SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 July 3, 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 August 15, 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>
July 3, Dec. 31,
1999 1998
--------- ---------
<S> <C> <C>
Assets
Current Assets:
Cash & cash equivalents $ 301 $ 403
Receivables, less allowance for doubtful
accounts of $4,000 in 1999 and $2,443 in 1998, respectively 632 1,415
Note receivable 646 283
Inventories 6,495 12,641
Prepaid expenses and other 219 539
--------- ---------
Total current assets: 8,292 15,281
Property, plant and equipment, net 3,460 3,001
Goodwill 25,111 0
Other assets 824 182
--------- ---------
Total assets $ 37,687 $ 18,464
========= =========
Liabilities and Shareholders' Deficit
Current Liabilities:
Accounts payable 9,158 8,133
Accrued liabilities 10,958 9,760
Accrued interest 4,768 3,810
Current portion of long-term debt and capital leases 1,638 6,435
Revolving advance account 15,340 44,049
Term Loan 47,732 0
--------- ---------
Total Current Liabilities: 89,595 72,187
Long-term Liabilities:
Convertible Debentures 2,998 0
Notes Payable Principally to Related Parties 23,437 13,968
--------- ---------
Total Long-term Liabilities: 26,435 13,968
Shareholders' Deficit:
Preferred Stock 49,754 52,789
Common Stock 491 326
Additional paid-in capital 185,520 165,242
Accumulated deficit (312,992) (284,931)
--------- ---------
Subtotal (77,227) (66,574)
Less: Cost of Treasury shares (140,220 shares) (1,117) (1,117)
--------- ---------
Total Shareholders' Deficit (78,343) (67,691)
--------- ---------
Total Liabilities and
Shareholders' Deficit $ 37,687 $ 18,464
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SIGNAL APPAREL COMPANY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $ 34,293 $ 12,483 $ 68,621 $ 24,044
Cost of Sales 35,184 9,472 63,474 17,979
-------- -------- -------- --------
Gross Profit (891) 3,011 5,147 6,065
Royalty Expense 1,408 1,059 3,393 1,856
Selling, General &
Administrative 13,744 4,494 21,378 9,502
Non-Recurring Expenses 3,240 -0- -0- -0-
Interest Expense 3,690 1,669 6,988 3,218
Other (Income) net (31) (90) -0- (536)
-------- -------- -------- --------
Loss Before Income Taxes (22,941) (4,121) (26,612) (7,975)
Income Taxes -0- -0- -0- -0-
-------- -------- -------- --------
Net Loss (22,941) $ (4,121) $(26,612) $ (7,975)
-------- -------- -------- --------
Less Preferred Stock Dividends 1,449 -0- 1,449 -0-
Net Loss Applicable to Common $(24,390) $ (4,121) $(28,061) $ (7,975)
Basic Diluted Net Loss Per Share $ (0.55) $ (0.13) $ (0.69) $ (0.24)
======== ======== ======== ========
Weighted average shares outstanding 44,498 32,662 40,544 32,641
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SIGNAL APPAREL COMPANY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Six Months Ended
July 3, July 4,
1999 1998
-------- --------
Operating Activities:
Net loss $(28,061) $ (7,975)
Adjustments to reconcile net loss to of the
effect of acquisitions and sales:
Depreciation and amortization 2,271 1,397
Non-cash interest charges 1,179 0
(Gain) on disposal of equipment (52) (609)
Changes in operating assets
and liabilities:
Receivables 965 (1,851)
Inventories 14,615 (2,167)
Prepaid expenses and other assets 243 (65)
Accounts payable and accrued
liabilities (687) 1,879
-------- --------
Net cash used in operating
activities (9,526) (9,391)
-------- --------
Investing Activities:
Purchases of property, plant and
equipment 153 (158)
Proceeds from notes receivable 0 116
Restricted Cash 476 0
Proceeds from the sale of Heritage Division 2,000 0
Proceeds from the sale of property,
plant and equipment 0 875
-------- --------
Net cash provided by
investing activities 2,629 833
-------- --------
Financing Activities:
Decrease in Cash in Bank 0 0
Net increase (decrease) in revolving
advance account (42,541) 2,007
Net increase in term loan borrowings 50,000 0
Net increase in borrowings from
related party 0 7,350
Principal payments on borrowings (635) (1,163)
Repurchase of preferred stock (2,398) 0
Proceeds from sale of convertible debt 2,350 0
New common stock issued 18 0
Net cash provided by
financing activities 6,794 8,194
-------- --------
(Decrease) in cash (102) (364)
Cash and Cash equivalents at beginning of period 403 384
-------- --------
Cash and Cash equivalents at end of period $ 301 $ 20
======== ========
See accompanying notes to financial statements.
<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 July 3, 1999 and its
results of operations and cash flows for the three months ended July 3,
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 July 3, 1999 are not
necessarily indicative of the results to be expected for the full year.
3. Inventories consisted of the following:
July 3, December 31,
1999 1998
------- -------
(In thousands)
Raw materials and supplies $ 0 $ 788
Work in process - 0 - 1,377
Finished goods 6,445 10,262
Supplies 50 214
------- -------
$ 6,495 $12,641
======= =======
4. Pursuant to the term of various license agreements, the Company is
obligated to pay future minimum royalties of approximately $1.4 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 share equivalents outstanding.
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 are currently 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 (subject to shareholder approval, which was obtained
at the Company's Annual Meeting on January 27, 1999) 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
July 3, 1999, the largest outstanding balance to date has been $20,160,000,
which means that warrants to acquire 4,032,000 shares of Common Stock would
have been vested as of such date). These warrants were subject to
<PAGE>
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 3.4 million additional warrants to WGI, LLC. The fair
market value, using the Black-Scholes option pricing model, of the above
mentioned warrants of approximately $2.8 million will be capitalized and
included in the Company's balance sheet as a debt discount. These costs
will be amortized over the term of the debt agreement with 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 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.
<PAGE>
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, BNY Financial Corporation (in 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
on behalf of the Company, subject to a maximum L/C amount of $40,000,000
and further subject to the requirement that the sum of all advances under
the revolving credit line (including any outstanding L/Cs) may not exceed
the lesser of the Maximum Revolving Advance Amount or an amount (the
"Formula Amount") equal to the sum of: (1) up to 85% of Eligible
Receivables, as defined, plus (2) up to 50% of the value of Eligible
Inventory, as defined (excluding L/C inventory and subject to a cap of
$30,000,000 availability), plus (3) up to 60% of the first cost of Eligible
L/C Inventory, as defined, plus (4) 100% of the value of collateral and
letters of credit posted by the Company's principal shareholders, minus (5)
the aggregate undrawn amount of outstanding Letters of Credit, minus (6)
Reserves (as defined). In addition to the secured revolving advances
represented by the Formula Amount, and subject to the overall limitation of
the Maximum Revolving Advance Amount, the agreement provides the Company
with an additional, unsecured Overformula Facility of $17,000,000 (the
outstanding balance of which must be reduced to not more than $10,000,000
for at least one business day during a five business day cleanup period
each month) through December 31, 2000. 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 a debt discount. The fair market value, using the Black-Scholes option
pricing model, of the above mentioned
<PAGE>
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 BNY.
9. 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 $260,772.92 stated value (including accrued dividends) of
such stock into 248,355 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 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.
10. 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 are available in
Company's 10-K.
11. 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.
12. 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.
Signal has recorded a one-time charge related to the termination of the
Houston facility of $3.2 million.
13. 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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS:
Three Months Ended July 3, 1999
Net sales of $34.3 million for the quarter ended July 3, 1999 represents an
increase of $21.8 million (or 174%) from $12.5 million in net sales for the
corresponding period of 1998. This increase is mainly attributed to $26.9 in
combined new sales from the newly acquired Tahiti division and the Umbro
division. Conversely, the second quarter 1999 sales do not reflect any sales
from the Heritage division (sold at 1/1/99) which had provided $2.7 million in
sales in the quarter ended July 4, 1998.
Total Gross Margin before royalties decreased $3.9 million in the second quarter
of 1999 compared to the corresponding period in 1998. Gross Margin percentage
was negative (2.6%) for the second quarter of 1999 compared to 24% for the
quarter ended July 4, 1998. The $3.9 million decrease in total gross margin is
attributable primarily to over $2.4 million in excessive costs to import goods
by air freight and then transport those same goods by overnight courier direct
to customer retail locations,
<PAGE>
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 second quarter of 1999 was negatively affected by
recognition of $1.1 million in loss on the mark down at the end of the swim
session of obsolete and slow moving inventory.
Royalty expense related to licensed product sales was 4% of sales for the
quarter ended July 3, 1999, compared to 8.5% 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 40% of sales for the quarter ended July 3, 1999 compared to 36% of
sales for the corresponding period of 1998. The total amount of SG&A expenses
increased a total of $9.2 million from $4.5 million in the quarter ended July 4,
1998 to $13.7 million for the comparable quarter 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 $21.8 million of sales
in the quarter ended July 3, 1999, (b) $2.1 million being paid to a licensor for
the transfer of an apparel license from Tahiti Apparel, Inc. to the Company, (c)
over $0.7 million in consulting fees being paid to third parties for services
related to accounting and systems consulting, (d) $1.0 million of professional
fees and (e) $1.5 million of temporary and recruiting costs associated with the
move to New Jersey.
The nonrecurring charge of $3.2 million in the second quarter of 1999 was the
result of the Company continuing to implement the revised business strategy
first implemented in the last quarter of 1998. The reevaluation resulted in a
change from the company being primarily a manufacturer of products to primarily
a sales marketing, merchandising and distibution company for activewear and
other clothing. As a result, the Company has closed its last operating facility
in Houston, Texas. The Company has accrued $2.2 million for costs associated
with the plant closing, including disposition of inventory or the write down of
inventory. In additional $1.0 million for the relocation of the Houston
activities to New York and New Jersey and the costs of the start-up of new
divisions and other administrative reorganization costs.
Depreciation and Amortization increased from $0.4 million in the quarter ended
July 4, 1998 to $0.7 million in the comparable 1999 period, primarily as a
result of $0.5 million of amortization of goodwill attributable to the new
Tahiti acquisition, partially offset by 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 July 3, 1999 was $3.7 million compared to
$1.7 million in the comparable quarter of 1998. In the second quarter of 1999,
$1.9 million of the $3.7 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 BNY (See Notes 6 and 8) .
In addition, as of July 3, 1999, non-cash interest in the amount of $62,500 had
accrued on the 5% Convertible Debenture. Pursuant to the terms of the 5%
Convertible Debenture, the Company intends to pay this accrued interest by the
issuance of shares of common stock.
Six Months Ended July 3, 1999
Net sales of $67.7 million for the six months ended July 3, 1999 represents an
increase of $43.7 million (or 182%) from $24.0 million in net sales for the
corresponding period of 1998. This increase is mainly attributed to $52.3
million in combined new sales from the newly acquired Tahiti division and the
Umbro division. Conversely, the first six months of 1999 sales do not reflect
any sales from the Heritage division (sold at 1/1/99) which had provided $5.8
million in sales in the quarter ended July 4, 1998.
Total Gross Margin before royalties increased $1.7 million in the first six
months of 1999 compared to the corresponding period in 1998. Gross Margin
percentage was 11.5% for the first six months of 1999 compared to 25.2% for the
six months ended July 4, 1998. The $1.7 million increase in total gross margin
is attributable to a smaller percentage (11.5%) applied to a much larger sales
base ($67.7 million). The reduced gross margin percentage is attributable to
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 six months of 1999 was negatively effected by recognition of $1.5
million in loss on the markdown and sale of obsolete and slow moving inventory.
Royalty expense related to licensed product sales was 5% of sales for the six
months ended July 3, 1999, compared to 7.7% 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 31% of sales for the six months ended July 3, 1999 compared to 40% of
sales for the corresponding period of 1998, a 23% improvement. The SG&A expenses
increased a total of $11.3 million from $9.5 million in the six months ended
July 4, 1998 to $20.8 million for the comparable period of 1999. The change in
the total amount of SG&A between 1998 and 1999 is
<PAGE>
primarily related to (a) additional sales expenses resulting from the additional
$43.7 million of sales in the first six months of 1999, (b) $2.1 million being
paid to a licensor for the transfer of an apparel license from Tahiti Apparel,
Inc. to the Company, (c) over $0.7 million in consulting fees being paid to
third parties for services related to accounting, systems consulting (d) $1.0
million of preofessional fees and (e) $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.
The nonrecurring charge of $3.2 million in the first six months of 1999 was the
result of the Company continuing to implemaent the revised business strategy
first implemented in the last quarter of 1998. The reevaluation 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 has closed its last operating facility
in Houston, Texas. The Company has accrued $2.2 million for costs associated
with the plant closing, including disposition of inventory or the write down of
inventory, an additional $1.0 million for the relocation of the Houston
activities to New York and New Jersey and the costs of the start-up of new
divisions and other administrative reorganization costs.
Depreciation and Amortization increased from $1.4 million in the six months
ended July 4, 1998 to $1.2 million in the comparable 1999 period, primarily as a
result of $0.9 million of amortization of goodwill attributable to the new
Tahiti acquisition.
Interest expense for the six months ended July 3, 1999 was $6.9 million compared
to $3.2 million in the comparable period of 1998. In 1999, $1.9 million of the
$6.9 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 BNY (See Notes 6 and 8).
FINANCIAL CONDITION
During 1998 and the first six 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 and sports
specialty store 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 remains committed to exiting all manufacturing
activities and to focus exclusively on sales, marketing and merchandising of its
product lines. Following these developments, Signal and its wholly owned
subsidiaries, Big Ball Sports, Inc. and Grand Illusion Sportswear, manufacture
and 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,
the National Basketball Association, 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 six 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 July 3, 1999, the Company had overadvance
borrowings (secured in part by the guarantee of two principal shareholders) of
$7.9 million with its senior lender compared to $36.7 million at July 4, 1998.
The Company's working capital deficit at July 3, 1999 increased $24.4 million or
43% 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
($50.0 million), which was partially offset by a decrease in inventories ($14.6
million), a decrease in accounts receivable ($1.0 million), a decrease in
accounts payable and accrued liabilities ($0.7 million), a decrease in the
revolving advance account ($42.5 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 $1.0 million or 68% over year-end 1998. The decrease was
primarily a result of the improved collection of non-collectible receivables,
the application of appropriate reserves related to the new Tahiti accounts
receivable, and the timing of payments from the senior lender on factored
receivables.
<PAGE>
Excluding the effect of all sales and acquisitions of divisions, inventories
decreased $14.6 million or over 100% 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 six 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 July 3,
1999.
Excluding the effect of all sales and acquisitions of divisions, total current
liabilities increased $18.0 million or 25% over year-end 1998, primarily due to
the term loan being classified as a current liability ($50.0) million, which was
partially offset by and a decrease in accounts payable and accrued liabilities
($0.7 million), a decrease in the revolving advance account ($42.5 million) ,
and debt discount associated with the term loan ($2.3 million).
Excluding the effect of all sales and acquisitions of divisions, cash used in
operations was $9.5 million during the first six months of 1999 compared to $9.4
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
$28.1 million during the first six months of 1999, which was partially offset by
depreciation and amortization ($2.3 million) and non-cash interest ($1.2
million), a decrease in inventories ($14.6 million), a decrease in accounts
receivable ($1.0 million), and a decrease in accounts payable and accrued
liabilities ($0.7 million).
Commitments to purchase equipment totaled less than $0.1 million at July 3,
1999. During the remainder of 1999, the Company anticipates capital expenditures
not to exceed $0.5 million.
Cash provided by investing activities was $2.6 million for the six months ended
July 3, 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.
Cash provided by financing activities was $6.8 million for the first six months
of 1999 compared to $8.2 million in the comparable period for 1998. Excluding
the effect of all sales and acquisitions of divisions, the Company had net
borrowings of approximately $7.5 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 ($2.4 million), which was partially offset by repurchase of Series G1
Preferred Stock ($2.4 million), and other principal payments on borrowings ($0.6
million).
