) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock; or
(iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
then the Aggregate Number in effect immediately prior thereto shall be
adjusted so that the Holder or Holders of Warrants shall thereafter be
entitled to receive, upon exercise thereof, the number of shares of Common
Stock that such Holder or Holders would have owned or have been entitled to
receive after the occurrence of such event had such Warrants been exercised
immediately prior to the occurrence of such event.
(b) In case at any time or from time to time the Company shall take a
record of the holders of its
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Common Stock for the purpose of entitling them to receive any dividend or
other distribution (collectively, a "Distribution") of:
(i) cash (other than dividends payable out of earnings or any
surplus legally available for the payment of dividends under the laws
of the state of incorporation of the Company);
(ii) any evidences of its indebtedness (other than Convertible
Securities), any shares of its capital stock (other than additional
shares of Common Stock or Convertible Securities) or any other
securities or property of any nature whatsoever (other than cash); or
(iii) any options or warrants or other rights to subscribe for or
purchase any of the following: any evidences of its indebtedness
(other than Convertible Securities), any shares of its capital stock
(other than additional shares of Common Stock or Convertible
Securities) or any other securities or property of any nature
whatsoever,
then the Holder or Holders of Warrants shall be entitled to receive upon
the exercise thereof at any time on or after the taking of such record the
number of shares of Common Stock to be received upon exercise of such
Warrants determined as stated herein and, in addition and without further
payment, the cash, stock, securities, other property, options, warrants
and/or other rights to which such Holder or Holders would have been
entitled by way of the Distribution and subsequent dividends and
distributions if such Holder or Holders (x) had exercised such Warrants
immediately prior to such Distribution, and (y) had retained the
Distribution in respect of the Common Stock and all subsequent dividends
and distributions of any nature whatsoever in respect of any stock or
securities paid as dividends and distributions and originating directly or
indirectly from such Common Stock. A reclassification of the Common Stock
into shares of Common Stock and shares of any other class of stock shall be
deemed a Distribution by the Company to the holders of its Common Stock of
such shares of such other class of stock within the meaning of this
paragraph (b) and, if the outstanding shares of Common Stock shall be
changed into a larger or smaller number of shares of Common Stock as a part
of such reclassification, such event shall be deemed a subdivision or
combination, as the case may be, of the
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outstanding shares of Common Stock within the meaning of paragraph (a) of
this Section 6.
(c) In case at any time or from time to time the Company shall (except
as hereinafter provided) issue or sell any additional shares of Common
Stock for a consideration per share less than the Prevailing Market Price
to any Affiliate, Associate or related party, then the Aggregate Number in
effect immediately prior thereto shall be adjusted so that the Aggregate
Number thereafter shall be determined by multiplying the Aggregate Number
immediately prior to such action by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding immediately prior
to the issuance of such additional shares of Common Stock plus the number
of such additional shares of Common Stock so issued and the denominator of
which shall be the number of shares of Common Stock outstanding immediately
prior to the issuance of such additional shares of Common Stock plus the
number of shares of Common Stock which the aggregate consideration for the
total number of such additional shares of Common Stock so issued would
purchase at a price equal to the Prevailing Market Price. The provisions of
this paragraph (c) shall not apply to any issuance of additional shares of
Common Stock for which an adjustment is provided under Section 6(a). No
adjustment of the Aggregate Number shall be made under this paragraph (c)
upon the issuance of any additional shares of Common Stock which are issued
pursuant to: (1) the terms of any warrants to purchase the Company's Common
Stock which are outstanding (or which the Company has agreed to issue) as
of the date hereof, (2) the exercise of options to purchase shares of
Common Stock pursuant to any outstanding stock options granted by contract
to present or former employees of the Company or its subsidiaries or
pursuant to the Company's 1985 Stock Option Plan, as amended, (3) the grant
or exercise of any option or other equity award under the terms of the
Company's 1999 Stock Incentive Plan (collectively, (1), (2) and (3), the
"Options"), or (4) the issuance of any Common Stock or other Company
securities in connection with any financing transaction between the Company
and WGI, LLC or any of its affiliates (including, without limitation, any
restructuring of the Company debt and preferred stock currently held by
WGI, LLC) (a "WGI, LLC Transaction").
(d) In case at any time or from time to time the Company shall (except
as hereinafter provided) take a record of the holders of its Common Stock
for the purpose of entitling them to receive a distribution of, or shall in
any manner issue or sell any warrants or
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other rights to subscribe for or purchase (x) any share of Common Stock or
(y) any Convertible Securities, whether or not the rights to subscribe,
purchase, exchange or convert thereunder are immediately exercisable, and
the consideration per share for which additional shares of Common Stock may
at any time thereafter be issuable pursuant to such warrants or other
rights or pursuant to the terms of such Convertible Securities shall be
less than the Prevailing Market Price, then the Aggregate Number in effect
immediately prior thereto shall be adjusted so that the Aggregate Number
thereafter shall be determined by multiplying the Aggregate Number
immediately prior to such action by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding immediately prior
to the issuance of such warrants or other rights plus the maximum number of
additional shares of Common Stock issuable pursuant to all such warrants or
rights and/or necessary to effect the conversion or exchange of all such
Convertible Securities and the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to the issuance of
such warrants or other rights plus the number of shares of Common Stock
which the aggregate consideration for such maximum number of additional
shares of Common Stock would purchase at a price equal to the Prevailing
Market Price. For purposes of this paragraph (d), the aggregate
consideration for such maximum number of additional shares of Common Stock
shall be deemed to be the minimum consideration received and receivable by
the Company for the issuance of such additional shares of Common Stock
pursuant to the terms of such warrants or other rights or such Convertible
Securities. No adjustment of the Aggregate Number shall be made under this
paragraph (d) in connection with any of the Options or any WGI, LLC
Transaction.
(e) In case at any time or from time to time the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them
to receive a distribution of, or shall in any manner issue or sell
Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the consideration per share for
the additional shares of Common Stock which may at any time thereafter be
issuable pursuant to the terms of such Convertible Securities shall be less
than the Prevailing Market Price, then the Aggregate Number in effect
immediately prior thereto shall be adjusted so that the Aggregate Number
thereafter shall be determined by multiplying the Aggregate number
immediately prior to such action by a fraction, the numerator of which
shall be the number of shares of
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Common Stock outstanding immediately prior to the issuance of such
Convertible Securities plus the maximum number of additional shares of
Common Stock necessary to effect the conversion or exchange of all such
Convertible Securities and the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to the taking of such
action plus the number of shares of Common Stock which the aggregate
consideration for such maximum number of additional shares of Common Stock
would purchase at a price equal to the Prevailing Market Price. For
purposes of this paragraph (e), (x) the aggregate consideration for such
maximum number of additional shares of Common Stock shall be deemed to be
the minimum consideration received and receivable by the Company for the
issuance of such additional shares of Common Stock pursuant to the terms of
such Convertible Securities. No adjustment of the Aggregate Number shall be
made under this paragraph (e) upon the issuance of any Convertible
Securities which are issued pursuant to the exercise of any warrants or
other subscription or purchase rights if an adjustment shall previously
have been made or if no such adjustment shall have been required upon the
issuance of such warrants or other rights pursuant to paragraph (d) of this
Section 6.
(f) If, at any time after any adjustment of the Aggregate Number shall
have been made pursuant to paragraphs (d) or (e) of this Section 6 on the
basis of the issuance of warrants or other rights or the issuance of
Convertible Securities, or after any new adjustments of the Aggregate
Number shall have been made pursuant to this paragraph (f),
(i) such warrants or rights or the right of conversion or
exchange in respect of such Convertible Securities shall expire, and
all or a portion of such warrants or rights, or the right of
conversion or exchange in respect of all or a portion of such
Convertible Securities, as the case may be, shall not have been
exercised, and/or
(ii) the consideration per share for which shares of Common Stock
are issuable pursuant to such warrants or rights or the terms of such
Convertible Securities shall be irrevocably increased solely by virtue
of provisions therein contained for an automatic increase in such
consideration per share upon the arrival of a specified date or the
happening of a specified event, or such warrants or rights shall have
been exercised or such Convertible Securities converted at a price in
excess of the minimum consideration
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used in the calculation of the adjustment to the Aggregate Number,
such previous adjustment shall be rescinded and annulled and the additional
shares of Common Stock which were deemed to have been issued by virtue of
the computation made in connection with such adjustment shall no longer be
deemed to have been issued by virtue of such computation. Thereupon, a
recomputation shall be made of the effect of such warrants or rights or
Convertible Securities on the basis of:
(x) treating the number of additional shares of Common Stock, if
any, theretofore actually issued or issuable pursuant to the previous
exercise of such warrants or rights or such right of conversion or
exchange as having been issued on the date or dates of such exercise
and for the consideration actually received and receivable therefor,
and
(y) treating any such warrants or rights or any such Convertible
Securities which then remain outstanding as having been granted or
issued immediately after the time of such irrevocable increase of the
consideration per share for which shares of Common Stock are issuable
under such warrants or rights or Convertible Securities; and, if and
to the extent called for by the foregoing provisions of this paragraph
(f) on the basis aforesaid, a new adjustment of the Aggregate Number
shall be made, such new adjustment shall supersede the previous
adjustments rescinded and annulled.
(g) The following provisions shall be applicable to the making of
adjustments of the Aggregate Number hereinbefore provided for in this
Section 6:
(i) The sale or other disposition of any issued shares of Common
Stock owned or held by or for the account of the Company shall be
deemed an issuance thereof for the purposes of this Section 6.
(ii) To the extent that any additional shares of Common Stock or
any Convertible Securities or any warrants or other rights to
subscribe for or purchase any additional shares of Common Stock or any
Convertible Securities (x) are issued solely for cash consideration,
the consideration received by the Company therefor shall be deemed to
be the amount of the cash received by the Company therefor, or (y) are
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<PAGE>
offered by the Company for subscription, the consideration received by
the Company shall be deemed to be the subscription price.
(iii) The adjustments required by the preceding paragraphs of
this Section 6 shall be made whenever and as often as any specified
event requiring an adjustment shall occur. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at
the close of business on the date of its occurrence.
(iv) In computing adjustments under this Section 6 fractional
interests of Common Stock shall be taken into account to the nearest
one-thousandth (.001) of a share and shall be aggregated until they
equal one whole share.
(v) If the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend
or distribution or subscription or purchase rights, but shall abandon
its plan to pay or deliver such dividend, distribution, subscription
or purchase rights, then no adjustment shall be required by reason of
the taking of such record and any such adjustment previously made in
respect thereof shall be rescinded and annulled.
