SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): March 3, 1999
SIGNAL APPAREL COMPANY, INC.
(Exact name of Registrant as specified in its charter)
Indiana 1-2782 62-0641635
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Indentification No.)
34 Englehard Avenue, Avenel, New Jersey 07001
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (732) 382-2882
200 Manufacturers Road, Chattanooga, Tennessee 37405
(Former name or former address, if changed since last report.)
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Item 5. Other Events.
Effective March 3, 1999 (the "Closing Date"), Signal Apparel Company, Inc.
(the "Company") reached an agreement (the "Purchase Agreement") with two
institutional investors concerning the private placement of $5 million of 5%
Convertible Debentures due March 3, 2002 (the "Debentures"). In connection with
this private placement, the Company paid $50,000 of the purchasers' expenses.
The Company also issued warrants to the two institutional purchasers for the
purchase of up to 2,500,000 shares of the Company's Common Stock at an exercise
price of $1.00 per share, with a term of five years. Proceeds from issuance of
the Debentures were used 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).
The Debentures are junior in priority of payment to all of the Company's
other outstanding indebtedness, and will be pari passu with any future series of
convertible debentures. The Debentures will bear interest at the rate of 5% per
year, payable quarterly in arrears commencing July 1, 1999. Interest on any
amounts in default will accrue at the rate of 20% per annum. Interest on the
Debentures is payable, at the option of the Company, either in cash or in shares
of the Company's Common Stock (valued for such purpose at the average of the
closing bid prices for the Common Stock on the NYSE over the ten (10) trading
days prior to the applicable interest payment date, disregarding the highest and
lowest such prices).
The Debentures, including any accrued and unpaid interest thereon, are
convertible at the option of the purchasers (subject to certain limitations)
into shares of Common Stock at a fixed conversion price of $2.00 per share of
Common Stock. The conversion price is subject to adjustment in the event of
certain stock dividends, stock splits, reverse stock splits, or other
transactions affecting the Company's outstanding Common Stock; provided,
however, that no adjustment shall be made to the conversion price for any
reverse stock split occurring prior to December 31, 1999.
Following March 3, 2000, the Company will have the right to force the
conversion of the outstanding Debentures into Common Stock, in whole or in part,
upon 30 days advance written notice, provided that: (i) the closing bid price
for the Company's Common Stock on the NYSE is $4.00 or more for at least 20 out
of 30 trading days prior to the date of the Company's notice of its exercise of
such right and (ii) the Company issues to the Debenture holders additional
warrants to acquire a number of shares of Common Stock equal to (A) the amount
of remaining interest that would have been paid to such holders had the
Debentures remained outstanding for their full term divided by (B) the average
of the closing bid prices for the Common Stock on the NYSE over the ten (10)
trading days prior to the date of the redemption notice (disregarding the
highest and lowest such prices). Such warrants would have an exercise price
equal to 120% of such average price over the applicable 10-day period and
additional terms equivalent to the warrants issued in connection with the
Purchase Agreement.
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The Purchase Agreement and an accompanying Registration Rights Agreement
require the Company to register the shares of Common Stock into which the
Debentures are convertible, plus any shares of Common Stock which may be issued
in payment of interest on the Debentures and the shares of Common Stock issuable
upon exercise of the purchaser's warrants, for resale by the institutional
purchasers under the Securities Act of 1933, as amended. In order to satisfy
these requirements, the Company is required to register for resale a number of
shares equal to at least the sum of (i) 120% of the number of shares of Common
Stock issuable upon conversion of the Debentures plus (ii) the 2,500,000 shares
of Common Stock issuable upon exercise of the purchaser's warrants.
Item 7. Financial Statements and Exhibits.
(a) None.
(b) None.
(c) Exhibits.
(4.1) Form of 5% Convertible Debentures, due March 3, 2003, of Signal
Apparel Company, Inc.
(10.1) Securities Purchase Agreement dated March 3, 1999.
(10.2) Registration Rights Agreement dated March 3, 1999.
(10.3) Form of Warrants to purchase Common Stock issued to purchasers
of 5% Convertible Debentures, dated March 3, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: April 5, 1999 SIGNAL APPAREL COMPANY, INC.
By: /s/ Robert J. Powell
-----------------------------
Robert J. Powell
Vice President,
General Counsel & Secretary
EXHIBIT 4.1
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5% CONVERTIBLE DEBENTURES
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT.
No. CD-____ $__________
SIGNAL APPAREL COMPANY, INC.
5% CONVERTIBLE DEBENTURES DUE MARCH 3, 2002
Signal Apparel Company, an Indiana corporation (the "Issuer"), for value
received hereby promises to pay to _________________________________ or its
registered assigns ("Holder") the principal sum of ______________________
($__________) Dollars at the Issuer's office or agency for said purpose in New
York, New York on March 3, 2002 in such coin or currency (or, as provided
herein, at the Holder's option in Common Stock) of the United States of America
as at the time of payment shall be legal tender for the payment of public and
private debts at the last address of the Holder (as defined herein) last
appearing on the Register (as defined herein).
This Security is one of a duly authorized issue of 5% Convertible
Debentures, due March 3, 2002 of the Issuer (the "Security") referred to in the
Securities Purchase Agreement (the "Purchase Agreement"), dated as of March 3,
1999, by and among the Issuer and the Purchasers listed on Schedule I thereto.
The Securities are subject to the terms and conditions of the Purchase
Agreement. The Issuer agrees to issue from time to time replacement Securities
in the form hereof to facilitate any transfers and assignments. In addition,
after delivery of an indemnity in form and substance reasonably satisfactory to
the Issuer, the Issuer also agrees to issue replacement Securities for
securities which have been lost, stolen, mutilated or destroyed.
The Issuer shall keep at its principal office a register (the "Register")
in which shall be entered the names and addresses of the registered holders of
the Securities and particulars of the respective Securities held by them and of
all transfers of such Securities. References to the "Holder" or "Holders" shall
mean the Person listed in the Register as the payee of any Security unless the
payee shall have presented such Security to the Issuer for transfer and the
transferee shall have been entered in the Register as a
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subsequent holder, in which case the term shall mean such subsequent holder. The
ownership of the Securities shall be proven by the Register, absent manifest
error. For the purpose of paying interest and principal on the Securities, the
Issuer shall be entitled to rely on the names and addresses in the Register.
No provision of this Security shall alter or impair the obligations of the
Issuer, which are absolute and unconditional, to pay the principal of and
interest on this Security at the place, times, rate, and in the currency, herein
prescribed.
The principal of this Security shall bear interest at the rate of 5% per
annum (the "Interest Rate") which shall accrue daily from the most recent
Interest Payment Date to which interest has been paid on this Security, or if no
interest has been paid on this Security from the date hereof until payment in
full of the principal amount has been made and be payable in cash quarterly on
January 1, April 1, July 1 and October 1 of each year (an "Interest Payment
Date"), commencing on July 1, 1999, to the Holder hereof until the principal
amount is paid or made available for payment. The interest so payable on any
Interest Payment Date will be paid to the Holder of the Security at the close of
business on the Record Date for the interest payable on such Interest Payment
Date. The "Record Date" for any interest payment is the close of business on
December 15, March 15, June 15 or September 15, as the case may be, whether or
not a Business Day, immediately preceding the Interest Payment Date on which
such Interest is payable.
Any amounts that have become due and payable hereunder and remain unpaid by
the Issuer shall accrue interest daily thereafter (in accordance with Section
3.1 hereof) until payment in full of such amount at the rate of twenty percent
(20%) (the "Default Rate") per annum and shall be payable upon demand by the
Holder.
Interest, whether at the Interest Rate or the Default Rate, will be
computed on the basis of a fraction, the denominator of which is 365 (or 366 for
any leap year) and the numerator of which is the actual number of days elapsed
from the date such interest begins to accrue, in the case of the Interest Rate,
or becomes due and payable, in the case of the Default Rate.
Each of the Interest Rate and the Default Rate shall be effective both
before and after any judgment may be rendered in a court of competent
jurisdiction, provided, however, that if either the Interest Rate or Default
Rate is deemed to be in excess of the amount permitted to be charged by the
Issuer under applicable laws, the Holder shall be entitled to collect an
Interest Rate or Default Rate, as the case may be, only at the highest rate
permitted by law, and any interest collected by the Holder in excess of such
lawful amount shall be deemed a payment in reduction of the principal amount
then outstanding under this Security and shall be so applied.
The principal of, and interest on, this Security are payable in coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public or private debts, at the last address of the Holder
last appearing on the Register, except that interest due on the principal
amount, if any (but not interest overdue for more than five days), may, at the
Issuer's option be paid in shares of Common Stock
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calculated based upon the Average Price (as defined herein) on the date such
interest was due. It shall be assumed that the Issuer shall elect to make all
payments of interest in Common Stock (payable at the Average Price on the date
such interest was due) unless the Issuer shall have given thirty (30) days prior
written notice to each Holder of its intention to pay such interest in cash.
Notwithstanding anything to the contrary contained herein, the Issuer may not
issue shares of Common Stock in payment of the interest on principal if: (i) the
number of shares of Common Stock at the time authorized, unissued and unreserved
for all other purposes is insufficient to pay interest hereunder in shares of
Common Stock or there is an insufficient number of authorized shares of Common
Stock reserved (pursuant to Section 3.6(b) of the Purchase Agreement) for issue
for full conversion of all of the Debentures issued pursuant to the Purchase
Agreement; (ii) such shares are not either registered for resale pursuant to the
Registration Statement (as defined in the Registration Rights Agreement (as
defined herein)) or freely transferable without volume restrictions pursuant to
Rule 144(k) promulgated under the Act, as determined by counsel to the Issuer
pursuant to a written opinion letter addressed and in form and substance
acceptable to the Holder and the transfer agent for such shares, subject to
receipt from the Holder of a representation from such Holder that it is not an
Affiliate (as defined herein) of the Issuer; (iii) such shares are not listed or
quoted on the NYSE (as defined herein) or a Subsequent Market (as defined
herein); (iv) the issuance of such shares would result in the recipient thereof
beneficially owning more than 4.99% of the issued and outstanding shares of
Common Stock as determined in accordance with Section 4.6 hereof; or (v) an
Event of Default has occurred and is continuing or an event that, with the
passage of time or giving of notice or both would constitute an Event of
Default, has occurred and is continuing. In addition, at the Holder's option,
any principal payments due hereunder may be paid in shares of Common Stock,
which calculation shall be based upon the Average Price on the date such
principal was due.
DEFINITIONS
1.1. Certain Terms Defined. The following terms (except as otherwise
expressly provided or unless the context otherwise clearly requires) for all
purposes of this Security shall have the respective meanings specified below.
All accounting terms used herein and not expressly defined shall have the
meanings given to them in accordance with generally accepted accounting
principles (as defined herein). Capitalized terms not otherwise defined herein
shall have the meanings assigned to them in the Purchase Agreement. The terms
defined in this Section 1.1 include the plural as well as the singular.
"Acceleration Notice" has the meaning set forth in Section 3.1.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have
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meanings correlative to the foregoing.
"Appraiser" shall mean a nationally recognized or major regional investment
banking firm or firm of independent certified public accountants of recognized
standing.
"Average Price" on any date means (x) the sum of the Per Share Market Value
for the ten (10) Trading Days immediately preceding such date minus (y) the
highest and lowest Per Share Market Value during the ten (10) Trading Days
immediately preceding such date, divided by (z) eight (8).
"Board of Directors" means either the Board of Directors of the Issuer or
any committee of such Board duly authorized to act hereunder.
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to close.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's capital stock whether now outstanding or issued after the Original
Issue Date, including, without limitation, all Common Stock and all Preferred
Stock.
"Change of Control" means the occurrence of any of (i) an acquisition after
the date hereof by an individual or legal entity or "group" (as described in
Section 13(d)(3) of the Exchange Act) of in excess of 50% of the voting
securities of the Company, (ii) a replacement of more than one-half of the
members of the Company's board of directors which is not approved by a majority
of those individuals who are members of the board of directors on the date
hereof, or their duly elected successors who are directors immediately prior to
such transaction, in one or a series of related transactions, (iii) the merger
of the Company with or into another entity, unless following such transaction,
the Holders of the Company's securities continue to hold at least 50% of such
securities following such transaction, (iv) the consolidation or sale of all or
substantially all of the assets of the Company in one or a series of related
transactions, or (v) the execution by the Company of an agreement to which the
Company is a party or by which it is bound, providing for any of the events set
forth above in (i), (ii), (iii) or (iv).
"Common Stock" means the common stock, par value $.01 per share, of the
Issuer.
"Converted Debentures" has the meaning set forth in Section 3.1.
"Convertible Securities" has the meaning set forth in Section 4.5(h)(A).
"Conversion Date" has the meaning set forth in Section 4.4(a).
"Conversion Price" has the meaning set forth in Section 4.2.
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"Debt" of any Person means, at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such Person in respect of letters of credit or bankers'
acceptance or other similar instruments (or reimbursement obligations with
respect thereto), (iv) all obligations of such Person to pay the deferred
purchase price of property or services, (v) all obligations of such Person as
lessee under capitalized leases, (vi) all Debt of others secured by a Lien on
any asset of such Person, whether or not such Debt is assumed by such Person,
provided that for purposes of determining the amount of any Debt of the type
described in this clause, if recourse with respect to such Debt is limited to
such asset, the amount of such Debt shall be limited to the fair market value of
such asset, (vii) all Debt of others guaranteed by such Person, and (viii) all
redeemable stock valued at the greater of its voluntary or involuntary
liquidation preference plus accrued and unpaid dividends.
"Debenture Shares" has the meaning set forth in the Purchase Agreement.
"Default Rate" has the meaning set forth in the sixth paragraph hereof.
"Event of Default" has the meaning set forth in Section 3.1.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"GAAP" or "generally accepted accounting principles" means generally
accepted accounting principles in the United States, including, without
limitation, those set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession.
"Holder", "Holder of Securities", "Securityholder" or other similar terms
means the registered holder of any Security.
"Incurrence" means the incurrence, creation, assumption or in any other
manner becoming liable with respect to, or the extension of the maturity of or
becoming responsible for the payment of, any Debt. "Incur" shall have a
comparable meaning.
"Interest Payment Date" has the meaning set forth in the fifth paragraph
hereof.
"Interest Rate" has the meaning set forth in the fifth paragraph hereof.
"Issuer" has the meaning set forth in the first paragraph hereof.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Security, the Issuer shall be deemed to own subject to
a Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any
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conditional sale agreement, capital lease or other
title retention agreement relating to such asset.
"Mandatory Prepayment Amount" for any Security means the sum of (x) 120% of
the principal amount of the Security to be prepaid and (y) all other amounts,
costs, interest, expenses and liquidated damages due in respect of such
principal amount; provided, however, that for the purposes of Section 3.1(k)
only, "Mandatory Prepayment Amount" means the greater of (i) the sum of (x) 120%
of the principal amount of the Security to be prepaid and (y) all other amounts,
costs, interest, expenses and liquidated damages due in respect of such
principal amount and (ii) the sum of (x) at the option of the Holder, either (I)
the principal amount of the Security to be repaid, plus all accrued and unpaid
interest thereon, divided by the Conversion Price on the date the Mandatory
Prepayment Amount is demanded or otherwise due, multiplied by the Per Share
Market Value on the date the Mandatory Prepayment Amount is demanded or
otherwise due or (II) the principal amount of the Security to be prepaid, plus
all accrued and unpaid interest thereon, divided by the Conversion Price on the
Trading Day immediately prior to the date the Mandatory Prepayment Amount is
paid in full, multiplied by the Per Share Market Value on the Trading Day
immediately prior to the date the Mandatory Prepayment Amount is paid in full,
and (y) all other amounts, costs, interest, expenses and liquidated damages due
in respect of such principal amount.
"Maturity Date" means the date on which the principal of a Security becomes
due and payable as herein provided, whether on the Stated Maturity Date or
pursuant to acceleration upon an Event of Default.
"NYSE" means the New York Stock Exchange.
"Notice of Conversion" has the meaning set forth in Section 4.2.
"Options" has the meaning set forth in Section 4.5(g)(A).
"Original Issue Date" of any Security (or portion thereof) means the
earlier of (i) the date of such Security and (ii) the date of any Security (or
portion thereof) for which such security was issued (directly or indirectly) on
registration of transfer, exchange or substitution.
"Payment Blockage Notice" has the meaning set forth in Section 6.2(b).
"Payment Due Date" has the meaning set forth in Section 4.5(i).
"Per Share Market Value" means (i) on any particular date the closing bid
price per share of the Common Stock on the NYSE, if the Common Stock is not then
quoted on the NYSE, any Subsequent Market on which the Common Stock is then
listed or if there is no such price on such date, then the closing bid price on
such exchange or quotation system on the date nearest preceding such date or
(ii) if the Common Stock is not listed then on the NYSE or any Subsequent
Market, the closing bid price for a share of Common Stock in the
over-the-counter market, as reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
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reporting prices) at the close of business on such date, or (iii) if the Common
Stock is not then publicly traded the fair market value of a share of Common
Stock as determined by an Appraiser selected in good faith by the holder of this
Security; provided, however, that the Issuer, after receipt of the determination
by such Appraiser, shall have the right to select in good faith an additional
Appraiser, in which case, the fair market value shall be equal to the average of
the determinations by each such Appraiser; and provided, further that all
determinations of the Per Share Market Value shall be appropriately adjusted for
any stock dividends, stock splits or other similar transactions during such
period.
"Person" means an individual, a corporation, a partnership, an association,
a trust or any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding or issued after
the date of this Security, and includes, without limitation, all classes and
series of preferred or preference stock.
"principal", wherever used with reference to the Securities or any Security
or any portion thereof, shall be deemed to include "and premium or interest, if
any."
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person under generally accepted
accounting principles.
"Purchase Agreement" means that Securities Purchase Agreement dated as of
March 3, 1999 by and among the Issuer and the Purchasers.
"Purchase Price" means, with respect to any Security, the purchase price
paid to the Issuer upon issuance of such Security.
"Purchasers" has the meaning ascribed thereto in the Purchase Agreement.
"Record Date" has the meaning set forth in the fifth paragraph hereof.
"Redemption Date" has the meaning set forth in section 4.5(g).
"Redemption Price" has the meaning set forth in Section 4.5(f).
"Register" has the meaning set forth in the third paragraph hereof.
"Registration Rights Agreement" means that Registration Rights Agreement
dated as of March 3, 1999 by and among the Issuer and the Purchasers.
"Reserved Amount" has the meaning set forth in Section 4.8.
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"Security" or "Securities" has the meaning set forth in the second
paragraph hereof.
"Stated Maturity Date" means March 3, 2002.
"Stock Option Plan" means any contract, plan or agreement which has been
approved by the Board of Directors of the Issuer, pursuant to which the Issuer's
securities may be issued to any employee, officer, director or consultant.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of the Capital Stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person.
"Subsequent Market" means the American Stock Exchange, the National Market
System of the Nasdaq Stock Market or the Nasdaq Smallcap Market.
"Trading Day" means (a) a day on which the Common Stock is traded on the
NYSE or, if the Common Stock is not then designated on the NYSE, on such
Subsequent Market on which the Common Stock is then listed or quoted or (b) if
the Common Stock is not listed on the NYSE or a Subsequent Market, a day on
which the Common Stock is traded in the over-the-counter Market, as reported by
the OTC Bulletin Board, or (c) if the Stock is not quoted on the OTC Bulletin
Board, a day on which the Common Stock is quoted in the over-the-counter market
as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions or reporting prices) provided,
however that in any event that the Common Stock is not listed or quoted as set
forth in (a), (b), or (c) hereof, then a Trading Day shall mean any Business
Day.
"Underlying Shares" has the meaning set forth in Section 4.5(h)(A).
"Valuation Event" has the meaning set forth in Section 4.5(h)(i)(D)(I).
"Void Redemption Notice" has the meaning set forth in Section 4.5(g).
"Warrants" has the meaning set forth in the Purchase Agreement.
ARTICLE II
PAYMENT; THE SECURITIES
2.1. Payment of Principal and Interest. The Issuer covenants and agrees
that it will duly and punctually pay or cause to be paid the principal and
interest on overdue principal (to the extent enforceable under applicable law),
with respect to each of the Securities at the place or places, at the respective
times and in the manner provided in the Securities.
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2.2. Mutilated, Defaced, Destroyed, Lost and Stolen Securities. In case any
temporary or definitive Security shall become mutilated, defaced or be
apparently destroyed, lost or stolen, the Issuer shall execute and deliver a new
Security, bearing a number not contemporaneously outstanding, in exchange and
substitution for the mutilated or defaced Security. In every case the applicant
for a substitute Security shall furnish to the Issuer such security or indemnity
as it may reasonably require to indemnify and defend and to save it harmless
and, in every case of destruction, loss or theft evidence to the Issuer's
satisfaction of the apparent destruction, loss or theft of such Security and of
the ownership thereof.
Upon the issuance of any substitute Security, the Issuer may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses connected therewith.
In case any Security which has matured or is about to mature, or has been called
for redemption in full, or is being surrendered for conversion in full shall
become mutilated or defaced or be apparently destroyed, lost or stolen, the
Issuer may, instead of issuing a substitute Security, with the holder's consent,
pay or authorize the payment or conversion of the same (without surrender
thereof except in the case of a mutilated or defaced Security), if the applicant
for such payment shall furnish to the Issuer such security or indemnity as it
may reasonably require to save it harmless from all risks, however remote, and,
in every case of apparent destruction, loss or theft, the applicant shall also
furnish to the Issuer evidence to the Issuer's reasonable satisfaction of the
apparent destruction, loss or theft of such Security and of the ownership
thereof.
Every substitute Security issued pursuant to the provisions of this Section
by virtue of the fact that any Security is apparently destroyed, lost or stolen
shall constitute an additional contractual obligation of the Issuer, whether or
not the apparently destroyed, lost or stolen Security shall be at any time
enforceable by anyone and shall be entitled to all the benefits of (but shall be
subject to all the limitations of rights set forth in) this Security equally and
proportionately with any and all other Securities duly authenticated and
delivered hereunder. All Securities shall be held and owned upon the express
condition that, to the extent permitted by law, the foregoing provisions are
exclusive with respect to the replacement or payment or conversion of mutilated,
defaced, or apparently destroyed, lost or stolen Securities and shall preclude
any and all other rights or remedies notwithstanding any law or statute existing
or hereafter enacted to the contrary with respect to the replacement or payment
of negotiable instruments or other securities without their surrender.
2.3. Cancellation of Securities; Destruction Thereof. All Securities
surrendered for payment, redemption, registration of transfer or exchange shall
be delivered to the Issuer for cancellation, and no Securities shall be issued
in lieu thereof except as expressly permitted by any of the provisions of this
Security. The Issuer shall destroy canceled Securities held by it and deliver a
certificate of destruction to the Holder, unless otherwise required. If the
Issuer shall acquire any of the Securities, such acquisition alone shall not
operate as a redemption or satisfaction of the indebtedness represented by such
Securities unless and until such indebtedness is satisfied.