Excluding the effect of all sales and acquisitions of divisions, the revolving
advance account decreased $29.0 million from $44 million at year-end 1998 to
$15.3 million at July 3, 1999. Approximately $10.0 million was overadvanced
under the revolving advance account. The overadvance is secured in part, by the
guarantee of two principal shareholders.
Interest expense for the six months ended July 3, 1999 was $6.9 million compared
to $3.2 million for the same period in 1998. The $6.9 million of interest in
this quarter included non-cash interest charges of $1.9 million. Total
outstanding debt averaged $85.2 million and $64.2 million for the first six
months of 1999 and 1998, respectively, with average interest rates of 11.8%, and
10.0%, respectively. The increased interest expense during 1999 reflects
non-cash interest resulting from amortization of debt discount of $0.5 million.
The Company uses letters of credit to support foreign and some domestic sourcing
of inventory and certain other obligations. Outstanding letters of credit were
$6.2 million at July 3, 1999.
Total Shareholders' Deficit increased $10.6 million to $78.3 million compared to
year-end 1998.
<PAGE>
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 July 3, 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 third quarter of 1999 and no
determination can yet be made whether one or more covenant violations exist for
the third 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.
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 9 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 September 30, 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 and Grand Illusion subsidiaries. The Company recorded a restructuring
charge in the amount of $8.3 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 Company has taken a restructuring charge for this plant closure in the
second quarter of 1999 in the amount of $ 3.2 million.
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 September 30, 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, is expected to be installed, tested and completed on or before September
30, 1999, giving the Company additional time 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 July 3, 1999. The Company has adopted a formal
year 2000 compliance plan and expects to achieve implementation on or
<PAGE>
before September 30, 1999. 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 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
October 31, 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) Restructuring Agreement dated as of November 21, 1997 between the
Company and WGI, LLC.
(10.2) Warrant to Purchase 4,500,000 shares of Common Stock issued to
WGI, LLC, dated December 30, 1997.
(10.3) Credit Agreement dated as of May 8, 1998 among the Company, three
subsidiaries of the Company (The Shirt Shed, Inc., GIDI Holdings,
Inc. and Big Ball Sports, Inc.) and WGI, LLC.
(10.4) Warrant to Purchase 5,000,000 shares of Common Stock issued to
WGI, LLC, dated December 30, 1997.
(10.5) Letter Agreement dated August 10, 1998 among the Company, Thomas
A. McFall and John W. Prutch.
(10.6) Letter Agreement dated August 23, 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.
(27) Financial Data Schedule
<PAGE>
(b) Reports on Form 8-K:
The Company filed the following Current Reports on Form 8-K during the
quarter:
<TABLE>
<CAPTION>
FINANCIAL
DATE OF REPORT ITEMS REPORTED STATEMENTS FILED
-------------- -------------- ----------------
<S> <C> <C>
March 22, 1999 Item 2 - Acquisition or Disposition of Assets: Historical and Pro Forma
(Amendment No. 1) The acquisition of substantially all of the Financial Statements concerning
assets and business of Tahiti Apparel, Inc. this acquisition.
Item 5 - Other Events: The completion of None.
the Company's new financing arrangement
with its senior lender, BNY Financial
Corporation.
</TABLE>
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: August 23, 1999 /s/ Thomas A. McFall
--------------------
Thomas A. McFall
Chief Executive Officer
Date: August 23, 1999 /s/ Howard Weinberg
-------------------
Howard Weinberg
Chief Financial Officer
RESTRUCTURING AGREEMENT
This Restructuring Agreement is made as of the 21st day of November, 1997,
by and among Signal Apparel Company, Inc., an Indiana corporation (the
"Company") and WGI, LLC, a New York limited liability company ("WGI").
WHEREAS, as of the end of the Company's third fiscal quarter (September 30,
1997), the Company was indebted to WGI and/or its affiliates in the principal
amount of $20,000,000 (plus accrued interest of $8,271,832), pursuant to the
terms of a Credit Agreement dated as of March 31, 1995, as amended, (the "WGI
Credit Agreement Debt"), with additional interest accruing on such indebtedness
at the rate of 10% per annum; and
WHEREAS, as of the end of the Company's third fiscal quarter (September 30,
1997), the Company was indebted to WGI and/or its affiliates in the principal
amount of $23,584,000 (plus accrued interest of $4,305,546), pursuant to
additional advances of funds to the Company through August 22, 1997, which were
intended by the Company and WGI as additional financing to be documented on
substantially the same terms as those of the Credit Agreement dated as of March
31, 1995, as amended, (the "WGI Advances Debt"), with additional interest
accruing on such indebtedness at the rate of 10% per annum; and
WHEREAS, WGI presently holds 177.969 shares of the Company's Series C Preferred
Stock, which shares represent an aggregate of $20,513,958.31 in stated value
plus cumulative accrued and unpaid dividends (dividends having ceased to accrue
on such stock pursuant to the terms of an
1
<PAGE>
agreement between the Company and all of the holders thereof dated March 31,
1995); and
WHEREAS, WGI presently holds Warrants, exercisable through September 1, 1998, to
purchase a total of 345,000 additional shares of the Company's Common Stock with
an exercise price of $7.06 per share; and
WHEREAS, as of the end of the Company's third fiscal quarter (September 30,
1997), the Company was indebted to WGI and/or its affiliates in the principal
amount of $6,500,000 (plus accrued interest of $1,381,286), pursuant to the
terms of certain indebtedness formerly owed by a subsidiary of the Company to an
affiliate of NationsBank, which debt was subsequently purchased from the
NationsBank affiliate by WGI (the "WGI/Greyrock Debt"), with additional interest
accruing on such indebtedness at the rate of 11% per annum; and
WHEREAS, in contemplation of this Restructuring Agreement, WGI has (effective
November 7, 1997) exercised outstanding Warrants which it held to acquire a
total of 4,630,000 shares of the Company's Common Stock, with the aggregate
$12,827,120 exercise price for such Warrants being paid through (i) tender to
the Company of shares of the Company's Series C Preferred Stock held by WGI with
a stated value of $3,375,000 and (ii) extinguishment of $9,452,120 of the
outstanding balance owed by the Company pursuant to the WGI Advances Debt;
WHEREAS, in contemplation of this Restructuring Agreement, the Company has
(effective November 10, 1997) applied $20,000,000 of additional funding which it
obtained under the recent amendment and restatement of its factoring arrangement
with its Senior Lender to pay off the
2
<PAGE>
WGI/Greyrock Debt and to further reduce the outstanding balance owed by the
Company pursuant to the WGI Advances Debt; and
WHEREAS, the Company and WGI desire to restructure the Company's obligations
under the WGI Credit Agreement Debt and the WGI Advances Debt in the manner set
forth in this Restructuring Agreement, in order to (i) facilitate and provide
for additional equity investment in the Company and (ii) facilitate the
Company's survival as a going concern while implementing management's turnaround
plans for its business operations by improving the Company's working capital
situation and reducing the financial pressure on its operations.
NOW THEREFORE, in consideration of the foregoing premises and of the mutual
promises made hereinafter, the parties hereto agree as follows:
1. Board and Shareholder Approval Required
Consummation of the transactions which are the subject of this
Restructuring Agreement shall be conditioned upon and subject to (i) approval of
this Restructuring Agreement and the transactions contemplated hereby by the
Company's Board of Directors in accordance with all applicable requirements of
the Indiana Business Corporation Law and of the Company's Restated Articles of
Incorporation and (ii) approval of the issuance of shares of the Company's
Common Stock in connection with certain of the transactions contemplated by this
Restructuring Agreement at the Company's 1997 Annual Meeting of Shareholders.
3
<PAGE>
2. Creation of Series F Preferred Stock
The Company shall create a series of Preferred Stock to be designated:
"Series F Preferred Stock," having the rights, restrictions, terms and
conditions described in this paragraph. The Series F Preferred Stock: (i) shall
consist of a total of 1,000 authorized shares, stated value $100,000 per share;
(ii) shall bear Cumulative Undeclared Dividends at the rate of 9.0% per annum,
payable in cash when declared; (iii) shall not have any mandatory redemption or
call features; (iv) shall not be convertible into any other security of the
Company; and (v) shall be equal to the Corporation's Series A Preferred Stock
and senior to all other classes or series of the Company's equity securities in
all regards, including dividends, distributions and redemptions. All of the
foregoing shall be as set forth in the document entitled "Certificate of the
Voting Powers, Designations, Preferences and Relative, Participating, Optional
or Other Special Rights, and Qualifications, Limitations or Restrictions
Thereof, of the Series F Preferred Stock of Signal Apparel Company, Inc.,"
attached to this Restructuring Agreement as Annex I. The creation and terms of
the Series F Preferred Stock will be submitted to the Company's Board of
Directors for approval in the manner contemplated by the Company's Restated
Certificate of Incorporation in connection with the consideration and approval
of this Restructuring Agreement by the Company's Board of Directors. The
creation and authorization of the Series F Preferred Stock shall be contingent
upon approval of this Restructuring Agreement and the transactions described
herein by the Company's Board of Directors.
3. Amendment of Outstanding WGI Warrants
Effective immediately upon approval of the issuance of shares of the
Company's Common Stock in connection with certain of the transactions
contemplated by this Restructuring
4
<PAGE>
Agreement by the Company's shareholders at its 1997 Annual Meeting, the Company
shall effect the amendment of the outstanding Warrants to purchase 345,000
shares of the Company's Common Stock held by WGI, to reset the exercise price
thereof from $7.06 per share to $1.75 per share, resulting in a net realizable
economic benefit to WGI of $1,831,950.
4. Exchange of Common Stock for Debt
Effective immediately upon approval of the issuance of shares of the
Company's Common Stock in connection with certain of the transactions
contemplated by this Restructuring Agreement by the Company's shareholders at
its 1997 Annual Meeting, the Company will issue 8,000,000 shares of Common Stock
to WGI in exchange for the cancellation/extinguishment by WGI of $15,831,950 of
the outstanding indebtedness owed by the Company pursuant to the WGI Credit
Agreement and/or the WGI Advances Debt. This transaction will result in a
valuation of approximately $1.98 per share for such shares of Common Stock,
representing a premium of approximately 13% over the current market price of
approximately $1.75 per share for such stock and resulting in a discount on the
extinguishment of such debt of approximately $1,831,950, which is equivalent to
the net realizable economic benefit to WGI of repricing WGI's outstanding
Warrants as called for by Paragraph 3 of this Restructuring Agreement.
Such shares of the Company's Common Stock will not be registered under the
Securities Act of 1933, as amended (the "Securities Act") and will be issued to
WGI in reliance upon an exemption from the registration requirements of the
Securities Act. Such shares cannot be transferred by WGI without an exemption
from such registration requirements or pursuant to an effective registration
statement. As an inducement to the Company to issue such shares to WGI in
accordance with the terms of this Restructuring Agreement, WGI hereby represents
to the
5
<PAGE>
Company that it is acquiring such shares for investment purposes only.
5. Issuance of Series F Preferred Stock in Exchange for Series C
Preferred Stock and Debt
Effective immediately upon approval of the issuance of shares of the
Company's Common Stock in connection with certain of the transactions
contemplated by this Restructuring Agreement by the Company's shareholders at
its 1997 Annual Meeting, the Company shall issue shares of its Series F
Preferred Stock to WGI in an amount (at the stated value of $100,000 per share)
equal to: (i) the $20,513,958.31 in stated value (plus accrued and unpaid
dividends) of the Company's Series C Preferred Stock held by WGI and (ii) all
remaining outstanding indebtedness of the Company (plus accrued interest thereon
through the date of such transaction) pursuant to the WGI Credit Agreement Debt
and/or the WGI Advances Debt. WGI hereby agrees to accept such shares of Series
F Preferred Stock in full satisfaction of all of the Company's then-remaining
obligations to WGI with respect to: (i) such shares of Series C Preferred Stock
(which WGI agrees to tender to the Company for cancellation immediately
following such transaction); (ii) the WGI Credit Agreement Debt and (iii) the
WGI Advances Debt.
Such shares of the Company's Series F Preferred Stock will not be
registered under the Securities Act of 1933, as amended (the "Securities Act")
and will be issued to WGI in reliance upon an exemption from the registration
requirements of the Securities Act. Such shares cannot be transferred by WGI
without an exemption from such registration requirements or pursuant to an
effective registration statement. As an inducement to the Company to issue such
shares to WGI in accordance with the terms of this Restructuring Agreement, WGI
hereby represents to the Company that it is acquiring such shares for investment
purposes only.
6
<PAGE>
6. Exercise of the Company's Rights Under the Preferred Stock Agreement
Both the Company and WGI hereby acknowledge and agree that one purpose of
the transactions contemplated by this Restructuring Agreement is to facilitate
the intended exercise by the Company, in conjunction with such transactions, of
its rights under Paragraph 2 of that certain Agreement, dated March 31, 1995,
between the Company and the holders of all outstanding shares of its Series A
Preferred Stock and Series C Preferred Stock (the "Preferred Stock Agreement").
Paragraph 2 of the Preferred Stock Agreement gives the Company the right,
exercisable through June 30, 1998 upon satisfaction of certain conditions, to
redeem all outstanding shares of the Company's Series A Preferred Stock and
Series C Preferred Stock (including any accrued and unpaid dividends thereon)
with shares of the Company's Common Stock valued for such purpose at $7.00 per
share. Certain of the transactions contemplated by this Restructuring Agreement
will result in the satisfaction of all conditions precedent to the Company's
ability to exercise its right of redemption under Paragraph 2 of the Preferred
Stock Agreement, and the Company hereby agrees to exercise such right with
respect to all then outstanding shares of its Series A Preferred Stock and
Series C Preferred Stock immediately upon completion of the transactions called
for by this Restructuring Agreement.
7. WGI to Cause Its Affiliates to Take All Necessary Actions
By entering into this Agreement, WGI agrees that it shall cause any action
whatsoever to be taken or delivery to be made, by any of its affiliates,
necessary to implement and effectuate this Agreement, including but not limited
to any execution or delivery of any document.
7
<PAGE>
IN WITNESS WHEREOF, the undersigned hereby set forth their hands to be
effective as of the date and year first written above. SIGNAL APPAREL COMPANY,
INC.
/s/ Robert J. Powell
--------------------
By: Robert J. Powell
Title: Vice President
WGI, LLC
/s/ Paul R. Greenwood
---------------------
By: Paul R. Greenwood
Title: Manager
8
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.
4,500,000 Warrants
THIS CERTIFIES THAT, for good and valuable consideration, the receipt of
which is hereby acknowledged, WGI, LLC or its 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 December 30, 1997
("Issuance Date")(such warrants issued hereunder, or such lesser number thereof
as shall from time to time remain unexercised, being herein collectively called
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the "Warrants"). The Warrants are being issued in connection with (i) the waiver
by WGI, LLC of certain conditions contained in a credit agreement dated March
13, 1995, between the Company and WGI, LLC (the "WGI Credit Agreement") and (ii)
additional extensions of credit to the Company pursuant to the WGI Credit
Agreement.
Certain terms used in this Warrant Certificate are defined in Section 11
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 are fully vested and are
immediately exercisable.
2. Expiration of Warrants. The Warrants shall, in any event, be void and
all rights represented hereby shall cease on and as of December 30, 2002 (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 4,500,000 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) 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 other Company securities, including shares
of Preferred Stock, valued for such purposes at the stated value per share
prescribed for the applicable series of Preferred Stock plus any accumulated and
unpaid dividends thereon, or at its then Prevailing Market Price for any other
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
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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) Demand Registration Rights.