(h) If any event occurs as to which the other provisions of this
Section 6 are not strictly applicable but the lack of any provision for the
exercise of the rights of a Holder or Holders of Warrants would not fairly
protect the purchase rights of such Holder or Holders of Warrants in
accordance with the essential intent and principles of such provisions, or,
if strictly applicable, would not fairly protect the conversion rights of
the Holder or Holders of Warrants in accordance with the essential intent
and principles of such provisions, then the Company shall appoint a firm of
independent certified public accountants in the United States (which may be
the regular auditors of the Company) of recognized national standing in the
United States satisfactory to the Holders, which shall give their opinion
acting as an expert and not as an arbitrator as to the adjustments, if any,
necessary to preserve, without dilution, on a basis consistent with the
essential intent and principles established in the other provisions of this
Section 6, the exercise rights of the Holders of Warrants. Upon receipt of
such opinion, the Company shall forthwith make the adjustments described
therein.
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<PAGE>
(i) Within forty-five (45) days after the end of each fiscal quarter
during which an event occurred that resulted in an adjustment pursuant to
this Section 6, and at any time upon the request of any Holder of Warrants,
the Company shall cause to be promptly mailed to each Holder of Warrants by
first-class mail, postage prepaid, notice of each adjustment or adjustments
to the Aggregate Number effected since the date of the last such notice and
a certificate of the Company's Chief Financial Officer or, in the case of
any such notice delivered within forty-five (45) days after the end of a
fiscal year, a firm of independent public accountants in the United States
selected by the Company and acceptable to the Holder(s) (who may be the
regular accountants employed by the Company), in each case, setting forth
the Aggregate Number after such adjustment, a brief statement of the facts
requiring such adjustment and the computation by which such adjustment was
made. The fees and expenses of such accountants shall be paid by the
Company.
(j) The occurrence of a single event shall not trigger an adjustment
of the Aggregate Number under more than one paragraph of this Section 6.
7. Taxes on Conversion. The issuance of certificates for Warrant Shares
upon the exercise of the Warrants shall be made without charge to the Holder
exercising any such Warrant for any issue or stamp tax in respect of the
issuance of such certificates, and such certificates shall be issued in the
respective names of, or in such names as may be directed by, the Holder;
provided, however, that the Company shall not be required to pay any tax that
may be payable in respect of any transfer involved in the issuance and delivery
of any such certificate in a name other than that of the Holder, and the Company
shall not be required to issue or deliver such certificates unless or until the
Person or Persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
8. Limitation of Liability. No provision hereof in the absence of the
exercise of the Warrants by the Holder and no enumeration herein of the rights
or privileges of the Holder shall give rise to any liability on the part of the
Holder for the Exercise Price of the Warrant Shares or as a stockholder of the
Company, whether such liability is asserted by the Company or by any creditor of
the Company.
9. Closing of Books. The Company will at no time close its transfer books
against the transfer of any Warrant or of any shares of Common Stock issued or
issuable upon the
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<PAGE>
exercise of any Warrant in any manner that interferes with the timely exercise
of the Warrants.
10. Availability of Information. The Company will use its best efforts to
comply with the reporting requirements of the United States Securities Exchange
Act of 1934, as amended, if applicable, and will use its best efforts to comply
with all other public information reporting requirements of the Commission
(including rules and regulations promulgated by the Commission under the
Securities Act) from time to time in effect and relating to the availability of
an exemption from the Securities Act for the sale of any Warrant Shares. The
Company will also cooperate with each Holder of any Warrants in supplying such
information as may be necessary for such Holder to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of an exemption from the Securities Act for the
sale of any Warrant Shares.
11. Restrictions on Transfer.
11.1 Restrictive Legends. Each certificate for any Warrant Shares issued
upon the exercise of any Warrant, and each stock certificate issued upon the
transfer of any such Warrant Shares (except as otherwise permitted by this
Section 11) shall be stamped or otherwise imprinted with a legend in
substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE SECURITIES
LAWS OF ANY STATE. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION, OR ANY EXEMPTION THEREFROM, UNDER SUCH ACT AND LAWS.
ANY TRANSFER OF THESE SHARES IS FURTHER SUBJECT TO THE CONDITIONS SPECIFIED IN
THAT CERTAIN WARRANT CERTIFICATE ISSUED BY THE COMPANY TO JOHN W. PRUTCH DATED
AS OF JULY 31, 1999, AND NO TRANSFER OF THESE SHARES SHALL BE VALID OR EFFECTIVE
UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE BEEN COMPLIED WITH.
Each Warrant Certificate issued in substitution for any Warrant Certificate
pursuant to Sections 14, 15 or 16 and each Warrant Certificate issued upon the
transfer of any Warrant (except as otherwise permitted by this Section 11) shall
be stamped or otherwise imprinted with a legend in substantially the following
form:
THESE WARRANTS AND ANY SHARES ACQUIRED UPON THE EXERCISE THEREOF HAVE NOT
BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER THE
18
<PAGE>
SECURITIES LAWS OF ANY STATE. THESE WARRANTS AND SUCH SHARES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SUCH ACT AND LAWS. THESE WARRANTS AND SUCH SHARES MAY NOT BE
TRANSFERRED EXCEPT UPON THE CONDITIONS SPECIFIED IN THIS WARRANT CERTIFICATE,
AND NO TRANSFER OF THESE WARRANTS OR SUCH SHARES SHALL BE VALID OR EFFECTIVE
UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE BEEN COMPLIED WITH.
11.2 No Transfer Without Approval of WGI, LLC. Except as provided below, no
shares acquired upon the exercise of these Warrants may be transferred without
the approval of the Company's principal shareholder, WGI, LLC, or any affiliated
successor. Provided, however, in the event that WGI, LLC disposes of any of its
holdings of the Company's Common Stock (other than to an affiliate of WGI, LLC),
then subject to applicable securities laws and regulations, the Holder of these
Warrants and any shares issued upon the exercise thereof may dispose of a
percentage of such Holder's Common Stock holdings issuable pursuant to these
Warrants equivalent to the percentage of the WGI, LLC holdings disposed of by
WGI, LLC.
11.3 Termination of Restrictions. The restrictions imposed by this Section
11 upon the transferability of Warrants and Warrant Shares, except for the
restrictions imposed by Section 11.2 relating to WGI, LLC, shall cease and
terminate as to any particular Warrants or Warrant Shares (a) when such
securities shall have been effectively registered under the Securities Act and
disposed of in accordance with the registration statement covering such
securities, or (b) when in the reasonable opinion of counsel for the Holder
thereof (subject to concurrence in such opinion by counsel for the Company) such
restrictions are no longer required in order to comply with the Securities Act.
Whenever such restrictions shall terminate as to any Warrants or Warrant Shares,
the holder thereof shall be entitled to receive from the Company or its transfer
agent, without expense, new certificates of like tenor not bearing the
restrictive legends set forth in Section 11.1.
12. Definitions. As used in this Warrant Certificate, unless the context
otherwise requires, the following terms have the following respective meanings:
Aggregate Number: as set forth in the first paragraph of this Warrant
Certificate and as subsequently varied pursuant to Section 6.
Commission: the United States Securities and Exchange Commission and any
other similar or successor agency of the United States federal government
administering the United
19
<PAGE>
States Securities Act or the Securities Exchange Act of 1934, as amended.
Common Stock: the shares of Common Stock, $.01 par value per share, of the
Company, currently provided for in the Company's Restated Articles of
Incorporation, as amended, and any other capital stock of the Company into which
such shares of Common Stock may be converted or reclassified or that may be
issued in respect of, in exchange for, or in substitution of, such Common Stock
by reason of any stock splits, stock dividends, distributions, mergers,
consolidations or like events.
Company: Signal Apparel Company, Inc., an Indiana corporation, and its
successors and assigns.
Convertible Securities: securities convertible into or exchangeable for
Common Stock.
Distribution: shall have the meaning specified in Section 6(b).
Expiration Date: July 31, 2009.
Options: as set forth in Section 6(c).
Person: an individual, corporation, partnership, limited liability company,
trust or unincorporated organization, or a government or any agency or political
subdivision thereof.
Prevailing Market Price: The average of the daily closing prices of the
Common Stock for 30 consecutive trading days immediately preceding the day in
question after appropriate adjustment for stock dividends, subdivisions,
combinations or reclassifications occurring within said 30-day period. The
closing price for each day shall be the average of the closing bid and asked
prices as furnished by a New York Stock Exchange member firm or National
Association of Securities Dealers, Inc. member firm, selected from time to time
by the Corporation for that purpose, or, in the event that the Common Stock is
listed or admitted to trading on one or more national securities exchanges (or
as a NASDAQ National Market System security), the last sale price on the NASDAQ
system or on the principal national securities exchange on which the Common
Stock is listed or admitted to trading or, in case no reported sale takes place
on such day, the average of the reported closing bid and asked prices on the
NASDAQ system or such principal exchange.
Recapitalization: any reorganization or recapitalization in which the total
consideration received by shareholders of the Company, including cash, debt,
equity
20
<PAGE>
and any other property, in addition to any remaining equity in the Company such
shareholders may retain, exceeds the value received by the holders of the
Warrants for their Warrants, each calculated on a per share basis.
Securities Act: the United States Securities Act of 1933, as amended (or
any successor statute).
Warrants: as set forth in the first paragraph of this Warrant Certificate.
Warrant Shares: as set forth in the first paragraph of this Warrant
Certificate.
13. Acquisition of Warrants. The Holder represents that he is acquiring
the Warrants represented by this Warrant Certificate and, upon any exercise of
such Warrants, will acquire Common Stock hereunder for his or her own account
for the purpose of investment, and not with a view to the public distribution
thereof within the meaning of the Securities Act, subject to any requirement of
law that the disposition thereof shall at all times be within the control of the
Holder. The Holder further represents and acknowledges that he is an "Accredited
Investor" within the meaning of Regulation D under the Securities Act.
14. Warrants Transferable. Subject to the provisions of Section 11, the
transfer of any Warrants and all rights hereunder, in whole or in part, is
registerable at the office or agency of the Company referred to in Section 1
hereof by the Holder hereof in person or by duly authorized attorney, upon
surrender of this Warrant Certificate with the properly completed Form of
Assignment in the form annexed hereto as Schedule 2. The transfer of any Warrant
or any rights thereunder may be effected only by the surrender of such Warrant
at the office or agency of the Company and until due presentment for
registration of transfer on the Company's books, the Company may treat the
registered holder hereof as the owner for all purposes, and the Company shall
not be affected by notice to the contrary. No transfer shall be effective until
the replacement Warrant Certificate issued to the transferee has been duly
executed by the transferee as the new holder thereof, and such evidence of due
execution as the Company may reasonably require has been furnished to the
Company.