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ARTICLE III
DEFAULTS
3.1. Event of Default Defined; Acceleration of Maturity; Waiver of Default.
In case one or more of the following events ("Events of Default") (whatever the
reason for such Event of Default and whether it shall be voluntary or
involuntary or be effected by operation of law or pursuant to any judgment,
decree or order of any court or any order, rule or regulation of any
administrative or governmental body) shall have occurred and be continuing:
a. default in the payment of all or any part of the principal of or
interest on overdue principal on, any of the Securities as and when the
same shall become due and payable either at maturity, upon any redemption,
by declaration or otherwise; provided, however, that with respect to any
payment of interest, an Event of Default shall not be deemed to have
occurred unless such interest payment has remain unpaid for five days
following the date that such interest payment was due;
b. failure on the part of the Issuer to duly observe or perform any
other of the covenants or agreements on the part of the Issuer contained in
this Security (including the failure to issue Common Stock upon conversion
of this Security in accordance with the terms hereof) or the Purchase
Agreement or the Registration Rights Agreement for a period of thirty (30)
Business Days after the earlier of (x) the date on which any officer of the
Issuer shall have obtained actual knowledge of such failure or (y) the date
on which written notice thereof has been given to the Issuer by the Holder;
or
c. there shall have occurred with respect to any issue or issues of
Debt of the Issuer and/or one or more Subsidiaries having an outstanding
principal amount of $1,000,000 or more in the aggregate for all such issues
of all such Persons, whether such Debt now exists or shall hereafter be
created, an event of default which has caused the holder thereof to declare
such debt to be due and payable prior to its stated maturity; or
d. a judgment or order (not covered by insurance) for the payment of
money shall be rendered against the Issuer or any Subsidiary of the Issuer
in excess of $1,000,000 in the aggregate for all such judgments or orders
against all such Persons (treating any deductibles, self insurance or
retention as not so covered) that shall not be discharged, and all such
judgments and orders remain outstanding and there shall be any period of
thirty (30) consecutive days following entry of the judgment or order in
excess of $1,000,000 or the judgment or order which causes the aggregate
amount described above to exceed $1,000,000 during which a stay of
enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or
e. a court having jurisdiction in the premises shall enter a decree or
order for relief in respect of the Issuer or any of its subsidiaries in an
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of the Issuer or any of its Subsidiaries or for any substantial
part of the property
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of the Issuer or any of its Subsidiaries or ordering the winding up or
liquidation of the affairs of the Issuer or any of its Subsidiaries, and
such decree or order shall remain unstayed and in effect for a period of
sixty (60) consecutive days; or
f. the Issuer or any of its Subsidiaries shall commence a voluntary
case under any applicable bankruptcy, insolvency or other similar law now
or hereafter in effect, or consent to the entry of an order for relief in
an involuntary case under any such law, or consent to the appointment or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or similar official) of the Issuer or any of its Subsidiaries
or for any substantial part of the property of the Issuer or any of its
Subsidiaries, or the Issuer or any of its Subsidiaries shall make any
general assignment for the benefit of creditors; or
g. any representation, warranty, certification or statement made by
the Issuer in the Purchase Agreement or in any certificate, financial
statement or other document delivered pursuant to the Purchase Agreement
shall prove to have been incorrect in any material respect when made; or
h. the Common Stock shall be delisted from the NYSE or shall be
suspended from trading on the NYSE without resuming trading and/or being
relisted thereon or on a Subsequent Market or having such suspension
lifted, as the case may be, within three (3) Business Days; or
i. a Registration Statement for the Underlying Securities (each as
defined in the Purchase Agreement) shall not have been declared by the
Securities and Exchange Commission on or prior to the 30th day after the
Effectiveness Date (as defined in the Registration Rights Agreement) or
after its initial effectiveness, such Registration Statement lapses in
effect or sales of all of the Registrable Securities (as defined in the
Registration Rights Agreement) otherwise cannot be made thereunder (whether
by reason of the Issuer's failure to amend or supplement the prospectus
included therein in accordance with the Registration Rights Agreement or
otherwise) for more than fifteen (15) consecutive days or thirty (30) days
in any twelve (12) month period; or
j. a Change of Control shall occur; or
k. the Company shall fail to issue shares of Common Stock within three
(3) Trading Days after the Holder delivers a Notice of Conversion pursuant
to Section 4.2 hereof;
then, in each and every such case (other than an Event of Default specified in
Section 3.1(e) or 3.1(f) hereof), unless the principal shall have already become
due and payable, by notice in writing to the Issuer (the "Acceleration Notice"),
a majority of the Holders of the Securities then outstanding may declare the
entire principal amount of the Securities owned by such Holders and any interest
accrued thereon (and the aggregate amounts described below) to be due and
payable immediately, and upon any such declaration the same shall become
immediately due and payable. If an Event of Default specified in Section 3.1(e)
or 3.1(f) occurs, the principal of and any accrued interest on the Securities
(and the aggregate amounts described below) shall become and be immediately due
and
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payable without any declaration or other act on the part of any Securityholder.
In the event that the Issuer shall not have promptly, but in any event within
five (5) Business Days upon receipt of an Acceleration Notice, paid the Holder
the amount specified below, the Conversion Price shall automatically be adjusted
to equal the average Per Share Market Value of the Common Stock during the
preceding thirty (30) consecutive Trading Days immediately preceding the date of
computation; provided, that such Per Share Market Value is lower than the
Conversion Price.
The aggregate amount payable upon an Event of Default described in Section
3.1(a), (e), (f) and (i) shall be equal to the sum of (i) the Mandatory
Prepayment Amount plus (ii) at the option of the Holder, the Mandatory
Prepayment Amount for the principal amount of the Securities (the "Converted
Debentures") that would then be held by such Holder had the principal amount of
Securities converted into Underlying Shares that are then held by the Holder not
been so converted; provided, that the Holder shall not be entitled to a
Mandatory Prepayment Amount with respect to Converted Debentures if both the
following have occurred: (i) prior to the occurrence of an Event of Default, the
Underlying Shares into which the Converted Debentures were converted had been
held by the Holder for more than thirty (30) days and (ii) prior to the
occurrence of the Event of Default and after receipt by the Holder of the
Underlying Shares that are held by the Holder at the time of the occurrence of
the Event of Default, the Registration Statement with respect to such Underlying
Shares had been continuously effective, and the Common Stock has been quoted on
the NYSE, for more than thirty (30) days.
The aggregate principal amount payable on each Event of Default other than
as described in Section 3.1(a), (e), (f) and (i) shall be equal to the sum of
(i) the Mandatory Prepayment Amount plus (ii) at the option of the Holder, the
Mandatory Prepayment Amount for the Converted Debentures that would then be held
by such Holder had the principal amount of Securities converted into Underlying
Shares (as defined herein) that are then held by the Holder not been so
converted; provided, that the Holder shall not be entitled to a Mandatory
Prepayment Amount with respect to Converted Debentures if prior to the
occurrence of an Event of Default, the Underlying Shares into which the
Converted Debentures were converted had been held by the Holder for more than
three (3) Trading Days.
For purposes of this Section 3.1, principal amount of the Securities are
outstanding until such date as the Holder shall have been issued Underlying
Shares upon a conversion (or attempted conversion) thereof. Interest shall
accrue on the Mandatory Prepayment Amount hereunder from the day after such
amount is due (being the date of an Event of Default) through the date of
payment in full thereof at the rate of 20% per annum, accruing daily from the
date of conversion until such amount, plus any interest thereon, if any, is paid
in full. Payment of the Mandatory Prepayment Amount pursuant to this Section 3.1
shall be in addition to any other amounts that may be due to the Holder pursuant
to this Security. Within five (5) Business Days of receipt by the Holder of
payments of amounts due to the Holder, (i) the Holder shall return the
Securities to the Issuer and (ii) in the event the Mandatory Prepayment Amount
relates to the Converted Debentures, the Holder shall return the Underlying
Shares into which such Converted
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Debentures were converted. In the event of the occurrence of an Event of
Default, the Holder need not provide and the Issuer hereby waives any
presentment, demand, protest or other notice of any kind, and the Holder may
immediately and without expiration of any grace period enforce any and all of
its rights and remedies hereunder and all other remedies available to it under
applicable law. Any demand for payment may be rescinded and annulled by the
Holder at any time prior to payment hereunder. No such rescission or annulment
shall affect any subsequent Event of Default or impair any right consequent
thereon.
Upon delivery of any Acceleration Notice to the Issuer, the Issuer shall
provide a copy of such notice to the other Holders, if any, within two (2)
Business Days of the Issuer's receipt thereof. Failure to deliver such notice
shall not affect the validity of the notice delivered by the Holders in
accordance with the provisions referred to above.
3.2. Powers and Remedies Cumulative; Delay or Omission Not Waiver of
Default. No right or remedy herein conferred upon or reserved to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
No delay or omission of the Holders to exercise any right or power accruing
upon any Event of Default occurring and continuing as aforesaid shall impair any
such right or power or shall be construed to be a waiver of any such Event of
Default or an acquiescence therein; and every power and remedy given by the
Securities or by law may be exercised from time to time, and as often as shall
be deemed expedient, by the Holders.
ARTICLE IV
EXCHANGE; CONVERSION; CALL OPTION
4.1. Right of Securityholders to Exchange Securities. Subject to and upon
compliance with the provisions of this Section, this Security is exchangeable
for an equal principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same. No service
charge will be made for such registration of transfer or exchange.
4.2. Right of Securityholders to Convert Securities into Common Stock.
Subject to and upon compliance with the provisions of this Section, the
principal amount of this Security, or any portion thereof (and any accrued but
unpaid interest thereon) may, at any time and at or before the close of business
on the Maturity Date be converted into duly authorized, validly issued,
fully-paid and nonassesable shares of Common Stock at $2.00 (the "Conversion
Price"), or, in case an adjustment in the
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Conversion Price and, if applicable, the securities or other property issuable
upon conversion has taken place pursuant to Article III or IV or V hereof, then
at the applicable Conversion Price and in such securities or other property as
so adjusted, upon surrender of the Security or Securities, if required, the
principal amount of which is so to be converted, to the transfer agent of the
Issuer at any time during usual business hours at the transfer agent's offices,
accompanied by a written notice of election to convert as provided in the form
attached hereto as Exhibit A (a "Notice of Conversion").
4.3. Adjustment for Dividends. No payment or adjustment will be made for
dividends on any Common Stock except as provided herein. On conversion of a
Security, that portion of interest accrued and unpaid attributable to the period
from the Original Issuance Date to the Conversion Date with respect to the
converted Security shall not be canceled, extinguished or forfeited, but rather
shall be paid in full to the Holder thereof by the payment of an amount of
shares of Common Stock valued at the Average Price equal thereto; provided,
however, that the Issuer may pay such amount in cash if the Issuer provides the
Holder with ten (10) days prior written notice of its intention to pay the
Holder in cash. If the Holder converts more than one Security at the same time,
the number of shares of Common Stock issuable upon the conversion shall be based
on the total principal amount of the Securities converted.
4.4. Issuance of Shares Upon Conversion.
a. As promptly as practicable, but in any event no later than three
(3) Trading Days after delivery of a Notice of Conversion and, if required,
the surrender, as herein provided, of any Security or securities for
conversion, the Issuer shall deliver or cause to be delivered to, or upon
the written order of, the holder of the Security or securities so
surrendered a certificate or certificates representing the number of duly
authorized, validly issued, fully-paid and nonassesable shares of Common
Stock, into which such Security or Securities may be converted in
accordance with the provisions of this Article IV. Such conversion shall be
deemed to have been made at the time and on the date the Notice of
Conversion is delivered to the transfer agent, provided, that if required
the Security or Securities being converted are promptly delivered to the
Issuer and the rights of the Holder of such Security or Securities as a
Holder (subject to the Issuer's satisfaction of its obligations hereunder
with respect to such conversion) shall cease at such time with respect to
the Converted Debentures and, the Person or Persons entitled to receive the
shares of Common Stock, upon conversion of such Security or Securities
shall be treated for all purposes as having become the record holder or
holders of such shares of Common Stock at such time and such conversion
shall be at the Conversion Price in effect at such time (the "Conversion
Date"). Subject to paragraph 4.4(b), in the case of any Security which is
converted in part only, upon such conversion the Issuer shall execute and
deliver to the Holder thereof, as requested by such Holder, a new Security
or securities of authorized denominations in aggregate principal amount
equal to the unconverted portion of such Security. Without in any way
limiting the Holder's right to pursue other remedies, including actual
damages and/or equitable relief, the parties hereto agree that in the event
that the Issuer fails to deliver the shares of Common Stock required to be
issued upon the conversion of such Security or Securities
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<PAGE>
pursuant to this Section 4.4 within the three (3) Trading Day period
referred above, the Issuer shall pay to the Holder upon demand an amount of
cash (at the Holder's option) equal to: (i) the commissions, discounts and
similar expenses of the Holder in purchasing the number of shares of Common
Stock no greater than the number of shares of Common Stock required to be
issued upon the conversion of the Security or Securities, or (ii) the
product of (w) the number of shares of Common Stock required to be issued
upon the conversion of the Security or Securities, (x) the Per Share Market
Value of such shares on the Conversion Date, (y) the number of days after
such three (3) day period that such shares are not delivered to the Holder,
and (z) 0.005.
b. Notwithstanding anything to the contrary set forth herein, upon
conversion of a Security in accordance with the terms thereof, the Holder
shall not be required to physically surrender the Security to the Issuer
unless the entire unpaid principal amount of the Security is so converted.
The Holder and the Issuer shall maintain records showing the principal
amount so converted and the dates of such conversions or shall use such
other method, reasonably satisfactory to the Holder and the Issuer, so as
not to require physical surrender of the Security upon each such
conversion. In the event of any dispute or discrepancy, such records of the
Issuer shall be controlling and determinative in the absence of manifest
error. Notwithstanding the foregoing, if any portion of the Security is
converted as aforesaid, the Holder may not transfer the Security unless the
Holder first physically surrenders the Security to the Issuer, whereupon
the Issuer shall forthwith issue and deliver upon the order of the Holder a
new Security of like tenor, registered as the Holder (upon payment by the
Holder of any applicable transfer taxes) may request, representing in the
aggregate the remaining unpaid principal amount of the Security. The Holder
and any assignee, by acceptance of the Security, acknowledge and agree
that, by reason of the provisions of this paragraph, following conversion
of a portion of a Security, the unpaid and unconverted principal amount of
such Security represented by such Security may be less than the amount
stated on the face thereof.
c. In lieu of delivering physical certificates representing the
Debenture Shares, provided the Issuer's transfer agent is participating in
the Depositary Trust Issuer Fast Automated Securities Transfer ("FAST")
program, upon request of the Holder and in compliance with the provisions
of Sections 4.1, 4.2 and 4.4, the Issuer shall use its best efforts to
cause its transfer agent to electronically transmit the shares of Common
Stock issuable upon conversion of the Security to the Holder by crediting
the account of the Holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission system. The time period for delivery described
in the immediately preceding paragraph shall apply to the electronic
transmittals described herein.
4.5. Adjustment of Conversion Price. In addition to any adjustment to the
Conversion Price provided elsewhere in this Security, the Conversion Price in
effect at any time shall be subject to adjustment from time to time upon the
happening of certain events, as follows:
a. Common Stock Dividends; Common Stock Splits; Reverse Common Stock
Splits. If the Issuer, at any time while this Security is outstanding, (a)
shall pay a
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stock dividend on its Common Stock, (b) subdivide outstanding shares of
Common Stock into a larger number of shares, (c) combine outstanding shares
of Common Stock into a smaller number of shares, or (d) issue by
reclassification of shares of Common Stock any shares of Capital Stock of
the Issuer, the Conversion Price shall be multiplied by a fraction the
numerator of which shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and the denominator
of which shall be the number of shares of Common Stock outstanding after
such event. Any adjustment made pursuant to this paragraph 4.5(a) shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision, combination or re-classification. Notwithstanding the
foregoing, if the Issuer shall combine outstanding shares of Common Stock
into a smaller number of shares (a "reverse stock split") at any time
before December 31, 1999, then the Conversion Price in effect immediately
prior to such reverse stock split shall not be adjusted and shall remain in
effect after giving effect to such reverse stock split.
b. Rights; Warrants. If the Issuer, at any time while this Security is
outstanding, shall issue rights or warrants to all of the holders of Common
Stock entitling them to subscribe for or purchase shares of Common Stock at
a price per share less than the Conversion Price, the Conversion Price
shall be multiplied by a fraction, the denominator of which shall be the
number of shares of Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of Common Stock offered for subscription or
purchase, and the numerator of which shall be the number of shares of
Common Stock (excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered would
purchase at the Conversion Price. Such adjustment shall be made whenever
such rights or warrants are issued, and shall become effective immediately
after the record date for the determination of shareholders entitled to
receive such rights or warrants.
c. Subscription Rights. If the Issuer, at any time while this Security
is outstanding, shall distribute to all of the holders of Common Stock
evidence of its indebtedness or assets or rights or warrants to subscribe
for or purchase any security (excluding those referred to in Sections
4.5(a) and (b) above), then in each such case the Conversion Price at which
the Security shall thereafter be exercisable shall be determined by
multiplying the Conversion Price in effect immediately prior to the record
date fixed for determination of shareholders entitled to receive such
distribution by a fraction, the denominator of which shall be the Per Share
Market Value of Common Stock determined as of the record date mentioned
above, and the numerator of which shall be such Per Share Market Value of
the Common Stock on such record date less the then fair market value at
such record date of the portion of such assets or evidence of indebtedness
so distributed applicable to one outstanding share of Common Stock as
determined by the Board of Directors in good faith; provided, however, that
in the event of a distribution exceeding ten percent (10%) of the net
assets of the Company, such fair market value shall be determined by an
Appraiser selected in good faith by the Holder; and provided, further, that
the Company, after receipt of the determination by such Appraiser shall
have
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<PAGE>
the right to select in good faith an additional Appraiser meeting the same
qualifications, in which case the fair market value shall be equal to the
average of the determinations by each such Appraiser. Such adjustment shall
be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
d. Rounding. All calculations under this Section 4.5 shall be made to
the nearest cent or the nearest l/l00th of a share, as the case may be.
e. Notice of Adjustment. Whenever the Conversion Price is adjusted
pursuant to paragraphs 4.5(a), (b) or (c), the Issuer shall promptly
deliver to the Holder a notice setting forth the Conversion Price after
such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
f. Redemption Events. In case of (A) any reclassification of the
Common Stock, (B) any Change of Control, (C) any compulsory share exchange
pursuant to which the Common Stock is converted into other securities, cash
or property, or (D) (i) the Issuer's notice to any registered owner of the
Securities, including by way of public announcement, at any time, of its
intention, for any reason, not to comply with proper requests for the
conversion of any such Securities or (ii) the Issuer's refusal to convert
the Securities into shares of Common Stock pursuant to a Notice of
Conversion delivered pursuant to Section 4.2 hereof (clauses (A) through
(D) above are referred to as a "Redemption Event"), the Holder shall have
the right thereafter to convert the Security for shares of stock and other
securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such Redemption Event, and the Holder
shall be entitled upon such event to receive such amount of securities,
cash or property as the shares of the Common Stock of the Issuer into which
the Security could have been converted immediately prior to such Redemption
Event (without taking into account any limitations or restrictions on the
convertibility of the Securities) would have been entitled; provided,
however, that in the case of a transaction specified in (B) in which
holders of the Issuer's Common Stock receive cash, if the Holder's are
unable to sell the Company's Common Stock pursuant to an effective
registration statement, the Holder shall have the right to convert the
Security for such number of shares of the surviving company equal to the
amount of cash into which the Security is convertible divided by the fair
market value of the shares of the surviving company on the effective date
of the merger; provided, further, that in the case of an event specified in
(D), the Holder shall have the option to require the Issuer to redeem, from
funds legally available therefor at the time of such redemption, its shares
of Common Stock immediately theretofore acquirable and receivable upon the
conversion of such Holder's Securities at a price per share (the
"Redemption Price") equal to the product of (i) the average Per Share
Market Value for the five Trading Days immediately preceding (1) the
effective date, the date of the closing, date of occurrence or the date of
the announcement, as the case may be, of the Redemption Event triggering
such redemption right or (2) the date of payment in full by the Issuer of
the Redemption Price hereunder, whichever is greater, and (ii) the number
of shares of Common Stock of the Issuer into which the Security could have
been converted immediately prior to such Redemption Event. The entire
Redemption Price shall be paid in cash and the terms of payment of such
Redemption Price shall be subject to the provisions set forth in Section
4.5(g). In the case of (A), (B) and (C), the terms of
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any such Redemption Event shall include such terms so as to continue to
give to the Holder the right to receive the securities, cash or property
set forth in this Section 4.5(f) upon any conversion or redemption
following such Redemption Event. This provision shall similarly apply to
successive Redemption Events. Notwithstanding the foregoing, in the event
of an Event of Default and the issuance of an Acceleration Notice, the
rights of the Holder to redeem the Securities hereunder, and the obligation
of the Company to redeem such Securities, shall be suspended for as long as
there shall have occurred and be continuing an Event of Default and an
Acceleration Notice.
g. Payment of Redemption Price. The Issuer shall pay the applicable
Redemption Price to the Holder of the Securities being redeemed in cash on
the date that the Issuer shall effect the Redemption (the "Redemption
Date"). If the Issuer shall fail to pay the applicable Redemption Price to
such Holder on the Redemption Date, in addition to any remedy such Holder
may have under this Debenture and the Purchase Agreement, such unpaid
amount shall bear interest at the rate of 2.0% per month until paid in
full. Until the Issuer pays such unpaid applicable Redemption Price in full
to each Holder, each Holder of Securities submitted for redemption pursuant
to this Section 4.5(g) and for which the applicable Redemption Price has
not been paid, shall have the option, in lieu of redemption, (A) to require
the Issuer to promptly return to such Holder all of the Securities that
were submitted for redemption by such Holder under Section 4.5(f) and for
which the applicable Redemption Price has not been paid or (B) to convert
those Securities for which the applicable Redemption Price has not been
paid at a Conversion Price equal to the lesser of (I) the Conversion Price
applicable to such conversion on the Redemption Date and (II) the lowest
Per Share Market Value from the Redemption Date to the date the Holder
gives a Void Redemption Notice by sending written notice thereof to the
Issuer via facsimile (the "Void Redemption Notice"). Upon the Issuer's
receipt of such Void Redemption Notice(s) requesting the return of the
Securities and prior to payment of the full applicable Redemption Price to
each Holder, (i) the redemption shall be null and void with respect to
those Securities submitted for redemption and for which the applicable
Redemption Price has not been paid, (ii) the Issuer shall immediately
return any Securities submitted to the Issuer by each Holder for redemption
under this Section 4.5(g) and for which the applicable Redemption Price has
not been paid and (iii) the Conversion Price of such returned Securities
shall be adjusted to the lesser of (I) the Conversion Price applicable to
such conversion on the date on which such Securities were originally
presented for redemption and (II) the lowest Per Share Market Value from
the Redemption Date to the date the Holder gives a Void Redemption Notice.
h. Adjustment to Conversion Price. If the Issuer, at any time while
this Security is outstanding, takes any of the actions described in this
Section 4.5(h), then, in order to prevent dilution of the rights granted
under this Security, at any time prior to the Maturity Date, the Conversion
Price will be subject to adjustment from time to time as provided in this
Section 4.5(h).
(i) Adjustment of Conversion Price upon Issuance of Common Stock.
If at any time while this Security is outstanding the Issuer issues or
sells, or is deemed to have issued or sold, any shares of Common Stock
(other than the shares of Common Stock underlying the Warrants or the
Securities or shares
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issued upon exercise of the Warrants or conversion of the Securities
(collectively, the "Underlying Shares")) or shares of Common Stock
deemed to have been issued by the Issuer in connection with a Stock
Option Plan, or shares of Common Stock issuable upon the exercise of
any options or warrants outstanding on the date hereof and listed in
Schedule 2.1(c) of the Purchase Agreement or shares of Common Stock
issued or deemed to have been issued as consideration for an
acquisition by the Issuer of a division, assets or business (or stock
constituting any portion thereof) from another Person), for a
consideration per share less than the Conversion Price in effect
immediately prior to such issuance or sale, then immediately after
such issuance or sale the Conversion Price then in effect shall be
reduced to an amount equal to the consideration per share of Common
Stock in such issuance or sale. For the purpose of determining the
adjusted Conversion Price under this Section 4.5(h), the following
shall be applicable:
(A) Issuance of Options. Except for the warrants issued to
BNY Financial Corp. pursuant to that certain $98 million Credit
Facility currently being negotiated between the Company and BNY
Financial Corp., if at any time while this Security is
outstanding the Issuer in any manner grants any rights or options
to subscribe for or to purchase Common Stock or any stock or
other securities convertible into or exchangeable for Common
Stock (other than the Underlying Shares or shares of Common Stock
deemed to have been issued by the Issuer in connection with a
Stock Option Plan, or shares of Common Stock issuable upon the
exercise of any options or warrants outstanding on the date
hereof and listed in Schedule 2.1(c) of the Purchase Agreement,
or shares of Common Stock issued or deemed to have been issued as
consideration for an acquisition by the Issuer of a division,
assets or business (or stock constituting any portion thereof)
from another Person) (such rights or options being herein called
"Options" and such convertible or exchangeable stock or
securities being herein called "Convertible Securities") and the
price per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or exchange of such
Convertible Securities is less than the Conversion Price in
effect immediately prior to such grant, then the Conversion Price
then in effect shall be reduced to equal the price per share for
which Common Stock is issuable upon the exercise of such Options
or upon the conversion or exchange of such Convertible
Securities. No adjustment of the Conversion Price shall be made
upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or upon
the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.
(B) Issuance of Convertible Securities. If at any time while
this Security is outstanding the Issuer in any manner issues or
sells any Convertible Securities and the price per share for
which Common Stock is issuable upon such conversion or exchange
(other than the Underlying Shares or shares of Common Stock
deemed to have been
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issued by the Issuer in connection with a Stock Option Plan,
shares of Common Stock issuable upon the exercise of any options
or warrants outstanding on the date hereof and listed in Schedule
2.1(c) of the Purchase Agreement, shares of Common Stock issued
or deemed to have been issued as consideration for an acquisition
by the Issuer of a division, assets or business (or stock
constituting any portion thereof) from another Person) is (i)
less than the Conversion Price in effect immediately prior to
issuance or sale or (ii) with respect to any Convertible
Securities issued with a floating conversion or exchange price,
is converted at a price that is less than the Conversion Price
then in effect, the Conversion Price then in effect shall be
reduced to an amount equal to the price per share for which the
Common Stock is issuable upon the conversion or exchange of such
Convertible Securities. No adjustment of the Conversion Price
shall be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
(C) Change in Option Price or Rate of Conversion. If there
is a change at any time in (i) the Purchase Price provided for in
any Options, (ii) the additional consideration, if any, payable
upon the issue, conversion or exchange of any Convertible
Securities or (iii) the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock, then
immediately after such change in option price or rate of
conversion the Conversion Price in effect at the time of such
change shall be readjusted to the Conversion Price which would
have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed Purchase
Price, additional consideration or changed conversion rate, as
the case may be, at the time initially granted, issued or sold;
provided that no adjustment shall be made if such adjustment
would result in an increase of the Conversion Price then in
effect.