On any three occasions after the Issuance Date and prior to the Expiration
Date, upon the request of Holders of at least 51% of the Warrant Shares
originally issued pursuant to this Warrant Certificate which are then
outstanding, which Holders shall request the registration of such shares
under the United States Securities Act of 1933, as amended (provided that
such request covers an aggregate of at least 100,000 Warrant Shares), the
Company shall file with the Commission and
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use its best efforts to cause to become effective as promptly as
practicable (subject to the following sentence) a registration statement
covering at least all of the Warrant Shares requested to be registered by
such requesting Holders (any Holders of Warrant Shares requesting
registration under this Section 5(a) are "Selling Holders"), all to the
extent requisite to permit the exercise or disposition in the United
States, as the case may be, by the Selling Holders of the Warrant Shares so
registered ("Demand Registration"); provided, however, that the Company
shall not be obligated to effect a Demand Registration (i) prior to the
date which is 90 calendar days after the closing date of a previous United
States public offering, (ii) if the Company has given notice to the Holders
of Warrants that the Company expects to file a registration statement
within 30 days and while the Company has a public offering in registration,
or (iii) if three such Demand Registrations with respect to all or a
portion of the Warrant Shares have previously been requested. Should the
Company refuse to effect a Demand Registration pursuant to subsections (i)
or (ii) above, such request shall not be considered on of the three rights
to demand registration granted by this Section. The Company shall promptly
give written notice to all Holders of the Warrants and the Warrant Shares
of the receipt by it of a request for a Demand Registration pursuant to
this Section. If other selling shareholders or the Company shall also
propose to include shares of Common Stock in a Demand Registration, and if
the number of includable shares shall exceed the total number of shares of
Common Stock proposed to be registered and/or Warrant Shares proposed to be
registered (all such securities proposed to be registered, the "Registrable
Securities"), the Registrable Securities shall be included in the Demand
Registration in the following priority: first, the Registrable Securities
held by the Holders of Warrant Shares in proportion to the respective
numbers of Registrable Securities proposed to be sold by them, and second,
the Registrable Securities proposed to be registered by the Company or
other selling shareholders, allocated among them in such manner as they
shall determine. If a Holder or Holders shall have requested a Demand
Registration and the Company shall have thereafter withdrawn such
registration statement, in addition to such other rights and remedies that
the Holders may be entitled to, such withdrawn registration shall not be
deemed to be one of the registration statements that may be requested
pursuant to this Section 5(a). The Holder agrees to exercise all Warrants
for which it has demanded
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registration of Warrant Shares on the effective date of such registration.
(b) Piggy Back Registration Rights.
(i) If at any time the Company proposes to file a registration
statement with the Commission (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. 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 10,000 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
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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 the registration. The securities of the
Company held by officers and directors of the Company shall first be
excluded from such registration and underwriting to the extent
required by such limitation. If after such exclusion a limitation on
the number of Warrant Shares is still required, then such inclusion of
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.
(c) United States Federal and State Approval. The Company shall effect
the registration or qualification of the Warrant Shares registered pursuant
to Sections 5(a) or 5(b) 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.
(d) Expenses. Subject to the limitations contained in this paragraph
(d), 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 accountants (including the cost of any special audit
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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.
(e) Procedures.
(i) In the case of each registration or qualification pursuant to
Section 5(a) or Section 5(b), 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
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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 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
material fact required to be stated therein or
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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.
(f) Cross-Indemnity and Contribution Agreements. In connection with
the registration of Warrant Shares in accordance with Section 5(a) or
Section 5(b) 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.
(g) 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 the Company, any
underwriter, the Commission and/or any state or other regulatory
authority may 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
that the transfer or disposition of the Warrant Shares is not in
violation of the Securities Act or any applicable state securities
laws;
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(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 Common Stock for the purpose of entitling them
to
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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 outstanding shares of Common Stock
within the meaning of paragraph (a) of this Section 6.
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(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 exercise of any Warrants, and (2) the exercise of stock
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 (collectively, (1) and (2) the "Options").
(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 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
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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) upon the
issuance of any of the Options.
(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 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
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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 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:
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(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
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.
15
<PAGE>
(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.
(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
16
<PAGE>
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 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
17
<PAGE>
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. The Company will deliver to any Holder, promptly upon their becoming
available, copies of all financial statements, reports, notices and proxy
statements sent or made available generally by the Company to its shareholders,
and copies of all regular and periodic reports and all registration statements
and prospectuses filed by the Company with any securities exchange or with the
Commission.
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.
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 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.
18
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11.2 Termination of Restrictions. The restrictions imposed by this Section
11 upon the transferability of Warrants and Warrant Shares 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 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: December 29, 2003.
Options: as set forth in Section 6(c).
19
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Person: an individual, corporation, partnership, 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 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 it is acquiring the
Warrants represented by this Warrant Certificate and, upon any exercise of such
Warrants, will acquire Common Stock hereunder for its 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 it is an "Accredited
Investor" within the meaning of Regulation D under the Securities Act.
20
<PAGE>
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 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.
21
<PAGE>
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), 200-A
Manufacturers Road, Chattanooga, Tennessee 37405, Attention: Treasurer, 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
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, but only 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
22
<PAGE>
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 December 30, 1997.
SIGNAL APPAREL COMPANY, INC.
/s/ Robert J. Powell
--------------------
By: Robert J. Powell
Vice President
ACCEPTED AND AGREED TO this 30th day
of December, 1997.
/s/ Stephen Walsh
- ------------------------------------
WGI, LLC
By: Stephen Walsh, Manager
23
<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.
24
<PAGE>
Any unexercised Warrants evidenced by the within Warrant Certificate to be
issued to:
Please insert social security or identifying number:
Name:
Address:
25
<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.
26
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
dated as of May 8, 1998
Among
SIGNAL APPAREL COMPANY, INC.,
THE SHIRT SHED, INC.,
GIDI HOLDINGS, INC.,
BIG BALL SPORTS, INC.
and
WGI, LLC
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
Section 1 Definitions
Section 1.1 Defined Terms .................................. 5
Section 1.2 Other Definitional Provisions .................. 9
Section 2 Amount and Terms of Loan Commitment
Section 2.1 Commitment ..................................... 10
Section 2.2 Note; Borrowing ................................ 10
Section 2.3 Use of Proceeds of Loans ....................... 11
Section 2.4 Optional Prepayments ........................... 11
Section 2.5 Interest Rate and Payment Dates ................ 11
Section 2.6 Computation of Interest ........................ 11
Section 3 Grant of Security Interest
Section 3.1 Security for the Loan .......................... 12
Section 3.2 Use of Collateral .............................. 12
Section 3.3 Subordination of Security Interest ............. 12
Section 4 Warrants
Section 4.1 Grant of Warrants .............................. 13
Section 4.2 Exercise of Warrants ........................... 13
Section 4.3 Registration Rights ............................ 13
Section 5 Representations and Warranties
Section 5.1 Financial Condition ............................ 14
Section 5.2 No Change ...................................... 14
Section 5.3 Corporate Existence; Compliance with
Law ........................................ 14
Section 5.4 Corporate Power; Authorization;
Enforceable Obligations .................... 14
Section 5.5 No Legal Bar ................................... 15
Section 5.6 No Material Litigation ......................... 15
Section 5.7 No Default ..................................... 15
Section 5.8 Ownership of Property; Liens ................... 15
Section 5.9 Taxes .......................................... 15
Section 5.10 Federal Regulations ............................ 16
Section 5.11 Hazardous Substances ........................... 16
Section 5.12 Investment Company Act ......................... 17
Section 5.13 Subsidiaries ................................... 17
2
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Page
----
Section 6 Conditions Precedent
Section 6.1 Conditions to Initial Loan ..................... 17
(a) Loan Documents ................................. 17
(b) Corporate Proceedings of the Company ........... 17
(c) Corporate Documents ............................ 17
(d) Good Standing Certificates ..................... 17
(e) Financial Information .......................... 18
(f) Litigation ..................................... 18
(g) No Violation ................................... 18
(h) Consents, Licenses, Approvals, Etc ............. 18
(i) Representations and Warranties ................. 18
(j) No Default ..................................... 18
(k) Security Interest .............................. 19
(l) Legal Opinion .................................. 19
Section 6.2 Conditions to Each Loan ........................ 19
(a) Representations and Warranties ................. 19
(b) No Default ..................................... 19
(c) Additional Matters ............................. 19
(d) Additional Documents ........................... 19
Section 7 Affirmative Covenants
Section 7.1 Financial Statements ........................... 19
Section 7.2 Certificates; Other Information ................ 20
Section 7.3 Payment of Obligations ......................... 21
Section 7.4 Conduct of Business and
Maintenance of Existence ................... 21
Section 7.5 Maintenance of Property; Insurance ............. 21
Section 7.6 Inspection of Property; Books and
Records; Discussions ....................... 21
Section 7.7 Taxes and Other Liens .......................... 22
Section 7.8 Further Assurances ............................. 22
Section 7.9 Notices ........................................ 22
Section 7.10 Nomination of Directors ........................ 23
Section 8 Negative Covenants
Section 8.1 Limitation on Indebtedness ..................... 24
Section 8.2 Limitation on Liens ............................ 24
Section 8.3 Limitation on Guarantee Obligations ............ 25
Section 8.4 Limitations on Fundamental Changes ............. 25
Section 8.5 Limitation on Sale of Assets ................... 26
3
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Page
----
Section 8.6 Limitation on Dividends ........................ 26
Section 8.7 Limitation on Investments, Loans and
Advances ................................... 27
Section 8.8 Transactions with Affiliates 27
Section 8.9 Sale and Leaseback ............................. 27
Section 8.10 Fiscal Year .................................... 28
Section 8.11 Subsidiary Formation ........................... 28
Section 8.12 Changes in Location, Name, etc. ................ 28
Section 8.13 Location of Inventory .......................... 28
Section 8.14 Financial Condition ............................ 28
Section 9 Events of Default ................................. 28
Section 10 Miscellaneous
Section 10.1 Amendments and Waivers ......................... 31
Section 10.2 Notices ........................................ 31
Section 10.3 No Waiver; Cumulative Remedies ................. 32
Section 10.4 Survival of Representations and Warranties ..... 32
Section 10.5 Payment of Expenses and Taxes .................. 32
Section 10.6 Successors and Assigns ......................... 33
Section 10.7 Counterparts ................................... 33
Section 10.8 Governing Law .................................. 34
Section 10.9 Submission to Jurisdiction; Waivers ............ 34
Section 10.10 Waiver of Jury Trial ........................... 34
EXHIBITS
Exhibit A Note (subsection 2.2)
Exhibit B Form of Warrant (subsection 4.1)
Schedule 5.2 Material Adverse Changes (subsection 5.2)
Schedule 5.6 Material Litigation (subsection 5.6)
Schedule 5.7 Default (subsection 5.7)
Schedule 5.11 Environmental (subsection 5.11)
Schedule 6.1(h) Closing Certificate (subsection 6.1(h))
Schedule 8.1(c) Outstanding Indebtedness (subsection 8.1(c))
Schedule 8.2(f) Existing Liens (subsection 8.2(f))
Schedule 8.3 Existing Guarantees (subsection 8.3)
4
<PAGE>
CREDIT AGREEMENT, dated as of May 8, 1998 by and among SIGNAL APPAREL
COMPANY, INC., an Indiana corporation ("Signal"), The Shirt Shed, Inc., a
Delaware corporation ("SSI"), GIDI Holdings, Inc., an Illinois corporation
d/b/a/ Grand Illusion Sportswear ("GIDI"), Big Ball Sports, Inc., a Texas
corporation ("BBS") and WGI, LLC, a New York limited liability company (the
"Lender"). SSI and BBS are wholly owned subsidiaries of Signal. Signal, SSI and
BBS, individually and collectively, shall mean the "Company" herein, and unless
specifically stated to the contrary, shall be jointly and severally liable for
all obligations of the Company hereunder.
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms have the
following meanings:
Affiliate: any Person (other than a Subsidiary) which, directly or
indirectly, is in control of, is controlled by, or is under common control with,
Signal. For purposes of this definition, a Person shall be deemed to be
"controlled by" Signal if Signal possesses, directly of indirectly, power either
to: (i) vote 10% or more of the securities having ordinary voting power for the
election of directors of such Person, or (ii) direct or cause the direction of
the management and policies of such Person whether by contract or otherwise.
Agreement: this CREDIT AGREEMENT, as amended, supplemented or modified from
time to time.
Available Commitment: at any time, an amount equal to the amount by which
(a) the Commitment at such time exceeds (b) the aggregate outstanding principal
amount of all Loans made by the Lender.
Borrowing Date: the date of any borrowing hereunder.
Business Day: a day other than a Saturday, Sunday or other day on which
commercial banks in New York, New York are authorized or required by law to
close.
Cash Equivalents: (i) securities issued or directly and fully guaranteed or
insured by the United States Government or any agency or instrumentality thereof
having maturities of not more than three months from the date of acquisition;
(ii) time deposits and certificates of deposit having maturities of not more
than three months from the date of acquisition of any domestic
5
<PAGE>
commercial bank having capital and surplus in excess of $500,000,000, which has,
or the holding company of which has, a commercial paper rating meeting the
requirements specified in clause (iv) below; (iii) repurchase obligations with a
term of not more than seven days for underlying securities of the types
described in clauses (i) and (ii) entered into with any bank meeting the
qualifications specified in clause (ii) above; and (iv) commercial paper rated
at least A2 or the equivalent thereof by Standard & Poor's Corporation or P2 or
the equivalent thereof by Moody's Investors Service, Inc. and in either case
maturing within nine months after the date of acquisition.
Closing Date: May 8, 1998.
Code: the Internal Revenue Code of 1986, as amended from time to time.
Collateral: as defined in Section 3.1.
Commitment: the obligation of the Lender to make Loans to Signal from time
to time pursuant to Section 2.1, in a maximum principal amount of $25,000,000.
Commitment Period: the period from and including the Closing Date to and
including the close of business on the sixth Business Day prior to the Maturity
Date.
Common Stock: shall mean Signal's Common Stock, par value $0.01 per share.
Contractual Obligation: as to any Person, any provision of any security
issued by such Person or of any agreement, instrument or undertaking to which
such Person is a party or by which it or any of its property is bound.
Default: any of the events specified in Section 9, whether or not any
requirement for the giving of notice, the lapse of time, or both, or any other
condition, has been satisfied.
Dollars and $: dollars in lawful currency of the United States of America.
Event of Default: any of the events specified in Section 9, provided that
any requirement for the giving of notice, the lapse of time, or both, or any
other condition, event or act has been satisfied.
Financing Lease: (a) any lease of property, real or personal, the then
present value of the minimum rental commitment of which should, in accordance
with GAAP, be capitalized on a
6
<PAGE>
balance sheet of the lessee, and (b) any other such lease the obligations under
which are capitalized on a consolidated balance sheet of Signal and its
Subsidiaries.
GAAP: generally accepted accounting principles in the United States of
America in effect from time to time.
Governmental Authority: any nation or government, any state or other
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
Guarantee Obligation: as to any Person, any obligation of such Person
guaranteeing any Indebtedness, leases, dividends or other obligations (the
"primary obligations") of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, including, without limitation, any
obligation of such Person, whether or not contingent: (a) to purchase any such
primary obligation or any property constituting direct or indirect security
therefor; (b) to advance or supply funds (i) for the purchase or payment of any
such primary obligation or (ii) to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor; (c) to purchase property, securities or services primarily for
the purpose of assuring the owner of any such primary obligation of the ability
of the primary obligor to make payment of such primary obligation; or (d)
otherwise to assure or hold harmless the owner of any such primary obligation
against loss in respect thereof; provided, however, that the term Guarantee
Obligation shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. The amount of any Guarantee
Obligation shall be deemed to be an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Guarantee Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by the Company in good faith.
Indebtedness: of a Person, at a particular date, the sum (without
duplication) at such date of: (a) all indebtedness of such Person for borrowed
money or for the deferred purchase price of property or services other than
trade payables in the ordinary course of business; (b) all obligations of such
Person under Financing Leases; and (c) all obligations of such Person in respect
of letters of credit, acceptances, or similar obligations issued or created for
the account of such Person.