15. Warrant Certificates Exchangeable for Different Denominations. This
Warrant Certificate is exchangeable, upon the surrender hereof by the Holder
hereof at the office or agency of the Company referred to in Section 1 hereof,
for new warrant certificates of like tenor representing in the aggregate the
right to purchase the number of shares that may be purchased hereunder, each of
such new warrant certificates to represent the right to purchase such number
21
<PAGE>
of shares as shall be designated by such Holder at the time of such surrender.
Such warrant certificate shall not be valid until duly executed by the Holder
thereof.
16. Replacement of Warrant Certificates. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant Certificate and, in the case of any such loss, theft
or destruction, upon delivery of an indemnity bond (or, in the case of the
original Holder hereof or any substantial financial institution to which any
Warrants represented by this Warrant Certificate may be transferred, an
unsecured indemnity agreement) reasonably satisfactory in form and amount to the
Company or, in the case of any such mutilation, upon surrender and cancellation
of such Warrant Certificate, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant Certificate of like tenor. Such Warrant
Certificate shall not be valid until duly executed by the holder thereof.
17. Certificate Rights and Obligations Survive Exercise of Warrants. The
rights and obligations of the Company contained herein shall survive until the
exercise of all of the Warrants or until the Expiration Date, whichever is
earlier.
18. Notices. All notices, requests or other communications required or
permitted to be given or delivered to the Holders of Warrants shall be in
writing, and shall be delivered or shall be sent certified or registered mail
(or, if overseas, by airmail), postage prepaid, and addressed to each Holder at
the address shown on such Holder's Warrant certificate, or at such other address
as shall have been furnished to the Company by notice from such Holder. All
notices, requests and other communications required or permitted to be given or
delivered to the Company shall be in writing, and shall be delivered, or shall
be sent by certified or registered mail, postage prepaid and addressed to the
principal executive office of the Company (return receipt requested), 34
Englehard Avenue, Avenel, New Jersey, 07001, Attention: Chief Financial Officer,
with a copy to Witt, Gaither & Whitaker, P.C., 1100 SunTrust Bank Building,
Chattanooga, Tennessee 37402-2608, Attention: John F. Henry, Jr., Esquire, or at
such other address as shall have been furnished to the Holders of Warrants by
notice from the Company. Any such notice, request or other communication may be
sent by telegram or telex, but shall in such case be subsequently confirmed by a
writing delivered or sent by certified or registered mail as provided above. All
notices shall be deemed to have been given either at the time of the delivery
thereof to (or the receipt by, in the case of a telegram or telex) any officer
or employee of the person entitled to receive such notice at the address of such
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<PAGE>
person for purposes of this Section 18, or, if mailed, at the completion of the
third full day following the time of such mailing thereof to such address, as
the case may be.
19. Amendments. Neither this Warrant Certificate nor any term or provision
hereof may be changed, waived, discharged, or terminated orally, except by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought, provided that any change or
waiver of any term or provision hereof, and any consent or direction given
hereunder by the Holders may be effected by the Holders of 51% in interest of
the Warrants originally issued pursuant to this Warrant Certificate on the
Issuance Date, except that no change or waiver that would (i) increase the
Exercise Price of any Warrant or reduce the Aggregate Number, (ii) change or
waive any of the provisions of Section 5 in connection with the registration
rights of Holders of Warrants or (iii) change or waive any of the provisions of
this Section 19 as to the requisite percentage of the Holders of the Warrants
required to effect any change or wavier of any provision of this Warrant
Certificate, shall be effective as to any Holder without the consent of such
Holder.
20. 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 laws thereunder.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
executed by its duly authorized officer and to be dated July 31, 1999.
SIGNAL APPAREL COMPANY, INC.
By: /s/ Robert J. Powell
---------------------------------
Title: Vice President
ACCEPTED AND AGREED TO this ____ day
of August, 1999.
/s/ John W. Prutch
- ----------------------------------
John W. Prutch
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<PAGE>
Schedule 1
EXERCISE FORM
[To be executed only upon exercise of Warrant]
To: SIGNAL APPAREL COMPANY, INC.
The undersigned irrevocably exercises ________________ of the Warrants for
the purchase of one share (subject to adjustment) of Common Stock, $.01 par
value per share, of SIGNAL APPAREL COMPANY, INC. for each Warrant represented by
the within Warrant Certificate and herewith makes payment of $________ (such
payment being in cash or by check or bank draft in New York Clearing House funds
payable to the order of Signal Apparel Company, Inc.), or by cancellation of
indebtedness, surrender and exchange of securities, or surrender and exchange of
Warrants all at the exercise price and on the terms and conditions specified in
the within Warrant Certificate, surrenders the within Warrant Certificate and
all right, title and interest therein (except as to any unexercised Warrants) to
Signal Apparel Company, Inc. and directs that the shares of Common Stock
deliverable upon the exercise of such Warrants be registered or placed in the
name and at the address specified below and delivered thereto.
Date:_______________________
______________________________(1)
(Signature of Owner)
------------------------------
------------------------------
(Address)
- -----------
(1) The signature must correspond with the name as written upon the face of the
within Warrant Certificate in every particular, without alteration or
enlargement or any change whatsoever.
<PAGE>
Any unexercised Warrants evidenced by the within Warrant Certificate to be
issued to:
Please insert social security or identifying number:
Name:
Address:
<PAGE>
Schedule 2
FORM OF TRANSFER
FOR VALUE RECEIVED the undersigned registered Holder of the within Warrant
Certificate hereby transfers to the Assignee(s) named below the following number
of Warrants:
Names of Number of
Assignees Address Warrants
- --------- ------- --------
Date:_______________________
___________________________(1)
(Signature of Holder)
------------------------------
------------------------------
(Address)
- -------------
(1) The signature must correspond with the name as written upon the face of the
within Warrant Certificate in every particular, without alteration or
enlargement or any change whatsoever.
SEPARATION AGREEMENT
In consideration for the agreement by Signal Apparel Company, Inc. ("the
Company") to provide John W. Prutch ("Employee") with the severance package,
payments and benefits outlined below, the sufficiency of which the Employee
acknowledges, Employee, on behalf of Employee, Employee's heirs, Employee's
successors and assigns, releases and forever discharges the Company and its
officers, directors, employees, shareholders (specifically including, but not
limited to WGI LLC, including its individual and company affiliates),
representatives, subsidiaries, parent and affiliated companies and their
respective assigns from any and all claims, damages, liabilities and causes of
action, whether known or unknown which the Employee may presently have or claim
to have against the Company and/or any of the above persons or entities whether
or not relating to or arising out of Employee's employment by or relationship
with the Company or the termination of that employment relationship including,
but not limited to, claims under federal, state, or local constitutions,
statutes, regulations, ordinances or common law, including, but not limited to
the Employee Retirement Income Security Act, and the Civil Rights Act, as
amended and specifically including, but not limited to the employee agreement
between the Company and Employee dated October 2, 1997 (the "Employment
Agreement"), the unsigned agreement by Employee for acquisition and financial
advisory services between the Company, Employee and Thomas McFall dated August
10, 1998 (the "August 10, 1998 Agreement") and the agreement between the Company
and Weatherly Financial dated May 9, 1997 (the "Weatherly Agreement") and
including any written or oral amendments to the foregoing as well as any other
oral or written agreements between the Company and Employee of whatever nature.
In consideration for the releases and agreements herein by Employee the
sufficiency of which the Company acknowledges, the Company, on behalf of itself
and its successors and assigns, releases and forever discharges the Employee and
his heirs, legal representatives, attorneys, agents and assigns from any and all
claims, damages, liabilities and causes of action, whether known or unknown,
which the Company may presently have or claim to have against Employee and/or
any of the above persons or entities, whether or not relating to or arising out
of Employee's employment by or relationship with the Company, or the termination
of that employment relationship, or otherwise, including, but not limited to,
claims under federal, state, or local constitutions, statutes, regulations,
ordinances or common law, including, but not limited to the Employment
Agreement, the August 10, 1998 Agreement and the Weatherly Agreement and
including any written or oral amendments to the foregoing as well as any other
oral or written agreements between the Company and Employee of whatever nature.
The foregoing releases and discharges shall become effective on the Closing
Date upon consummation of the Closing (as such terms are defined in the Stock
Purchase Agreement dated as of July 31, 1999 between the Company as "Seller" and
the Employer as "Buyer" (the "Stock Purchase Agreement") the terms of which are
specifically incorporated herein by reference). Notwithstanding anything to the
contrary in this Agreement, nothing in this Agreement or otherwise shall be
deemed to constitute a release, discharge, termination or
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<PAGE>
waiver or other limitation of any of (i) Employee's or the Company's rights,
benefits or interests now or hereafter arising under this Agreement, the Stock
Purchase Agreement or any other agreement entered into in connection with such
agreements, (ii) any party's rights, remedies or claims now or hereafter arising
in connection with any breach, default or violation under this Agreement, the
Stock Purchase Agreement or any other agreement entered into in connection with
such agreements or (iii) any rights of Employee to indemnification from the
Company or any of its affiliates, now existing or hereafter arising, in
connection with his acts or omissions as an officer, director, employee or agent
thereof, whether arising under the Company's by-laws, applicable law or
otherwise.
The Company and Employee agree that:
1. Employee's employment with the Company shall cease and the Employment
Agreement shall terminate as of the Closing Date upon consummation of
the Closing, and Employee hereby resigns as an employee, officer and
director of the Company and all affiliated companies (excluding GIDI
Holdings, Inc. ("GIDI") but specifically including as a director of
the USISL) as of that date.
2. As severance pay, the Company shall pay Employee the equivalent of
four months of Employee's annual base salary of $150,000 (i.e.
$50,000), less legally required withholdings. Such severance pay shall
be paid in equal installments every two weeks in accordance with the
schedule Employee is currently receiving salaried compensation.
3. The Company shall permit Employee to maintain Employee's existing
health and dental insurance benefits from the Closing Date through
October 31, 1999 provided Employee continues the payment of Employee's
portion of the premiums with respect to such insurance.
4. The Company shall extend all medical and dental benefits after October
31, 1999 for the period of eighteen months at the option of the
Employee in accordance with the Consolidated Omnibus Budget
Reconciliation Act (COBRA) of 1986.
5. The Company and Employee agree that Employee is entitled to no
additional compensation for unused vacation as any amount otherwise
due for such vacation is reflected in the severance pay provided in
Section 2 above.
6. The Company and Employee agree that the stock options issued to
Employee by the Company pursuant to Section 7(e) of the Employment
Agreement are terminated and null and void as of July 31, 1999.