(D) Effect on Conversion Price of Certain Events. For
purposes of determining the adjusted Conversion Price under this
Section 4.5(h)(i), the following shall be applicable:
(I) Calculation of Consideration Received. If any
Common Stock, Options or Convertible Securities are issued
or sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the net
amount received by the Issuer therefor. In case any Common
Stock, Options or Convertible Securities are issued or sold
for a consideration other than cash, the amount of the
consideration other than cash received by the Issuer will be
the fair value of such consideration, except where such
consideration consists of securities, in which case the
amount of consideration received by the Issuer will be the
arithmetic average of the Per Share Market
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<PAGE>
Values of such security for the five (5) consecutive Trading
Days immediately preceding the date of receipt. In case any
Common Stock, Options or Convertible Securities are issued
to the owners of the non-surviving entity in connection with
any merger in which the Issuer is the surviving entity the
amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may
be. The fair value of any consideration other than cash or
securities will be determined jointly by the Issuer and the
Holders of Securities representing a majority of the
aggregate principal amount of Securities then outstanding.
If such parties are unable to reach agreement within ten
(10) days after the occurrence of an event requiring
valuation (the "Valuation Event"), the fair value of such
consideration will be determined within forty-eight (48)
hours of the tenth (10th) day following the Valuation Event
by an Appraiser selected in good faith by the Issuer and
agreed upon by the Holders of Securities representing a
majority of the aggregate principal amount of Securities
then outstanding. The determination of such Appraiser shall
be binding upon all parties absent manifest error.
(II) Integrated Transactions. In case any Option is
issued in connection with the issue or sale of other
securities of the Issuer, together comprising one integrated
transaction in which no specific consideration is allocated
to such Options by the parties thereto, the Options will be
deemed to have been issued for an aggregate consideration of
$.01.
(III) Treasury Shares. The number of shares of Common
Stock outstanding at any given time does not include shares
owned or held by or for the account of the Issuer, and the
disposition of any shares so owned or held will be
considered an issue or sale of Common Stock.
(IV) Record Date. If the Issuer takes a record of the
holders of Common Stock for the purpose of entitling them
(1) to receive a dividend or other distribution payable in
Common Stock, Options or in Convertible Securities or (2) to
subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date will be deemed
to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
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<PAGE>
(E) Certain Events. If any event occurs of the type
contemplated by the provisions of Section 4.5(h) (subject to the
exceptions stated therein) but not expressly provided for by such
provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with
equity features), then the Issuer's Board of Directors will make
an appropriate adjustment in the Conversion Price so as to
protect the rights of the Holder, or assigns, of this Security;
provided, however, that no such adjustment will increase the
Conversion Price as otherwise determined pursuant to this Section
4.5(h).
(F) Notices. The Issuer shall give the Holder written notice
of the occurrence of any of the events specified in paragraphs
(i), (ii), (iii) or (iv) above as soon as practicable, but in no
event later than three (3) Business Days, after such event and
shall publicly disclose such event prior to or concurrently with
the giving of such notice. Such notice shall contain at least:
(A) a description of the event, (B) the adjusted Conversion Price
with a reference to the applicable paragraph in Section 4.5(h)
hereof, (C) the dates of the five (5) Trading Day period during
which the adjusted Conversion Price is in effect.
4.6. Restriction on Conversion by Either the Holder or the Issuer.
Notwithstanding anything herein to the contrary, in no event shall any Holder or
the Issuer have the right or be required to convert any or all of the aggregate
principal amount and interest accrued thereon of this Security if as a result of
such conversion the aggregate number of shares of Common Stock beneficially
owned by such Holder and its Affiliates would exceed 4.99% of the outstanding
shares of the Common Stock following such conversion. For purposes of this
Section 4.6, beneficial ownership shall be calculated in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended. The provisions of this
Section 4.6 may be waived by a Holder as to itself (and solely as to itself)
upon not less than 65 days prior written notice to the Company, and the
provisions of this Section 4.6 shall continue to apply until such 65th day (or
later, if stated in the notice of waiver).
4.7. Officer's Certificate. Whenever the number of shares purchasable upon
conversion shall be adjusted as required by the provisions of Section 4.5, the
Issuer shall forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office and with its stock transfer agent, if any, an
officer's certificate showing the adjusted number of shares determined as herein
provided, setting forth in reasonable detail the facts requiring such adjustment
and the manner of computing such adjustment. Each such officer's certificate
shall be signed by the chairman, president or chief financial officer of the
Issuer and by the secretary or any assistant secretary of the Issuer. Each such
officer's certificate shall be made available at all reasonable times for
inspection by any holder of the Securities and the Issuer shall, forthwith after
each such adjustment, deliver a copy of such certificate to the each of the
Holders.
4.8. Reservation of Shares. The Issuer covenants that it will at all times
reserve and keep available out of its authorized shares of Common Stock, free
from
22
<PAGE>
preemptive rights, solely for the purpose of issue upon conversion of the
Securities as herein provided, such number of shares of the Common Stock as
shall then be issuable upon the conversion of all outstanding Securities into
Common Stock in accordance with Section 3.6(b) of the Purchase Agreement (the
"Reserved Amount"). The Issuer covenants that all shares of the Common Stock
issued upon conversion of the Security which shall be so issuable shall, when
issued, be duly and validly issued and fully paid and non-assessable.
4.9. Compliance With Governmental Requirements. The Issuer covenants that
if any shares of Common Stock required to be reserved for purposes of conversion
of Securities hereunder require registration with or approval of any
governmental authority under any Federal or state law, or any national
securities exchange, before such shares may be issued upon conversion, the
Issuer will use its commercially reasonable best efforts to cause such shares to
be duly registered or approved, as the case may be.
4.10. Fractional Shares. Upon a conversion hereunder, the Issuer shall not
be required to issue stock certificates representing fractions of shares of the
Common Stock, but may if otherwise permitted, make a cash payment in respect of
any final fraction of a share based on the Per Share Market Value at such time.
If the Issuer elects not, or is unable, to make such a cash payment, the holder
shall be entitled to receive, in lieu of the final fraction of a share, one
whole share of Common Stock.
4.11. Payment of Tax Upon Issue or Transfer. The issuance of certificates
for shares of the Common Stock on conversion of the Securities shall be made
without charge to the Holders thereof for any documentary stamp or similar taxes
that may be payable in respect of the issue or delivery of such certificate,
provided that the Issuer 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 upon conversion in a name other than that of the Holder of such
Securities so converted and the Issuer 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 Issuer the amount of such tax or shall have
established to the satisfaction of the Issuer that such tax has been paid.
4.12. Notices. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be deemed to have been received
(a) upon hand delivery (receipt acknowledged) or delivery by telex (with correct
answer back received), telecopy or facsimile (with transmission confirmation
report) at the address or number designated below (if received by 8:00 p.m. EST
where such notice is to be received), or the first Business Day following such
delivery (if received after 8:00 p.m. EST where such notice is to be received)
or (b) on the second Business Day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications are (i) if to the Issuer to Signal Apparel Company, Inc., 200A
Manufactures Road, Chattanooga, Tennessee 37405 and 500 Seventh Avenue, 7th
Floor, New York, New York 10018, Attn: President and General Counsel, fax no.
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<PAGE>
(423) 752-2040 (TN) and (212) 944-7667 (NY) with copies to Skadden, Arps, Slate,
Meagher & Flom LLP, 919 Third Avenue, New York, New York 10022, Attn: Robert A
Copen, Esq., fax no. (212) 735-2000 and (ii) if to any Holder to the address set
forth on Schedule II to the Purchase Agreement with copies to Akin, Gump,
Strauss, Hauer & Feld, L.L.P., 590 Madison Avenue, New York, New York 10022,
Attn: James Kaye, fax no. (212) 872-1002 or such other address as may be
designated in writing hereafter, in the same manner, by such Person.
ARTICLE V
OPTIONAL REDEMPTION
5.1. Optional Redemption. The Security will not be redeemable at the option
of the Issuer ("Optional Redemption") prior to the one year anniversary of the
Original Issue Date. At any time following the one year anniversary of the
Original Issue Date, and so long as (i) no Event of Default (or any event that
with the passage of time or giving of notice or both would constitute an Event
of Default) shall have occurred and be continuing, (ii) any Registration
Statement required to be filed and be effective pursuant to the Registration
Rights Agreement is then in effect and has been in effect and sales of all of
the Registrable Securities can be made thereunder for at least twenty (20) days
prior to the date of the Notice of Issuer Redemption (as defined below) (the
"Notice of Issuer Redemption Date"), (iii) the Issuer has a sufficient number of
authorized shares of Common Stock reserved for issuance upon full conversion of
the Securities and (iv) the Per Share Market Value of the Company's Common Stock
is $4.00 or more for twenty (20) out of thirty (30) Trading Days prior to the
date of Notice of Issuer Redemption, the Issuer may, at its option, redeem the
entire principal amount of the outstanding Security, together with any accrued
but unpaid interest (the "Optional Redemption Price") upon thirty (30) days
prior written notice to the Holders. In addition to the payment of the Optional
Redemption Price the Issuer shall deliver to the Holders such number of warrants
of the Issuer's Common Stock as is determined by a fraction, the numerator of
which is the interest which would have been paid to the Holders had the Security
remained outstanding from the period commencing on the Notice of Issuer
Redemption Date and ending on the Stated Maturity Date and the denominator of
which is the Average Price of the Issuer's Common Stock (measured from the date
of the Notice of Issuer Redemption Date). Such warrants will be in substantially
the same form as the Warrants issued pursuant to the Purchase Agreement, except
the Exercise Price shall be 120% of the Average Price (measured from the date of
the Notice of Issuer Redemption Date).
5.2. Mechanics of Redemption. The Issuer shall exercise its right to redeem
by delivering a written notice by facsimile and overnight courier (the "Notice
of Issuer Redemption") to the Holders. Such Notice of Issuer Redemption shall
indicate (A) the Optional Redemption Price and (B) confirm the date (the
"Optional Redemption Date") the Issuer shall effect the Optional Redemption,
which date shall be not less than thirty (30) calendar days and not more than
fifty (50) calendar days after the Notice of Issuer Redemption Date.
Notwithstanding the foregoing, the Issuer shall convert any
24
<PAGE>
Security submitted by a Holder pursuant to Article 4 if the Notice of Conversion
for such Security is submitted prior to the Optional Redemption Date.
5.3. Payment of Optional Redemption Price. The Issuer shall pay the
applicable Optional Redemption Price to the Holders in cash on the Optional
Redemption Date. If the Issuer shall fail to pay the applicable Optional
Redemption Price to the Holders within three (3)Trading Days after the Optional
Redemption Date, the provisions of Section 4.5(g) shall apply, with "Section
5.1" being substituted in each place where "Section 4.5(f)" is written, with
"Section 5.3" being substituted in each place where "Section 4.5(g)" is written
and with the terms "Optional Redemption Price" and "Optional Redemption Date"
being substituted for the terms "Redemption Price" and "Redemption Date",
respectively.
ARTICLE VI
MISCELLANEOUS
6.1. Modification of Securities. This Security may be modified without
prior notice to any Holder upon the written consent of the Issuer and the
Holders of more than 75% of the principal amount of the Securities then
outstanding. The Holders of more than 75% of the principal amount of the
Securities then outstanding may waive compliance by the Issuer with any
provision of this Security without prior notice to any Holder. However, without
the consent of each Holder affected, an amendment, supplement or waiver may not
(1) reduce the amount of Securities whose Holders must consent to an amendment,
supplement or waiver, (2) reduce the principal amount of or extend the fixed
maturity of any Security or (3) make any Security payable in money or property
other than as stated in the Securities.
6.2. Miscellaneous. This Security shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the nonexclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. The parties hereto, including all
guarantors or endorsers, hereby waive presentment, demand, notice, protest and
all other demands and notices in connection with the delivery, acceptance,
performance and enforcement of this Security, except as specifically provided
herein, and assent to extensions of the time of payment, or forbearance or other
indulgence without notice. The Holder of this Security by acceptance of this
Security agrees to be bound by the provisions of this Security which are
expressly binding on such Holder.
6.3. Rank and Subordination. The Securities shall be and hereby are
expressly made subordinate and junior in right of payment to all indebtedness,
obligations and liabilities of the Issuer, whether now existing or hereafter
incurred or
25
<PAGE>
created ("Senior Indebtedness"), to the extent and in the manner provided in
this subordination provision. All Senior Indebtedness must be paid before the
Securities may be paid. This subordination provision is made for the benefit of
the holders of such Senior Indebtedness, and such holders are hereby made
obligees hereunder with the same effect as if their names were written as such
in this subordination provision and any such holder or all of them may proceed
to enforce such provisions. The Holders waive any and all notice of the creation
or accrual of any such Senior Indebtedness and notice of proof of reliance upon
these subordination provisions by any holder of any Senior Indebtedness.
Moreover, the Holders agree to be bound by this subordination provision and the
Senior Indebtedness shall conclusively be deemed to have been created,
contracted or incurred in reliance upon this subordination provisions and all
dealings between the Issuer and the holders of any such Senior Indebtedness so
arising shall be deemed to have been consummated in reliance upon this
subordination provision. Notwithstanding the foregoing, the Securities shall
rank pari passu to any future convertible debt incurred by the Company.
6.4. Securities Owned by Issuer Deemed Not Outstanding. In determining
whether the holders of the requisite aggregate principal amount of Securities
have concurred in any direction, consent or waiver under this Security,
Securities which are owned by the Issuer or any other obligor on the Securities
or by any Person directly or indirectly controlling or controlled by or under
direct or indirect common control with the Issuer or any other obligor on the
Securities shall be disregarded and deemed not to be outstanding for the purpose
of any such determination; provided that any Securities owned by the Purchasers
shall be deemed outstanding for purposes of making such a determination.
Securities so owned which have been pledged in good faith may be regarded as
outstanding if the pledgee establishes to the satisfaction of the Issuer the
pledgee's right so to act with respect to such Securities and that the pledgee
is not the Issuer or any other obligor upon the securities or any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Issuer or any other obligor on the Securities.
6.5. Notice to Securityholders Prior to Taking Certain Types of Action. In
case:
a. the Issuer shall authorize the issuance, at any time from and after
the Original Issue Date, to all holders of any class or series of its
Capital Stock, of rights or warrants to subscribe for or purchase shares of
its capital stock or of any other right;
b. the Issuer shall authorize, at any time from and after the Original
Issue Date, the distribution to all holders of any class or series of its
Capital Stock, of evidences of its indebtedness or assets;
c. the Issuer shall declare a dividend (or other distribution) on its
Common Stock or the Issuer shall declare a special nonrecurring dividend on
or a redemption of its Common Stock;
26
<PAGE>
d. of any subdivision, combination or reclassification of any class or
series of Capital Stock of the Issuer at any time from and after the
Original Issue Date or of any consolidation or merger to which the Issuer
is a party and for which approval by the shareholders of the Issuer is
required, or of the sale or transfer of all or substantially all of the
assets of the Issuer or any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or property; or
e. of the voluntary or involuntary dissolution, liquidation or winding
up of the Issuer;
then the Issuer shall cause to be filed at each office or agency maintained for
the purpose of conversion of this Security, and shall cause to be mailed to the
Holder of this Security, at least ten (10) Business Days prior to the earlier of
any applicable record or the effective date hereinafter specified, a notice
(provided such notice shall not include any material non-public information)
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however, that
the failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice.
6.6. Effect of Headings. The Section headings herein are for convenience
only and shall not affect the construction hereof.
6.7. No Rights as Stockholder. This Security shall not entitle the Holder
to any rights as a stockholder of the Issuer, including without limitation, the
right to vote, to receive dividends and other distributions, or to receive
notice of, or to attend, meetings of stockholders or any other proceedings of
the Issuer, unless and to the extent converted into shares of Common Stock in
accordance with the terms hereof.
6.8. Failure or Indulgence Not Waiver. No failure or delay on the part of
the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privileges. All rights and remedies existing hereunder
are cumulative to, and not exclusive of, any rights or remedies otherwise
available.
[SIGNATURE PAGE FOLLOWS]
27
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this instrument to be duly
executed under its corporate seal.
SIGNAL APPAREL COMPANY, INC.
By _________________________________
Name:
Title:
Dated:
28
<PAGE>
EXHIBIT A
SIGNAL APPAREL COMPANY, INC.
CONVERSION NOTICE
Reference is made to the Debenture issued by Signal Apparel Company, Inc. (the
"Debenture"). In accordance with and pursuant to the Debenture, the undersigned
hereby irrevocably elects to convert the principal amount of the Debenture,
indicated below into shares of Common Stock, par value $.01 per share (the
"Common Stock"), of the Issuer, by tendering the Debenture specified below as of
the date specified below.
Date of Conversion:_______________________________________________________
Aggregate Principal Amount to be converted:___________________________________
Debenture no(s). of Debenture to be converted:________________________________
Please confirm the following information:
Conversion Price:_________________________________________________________
Number of shares of Common Stock to be issued:_______________________________
Please issue the Common Stock into which the Debenture is being converted and,
if applicable, any check drawn on an account of the Issuer in the following name
and to the following address:
Issue to:_________________________________________________________________
Facsimile Number:________________________________________________________
Authorization: By:______________________________
Title:
Dated:_______________________________
Account Number (if electronic book entry transfer):____________________________
Transaction Code Number (if electronic book entry transfer):___________________
29
EXHIBIT 10.1
<PAGE>
================================================================================
SECURITIES PURCHASE AGREEMENT
Among
SIGNAL APPAREL COMPANY, INC.,
BROWN SIMPSON STRATEGIC GROWTH FUND, LTD.
and
BROWN SIMPSON STRATEGIC GROWTH FUND, L.P.
Dated as of March 3, 1999
================================================================================
<PAGE>
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "Agreement") is dated as of March
3, 1999, by and among Signal Apparel Company, Inc., an Indiana corporation (the
"Company"), Brown Simpson Strategic Growth Fund, Ltd., a Cayman Islands exempt
company ("Brown Simpson Limited"), and Brown Simpson Strategic Growth Fund,
L.P., a New York limited partnership ("Brown Simpson LP") (each of Brown Simpson
Limited and Brown Simpson LP referred to herein as a "Purchaser" and,
collectively, the "Purchasers.")
WHEREAS, the Company and the Purchasers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 under Regulation D as promulgated by the United States Securities
and Exchange Commission (the "Commission") under Section 4(2) of the Securities
Act of 1933, as amended (the "Securities Act");
WHEREAS, the Company and the Purchasers desire to redeem the Preferred
Stock (as defined in the Convertible Preferred Agreement) issued to the
Purchasers pursuant to that certain Convertible Preferred Stock Purchase
Agreement (the "Convertible Preferred Agreement"), dated as of September 17,
1998, between the Company, the Purchasers and certain other investors listed on
the signature page therein;
WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchasers, and the Purchasers
desire to acquire from the Company, an aggregate of $5,000,000 principal amount
of 5% Convertible Debentures due March 3, 2002 (the "Debentures"), in the form
of Exhibit A annexed hereto, and warrants (the "Warrants") to purchase up to
2,500,000 of the Company's common stock, par value $.01 per share (the "Common
Stock"), in the form of Exhibit B annexed hereto;
WHEREAS, the Company acknowledges its obligation to issue to the Purchasers
the Warrants issuable pursuant to the Convertible Preferred Agreement; and
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement substantially in the form of Exhibit C attached hereto (the
"Registration Rights Agreement") pursuant to which the Company has agreed to
provide certain registration rights under the Securities Act and the rules and
regulations promulgated thereunder, and applicable state securities laws.
NOW THEREFORE, in consideration of the promises and mutual covenants and
agreements hereinafter, the Company and the Purchasers hereby agree as follows:
<PAGE>
ARTICLE I.
PURCHASE AND SALE OF THE SECURITIES AND WARRANTS
1.1 Purchase and Sale. Subject to the terms and conditions set forth
herein, the Company shall issue and sell to each Purchaser, and each Purchaser,
severally and not jointly, shall purchase from the Company on the Closing Date
(as defined below), the principal amount of Debentures and Warrants as set forth
for such Purchaser on Schedule I.
1.2 Closings.
a. The Closing. The closing of the purchase and sale of the Debentures and
Warrants (the "Closing") shall take place at the offices of Akin, Gump, Strauss,
Hauer & Feld, L.L.P., 590 Madison Avenue, New York, New York 10022, or by
transmission by facsimile and overnight courier, immediately following the
execution hereof or such later date or different location as the parties shall
agree, but not prior to the date that the conditions set forth in Section 4.1
have been satisfied or waived by the appropriate party (the "Closing Date"). At
the Closing:
(i) Each Purchaser shall deliver, as directed by the Company, its
portion of the purchase price as set forth next to its name on Schedule I
in United States dollars in immediately available funds to an account or
accounts designated in writing by the Company;
(ii) The Company shall deliver to each Purchaser a Debenture, in the
form of Exhibit A hereto, representing the principal amount purchased by
such Purchaser as set forth on Schedule I hereto;
(iii) The Company shall deliver to each Purchaser a Warrant, in the
form of Exhibit B hereto, representing the right to acquire the number of
shares of Common Stock purchased by such Purchaser as set forth on Schedule
I hereto;
(iv) The Company shall deliver to each Purchaser the Warrants issuable
by the Company to such Purchaser pursuant to the Convertible Preferred
Agreement; and
(iv) The parties shall execute and deliver each of the documents
referred to in Section 4.1 hereof.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The Company
hereby makes the following representations and warranties to each of the
Purchasers:
a. Organization and Qualification. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the
State of Indiana, with the requisite corporate power and authority to own
and use its properties and assets and to carry on its business as currently
conducted. Except as set forth on Schedule 2.1(a) or in the
2
<PAGE>
Company's Form 10-K for the year ended December 31, 1998, the Company has
no material subsidiaries (collectively, the "Subsidiaries"). Each of the
Subsidiaries (which for purposes of this Agreement means any entity in
which the Company, directly or indirectly, owns the majority of such
entity's capital stock or holds an equivalent equity or similar interest)
is a corporation duly incorporated, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or organization (as
applicable), with the full corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted.