Intercreditor Agreement: shall mean the Intercreditor Agreement, among
Lender, BNY Financial, Corporation ("BNY"), Signal, SSI, GIDI and BBS.
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Interest Payment Date: as to any Loan, the last day of June 1998 and the
last day of each calendar quarter thereafter while such Loan is outstanding.
Investment: As defined in Section 8.7.
Lien: any mortgage, pledge, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other), or preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing, and the filing of any financing statement under the
Uniform Commercial Code or comparable law of any jurisdiction in respect of any
of the foregoing).
Loan: as defined in Section 2.1.
Loan Documents: this Agreement; the Warrants; the Note; UCC financing
statements covering both personalty and fixtures; the Shareholders' Agreement
and other documents, agreements, certificates, schedules or exhibits called for
in any of the foregoing or otherwise required of the Company to effect the
purposes hereof.
Maturity Date: May 8, 2001.
Note: as defined in Section 2.2.
Obligations: the unpaid principal amount of, and interest (including,
without limitation, interest accruing after the maturity of the Loans and
interest accruing after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization of like proceeding, relating to
the Company, whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding) on the Note, and all other obligations and
liabilities of the Company to the Lender, whether direct or indirect, absolute
or contingent, due or to become due, or now existing or hereafter incurred,
which may arise under, out of, or in connection with, this Agreement, the Note,
the Warrants, any other Loan Document, any other document made, delivered or
given in connection therewith or herewith, whether on account of principal,
interest, reimbursement obligations, fees, indemnities, costs, expenses
(including, without limitation, all fees and disbursements of counsel to the
Lender) or otherwise.
Person: an individual, partnership, corporation, business trust, joint
stock company, limited liability company, trust,
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unincorporated association, joint venture, Governmental Authority or other
entity of whatever nature.
Preferred Stock: shall mean Signal's preferred stock, of which shares of
only Series F, stated value $100,000 per share, are outstanding as of the date
hereof.
Principal or Principal Amount: shall mean, at any time, an amount equal to
the principal amount of all outstanding Loans at such time.
Requirement of Law: as to any Person, the Certificate of Incorporation and
By-Laws or other organizational or governing documents of such Person, and any
law, treaty, rule or regulation or determination of an arbitrator or a court or
other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
Responsible Officer: as to any Person, the chief executive officer,
president or the chief financial officer of such Person.
Senior Debt: Indebtedness, including Guarantee Obligations relating
thereto, of the Company to BNY Financial Corporation.
Subsidiary: as to any Person, a corporation as to which shares of stock
having ordinary voting power (other than stock having such power only by reason
of the happening of a contingency) to elect a majority of the board of directors
or other managers of such corporation are at the time owned, or the management
of which is otherwise controlled, directly or indirectly through one or more
intermediaries, or both, by such Person; provided, however, that with respect to
Subsidiaries of Signal existing on the date hereof, such term shall include only
SSI, GIDI and BBS, the Subsidiaries through which Signal conducts its active
business operations. Unless otherwise qualified, all references to a
"Subsidiary" or the "Subsidiaries" in this Agreement shall refer to a Subsidiary
or Subsidiaries of Signal.
Warrants: warrants issued pursuant to Section 4.1.
1.2 Other Definitional Provisions. (a) Unless otherwise specified therein,
all terms defined in this Agreement shall have the defined meanings when used in
the Note or any certificate or other document made or delivered pursuant hereto.
(b) As used herein and in the Note, and any certificate or other document
made or delivered pursuant hereto, accounting terms relating to Signal and its
Subsidiaries not defined in Section 1.1 and accounting terms partly defined in
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Section 1.1, to the extent not defined, shall have the respective meanings given
to them under GAAP.
(c) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section and exhibit
references are to this Agreement unless otherwise specified.
(d) The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF LOAN COMMITMENT
2.1 Commitment. Subject to the terms and conditions hereof, the Lender
agrees to make loans (each, a "Loan"; collectively, the "Loans") to Signal from
time to time during the Commitment Period in an aggregate principal amount not
to exceed the Available Commitment.
2.2 Note; Borrowing. (a) The Loans made by the Lender shall be evidenced
collectively by a promissory note of the Company, substantially in the form of
Exhibit A (the "Note"), payable to the order of the Lender and evidencing the
obligation of the Company to pay a principal amount equal to the lesser of (i)
the amount of the initial Commitment and (ii) the Principal Amount, on the
Maturity Date, together with any accrued and unpaid interest. The Lender is
hereby authorized to record the date and amount of each Loan made by the Lender,
and the date and amount of each payment or prepayment of principal thereof, on
the schedule annexed to and constituting a part of the Note, and any such
recordation shall constitute prima facie evidence of the accuracy of the
information so recorded. The Note shall (x) be dated the Closing Date, (y) be
stated to mature on the Maturity Date and (z) bear interest on the unpaid
Principal Amount thereof from time to time outstanding as provided in Section
2.5. Interest on the Note shall be payable on the dates specified in Section
2.5(c).
(b) Signal may borrow under the Commitment during the Commitment Period on
any Business Day; provided that a Responsible Officer of Signal shall give the
Lender irrevocable notice in writing (which notice must be received by the
Lender prior to 10:00 A.M., New York City time) not less than two Business Days
prior to the requested Borrowing Date, specifying (i) the amount to be borrowed
and (ii) the requested Borrowing Date. Each borrowing pursuant to the Commitment
shall be in an aggregate principal amount of not less than $100,000, subject to
a minimum initial funding amount of $100,000.
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2.3 Use of Proceeds of Loans. The Loans shall be used to finance the
working capital needs of the Company and for general corporate purposes
including business acquisitions and repayment of any other existing indebtedness
of the Company, all subject to approval of each such use by the Company's Board
of Directors and executive officers.
2.4 Optional Prepayments. With the written consent of BNY, the Company may
at any time and from time to time prepay the Loan, in whole or in part, without
premium or penalty, upon at least two Business Days' irrevocable notice to the
Lender, specifying the date and amount of prepayment. If such notice is given,
the amount specified therein shall be due and payable on the date specified
therein. Partial prepayments shall be in an aggregate principal amount of
$100,000 or a whole multiple thereof. The Principal Amount shall be reduced by
the amount prepaid; provided, however, that Signal shall be entitled to reborrow
such amount from time to time, up to the full amount of the Commitment, until
the Maturity Date.
2.5 Interest Rate and Payment Dates. (a) Interest on each Loan shall accrue
for the period commencing on and including the Borrowing Date thereof at a rate
per annum equal to 10%.
(b) If all or a portion of the Principal Amount of any Loan, the interest
payable thereon or any other amount payable hereunder shall not be paid when due
(whether at the stated maturity, by acceleration or otherwise), such overdue
amount shall bear interest at a rate per annum which is 2% above the rate which
would otherwise be applicable pursuant to Section 2.5(a) from the date of such
non-payment until paid in full (after as well as before judgment).
(c) Interest shall be payable in arrears on each Interest Payment Date,
provided, however, that interest accruing pursuant to the preceding Section
2.5(b) shall by payable on demand.
2.6 Computation of Interest. (a) Interest in respect of the Loan shall be
calculated on the basis of a 360 day year for the actual days elapsed.
SECTION 3. GRANT OF SECURITY INTEREST
3.1. Security for the Loan. As security for the payment in full of the
Obligations, the Company hereby assigns to Lender and grants to Lender a
security interest in all of the following assets of the Company now owned or
hereafter acquired by the Company or in which the Company now has or at any time
in the
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future may acquire any right, title or interest (collectively, the
"Collateral"):
(a) all real property now or hereafter owned or leased by the Company,
together with all improvements and appurtenances or additions thereto ("Real
Property"), provided, however, that all Real Property associated with either (1)
the Company's Heritage Division or (2) idle facilities currently held for sale
by the Company in the states of Georgia, Indiana and Tennessee, shall be
excluded from the security interest called for by this Section 3.1;
(b) all inventory, equipment, instruments, chattel paper, accounts, general
intangibles (other than rights to trademarks, patents, tradenames or service
marks held by the Company under licenses the terms of which licenses do not
allow the transfer or assignment by Company of the rights granted), contract
rights and goods, together with all products, proceeds, accessions, improvements
and appurtenances thereto;
(c) all machinery, furniture, fixtures, equipment and other property
located, installed (or to be installed) or used in or about the buildings on the
Real Property (subject to the exclusion noted in Section 3.1(a)), including, but
not limited to, all heating, plumbing, lighting, water-heating, refrigerating,
air-conditioning and ventilating equipment, storm doors and windows, shades,
rugs, carpeting, awnings, blinds, drapes and linoleum, signs and property of
like nature, all of which are hereby declared to be permanent accessions to the
Real Property and part of the realty described in the Mortgages, Deeds of Trust,
and Deeds to Secure Debt and Security Interests evidencing the security interest
granted hereby and are to be considered fixtures as such term is defined in the
Uniform Commercial Code adopted and in effect in the applicable jurisdiction in
which any of the Real Property is located;
(d) all proceeds and products of any of the foregoing, including, without
limitation, all accounts receivable, accounts, contract rights, instruments,
documents, chattel paper and/or general intangibles arising out of or in
connection with any of the foregoing, all rights of the Company in and to all
Collateral securing or otherwise relating to any obligations of third parties to
the Company in connection with any of the foregoing, cash proceeds, non-cash
proceeds, and insurance proceeds payable by reason of loss or damage to any of
the foregoing, whether now existing or hereafter arising; and
(e) all ledgers, journals, books and records of the Company relating to any
and all of the foregoing.
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3.2. Use of Collateral. So long as an Event of Default has not occurred,
the Company shall have the right, in the ordinary course of its business, to
sell all items of Collateral listed in Section 3.1 above or any additions or
replacements thereto. Lender's security interest hereunder shall automatically
attach to all proceeds of all sales and other dispositions of such items of
Collateral.
3.3. Subordination of Security Interest. The security interest granted by
this Section 3 shall in every respect be subordinate to the security interests
previously granted to the Company's senior bank lender, BNY Financial
Corporation, until such time as such interests are released, and to security
interests hereafter created or perfected pursuant to existing agreements with
such senior lender, as such agreements may be amended and/or restated from time
to time. The respective rights of the Lender and such senior bank lender in and
to the Collateral shall be governed by the Intercreditor Agreement which is to
be executed and delivered contemporaneously herewith.
SECTION 4. WARRANTS
In order to induce the Lender to make its Loans and to enter into this
Agreement, Signal agrees to issue to Lender the following warrants to purchase
Signal's Common Stock:
4.1 Grant of Warrants. Signal shall issue to Lender 5,000,000 warrants to
purchase Common Stock at an exercise price of the market price per share on the
date the warrant is issued ("Warrants"). The Warrants will be effective as of
the Closing Date and will thereafter vest and become exercisable at the rate of
200,000 warrants for each $1,000,000 in Loans borrowed by Signal, with the
number of Warrants so vested to be based upon the largest Principal Amount
outstanding at any point in time during the Commitment Period. Any Warrants not
so vested will expire upon the termination of this Agreement. All vested
Warrants shall be exercisable throughout the a five-year term beginning on the
date of this Agreement. The Warrants shall be adjusted for dilution resulting
from certain recapitalizations of, certain distributions by and certain
issuances by Signal of Common Stock in accordance with the terms of the Warrant
Certificate evidencing the Warrants, with such antidilution adjustments to
include provisions that ensure that the Warrants (if fully vested) will be
exercisable for at least ten percent (10%) of Signal's outstanding shares of
Common Stock on a fully diluted basis throughout the term of the Warrants.
4.2 Exercise of Warrants. Signal shall execute and deliver to the Lender
certificates evidencing the Warrants in the form of Exhibit B (the "Warrant
Certificates"). Each warrant shall be
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exercised in accordance with the terms of its respective Warrant Certificate.
4.3 Registration Rights. The Warrants and the Common Stock issued pursuant
to the exercise of the Warrants will not be registered under the United States
Securities Act of 1933, as amended. Lender shall have the rights to demand
registration specified in the respective Warrant Certificates.
SECTION 5. REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement and to make the
Loans herein provided for, the Company hereby represents and warrants to the
Lender that, except as reflected in the most recent Form 10-K filed by Signal
with the United States Securities and Exchange Commission, and except for
matters related to the indebtedness of the Company to BNY Financial Corporation:
5.1 Financial Condition. The consolidated balance sheet of Signal and its
consolidated Subsidiaries at December 31, 1997 and the related consolidated
statements of income and retained earnings and changes in financial position for
the fiscal year ended on such date, reported on by Arthur Andersen & Co., copies
of which have heretofore been furnished to the Lender, in all material respects
are complete and correct and present fairly the consolidated financial condition
of Signal and its consolidated Subsidiaries as at such date, and the
consolidated results of their operations and changes in financial position for
the fiscal year then ended.
5.2 No Change. Except as disclosed in Schedule 5.2 there has been no
material adverse change in the business, operations, property, prospects or
financial or other condition of the Company, taken as a whole, since December
31, 1997 or the latest audited year end financial statement.
5.3 Corporate Existence; Compliance with Law. Each of Signal and its
Subsidiaries: (a) is validly existing and in good standing under the laws of the
jurisdiction of its incorporation; (b) has the corporate power and authority and
the legal right to own and operate its property, to lease the property it
operates as lessee and to conduct the business in which it is currently engaged;
(c) is duly qualified as a foreign corporation and in good standing under the
laws of each jurisdiction where its ownership, lease or operation of property or
the conduct of its business requires such qualification, except where the
failure to so qualify would not have a material adverse effect on the business,
operations, properties, prospects or financial or other condition of Signal and
its Subsidiaries taken as a whole; and (d) is in compliance with all
Requirements of Law except to the extent
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that the failure to comply therewith could not, in the aggregate, have a
material adverse effect on the business, operations, property or financial or
other condition of Signal and its Subsidiaries taken as a whole and could not
materially adversely effect on the ability of the Company to perform its
obligations under this Agreement, the Note or any other Loan Document.
5.4 Corporate Power; Authorization; Enforceable Obligations. The Company
has the corporate power and authority and the legal right to make, deliver and
perform each Loan Document and to borrow under this Agreement and has taken all
necessary corporate action to authorize such borrowing on the terms and
conditions of this Agreement and the Note and to authorize the execution,
delivery and performance of each Loan Document. No consent or authorization of,
filing with or other act by or in respect of any Governmental Authority is
required in connection with the borrowing hereunder or with the execution,
delivery, performance, validity or enforceability of each Loan Document. Each
Loan Document has been duly executed and delivered on behalf of the Company.
Each Loan Document constitutes the legal, valid and binding obligations of the
Company enforceable against the Company in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
5.5 No Legal Bar. The execution, delivery and performance of each Loan
Document, the borrowing under this Agreement and the use of the proceeds
thereof, will not violate any Requirement of Law or any Contractual Obligation
of the Company or of any of its Subsidiaries and will not result in, or require,
the creation or imposition of any Lien on any of its or their respective
properties or revenues pursuant to any Requirement of Law or Contractual
Obligation.
5.6 No Material Litigation. Except as disclosed in Schedule 5.6, no
litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of the Company,
threatened by or against the Company or any of its Subsidiaries or against any
of its or their respective properties or revenues (a) with respect to any Loan
Document or any of the transactions contemplated hereby or thereby, or (b) which
could have a material adverse effect on the business, operations, property or
financial or other condition of the Company and its Subsidiaries taken as a
whole.
5.7 No Default. Except as disclosed in Schedule 5.7, neither Signal nor any
of its Subsidiaries is now in default under or with respect to any Contractual
Obligation in any respect which
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could be materially adverse to the business, operations, property, prospects or
financial or other condition of the Company and its Subsidiaries taken as a
whole or which could materially adversely affect the ability of the Company to
perform its obligations under any Loan Document which default has not been
waived by agreement signed by the party or parties empowered to enforce such
default.