7. As the total and final compensation Employee is to receive under the
terms of the August 10, 1998 Agreement and the Weatherly Agreement,
the Company
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<PAGE>
and Employee agree as follows:
(a) The Company agrees to pay Employee the sum of $100,000 payable in
83,333 shares of the Company's Common Stock (the "Prutch Common
Stock") which Common Stock will be issued by the Company to
Employee as soon as practicable (and in any event within 45 days)
following the Closing Date and held by the Company in escrow
until such time as the conditions of Section 9.6 of the Stock
Purchase Agreement have been fully satisfied, whereupon the
certificates for such Prutch Common Stock promptly (and in any
event within 10 days) shall be delivered to Employee. The Company
intends to issue such shares pursuant to its 1999 Stock Incentive
Plan and shall register such shares pursuant to the Securities
Act of 1933 within 60 days after the Closing Date. Employee
agrees that the Prutch Common Stock may not be sold prior to
January 1, 2000 under any circumstances and such shares shall
bear a restrictive legend to that effect;
(b) The Company hereby re-confirms its grant effective May 8, 1998 of
warrants to Employee to purchase 1,536,515 shares of the
Company's Common Stock in accordance with the terms of the
warrant certificate attached to this Agreement as Attachment A
(the "Warrants"). Said Warrant certificate is to be retained in
escrow by the Company until such time as the conditions of
Section 9.6 of the Stock Purchase Agreement have been fully
satisfied, whereupon it shall be promptly (and in any event
within 10 days) delivered to Employee.
(c) Employee acknowledges that $100,000 in additional fees
potentially owed pursuant to the August 10, 1998 Agreement is in
dispute, and Employee specifically waives any claim Employee may
have for payment of such disputed fees.
Other than the compensation set forth in (a) and (b) above and except
as set forth below, the Company and Employee agree that as to
Employee, the August 10, 1998 Agreement is terminated as of July 31,
1999, and the Weatherly Agreement terminated as of August 10, 1998.
Except as set forth above, Employee specifically renounces all rights
to receive any additional compensation in any form, including but not
limited to in the form of additional warrants to purchase the
Company's Common Stock, now or at any time in the future pursuant to
the August 10, 1998 Agreement or the Weatherly Agreement or any other
oral or written agreement between the Company and Employee. Employee
further specifically renounces any rights now or in the future to be
3
<PAGE>
nominated or elected to the Company's Board of Directors or to
designate a candidate to be nominated or elected to the Company's
Board of Directors. Notwithstanding the foregoing provisions of this
paragraph, such provisions shall not become effective unless and until
the Closing has occurred.
Notwithstanding the foregoing, Employee agrees to execute the
assignments attached hereto as Attachments B which attachments are
specifically incorporated herein by reference.
8. The Company shall not be obligated to provide any other severance,
payments or benefits other than those discussed in this Agreement and
no severance, payments or benefits will be provided until the Company
receives a signed copy of this Agreement.
THE EMPLOYEE AGREES THAT:
(a) The severance, payments and other benefits to be provided by the
Company under this Agreement and the other agreements hereunder and
under the Stock Purchase Agreement are intended to resolve any
potential claim by the Employee concerning Employee's employment by
and relationship with the Company and his termination from such
employment and relationships. These severance, payments and other
benefits exceed the benefits Employee would have received had Employee
not executed this Agreement.
(b) The Employee has been advised to discuss this Agreement and Release
with an attorney of Employee's choice before signing it, and is freely
and voluntarily signing this document in exchange for the promises and
consideration provided by the Company under this Agreement.
(c) This Agreement and Release constitute the entire agreement between the
Employee and the Company concerning the Employee's employment by and
relationships with the Company and Employee's separation therefrom.
This Agreement and the other agreements referenced will supersede all
prior written or oral agreements or understandings between the Company
and the Employee relating to his employment by and relationships with
the Company and his separation therefrom, specifically including but
not limited to the Employment Agreement, the August 10, 1998 Agreement
and the Weatherly Agreement. Notwithstanding the foregoing, Employee
hereby reconfirms Employee's obligation to comply with Sections 4 and
9 of the Employment Agreement provided such sections shall not be
deemed to apply to any information or documentation of or concerning
GIDI or its assets, business or property.
(d) Each party agrees to cooperate fully with the other in connection with
the transition of Employee's responsibilities from Employee and
transition of
4
<PAGE>
ownership of GIDI to Employee and to refrain from making disparaging
comments concerning the other to any account or any other third party.
(e) Employee further acknowledges that he has been given at least
Twenty-Five (25) days to review and consider this Agreement. This
offer will expire at the close of business on the 25th day following
its presentment to Employee unless a signed copy of this Agreement has
been returned to the Company by that date.
(f) In further consideration for the Agreement by the Company to provide
Employee with the severance package, payments and benefits outlined
above, the sufficiency of which the Employee acknowledges, effective
concurrently with Employee's release set forth above in the first
paragraph, Employee, on behalf of himself, Employee's successors, and
assigns, releases and forever discharges the Company and its
subsidiaries, parent and affiliated companies and their respective
assigns from any and all claims or causes of action relating to or
arising out of Employee's employment by the Company or the termination
of that employment which arises under the Age Discrimination in
Employment Act, as amended. The Employee further acknowledges that he
may revoke acceptance to the waiver of claims under the Age
Discrimination in Employment Act, by notifying the Company of such
revocation within seven (7) days of the execution of this Agreement.
The Company will not provide severance payments until the expiration
of this seven day period.
(g) As a material inducement for the Company to enter into this Agreement
and in consideration of the compensation to be paid hereunder,
Employee agrees not to compete, directly or indirectly through GIDI or
any other party, in any manner with the business conducted by the
Company for a period of one year from the date of this Agreement.
Employee further agrees for a period of one year from the date of this
Agreement, not to enter, directly or indirectly through GIDI or any
other party, into the employ of or render any service to or become
affiliated with, any person, firm or corporation which competes with
the Company. The term "compete(s)" for the purposes of this Section
shall mean any business which is involved in the sale to any customer
of the Company as of the date of this Agreement of ladies and men's
swimwear and/or swimwear cover-ups and/or ladies activewear and/or
bodywear or any business which holds a license for apparel products
from any licensor of the Company as of the date of this Agreement.
Employee acknowledges that he is fully aware of the nature of the
Company's business as a result of Employee's independent
investigation, and that Employee has been given full opportunity to
consult with the Company's executives concerning the nature and scope
of such business. Employee expressly acknowledges that this condition
does not impose economic hardship on him. It is expressly agreed that
any reference to the Company in this Section (g) will also include the
Company's affiliated and/or subsidiary companies. The foregoing shall
not apply to the purchase of Iron Knights by
5
<PAGE>
Employee or by a company with which Employee is affiliated or the
purchase by Iron Knights of GIDI Holdings, Inc. or the development of
a business relationship between GIDI Holdings, Inc. and Iron Knights.
It is specifically agreed that this Section prohibits Employee,
directly or indirectly through GIDI or any other party, for a period
of one year from the date of this Agreement, from purchasing the
assets or capital stock of the company holding the Umbro license for
Canada or such company purchasing the assets or capital stock of any
company with which Employee is affiliated. Except as specifically set
forth above, the foregoing further shall not prohibit or limit
Employee's right to own, operate or otherwise participate in the
business of GIDI.
This Agreement will be interpreted in accordance with the laws of the State of
New York.
The foregoing is agreed to between Employee and the Company as of July 31, 1999.
/s/ John W. Prutch
- ------------------------------
JOHN W. PRUTCH
SIGNAL APPAREL COMPANY, INC.
/s/ Robert J. Powell
- ------------------------------
ROBERT J. POWELL
VICE PRESIDENT
The undersigned hereby acknowledge and accept the provisions of the foregoing
Agreement relating to the August 10, 1998 Agreement and the Weatherly Agreement.
WEATHERLY FINANCIAL
By: /s/ Thomas A. McFall
--------------------------------
Its: Chairman
/s/ Thomas A. McFall
-------------------------------------
THOMAS A. MCFALL
6
August 1, 1999
Signal Apparel Company, Inc.
500 Seventh Avenue, 7th Floor
New York, New York 10018
Attention: Chief Financial Officer
Re: The Revolving Credit, Term Loan and Security Agreement dated March 12, 1999
between GMAC Commercial Credit LLC (as a Lender and as agent for the Lenders),
successor-in-interest by merger to BNY Financial Corporation and SIGNAL APPAREL
COMPANY, INC., as amended and supplemented (the "Agreement")
Gentlemen:
We refer to the above mentioned Agreement. You have advised us that on or about
the date hereof, you contemplate entering into a certain Stock Purchase
Agreement (the "Stock Purchase Agreement") to sell all of the common stock (the
"GIDI Stock") of one of your wholly owned subsidiaries, GIDI Holdings, Inc., to
John W. Prutch, an executive officer and director of yours (the "Stock Sale").
In connection with your anticipated execution and delivery of the Stock Purchase
Agreement and your consummation of the Stock Sale pursuant thereto, you have
advised us of the potential for breach of certain sections of the Agreement by
reason thereof, resulting in an Event of Default thereunder, as follows:
(a) The disposition by Signal of all of the GIDI Stock under the Stock
Purchase Agreement, as such stock is included within the "Subsidiary Stock"
covered thereby and which forms part of the "Collateral" thereunder, is
restricted by Section 4.3 thereof. As the purchaser of such GIDI Stock is John
W. Prutch, an executive officer and director of Signal, such a disposition
therefore also constitutes or may be deemed to constitute a breach of Section
7.10 thereof, which contains a negative covenant against certain "Transactions
with Affiliates";
(b) The sale of the GIDI Stock, if consummated, would be for a
consideration in excess of $250,000.00, which is the relevant dollar threshold
for the sale, lease, transfer or other disposal of Signal's properties or assets
pursuant to the negative covenant set forth at Section 7.1(b) of the Agreement
in respect of Signal's "Sale of Assets"; and
(c) In connection with the contemplated sale of the GIDI Stock, Inc. Signal
will receive from GIDI Holdings, Inc., thirty five (35) shares of its Series A
Preferred Stock, with a stated value of $10,000.00 per share (collectively, the
"Series A Preferred Stock"), which constitutes or may be deemed to constitute a
<PAGE>
breach of Section 7.4 thereof, which contains a negative covenant in respect of
"Investments" by Signal.
The above described Events of Default arising under the noted Sections of the
Agreement, occurring upon and by reason of the execution and delivery of the
Stock Purchase Agreement and/or the consummation of the Stock Purchase, are
herein referred to collectively as the "Subject Events of Default".
You have requested that we waive, and we hereby agree to waive the Subject
Events of Default to the extent and as more fully described in this letter. The
waiver of the Subject Events of Default is conditioned upon and shall become
effective upon the execution and delivery of this waiver letter, together your
execution and delivery to us, as a Lender and as agent for the Lenders, of the
following: (1) the original certificates evidencing the Series A Preferred
Stock; (2) a Stock Pledge Agreement in respect of the Series A Preferred Stock;
(3) Stock Powers, endorsed in blank, with signature guarantees; (4) a Collateral
Assignment of Stock Purchase Agreement, and (5) related agreements and
documentation that we may request, in each instance, in form and substance
acceptable to us (collectively, the "GIDI Supplemental Documentation").