Each of the Company and the Subsidiaries is duly qualified as a foreign
corporation to do business and is in good standing as a foreign corporation
in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, would
not, individually or in the aggregate, (x) adversely affect the legality,
validity or enforceability of any of this Agreement or the Transaction
Documents (as defined in Section 2.1(b)) or any of the transactions
contemplated hereby or thereby, (y) have or result in a material adverse
effect on the results of operations, assets, prospects, or financial
condition of the Company and its Subsidiaries, taken as a whole or (z)
impair the Company's ability to perform fully on a timely basis its
obligations under any Transaction Document (any of (x), (y) or (z), being a
"Material Adverse Effect").
b. Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated by this Agreement and the Debenture, the Warrants and the
Registration Rights Agreement (collectively, the "Transaction Documents"),
and otherwise to carry out its obligations hereunder and thereunder. The
execution and delivery of each of this Agreement and the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action and no further action is required by the Company, its
Board of Directors or its stockholders. Each of this Agreement and the
Transaction Documents has been duly executed by the Company and when
delivered in accordance with the terms hereof will constitute the valid and
binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
or similar laws relating to, or affecting generally the enforcement of,
creditors' rights and remedies or by other equitable principles of general
application. Neither the Company nor any Subsidiary is in any material
violation of any of the provisions of its respective certificate of
incorporation, bylaws or other charter documents such that any right of a
holder of the Debentures would be affected.
c. Capitalization. As of the date hereof, the authorized capital stock
of the Company is as set forth in Schedule 2.1(c). All of such outstanding
shares of capital stock have been, or upon issuance will be, validly
authorized and issued, fully paid and nonassessable and were issued in
accordance with the registration or qualification provisions of the
Securities Act, or pursuant to valid exemptions therefrom. Except as
disclosed in Schedule 2.1(c), (i) no shares of the Company's capital stock
are subject to preemptive rights or any other similar rights or any liens
or encumbrances suffered or permitted by the Company, nor is any holder of
the Common Stock entitled to preemptive or similar rights arising out of
any agreement or understanding with the Company by virtue of any
Transaction Document, (ii) there are no outstanding options, warrants,
scrip rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or
exchangeable for, or giving any Person (as defined below) any right to
subscribe for or acquire, any shares of capital stock of the Company or any
of its Subsidiaries, or contracts, commitments, understandings or
arrangements by which the
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Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its
Subsidiaries or options, warrants, scrip rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or
rights convertible into, any shares of capital stock of the Company or any
of its Subsidiaries, (iii) there are no outstanding debt securities, (iv)
there are no agreements or arrangements under which the Company or any of
its Subsidiaries is obligated to register the sale of any of their
securities under the Securities Act (except the Registration Rights
Agreement), (v) there are no outstanding securities of the Company or any
of its Subsidiaries which contain any redemption or similar provisions, and
there are no contracts, commitments, understandings or arrangements by
which the Company or any of its Subsidiaries is or may become bound to
redeem a security of the Company or any of its Subsidiaries, (vi) there are
no securities or instruments containing anti-dilution or similar provisions
that will be triggered by the issuance of the shares of Common Stock as
described in this Agreement, (vii) the Company does not have any stock
appreciation rights or "phantom stock" plans or agreements or any similar
plan or agreement and (viii) except as specifically disclosed in the SEC
Documents (as defined in Section 2.1(k) hereof), no Person (as defined
below) or group of related Persons beneficially owns (as determined
pursuant to Rule 13d-3 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) or has the right to acquire by
agreement with or by obligation binding upon the Company beneficial
ownership of in excess of 5% of the Common Stock. "Person" means an
individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other
entity of any kind.
d. Authorization and Validity; Issuance of Shares. The shares of
Common Stock issuable upon conversion of the Debentures and exercise of the
Warrants (collectively, the "Underlying Shares") are and will at all times
hereafter continue to be duly authorized and reserved for issuance and the
shares of Common Stock issued upon conversion of the Debentures (the
"Debenture Shares") and exercise of the Warrants (the "Warrant Shares")
will be validly issued, fully paid and non-assessable, free and clear of
all liens, encumbrances and Company rights of first refusal, other than
liens and encumbrances created by the Purchasers (collectively, "Liens")
and will not be subject to any preemptive or similar rights. The issuance
by the Company of the Debentures, the Warrants and the Underlying Shares is
exempt from registration under the Securities Act.
e. No Conflicts. The execution, delivery and performance of this
Agreement and each of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and
thereby (including the issuance of the Underlying Shares) do not and will
not (i) conflict with or violate any provision of the Company's Certificate
of Incorporation, as amended and as in effect on the date hereof (the
"Certificate of Incorporation"), the Company's Bylaws, as in effect on the
date hereof (the "Bylaws") or other organizational documents of the Company
or any of the Subsidiaries, (ii) subject to obtaining the consents referred
to in Section 2.1(f), conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture, patent, patent license or
instrument (evidencing a Company or Subsidiary debt or otherwise) to which
the Company or any Subsidiary is a party or by which any property or asset
of the Company or any Subsidiary is bound or affected, or (iii) result in a
violation of any law, rule, regulation, order, judgment, injunction, decree
or other restriction of any court or governmental authority to which the
Company or any Subsidiary is subject (including Federal and state
securities laws and
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regulations and the rules and regulations of the principal market or
exchange on which the Common Stock is traded or listed) applicable to the
Company or any of its Subsidiaries, or by which any material property or
asset of the Company or any Subsidiary is bound or affected, except in the
case of each of clauses (ii) and (iii), such conflicts, defaults,
terminations, amendments, accelerations, cancellations violations as would
not, individually or in the aggregate, have or result in a Material Adverse
Effect.
f. Consents and Approvals. Except as specifically set forth on
Schedule 2.1(f), neither the Company nor any Subsidiary is required to
obtain any consent, waiver, authorization or order of, give any notice to,
or make any filing or registration with, any court or other federal, state,
local or other governmental authority, regulatory or self regulatory
agency, or other Person in connection with the execution, delivery and
performance by the Company of this Agreement or the Transaction Documents,
other than (i) the filing of a registration statement with the Commission,
which shall be filed in accordance with and in the time periods set forth
in the Registration Rights Agreement, (ii) the application(s) or any
letter(s) acceptable to the New York Stock Exchange (the "NYSE") for the
listing of the Underlying Shares with the NYSE (and with any other national
securities exchange or market on which the Common Stock is then listed) and
(iii) any filings, notices or registrations under applicable state
securities laws (together with the consents, waivers, authorizations,
orders, notices and filings referred to on Schedule 2.1(f), the "Required
Approvals").
g. Litigation; Proceedings. Except as specifically set forth on
Schedule 2.1(g), there is no action, suit, notice of violation, proceeding
or investigation pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries or any of their
respective properties before or by any court, governmental or
administrative agency or regulatory authority (federal, state, county,
local or foreign) which (i) adversely affects or challenges the legality,
validity or enforceability of any of this Agreement or the Transaction
Documents or (ii) could reasonably be expected to, individually or in the
aggregate, have a Material Adverse Effect.
h. No Default or Violation. Neither the Company nor any Subsidiary (i)
is in default under or in violation of any indenture, loan or other credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound which could reasonably be
expected to, individually or in the aggregate, have a Material Adverse
Effect, (ii) is in violation of any order of any court, arbitrator or
governmental body applicable to it which could reasonable be expected to,
individually or in the aggregate, have a Material Adverse Effect, (iii) is
in violation of any statute, rule or regulation of any governmental
authority to which it is subject which could reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect. The
business of the Company and its Subsidiaries is not being conducted, and
shall not be conducted, in violation of any law, ordinance, rule or
regulation of any governmental entity, except where such violations have
not resulted or could not reasonably be expected to result, individually or
in the aggregate, in a Material Adverse Effect. Neither the Company nor any
of its Subsidiaries is in breach of any agreement where such breach,
individually or in the aggregate, would have a Material Adverse Effect.
i. Disclosure; Absence of Certain Changes. None of this Agreement, the
Schedules to this Agreement, the Transaction Documents or any other written
or formally presented information, report, financial statement, exhibit,
schedule or document furnished by or on behalf of the Company in connection
with the negotiation of the transactions contemplated
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hereby contained, contains, or will contain at the time it was or is so
furnished any untrue statement of a material fact or omitted, omits or will
omit at such time to state any material fact necessary in order to make the
statements made herein and therein, in light of the circumstances under
which they were made, not misleading. Except as disclosed on Schedule
2.1(i) or in SEC Documents filed on EDGAR at least five business days prior
to the date hereof, since December 31, 1998, there has been no material
adverse change and no material adverse development in the business,
properties, operations, financial condition, liabilities or results of
operations or, insofar as can reasonably be foreseen, prospects of the
Company or the Subsidiaries.
j. Private Offering. The Company and all Persons acting on its behalf
have not made, directly or indirectly, and will not make, offers or sales
of any securities or solicited any offers to buy any security under
circumstances that would require registration of the Debentures, the
Warrants or the Underlying Shares or the issuance of such securities under
the Securities Act. The offer, sale and issuance of the Debentures, the
Warrants and the Underlying Shares to the Purchasers will not be integrated
with any other offer, sale and issuance of the Company's securities (past,
current, or future) under the Securities Act or any regulations of any
exchange or automated quotation system on which any of the securities of
the Company are listed or designated or for purposes of any stockholder
approval provision applicable to the Company or its securities. Subject to
the accuracy and completeness of the representations and warranties of the
respective Purchasers contained in Section 2.2 hereof, the offer, sale and
issuance by the Company to the Purchasers of the Debentures, the Warrants
and the Underlying Shares is exempt from the registration requirements of
the Securities Act.
k. SEC Documents; Financial Statements. The Common Stock of the
Company is registered pursuant to Section 12(b) of the Exchange Act. The
Company has filed all reports required to be filed by it with the
Commission pursuant to the reporting requirements of the Exchange Act,
including pursuant to Section 13, 14 or 15(d) thereof (the foregoing
materials and all exhibits included therein and financial statements and
schedules thereto and documents (other than exhibits to such documents)
incorporated by reference therein being collectively referred to herein as
the "SEC Documents"), on a timely basis or has received a valid extension
of such time of filing and has filed any such SEC Documents prior to the
expiration of any such extension. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Securities Act and the Exchange Act and the rules and regulations of the
Commission promulgated thereunder, and none of the SEC Documents, when
filed, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading. All material agreements to which the
Company or any Subsidiary is a party or to which the property or assets of
the Company or any Subsidiary are subject and which are required to be
filed as exhibits to the SEC Documents have been filed as exhibits to the
SEC Documents as required and neither the Company nor any Subsidiary is in
breach of any such agreement where such breach could reasonably be expected
to, individually or in the aggregate, have a Material Adverse Effect. As of
their respective dates, the financial statements of the Company included in
the SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations
of the Commission with respect thereto as in effect at the time of filing.
Such financial statements have been prepared in accordance with generally
accepted accounting principles in the United States applied on a consistent
basis during the periods involved, except as may be otherwise specified in
such financial statements or the notes thereto, and fairly present in all
material respects the financial position of the Company as of and
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for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to
normal, immaterial year-end audit adjustments. Since the date of the
financial statements included in the Company's last filed Quarterly Report
on Form 10-Q for the period ended December 31, 1998, there has been no
event, occurrence or development that has had or to the Company's
knowledge, as of the date of this Agreement, will have a Material Adverse
Effect which has not been specifically disclosed in writing to the
Purchasers by the Company. The Company last filed audited financial
statements with the Commission on March 31, 1998, and has not received any
comments from the Commission in respect thereof. Neither the Company nor
any of its Subsidiaries or any of their officers, directors, employees or
agents have provided the Purchasers or their agents or counsel with any
material, nonpublic information. The Company acknowledges that the
Purchasers will be trading in the securities of the Company in reliance on
the foregoing representation and warranty.
l. Investment Company. The Company is not, and is not controlled by or
under common control with an affiliate (an "Affiliate") of an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended.
m. Broker's Fees. Except for fees payable to Brown Simpson Asset
Management, LLC pursuant to Section 6.16 hereof, no fees or commissions or
similar payments with respect to the transactions contemplated by this
Agreement or the Transaction Documents have been paid or will be payable by
the Company to any broker, financial advisor, finder, investment banker, or
bank with respect to the transactions contemplated by this Agreement. The
Purchasers shall have no obligation with respect to any fees or with
respect to any claims made by or on behalf of other Persons for fees of a
type contemplated in this Section 2.1(m) that may be due in connection with
the transactions contemplated by this Agreement and the Transaction
Documents. The Company shall indemnify and hold harmless each of the
Purchasers, its employees, officers, directors, agents and partners, and
their respective Affiliates, from and against all claims, losses, damages,
costs (including the costs of preparation and attorney's fees) and expenses
suffered in respect of any such claimed or existing fees.
n. Form S-3 Eligibility. The Company is, and at the Closing Date will
be, eligible to register securities (including the Underlying Shares) for
resale with the Commission under Form S-3 (or any successor form)
promulgated under the Securities Act.
o. Listing and Maintenance Requirements Compliance. The principal
market on which the Common Stock is currently traded is the NYSE. Except as
disclosed on Schedule 2.1(o), the Company has not in the three years
preceding the date hereof received notice (written or oral) from the NYSE
(or any stock exchange, market or trading facility on which the Common
Stock is or has been listed (or on which it has been quoted)) to the effect
that the Company is not in compliance with the listing or maintenance
requirements of such market or exchange. Except as disclosed on Schedule
2.1(o), the Company is not aware of any facts which would reasonably lead
to delisting or suspension of the Common Stock by the NYSE. After giving
effect to the transactions contemplated by this Agreement and the
Transaction Documents, the Company believes that it will be in compliance
with all such maintenance requirements.
p. Intellectual Property Rights. The Company and its Subsidiaries own
or possess adequate rights or licenses to use all trademarks, trademark
applications, trade names and service marks, whether or not registered, and
all patents, patent applications, copyrights, inventions, licenses,
approvals, governmental authorizations, trade secrets and intellectual
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property rights (collectively, "Intellectual Property Rights") which are
necessary for use in connection with their respective businesses as now
conducted and as described in the SEC Documents. Except as set forth on
Schedule 2.1(p), none of the Company's Intellectual Property Rights have
expired or terminated, or are expected to expire or terminate within two
years from the date of this Agreement. Neither the Company nor any of its
Subsidiaries has infringed or is infringing on any of the Intellectual
Property Rights of any Person and, except as set forth on Schedule 2.1(p),
there is no claim, action or proceeding which has been made or brought
against, or to the Company's knowledge, is being made, brought or
threatened against, the Company or its Subsidiaries regarding the
infringement of any of the Intellectual Property Rights, and the Company
and its Subsidiaries are unaware of any facts or circumstances which might
give rise to any of the foregoing, except where any of the foregoing could
not reasonably be expected have a Material Adverse Effect. The Company and
its Subsidiaries have taken reasonable security measures to protect the
secrecy, confidentiality and value of all of their intellectual properties.
q. Registration Rights; Rights of Participation. Except as described
on Schedule 2.1(q) hereto, (i) the Company has not granted or agreed to
grant to any Person any rights (including "piggy-back" registration rights)
to have any securities of the Company registered with the Commission or any
other governmental authority which has not been satisfied and (ii) no
Person, including, but not limited to, current or former stockholders of
the Company, underwriters, brokers or agents, has any right of first
refusal, preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by this Agreement or any
Transaction Document.
r. Title. Except as disclosed on Schedule 2.1(r), the Company and the
Subsidiaries have good and marketable title in fee simple to all real
property and personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear
of all Liens, except for Liens that do not materially affect the value of
such property and do not interfere with the use made and proposed to be
made of such property by the Company and the Subsidiaries. Any real
property and facilities held under lease by the Company and the
Subsidiaries are held by them under valid, subsisting and, to the Company's
knowledge, enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property
and buildings by the Company and the Subsidiaries.
s. Permits. The Company and the Subsidiaries possess all certificates,
authorizations, licenses, easements, consents, approvals, orders and
permits necessary to own, lease and operate their respective properties and
to conduct their respective businesses as currently conducted except where
the failure to possess such permits would not, individually or in the
aggregate, have a Material Adverse Effect ("Material Permits"), and there
is no proceeding pending, or, to the knowledge of the Company, threatened
relating to the revocation, modification, suspension or cancellation of any
Material Permit. To the Company's knowledge, neither the Company nor any of
the Subsidiaries is in conflict with or default or violation of any
Material Permit.
t. Insurance. The Company and each of its Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has
any reason to believe that it will not be able to renew its existing
insurance coverages as and
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when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business, at a cost that would
not materially and adversely affect the condition, financial or otherwise,
or the earnings, business or operations of the Company and its
Subsidiaries, taken as a whole.
u. Internal Accounting Controls. The Company and each of the
Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles in
the United States and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
v. Tax Status; Firpta. Except as set forth on Schedule 2.1(v), the
Company and each of the Subsidiaries has made or filed all federal and
state income and all other tax returns, reports and declarations required
by any jurisdiction to which it is subject (unless and only to the extent
that the Company and each of its Subsidiaries has set aside on its books
provisions reasonably adequate for the payment of all unpaid and unreported
taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good
faith (which are set forth on Schedule 2.1(v) hereof), and has set aside on
it books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction, and the
officers of the Company know of no basis for any such claim. The Company is
not a "United States real property holding corporation" within the meaning
of Section 847(c)(2) of the Internal Revenue Code of 1986, as amended.
w. Transactions With Affiliates. Except as set forth on Schedule
2.1(w), and other than the grant of stock options and warrants disclosed on
Schedule 2.1(c), none of the officers, directors, or employees of the
Company is presently a party to any transaction with the Company or any of
its Subsidiaries (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of
real or personal property to or from, or otherwise requiring payments to or
from any officer, director or such employee or, to the knowledge of the
Company, any corporation, partnership, trust or entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
x. Application to Takeover Protection. The Company and its Board of
Directors have taken all necessary action, if any, in order to render
inapplicable any control share acquisition, business combination or other
similar anti-takeover provision under the Certificate of Incorporation,
Bylaws or the laws of the state of incorporation which is or could become
applicable to the Purchasers or the Transaction Documents as a result of
the transactions contemplated by this Agreement or the Transaction
Documents. None of the transactions contemplated by this Agreement or the
Transaction Documents, including the conversion of the Debentures and the
exercise of the Warrants, will trigger any poison pill provisions of any of
the Company's stockholders' rights or similar agreements.
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y. Solicitation Materials. The Company has not (i) distributed any
offering materials in connection with the offering and sale of the
Debentures or the Warrants, other than the SEC Documents, the Schedules to
this Agreement, any amendments and supplements thereto and the materials
listed on Schedule 2.1(y), or (ii) solicited any offer to buy or sell the
Debentures or the Warrants by means of any form of general solicitation or
advertising. Neither the Company, nor any of its Affiliates, nor any Person
acting on its or their behalf, has engaged or will engage in any form of
general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale
of the Debentures or Warrants.
z. Acknowledgement of Dilution. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Debenture Shares and Warrant Shares upon conversion of the
Debenture or exercise of the Warrants (which dilution may be substantial
under certain market conditions). The Company further acknowledges that its
obligation to issue Debenture Shares and Warrant Shares upon conversion of
the Debentures or exercise of the Warrants in accordance with this
Agreement, the Debentures and the Warrants is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the
ownership interests of other stockholders of the Company.
aa. Acknowledgement Regarding Purchasers' Purchase of Securities. The
Company acknowledges and agrees that the Purchasers are acting solely in
the capacity of arm's length purchasers with respect to this Agreement and
the transactions contemplated hereby. The Company further acknowledges that
no Purchaser is acting as a financial advisor or fiduciary of the Company
(or in any similar capacity) with respect to this Agreement and the
transactions contemplated hereby and any statement made by any Purchaser or
any of their respective representatives or agents in connection with this
Agreement and the transactions contemplated hereby is not advice or a
recommendation and is merely incidental to the Purchasers' purchaser of the
securities. The Company further represents to each Purchaser that the
Company's decision to enter into this Agreement has been based solely on
the independent evaluation of the Company and its representatives.
2.2 Representations and Warranties of the Purchasers. Each of the
Purchasers, severally and not jointly, hereby represents and warrants to the
Company as follows:
a. Organization; Authority. Such Purchaser is a company, a corporation
or a limited partnership duly formed, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or formation with
the requisite power and authority, corporate or otherwise, to enter into
and to consummate the transactions contemplated hereby and by the
Transaction Documents and otherwise to carry out its obligations hereunder
and thereunder. The purchase by such Purchaser of the Debentures and the
Warrants hereunder has been duly authorized by all necessary action on the
part of such Purchaser. Each of this Agreement and the Registration Rights
Agreement has been duly executed and delivered by such Purchaser and
constitutes the valid and legally binding obligation of such Purchaser,
enforceable against such Purchaser in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors'
rights generally and to general principles of equity.
b. Investment Intent. Such Purchaser is acquiring the Debentures and
the Warrants for its own account and not with a present view to or for
distributing or reselling the
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Debentures, the Warrants, the Debenture Shares or the Warrant Shares or any
part thereof or interest therein in violation of the Securities Act;
provided, however, that by making the representations herein, such
Purchaser does not agree to hold any of the Debentures, the Warrants, the
Debenture Shares or the Warrant Shares for any minimum or other specific
term and reserves the right to dispose of the Debentures at any time in
accordance with or pursuant to a registration statement or an exemption
under the Securities Act.
c. Purchaser Status. At the time such Purchaser was offered the
Debentures and the Warrants, and at the Closing Date, (i) it was and will
be an "accredited investor" as defined in Rule 501 under the Securities Act
and (ii) such Purchaser, either alone or together with its representatives,
had and will have such knowledge, sophistication and experience in business
and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Debentures and the Warrants.
d. Reliance. Such Purchaser understands and acknowledges that (i) the
Debentures and the Warrants are being offered and sold to such Purchaser
without registration under the Securities Act in a private placement that
is exempt from the registration provisions of the Securities Act under
Section 4(2) of the Securities Act or Regulation D promulgated thereunder
and (ii) the availability of such exemption depends in part on, and the
Company will rely upon the accuracy and truthfulness of, the
representations set forth in this Section 2.2 and such Purchaser hereby
consents to such reliance.
e. Ability of Purchaser to Bear Risk of Investment. Such Purchaser is
able to bear the economic risk of an investment in the Debentures and the
Underlying Shares and, at the present time, is able to afford a complete
loss of such investment.
f. Information. Such Purchaser and its advisors, if any, have been
furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of
the Debentures and Warrants which have been requested by such Purchaser or
its advisors. Such Purchaser and its advisors, if any, have been afforded
the opportunity to ask questions of the Company. Neither such inquiries nor
any other due diligence investigation conducted by such Purchaser or any of
its advisors or representatives shall modify, amend or affect such
Purchaser's right to rely on the Company's representations and warranties
contained in Section 2.1 above or representations and warranties of the
Company contained in any other transaction document.
g. Convertible Preferred Agreement Warrants. The Purchasers
acknowledge that they have not been delivered the warrants (the "Prior
Warrants") issued pursuant to the Convertible Preferred Agreement. If the
Purchasers do obtain the Prior Warrants, the Purchasers will return the
Prior Warrants to the Company for destruction.
The Company acknowledges and agrees that the Purchasers make no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
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ARTICLE III.
OTHER AGREEMENTS
3.1 Transfer Restrictions.
a. If any Purchaser should decide to dispose of the Debentures, the
Warrants, the Debenture Shares or the Warrant Shares held by it, such Purchaser
understands and agrees that it may do so only pursuant to an effective
registration statement under the Securities Act, to the Company or pursuant to
an available exemption from the registration requirements of the Securities Act
or Rule 144 promulgated under the Securities Act ("Rule 144"). The Company shall
announce any material non-public information that it legally is required to
announce on or prior to the Effectiveness Date (as defined in the Registration
Rights Agreement) of the registration statement filed pursuant to the
Registration Rights Agreement and shall not enter into any subsequent
non-disclosure agreements that would prevent it from announcing an such
information that otherwise legally could have been announced on or prior to the
Effectiveness Date, unless confidential treatment for such information is
granted by the Commission. In connection with any transfer of any Debentures,
Warrants, Debenture Shares or Warrant Shares other than pursuant to an effective
registration statement, Rule 144 or to the Company, the Company may require the
transferor thereof to provide to the Company a written opinion of counsel
experienced in the area of United States securities laws selected by the
transferor, the form and substance of which opinion shall be customary for
opinions of counsel in comparable transactions, to the effect that such transfer
does not require registration of such transferred securities under the
Securities Act; provided, however, that if the Debentures, Warrants, Debenture
Shares or Warrant Shares may be sold pursuant to Rule 144(k), no written opinion
of counsel shall be required from the Purchaser if such Purchaser provides
reasonable assurances that such security can be sold pursuant to Rule 144(k).
Notwithstanding the foregoing, the Company hereby consents to and agrees to
register any transfer by any Purchaser to an Affiliate of such Purchaser,
provided that the transferee certifies to the Company that it is an "accredited
investor" as defined in Rule 501(a) under the Securities Act. Any such
transferee shall agree in writing to be bound by the terms of this Agreement and
shall have the rights of a Purchaser under this Agreement and the Transaction
Documents. If a Purchaser provides the Company with an opinion of counsel, the
form and substance of which opinion shall be customary for opinions of counsel
in comparable transactions, to the effect that a public sale, assignment or
transfer of the Debentures, the Debenture Shares, the Warrants and the Warrant
Shares may be made without registration under the Securities Act or the
Purchaser provides the Company with reasonable assurances that the Warrants, the
Debenture Shares and the Warrant Shares can be sold pursuant to Rule 144 without
any restriction as to the number of securities acquired as of a particular date
that can then be immediately sold, the Company shall permit the transfer, and,
in the case of the Debenture Shares and the Warrant Shares, promptly instruct
its transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Purchaser and without any restrictive legend.
Notwithstanding the foregoing or anything else contained herein to the contrary,
the securities may be pledged as collateral in connection with a bona fide
margin account or other lending arrangement.
b. Each Purchaser agrees to the imprinting, so long as is required by this
Section 3.1(b), of the following legend on the Debentures, the Warrants, the
Debenture Shares and the Warrant Shares:
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THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
Neither the Debentures, the Warrants, the Debenture Shares, nor the Warrant
Shares shall contain the legend set forth above (or any other legend) (i) at any
time while a registration statement is effective under the Securities Act
covering such security, (ii) if in the written opinion of counsel to the Company
experienced in the area of United States securities laws such legend is not
required under applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission) or
(iii) if such Debentures, Warrants, Debenture Shares or Warrant Shares may be
sold pursuant to Rule 144. The Company agrees that it will provide each
Purchaser, upon request, with a certificate or certificates representing
Debentures, Warrants, Debenture Shares or Warrant Shares, free from such legend
at such time as such legend is no longer required hereunder. If such certificate
or certificates had previously been issued with such a legend or any other
legend, the Company shall, upon request, receive such certificate or
certificates free of any legend.
3.2 Stop Transfer Instruction. The Company may not make any notation on its
records or give instructions to any transfer agent of the Company which enlarge
the restrictions on transfer set forth in Section 3.1.
3.3 Furnishing of Information. As long as any Purchaser owns the
Debentures, the Warrants, the Debenture Shares or the Warrant Shares, the
Company will cause the Common Stock to continue at all times to be registered
under Section 12 of the Exchange Act, will timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13, 14 or 15(d) of the Exchange Act and promptly furnish, but in no event later
than two (2) business days after the filing thereof with the Commission, the
Purchasers with true and complete copies of all such filings, and will not take
any action or file any document (whether or not permitted by the Exchange Act or
the rules thereunder) to terminate or suspend such reporting and filing
obligations. As long as any Purchaser owns the Debentures, the Warrants, the
Debenture Shares or the Warrant Shares, if the Company is not required to file
reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare
and furnish to the Purchasers and make publicly available in accordance with
Rule 144(c) promulgated under the Securities Act annual and quarterly financial
statements, together with a discussion and analysis of such financial statements
in form and substance substantially similar to those that would otherwise be
required to be included in reports required by Section 13(a) or 15(d) of the
Exchange Act, as well as any other information required thereby, in the time
period that such filings would have been required to have been made under the
Exchange Act. The Company further covenants that it will take such further
action as any holder of the Debentures, the Warrants, the Debenture Shares or
the Warrant Shares may reasonably request, all to the extent required from time
to time to enable such Person to sell the Debentures, the Warrants, the
Debenture Shares, or the Warrant Shares without registration under the
Securities Act within the limitation of the exemptions provided by
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Rule 144 promulgated under the Securities Act, including the legal opinion
referenced above in Section 3.1(b). Upon the request of any such Person, the
Company shall deliver to such Person a written certification of a duly
authorized officer as to whether it has complied with such requirements.