5.8 Ownership of Property; Liens. Each of Signal, SSI and BBS has good
title to all of its property, including the Collateral, and none of such
property is subject to any Lien, except as discussed in Section 3.3 or as
permitted in Section 8.2.
5.9 Taxes. The Company has filed or caused to be filed all tax returns
which to the knowledge of the Company are required to be filed and has paid all
taxes shown to be due and payable on said returns or on any assessments made
against it or any of its property and has paid all other taxes, fees or other
charges imposed on it or any of its property by any Governmental Authority
(other than those the amount or validity of which is currently being contested
in good faith by appropriate proceedings and with respect to which reserves in
conformity with GAAP have been provided on the books of the Company or its
Subsidiaries, as the case may be); no tax liens have been filed; and, to the
knowledge of the Company, no claims are being asserted with respect to any such
taxes, fees or other charges.
5.10 Federal Regulations. No part of the proceeds of any Loan hereunder
will be used for "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulations G, T, U and X
of the Board of Governors of the Federal Reserve System as now and from time to
time hereafter in effect or for any purpose which violates, or which would be
inconsistent with, the provisions of the Regulations of such Board of Governors.
5.11 Hazardous Substances. To the best of the Company's knowledge, after
reasonable inquiry, the Company, and those holding the Real Property under the
Company, are in substantial compliance with all laws and regulations relating to
pollution and environmental control. The Company will comply with all such laws
and regulations which may be imposed in the future other than those which would
not have a material adverse effect on the business, assets properties or
condition (financial or otherwise) of the Company. Except as disclosed on
Schedule 5.11, the Real Property is free from "hazardous substances" as defined
in the Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. ss.ss. 9601, et seq., as amended, and the regulations
promulgated thereunder (other than substances reported to agencies in the normal
course of business in material safety data sheets or the like); no portion of
the Real Property is
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subject to federal, state, or local regulation or liability because of the
presence or stored, leaked or spilled petroleum products, waste materials or
debris, "PCB's" or PCB items (as defined in 40 C.F.R. ss.763.63) underground
storage tanks, "asbestos" (as defined in 40 C.F.R. ss.763.63) or the past or
present accumulation, spillage or leakage of any such substance; and the Company
is in substantial compliance with all federal, state and local requirements
relating to protection of health or the environment in connection with the
operation of their business; and the Company knows of no complaint or
investigation regarding the Real Property. Further, the Company is unaware of
any investigation, threat or concern by any entity regarding environmental
issues involving the Real Property. There are not now any outstanding citations,
notices or orders of violation or noncompliance issued to the Company or
relating to its business assets, property or leaseholds under any such laws,
rules or regulations, nor any conditions which, if known by the proper
authorities, could result in any of the foregoing.
5.12 Investment Company Act. The Company is not an "investment company",
within the meaning of the Investment Company Act of 1940, as amended.
5.13 Subsidiaries. On the Closing Date, SSI, GIDI and BBS are the only
Subsidiaries of Signal.
SECTION 6. CONDITIONS PRECEDENT
6.1 Conditions to Initial Loan. The agreement of the Lender to make the
Loan requested to be made by it is subject to the satisfaction, immediately
prior to or concurrently with the making of such Loan on the Closing Date, of
the following conditions precedent:
(a) Loan Documents. The Lender shall have received each Loan Document,
including, without limitation, this Agreement and the Note, in each case
executed and delivered by a duly authorized officer of the Company.
(b) Corporate Proceedings of the Company. The Lender shall have
received a copy of the resolutions in form and substance reasonably
satisfactory to the Lender, of the Board of Directors of each of Signal,
SSI, GIDI and BBS authorizing (i) the execution, delivery and performance
of each Loan Document and all other documents and agreements required of
the Company hereunder and (ii) the borrowing contemplated hereunder,
certified by the Secretary of SSI, BBS and Signal, as of the Closing Date,
which certificate shall state that the resolutions thereby certified have
not been amended,
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modified, revoked or rescinded as of the date of such certificate.
(c) Corporate Documents. The Lender shall have received true and
complete copies of the Restated Articles of Incorporation and By-Laws of
Signal, SSI, GIDI and BBS certified as of the Closing Date as true,
complete and correct copies thereof by the Secretary or an Assistant
Secretary of each such party.
(d) Good Standing Certificates. The Lender shall have received copies
of certificates dated as of a recent date from the Secretary of State or
other appropriate authority of such jurisdiction, evidencing the good
standing of Signal and each of its Subsidiaries in each State where the
ownership, lease or operation of property or the conduct of business
requires it to qualify as a foreign corporation except where the failure to
so qualify would not have a material adverse effect on the business,
operations, properties, prospects or financial or other condition of Signal
and its Subsidiaries taken as a whole.
(e) Financial Information. The Lender shall have received a copy of
each of the financial statements referred to in Section 5.1.
(f) Litigation. No suit, action, investigation, inquiry or other
proceeding except as disclosed herein (including, without limitation, the
enactment or promulgation of a statute or rule) by or before any arbitrator
or any Governmental Authority shall be pending and no preliminary or
permanent injunction or order by a state or federal court shall have been
entered (i) in connection with this Agreement, or (ii) which, in any such
case, in the reasonable judgment of the Lender, would have a material
adverse effect on (A) the transactions contemplated by this Agreement or
(B) the business, operations, properties, prospects or financial or other
condition of Signal and its Subsidiaries taken as a whole.
(g) No Violation. The consummation of the transactions contemplated
hereby shall not contravene, violate or conflict with, nor involve the
Lender in a violation of, any Requirement of Law.
(h) Consents, Licenses, Approvals, Etc. The Lender shall have received
a certificate of a Responsible Officer of Signal either (i) attaching
copies of all consents, licenses and approvals required in connection with
the execution, delivery and performance by Signal and its Subsidiaries of
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each Loan Document, including, but not limited to, consents of the
Company's senior bank lenders, and such consents, licenses and approvals
shall be in full force and effect, or (ii) stating that no such consents,
license or approval are so required (Schedule 6.1(h)).
(i) Representations and Warranties. Each of the representations and
warranties made by the Company herein shall be true and correct in all
material respects on and as of the Closing Date as if made on and as of
such date.
(j) No Default. No Default or Event of Default shall have occurred and
be continuing on such date or after giving effect to such Loan.
(k) Security Interest. The security interests in personal property
granted herein shall be duly perfected in accordance with applicable state
law.
(l) Legal Opinion. Lender shall have received the legal opinion of
Witt, Gaither & Whitaker, P.C., counsel to Signal, GIDI, BBS and SSI, in
form and substance satisfactory to the Lender.
6.2 Conditions to Each Loan. The agreement of the Lender to make any Loan
requested to be made by it on any date (including, without limitation, the
initial Loan) is subject to the satisfaction of the following conditions
precedent as of the date such Loan is requested to be made:
(a) Representations and Warranties. Each of the representations and
warranties made by the Company in or pursuant to any Loan Document shall be
true and correct in all material respects on and as of such date as if made
on and as of such date.
(b) No Default. No Default or Event of Default shall have occurred and
be continuing on such date or after giving effect to the Loans requested to
be made on such date.
(c) Additional Matters. All corporate and other legal proceedings, and
all documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement and the other Loan Documents
shall be reasonably satisfactory in form and substance to the Lender.
(d) Additional Documents. The Lender shall have received each
additional document, instrument, legal opinion or item of information
reasonably requested by the Lender.
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SECTION 7. AFFIRMATIVE COVENANTS
Signal hereby agrees that, so long as the Commitment is in effect, the Note
remains outstanding and unpaid or any other amount is owing to the Lender
hereunder, the Company shall do the following:
7.1 Financial Statements. Furnish to the Lender:
(a) as soon as available, but in any event within 90 days after the
end of each fiscal year of Signal, a copy of the consolidated balance sheet
of Signal and its consolidated Subsidiaries as at the end of such year and
the related consolidated statements of income and retained earnings and
changes in financial position for such year, reported on by independent
certified public accountants, setting forth in comparative form the figures
for the previous year; and
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal
year of Signal, the unaudited consolidated balance sheet of Signal and its
consolidated Subsidiaries as at the end of each such quarter and the
related unaudited consolidated statements of income and retained earnings
and changes in financial position of Signal and its consolidated
Subsidiaries for such quarter and the portion of the fiscal year through
such date, setting forth in each case in comparative form the figures for
the previous year;
all such financial statements to be complete and correct in all material
respects and to be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein (except as
approved by such accountants or officer, as the case may be, and disclosed
therein).
7.2 Certificates; Other Information. Furnish to the Lender:
(a) concurrently with the delivery of the financial statements
referred to in Sections 7.1(a) and (b), a certificate of a Responsible
Officer stating that during such period, to the best of such officer's
knowledge, Signal has observed or performed all of its covenants and other
agreements and satisfied every condition contained in this Agreement and in
the Note to be observed, performed or satisfied by it, and that such
officer has obtained no knowledge of any Default or Event of Default except
as specified in such certificate;
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(b) within five days after the same are sent, copies of all financial
statements and reports which Signal sends to its stockholders, and within
five days after the same are filed, copies of all financial statements and
reports which Signal may make to, or file with, the Securities and Exchange
Commission or any successor or analogous Governmental Authority; and
(c) promptly, such additional financial and other information as the
Lender may from time to time reasonably request.
7.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all its
obligations for borrowed money to the Company's senior lenders or other
commercial lenders except when the amount or validity thereof is currently being
contested in good faith by appropriate proceedings and reserves in conformity
with GAAP with respect thereto have been provided on the books of Signal or its
Subsidiaries, as the case may be.
7.4 Conduct of Business and Maintenance of Existence. Cause Signal and each
of its Subsidiaries to continue to engage in business of the same general type
as now conducted by it; preserve, renew and keep in full force and effect its
corporate existence; take all reasonable action to maintain all rights,
privileges and franchises necessary or desirable in the normal conduct of its
business except as otherwise permitted pursuant to subsection 8.5; and comply
with all Requirements of Law except to the extent that failure to comply
therewith could not, in the aggregate, have a material adverse effect on the
business, operations, property or financial or other condition of Signal and its
Subsidiaries taken as a whole. The foregoing notwithstanding, Signal shall be
entitled to sell (i) its Heritage Division and (ii) its idle production
facilities currently held for sale, for any price and upon any other terms
approved by Signal's Board of Directors or the Executive Committee thereof.
7.5 Maintenance of Property; Insurance. Cause Signal and each of its
Subsidiaries to keep all property useful and necessary in its business in good
working order and condition, reasonable wear and tear excepted; and maintain
with financially sound and reputable insurance companies insurance on all its
property in at least such amounts and against at least such risks as are usually
insured against in the same general area by companies engaged in the same or a
similar business (provided that such insurance is available at commercially
reasonable rates); and furnish to the Lender, upon written request, full
information as to the insurance carried.
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7.6 Inspection of Property; Books and Records; Discussions. Cause Signal
and each of its Subsidiaries to keep books and records of account in which full,
true and correct entries in conformity with GAAP and all Requirements of Law
shall be made of all dealings and transactions in relation to its business and
activities; and permit representatives of the Lender to visit and inspect any of
its properties and examine and make abstracts from any of its books and records
at any reasonable time during business hours on reasonable notice and as often
as may reasonably be desired, and to discuss the business, operations,
properties and financial and other condition of Signal and its Subsidiaries with
officers and employees of Signal and its Subsidiaries and with its independent
certified public accountants.
7.7 Taxes and Other Liens. Pay and discharge promptly all taxes,
assessments and governmental charges or levies imposed upon the Company or upon
its income or any of its property as well as all claims of any kind (including
claims for labor, materials, supplies and rent) which, if unpaid, might become a
Lien upon any or all of the Collateral; provided, however, that the Company
shall not be required to pay any such tax, assessment, charge, levy or claim if
the amount, applicability or validity thereof shall currently be contested in
good faith by appropriate proceedings diligently conducted and if the Company
shall have set up reserves therefor adequate under GAAP.
7.8 Further Assurances. Promptly cure any defects in the creation and
issuance of the Note and the execution and delivery of the Loan Documents,
including this Agreement and the perfection of any Liens in favor of the Lender.
The Company, at its expense, will promptly execute and deliver to the Lender
upon request all such other and further documents, agreements and instruments in
compliance with or accomplishment of the covenants and agreements of the Company
in the Loan Documents, including this Agreement, or to evidence further and
describe more fully any collateral intended as security for the Note, or to
correct any omissions in the Loan Documents, or to state more fully the
obligation set out herein or in any of the Loan Documents, or to perfect,
protect or preserve any Liens created pursuant to any of the Loan Documents, or
to make any recordings, to file any notices, or obtain any consents, all as may
be necessary or appropriate in connection therewith.
7.9 Notices. Promptly give notice to the Lender:
(a) of the occurrence of any Default or Event of Default;
(b) of any (i) default or event of default under any Contractual
Obligation of Signal or any of its Subsidiaries
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or (ii) litigation, investigation or proceeding which may exist at any time
between Signal or any of its Subsidiaries and any Governmental Authority,
which in either case, if not cured or if adversely determined, as the case
may be, would have a material adverse effect on the business, operations,
property or financial or other condition of Signal and its Subsidiaries
taken as a whole;
(c) of any litigation or proceeding affecting Signal or any of its
Subsidiaries in which the amount involved is $100,000 or more and not
covered by insurance or in which injunctive or similar relief is sought;
(d) of a material adverse change in the business operations, property
or financial or other condition of Signal and its Subsidiaries taken as a
whole; and
(e) of the institution of any proceeding or investigations against, or
the receipt of any notice of potential liability for violation, or alleged
violation, of any federal, state or local law, rule or regulation,
including but not limited to regulations promulgated under the Resource
Conservation and Recovery Act of 1976, 42 U.S.C. ss.ss.6901 et seq.,
regulating the generation, handling or disposal of any toxic or hazardous
waste or substance, the violation of which could give rise to a material
liability against the business, assets, properties, condition or prospects
of Signal taken as a whole.
Each notice pursuant to this subsection shall be accompanied by a statement
of a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action the Company proposes to take with respect
thereto.
7.10 Nomination of Directors. Until such time as all Obligations have been
paid in full and this Agreement has expired or been terminated, and so long as
Lender is a shareholder of Signal, Signal shall place the names of any two
persons specified by Lender in nomination for election to Signal's board of
directors at each annual meeting of Signal's shareholders; provided, Lender
shall provide the names of such nominees to Signal within sufficient time to
comply with applicable rules regarding the submission of proxies, and Lender
shall provide such other information as may be required by such proxy rules. The
right granted in the preceding sentence shall be in addition to any other right
Lender may have as a shareholder of Signal to nominate directors of Signal.
SECTION 8. NEGATIVE COVENANTS
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The Company hereby agrees that, so long as the Commitment is in effect, the
Note remains outstanding and unpaid or any other amount is owing to the Lender
hereunder, Signal shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly except as reflected in the most recent Form 10-K filed by
Signal with the United States Securities and Exchange Commission, and except for
indebtedness of the Company, whether now existing or hereafter incurred, to BNY
Financial Corporation, its successors and assigns:
8.1 Limitation on Indebtedness. Create, incur, assume or suffer to exist
any Indebtedness, except for:
(a) Indebtedness in respect of the Loans and the Note;
(b) Indebtedness of Signal to any Subsidiary and of any Subsidiary to
Signal or any other Subsidiary;
(c) Indebtedness outstanding on the Closing Date and listed on
Schedule 8.1(c) including any extensions or renewals thereof; and
(d) New Indebtedness of Signal incurred in connection with any
transaction the terms of which are approved by Signal's full Board of
Directors.