Except to the limited extent set forth herein: (a) no waiver of any other term,
condition, covenant, agreement or any other aspect of the Agreement is intended
or implied; and (b)except for the specific period of time and circumstances
covered by this letter, no other aspect of any of the covenants or agreements
referred to in the Agreement and/or this letter is waived, including without
limitation for any other period or circumstance, and no such additional waiver
is intended or implied. This waiver is therefore limited exclusively to the
specific purposes and time period for which it is given.
This waiver may be executed in counterparts, each of which shall be an original
hereof and all of which when taken together shall constitute a single agreement.
This waiver together with the GIDI Supplemental Documentation sets forth the
entire agreement and understanding of the parties with respect to the matters
set forth herein.
If the foregoing is in accordance with your understanding would you as well as
each of the other signatories noted below, please sign where indicated in order
to set forth your respective agreement herewith. This letter may be executed by
the parties hereto in one or more counterparts, each of which shall be deemed an
original and all of which when taken together shall constitute one and the same
agreement.
Very truly yours,
GMAC COMMERCIAL CREDIT LLC,
successor-in-interest by merger to
BNY FINANCIAL CORPORATION
By /s/ Wayne Miller
----------------------------------
Title: Vice President
Agreed:
SIGNAL APPAREL COMPANY, INC.
By /s/ Robert J. Powell
-----------------------------
Title: Vice President
STOCK PLEDGE AND SECURITY AGREEMENT
Stock Pledge and Security Agreement (this "Pledge Agreement"), dated as of
the 1 day of August , 1999, by SIGNAL APPAREL COMPANY, INC., having an office at
500 Seventh Avenue, Seventh Floor, New York, New York 10018 ("Pledgor"), to and
in favor of GMAC COMMERCIAL CREDIT LLC, successor-in-interest by merger to BNY
FINANCIAL CORPORATION, having an office at 1290 Avenue of the Americas, Third
Floor, New York, New York 10104, Attention: Mr. Frank Imperato, SVP, Loan
Administration , for itself as a Lender and as Agent for the Lenders pursuant to
the Credit Agreement referred to below ("Pledgee").
W I T N E S S E T H:
WHEREAS, Pledgor and Pledgee have entered into certain financing
arrangements, pursuant to certain financing agreements, including, without
limitation the Credit Agreement, dated March 12, 1999 (as amended and
supplemented, the "Credit Agreement") and certain notes, instruments, guaranties
and other agreements executed and/or delivered in connection therewith (all of
the foregoing, together with the Credit Agreement, as the same now exists or may
hereafter be amended, restated, renewed, extended, replaced, supplemented or
otherwise modified, collectively, the "Agreements");
WHEREAS, Pledgor is now the direct and beneficial owner of those Series A
Preferred shares of capital stock of the Former Subsidiary as are more
particularly described on Schedule A hereto (the "Pledged Securities"); and
WHEREAS, Pledgor has agreed to secure the payment and performance of its
Obligations under the Agreements, by (i) executing and delivering to Pledgee
this Pledge Agreement, (ii) delivering to Pledgee the Pledged Securities which
are registered in the name of Pledgor, together with appropriate powers duly
executed in blank by Pledgor, and (iii) delivering to Pledgee any and all other
documents which Pledgee deems necessary to protect Pledgee's interests
hereunder;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, receipt of which is hereby acknowledged, Pledgor hereby
agrees as follows:
1. CERTAIN DEFINITIONS
As used above and elsewhere in this Pledge Agreement the following terms
shall have the following meanings (all terms defined in the Uniform Commercial
Code which are not otherwise defined herein or in the Credit Agreement, shall
have the meanings set forth therein):
(a) "Issuers" shall mean and include each and every issuer of the
Pledged Securities.
(b) "Former Subsidiary" shall mean GIDI Holdings, Inc., an Illinois
corporation, and a former wholly owned subsidiary of Pledgor.
<PAGE>
(c) "Pledged Property" shall mean and include the (i) Pledged
Securities, together with all cash dividends, stock dividends, redemptions,
stock, securities options, substitutions, exchanges and other distributions
now or hereafter distributed by any of the Issuers with respect to the
Pledged Securities hereinafter be delivered into the possession of Pledgee,
(ii) Pledgor's records with respect to the foregoing, and (iii) the
proceeds of all of the foregoing.
(b) Credit Agreement Terms. Terms used herein which are defined in the
Credit Agreement and are not otherwise defined herein shall have the
meanings set forth in the Credit Agreement.
2. PLEDGE AND GRANT OF SECURITY INTEREST
As security for the prompt and unconditional payment and performance when
due of its Obligations to Pledgee, Pledgor hereby pledges, hypothecates,
assigns, transfers and sets over to Pledgee, the Pledged Property, and grants to
Pledgee a continuing security interest in the Pledged Property and the proceeds
thereof.
3. REPRESENTATIONS, COVENANTS AND WARRANTIES
Pledgor hereby covenants, represents and warrants, that:
(a) The Pledged Securities are authorized, validly issued, fully paid
and non-assessable capital stock of the respective Issuer, constitute
Pledgor's entire interest in the Issuer and constitute all of the issued
and outstanding shares of Series A Preferred capital stock of the Former
Subsidiary held in the respect of the Issuer;
(b) The Pledged Property is directly, legally and beneficially owned
by Pledgor free and clear of all claims, liens, pledges and encumbrances of
any kind, nature or description, except in favor of Pledgee;
(c) The Pledged Property is not subject to any restrictions relative
to the transfer thereof and Pledgor has the right to transfer and
hypothecate the Pledged Property free and clear of any liens, encumbrances
or restrictions, except as otherwise provided herein;
(d) The Pledged Property is duly and validly pledged to Pledgee and no
consent or approval of any governmental or regulatory authority or of any
securities exchange or the like, nor any consent or approval of any other
third party is necessary to the validity of this Pledge Agreement which has
not been obtained and a copy of which has not been furnished to Pledgee;
(e) During the term of this Pledge Agreement, if Pledgor shall
receive, have registered in its name or become entitled to receive or
acquire, or have registered in its name any stock certificate, option, or
right with respect to the securities of any Issuer (including without
limitation, any certificate representing a dividend or a distribution or
2
<PAGE>
exchange of or in connection with any reclassification of the Pledged
Securities) whether as an addition to, in substitution of, or in exchange
for any of the Pledged Property or otherwise, Pledgor agrees to accept same
as Pledgee's agent, to hold same in trust for Pledgee and to deliver same
forthwith to Pledgee or Pledgee's agent or bailee in the form received,
with the endorsement(s) of Pledgor where necessary and/or appropriate
powers and/or assignments duly executed to be held by Pledgee or Pledgee's
agent or bailee subject to the terms hereof, or if any of the foregoing is
uncertificated, register same with the Pledgee's security interest noted
therein as further security for Pledgor's Obligations to Pledgee;
(f) During the term of this Pledge Agreement, Pledgor shall not
directly or indirectly sell, assign, transfer, or otherwise dispose of, or
grant any option with respect to the Pledged Property, nor shall Pledgor
create, incur or permit any further pledge, hypothecation, encumbrance,
lien, mortgage or security interest with respect to the Pledged Property;
(g) So long as no default has occurred and is continuing, Pledgor
shall have the right to vote and exercise all corporate rights and to
receive cash dividends or real or personal property distributed by any
Issuer with respect to the Pledged Securities, provided that any stock of
any Issuer, or any options with respect to stock of any Issuer, so
distributed shall be subject to the security interest therein of Pledgee,
as provided in subparagraph (e) above; and
(h) All additional shares, options, warrants, rights or other
securities acquired by Pledgor during the term of this Pledge Agreement in
respect of the Issuers, are made and shall remain part of the Pledged
Property, subject to the first priority security interest granted herein
and during such term, Pledgor shall not accept or receive the same from any
Issuer, directly or indirectly, except subject to the foregoing requirement
and neither shall Pledgor issue, sell, grant, assign, transfer or otherwise
dispose of, any additional shares of capital stock of the Issuer or any
option or warrant with respect to, or other right or security convertible
into, any additional shares of capital stock of such Issuer, now or
hereafter authorized, but Pledgor shall deliver the same to Pledgee, to be
also held subject to the terms and conditions herein.
4. EVENTS OF DEFAULT
The occurrence of any default under the Credit Agreement shall constitute a
"default" under this Pledge Agreement.
5. REMEDIES AFTER DEFAULT
Immediately upon the occurrence of a default, and during the continuance
thereof, in addition to all other rights and remedies of Pledgee, whether
provided under law, the Credit Agreement or otherwise, Pledgee shall have the
following rights and remedies which may be exercised without notice to, or
consent by, the Pledgor, except as such notice or consent is expressly provided
for hereunder:
3
<PAGE>
(a) Pledgee, at its option, shall be empowered to exercise its
continuing right to instruct the Issuers (or the appropriate transfer agent
of the Pledged Securities) to register any or all of the Pledged Property
in the name of Pledgee or in the name of Pledgee's nominee and Pledgee may
complete, in any manner Pledgee may deem expedient, any and all stock
powers, assignments or other documents heretofore or hereafter executed in
blank by Pledgor and delivered to Pledgee and, in furtherance of the
foregoing, Pledgor shall execute and deliver to Pledgee together herewith a
Special Power of Attorney in the form of EXHIBIT 1 hereto. After said
instruction, and without further notice, Pledgee may exercise all voting
and corporate rights with respect to the Pledged Securities and may
exercise any and all rights of conversion, redemption, exchange,
subscription or any other rights, privileges, or options pertaining to any
shares of the Pledged Securities as if Pledgee were the absolute owner
thereof, including without limitation, the right to exchange, at its
discretion, any and all of the Pledged Securities upon any merger,
consolidation, reorganization, recapitalization or other readjustment with
respect thereto. Upon the exercise of any such rights, privileges or
options by Pledgee, Pledgee shall have the right to deposit and deliver any
and all of the Pledged Securities to any committee, depository, transfer
agent, registrar or other designated agency upon such terms and conditions
as Pledgee may determine, all without liability, except (i) for the gross
negligence of or willful misconduct of Pledgee, and (ii) to account for
property actually received by Pledgee. However, Pledgee shall have no duty
to exercise any of the aforesaid rights, privileges or options and shall
not be responsible for any failure to do so or delay in doing so.