3.4 Blue Sky Laws. In accordance with the Registration Rights Agreement,
the Company shall (i) qualify the Debenture Shares and the Warrant Shares under
the securities or "blue sky" laws of such jurisdictions as the Purchasers may
request (or to obtain an exemption from such qualification), (ii) shall provide
evidence of any such action so taken to each Purchaser on or prior to the
Closing Date and (iii) shall continue such qualification at all times through
the resale of all Debenture Shares or Warrant Shares, but in any event not past
the fourth anniversary of the Closing Date.
3.5 Integration. The Company shall not sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Debentures, the Warrants, the Debenture Shares or the Warrant Shares in a
manner that would require the registration under the Securities Act of the sale
of the Debentures, the Warrants, the Debenture Shares or the Warrant Shares to
any Purchaser or cause the offering of such securities to be integrated with any
other offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
3.6 Listing and Reservation of Debenture Shares and Warrant Shares.
a. The Company shall (i) not later than three (3) business days after the
Closing Date prepare and file with the NYSE (as well as any other national
securities exchange or market on which the Common Stock is then listed) an
additional shares listing application or a letter acceptable to the NYSE
covering and listing a number of shares of Common Stock which is at least equal
to 120% of the maximum number of Underlying Shares then issuable, assuming that
the payment of all future dividends on such shares then outstanding were made in
shares of Common Stock, (ii) take all steps necessary to cause the Underlying
Shares to be approved for listing on the NYSE (as well as on any other national
securities exchange or market on which the Common Stock is then listed) as soon
as possible thereafter, (iii) maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all such Underlying Shares, and (iv)
provide to the Purchasers evidence of such listing. Neither the Company nor any
of its Subsidiaries shall take any action which may result in the delisting or
suspension of the Common Stock on the NYSE. The Company shall promptly provide
to each Purchaser copies of any notices it receives from the NYSE regarding the
continued eligibility of the Common Stock for listing on such automated
quotation system, so long as such notice does not include material, nonpublic
information. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 3.6(a).
b. The Company at all times shall reserve a sufficient number of shares of
its authorized but unissued Common Stock to provide for 120% of the full
conversion of the outstanding Debentures (including the payment of all dividends
thereon) and exercise of the outstanding Warrants. Shares of Common Stock
reserved for issuance upon conversion of the Debentures and the exercise of the
Warrants shall be allocated pro rata to each of the Purchasers in accordance
with the amount of Debentures and Warrants issued and delivered to such
Purchaser at the Closing. If at any time the number of shares of Common Stock
authorized and
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reserved for issuance is insufficient to cover 120% of the number of Debenture
Shares and Warrant Shares issued and issuable upon conversion of the Debentures
and exercise of the Warrants (based on the Conversion Price (as defined in the
Debenture) of the Debentures in effect from time to time and the Exercise Price
(as defined in the Warrants) of the Warrants in effect from time to time)
without regard to any limitation on conversions or exercises, the Company will
promptly take all corporate action necessary to authorize and reserve 120% of
such shares pursuant to Section 3(b) of the Registration Statement, including,
without limitation, calling a special meeting of stockholders to authorize
additional shares to meet the Company's obligations under this Section 3.6(b),
in the case of an insufficient number of authorized shares, and using its best
efforts to obtain stockholder approval of an increase in such authorized number
of shares.
3.7 Notice of Breaches.
a. The Company and each Purchaser shall give prompt written notice to the
other of any breach by it of any representation, warranty or other agreement
contained in this Agreement or in the Transaction Documents, as well as any
events or occurrences arising after the date hereof and prior to the Closing
Date, which would reasonably be likely to cause any representation or warranty
or other agreement of such party, as the case may be, contained herein to be
incorrect or breached as of the Closing Date provided such notice will not
constitute material non-public information. However, no disclosure by either
party pursuant to this Section 3.7 shall be deemed to cure any breach of any
representation, warranty or other agreement contained herein or in the
Transaction Documents.
b. Notwithstanding the generality of Section 3.7(a), the Company shall
promptly notify, provided such notification will not constitute material
non-public information, each Purchaser of any notice or claim (written or oral)
that it receives from any lender of the Company or any Subsidiary to the effect
that the consummation of the transactions contemplated hereby and by the
Registration Rights Agreement violates or would violate any written agreement or
understanding between such lender and the Company or any Subsidiary, and the
Company shall promptly furnish by facsimile to the Purchasers a copy of any
written statement in support of or relating to such claim or notice.
c. The default by any Purchaser of any of its obligations, representations
or warranties under this Agreement or the Transaction Documents shall not be
imputed to, and shall have no effect upon, any other Purchaser or affect the
Company's obligations under this Agreement or any Transaction Document to any
non-defaulting Purchaser.
3.8 Form D. The Company agrees to file a Form D with respect to the
Debentures and Warrants as required by Rule 506 under Regulation D and to
provide a copy thereof to each Purchaser promptly after such filing.
3.9 Right of First Refusal; Subsequent Registrations. The Company shall
not, directly or indirectly, without the prior written consent of the
Purchasers, offer, sell, grant any option to purchase, or otherwise dispose of
(or announce any offer, sale, grant or any option to purchase or other
disposition) any of its or its Affiliates' equity or equity-equivalent
securities or any instrument that permits the holder thereof to acquire Common
Stock at any time over the life of the security or instrument at a price that is
less than the closing bid price of the Common Stock at the time of issuance of
such security or instrument (a "Subsequent Placement") for a period of
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six (6) months after the Closing Date, except (i) the granting of options or
warrants to employees, officers, directors and consultants of the Company, and
the issuance of shares upon exercise of options granted, under any stock option
plan heretofore or hereinafter duly adopted by the Company or under any other
compensatory arrangement between the Company and any employee, officer, director
or consultant, or the issuance of shares pursuant to any compensatory warrants
issued to any of the foregoing, (ii) shares issued upon exercise of any
currently outstanding warrants and upon conversion of any currently outstanding
convertible preferred stock in each case disclosed in Schedule 2.1(c), and (iii)
shares of Common Stock issued upon conversion of Preferred Shares, unless (A)
the Company delivers to each Purchaser a written notice (the "Subsequent
Placement Notice") of its intention to effect such Subsequent Placement, which
Subsequent Placement Notice shall describe in reasonable detail the proposed
terms of such Subsequent Placement the amount of proceeds intended to be raised
thereunder, the Person with whom such Subsequent Placement shall be effected,
and attached to which shall be a term sheet or similar document relating thereto
and (B) no Purchaser shall have notified the Company by 5:00 p.m. (New York
time) on the third (3rd) Trading Date after its receipt of the Subsequent
Placement Notice of its willingness to provide (or to cause its sole designee to
provide), subject to completion of mutually acceptable documentation, financing
to the Company on substantially the terms set forth in the Subsequent Placement
Notice. If no Purchaser shall notify the Company of its intention to provide the
entire financing as proposed in the Subsequent Placement Notice within such time
period, the Company may effect the Subsequent Placement substantially upon the
terms and to the Person (or Affiliates of such Persons) set forth in the
Subsequent Placement Notice; provided, that the Company shall provide each
Purchaser with a second Subsequent Placement Notice, and the Purchasers shall
again have the right of first refusal set forth above in this paragraph (a), if
the Subsequent Placement subject to the initial Subsequent Placement Notice
shall not have been consummated for any reason on the terms set forth in such
Subsequent Placement Notice within thirty (30) Trading Days after the date of
the initial Subsequent Placement Notice with the Person (or an Affiliate of such
Person) identified in the Subsequent Placement Notice. If the Purchasers shall
indicate a willingness to provide financing in excess of the amount set forth in
the Subsequent Placement Notice, then each Purchaser shall be entitled to
provide financing pursuant to such Subsequent Placement Notice up to an amount
equal to such Purchaser's pro rata portion of the Debentures purchased by the
Purchasers under this Agreement at the Closing.
3.10 Use of Proceeds. The Company shall use the proceeds from the sale of
the Debentures and the exercise of the Warrants for the redemption of the
existing Preferred Stock (as defined in the Convertible Preferred Agreement) and
the payment of fees associated therein, and for working capital and general
corporate purposes and not for the satisfaction of any portion of Company
borrowings outside the normal course of business or to redeem Company equity or
equity-equivalent securities. Pending application of the proceeds of this
placement in the manner permitted hereby, the Company will invest such proceed
in interest bearing securities.
3.11 Transactions with Affiliates. So long as any Debentures or Warrants
are outstanding, the Company shall not, and shall cause each of its Subsidiaries
not to, enter into, amend, modify or supplement, or permit any Subsidiary to
enter into, amend, modify or supplement, any agreement, transaction, commitment
or arrangement with any of its or any Subsidiary's officers, directors or
persons who were officers or directors at any time during the previous two
years, stockholders who beneficially own 5% or more of the Common Stock, or
Affiliates or any individual related by blood, marriage or adoption to any such
individual or with any entity in which any such entity or individual owns a 5%
or more beneficial interest (each a
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"Related Party"), except for (a) customary employment arrangements and benefit
programs on reasonable terms, (b) any agreement, transaction, commitment or
arrangement on an arms-length basis on terms no less favorable than terms which
would have been obtainable from a Person other than such Related Party, or (c)
any agreement, transaction, commitment or arrangement which is approved by a
majority of the disinterested directors of the Company. For purposes hereof, any
director who is also an officer of the Company or any Subsidiary of the Company
shall not be a disinterested director with respect to any such agreement,
transaction, commitment or arrangement. "Affiliate" for purposes of this section
only means, with respect to any person or entity, another person or entity that,
directly or indirectly, (i) has a 5% or more equity interest in that person or
entity, (ii) has 5% or more common ownership with that person or entity, (iii)
controls that person or entity, or (iv) shares common control with that person
or entity. "Control" or "Controls" for purposes of this section means that a
person or entity has the power, direct or indirect, to conduct or govern the
policies of another person or entity.
3.12 Transfer Agent Instructions. At the Closing the Company shall issue
irrevocable instructions to its transfer agent (and shall issue to any
subsequent transfer agent as required), to issue certificates, registered in the
name of each such Purchaser or its respective nominee(s), for the Debenture
Shares and/or the Warrant Shares in such amounts as specified from time to time
by each Purchaser to the Company in a form acceptable to such Purchasers (the
"Irrevocable Transfer Agent Instructions"). So long as required pursuant to
Section 3.1(b), all such certificates shall bear the restrictive legend
specified in Section 3.1(b) of this Agreement. The Company warrants that no
instruction other than the Irrevocable Transfer Agent Instructions referred to
in this Section 3.12, and stop transfer instructions to give effect to Section
3.1 hereof (in the case of the Debenture Shares and the Warrant Shares, prior to
registration of the Debenture Shares under the Securities Act) will be given by
the Company to its transfer agent and that the Debentures, the Warrants, the
Debenture Shares and the Warrant Shares shall otherwise be freely transferable
on the books and records of the Company as and to the extent provided in this
Agreement and the Transaction Documents. If a Purchaser provides the Company
with an opinion of counsel, the form and substance of which opinion shall be
customary for opinions of counsel in comparable transactions, to the effect that
a public sale, assignment or transfer of the Debentures, the Debenture Shares,
the Warrants and the Warrant Shares may be made without registration under the
Securities Act or the Purchaser provides the Company with reasonable assurances
that the Warrants, the Debenture Shares and the Warrant Shares can be sold
pursuant to Rule 144 without any restriction as to the number of securities
acquired as of a particular date that can then be immediately sold, the Company
shall permit the transfer, and, in the case of the Debenture Shares and the
Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such
Purchaser and without any restrictive legend. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Purchasers by violating the intent and purpose of the transactions contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 3.12 will be inadequate and agrees,
in the event of a beach or threatened breach by the Company of the provisions of
this Section 3.12, that the Purchasers, shall be entitled, in addition to all
other available remedies, to an order and/or injunction restraining any breach
and requiring immediate issuance and transfer, without the necessity of showing
economic loss and without any bond or other security being required.
3.13 Press Release; Filing of Form 8-K. Subject to the provisions of
Section 6.10 hereof, prior to the opening of the NYSE on March 5, 1999, the
Company shall file a press
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release in form and substance acceptable to the Purchasers. On or before the
15th business day following the Closing Date, the Company shall file a Form 8-K
with the Commission describing the terms of the transaction contemplated by this
Agreement and the Transaction Documents in the form required by the Exchange
Act.
3.14 Financial Information. The Company agrees to send the following to
each Purchaser during the Registration Period: (i) within three (3) business
days after the filing thereof with the SEC, a copy of its Annual Reports on Form
10-K, its Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and
any registration statements or amendments (other than on Form S-8) filed
pursuant to the Securities Act, (ii) on the same day as the release thereof,
facsimile copies of all press releases issued by the Company or any of its
Subsidiaries, and (iii) copies of any notices and other information made
available or given to the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders.
3.15 Ordinary Course Brokerage and Trading. Subject to compliance with all
applicable securities laws and NYSE regulations, no Purchaser shall be
prohibited from engaging in its ordinary course brokerage and trading activities
in respect of the Company's Common Stock.
3.16 Best Efforts. Each of the parties hereto shall use its commercially
reasonable best efforts to satisfy each of the conditions to be satisfied by it
as provided in Article IV of this Agreement.
3.17 Corporate Existence.
a. Until such time as all of the Purchasers provide the Company with
written notice that they do not beneficially own any Debentures or Warrants, the
Company shall maintain its corporate existence and shall not sell all or
substantially all of the Company's assets, except in the event of a merger or
consolidation or sale of all or substantially all of the Company's assets, where
the surviving or successor entity in such transaction (i) assumes the Company's
obligations hereunder and under the agreements and instruments entered into in
connection herewith and (ii) is a publicly traded corporation whose common stock
is listed for trading on the NYSE, the NASDAQ or the American Stock Exchange.
b. If the Company effects a reverse stock split at any time within twelve
(12) months of the Closing Date, the Conversion Price (as defined in the
Debenture) of the Debenture and the Exercise Price (as defined in the Warrant)
in effect immediately prior to such reverse stock split shall remain in effect
immediately after giving effect to such reverse stock split.
3.18 Subsequent Registrations. Other than Underlying Shares and other
Registrable Securities (as defined in the Registration Rights Agreement) to be
registered in accordance with the Registration Rights Agreement, the Company
shall not, for a period of not less than 90 Trading Days after the date that the
Registration Statement is declared effective by the Commission, without the
prior written consent of two-thirds of the Purchasers, (i) issue or sell any of
its or any of its Affiliates' equity or equity-equivalent securities unless such
issuance or sale is equal to or at a premium to the Per Share Market Price (as
defined in the Registration Rights Agreement) on the date such issuance or sale,
(ii) register for resale any securities of the Company or (iii) have a
registration statement declared effective covering an issuance by the
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Company of any of its securities. Any days that any Purchaser is unable to sell
Underlying Shares under an Registration Statement shall be added to such 90
Trading Day period for the purposes of (i), (ii) and (iii) above.
3.19 Certain Agreements. As long as any Purchaser owns Debentures, the
Company shall not and shall cause the Subsidiaries not to, without the consent
of each of the Purchasers (i) amend its articles of incorporation, bylaws or
other charter documents so as to adversely affect any rights of any Purchaser,
(ii) declare, authorize, set aside or pay any dividend or other distribution
with respect to the Common Stock except as permitted under the Debenture and as
would not adversely affect the rights of any Purchaser hereunder or under the
Debenture, (iii) repay, repurchase or offer to repay, repurchase or otherwise
acquire or pay dividends or make distributions on shares of its Common Stock in
any manner, (iv) issue any series of preferred stock or other securities with
rights senior (in respect of liquidations, dividends, preferences and similar
rights) to those of the Debentures, or (v) enter into nay agreement with respect
to the foregoing.
3.20 No Violation of Applicable Law. Notwithstanding any provision of this
Agreement to the contrary, if the redemption of the Underlying Shares otherwise
required under this Agreement or any Transaction Document would be prohibited by
the relevant provisions of the Business Corporation law of the State of Indiana,
such redemption shall be effected as soon as it is permitted under such law;
provided, however, that from the fifth (5th) day after such redemption notice
until such redemption price is paid in full, interest on any such unpaid amount
shall accrue and be payable at the rate of 15% per annum, in accordance with the
applicable Debenture.
3.21 Material Information. The Company confirms that it will not provide
the Purchasers or their agents or counsel with any information that constitutes
or might constitute material non-public information without the prior consent of
the Purchasers, their agents or their counsel. The Company further covenants
that any information provided by the Company to the Purchasers, their agents or
their counsel which could be deemed to constitute material non-public
information, will cease to be material non-public information (either through
disclosure by the Company or otherwise) by April 15, 1999.
3.22 Seniority. The Debentures shall be subordinate to any future debt
incurred by the Company, but shall rank pari passu to any future convertible
debt incurred by the Company.
ARTICLE IV.
CONDITIONS
4.1 Closing Conditions.
a. Conditions Precedent to the Obligation of the Company to Sell. The
obligation of the Company to sell the Debentures and the Warrants hereunder is
subject to the satisfaction or waiver (with prior written notice to each
Purchaser) by the Company, at or before the Closing, of each of the following
conditions:
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(i) Accuracy of the Purchasers' Representations and Warranties. The
representations and warranties of each Purchaser in this Agreement shall be
true and correct in all material respects as of the date when made (except
for representations and warranties that speak as of a specific date) and as
of the Closing Date;
(ii) Performance by the Purchasers. Each Purchaser shall have
performed, satisfied and complied in all material respects with all
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by such Purchaser at or prior to the
Closing; and
(iii) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement or the Transaction Documents.
b. Conditions Precedent to the Obligation of the Purchasers to Purchase.
The obligation of each Purchaser hereunder to acquire and pay for the Debentures
and Warrants is subject to the satisfaction or waiver (with prior written notice
to the Company and each other Purchaser) by such Purchaser, at or before the
Closing, of each of the following conditions:
(i) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company set forth in this Agreement
shall be true and correct in all respects as of the date when made and as
of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date);
(ii) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Closing;
(iii) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement and the Transaction Documents;
(iv) No Suspensions of Trading in Common Stock. The trading in the
Common Stock shall not have been suspended by the Commission or on the NYSE
which suspension shall remain in effect;
(v) Listing of Common Stock. The Common Stock shall have been at all
times since the date hereof, and on the Closing Date shall be, listed for
trading on the NYSE;
(vi) Required Approvals. All Required Approvals shall have been
obtained and copies thereof delivered to such Purchaser;
(vii) Shares of Common Stock. The Company shall have duly reserved the
number of Underlying Shares required by this Agreement and the Transaction
Documents to be reserved for issuance upon conversion of the Debentures and
the exercise of the Warrants;
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(viii) Change of Control. No Change of Control shall have occurred
between the date hereof and the Closing Date. "Change of Control" means the
occurrence of any of (i) an acquisition after the date hereof by an
individual or legal entity or "group" (as described in Rule 13d-5(b)(1)
promulgated under the Exchange Act), other than the Purchasers or any of
their Affiliates, of in excess of 50% of the voting securities of the
Company, (ii) a replacement of more than one-half of the members of the
Company's Board of Directors which is not approved by those individuals who
are members of the Board of Directors on the date hereof in one or a series
of related transactions, (iii) the merger of the Company with or into
another entity, (iv) consolidation or sale of all or substantially all of
the assets of the Company in one or a series of related transactions or (v)
the execution by the Company of an agreement to which the Company is a
party or by which it is bound, providing for any of the events set forth
above in (i), (ii), (iii) or (iv);
(ix) Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in a form acceptable to the Purchasers, shall have been
delivered to and acknowledged in writing by the Company's transfer agent
with a copy forwarded to each Purchaser;
(x) Resolutions. The Board of Directors of the Company shall have
adopted resolutions consistent with Section 2.1(b) and in a form reasonably
acceptable to each Purchaser (the "Resolutions");
(xi) Litigation. No litigation shall have been instituted or
threatened against the Company which could reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect;
(xii) Adverse Changes. Since the date of the financial statements
included in the Company's Quarterly Report on Form 10-Q or Annual Report on
Form 10-K, whichever is more recent, last filed prior to the date of this
Agreement, no event which had a Material Adverse Effect shall have occurred
which is not disclosed in the Schedules hereto (for purposes hereof,
changes in the market price of the Common Stock may be considered in
determining whether there has occurred an event which has had a Material
Adverse Effect); and
(xiii) Promethean Redemption. The Closing shall occur simultaneously
with the redemption by the Company of the shares of Preferred Stock (as
defined in the Convertible Preferred Agreement) issued to Heracles Fund
Ltd. and Themis Partners, L.P. pursuant to the Convertible Preferred
Agreement.
c. Documents and Certificates. At the Closing, the Company shall have
delivered to the Purchasers the following in form and substance reasonably
satisfactory to the Purchasers:
(i) Opinion. An opinion of the Company's legal counsel in the form
attached hereto as Exhibit D dated as of the Closing Date;
(ii) Debenture. A Debenture(s) representing the principal amount of
Debentures purchased by such Purchaser as set forth next to such
Purchaser's name on Schedule I, registered in the name of such Purchaser,
each in form satisfactory to the Purchaser;
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(iii) Warrant. A Warrant(s) representing the Warrants purchased by
such Purchaser as set forth next to such Purchaser's name on Schedule I,
registered in the name of such Purchaser;
(iv) Registration Rights. The Company shall have executed and
delivered the Registration Rights Agreement;
(v) Officer's Certificate. An Officer's Certificate dated the Closing
Date and signed by an executive officer of the Company confirming the
accuracy of the Company's representations, warranties and covenants as of
the Closing Date and confirming the compliance by the Company with the
conditions precedent set forth in this Section 4.1 as of the Closing Date;
(vi) Secretary's Certificate. A Secretary's Certificate dated the
Closing Date and signed by the Secretary or Assistant Secretary of the
Company certifying (A) that attached thereto is a true and complete copy of
the Certificate of Incorporation of the Company, as in effect on the
Closing Date, (B) that attached thereto is a true and complete copy of the
by-laws of the Company, as in effect on the Closing Date and (C) that
attached thereto is a true and complete copy of the Resolutions duly
adopted by the Board of Directors of the Company authorizing the execution,
delivery and performance of this Agreement and of the Transaction
Documents, and that such Resolutions have not been modified, rescinded or
revoked;
(vii) Certificates of Incorporation. The Company shall have delivered
to each of the Purchasers a copy of a certificate evidencing the
incorporation and good standing of the Company and each Subsidiary, in such
corporation's state of incorporation issued by the Secretary of State of
such state of incorporation as of a date within ten days of the Closing
Date. The Company shall have delivered to each of the Purchasers a copy of
its Certificate of Incorporation as certified by the Secretary of State of
the State of Indiana within ten days of the Closing Date;
(viii) Transfer Agent Letter. The Company shall have delivered to each
Purchaser a letter from the Company's transfer agent certifying the number
of shares of Common Stock outstanding as of a date within five days of the
Closing Date; and
(ix) Other Documents. The Company shall have delivered to each
Purchaser such other documents relating to the transactions contemplated by
the Transaction Documents as the Purchasers or its counsel may reasonably
request.
ARTICLE V.
INDEMNIFICATION
5.1 Indemnification. Except to the extent that matters which could be
covered by this Section 5 are covered by Section 5 of the Registration Rights
Agreement, in consideration of the Purchasers execution and delivery of this
Agreement and the Transaction Documents and acquiring the Debentures, Debenture
Shares, Warrants and Warrant Shares thereunder and in addition to all of the
Company's other obligations under this Agreement and the Transaction Documents,
the Company agrees that, in the event that any Purchaser, other than by reason
of its
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gross negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by or against any person, including
shareholders of the Company, in connection with or as a result of (a) any
misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in the Transaction Documents or
any other certificate, instrument or document hereby or thereby, or (c) any
cause of action, suit or claim brought or made against such Purchaser and
arising out of or resulting from the execution, delivery, performance or
enforcement of the Transaction Documents or any other certificate, instrument or
document contemplated hereby or thereby, the Company will reimburse such
Purchaser for its legal and other actual out-of-pocket expenses (including the
cost of any investigation and preparation) incurred in connection therewith. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any affiliate of the Purchasers and
partners, directors, agents, employees and controlling persons (if any), as the
case may be, of the Purchasers and any such affiliate, and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such affiliate and any
such person. The Company also agrees that neither the Purchasers or any such
affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any person asserting claims on behalf of or
in right of the Company in connection with or as a result of the consummation of
the Transaction Documents except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from the gross negligence
or willful misconduct of such Purchaser or entity in connection with the
transactions contemplated by this Agreement.
ARTICLE VI.
MISCELLANEOUS
6.1 Entire Agreement. This Agreement, together with the Exhibits and
Schedules hereto and the Transaction Documents contain the entire understanding
of the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters.
6.2 Notices. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile, provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party (if received by 7:00 p.m. EST where such
notice is received) or the first business day following such delivery (if
received after 7:00 p.m. EST where such notice is received); or (iii) one
business day after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
If to the Company:
Signal Apparel Company, Inc.