8.2 Limitation on Liens. Create, incur, assume or suffer to exist any Lien
upon any of its property, assets or revenues, whether now owned or hereafter
acquired, except for:
(a) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings; provided that adequate reserves with
respect thereto are maintained on the books of Signal or its Subsidiaries,
as the case may be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's,
or other like Liens arising in the ordinary course of business and not
overdue for a period of more than 60 days or which are being contested in
good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liabilities to insurance carriers under insurance or
self-insurance arrangements;
(d) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory
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obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of Signal or
such Subsidiary;
(f) Liens in existence on the Closing Date listed on Schedule 8.2(f),
including Liens attaching after the date hereof pursuant to after acquired
property clauses, Liens in the Company's "Receivables" as defined in and as
contemplated by the Company's factoring agreements with BNY;
(g) Liens securing or created in connection with Indebtedness of
Signal and its Subsidiaries permitted by Section 8.1(c); provided that (i)
such Liens shall be created substantially simultaneously with the purchase
of such fixed or capital assets; (ii) such Liens do not at any time
encumber any property other than the property financed by such
Indebtedness; (iii) the amount of Indebtedness secured thereby is not
increased; and (iv) the principal amount of Indebtedness secured by any
such Lien shall at no time exceed the purchase price of such property at
the time it was acquired;
(h) Liens on the property or assets of a corporation which becomes a
Subsidiary after the date hereof; provided that (i) such Liens existed at
the time such corporation became a Subsidiary and were not created in
anticipation thereof; (ii) any such Lien is not spread to cover any
property or assets of Signal after the time such corporation becomes a
Subsidiary; and (iii) the amount of Indebtedness secured thereby (other
than accrued interest) is not increased; and
(i) Liens securing or created in connection with Indebtedness of
Signal and its Subsidiaries permitted by Section 8.1(d).
8.3 Limitation on Guarantee Obligations. Create, incur, assume or suffer to
exist any Guarantee Obligation, except for:
(a) Guarantee Obligations outstanding on the Closing Date and set
forth on Schedule 8.3;
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(b) Guarantee Obligations incurred in connection with any transaction
permitted by Section 8.1(d).
8.4 Limitations on Fundamental Changes. Enter into any transaction of
acquisition or merger or consolidation or amalgamation (except with any of its
Subsidiaries), or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, lease, assign, transfer or
otherwise dispose of, all or substantially all of its property, business or
assets, or make any material change in the present method of conducting business
except as otherwise permitted hereunder and except:
(a) any Subsidiaries of Signal may be merged or consolidated with or
into Signal (provided that Signal shall be the continuing or surviving
corporation) or with or into any one or more wholly-owned Subsidiaries of
Signal (provided that the wholly-owned Subsidiary shall be the continuing
or surviving corporation);
(b) any wholly-owned Subsidiary may sell, lease, transfer or otherwise
dispose of any or all of its assets (upon voluntary liquidation or
otherwise) to Signal or a wholly-owned Subsidiary of Signal.
(c) Signal or any of its Subsidiaries may enter into any other
acquisition transaction the terms of which are approved by Signal's full
Board of Directors.
8.5 Limitation on Sale of Assets. Convey, sell, lease, assign, transfer or
otherwise dispose of, any of its property, business or assets (including,
without limitation, receivables and leasehold interests) whether now owned or
hereafter acquired except:
(a) obsolete, worn out or no longer in use property disposed of in the
ordinary course of business;
(b) the sale or other disposition of any property in the ordinary
course of business;
(c) the sale of inventory in the ordinary course of business;
(d) the sale of accounts receivable to BNY under the Company's
factoring arrangements with BNY;
(e) as permitted by Section 8.4(b); and
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(f) the sale of (i) Signal's Heritage Division and all assets
generally used in the operation thereof and (ii) Signal's idle production
facilities currently held for sale, for any price and upon any other terms
approved by Signal's Board of Directors or the Executive Committee thereof.
8.6 Limitation on Dividends. Except for the declaration and payment of
required dividends on its Preferred Stock, declare any dividend (other than
dividends payable solely in common stock of Signal) on, or make any payment on
account of, or set apart assets for a sinking or other analogous fund for the
purchase, redemption, defeasance, retirement or other acquisition of any shares
of any class of stock of Signal, whether now or hereafter outstanding, or make
any other distribution in respect thereof, either directly or indirectly,
whether in cash or property or in obligations of Signal or any Subsidiary.
8.7 Limitation on Investments, Loans and Advances. Make any advance, loan,
extension of credit or capital contribution to, or purchase any stock, bonds,
notes, debentures or other securities of, or make any other investment in, any
of the foregoing (an "Investment"), in any Person, except:
(a) extensions of trade credit in the ordinary course of business;
(b) Investments in Cash Equivalents;
(c) Investments by Signal in its Subsidiaries and Investments by such
Subsidiaries in Signal and in other Subsidiaries;
(d) Investments permitted by subsections 8.4(b) or 8.4(c); and
(e) loans which refinance or restructure existing, disclosed
indebtedness but which do not increase the principal amount of such
existing indebtedness or change the terms of such existing indebtedness in
a manner which is materially adverse to Lender.
8.8 Transactions with Affiliates. Enter into any transaction, including,
without limitation, any purchase, sale, lease or exchange of property or the
rendering of any service, with any Subsidiary unless such transactions are
otherwise permitted under this Agreement, or are in the ordinary course of
Signal's or such Subsidiary's business and are upon fair and reasonable terms no
less favorable to Signal or such Subsidiary, as the case may be, than it would
obtain in a comparable arm's length transaction with a Person not an Affiliate.
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8.9 Sale and Leaseback. Enter into any arrangement with any Person
providing for the leasing by Signal or any Subsidiary of real or personal
property which has been or is to be sold or transferred by Signal or such
Subsidiary to such Person or to any other Person to whom funds have been or are
to be advanced by such Person on the security of such property or rental
obligations of Signal or such Subsidiary; except for a sale and leaseback of
equipment no later than three months following the date of initial purchase of
such equipment.
8.10 Fiscal Year. Permit the fiscal year of Signal to end on a day other
than December 31.
8.11 Subsidiary Formation. Form or acquire any Subsidiary unless, if
requested by the Lender, such Subsidiary shall have become a party to this
Agreement or shall have guaranteed the Obligations hereunder in favor of the
Lender.
8.12 Changes in Location, Name, etc. Unless it shall have given the Lender
at least thirty (30) days prior written notice thereof, the Company will not (i)
change the location of its chief executive office/chief place of business or
remove its books and records therefrom or (ii) change its name, identity or
corporate structure to such an extent that any financing statement filed by
Lender in connection with this Agreement would become seriously misleading.
8.13 Location of Inventory Unless it shall have given the Lender at least
ten (10) days prior written notice thereof, the Company will not permit any
significant portion of the Company's inventory or equipment to be kept at a
location other than one of the locations previously described to the lender for
purposes of perfecting the security interest prescribed by Section 3 hereof;
provided, however, that this Section 8.13 shall not apply to shipments of
finished products to customers in the ordinary course of the Company's business,
work in process or finished goods in possession of suppliers pending shipment to
the Company or its customers or goods temporarily in the possession of third
parties for embellishment or finishing.
8.14 Financial Condition. At any time fail to comply with the financial
covenants contained in paragraph 11 of the Factoring Agreement entered into
between BNY and Signal, dated October 31, 1997, as amended from time to time
(the "Factoring Agreement") or if the Factoring Agreement shall have terminated
such covenants as were in effect immediately prior to such termination. To the
extent such covenants require the Company to meet specific dollar amounts as of
specific periods (for example, the end of each quarter) the last stated dollar
amount for the last period
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contained in such covenants shall apply to each succeeding similar period.
SECTION 9. EVENTS OF DEFAULT
Upon the occurrence of any of the following events:
(a) The Company shall fail to pay any principal of the Note when due
in accordance with the terms thereof or hereof; or to pay any interest on
the Note, or any other amount payable hereunder, within five days after any
such amount becomes due in accordance with the terms thereof or hereof; or
(b) Any representation or warranty made or deemed made by the Company
in any of the Loan Documents or which is contained in any certificate,
document or financial or other statement furnished at any time under or in
connection with this Agreement or the Note, including the most recent Form
10-K filed by Signal with the United States Securities and Exchange
Commission, shall prove to have been incorrect in any material respect on
or as of the date made or deemed made; or
(c) The Company shall default in the observance or performance of any
agreement contained in Section 8; or
(d) The Company shall default in the observance or performance of any
other agreement contained in this Agreement or the Loan Documents, and such
default shall continue unremedied for the lesser of a period of 30 days or
the cure period applicable to such default in the pertinent Loan Document;
or
(e) Signal or any of its Subsidiaries shall (i) default in any payment
of principal or interest on any Indebtedness (other than the Notes) or in
the payment of any Guarantee Obligation which default has not been waived
and which continues beyond the period of grace (not to exceed 30 days), if
any, provided in the instrument or agreement under which such Indebtedness
or Guarantee Obligation was created; or (ii) default in the observance or
performance of any other agreement or condition relating to any such
Indebtedness or Guarantee Obligation or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event
shall occur or condition exist without waiver and beyond any applicable
grace period, the effect of which default or other event or condition is to
cause such Indebtedness to become due prior to its stated maturity or such
Guarantee Obligation to become payable; or
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(f)(i) Signal or any of its Subsidiaries shall commence any case,
proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or
its debts, or (B) seeking appointment of a receiver, trustee, custodian or
other similar official for it or for all or any substantial part of its
assets, or Signal or any of its Subsidiaries shall make a general
assignment for the benefit of its creditors; or
(ii) there shall be commenced against Signal or any of its
Subsidiaries any case, proceeding or other action of a nature referred to
in clause (i) above which (A) results in the entry of an order for relief
or any such adjudication or appointment or (B) remains undismissed,
undischarged or unbonded for a period of 60 days; or
(iii) there shall be commenced against Signal or any of its
Subsidiaries any case, proceeding or other action seeking issuance of a
warrant of attachment, execution, distraint or similar process against all
or any substantial part of its assets which results in the entry of an
order for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within 60 days from the entry thereof; or
(iv) Signal or any of its Subsidiaries shall take any action in
furtherance of, or indicating its consent to, approval of, or acquiescence
in, any of the acts set forth in clause (i), (ii), or (iii) above; or
(v) Signal or any of its Subsidiaries shall generally not, or shall be
unable to, or shall admit in writing its inability to, pay its debts as
they become due; or
(g) One or more judgments or decrees shall be entered against Signal
or any of its Subsidiaries involving in the aggregate a liability (not paid
or fully covered by insurance) of $500,000 or more and all such judgments
or decrees shall not have been vacated, 30 days from the entry thereof;
(h) The two persons whom Lender is entitled to nominate to serve on
Signal's Board of Directors pursuant to Section 7.10
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shall not have been elected at the duly called meeting of the shareholders
of Signal at which their nominations were presented.
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) above with respect of the Company, the
Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement and the Note shall immediately become due and payable; (B)
if such event is an Event of Default specified in paragraph (a) above or in
paragraph (e) with respect to the Senior Debt which default shall not have been
waived, the Lender, at its option and in its sole discretion, may by notice to
Signal declare the Loans hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement and the Note to be due and payable forthwith,
whereupon the same shall immediately become due and payable; and (C) if the
Senior Debt shall have been repaid and if such event is any other Event of
Default, the Lender, at its option and in its sole discretion, may by notice to
Signal declare the Loan hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement and the Note to be due and payable forthwith,
whereupon the same shall immediately become due and payable. Except as expressly
provided above in this Section 9, presentment, demand, protest and all other
notices of any kind are hereby expressly waived. The obligations of each Company
in respect of the Loans are subordinated to the obligations of each Company in
respect of the Senior Debt as provided in the Intercreditor Agreement.
SECTION 10. MISCELLANEOUS
10.1 Amendments and Waivers. Neither this Agreement, the Note, nor any
terms hereof or thereof may be amended, supplemented or modified except in
accordance with the provisions of this Section 10.1. The Lender and the Company
may, from time to time, enter into written amendments, supplements or
modifications hereto for the purpose of adding any provisions to this Agreement
or the Note or changing in any manner the rights of the Lender or of the Company
hereunder or thereunder or waiving, on such terms and conditions as the Lender
may specify in such instrument, any of the requirements of this Agreement or the
Note or any Default or Event of Default and its consequences. In the case of any
waiver, the Company and the Lender shall be restored to their former positions
and rights hereunder and under the Note, and any Default or Event of Default
waived shall be deemed to be cured and not continuing; but no such waiver shall
extend to any subsequent or other Default or Event of Default, or impair any
right consequent thereon.
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10.2 Notices. All notices, requests and demands to or upon the respective
parties hereto to be effective shall be in writing (including by telecopy), and,
unless otherwise expressly provided herein, shall be deemed to have been duly
given or made when delivered by hand, or five days after being deposited in the
mail, postage prepaid, or, in the case of notice by telecopy or facsimile
transmission, when sent and telephonically or electronically confirmed,
addressed as follows or to such other address as may be hereafter notified by
the respective parties hereto and any future holder of the Note:
The Company:
Signal Apparel Company, Inc.
P.O. Box 4296
200 Manufacturers Road
Chattanooga, TN 37405
Attention: Chief Financial Officer
The Lender:
WGI, LLC
One East Putnam Avenue
Greenwich, Connecticut 06830
Attention: Paul R. Greenwood
10.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in
exercising, on the part of the Lender, any right, remedy, power or privilege
hereunder, shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights, remedies, powers and privileges herein provided are
cumulative and not exclusive of any rights, remedies, powers and privileges
provided by law.
10.4 Survival of Representations and Warranties. All representations and
warranties made hereunder and in any document, certificate or statement
delivered pursuant hereto or in connection herewith shall survive the execution
and delivery of this Agreement and the Note.
10.5 Payment of Expenses and Taxes. Signal agrees (a) to pay or reimburse
the Lender in an amount up to, but not exceeding, $50,000 for all its
out-of-pocket costs and expenses incurred in connection with the development,
preparation and execution of the Loan Documents and any other documents prepared
in connection therewith, and the consummation of the transactions contemplated
hereby and thereby, including the fees and disbursements of counsel to the
Lender, (b) to pay or reimburse the Lender for all its costs and expenses
incurred in connection with the
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development, preparation and execution of any amendment, supplement or
modification thereto, or the enforcement or preservation of any rights under any
Loan Document and any other such documents and any such amendment, supplement or
modification thereto, including, without limitation, reasonable fees and
disbursements of counsel to the Lender, (c) to pay, indemnify, and hold the
Lender harmless from, any and all recording and filing fees and any and all
liabilities with respect to, or resulting from any delay in paying, stamp,
excise, franchise and other taxes, if any, which may be payable or determined to
be payable in connection with the execution and delivery of, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of
any Loan Document and any such other documents (provided that Signal shall have
the right to contest before the relevant Governmental Authority any such tax
that may be assessed), and (d) to pay, indemnify, and hold the Lender harmless
from and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements of any
kind or nature whatsoever with respect to the execution, delivery, enforcement,
performance and administration of any Loan Document and the transactions
contemplated hereby and any such other documents (all the foregoing,
collectively, the "indemnified liabilities"), provided, that Signal shall have
no obligation hereunder to the Lender with respect to willful misconduct of the
Lender. The agreements in this Section shall survive repayment of the Note and
all other amounts payable hereunder.
10.6 Successors and Assigns. (a) This Agreement shall be binding upon and
inure to the benefit of the Company and the Lender, all future holders of the
Note and their respective successors and assigns, except that the Company may
not assign or transfer any of its rights under this Agreement without the prior
written consent of the Lender.