(b) In addition to all of the rights and remedies of a secured party
under the Uniform Commercial Code or other applicable law, Pledgee shall
have the right, at any time and without demand of performance or other
demand, advertisement or notice of any kind (except the notice specified
below of time and place of public or private sale) to or upon Pledgor, or
any other Person (all and each of which demands, advertisements and/or
notices are hereby expressly waived to the extent permitted by law), to
proceed forthwith to collect, redeem, receive, appropriate, sell, or
otherwise dispose of and deliver the Pledged Property or any part thereof
in one or more lots at public or private sale or sales at any exchange,
brokers board or at any of Pledgee's offices or elsewhere at such prices
and on such terms as Pledgee may deem best. The foregoing disposition(s)
may be for cash or on credit or for future delivery without assumption of
any credit risk by Pledgee, with Pledgee having the right to purchase all
or any part of said Pledged Property so sold at any such sale or sales,
public or private, free of any right or equity of redemption in Pledgor,
which right or equity is hereby expressly waived or released by Pledgor.
The proceeds of any such collection, redemption, recovery, receipt,
appropriation, realization or sale, after deducting all costs and expenses
of every kind incurred relative thereto or incidental to the care,
safekeeping or otherwise of any and all Pledged Property or in any way
relating to the rights of Pledgee hereunder (including, without limitation,
appraisal, accountants, and attorneys' fees and legal expenses whether or
not due) shall be applied in accordance with the Credit Agreement. Pledgor
agrees that five (5) days prior notice by Pledgee, sent by certified mail,
postage prepaid, designating the date after which a private sale may take
place or a public auction may be held, is reasonable notification of such
matters.
4
<PAGE>
(c) Pledgor recognizes that Pledgee may be unable to effect a public
sale of all or part of the Pledged Property by reason of certain
prohibitions contained in the Securities Act of 1933, as amended, as now or
hereafter in effect or in applicable Blue Sky or other state securities
law, as now or hereafter in effect, but may be compelled to resort to one
or more private sales to a restricted group of purchasers who will be
obliged to agree, among other things, to acquire such Pledged Property for
their own account for investment and not with a view to the distribution or
resale thereof. If at the time of any sale of the Pledged Property or any
part thereof, the same shall not, be effectively registered (if required)
under the Securities Act of 1933 (or other applicable state securities
law), as then in effect, Pledgee in its sole and absolute discretion is
authorized to sell the Pledged Property, or such part thereof, by private
sale in such manner and under such circumstances as Pledgee or its counsel
may deem necessary or advisable in order that such sale may legally be
effected without registration. Pledgor acknowledges and agrees that private
sales so made may be at prices and other terms less favorable to the seller
than if the Pledged Property were sold at public sale, and that Pledgee has
no obligation to delay the sale of any Pledged Property for the period of
time necessary to permit the Issuer of the Pledged Property, even if such
Issuer would agree, to register the Pledged Property for public sale under
such applicable securities laws. Pledgor acknowledges and agrees that any
private sales made under the foregoing circumstances shall be deemed to
have been in a commercially reasonable manner.
(d) All of the Pledgee's rights and remedies, including but not
limited to the foregoing and those otherwise arising under this Pledge
Agreement, the Credit Agreement, the instruments and securities comprising
the Pledged Property, applicable law or otherwise, shall be cumulative and
not exclusive and shall be enforceable alternatively, successively or
concurrently as Pledgee may deem expedient. No failure or delay on the part
of Pledgee in exercising any of its options, powers or rights or partial or
single exercise thereof, shall constitute a waiver of such option, power or
right.
6. FURTHER ASSURANCES
Pledgor agrees that at any time, and from time to time, upon the request of
Pledgee, Pledgor will execute and deliver such further documents, including but
not limited to stock powers, or other appropriate instruments of transfer in
form reasonably satisfactory to counsel for Pledgee, and will take or cause to
be taken such further acts as Pledgee may reasonably request in order to effect
the purposes of this Pledge Agreement and perfect or continue the perfection of
the security interest in the Pledged Property granted to Pledgee hereunder, in
conformity with applicable law.
7. MISCELLANEOUS
(a) Beyond the exercise of reasonable care to assure the safe custody of
the Pledged Property while held by Pledgee hereunder, Pledgee or Pledgee's agent
or bailee shall have no duty or liability to protect or preserve any rights
pertaining thereto and shall be relieved of all responsibility for the Pledged
Property upon surrendering it to Pledgor. Upon the termination of the Credit
Agreement and the indefeasible payment in full of Pledgor's Obligations to
Pledgee this Agreement shall terminate and Pledgee shall
5
<PAGE>
execute and deliver all instruments as may be necessary or proper to return or
release its security interest in the Pledged Property.
(b) No course of dealing between Pledgor and Pledgee, nor any failure or
delay by Pledgee to exercise any right, power or privilege under this Pledge
Agreement, the Credit Agreement or under any of the other documents or
agreements between Pledgor and Pledgee, shall operate as a waiver hereof or
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or thereunder preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. No waiver of any
provision of this Pledge Agreement shall be effective unless the same shall be
in writing and signed by Pledgee, and then such waiver shall be effective only
in the specific instance and for the purpose for which given.
(c) This Pledge Agreement may not be changed, modified or amended, in whole
or in part, except by a writing signed by Pledgor and Pledgee.
(d) The provisions of this Pledge Agreement are severable, and if any
clause or provision hereof shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall attach
only to such clause or provision in any such jurisdiction or part thereof, and
shall not in any manner affect such clause or provision in any other
jurisdiction or any other clause or provision in this Pledge Agreement in any
jurisdiction.
(e) THE PARTIES HERETO WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING OF
ANY KIND OR NATURE IN ANY COURT WHETHER ARISING OUT OF, UNDER OR BY REASON OF
THIS PLEDGE AGREEMENT OR THE PLEDGED PROPERTY.
(f) This Pledge Agreement shall inure to the benefit of Pledgor and Pledgee
and their respective successors and assigns permitted under the Credit
Agreement, and shall be binding upon Pledgor and its successors and assigns
permitted under the Credit Agreement until all of the Pledgor's Obligations to
Pledgee have been indefeasibly paid in full.
(g) In the event any term or provision of this Pledge Agreement conflicts
with any term or provision of the Credit Agreement, such term or provision of
the Credit Agreement shall control.
8. GOVERNING LAW
This Pledge Agreement and the obligations of the parties hereunder shall be
governed by, and construed and interpreted in accordance with, the internal laws
of the State of New York, without regard to the conflicts of law principles of
said State.
9. JURISDICTION
Pledgor hereby expressly submits and irrevocably consents in advance to
6
<PAGE>
the nonexclusive jurisdiction of the Supreme Court of the State of New York for
the County of New York, and of the United States District Court for the Southern
District of New York to hear and determine any claims or disputes pertaining
directly or indirectly to this Pledge Agreement or to any matter arising
therefrom in any such action or proceeding and Pledgor waives any objection
based on forum non conveniens and any objection to venue in connection
therewith. In any such litigation, Pledgor waives personal service of the
summons and complaint, or other process or notice of motion or other application
or papers issued therein, and agrees that service of such summons and complaint,
or other process or papers shall be made inside or outside the State of New York
by registered or certified mail, return receipt requested, addressed to Pledgor
at its address set forth above, together with simultaneous delivery of a copy
thereof to Pledgor's counsel, or in such other manner as may be permissible
under the rules of said Courts.
IN WITNESS WHEREOF, the undersigned has caused these presents to be duly
executed and delivered on the day and year first above written.
PLEDGOR:
SIGNAL APPAREL COMPANY, INC.
By: /s/ Robert J. Powell
----------------------------------
Title: Vice President
7
<PAGE>
SCHEDULE A
PLEDGED SECURITIES
Class Certificate Number
Issuer of Stock Number of Shares
- ------ -------- ------ ---------
GIDI Holdings, Inc. Series A
Preferred 35
<PAGE>
EXHIBIT 1
SPECIAL POWER OF ATTORNEY
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
KNOW ALL MEN BY THESE PRESENTS, that SIGNAL APPAREL COMPANY, INC., having
an office at 500 Seventh Avenue, Seventh Floor, New York, New York 10018
(hereinafter "Pledgor"), hereby appoints and constitutes GMAC COMMERCIAL CREDIT
LLC, successor-in-interest by merger to BNY FINANCIAL CORPORATION, for itself as
a Lender and as Agent for the Lenders (hereinafter "Pledgee") pursuant to the
Revolving Credit, Term Loan and Security Agreement between Pledgor and Pledgee
dated March 12, 1999, as amended and supplemented, and each officer of Pledgee,
its true and lawful attorney, with full power of substitution and with full
power and authority to perform the following acts on behalf of Pledgor at any
time after the occurrence and during the continuance of a default under the
Pledge Agreement (as hereinafter defined):
1. Execution and delivery of any and all agreements, documents, instruments
of assignment, or other papers which Pledgee in its reasonable discretion, deems
necessary or advisable for the purpose of assigning, selling, or otherwise
disposing of all of the right, title, and interest of Pledgor in and to the
Pledged Securities, as defined in the Pledge Agreement, together with all cash
dividends, stock dividends, redemptions, securities or substitutions, exchanges
or other distributions now or hereafter pledged, assigned or otherwise
transferred to Pledgee by Pledgor in respect of the Pledged Securities and all
registrations, recordings, reissues, extensions, and renewals thereof, or for
the purpose of recording, registering and filing of, or accomplishing any other
formality with respect to the foregoing.
2. Execution and delivery of any and all documents, statements,
certificates or other papers which Pledgee in its sole discretion, deems
necessary or advisable to further the purposes described in paragraph 1 hereof.
This Power of Attorney, being a power coupled with an interest, is made
pursuant to a Stock Pledge and Security Agreement between Pledgor and Pledgee
dated of even date
<PAGE>
herewith (the "Pledge Agreement") and may not be revoked until indefeasible
payment in full of all Pledgor's "Obligations", as such term is defined in the
Pledge Agreement.
Dated as of ________________, 1999
PLEDGOR:
SIGNAL APPAREL COMPANY, INC.
By: __________________________________
Title: ________________________________
<PAGE>
COLLATERAL ASSIGNMENT OF STOCK PURCHASE AGREEMENT
COLLATERAL ASSIGNMENT, made as of this 1 day of August, 1999, by SIGNAL
APPAREL COMPANY, INC., having an office at 501 Seventh Avenue, Seventh Floor,
New York, New York 10018 (the "Client") in favor of GMAC COMMERCIAL CREDIT LLC,
successor-in-interest by merger to BNY FINANCIAL CORPORATION, as Agent and as
Lender pursuant to the Credit Agreement referred to below, having offices at
1290 Avenue of the Americas, Third Floor, New York, New York 10104, Attention:
Mr. Frank Imperato, SVP, Loan Administration Department (the "Secured Party").