200A Manufactures Road
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Chattanooga, Tennessee 37405
Attn: President & General Counsel
Telephone: (423) 266-2175
Facsimile: (423) 752-2040
and:
500th Seventh Avenue, 7th Floor
New York, New York 10019
Attn: President & General Counsel
Telephone: (212) 944-7117
Facsimile: (212) 944-7667
With a copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telephone: (212) 735-3000
Facsimile: (212) 735-2000
Attention: Robert A. Copen
If to Brown Simpson Strategic Growth Fund, Ltd. to:
152 West 57th Street, 40th Floor
New York, New York 10029
Telephone: (212) 247-8200
Facsimile: (212) 247-1329
Attention: Paul Gustus
If to Brown Simpson Strategic Growth Fund, L.P. to:
152 West 57th Street, 40th Floor
New York, New York 10029
Telephone: (212) 247-8200
Facsimile: (212) 247-1329
Attention: Paul Gustus
With a copy to:
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
590 Madison Avenue
New York, New York 10022
Telephone: (212) 872-1000
Facsimile: (212) 872-1002
Attention: James Kaye
24
<PAGE>
Each party shall provide written notice to the other party of any change in
address or facsimile number in accordance with the provisions hereof.
6.3 Amendments; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
both the Company and each of the Purchasers or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter. Notwithstanding the
foregoing, no such amendment shall be effective to the extent that it applies to
less than all of the holders of the Debentures outstanding. The Company shall
not offer or pay any consideration to a Purchaser for consenting to such an
amendment or waiver unless the same consideration is offered to each Purchaser
and the same consideration is paid to each Purchaser which consents to such
amendment or waiver.
6.4 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
6.5 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and permitted assigns. The
Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of each of the Purchasers. The Purchasers may
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the Company, provided, that any assignees must make the
representations and warranties set forth in Section 2.2 and otherwise comply
with the terms of this Agreement otherwise applicable to its assignor. This
provision shall not limit a Purchaser's right to transfer securities in
accordance with all of the terms of this Agreement or the Transaction Documents.
6.6 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
6.7 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the nonexclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION
OF ANY DISPUTE HEREUNDER
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<PAGE>
OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY.
6.8 Survival. The representations and warranties of the Company and the
Purchasers contained in Sections 2.1 and 2.2, the agreements and covenants set
forth in Section 3, and the indemnification provisions set forth in Section 5,
shall survive the Closing and any conversion of the Debentures or exercise of
the Warrants regardless of any investigation made by or on behalf of the such
Purchaser or by or on behalf of the Company, except that, in the case of
representations and warranties such survival shall be limited to the period of
six (6) years following the Closing Date on which they were made or deemed to
have been made (other than with respect to any claim by a third party against
the party to this Agreement who seeks to assert a claim based on such
representations and warranties). This section shall have no effect on the
survival of the indemnification provisions of the Registration Rights Agreement.
6.9 Counterparts. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
6.10 Publicity. The Company and the Purchasers shall consult with each
other in issuing any press releases or otherwise making public statements with
respect to the transactions contemplated hereby and neither party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other, which consent shall not be unreasonably
withheld or delayed, except that no prior consent shall be required if such
disclosure is required by law, in which such case the disclosing party shall
provide the other party with prior notice of such public statement. The Company
shall not publicly or otherwise disclose the names of any of the Purchasers
without each such Purchaser's prior written consent. The Purchasers and their
affiliated companies shall, without further cost, have the right to use in its
advertising, marketing or other similar materials all or parts of the Company's
press releases that focus on the Transaction forming the subject matter of this
Agreement or which make reference to the Transaction. The Purchasers understand
that this grant by the Company only waives objections that the Company might
have to the use of such materials by the Purchasers and in no way constitutes a
representation by the Company that references in such materials to the
activities of third-parties have been cleared or constitute a fair use.
6.11 Severability. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affected or impaired thereby and the parties will attempt to agree
upon a valid and enforceable provision which shall be a reasonable substitute
therefor, and upon so agreeing, shall incorporate such substitute provision in
this Agreement.
6.12 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchasers
will be entitled to specific performance of the obligations of the Company under
this Agreement or the Transaction Documents without the showing of economic loss
and without any bond or other security being
26
<PAGE>
required. Each of the Company and the Purchasers (severally and not jointly)
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of any breach of its obligations described in the foregoing
sentence and hereby agree to waive in any action for specific performance of any
such obligation the defense that a remedy at law would be adequate.
6.13 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser hereunder is several and not joint with the
obligations of the other Purchasers hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at the Closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
6.14 Payment Set Aside. To the extent that the Company makes a payment or
payments to the Purchasers hereunder or pursuant to the Transaction Documents or
the Purchasers enforce or exercise their rights hereunder or thereunder, and
such payment or payments or the proceeds of such enforcement or exercise or any
part thereof are subsequently invalidated, declared fraudulent or preferential,
set aside, recovered from, disgorged by or are required to be refunded, repaid
or otherwise restored to the Company, a trustee, receiver or any other Person
under any law (including, without limitation, any bankruptcy law, state or
federal law, common law or equitable cause of action), then to the extent of any
such restoration the obligation or part thereof originally intended to be
satisfied shall be revived and continued in full force and effect as if such
payment had not been made or such enforcement or setoff had not occurred.
6.15 Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
6.16 Fees and Expenses. Except as set forth in the Registration Rights
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement; provided, however, that the Company shall pay to
Brown Simpson Asset Management $50,000, of which $25,000 shall have been paid
upon the execution of the term sheet and $25,000 shall be paid upon the
execution of this Agreement. The Company shall pay all stamp and other taxes and
duties levied in connection with the issuance of the Debenture Shares and the
Warrant Shares pursuant hereto.
[SIGNATURE PAGES FOLLOW]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed by their respective authorized persons as of the
date first indicated above.
SIGNAL APPAREL COMPANY, INC.
By: /s/ Howard Weinberg
------------------------------
Name: Howard Weinberg
Title: Chief Financial Officer
<PAGE>
BROWN SIMPSON STRATEGIC
GROWTH FUND, LTD.
By: Brown Simpson Asset Management, LLC
By: /s/ Evan Levine
------------------------------
Name: Evan Levine
Title: Principal
BROWN SIMPSON STRATEGIC
GROWTH FUND, L.P.
By: Brown Simpson Capital, LLC
its general partner
By: /s/ Evan Levine
------------------------------
Name: Evan Levine
Title: Principal
2
EXHIBIT 10.2
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
into as of March 3, 1999 among Signal Apparel Company, Inc., an Indiana
corporation (the "Company"), and the parties who have executed this Agreement
and whose names appear on Schedule I hereto (each party listed on Schedule I
hereto is sometimes individually referred to herein as a "Purchaser" and all
such parties are sometimes collectively referred to herein as the "Purchasers").
This Agreement is made pursuant to the Securities Purchase Agreement, dated
as of the date hereof among the Company and the Purchasers (the "Purchase
Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein shall have the
meanings given such terms in the Purchase Agreement. As used in this Agreement,
the following terms shall have the following meanings:
"Advice" has meaning set forth in Section 3(o) hereof.
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "affiliated," controlling" and "controlled" have meanings
correlative to the foregoing.
"Aggregate Price" has the meaning set forth in Section 2(d) hereof.
"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State of
New York generally are authorized or required by law or other government actions
to close.
"Closing Date" shall mean the Closing Date as defined in the Purchase
Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, par value $.01 per share.
<PAGE>
"Debentures" means the Company's 5% Convertible Debentures issuable
pursuant to the Purchase Agreement.
"Effectiveness Date" means the earlier of (i) the 90th day following the
Closing Date, or (ii) the fifth day after the Company has received notice
(written or oral) from the Commission that the Commission Staff will not be
reviewing the Registration Statement or has no further comments on the
Registration Statement.
"Effectiveness Period" has the meaning set forth in Section 2(a) hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Event" has the meaning set forth in Section 2(d) hereof.
"Filing Date" means as soon as practicable but in no event later than the
30th day following the Closing Date.
"Holder" or "Holders" means the holder or holders, as the case may be, from
time to time of Registrable Securities.
"Indemnified Party" has the meaning set forth in Section 5(c) hereof.
"Indemnifying Party" has the meaning set forth in Section 5(c) hereof.
"Initial Registration Statement" has the meaning set forth in Section 2(a)
hereof.
"Losses" has the meaning set forth in Section 5(a) hereof.
"NYSE" means the New York Stock Exchange.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Prior Registration Statement" has the meaning set forth in Section 2(a)
hereof.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities
2
<PAGE>
covered by the Registration Statement, and all other amendments and supplements
to the Prospectus, including post-effective amendments, and all material
incorporated by reference in such Prospectus.
"Registrable Securities" means the shares of Common Stock issued or
issuable upon (i) conversion of or with respect to the Debentures, (ii) payment
of interest or any other payments in respect of the Debentures, (iii) exercise
of the Warrants, and (iv) any shares of the Company's capital stock issued with
respect to (i), (ii) or (iii) as a result of any stock split, stock dividend,
recapitalization, exchange or similar event or otherwise.
"Registration Delay Payment" has the meaning set forth in Section 2(d)
hereof.
"Registration Statement" means the Initial Registration Statement and any
additional registration statements contemplated by Sections 2(a), 2(b) and 7(d),
including (in each case) the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference in
such registration statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to the
Securities Act, as such Rule may be amended from time to time, or any similar
rule or regulation hereafter adopted by the Commission having substantially the
same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means one special counsel to the Holders, for which the
Holders will be reimbursed by the Company pursuant to Section 4.
"Trading Day" means a day on which the NYSE (or in the event the Common
Stock is not traded on the NYSE, such other securities market on which the
Common Stock is listed) is open for trading.
"Underlying Shares" means the shares of Common Stock issuable upon
conversion of the Debentures and exercise of the Warrants.
"Underwritten Registration or Underwritten Offering" means a registration
in connection with which securities of the Company are sold to an underwriter
for reoffering to the public pursuant to an effective registration statement.
3
<PAGE>
"Warrants" means the warrants issuable pursuant to the Purchase Agreement.
2. Registration Requirements
(a) On or prior to the Filing Date, the Company shall prepare and file with
the Commission a Registration Statement (the "Initial Registration Statement")
which shall cover all Registrable Securities for an offering to be made on a
continuous basis pursuant to a "Shelf" registration statement under Rule 415.
The Initial Registration Statement shall be on Form S-3 or any successor form
(except if the Company is not then eligible to register for resale the
Registrable Securities on Form S-3, in which case such registration shall be on
another appropriate form in accordance herewith, subject to the reasonable
consent of the original Holders of a majority interest of the Registrable
Securities). The Company shall (i) not permit any securities other than the
Registrable Securities to be included in the Initial Registration Statement and
(ii) use its best efforts to cause the Initial Registration Statement to be
declared effective under the Securities Act as promptly as possible after the
filing thereof, but in any event on or prior to the Effectiveness Date, and to
keep such Initial Registration Statement continuously effective under the
Securities Act until the date which is five years after the date that such
Initial Registration Statement is declared effective by the Commission or such
earlier date when all Registrable Securities covered by such Initial
Registration Statement have been sold or may be sold without volume restrictions
pursuant to Rule 144 as determined by counsel to the Company pursuant to a
written opinion letter, addressed to the Holders and the Company's transfer
agent to such effect (the "Effectiveness Period"). The number of shares of
Common Stock initially included in the Initial Registration Statement shall be
no less than 120% of the sum of the number of Debentures and Warrants that are
then issuable upon conversion of the Debentures (based on the Conversion Price
(as defined in the Debentures) as would then be in effect at such time) and the
exercise of the Warrants, without regard to any limitation on the Purchaser's
ability to convert the Debentures or exercise the Warrants. Notwithstanding the
foregoing, the Holders acknowledge that the Company has a registration statement
currently effective under the Securities Act (Registration No. 333-______) (the
"Prior Registration Statement"). If the Holder's receive an opinion of the
Company's counsel, in form and substance reasonable satisfactory to the Holders,
that all or a portion of the Registrable Securities may be included under the
Prior Registration Statement, then the Initial Registration Statement need not
include the number of Registrable Securities included in the Prior Registration
Statement, unless the Commission concludes that the Prior Registration Statement
cannot be used for the Registrable Securities.
(b) In addition to the Initial Registration Statement, if the Holders of a
majority of the Registrable Securities covered by a Registration Statement so
elect on or after August __, 1999, an offering of Registrable Securities
pursuant to such Registration Statement may be effected in the form of an
Underwritten Offering. In such event, and if the managing underwriters advise
the Company and such Holders in writing that in their opinion the amount of
Registrable Securities proposed to be sold in such Underwritten Offering exceeds
the amount of Registrable Securities which can be sold in such Underwritten
Offering, there shall be included in such Underwritten Offering the amount of
such Registrable Securities which in the opinion of such managing underwriters
can be sold, and such amount shall be allocated pro rata among the Holders
proposing to sell Registrable Securities in such Underwritten Offering.
4
<PAGE>
(c) If any of the Registrable Securities are to be sold in an Underwritten
Offering, the investment banker in interest that will administer the offering
will be selected by the Holders of a majority of the Registrable Securities
included in such offering, provided that the Company shall consent to the
inclusion of such investment banker, which consent shall not be unreasonably
withheld. No Holder may participate in any Underwritten Offering hereunder
unless such Holder (i) agrees to sell its Registrable Securities on the basis
provided in any underwriting agreements approved by the Persons entitled
hereunder to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such arrangements.
(d) If (i) the Initial Registration Statement covering all the applicable
Registrable Securities and required to be filed by the Company pursuant to this
Agreement is not (A) filed with the Commission on or before the Filing Date or
(B) declared effective by the Commission on or before the applicable
Effectiveness Date, (ii) on any day after the Registration Statement has been
declared effective by the Commission (A) the Registered Owner is legally
prevented from making sales of Registrable Securities pursuant to the
Registration Statement (including, without limitation, because of a failure to
keep the Registration Statement effective, to disclose such information as is
necessary for sales to be made pursuant to the Registration Statement, or to
register sufficient shares of Common Stock) or (B) the Common Stock is not
listed or included for quotation on the NYSE, the National Market System of the
Nasdaq Stock Market ("Nasdaq") or the American Stock Exchange (the "AMEX") after
being so listed or included for quotation or (iii) the Company shall otherwise
fail to file a Registration Statement required by Section 2(a) hereof, (each
such event specified in (i), (ii) and (iii) above, an "Event"), then, as partial
relief for the damages to any Holder by reason of any such delay in or reduction
of its ability to sell the Registrable Securities (which remedy shall not be
exclusive of any other remedies available at law or in equity), the Company
shall pay to each Holder an amount in cash (a "Registration Delay Payment")
equal to the then outstanding principal amount of the Debentures (and, in the
case of Holders, the principal amount of Debentures from which such Registrable
Securities were converted) (the "Aggregate Price") multiplied by two hundredths
(.020) times the sum of: (i) the number of months (prorated for partial months)
after the end of the Effectiveness Date and prior to the date the Registration
Statement is declared effective by the Commission, provided, however, that there
shall be excluded from such period any delays which are solely attributable to
changes required by the Purchasers in the Registration Statement with respect to
information relating to the Purchasers, or to the failure of the Purchasers to
conduct their review of the Registration Statement pursuant to Section 3(a);
(ii) the number of months (prorated for partial months) that the Registered
Owner is legally prevented from making sales of Registrable Securities pursuant
to the Registration Statement after the Registration Statement has been declared
effective (including, without limitation, when sales cannot be made by reason of
the Company's failure to properly supplement or amend the Prospectus in
accordance with the terms of this Agreement, or otherwise, but excluding when
such sales cannot be made solely by reason of any act or omission solely
attributable to the Purchasers); and (iii) the number of months (prorated for
partial months) that the Common Stock is not listed or included for quotation on
the NYSE, Nasdaq or AMEX or that trading thereon is halted after the
Registration Statement has been declared effective. The Company shall pay any
Required Registration Delay Payments to each Holder in cash on the last Business
Day of each month during which an Event has occurred and is continuing. In the
event the Company fails to
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make a Registration Delay Payment in a timely manner, such Registration Delay
Payment shall bear interest at the rate of 2.0% per month (prorated for partial
months) until paid in full.
3. Registration Procedures
In connection with the Company's registration obligations hereunder, the
Company shall:
(a) Prepare and file with the Commission on or prior to the Filing
Date a Registration Statement on Form S-3 or its successor form (or if the
Company is not then eligible to register for resale the Registrable
Securities on Form S-3 such registration shall be on another appropriate
form in accordance herewith (which shall include a Plan of Distribution
substantially in the form of Exhibit A annexed hereto, unless in connection
with an Underwritten Offering) or in connection with an Underwritten
Offering hereunder, such other form agreed to by the Company and by a
majority-in-interest of Holders of Registrable Securities to be covered by
such Registration Statement) (except if otherwise directed by the Holders),
and cause the Registration Statement to become effective and remain
effective as provided herein; provided, however, that not less than five
(5) Business Days prior to the filing of the Registration Statement or any
related Prospectus or any amendment or supplement thereto (including any
document that would be incorporated therein by reference), the Company
shall, if reasonably practicable (i) furnish to the Holders, their Special
Counsel and any managing underwriters, copies of all such documents
proposed to be filed (including documents incorporated by reference), which
documents will be subject to the review of such Holders, their Special
Counsel and such managing underwriters, and (ii) cause its officers and
directors, counsel and independent certified public accountants to respond
to such inquiries as shall be necessary, in the reasonable opinion of
respective counsel to such Holders and such underwriters, to conduct a
reasonable investigation within the meaning of the Securities Act. The
Company shall not file the Registration Statement or any such Prospectus or
any amendments or supplements thereto to which the Holders of a majority of
the Registrable Securities, their Special Counsel or any managing
underwriters shall reasonably object in writing within three (3) Business
Days of their receipt thereof. If such objection relates to an act or
omission of the Holder, the Company shall not be penalized for failing to
meet the applicable Filing Date. The sections of such Registration
Statement covering information with respect to the Holders, the Holder's
beneficial ownership of securities of the Company or the Holders intended
method of disposition of Registrable Securities shall conform to the
information provided to the Company by each of the Holders.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may
be necessary to keep the Registration Statement continuously effective for
the Effectiveness Period and prepare and file with the Commission such
additional Registration Statements in order to register for resale under
the Securities Act all of the Registrable Securities; (ii) cause the
related Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant to Rule
424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) respond as promptly as possible to any comments
received from the Commission with respect to the Registration Statement or
any amendment thereto and as promptly as possible provide the Holders true
and complete copies of all correspondence from
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and to the Commission relating to the Registration Statement; and (iv)
comply in all material respects with the provisions of the Securities Act
and the Exchange Act with respect to the disposition of all Registrable
Securities covered by the Registration Statement during the applicable
period in accordance with the intended methods of disposition by the
Holders thereof set forth in the Registration Statement as so amended or in
such Prospectus as so supplemented. In the event the number of shares
available under a Registration Statement filed pursuant to this Agreement
is insufficient to cover 120% of the Registrable Securities issued or
issuable upon conversion of the Debentures and exercise of the Warrants,
without regard to any limitation on conversion or exercise, the Company
shall amend the Registration Statement, or file a new Registration
Statement (on the short form available therefore, if applicable), or both,
so as to cover 120% of the Registrable Securities, in each case, as soon as
practicable, but in any event within twenty (20) Business Days after the
necessity therefor arises (based on the Conversion Price of the Debentures
and other relevant factors on which the Company reasonably elects to rely).
The Company shall use its best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following
the filing thereof. The provisions of Section 2(d) above shall be
applicable with respect to such obligation, with the ninety (90) days
running from the day after the date on which the Company reasonably first
determines (or reasonably should have determined) the need therefor.
(c) Notify the Holders of Registrable Securities to be sold, their
Special Counsel and any managing underwriters as promptly as possible (and,
in the case of (i)(A) below, not less than five (5) days prior to such
filing and, in the case of (i)(C) below, not later than the first Business
Day after effectiveness) and (if requested by any such Person) confirm such
notice in writing no later than one (1) Business Day following the day:
(i)(A) when a Prospectus or any Prospectus supplement or post-effective
amendment to the Registration Statement is proposed to be filed, (B) when
the Commission notifies the Company whether there will be a "review" of
such Registration Statement and whenever the Commission comments in writing
on such Registration Statement and (C) with respect to the Registration
Statement or any post-effective amendment, when the same has become
effective; (ii) of any request by the Commission or any other Federal or
state governmental authority for amendments or supplements to the
Registration Statement or Prospectus or for additional information; (iii)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement covering any or all of the
Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) when the President or General Counsel of the Company obtain,
or should have obtained, knowledge that any of the representations and
warranties of the Company contained in any agreement (including any
underwriting agreement) contemplated hereby ceases to be true and correct
in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or
exemption from qualification of any of the Registrable Securities for sale
in any jurisdiction, or the initiation of any Proceeding for such purpose;
and (vi) of the occurrence of any event that makes any statement made in
the Registration Statement or Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any material
respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration
Statement or the Prospectus, as the case may be, it will not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make
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<PAGE>
the statements therein, in light of the circumstances under which they were
made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale
in any jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of a
majority in interest of the Registrable Securities to be sold in connection
with an Underwritten Offering, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment to the Registration Statement such
information as the Company reasonably agrees should be included therein and
(ii) make all required filings of such Prospectus supplement or such
post-effective amendment as soon as practicable after the Company has
received notification of the matters to be incorporated in such Prospectus
supplement or post-effective amendment; provided, however, that the Company
shall not be required to take any action pursuant to this Section 3(e) that
would, in the opinion of counsel for the Company, violate applicable law or
be materially detrimental to the business prospects of the Company.
(f) Furnish to each Holder, their Special Counsel, and any managing
underwriters, without charge, at least one conformed copy of each
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested
by such Person (including those previously furnished or incorporated by
reference) promptly after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel, and any
underwriters, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request; and the Company
hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders and any underwriters in
connection with the offering and sale of the Registrable Securities covered
by such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Holders,
any underwriters and their Special Counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States
as any Holder or underwriter requests in writing, to keep each such
registration or qualification (or exemption therefrom) effective during the
Effectiveness Period and to do any and all other acts or things necessary
or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; provided,
however, that the Company shall not be required to qualify generally to do
business in any jurisdiction where it is not then so qualified or to take
any action that would subject it to general service of process in any such
jurisdiction where it is not then so
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<PAGE>
subject or subject the Company to any material tax in any such jurisdiction
where it is not then so subject.
(i) Cooperate with the Holders and any managing underwriters to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold pursuant to a Registration Statement,
which certificates shall be free, to the extent permitted by applicable law
and the Purchase Agreement, of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such
names as any such managing underwriters or Holders may request at least two
(2) Business Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section 3(c)(vi),
as promptly as possible, prepare a supplement or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to
the related Prospectus or any document incorporated or deemed to be
incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
(k) Use its best efforts to cause all Registrable Securities relating
to such Registration Statement to be listed on the NYSE and/or any other
securities exchange, quotation system, market or over-the-counter bulletin
board, if any, on which similar securities issued by the Company are then
listed as and when required pursuant to the Purchase Agreement.
(l) Enter into such agreements (including an underwriting agreement in
form, scope and substance as is customary in Underwritten Offerings) and
take all such other actions in connection therewith (including those
reasonably requested by any managing underwriters and the Holders of a
majority of the Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities, and whether or
not an underwriting agreement is entered into: (i) make such
representations and warranties to such Holders and such underwriters as are
customarily made by issuers to underwriters in underwritten public
offerings, and confirm the same if and when requested; (ii) in the case of
an Underwritten Offering obtain and deliver copies thereof to the managing
underwriters, if any, or in the case of non-Underwritten Offerings, if
reasonably requested by the selling Holders (and at the expense of such
selling Holders), obtain and deliver copies thereof to such selling
Holders, of opinions of counsel to the Company and updates thereof
addressed to each such underwriter, in form, scope and substance reasonably
satisfactory to any such managing underwriters and Special Counsel to the
selling Holders covering the matters customarily covered in opinions
requested in Underwritten Offerings and such other matters as may be
reasonably requested by such Special Counsel and underwriters; (iii)
immediately prior to the effectiveness of the Registration Statement, and,
in the case of an Underwritten Offering, at the time of delivery of any
Registrable Securities sold pursuant thereto, and, in the case of
non-Underwritten Offerings, at such time as the selling Holders may
reasonably request (and at the expense of such selling Holders), obtain and
deliver copies to the Holders and the managing underwriters, if any, of
"cold comfort" letters and updates thereof from the independent certified
public accountants of
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<PAGE>
the Company (and, if required, any other independent certified public
accountants of any subsidiary of the Company or of any business acquired by
the Company for which financial statements and financial data is, or is
required to be, included in the Registration Statement), addressed to each
of the underwriters, if any, in form and substance as are customary in
connection with Underwritten Offerings; (iv) if an underwriting agreement
is entered into, the same shall contain indemnification provisions and
procedures no less favorable to the selling Holders and the underwriters,
if any, than those set forth in Section 5 (or such other provisions and
procedures acceptable to the managing underwriters, if any, and holders of
a majority of Registrable Securities participating in such Underwritten
Offering); and (v) deliver such documents and certificates as may be
reasonably requested by the Holders of a majority of the Registrable
Securities being sold, their Special Counsel and any managing underwriters
to evidence the continued validity of the representations and warranties
made pursuant to clause 3(l)(i) above and to evidence compliance with any
customary conditions contained in the underwriting agreement or other
agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any
disposition of Registrable Securities, and any attorney or accountant
retained by such selling Holders or underwriters, at the offices where
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and properties of the Company and
its subsidiaries, and cause the officers, directors, agents and employees
of the Company and its subsidiaries to supply all information in each case
reasonably requested by any such Holder, representative, underwriter,
attorney or accountant in connection with the Registration Statement;
provided, however, that if any information is determined in good faith by
the Company in writing to be of a confidential nature at the time of
delivery of such information, then prior to delivery of such information,
the Company and the Holders shall enter into a confidentiality agreement
reasonably acceptable to the Company and the Holders providing that such
information shall be kept confidential, unless: (i) disclosure of such
information is required by court or administrative order or is necessary to
respond to inquiries of regulatory authorities (provided, however, that the
Company shall be given notice of any such pending disclosure so that the
Company may seek a protective order); (ii) disclosure of such information,
in the opinion of counsel to such Person, is required by law; (iii) such
information becomes generally available to the public other than as a
result of a disclosure or failure to safeguard by such Person; or (iv) such
information becomes available to such Person from a source other than the
Company and such source is not known by such Person to be bound by a
confidentiality agreement with the Company.