(b) The Lender may, in the ordinary course of its business and in
accordance with applicable law, at any time sell to one or more lenders or other
entities ("Participants") participating interests in any Loan, the Note, the
Commitment or any other interest of the Lender hereunder and under the other
Loan Documents. In the event of any such sale by the Lender of participating
interests to a Participant, the Lender's obligations under this Agreement to
Signal shall remain unchanged, the Lender shall remain solely responsible for
the performance thereof, the Lender shall remain the holder of the Note for all
purposes under this Agreement and the other Loan Documents, and Signal shall
continue to deal solely and directly with the Lender in connection with the
Lender's rights and obligations under this Agreement and the other Loan
Documents. The Company agrees that if amounts outstanding under this Agreement
and the Note are due or unpaid,
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or shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall be deemed to have the
right of set-off in respect of its participating interest in amounts owing under
this Agreement and the Note to the same extent as if the amount of its
participating interest were owing directly to it as the Lender under this
Agreement or the Note; provided, that such Participant shall only be entitled to
such right of set-off if it shall have agreed in the agreement pursuant to which
it shall have acquired its participating interest to share with the Lender the
proceeds thereof. The Company also agrees that each Participant shall be
entitled to the benefits of Section 10.5 with respect to its participation in
the Commitment and the Loans outstanding from time to time; provided further,
that no Participant shall be entitled to receive any greater amount pursuant to
such Section than the transferor Lender would have been entitled to receive in
respect of the amount of the participation transferred by such transferor Lender
to such Participant had no such transfer occurred.
10.7 Counterparts. This Agreement may be executed by one or more of the
parties to this Agreement on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
10.8 GOVERNING LAW. THIS AGREEMENT AND THE NOTE AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK.
10.9 SUBMISSION TO JURISDICTION; WAIVERS. EACH OF SIGNAL, SSI, GIDI AND BBS
HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH IT IS A PARTY,
OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE
NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, THE
COURTS OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK,
AND APPELLATE COURTS FROM ANY THEREOF;
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH
COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE
OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM
THE SAME;
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<PAGE>
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE
EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY
SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO SUCH BORROWER AT ITS
ADDRESS SET FORTH IN SECTION 10.2 OR AT SUCH OTHER ADDRESS OF WHICH THE LENDER
SHALL HAVE BEEN NOTIFIED PURSUANT THERETO;
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN
ANY OTHER JURISDICTION; AND
(E) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY
HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO IN THIS
SECTION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES.
10.10 WAIVER OF JURY TRIAL. EACH OF SIGNAL, SSI, GIDI, BBS AND THE LENDER
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION
OR PROCEEDING RELATING TO THIS AGREEMENT, THE NOTE, OR OTHER LOAN DOCUMENT TO
WHICH IT IS A PARTY AND FOR ANY COUNTERCLAIM THEREIN.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in New York by their proper and duly authorized
officers as of the day and year first above written.
SIGNAL APPAREL COMPANY, INC.
/s/ Robert J. Powell
By: Robert J. Powell
Title: Vice President
THE SHIRT SHED, INC.
/s/ Robert J. Powell
By: Robert J. Powell
Title: Vice President
GIDI HOLDINGS, INC.
/s/ Robert J. Powell
By: Robert J. Powell
Title: Vice President
BIG BALL SPORTS, INC.
/s/ Robert J. Powell
By: Robert J. Powell
Title: Vice President
WGI, LLC
/s/ Stephen Walsh
By: Stephen Walsh
Title: Manager
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<PAGE>
PROMISSORY NOTE
$25,000,000 New York, New York
May 8, 1998
FOR VALUED RECEIVED, each of the undersigned, SIGNAL APPAREL COMPANY, INC.,
an Indiana corporation ("Signal"), THE SHIRT SHED, INC., a Delaware corporation
("SSI"), GIDI Holdings, Inc., an Illinois corporation d/b/a/ Grand Illusion
Sportswear ("GIDI") and Big Ball Sports, Inc., a Texas corporation ("BBS"),
hereby jointly and severally unconditionally promises to pay on the Maturity
Date to the order of WGI, LLC (the "Lender"), at its office located at One East
Putnam Avenue, Greenwich, Connecticut 06830, in lawful money of the United
States of America and in immediately available funds, the principal amount of
the lesser of (a) TWENTY-FIVE MILLION DOLLARS ($25,000,000) and (b) the
aggregate unpaid principal amount of all Loans made pursuant to Section 2.1 of
the Credit Agreement referred to below, and to pay interest in like money at
such office on the unpaid principal amount hereof from time to time, on the
dates and in the manner as provided in Section 2.5 of the Credit Agreement, at
the rate which is the lesser of (a) the applicable rate per annum set forth in
Section 2.5 of the Credit Agreement, and (b) the maximum rate of interest which
may be charged or collected by the Lender under applicable law, until paid in
full (both before and after judgment).
The holder of this Note is authorized to, and so long as it holds this Note
shall, record the date and amount of each Loan made by the Lender pursuant to
Section 2.1 of the Credit Agreement, the date and amount of each payment or
prepayment of principal thereof, and any such recordation shall constitute prima
facie evidence of the accuracy of the information so recorded; provided that
failure of the Lender to make any such recordation (or any error in such
recordation) shall not affect the joint and several obligations of the
undersigned under this Note or under the Credit Agreement.
The Note is the Note referred to in the Credit Agreement, dated as of May
8, 1998 (as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among the undersigned and the Lender, is entitled to the
benefits thereof, if secured as provided therein and is subject to optional
prepayment in whole or in part as provided therein. Terms used herein which are
defined in the Credit Agreement shall have such defined meanings unless
otherwise defined herein or unless the context otherwise requires.
Upon the occurrence of any one or more of the Events of Default specified
in the Credit Agreement, all amounts then remaining unpaid on this Note shall
become, or may be declared to be, immediately due and payable, all as provided
therein. The Borrower expressly waives diligence, presentment, protest, demand
and other notices of any kind.
This Note shall be governed by, and construed and interpreted in accordance
with, the laws of the State of New York,
<PAGE>
SIGNAL APPAREL COMPANY, INC.
By: /s/ Robert J. Powell
-----------------------
Name: Robert J. Powell
Title: Vice President
THE SHIRT SHED, INC.
By: /s/ Robert J. Powell
-----------------------
Name: Robert J. Powell
Title: Vice President
GIDI HOLDINGS, INC.
By: /s/ Robert J. Powell
-----------------------
Name: Robert J. Powell
Title: Vice President
BIG BALL SPORTS, INC.
By: /s/ Robert J. Powell
-----------------------
Name: Robert J. Powell
Title: Vice President
THIS NOTE IS SUBJECT IN ITS ENTIRETY TO THE INTERCREDITOR AGREEMENT DATED AS OF
THE DATE HEREOF AMONG THE MAKERS, WGI, LLC AND BNY FINANCIAL CORPORATION, AND NO
PAYMENTS MAY BE RECEIVED BY WGI, LLC OR ANY HOLDER HEREOF UNLESS EXPLICITLY
PERMITTED THEREBY.
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.
5,000,000 Warrants
THIS CERTIFIES THAT, for good and valuable consideration, the receipt of
which is hereby acknowledged, WGI, LLC or its 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 May 8, 1998 ("Issuance
Date")(such warrants issued hereunder, or such lesser number thereof as shall
from time to time remain unexercised, being herein collectively called the
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"Warrants"). The Warrants are being issued in connection with that certain
Credit Agreement dated as of May 8, 1998, between the Company and WGI, LLC (the
"WGI Credit Agreement"). In accordance with the rules of the New York Stock
Exchange, these Warrants shall not be effective until approved by vote of the
shareholders of the Company.
Certain terms used in this Warrant Certificate are defined in Section 11
hereof or in the WGI Credit Agreement. 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 at the rate of 200,000 warrants for each $1,000,000 in Loans
borrowed by Signal, with the number of Warrants so vested to be based upon the
largest Principal Amount outstanding at any point in time during the Commitment
Period (as defined in the WGI Credit Agreement). All vested Warrants shall be
exercisable through the Expiration Date set forth in Section 2 hereof.
2. Expiration of Warrants. The Warrants shall, in any event, be void and
all rights represented hereby shall cease on and as of May 8, 2003 (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 5,000,000 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) 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 other Company securities, including shares
of Preferred Stock, valued for such purposes at the stated value per share
prescribed for the applicable series
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<PAGE>
of Preferred Stock plus any accumulated and unpaid dividends thereon, or at its
then Prevailing Market Price for any other 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) Demand Registration Rights.
On any three occasions after the Issuance Date and prior to the Expiration
Date, upon the request of
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<PAGE>
Holders of at least 51% of the Warrant Shares originally issued pursuant to
this Warrant Certificate which are then outstanding, which Holders shall
request the registration of such shares under the United States Securities
Act of 1933, as amended (provided that such request covers an aggregate of
at least 100,000 Warrant Shares), the Company shall file with the
Commission and use its best efforts to cause to become effective as
promptly as practicable (subject to the following sentence) a registration
statement covering at least all of the Warrant Shares requested to be
registered by such requesting Holders (any Holders of Warrant Shares
requesting registration under this Section 5(a) are "Selling Holders"), all
to the extent requisite to permit the exercise or disposition in the United
States, as the case may be, by the Selling Holders of the Warrant Shares so
registered ("Demand Registration"); provided, however, that the Company
shall not be obligated to effect a Demand Registration (i) prior to the
date which is 90 calendar days after the closing date of a previous United
States public offering, (ii) if the Company has given notice to the Holders
of Warrants that the Company expects to file a registration statement
within 30 days and while the Company has a public offering in registration,
or (iii) if three such Demand Registrations with respect to all or a
portion of the Warrant Shares have previously been requested. Should the
Company refuse to effect a Demand Registration pursuant to subsections (i)
or (ii) above, such request shall not be considered on of the three rights
to demand registration granted by this Section. The Company shall promptly
give written notice to all Holders of the Warrants and the Warrant Shares
of the receipt by it of a request for a Demand Registration pursuant to
this Section. If other selling shareholders or the Company shall also
propose to include shares of Common Stock in a Demand Registration, and if
the number of includable shares shall exceed the total number of shares of
Common Stock proposed to be registered and/or Warrant Shares proposed to be
registered (all such securities proposed to be registered, the "Registrable
Securities"), the Registrable Securities shall be included in the Demand
Registration in the following priority: first, the Registrable Securities
held by the Holders of Warrant Shares in proportion to the respective
numbers of Registrable Securities proposed to be sold by them, and second,
the Registrable Securities proposed to be registered by the Company or
other selling shareholders, allocated among them in such manner as they
shall determine. If a Holder or Holders shall have requested a Demand
Registration and the Company shall have thereafter withdrawn such
registration
4
<PAGE>
statement, in addition to such other rights and remedies that the Holders
may be entitled to, such withdrawn registration shall not be deemed to be
one of the registration statements that may be requested pursuant to this
Section 5(a). The Holder agrees to exercise all Warrants for which it has
demanded registration of Warrant Shares on the effective date of such
registration.
(b) Piggy Back Registration Rights.
(i) If at any time the Company proposes to file a registration
statement with the Commission (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. 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 10,000 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.
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<PAGE>
(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
the registration. The securities of the Company held by officers and
directors of the Company shall first be excluded from such
registration and underwriting to the extent required by such
limitation. If after such exclusion a limitation on the number of
Warrant Shares is still required, then such inclusion of 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.
(c) United States Federal and State Approval. The Company shall effect
the registration or qualification of the Warrant Shares registered pursuant
to Sections 5(a) or 5(b) 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.
(d) Expenses. Subject to the limitations contained in this paragraph
(d), and except as otherwise specifically provided in this Section 5, the
entire costs and expenses of each registration and
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<PAGE>
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 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.
(e) Procedures.
(i) In the case of each registration or qualification pursuant to
Section 5(a) or Section 5(b), 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
7
<PAGE>
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 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
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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 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.
(f) Cross-Indemnity and Contribution Agreements. In connection with
the registration of Warrant Shares in accordance with Section 5(a) or
Section 5(b) 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.
(g) 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 the Company, any
underwriter, the Commission and/or any state or other regulatory
authority may 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
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<PAGE>
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 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.
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<PAGE>
(b) 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 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
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<PAGE>
reclassification, such event shall be deemed a subdivision or combination,
as the case may be, of the 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 exercise of any Warrants, and (2) the exercise of stock
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 (collectively, (1) and (2) the "Options").
(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 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
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<PAGE>
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) upon the
issuance of any of the Options.
(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 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
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<PAGE>
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) 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, any Convertible Securities or any warrants or 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 such
issuance causes the Aggregate Number (assuming full vesting of all Warrants
represented hereby) to equal less that 10% of the then-outstanding shares
of the Company's Common Stock on a fully diluted basis, then the Aggregate
Number in effect immediately prior thereto shall be adjusted so that the
Aggregate Number thereafter shall equal at least 10% of the outstanding
shares of the Company's Common Stock on a fully diluted basis. This
adjustment shall be accomplished by multiplying the Aggregate Number
immediately prior to such action by a fraction, the numerator of which
shall be the number of outstanding shares of the Company's Common Stock on
a fully diluted basis immediately following such action and the denominator
of which shall be the number of outstanding shares of the Company's Common
Stock on a fully diluted basis immediately prior to such action. In the
case of any such adjustment to the Aggregate Number, the Exercise Price per
share shall be proportionately adjusted by multiplying the Exercise Price
per share immediately prior to such adjustment by a fraction, the numerator
of which is the Aggregate Number immediately prior to such adjustment and
the denominator of which is the new Aggregate Number as so adjusted. No
adjustment of the Aggregate Number shall be made under this paragraph (f)
upon the issuance of any additional shares of Common
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<PAGE>
Stock which are issued pursuant to (1) the exercise of any Warrants, and
(2) the exercise of stock 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 (collectively, (1) and (2) the
"Options").
(g) If, at any time after any adjustment of the Aggregate Number shall
have been made pursuant to paragraphs (d), (e) or (f) 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 (g),
(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 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
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<PAGE>
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
(g) 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.
(h) 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
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.
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<PAGE>
(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.
(i) 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.
(j) 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
17
<PAGE>
such adjustment and the computation by which such adjustment was made. The
fees and expenses of such accountants shall be paid by the Company.
(k) 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 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
18
<PAGE>
sale of any Warrant Shares. The Company will deliver to any Holder, promptly
upon their becoming available, copies of all financial statements, reports,
notices and proxy statements sent or made available generally by the Company to
its shareholders, and copies of all regular and periodic reports and all
registration statements and prospectuses filed by the Company with any
securities exchange or with the Commission.
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.
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 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 Termination of Restrictions. The restrictions imposed by this Section
11 upon the transferability of Warrants and Warrant Shares 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
19
<PAGE>
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 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: May 8, 2001.
Options: as set forth in Section 6(c).
Person: an individual, corporation, partnership, 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
20
<PAGE>
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 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 it is acquiring the
Warrants represented by this Warrant Certificate and, upon any exercise of such
Warrants, will acquire Common Stock hereunder for its 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 it 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
21
<PAGE>
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 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
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<PAGE>
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), 200-A
Manufacturers Road, Chattanooga, Tennessee 37405, 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 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, but only 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.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
executed by its duly authorized officer and to be dated May 8, 1998.
SIGNAL APPAREL COMPANY, INC.
b /s/ Robert J. Powell
By: Robert J. Powell
Vice President
ACCEPTED AND AGREED TO this 27th day of January, 1999.
/s/ Stephen Walsh
- ---------------------------
WGI, LLC
By: Stephen Walsh, Manager
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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.
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Any unexercised Warrants evidenced by the within Warrant Certificate to be
issued to:
Please insert social security or identifying number:
Name:
Address:
26
<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.
27
EXHIBIT 10.5
August 10, 1998
Mr. Thomas A. McFall
Mr. John W. Prutch
Gentlemen:
1. Engagement: Further to the discussions held between Signal Apparel
Company, Inc. ("Signal" or the "Company") and Thomas A. McFall and John W.
Prutch (individually "McFall" and "Prutch" and collectively "Advisors"), each of
McFall and Prutch are hereby individually engaged to act as a financial advisors
to Signal on an exclusive basis with respect to identifying, evaluating,
pricing, negotiating and closing merger, acquisition, divestiture and financing
opportunities ("Transactions") on the Company's behalf, subject to the terms and
conditions set forth in this letter agreement (this "Agreement"). Each of the
Advisors hereby accept such engagement and in connection therewith agree to use
his best efforts to, among other things, (i) assist with the preparation of
information materials with respect to the Company for distribution to potential
merger or acquisition candidates and/or financing sources; (ii) identify and
contact such companies or other persons or entities that may have an interest in
consummating a Transaction with the Company; and (iii) negotiate with others
with respect to a Transaction on the Company's behalf, if so requested by the
Company. Should the Company be presented with potential Transactions without the
involvement of the Advisors which do not require the expertise of the Advisors
to consummate, the Company will be permitted to pursue such Transactions
independent of its relationship with the Advisors. The Advisors agree to keep
the Company's Executive Committee informed as to all activities conducted under
this Agreement.