W I T N E S S E T H:
WHEREAS, Secured Party has heretofore entered into certain financing
arrangements with Client, pursuant to certain financing agreements, including
but not limited to that certain Revolving Credit, Term Loan and Security
Agreement dated March 12, 1999 by and between Secured Party, as a Lender and as
Agent for the Lenders thereunder, and Client, as amended and supplemented and
related agreements and documentation, each by and between Client and BNYFC (the
"Credit Agreement") and other related documents, agreements, instruments,
guaranties or notes granting collateral security or creating or evidencing
indebtedness executed and/or delivered in connection therewith or related
thereto, including, but not limited to the Factoring Agreement (as therein
defined) and this Collateral Assignment of Stock Purchase Agreement (all of the
foregoing, as the same may now exist or hereafter be amended, modified or
supplemented, together with the Credit Agreement, are collectively referred to
herein as the "Agreements"); and
WHEREAS, Client and John W. Prutch, an executive officer and director of
Client, have heretofore entered into or contemplate entering into that certain
Stock Purchase Agreement dated as of July 31, 1999, providing for, among other
things, the sale (the "Stock Sale") of all of the common stock by Client held in
GIDI Holdings, Inc. ("GIDI "), one of its wholly owned subsidiaries, to John W.
Prutch, an executive officer and director of Client (said Stock Purchase
Agreement as the same may now exist or hereafter be amended, modified or
supplemented, is hereinafter referred to as the "Contract"), a true and complete
copy of which is annexed hereto and made a part hereof as Exhibit A; and
WHEREAS, pursuant to the Contract and the Stock Sale, Client shall receive
from GIDI : (a) thirty five (35) shares of Series A Preferred Stock, with a
stated value of $10,000.00 per share (the ""GIDI Preferred Stock"); and (b)
certain other payments, distributions and/or entitlements thereunder from time
to time, due and to become due in relation to the transactions therein
described, which may be both cash and non-cash (collectively, "Payments"); and
WHEREAS, the execution and delivery of the Contract and/or the Stock Sale,
as well as the receipt by the Client of the GIDI Preferred Stock and the other
Payments in connection therewith, may breach certain provisions of the Credit
Agreement and on or about the date hereof, the Client has accordingly requested
Secured Party to execute and deliver a waiver (the "GIDI Waiver") in respect of
any such breaches and the Secured Party is willing to provide the GIDI Waiver,
subject to the execution and delivery by the Client of this Collateral
Assignment of
<PAGE>
Stock Purchase Agreement and a Stock Pledge Agreement, whereby the GIDI
Preferred Stock shall be pledged by the Client to the Secured Party as further
collateral security for all Obligations (as defined herein) of the Client,
NOW, THEREFORE, in order to induce Secured Party to enter into the GIDI
Waiver, and in consideration thereof, Client hereby agrees in favor of Secured
Party as follows:
1. GRANT OF SECURITY INTEREST
The Client hereby confirms that all existing and future rights to receive
the Payments, profits and other entitlements and/or amounts covered by this
Collateral Assignment of Stock Purchase Agreement are included within and form
and part of the Collateral consisting of General Intangibles in which a security
interest has heretofore been granted by the Client to the Secured Party pursuant
to the Credit Agreement. Without limiting the foregoing, as security for the
prompt and unconditional payment when due of each and every one of the
"Obligations", Client hereby grants, assigns, transfers and sets over to Secured
Party and grants Secured Party a continuing security interest in and lien upon
all of Client's right, title and interest in and to the Contract, including, but
not limited to: (a) all of Client's right, title and interest in and to
Payments, profits and other entitlements and/or amounts with respect to the
Contract and/or the GIDI Preferred Stock; and (b) all other monies now or
hereafter payable to Client arising from any sale, subcontract, cancellation,
termination, assignment or other disposition of the Contract and/or the GIDI
Preferred Stock (all of the foregoing are collectively referred to herein as the
"Collateral").
2. OBLIGATIONS SECURED
The assignment and security interest granted to Secured Party hereunder
shall secure the prompt and indefeasible payment and performance of any and all
"Obligations", as such quoted term is defined in the Credit Agreement.
3. REPRESENTATIONS, COVENANTS AND WARRANTIES
Client, covenants, represents and warrants that:
(a) Client's rights under the Contract and to the GIDI Preferred Stock
are free and clear of all claims, liens, pledges and encumbrances of any
kind, nature or description, except for those granted to Secured Party
hereunder.
(b) The Contract and the GIDI Preferred Stock are each not subject to
any restrictions relative to the transfer thereof and Client has the right
to transfer, assign and encumber its interest in the Contract and the GIDI
Preferred Stock in favor of Secured Party.
(c) Until all of the Obligations have been indefeasibly paid and
satisfied in full, Client shall not directly or indirectly further sell,
assign, transfer or otherwise further dispose of the Contract , the GIDI
Preferred Stock or any part or rights thereof (except for the mandatory
redemption of stock by GIDI as specified in the Contract, the proceeds of
which are also included within this Assignment), nor shall Client create,
incur or permit any further pledge, encumbrance, lien, mortgage or security
interest with respect to the Contract, the GIDI Preferred Stock, or any
2
<PAGE>
part or rights thereof.
(d) Until the Obligations have been indefeasibly paid and satisfied in
full, Client will not consent to or enter into any alteration, amendment,
termination or cancellation of the Contract and/or the GIDI Preferred Stock
without first having obtained the written consent of Secured Party.
(e) Until the Obligations have been indefeasibly paid and satisfied in
full, (i) Client hereby assigns, transfers and sets over to Secured Party,
(ii) Secured Party may receive for application to the Obligations in such
manner as Secured Party may determine in its sole discretion, and (iii)
Client hereby authorizes and directs each of John W. Prutch and GIDI and
each of John W. Prutch and GIDI hereby agree, to remit directly to Secured
Party, any and all of the Collateral, including, but not limited to, all
Payments, proceeds, profits and distributions to which Client would be
otherwise entitled to under the terms of the Contract, by reason of the
GIDI Preferred Stock, or otherwise.
(f) In furtherance of the assignment and security interest hereunder,
Client hereby grants to Secured Party the right, at Secured Party's option
and at all times and from time to time, to enforce any of the conditions,
covenants or agreements contained in the Contract, the GIDI Preferred
Stock. or otherwise, and to do anything that Client would have the right to
do under the Contract, or in respect of the GIDI Preferred Stock, in the
absence of this Assignment; provided, however, that nothing contained
herein shall or shall be deemed to otherwise obligate Secured Party to take
or forebear from taking any action which Client may be entitled or required
to take or not take, or shall be deemed, absent the occurrence of an Event
of Default and Secured Party's enforcement of any of its rights and/or
remedies under or in connection with any of the Agreements, to prohibit
Client from taking any such action in its own right.
4. FURTHER ASSURANCES
Client agrees that, at any time and from time to time, upon written request
of Secured Party, Client will execute and deliver such further documents and
take such action as shall be reasonably necessary to effectuate the purposes of
this Assignment.
5. MISCELLANEOUS
(a) Neither the acceptance of this Assignment by Secured Party, nor any
provision hereof, nor the exercise of any right hereunder, shall constitute an
assumption by Secured Party of any obligation of Client under the Contract, in
respect of any GIDI Preferred Stock, or otherwise.
(b) No course of dealing between Secured Party and Client, nor any failure
or delay by Secured Party to exercise any right, power, or privilege hereunder
or under any other agreements, instruments and documents executed and delivered
in connection therewith shall operate as a waiver hereof or thereof; nor shall
any single or partial exercise of any right, power or privilege hereunder or
thereunder preclude any other or further exercise thereof or the exercise of any
other right, power or privilege.
3
<PAGE>
(c) The provisions of this Assignment are severable, and if any clause or
provision hereof shall be held invalid or unenforceable in whole or in part in
any jurisdiction, then such invalidity or unenforceability shall attach only to
such clause or provision in such jurisdiction or part thereof, and shall not in
any manner affect such clause or provision in any other jurisdiction or any
other clause or provision in this Assignment in any such jurisdiction.
(d) In the event of any conflict between the terms and provisions of this
Assignment and the terms and provisions of the Credit Agreement, the terms and
provisions of the Credit Agreement shall control.
(e) All notices, requests and demands to or upon Client or Secured Party
shall be in writing and shall be deemed to have been duly given or made: if by
hand, immediately upon delivery; if by telex or telegram, immediately upon
sending; if by express mail or any other overnight delivery service, one (1) day
after dispatch; and if mailed by certified mail, return receipt requested, five
(5) days after mailing. All notices, requests and demands are to be given or
made to the respective parties at the addresses indicated above (or to such
other addresses as either Client or Secured Party may designate by notice in
accordance with the provisions of this paragraph).
(f) Any failure or delay be Secured Party to require strict performance by
Client of any of the provisions, warranties, terms, and conditions contained
herein or in any other agreement, document, or instrument shall not affect
Secured Party's right to demand strict compliance and performance therewith, and
any waiver of any default shall not waive or affect any other default, whether
prior or subsequent thereto, and whether of the same or different type.
(g) This Assignment may not be terminated, modified, altered or limited
orally, but only by an instrument in writing, signed by an officer of Secured
Party and by an Officer of Client.
6. SUCCESSORS AND ASSIGNS
This Assignment shall inure to the benefit of Secured Party and its
successors and assigns, and shall be binding upon Client, and Client's
successors and assigns, until all of the Obligations have been indefeasibly paid
in full.
7. JURY TRIAL WAIVER AND CHOICE OF LAW
(a) CLIENT AGREES THAT ALL ACTIONS AND PROCEEDINGS RELATING DIRECTLY OR
INDIRECTLY TO THIS ASSIGNMENT OR ANY OF THE OTHER RELATED AGREEMENTS OR ANY
OBLIGATION SHALL BE LITIGATED IN THE FEDERAL DISTRICT COURT OF THE SOUTHERN
DISTRICT OF NEW YORK OR, AT SECURED PARTY'S OPTION, IN ANY OTHER COURTS LOCATED
IN NEW YORK STATE OR ELSEWHERE AS SECURED PARTY MAY SELECT AND THAT SUCH COURTS
ARE CONVENIENT FORUMS AND CLIENT SUBMITS TO THE PERSONAL JURISDICTION OF SUCH
COURTS. CLIENT HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT OR OTHER
PROCESS OR PAPERS TO BE ISSUED THEREIN AND HEREBY AGREES THAT SERVICE OF SUCH
SUMMONS, COMPLAINT, PROCESS OR PAPERS MAY BE MADE BY
4
<PAGE>
REGISTERED OR CERTIFIED MAIL ADDRESSED TO CLIENT AT THE ADDRESS APPEARING
HEREIN.
(b) THIS ASSIGNMENT SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE
LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO CONFLICTS OF LAWS
PRINCIPLES. ALL TERMS USED HEREIN, UNLESS OTHERWISE DEFINED HEREIN, SHALL HAVE
THE MEANINGS GIVEN IN THE NEW YORK UNIFORM COMMERCIAL CODE.