(n) Comply in all material respects with all applicable rules and
regulations of the Commission and make generally available to its
securityholders earning statements satisfying the provisions of Section
11(a) of the Securities Act and Rule 158 not later than 45 days after the
end of any 12-month period (or 90 days after the end of any 12-month period
if such period is a fiscal year) (i) commencing at the end of any fiscal
quarter in which Registrable Securities are sold to underwriters in a firm
commitment or best efforts Underwritten Offering and (ii) if not sold to
underwriters in such an offering, commencing on the first day of the first
fiscal quarter of the Company after the effective date of the Registration
Statement, which statement shall conform to the requirements of Rule 158.
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<PAGE>
(o) The Company may require each selling Holder to furnish to the
Company information regarding such Holder and the distribution of such
Registrable Securities as is required by law to be disclosed in the
Registration Statement, and the Company may exclude from such registration
the Registrable Securities of any such Holder who unreasonably fails to
furnish such information within a reasonable time after receiving such
request.
If the Registration Statement refers to any Holder by name or otherwise as
the holder of any securities of the Company, then such Holder shall have the
right to require (if such reference to such Holder by name or otherwise is not
required by the Securities Act or any similar Federal statute then in force) the
deletion of the reference to such Holder in any amendment or supplement to the
Registration Statement filed or prepared subsequent to the time that such
reference ceases to be required.
Each Holder covenants and agrees that (i) it will not sell any Registrable
Securities under the Registration Statement until it has received copies of the
Prospectus as then amended or supplemented as contemplated in Section 3(g) and
notice from the Company that such Registration Statement and any post-effective
amendments thereto have become effective as contemplated by Section 3(c) and
(ii) it and its officers, directors or Affiliates, if any, will comply with the
prospectus delivery requirements of the Securities Act as applicable to them in
connection with sales of Registrable Securities pursuant to the Registration
Statement.
Each Holder agrees by its acquisition of such Registrable Securities that,
upon receipt of a notice from the Company of the occurrence of any event of the
kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or 3(c)(vi),
such Holder will forthwith discontinue disposition of such Registrable
Securities under the Registration Statement until such Holder's receipt of the
copies of the supplemented Prospectus and/or amended Registration Statement
contemplated by Section 3(j), or until it is advised in writing (the "Advice")
by the Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that
are incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement. Notwithstanding anything to the contrary, the Company
shall cause its transfer agent to deliver unlegended shares of Common Stock to a
transferee of a Holder in accordance with the terms of the Securities Purchase
Agreement in connection with any sale of Registrable Securities with respect to
which a Holder has entered into a contract for sale prior to the Holder's
receipt of a notice from the Company of the happening of any event of the kind
described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or 3(c)(vi) and for
which the Holder has not yet settled.
(p) The Company agrees to respond fully and completely to any and all
comments on a Registration Statement received from the Commission staff as
promptly as possible but, for non-Underwritten Offerings, in no event later
than fifteen (15) Business Days of the receipt of such comments, regardless
of whether such comments are in oral or written form.
(q) Within two (2) Business Days after a Registration Statement which
covers applicable Registrable Securities is ordered effective by the
Commission, the Company shall deliver, and shall cause legal counsel for
the Company to deliver, to the transfer agent for such
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<PAGE>
Registrable Securities (with copies to the Holders whose Registrable
Securities are included in such Registration Statement) confirmation that
such Registration Statement has been declared effective by the Commission
in the form attached hereto as Exhibit B.
(r) If (i) there is material non-public information regarding the
Company which the Company's Board of Directors (the "Board") reasonably
determines not to be in the Company's best interest to disclose and which
the Company is not otherwise required to disclose, or (ii) there is a
significant business opportunity (including but not limited to the
acquisition or disposition of assets (other than in the ordinary course of
business) or any merger, consolidation, tender offer or other similar
transaction) available to the Company which the Board reasonably determines
not to be in the Company's best interest to disclose, then the Company may
postpone or suspend filing or effectiveness of a registration statement for
a period not to exceed 20 consecutive days, provided that the Company may
not postpone or suspend its obligation under this Section 3(r) for more
than 45 days in the aggregate during any 12 month period; provided,
however, that no such postponement or suspension arising out of the same
set of facts, circumstances or transactions shall be permitted for
consecutive 20 day periods.
4. Registration Expenses
(a) All fees and expenses incident to the performance of or compliance with
this Agreement by the Company, except and to the extent specified in Section
4(b), shall be borne by the Company, whether or not pursuant to an Underwritten
Offering and whether or not the Registration Statement is filed or becomes
effective and whether or not any Registrable Securities are sold pursuant to the
Registration Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (i) all registration and filing fees
(including, without limitation, fees and expenses (A) with respect to filings
required to be made with the NYSE and each other securities exchange or market
on which Registrable Securities are required hereunder to be listed and (B) in
compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the Holders in connection with
Blue Sky qualifications of the Registrable Securities and determination of the
eligibility of the Registrable Securities for investment under the laws of such
jurisdictions as the managing underwriters, if any, or the Holders of a majority
of Registrable Securities may designate)), (ii) printing expenses (including,
without limitation, expenses of printing certificates for Registrable Securities
and of printing prospectuses if the printing of prospectuses is requested by the
managing underwriters, if any, or by the holders of a majority of the
Registrable Securities included in the Registration Statement), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for the
Company and Special Counsel for the Holders (and in such case of special
counsel, to a maximum amount of $20,000), (v) Securities Act liability
insurance, if the Company so desires such insurance, and (vi) fees and expenses
of all other Persons retained by the Company in connection with the consummation
of the transactions contemplated by this Agreement. In addition, the Company
shall be responsible for all of its internal expenses incurred in connection
with the consummation of the transactions contemplated by this Agreement
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit, and the fees and expenses incurred in connection with the listing of the
Registrable Securities on any securities exchange as required hereunder.
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(b) If the Holders require an Underwritten Offering pursuant to the terms
hereof, the Company shall be responsible for all costs, fees and expenses in
connection therewith, except for the fees and disbursements of the Underwriters
(including any underwriting commissions and discounts) and their legal counsel
and accountants (which shall be borne by the Holders). Therefore, in such
circumstances the Holder shall bear the expenses of the fees and disbursements
of any legal counsel or accounting firm retained by the underwriters in
connection with such Underwritten Offering and the costs of any determination
(but not filing) by the underwriters of the eligibility of the Registrable
Securities for investment under the applicable state securities laws. By way of
illustration which is not intended to diminish from the provisions of Section
4(a), the Holders shall not be responsible for, and the Company shall be
required to pay the fees or disbursements incurred by the Company (including by
its legal counsel and accountants) in connection with, the preparation and
filing of a Registration Statement and related Prospectus for such offering, the
maintenance of such Registration Statement in accordance with the terms hereof,
the listing of the Registrable Securities in accordance with the requirements
hereof, and printing expenses incurred to comply with the requirements hereof.
5. Indemnification
(a) Indemnification by the Company. The Company shall, notwithstanding any
termination of this Agreement, indemnify and hold harmless each Holder, the
officers, directors, agents (including any underwriters retained by such Holder
in connection with the offer and sale of Registrable Securities), brokers
(including brokers who offer and sell Registrable Securities as principal as a
result of a pledge or any failure to perform under a margin call of Common
Stock), investment advisors and employees of each of them, each Person who
controls any such Holder (within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling Person, to the fullest extent permitted by
applicable law, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, costs of preparation and
attorneys' fees) and expenses (collectively "Losses"), as incurred, arising out
of or relating to (i) any untrue or alleged untrue statement of a material fact
contained in the Registration Statement that has been declared effective by the
Commission or any supplements or amendments thereto or (ii) any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein (in the case of any Prospectus or form of
prospectus or supplement thereto, in light of the circumstances under which they
were made) not misleading (in the case of any Prospectus or form of prospectus
or supplement thereto, in light of the circumstances under which they were
made), except to the extent, but only to the extent, that such untrue statements
or omissions are based solely upon information regarding such Holder furnished
in writing to the Company by such Holder expressly for use therein, which
information was reasonably relied on by the Company for use therein or to the
extent that such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of prospectus or in any amendment or
supplement thereto. The Company shall notify the Holders promptly of the
institution, threat or
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assertion of any Proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, the directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses, as
incurred, arising solely out of or based solely upon (i) any untrue statement of
a material fact contained in the Registration Statement that has been declared
effective by the Commission or any supplements or amendments thereto or (ii) any
omission of a material fact required to be stated therein or necessary to make
the statements therein not misleading to the extent, but only to the extent,
that such untrue statement or omission is contained in any information so
furnished in writing by such Holder to the Company specifically for inclusion in
the Registration Statement or such Prospectus and that such information was
reasonably relied upon by the Company for use in the Registration Statement,
such Prospectus or such form of prospectus or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of prospectus. Notwithstanding the above, the
obligations of each Holder to indemnify shall be limited to the amount of
proceeds each Holder received from sales of Common Stock under the Registration
Statement.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall be
brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party promptly shall notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided,
however, that the failure of any Indemnified Party to give such notice shall not
relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in any
such Proceeding and to participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party or
Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying
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Party, the Indemnifying Party shall not have the right to assume the defense
thereof and such counsel shall be at the expense of the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending Proceeding in respect of
which any Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable fees
and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten (10)
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a) or 5(b)
is unavailable to an Indemnified Party because of a failure or refusal of a
court of competent jurisdiction to enforce such indemnification in accordance
with its terms (by reason of public policy or otherwise), then each Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such Losses, in
such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party and Indemnified Party in connection with the actions,
statements or omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such Indemnifying Party
and Indemnified Party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission of a material fact, has been
taken or made by, or relates to information supplied by, such Indemnifying Party
or Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action, statement or
omission. The amount paid or payable by a party as a result of any Losses shall
be deemed to include, subject to the limitations set forth in Section 5(c), any
reasonable attorneys' or other reasonable fees or expenses incurred by such
party in connection with any Proceeding to the extent such party would have been
indemnified for such fees or expenses if the indemnification provided for in
this Section was available to such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
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The indemnity and contribution agreements contained in this Section are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties. Notwithstanding the above, the obligations of each Holder
to indemnify shall be limited to the amount of proceeds each Holder received
from sales of Common Stock under the Registration Statement.
6. Rule 144
As long as any Holder owns Registrable Securities, the Company covenants to
timely file (or obtain extensions in respect thereof and file within the
applicable grace period) all reports required to be filed by the Company after
the date hereof pursuant to Section 13(a) or l5(d) of the Exchange Act and to
promptly furnish the Holders with true and complete copies of all such filings.
As long as any Holder owns Registrable Securities, if the Company is not
required to file reports pursuant to Section 13(a) or l5(d) of the Exchange Act,
it will prepare and furnish to the Holders and make publicly available in
accordance with Rule 144(c) promulgated under the Securities Act annual and
quarterly financial statements, together with a discussion and analysis of such
financial statements in form and substance substantially similar to those that
would otherwise be required to be included in reports required by Section 13(a)
or 15(d) of the Exchange Act, as well as any other information required thereby,
in the time period that such filings would have been required to have been made
under the Exchange Act. The Company further covenants that it will take such
further action as any Holder may reasonably request, all to the extent required
from time to time to enable such Person to sell Underlying Shares without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 promulgated under the Securities Act, including providing
any legal opinions referred to in the Purchase Agreement. Upon the request of
any Holder, the Company shall deliver to such Holder a written certification of
a duly authorized officer as to whether it has complied with such requirements.
7. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a Holder of any
of their obligations under this Agreement, each Holder or the Company, as the
case may be, in addition to being entitled to exercise all rights granted by law
and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agree that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of its
subsidiaries has, as of the date hereof, nor shall the Company or any of its
subsidiaries, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with
16
<PAGE>
the provisions hereof. Except as disclosed in Schedule 2.1(r) of the Purchase
Agreement, neither the Company nor any of its subsidiaries has previously
entered into any agreement granting any registration rights with respect to any
of its securities to any Person. Without limiting the generality of the
foregoing, without the written consent of the Holders of a majority of the then
outstanding Registrable Securities, the Company shall not grant to any Person
the right to request the Company to register any securities of the Company under
the Securities Act unless the rights so granted are subordinated in all respects
to the rights in full of the Holders set forth in Section 2 herein, and are not
otherwise in conflict or inconsistent with the provisions of this Agreement.
This Agreement, together with the Purchase Agreement, contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters.
(c) No Piggyback on Registrations. Other than the Registrable Securities
and except as disclosed on Schedule 2.1(r) of the Purchase Agreement, neither
the Company nor any of its securityholders (other than the Holders in such
capacity pursuant hereto) may include securities of the Company in the
Registration Statements and the Company shall not after the date hereof enter
into any agreement providing such right to any of its securityholders, unless
the right so granted is subordinated in all respects to the rights in full of
the Holders set forth herein, and is not otherwise in conflict or inconsistent
with the provisions of this Agreement.
(d) Piggy-Back Registrations. Except as provided herein if, at any time
when there is not an effective Registration Statement covering the Registrable
Securities, the Company shall determine to prepare and file with the Commission
a registration statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities,
other than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act) or their then equivalents relating to equity securities to be issued solely
in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee benefit
plans, the Company shall send to each Holder of Registrable Securities written
notice of such determination and, if within fifteen (15) days after receipt of
such notice, any such Holder shall so request in writing, (which request shall
specify the Registrable Securities intended to be disposed of by the
Purchasers), the Company will use reasonable efforts to effect the registration
under the Securities Act of all Registrable Securities which the Company has
been so requested to register by the Holder, to the extent requisite to permit
the disposition of the Registrable Securities so to be registered, provided that
if at any time after giving written notice of its intention to register any
securities and prior to the effective date of the registration statement filed
in connection with such registration, the Company shall determine for any reason
not to register or to delay registration of such securities, the Company may, at
its election, give written notice of such determination to such Holder and,
thereupon, (i) in the case of a determination not to register, shall be relieved
of its obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay expenses in accordance with
Section 4 hereof), and (ii) in the case of a determination to delay registering,
shall be permitted to delay registering any Registrable Securities being
registered pursuant to this Section 7(d) for the same period as the delay in
registering such other securities. The Company shall include in such
registration statement all or any part of such Registrable Securities such
Holder requests to be registered; provided, however, that the Company shall not
be required to register any Registrable Securities pursuant to this Section 7(d)
that are eligible for
17
<PAGE>
sale pursuant to Rule 144(k) of the Securities Act. In the case of an
underwritten public offering, if the managing underwriter(s) or underwriter(s)
should reasonably object to the inclusion of the Registrable Securities in such
registration statement, then if the Company after consultation with the
Underwriter's representative should reasonably determine that the inclusion of
such Registrable Securities would materially adversely affect the offering
contemplated in such registration statement, and based on such determination
recommends inclusion in such registration statement of fewer Registrable
Securities then proposed to be sold by the Holders, then (x) the number of
Registrable Securities of the Holders included in such registration statement
shall be reduced pro rata among such Holders (based upon the number of
Registrable Securities requested to be included in the registration) or (y) none
of the Registrable Securities of the Holders shall be included in such
registration statement if the Company, after consultation with the
underwriter(s), recommends the inclusion of none of such Registrable Securities;
provided, however, that if securities are being offered for the account of other
persons or entities as well as the Company, such reduction shall not represent a
greater fraction of the number of Registrable Securities intended to be offered
by the Holders than the fraction of similar reductions imposed on such other
persons or entities (other than the Company).
(e) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the same shall be in writing and signed by the Company and the Holders of
at least two thirds of the then outstanding Registrable Securities; provided,
however, that for the purposes of this sentence, Registrable Securities that are
owned, directly or indirectly, by the Company, or an Affiliate of the Company
are not deemed outstanding. Notwithstanding the foregoing, a waiver or consent
to depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders and that does not directly or indirectly
affect the rights of other Holders may be given by Holders of at least a
majority of the Registrable Securities to which such waiver or consent relates;
provided, however, that the provisions of this sentence may not be amended,
modified, or supplemented except in accordance with the provisions of the
immediately preceding sentence.
(f) Notices. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be deemed to have been received
(a) upon hand delivery (receipt acknowledged) or delivery by telex (with correct
answer back received), telecopy or facsimile (with transmission confirmation
report) at the address or number designated below (if received by 8:00 p.m. EST
where such notice is to be received), or the first Business Day following such
delivery (if received after 8:00 p.m. EST where such notice is to be received)
or (b) on the second Business Day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications are (i) if to the Company to Signal Apparel Company, Inc., 200A
Manufactures Road, Chattanooga, Tennessee 37405, Attn: President and General
Counsel, fax no. (423) 752-2040 and 500 Seventh Avenue, 7th Floor, New York, New
York 10018, Attn: President and General Counsel, fax no. (423) 752-2040 (TN) and
(212) 944-7667 (NY) with copies to Skadden, Arps, Slate, Meagher & Flom LLP, 919
Third Avenue, New York, New York 10022, Attn: Robert A Copen, Esq., fax no.
(212) 735-2000 and (ii) if to any Purchaser to the address set forth on Schedule
I hereto with copies to those specified on the signature pages hereto and to
Akin, Gump, Strauss, Hauer & Feld, L.L.P., 590 Madison
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<PAGE>
Avenue, New York, New York 10022, Attn: James Kaye, Esq., fax no. (212) 872-1002
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(g) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties
and shall inure to the benefit of each Holder. The Company may not assign its
rights or obligations hereunder without the prior written consent of each
Holder. Each Holder may assign its rights hereunder in the manner and to the
Persons as permitted under the Purchase Agreement. In addition, the rights of
each Holder hereunder, including the right to have the Company register for
resale Registrable Securities in accordance with the terms of this Agreement,
shall be automatically assignable by each Holder to any Affiliate of such
Holder, or any other Holder or Affiliate of any other Holder if: (i) the Holder
agrees in writing with the transferee or assignee to assign such rights, and a
copy of such agreement is furnished to the Company within a reasonable time
after such assignment, (ii) the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice of (a) the name and
address of such transferee or assignee, and (b) the securities with respect to
which such registration rights are being transferred or assigned, (iii)
following such transfer or assignment the further disposition of such securities
by the transferee or assignees is restricted under the Securities Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this Section, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions of this Agreement, and (v) such transfer shall have been made in
accordance with the applicable requirements of the Purchase Agreement. The
rights to assignment shall apply to the Holders (and to subsequent) successors
and assigns.
(h) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) the same with the same force and
effect as if such facsimile signature were the original thereof.
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of law. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
Borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consent to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
(j) Cumulative Remedies. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law.
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<PAGE>
(k) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their reasonable efforts to find and employ an alternative means to achieve the
same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may be
hereafter declared invalid, illegal, void or unenforceable.
(l) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(m) Shares Held by The Company and its Affiliates. Whenever the consent or
approval of Holders of a specified percentage of Registrable Securities is
required hereunder, Registrable Securities held by the Company or its Affiliates
(other than any Holder or transferees or successors or assigns thereof if such
Holder is deemed to be an Affiliate solely by reason of its holdings of such
Registrable Securities) shall not be counted in determining whether such consent
or approval was given by the Holders of such required percentage.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
SIGNAL APPAREL COMPANY, INC.
By: /s/ Howard Weinberg
------------------------------
Name: Howard Weinberg
Title: Chief Financial Officer
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BROWN SIMPSON STRATEGIC
GROWTH FUND, LTD.
By: Brown Simpson Asset Management, LLC
By: /s/ Evan Levine
------------------------------
Name: Evan Levine
Title: Principal
BROWN SIMPSON STRATEGIC
GROWTH FUND, L.P.
By: Brown Simpson Capital, LLC
its general partner
By: /s/ Evan Levine
------------------------------
Name: Evan Levine
Title: Principal
22
EXHIBIT 10.3
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT.
March 3, 1999
_________ shares Warrant No. W____
SIGNAL APPAREL COMPANY, INC.
STOCK PURCHASE WARRANT
Registered Owner: _______________________________________
This certifies that, for value received, Signal Apparel Company, Inc., an
Indiana corporation, the ("Company") grants the following rights to the
Registered Owner, or assigns, of this Warrant:
1. Issue. Upon tender (as defined in Section 5 hereof) to the Company, the
Company, within three (3) Business Days of the date thereof, shall issue to the
Registered Owner, or assigns, up to the number of shares specified in Section 2
hereof of fully paid and nonassessable shares of Common Stock that the
Registered Owner, or assigns, is otherwise entitled to purchase.
2. Number of Shares. The total number of shares of Common Stock that the
Registered Owner, or assigns, of this Warrant is entitled to receive upon
exercise of this Warrant (the "Warrant Shares") is _________ shares, subject to
adjustment from time to time as set forth in Section 6 hereof. The Company shall
at all times reserve and hold available sufficient shares of Common Stock to
satisfy all conversion and purchase rights represented by outstanding
convertible securities, options and warrants, including this Warrant. The
Company covenants and agrees that all shares of Common Stock that may be issued
upon the exercise of this Warrant shall, upon issuance, be duly and validly
issued, fully paid and nonassessable, free from all taxes, liens and charges
with respect to the purchase and the issuance of the shares, and shall not have
<PAGE>
any legend or restrictions on resale, expect as required by Section 3.2(b) of
the Purchase Agreement.
3. Exercise Price. The initial per share exercise price of this Warrant,
representing the price per share at which the shares of stock issuable upon
exercise of this Warrant may be purchased, is one dollar ($1.00), subject to
adjustment from time to time pursuant to the provisions of Section 6 hereof (the
"Exercise Price").
4. Exercise Period. This Warrant may be exercised from the Closing Date (as
defined in the Purchase Agreement) up to and including March 2, 2004 (the
"Exercise Period"). If not exercised during this period, this Warrant and all
rights granted under this Warrant shall expire and lapse.
5. Tender; Issuance of Certificates.
a. This Warrant may be exercised, in whole or in part, by (i) actual
delivery of (a) the Exercise Price in cash, (b) a duly executed Warrant Exercise
Form, a copy of which is attached to this Warrant as Exhibit A, properly
executed by the Registered Owner, or assigns, of this Warrant, and (c) by
surrender of this Warrant, or (ii) if the resale of the Warrant Shares by the
Registered Owner is not then registered pursuant to an effective registration
statement under the Securities Act, delivery to the Company of a written notice
of an election to effect a "Cashless Exercise" (as defined below) for the
Warrant Shares specified in the Warrant Exercise Form. The Warrant Shares so
purchased shall be deemed to be issued to the Registered Owner as of the close
of business on the date on which this Warrant shall have been surrendered, the
completed Warrant Exercise Form shall have been delivered and payment shall have
been made for such shares as set forth above. The payment and Warrant Exercise
Form must be delivered to the registered office of the Company either in person
or as set forth in Section 12 hereof.
b. Commencing ninety (90) days from the Filing Date (as defined in the
Registration Rights Agreement), if, and only if, at the time of exercise of this
Warrant, the Warrant Shares are not saleable pursuant to an effective
registration statement, then in addition to the exercise of all or a part of
this Warrant by payment of the Exercise Price in cash as provided above, and in
lieu of such payment, the Registered Owner shall have the right to effect a
cashless exercise (a "Cashless Exercise"). In the event of a Cashless Exercise
the Registered Owner may exercise this Warrant in whole or in part by
surrendering this Warrant in exchange for the number of shares of Common Stock
equal to the product of (x) the number of shares as to which this Warrant is
being exercised multiplied by (y) a fraction, the numerator of which is the Per
Share Market Value of the Common Stock less the Exercise Price then in effect
and the denominator of which is the Per Share Market Value (in each case
adjusted for fractional shares as herein provided).
c. In lieu of physical delivery of the Warrant, provided the Company's
transfer agent is participating in the Depositary Trust Company ("DTC") Fast
Automated
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<PAGE>
Securities Transfer ("FAST") program, upon request of the Registered Owner and
in compliance with the provisions hereof, the Company shall use its best efforts
to cause its transfer agent to electronically transmit the Warrant Shares to the
Registered Owner by crediting the account of the Registered Owner's Prime Broker
with DTC through its Deposit Withdrawal Agent Commission system. The time period
for delivery described herein shall apply to the electronic transmittals
described herein.
d. Certificates for the Warrant Shares so purchased, representing the
aggregate number of shares specified in the Warrant Exercise Form, shall be
delivered to the Registered Owner within a reasonable time, not exceeding three
(3) Business Days, after this Warrant shall have been so exercised. The
certificates so delivered shall be in such denominations as may be requested by
the Registered Owner and shall be registered in the name of the Registered Owner
or such other name as shall be designated by such Registered Owner. If this
Warrant shall have been exercised only in part, then, unless this Warrant has
expired, the Company shall, at its expense, at the time of delivery of such
certificates, deliver to the Registered Owner a new Warrant representing the
number of shares with respect to which this Warrant shall not then have been
exercised.