2. Term: The Company agrees to retain each of McFall and Prutch in
accordance with this Agreement for a period of two (2) years commencing May 8,
1998 (the "Term"); provided, however, that at any time after the first
anniversary of this Agreement the Company may terminate the engagement hereunder
of either or both of McFall and/or Prutch upon ninety (90) days prior written
notice, without any liability or continuing obligation to the party so
terminated except for those obligations accrued as of the effective date of
termination and except as otherwise provided herein. In the event of such a
termination of engagement with respect to only one of either McFall and/or
Prutch, the total compensation due hereunder for any Transaction subsequent to
the effective date of such termination will be paid to the party not so
terminated and/or their designee.
<PAGE>
Mr. Thomas A. McFall
Mr. John W. Prutch
August 10, 1998
Page 2
3. Compensation and Expenses:
(i) The Advisors will be reimbursed for their reasonable out-of-pocket
expenses incurred while pursuing the activities called for by this
Agreement.
(ii)Warrants
EffectiveMay 8, 1998, each of McFall and Prutch will receive warrants to
purchase 1,902,273 additional shares of Signal Common Stock. Also,
effective May 8, 1998, the 805,000 warrants previously granted pursuant to
the engagement letter between Signal and Weatherly Financial dated May 9,
1997 and previously allocated equally between McFall and Prutch will be
repriced to an exercise price of $1.75 per share. All of the warrants will
be subject to the following terms and conditions which will be reflected in
a warrant certificate to be executed between the Company and each of McFall
and Prutch.
(a) All warrants will have an exercise price of $1.75 per share and will
have customary anti-dilution protection in connection with stock
splits, stock dividends, below market stock offerings, etc. and
customary piggyback registration rights.
(b) The warrants will be subject to the following vesting schedule:
(1) Warrants to purchase 769,793 shares by each of McFall and Prutch
will be immediately exercisable.
(2) Warrants to purchase shares in the amounts set forth below will
become exercisable by each of McFall and Prutch as the Company
(including subsidiary companies) achieves each of the goals
listed below:
(a) Goal 1 - $4.0 million in annual pre-tax earnings 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
warrants to purchase an additional 511,660 shares by each of
McFall and Prutch will become vested.
Goal 2 - $5.0 million in annual pre-tax earnings or an
average trading price of at least $4.00 per share for the
Company's Common Stock for any period of
<PAGE>
Mr. Thomas A. McFall
Mr. John W. Prutch
August 10, 1998
Page 3
120 days consecutive calendar days - warrants to purchase an
additional 511,660 shares by each of McFall and Prutch will
become vested.
Goal 3 - $6.0 million in annual pre-tax earnings 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 - warrants to purchase an additional 511,660
shares by each of McFall and Prutch will become vested.
(b) If two or more of the goals set forth above are achieved
simultaneously at any given time, the unvested warrants for
the lower goals(s) as well as for the highest goal achieved
will become vested at such time. For example, if the Company
achieves Goal 2 by earning $5.0 million in annual pre-tax
earnings for a given year and the warrants attributable to
Goal 1 have not been previously vested, then the warrants
for Goal 1 and Goal 2 become vested at that time.
(c) Except as provided below, no shares acquired upon the exercise of
the warrants may be sold without the approval of the Company's
principal shareholder WGI, LLC or any affiliated successor.
Provided, however, in the event WGI, LLC disposes of any of its
Signal Common Stock holdings (other than to an affiliated
company), then subject to applicable securities laws and
regulations, each of McFall and Prutch may dispose of a
percentage of their respective common stock holdings issuable
pursuant to the warrants granted hereunder equivalent to the
percentage of the WGI, LLC holdings disposed of by WGI, LLC.
(d) All warrants will expire 10 years from the date of grant which
will be deemed to be May 8, 1998. All warrants will remain in
effect notwithstanding the termination of this Agreement. In the
event of such termination, the provisions of this Agreement with
respect to the warrants will continue to be applicable, and the
warrants will continue to vest as set forth herein.
(iii) Acquisition Transactions
In the event that the Advisors identify, negotiate and close an
Acquisition Transaction (as defined below), the Advisors will receive
collectively an
<PAGE>
Mr. Thomas A. McFall
Mr. John W. Prutch
August 10, 1998
Page 4
acquisition fee equal to 3% of the "Aggregate Consideration" (as
defined below) paid by the Company as set forth below.
(a) Such acquisition fee will be paid simultaneously with the closing
of the Acquisition Transaction.
(b) For purposes of this Section, an "Acquisition Transaction" may
take the form of the sale or purchase of, or a transfer of
ownership or voting control in, all or a portion of the
outstanding stock (whether common or preferred, or their
equivalents) of the company acquired ("Target Company"), a
merger, joint venture, agreement not in the ordinary course of
business, or other transaction, business combination, or any
transaction whereby all or a portion of the Target Company's
assets are transferred for consideration including, without
limitation, a merger with or a sale or purchase of the Target
Company, or the sale, transfer, liquidation, or assignment of all
or a portion of its assets. An "Acquisition Transaction" shall
apply to any sale, acquisition or other business combination
between The Company and a Target Company.
(c) For purposes of this Section, "Aggregate Consideration" shall
mean the total amount of (A) cash, notes, installment contracts,
and the fair market value of all other payments or property
(including, but not limited to, the value of any preferred or
common equity, seller debt or equity financing, earnouts or the
like, contingent payments or the value of any equity or similar
interest provided to management in the Target Company) paid by or
on behalf of the Company or a third party Investor to a Target
Company and/or any to the Target Company's shareholders, warrant
holders, option holders, holders of preferred stock, or of
convertible securities, or of any other equity interest in the
Target Company whether or not vested or then exercisable, plus
(B) in the case of a stock purchase, borrowed money debt and
capitalized lease obligations on the balance sheet of the Target
Company as of the date of closing, plus (C) in the case of an
asset purchase, all liabilities on the balance sheet of the
Target Company as of the date of closing plus the value of any
and all assets sold.
Notwithstanding anything contained herein to the contrary, should any
amounts to be received by the Target Company in respect of an
Acquisition Transaction be earnout payments or otherwise contingent in
nature or be installment or otherwise deferred, the Advisors agree
that they shall be paid their fee in connection therewith only if, as
and when the
<PAGE>
Mr. Thomas A. McFall
Mr. John W. Prutch
August 10, 1998
Page 5
corresponding portion of such payment is actually paid to the Target
Company.
(iv) Financing Transactions
(a) McFall and Prutch will receive collectively a financing fee for
developing, negotiating and closing Financing Transactions with
third parties for the benefit of the Company equal to 3% of the
Financing (see definition below) obtained subject to the
following:
1. If the Financing Transaction raises cash for the Company
regardless of the purpose for which the cash is used by the
Company, the financing fee will be paid entirely in cash
upon the closing of the transaction;
2. If the Financing Transaction is in connection with an
Acquisition Transaction by the Company and Signal Common
Stock constitutes some portion of the Aggregate
Consideration of the Acquisition Transaction, then the
following will apply:
(a) If the Financing Transaction raises sufficient cash to
pay the cash portion of the Aggregate Consideration for
the Acquisition Transaction plus the financing fee,
then, subject to the amount of the financing fee
raised, up to 50% of the 3% financing fee collectively
paid to the Advisors will be paid in cash with the
remainder of the financing fee being paid in Signal
Common Stock valued at the closing market price of the
Common Stock on the last trading day immediately prior
to the closing of the Financing Transaction.
Notwithstanding the foregoing, either McFall or Prutch
may elect to accept payment of a greater portion of
their respective financing fee in Signal Common Stock
than as otherwise provided above.
(b) If the Financing Transaction does not raise cash in
excess of the cash portion of the Aggregate
Consideration for the Acquisition Transaction, then all
of the 3% financing fee collectively paid to the
Advisors will be paid in Common Stock valued as set
forth in 2(a) above.
(b) Such financing fee will be paid simultaneously with the closing
of the Financing Transaction.
<PAGE>
Mr. Thomas A. McFall
Mr. John W. Prutch
August 10, 1998
Page 6
(c) For purposes of this Section, a "Financing" can include any
combination of committed senior term or revolving debt,
subordinated debt, preferred or common equity or their
equivalents, trade financing, debt guarantees, relief or
assumption of debt or debt guarantees, renegotiation of debt or
debt guarantees, sale/leaseback or other leasing arrangement, a
restructuring, earnouts or other contingent payments, seller
debt, or equity financing, or any other debt or equity financing
completed hereby, but specifically excluding the restructuring of
the Company's financing with BNY or the exercise of stock options
or warrants presently outstanding.
(v) Any sums paid by the Company outside of this Agreement to McFall
and Prutch as salaries, bonuses, consulting fees and the like
will be offset against any fees due pursuant to this Agreement.
4. Directors: Subject to its fiduciary duties, the Company agrees to use
its best efforts to cause McFall and Prutch to be nominated by the Company's
Board of Directors for election as directors of the Company. Upon the
termination or the expiration of this Agreement, the Company will be under no
obligation to re-nominate either of such persons for election to its Board of
Directors.
5. Confidentiality: Each of McFall and Prutch agree not to use, disclose or
make accessible to any other person, firm, partnership, corporation or any other
entity any non-public confidential information pertaining to the business of the
Company (or any of its subsidiaries, affiliates or divisions) except (i)
expressly in furtherance of this Agreement, (ii) as expressly agreed to by the
Company for the benefit of the Company, or (iii) when required to do so by a
court of competent jurisdiction, by any governmental agency having supervisory
authority over the business of the Company, or by any administrative body or
legislative body (including a committee thereof) with jurisdiction to order the
Company to divulge, disclose or make accessible such information. McFall and
Prutch further agree to return to the Company, promptly upon its request, any
and all materials which contain or embody any of such confidential information,
whether created or prepared by McFall and Prutch or by others without retaining
any copies thereof. These provisions shall survive the termination of this
Agreement for any reason.
6. Miscellaneous:
(i) The Company reserves the right to approve or disapprove the terms
and conditions of any proposed Transaction in its sole discretion and shall
have no liability to the Advisors or otherwise if any Transaction is not
consummated. Nothing herein shall be construed to obligate or otherwise
require the Company to enter into any agreement or understanding in respect
of any Transaction.
<PAGE>
Mr. Thomas A. McFall
Mr. John W. Prutch
August 10, 1998
Page 7
(ii) In the event a Transaction is subject to the terms of this
Agreement, but the calculation of fees due McFall and/or Prutch for such
Transation is not specifically covered by the terms of this Agreement, then
the calculation of such fees will be subject to mutual agreement of the
parties.
(iii) This Agreement may be signed in counterparts, each of which
shall constitute an original and which together shall constitute one and
the same Agreement.
(iv) The parties hereto agree that this Agreement shall be subject to,
and enforced and construed in accordance with the laws of the State of New
York.
(v) This Agreement shall be binding upon, and inure to the benefit of,
the successors and assigns of the parties hereto; provided that neither
this Agreement nor any rights or obligations of McFall and Prutch hereunder
may be assigned by it to any other person without the prior written consent
of the Company.
Notwithstanding the foregoing, it is agreed that payment of the fees
due hereunder may be assigned by McFall and/or Prutch and the warrants
issued hereunder may be assigned by McFall and/or Prutch so long as their
assignee agrees in writing to be bound by the terms of such warrants. It is
also acknowledged that McFall and Prutch collectively on behalf of
themselves personally and on behalf of the Company have entered into
agreements with certain executive officers of the Company whereby certain
of the compensation to be paid to McFall and Prutch will be paid directly
by the Company to such executive officers.
(vi) This Agreement contains the entire agreement among the parties
hereto pertaining to the subject matter hereof and supersedes all prior
agreements, representations and understandings of the parties. This
Agreement may not be revised or modified except by a written agreement
signed by all of the parties hereto.
SPACE LEFT BLANK INTENTIONALLY
<PAGE>
Mr. Thomas A. McFall
Mr. John W. Prutch
August 10, 1998
Page 8
If the foregoing correctly sets forth the understanding among us, please so
indicate on the enclosed signed copy of this letter in the space provided
therefor and return it to us, whereupon this letter shall constitute a binding
agreement among us.
Very truly yours,
SIGNAL APPAREL COMPANY, INC.
By: /s/ Robert J. Powell
----------------------------------
Vice President
Agreed to and Accepted
as of August 10, 1998.
/s/ Thomas A. McFall
- -----------------------------
Thomas A. McFall
/s/ John W. Prutch
- -----------------------------
John W. Prutch
BNY FINANCIAL CORPORATION
1290 Avenue of the Americas
New York, New York 10104
August 23, 1999
SIGNAL APPAREL COMPANY, INC.
500 7th Avenue, 7th Floor
New York, New York 10018
RE: Waiver
Gentlemen:
Reference is made to the Revolving Credit, Term Loan and Security
Agreement, dated March 12, 1999 (as amended from time to time, the "Credit
Agreement") by and among SIGNAL APPAREL COMPANY, INC. ("Borrower") and BNY
FINANCIAL CORPORATION, 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 July
3, 1999, its (i) Tangible Net Worth was less than ($67,000,000), the minimum
Tangible Net Worth permitted as of July 3, 1999 under Section 6.5 (Tangible Net
Worth) of the Credit Agreement; (ii)Current Ratio was less than 0.7:1.00, the
minimum Current Ratio permitted as of July 3, 1999 under Section 6.6 (Current
Ratio) of the Credit Agreement; (iii) Working Capital was less than
($3,000,000), the minimum Working Capital permitted as of July 3, 1999 under
Section 6.7 (Working Capital) of the Credit Agreement; and (ii) net loss,
excluding any extraordinary or non-recurring items, was greater than
($2,750,000), the maximum net loss excluding any extraordinary or non-recurring
items permitted as of July 3, 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 July 30, 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 August 23, 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 Agent's and Lenders' respective directors, officers, employees,
shareholders and agents from any and all liabilities, demands, obligations,
<PAGE>
causes of action and other claims, of every kind, nature and 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 Agreements 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. Excepts 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 your 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 or such other Events of Default,
but only in a specific writing signed by Agent.
4. In consideration of the waiver given by Agent and Lender's herein,
Borrowers 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.
5. 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.
6. 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.
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 part
to be charged.
Very truly yours,
BNY FINANCIAL CORPORATION
By: /s/ Wayne Miller
---------------------------
Vice President
ACKNOWLEDGED AND AGREED:
SIGNAL APPAREL COMPANY, INC.
/s/ Howard Weinberg
- ---------------------------------
By: Howard Weinberg
Title: Chief Financial Officer
<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 JULY 3, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUL-3-1999
<CASH> 301
<SECURITIES> 0
<RECEIVABLES> 4,632
<ALLOWANCES> 4,000
<INVENTORY> 6,495
<CURRENT-ASSETS> 8,292
<PP&E> 6,797
<DEPRECIATION> 3,337
<TOTAL-ASSETS> 37,687
<CURRENT-LIABILITIES> 89,595
<BONDS> 26,435
<COMMON> 491
0
49,754
<OTHER-SE> (127,472)
<TOTAL-LIABILITY-AND-EQUITY> 37,687
<SALES> 34,293
<TOTAL-REVENUES> 34,293
<CGS> 35,184
<TOTAL-COSTS> 35,184
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,690
<INCOME-PRETAX> (22,941)
<INCOME-TAX> 0
<INCOME-CONTINUING> (22,941)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,941)
<EPS-BASIC> (0.55)
<EPS-DILUTED> (0.55)
</TABLE>