(c) TO THE EXTENT LEGALLY PERMISSIBLE, BOTH CLIENT AND SECURED PARTY WAIVE
ALL RIGHT TO TRIAL BY JURY IN ANY LITIGATION RELATING TO TRANSACTIONS UNDER THIS
ASSIGNMENT, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.
IN WITNESS WHEREOF, the Client has caused these presents to be duly
executed and delivered the day and year first above written.
SIGNAL APPAREL COMPANY, INC.
By: /s/ Robert J. Powell
---------------------------------
Title: Vice President
5
November 15, 1999
SIGNAL APPAREL COMPANY, INC.
500 7th Avenue, 7th Floor
New York, New York 10018
Gentlemen:
Reference is made to the Revolving Credit, Term Loan and Security
Agreement, dated March 12, 1999, as amended and/or supplemented from time to
time, the "Credit Agreement by and among SIGNAL APPAREL COMPANY, INC.
("Borrower") and our predecessor -in-interest, BNY FINANCIAL CORPORATION, now
GMAC COMMERCIAL CREDIT LLC, as Agent (in such capacity, "Agent") for the lenders
("Lenders") parties from time to time to the Credit Agreement. All capitalized
terms used and not otherwise defined herein shall have the respective meanings
ascribed to them in the Credit Agreement.
1. The Borrower has advised Lender that, for the fiscal quarter ending
October 2, 1999, its (i) Tangible Net Worth was less than ($70,000,000), the
minimum Tangible Net Worth permitted as of October 2, 1999 under Section 6.5
(Tangible Net Worth) of the Credit Agreement; (ii) the Current Ratio was less
than 0.65:1.00, the minimum Current Ratio permitted as of October 2, 1999 under
Section 6.6 (Current Ratio) of the Credit Agreement; (iii) Working Capital was
less than ($6,500,000), the minimum Working Capital permitted as of October 2,
1999 under Section 6.7 (Working Capital) of the Credit Agreement; and (iv) net
loss, excluding any extraordinary or non-recurring items was greater than
($3,500,000), the maximum net loss excluding any extraordinary or non-recurring
items permitted as of October 2, 1999 under Section 6.13(a) (Additional
Financial Convents) of the Credit Agreement. As a result of such noncompliance,
Events of Default have occurred under Section 10.2 of Article X (Events of
Default) of the Credit Agreement (the "Subject Events of Default"). Borrowers
have requested Lender to waive the Subject Events of Default, and Lender hereby
waives the Subject Events of Default.
2. The Borrower hereby acknowledges, confirms and agrees that all amounts
charged or credited to the Borrower's account as of November 15, 1999 are
correct and binding upon the Borrower and that all amounts reflected to be due
and owing in the Borrower's account as of November 15, 1999 are due and owing
without defense, setoff, offset, recoupment, claim or counterclaim. Furthermore,
Borrower hereby also irrevocably releases and forever discharges Agent and
Lenders and each of Agent's and Lenders' respective affiliated concerns, as well
as all of the Agent's and Lender's respective directors, officers, employees,
shareholders and agents from any and all liabilities, demands, obligations,
causes of action and other claims, of every kind, nature and
<PAGE>
description, known and unknown, which Borrower now has or may hereafter have, by
reason of any matter, cause or thing occurred, done, omitted or suffered to be
done prior to the date hereof.
3. Except as specifically set forth herein, no other changes or
modifications to the Credit Agreement are intended or implied, and, in all other
respects, the Credit Agreement shall continue to remain in full force and effect
in accordance with its terms as of the date hereof. Except as specifically set
forth herein, nothing contained herein shall evidence a waiver or amendment by
Agent of any other provision of the Credit Agreement or a waiver of Borrower's
compliance with any of the specific covenants set forth above for any other time
period. Without limiting the foregoing, nothing herein contained shall or shall
be deemed to, waive any Event of Default of which Agent does not have actual
knowledge as of the date hereof, or any event or circumstance which with notice
or passage of time, or both, would constitute an Event of Default. Agent may, in
its sole discretion, waive any of such other Events of Default, but only in a
specific writing signed by Agent.
4. In consideration of the waiver given by Agent and Lenders herein,
Borrower agrees to pay a non-refundable waiver fee to Agent, for the benefit of
Lenders in the amount of $40,000, which fee shall be fully earned as of the date
hereof, and may be paid by a charge to your account with us.
5. The terms and provisions of this agreement shall be for the benefit of
the parties hereto and the respective successors and assigns; no other person,
firm, entity or corporation shall have any right, benefit or interest under this
agreement.
6. This agreement may be signed in counterparts, each of which shall be an
original and all of which taken together shall constitute one amendment. In
making proof of this agreement, it shall not be necessary to produce or account
for more than one counterpart signed by the party to be charged.
7. This agreement sets forth the entire agreement and understanding of the
parties with respect to the matters set forth herein. This agreement cannot be
changed, modified, amended or terminated, except in writing executed by the
party to be charged.
Very truly yours,
GMAC COMMERCIAL CREDIT LLC
By: /s/ Wayne Miller
-------------------------
Its: Vice President
ACKNOWLEDGED AND AGREED:
SIGNAL APPAREL COMPANY, INC.
/s/ Howard Weinberg
- -------------------------------
By: Howard Weinberg
Title: Chief Financial Officer
[SIGNAL APPAREL LETTERHEAD]
September 14, 1999
Mr. Evan Levine
Brown Simpson
152 West 57th Street
40th Floor
New York, New York 10019
Re: $5 Million Convertible Debt
Dear Mr. Levine:
Reference is made to that certain Securities Purchase Agreement, dated as
of March 3, 1999 (the "Purchase Agreement"), executed between Signal Apparel
Company, Inc. ("Signal") and Brown Simpson Strategic Growth Fund, L.P. and Brown
Simpson Strategic Growth Fund, Ltd. (the "Holders"). Reference is also made to
those certain 5% Convertible Debentures, each dated March 3, 1999, in the
original principal amounts of $1,750,000 and $ 3,250,000 (collectively, the
"Debenture") issued to the Holders by Signal in connection with the Purchase
Agreement. All capitalized terms used in this agreement and not otherwise
defined herein shall have the same meaning ascribed to such terms in the
Debenture and in the Purchase Agreement.
An Event of Default exists under Section 3.1 of the Debenture as a result
of the failure by Signal to pay the interest thereon that became due and payable
on July 1, 1999. Holders have certain rights under the Debenture in connection
with such Event of Default.
The Holders and Signal desire to amend the Debenture in certain respects.
In consideration of the waiver by Holders of the existing Event of Default
described above, the mutual promises set forth in this agreement, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Holders and Signal hereby agree as follows:
Page 1
<PAGE>
1. The last paragraph on page 2 of the Debenture which begins with the words
"The principal of..." shall be amended in its entirety to read as follows:
"The principal of, and interest on, this Security are payable in coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public or private debts, at the last address of the
Holder last appearing on the Register."
2. Concurrently with execution of this agreement, Signal shall pay to Holders
the sum of $62,000 as payment in full of all interest due under the
Debenture as of July 1, 1999. Holders have not received any common stock
certificates representing payment of such interest.
3. Notwithstanding any provision in the Debenture or the Purchase Agreement to
the contrary, the Conversion Price shall remain at Two Dollars ($2.00) and
shall not be adjusted (except as otherwise provided in the Debenture) until
December 31, 1999 (the "Adjustment Date"). On the Adjustment Date, at the
option of Signal (to be exercised in writing), the Conversion Price shall
be adjusted to One Dollar and Twenty Five Cents ($1.25); provided that, on
or before the Adjustment Date, a third party shall have provided to
Signal's lender not less than $10 million as collateral for new loans made
to Signal on or before the Adjustment Date. If Signal has not, on or before
the Adjustment, exercised the Conversion Price option in accordance with
the previous sentence, then, at the option of Holders (to be exercised in
writing at any time after November 1, 1999), the Conversion Price shall be
adjusted to One Dollar ($1.00).
4. Holders each hereby waive the existing Event of Default described above and
any Default which may now exist under the Debenture or the Purchase
Agreement; provided that Signal shall have made the payment required by
paragraph 2.
5. Except as specifically set forth herein, no other changes or modifications
to the Purchase Agreement or the Debenture are intended or implied, and, in
other respects, the Purchase Agreement and the Debenture shall continue to
remain in full force and effect in accordance with its terms as of the date
hereof.
6. The terms and provisions of this agreement shall be for the benefit of the
parties hereto and their respective successors and assigns; no other
person, firm, entity or corporation shall have any right, benefit or
interest under this agreement.
Page 2
<PAGE>
7. This agreement may be signed in counterparts, each of which shall be an
original and all of which taken together constitute one amendment. In
making proof of this agreement, it shall not be necessary to produce or
account for more than one counterpart signed by the party to be charged.
8. This agreement shall be governed by and construed in accordance with the
laws of the State of New York.
9. This agreement sets forth the entire agreement and understanding of the
parties with respect to the matters set forth herein. This agreement cannot
be changed, modified, amended or terminated except in writing executed by
the part to be changed.
Very truly yours,
SIGNAL APPAREL COMPANY, INC.
By: /s/ Howard Weinberg
----------------------------
Howard Weinberg
CFO
ACKNOWLEDGED AND AGREED:
BROWN SIMPSON STRATEGIC GROWTH FUND, L.P.
By: Brown Simpson Asset Management LLC
By: /s/ Evan Levine
-----------------------
Evan Levine
Principal
BROWN SIMPSON STRATEGIC GROWTH FUND, Ltd.
By: Brown Simpson Capital, LLC
Its General Partner
By: /s/ Evan Levine
-----------------------
Evan Levine
Principal
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SIGNAL APPAREL COMPANY, INC., FOR THE FISCAL QUARTER
ENDED OCTOBER 2, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> OCT-2-1999
<CASH> 444
<SECURITIES> 0
<RECEIVABLES> 3,575
<ALLOWANCES> 2,790
<INVENTORY> 8,069
<CURRENT-ASSETS> 11,556
<PP&E> 3,636
<DEPRECIATION> 461
<TOTAL-ASSETS> 47,640
<CURRENT-LIABILITIES> 100,245
<BONDS> 27,927
0
50,478
<COMMON> 534
<OTHER-SE> (130,427)
<TOTAL-LIABILITY-AND-EQUITY> 47,640
<SALES> 79,319
<TOTAL-REVENUES> 79,319
<CGS> 71,232
<TOTAL-COSTS> 71,232
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,410
<INCOME-PRETAX> (33,070)
<INCOME-TAX> 0
<INCOME-CONTINUING> (33,070)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,070)
<EPS-BASIC> (0.72)
<EPS-DILUTED> (0.72)
</TABLE>