6. Adjustment of Exercise Price.
a. Common Stock Dividends; Common Stock Splits; Reverse Common Stock
Splits. If the Company, at any time while this Warrant is outstanding, (a) shall
pay a stock dividend on its Common Stock, (b) subdivide outstanding shares of
Common Stock into a larger number of shares, (c) combine outstanding shares of
Common Stock into a smaller number of shares or (d) issue by reclassification of
shares of Common Stock any shares of capital stock of the Company, then (i) the
Exercise Price shall be multiplied by a fraction the numerator of which shall be
the number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and the denominator of which shall be the number
of shares of Common Stock outstanding after such event and (ii) the number of
Warrant Shares shall be multiplied by a fraction, the numerator of which shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding after such event and the denominator of which shall be the number of
shares of Common Stock (excluding treasury shares, if any) outstanding before
such event. Any adjustment made pursuant to this paragraph (6)(a) shall become
effective immediately after the record date for the determination of
shareholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification. Notwithstanding the foregoing, if the Company
shall combine outstanding shares of Common Stock into a smaller number of shares
(a "reverse stock split") at any time prior to December 31, 1999, then the
Exercise Price in effect immediately prior to such reverse stock split shall not
be adjusted and shall remain in effect after giving effect to such reverse stock
split.
b. Rights; Warrants. If the Company, at any time while this Warrant is
outstanding, shall issue rights or warrants to all of the holders of Common
Stock entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the Per Share Market Value of Common Stock at the
record date mentioned below, the
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<PAGE>
Exercise Price shall be multiplied by a fraction, the denominator of which shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants plus the number
of additional shares of Common Stock offered for subscription or purchase, and
the numerator of which shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering price of the
total number of shares so offered would purchase at such Per Share Market Value.
Such adjustment shall be made whenever such rights or warrants are issued, and
shall become effective immediately after the record date for the determination
of shareholders entitled to receive such rights or warrants. However, upon the
expiration of any right or warrant to purchase Common Stock the issuance of
which resulted in an adjustment in the Exercise Price pursuant to this paragraph
(6)(b), if any such right or warrant shall expire and all or any portion thereof
shall not have been exercised, the Exercise Price shall immediately upon such
expiration be re-computed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Exercise Price made pursuant to the provisions of section (f)
after the issuance of such rights or warrants) had the adjustment of the
Exercise Price made upon the issuance of such rights or warrants been made on
the basis of offering for subscription or purchase only that number of shares of
Common Stock (if any) actually purchased upon the exercise of such rights or
warrants actually exercised.
c. Subscription Rights. If the Company, at any time while this Warrant is
outstanding, shall distribute to all of the holders of Common Stock evidence of
its indebtedness or assets or rights or warrants to subscribe for or purchase
any security (excluding those referred to in paragraphs 6(a) and (b) above),
then in each such case the Exercise Price at which the Warrant shall thereafter
be exercisable shall be determined by multiplying the Exercise Price in effect
immediately prior to the record date fixed for determination of shareholders
entitled to receive such distribution by a fraction, the denominator of which
shall be the Per Share Market Value of Common Stock determined as of the record
date mentioned above, and the numerator of which shall be such Per Share Market
Value of the Common Stock on such record date less the then fair market value at
such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Board of Directors in good faith; provided, however, that in the event of a
distribution exceeding ten percent (10%) of the net assets of the Company, such
fair market value shall be determined by an Appraiser selected in good faith by
the Registered Owner of the Warrant; and provided, further, that the Company,
after receipt of the determination by such Appraiser shall have the right to
select in good faith an additional Appraiser meeting the same qualifications, in
which case the fair market value shall be equal to the average of the
determinations by each such Appraiser. Such adjustment shall be made whenever
any such distribution is made and shall become effective immediately after the
record date mentioned above
4
<PAGE>
d. Rounding. All calculations under this Section 6 shall be made to the
nearest cent or the nearest l/l00th of a share, as the case may be.
e. Notice of Adjustment. Whenever the Exercise Price is adjusted pursuant
to paragraphs 6(a), (b) or (c), the Company shall promptly deliver to the
Registered Owner a notice setting forth the Exercise Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment.
f. Redemption Event. In case of (A) any reclassification of the Common
Stock, (B) any Change of Control (as such term is defined in the Purchase
Agreement), (C) any compulsory share exchange pursuant to which the Common Stock
is converted into other securities, cash or property or (D) (i) the Company's
notice to any Registered Owner of the Warrant Shares, including by way of public
announcement, at any time, of its intention, for any reason, not to comply with
proper requests for the exercise of any such Warrant Shares or (ii) the
Company's refusal to honor a duly executed Warrant Exercise Form delivered
pursuant to Section 5(a) hereof (clauses (A) through (D) above are referred to
as a "Redemption Event"), in the case of (A), (B) or (C), the Registered Owner
shall have the right thereafter to convert the Warrant for shares of stock and
other securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such Redemption Event, and the Registered
Owner shall be entitled upon such event to receive such amount of securities,
cash or property as the shares of the Common Stock of the Company into which the
Warrant could have been converted immediately prior to such Redemption Event
(without taking into account any limitations or restrictions on the
convertibility of the Securities) would have been entitled; provided, however,
that in the case of a transaction specified in (B) in which holders of the
Company's Common Stock receive cash, if the Registered Owners are unable to sell
the Company's Common Stock pursuant to an effective registration statement, the
Registered Owners shall have the right to convert the Warrant Shares for such
number of shares of the surviving company equal to the amount of cash into which
the Warrant is convertible divided by the fair market value of the shares of the
surviving company on the effective date of the merger; provided, further, that
in the case of an event specified in (D), the Registered Owner shall have the
option to require the Company to redeem, from funds legally available therefor
at the time of such redemption, its shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such Registered
Owner's Warrants at a price per share equal to the product of (i) the average
Per Share Market Value for the five Trading Days immediately preceding (1) the
effective date, the date of the closing, date of occurrence or the date of the
announcement, as the case may be, of the Redemption Event triggering such
redemption right or (2) the date of payment in full by the Company of the
redemption price hereunder, whichever is greater, and (ii) the number of shares
of Common Stock of the Company into which the Warrant could have been converted
immediately prior to such Redemption Event. The entire redemption price shall be
paid in cash. In the case of (A), (B) and (C), the terms of any such Redemption
Event shall include such terms so as to continue to give to the Registered Owner
the right to receive the securities, cash or property set forth in this Section
6(f) upon any conversion or redemption following such Redemption Event. This
provision shall similarly apply to successive Redemption Events.
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g. Reclassification, Etc. If:
(i) the Company shall authorize the issuance to all holders of any
class or series of its Capital Stock, of rights or warrants to subscribe
for or purchase shares of its capital stock or of any other right;
(ii) the Company shall authorize the distribution to all holders of
any class or series of its Capital Stock, of evidences of its indebtedness
or assets;
(iii) the Company shall declare a dividend (or other distribution) on
its Common Stock or the Company shall declare a special nonrecurring
dividend on or a redemption of its Common Stock;
(iv) the approval of any shareholders of the Company shall be required
in connection with any reclassification, subdivision or combination of the
Common Stock of the Company, any consolidation or merger to which the
company is a party, any sale or transfer of all or substantially all of the
assets of the Company, or any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or property; or
(v) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of exercise of this Warrant, and shall cause to be delivered to the
Registered Owner, at least 30 Business Days prior to the applicable record or
effective date hereinafter specified, a notice (provided such notice shall not
include any material non-public information) stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined or (y) the
date on which such reclassification, consolidation, merger, sale, transfer or
share exchange is expected to become effective or close, and the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer or
share exchange; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
h. Adjustment to Exercise Price. If the Company, at any time while this
Warrant is outstanding, takes any of the actions described in this Section 6(h),
then, in order to prevent dilution of the rights granted under this Warrant, the
Exercise Price will be subject to adjustment from time to time as provided in
this Section 6(h).
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(i) Adjustment of Exercise Price upon Issuance of Common Stock. If at
any time while this Warrant is outstanding the Company issues or sells, or
is deemed to have issued or sold, any shares of Common Stock (other than
the Underlying Shares or shares of Common Stock deemed to have been issued
by the Company in connection with an Approved Stock Plan or shares of
Common Stock issuable upon the exercise of any options or warrants
outstanding on the date hereof and listed in Schedule 2.1(c) of the
Purchase Agreement or shares of Common Stock issued or deemed to have been
issued as consideration for an acquisition by the Company of a division,
assets or business (or stock constituting any portion thereof) from another
person) for a consideration per share less than the Exercise Price in
effect immediately prior to such issuance or sale, then immediately after
such issue or sale the Exercise Price then in effect shall be reduced to an
amount equal to the consideration per share of Common Stock of such
issuance or sale. For the purpose of determining the adjusted Exercise
Price under this Section 6(h)(i), the following shall be applicable:
(A) Issuance of Options. Except for the warrants issued to BNY
Financial Corp. pursuant to that certain $98 million Credit Facility
currently being negotiated between the Company and BNY Financial
Corp., if at any time while this Warrant is outstanding the Company in
any manner grants any rights or options to subscribe for or to
purchase Common Stock or any stock or other securities convertible
into or exchangeable for Common Stock (other than the Underlying
Shares or shares of Common Stock deemed to have been issued by the
Company in connection with an Approved Stock Plan or shares of Common
Stock issuable upon the exercise of any options or warrants
outstanding on the date hereof and listed in Schedule 2.1(c) of the
Purchase Agreement or shares of Common Stock issued or deemed to have
been issued as consideration for an acquisition by the Company of a
division, assets or business (or stock constituting any portion
thereof) from another person) (such rights or options being herein
called "Options" and such convertible or exchangeable stock or
securities being herein called "Convertible Securities") and the price
per share for which Common Stock is issuable upon the exercise of such
Options or upon conversion or exchange of such Convertible Securities
is less than the Exercise Price in effect immediately prior to such
grant, then the Exercise Price shall be adjusted to equal the price
per share for which Common Stock is issuable upon the exercise of such
Options or upon the conversion or exchange of such Convertible
Securities. No adjustment of the Exercise Price shall be made upon the
actual issuance of such Common Stock or of such Convertible Securities
upon the exercise of such Options or upon the actual issuance of such
Common Stock upon conversion or exchange of such Convertible
Securities.
(B) Issuance of Convertible Securities. If at any time while this
Warrant is outstanding the Company in any manner issues or sells any
Convertible Securities and the price per share for which Common Stock
is issuable upon such conversion or exchange (other than the
Underlying Shares or shares of Common
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Stock deemed to have been issued by the Company in connection with an
Approved Stock Plan, shares of Common Stock issuable upon the exercise
of any options or warrants outstanding on the date hereof and listed
in Schedule 2.1(c) of the Purchase Agreement, shares of Common Stock
issued or deemed to have been issued as consideration for an
acquisition by the Company of a division, assets or business (or stock
constituting any portion thereof) from another person) is (i) less
than the Exercise Price in effect immediately prior to issuance or
sale or (ii) with respect to any Convertible Securities issued with a
floating conversion or exchange price, is converted at a price that is
less than the Exercise Price then in effect, then the Exercise Price
shall be adjusted to equal the price per share for which Common Stock
is issuable upon the conversion or exchange of such Convertible
Securities.
(C) Change in Option Price or Rate of Conversion. If there is a
change at any time in (i) the purchase price provided for in any
Options, (ii) the additional consideration, if any, payable upon the
issuance, conversion or exchange of any Convertible Securities or
(iii) the rate at which any Convertible Securities are convertible
into or exchangeable for Common Stock, then the Exercise Price in
effect at the time of such change shall be readjusted to the Exercise
Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed
purchase price, additional consideration or changed conversion rate,
as the case may be, at the time initially granted, issued or sold;
provided that no adjustment shall be made if such adjustment would
result in an increase of the Exercise Price then in effect.
(D) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under this Section 6(h)(i),
the following shall be applicable:
(I) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration
received therefor will be deemed to be the net amount received by
the Company therefor. In case any Common Stock, Options or
Convertible Securities are issued or sold for a consideration
other than cash, the amount of the consideration other than cash
received by the Company will be the fair value of such
consideration, except where such consideration consists of
securities, in which case the amount of consideration received by
the Company will be the arithmetic average of the Per Share
Market Values of such security for the five (5) consecutive
Trading Days immediately preceding the date of receipt thereof.
In case any Common Stock, Options or Convertible Securities are
issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity the
amount of consideration therefor will be deemed to be the fair
value of such portion of the net assets and business of the
non-surviving entity as is attributable to such Common
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Stock, Options or Convertible Securities, as the case may be. The
fair value of any consideration other than cash or securities
will be determined jointly by the Company and the registered
owners of a majority of the Underlying Shares of Warrants then
outstanding. If such parties are unable to reach agreement within
ten (10) days after the occurrence of an event requiring
valuation (the "Valuation Event"), the fair value of such
consideration will be determined within forty-eight (48) hours of
the tenth (10th) day following the Valuation Event by an
Appraiser selected in good faith by the Company and agreed upon
in good faith by the holders of a majority of the Warrants then
outstanding. The determination of such Appraiser shall be binding
upon all parties absent manifest error.
(II) Integrated Transactions. In case any Option is issued
in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which
no specific consideration is allocated to such Options by the
parties thereto, the Options will be deemed to have been issued
for an aggregate consideration of $.01.
(III) Treasury Shares. The number of shares of Common Stock
outstanding at any given time does not include shares owned or
held by or for the account of the Company, and the disposition of
any shares so owned or held will be considered an issue or sale
of Common Stock.
(IV) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (1) to
receive a dividend or other distribution payable in Common Stock,
Options or in Convertible Securities or (2) to subscribe for or
purchase Common Stock, Options or Convertible Securities, then
such record date will be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(V) Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 6(h)(i) (subject
to the exceptions stated therein) but not expressly provided for
by such provisions (including, without limitation, the granting
of stock appreciation rights, phantom stock rights or other
rights with equity features), then the Company's Board of
Directors will make an appropriate adjustment in the Exercise
Price so as to protect the rights of the Registered Owner, or
assigns, of this Warrant; provided, however, that no such
adjustment will increase the Exercise Price as otherwise
determined pursuant to this Section 6(h).
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Notwithstanding the foregoing, in no event shall any provision in this
Section 6 cause the Exercise Price to be greater than the Exercise Price on the
date of issuance of this Warrant.
7. Restriction on Conversion by Either the Registered Owner or the Company.
Notwithstanding anything herein to the contrary, in no event shall any
Registered Owner or the Company have the right or be required to exercise this
Warrant if as a result of such conversion the aggregate number of shares of
Common Stock beneficially owned by such Registered Owner and its Affiliates
would exceed 4.99% of the outstanding shares of the Common Stock following such
exercise. For purposes of this Section 7, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended. The provisions of this Section 7 may be waived by a Registered
Owner as to itself (and solely as to itself) upon not less than 65 days prior
written notice to the Company, and the provisions of this Section 7 shall
continue to apply until such 65th day (or later, if stated in the notice of
waiver).
8. Officer's Certificate. Whenever the number of shares purchasable upon
exercise shall be adjusted as required by the provisions of Section 6, the
Company shall forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office and with its stock transfer agent, if any, an
officer's certificate showing the adjusted number of shares determined as herein
provided, setting forth in reasonable detail the facts requiring such adjustment
and the manner of computing such adjustment. Each such officer's certificate
shall be signed by the chairman, president or chief financial officer of the
Company and by the secretary or any assistant secretary of the Company. Each
such officer's certificate shall be made available at all reasonable times for
inspection by any Registered Owner of the Warrants and the Company shall,
forthwith after each such adjustment, deliver a copy of such certificate to the
each of the Registered Owners.
9. Definitions. Capitalized terms used herein and not otherwise defined
herein shall have the meanings given to such terms in the Purchase Agreement. As
used in this Warrant, the following terms have the following meanings:
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control
with such Person. For the purposes of this definition, "control," when used
with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies
of such Person, whether through the ownership of voting securities, by
contract or otherwise; and the terms of "affiliated," controlling" and
"controlled" have meanings correlative to the foregoing.
"Appraiser" shall mean a nationally recognized or major regional
investment banking firm or firm of independent certified public accountants
of recognized standing.
"Approved Stock Plan" shall mean any contract, plan or agreement which
has been approved by the Board of Directors of the Company, pursuant to
which the Company's securities may be issued to any employee, officer,
director or consultant.
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"Business Day" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the
state of New York generally are authorized or required by law or other
government actions to close.
"Closing" has the meaning set forth in Section 1.2 of the Purchase
Agreement.
"Common Stock" means the shares of the Company's Common Stock, par
value $.01 per share.
"Company" means Signal Apparel Company, Inc., an Indiana corporation.
"Convertible Securities" has the meaning assigned to it in Section
6(h)(i)(A) hereof.
"Exercise Period" has the meaning assigned to it the Section 4 hereof.
"Exercise Price" has the meaning assigned to it in Section 3 hereof
"Options" has the meaning assigned to it in Section 6(h)(i)(A) hereof.
"Per Share Market Value" means on any particular date (i) the closing
bid price per share of the Common Stock on such date on the New York Stock
Exchange or other registered national stock exchange on which the Common
Stock is then listed or if there is no such price on such date, then the
closing bid price on such exchange or quotation system on the date nearest
preceding such date, or (ii) if the Common Stock is not listed then on the
New York Stock Exchange or any registered national stock exchange, the
closing bid price for a share of Common Stock in the over-the-counter
market, as reported by the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting
prices) at the close of business on such date, or (iii) if the Common Stock
is not then publicly traded the fair market value of a share of Common
Stock as determined by an Appraiser selected in good faith by the holder of
this Warrant; provided, however, that the Company, after receipt of the
determination by such Appraiser, shall have the right to select, in good
faith, an additional Appraiser, in which case the fair market value shall
be equal to the average of the determinations by each such Appraiser; and
provided, further that all determinations of the Per Share Market Value
shall be appropriately adjusted for any stock dividends, stock splits or
other similar transactions during such period.
"Purchase Agreement" means that certain Securities Purchase Agreement,
dated as of March 3, 1999, among the Company and the Purchasers.
"Purchaser" has the meaning set forth in the Purchase Agreement.
"Redemption Event" has the meaning assigned to it in Section 6(f)
hereof.
"Registered Owner" means the person identified on the face of this
Warrant as the registered owner hereof or such other person as shown on the
records of the Company as being the registered owner of this Warrant.
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"Registration Rights Agreement" means that certain Registration Rights
Agreement, dated as of March 3, 1999, among the Company and the Purchasers.
"Trading Day(s)" means any day on which the primary market on which
shares of Common Stock are listed is open for trading.
"Underlying Shares" has the meaning assigned to it in Section 2.1(d)
of the Purchase Agreement.
"Warrant(s)" means the warrants issuable at the Closing.
10. Registration Rights. The Company will undertake the registration of the
Common Stock into which such Warrants are exercisable at such times and upon
such terms pursuant to the provisions of the Registration Rights Agreement.
11. Reservation of Underlying Shares; Listing. The Company covenants that
it will at all times reserve and keep available out of its authorized shares of
Common Stock, free from preemptive rights, solely for the purpose of issue upon
exercise of the Warrants as herein provided, such number of shares of the Common
Stock as shall then be issuable upon the exercise of all outstanding Warrants
into Common Stock. The Company covenants that all shares of the Common Stock
issued upon exercise of the Warrant which shall be so issuable shall, when
issued, be duly and validly issued and fully paid and non-assessable. The
Company shall promptly secure the listing of the shares of Common Stock issuable
upon exercise of the Warrant upon the national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance upon exercise of this Warrant) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all shares of Common Stock from time to time issuable upon the
exercise of this Warrant.
12. Notices. Any notice or other communication required or permitted to be
given hereunder shall be in writing and shall be deemed to have been received
(a) upon hand delivery (receipt acknowledged) or delivery by telex (with correct
answer back received), telecopy or facsimile (with transmission confirmation
report) at the address or number designated below (if received by 8:00 p.m. EST
where such notice is to be received), or the first Business Day following such
delivery (if received after 8:00 p.m. EST where such notice is to be received)
or (b) on the second Business Day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications are (i) if to the Company to Signal Apparel Company, Inc., 200A
Manufactures Road, Chattanooga, Tennessee 37405, Attn. President & General
Counsel, fax no. (423) 752-2040 and 500 Seventh Avenue, 7th Floor, New York, New
York 10018, Attn: President and General Counsel, fax no. (423) 752-2040 (TN) and
(212) 944-7667 (NY), with copies to Skadden, Arps, Slate, Meagher & Flom LLP,
919 Third Avenue, New York, New York 10022, Attn: Robert A Copen, Esq., fax no.
(212) 735-2000 (ii) if to the Registered Owner to the address set forth on
Schedule II to the Purchase Agreement, with copies to Akin, Gump, Strauss, Hauer
& Feld, L.L.P., 590 Madison Avenue, New York, New York
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10022, Attn: James Kaye, fax no. (212) 872-1002 or such other address as may be
designated in writing hereafter, in the same manner, by such person.
13. Compliance With Governmental Requirements. The Company covenants that
if any shares of Common Stock required to be reserved for purposes of exercise
of Warrants hereunder require registration with or approval of any governmental
authority under any Federal or state law, or any national securities exchange,
before such shares may be issued upon exercise, the Company will use its best
efforts to cause such shares to be duly registered or approved, as the case may
be.
14. Fractional Shares. Upon any exercise hereunder, the Company shall not
be required to issue stock certificates representing fractions of shares of the
Common Stock, but may if otherwise permitted make a cash payment in respect of
any final fraction of a share based on the Per Share Market Value at such time.
If the Company elects not, or is unable, to make such a cash payment, the
Registered Owner shall be entitled to receive, in lieu of the final fraction of
a share, one whole share of Common Stock.
15. Payment of Tax Upon Issue of Transfer. The issuance of certificates for
shares of the Common Stock upon exercise of the Warrants shall be made without
charge to the Registered Owners thereof for any documentary stamp or similar
taxes that may be payable in respect of the issue or delivery of such
certificate, provided 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 upon exercise in a name other than that of the
Registered Owner of such Warrant so converted 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.
16. Warrants Owned by Company Deemed Not Outstanding. In determining
whether the holders of the outstanding Warrants have concurred in any direction,
consent or waiver under this Warrant, warrants which are owned by the Company or
any other obligor on the warrants or by any person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company or any other obligor on the warrants shall be disregarded and deemed not
to be outstanding for the purpose of any such determination; provided that any
Warrants owned by the Purchasers (as defined in the Purchase Agreement) shall be
deemed outstanding for purposes of making such a determination. Warrants so
owned which have been pledged in good faith may be regarded as outstanding if
the pledgee establishes to the satisfaction of the Company the pledgee's right
so to act with respect to such warrants and that the pledgee is not the Company
or any other obligor upon the securities or any person directly or indirectly
controlling or controlled by or under direct or indirect common control with the
Company or any other obligor on the warrants.
17. Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction hereof.
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18. No Rights as Stockholder. This Warrant shall not entitle the Registered
Owner to any rights as a stockholder of the Company, including without
limitation, the right to vote, to receive dividends and other distributions, or
to receive notice of, or to attend, meetings of stockholders or any other
proceedings of the Company, unless and to the extent converted into shares of
Common Stock in accordance with the terms hereof.
19. Certain Actions Prohibited. The Company will not, by amendment of its
charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and (ii)
will take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
20. Successors and Assigns. This Warrant shall be binding upon and inure to
the benefit of the Registered Owners and its assigns, and shall be binding upon
any entity succeeding to the Company by merger or acquisition of all or
substantially all the assets of the Company. The Company may not assign this
Warrant or any rights or obligations hereunder without the prior written consent
of the Registered Owner. The Registered Owner may assign this Warrant without
the prior written consent of the Company.
21. Governing Law. This Warrant shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the nonexclusive jurisdiction of the state and federal
courts sitting in the City of New York, Borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address for such notices to it under this Warrant and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION
OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS
AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer as of the date first set forth above.
SIGNAL APPAREL COMPANY, INC.
By:
------------------------------
Name:
Title:
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EXHIBIT A
Warrant Exercise Form
TO: SIGNAL APPAREL COMPANY, INC.
The undersigned hereby: (1) irrevocably subscribes for and offers to
purchase _______ shares of Common Stock of Signal Apparel Company, Inc. pursuant
to Warrant No. ___ heretofore issued to ___________________ on ____________,
199_; (2) encloses a payment of $__________ for these shares at a price of $____
per share (as adjusted pursuant to the provisions of the Warrant); and (3)
requests that a certificate for the shares be issued in the name of the
undersigned and delivered to the undersigned at the address specified below.
Date: ____________________________________
Investor Name: ____________________________________
Taxpayer
Identification
Number: ____________________________________
By: ____________________________________
Printed Name: ____________________________________
Title: ____________________________________
Address: ____________________________________
____________________________________
____________________________________
Note: The above signature should correspond exactly with the name
on the face of this Warrant Certificate or with the name of
assignee appearing in assignment form below.
AND, if said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant Certificate is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder less
any fraction of a share paid in cash and delivered to the address stated above.
16
