================================================================================
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Between
SIGNAL APPAREL COMPANY, INC.,
BROWN SIMPSON STRATEGIC GROWTH FUND, LTD.,
BROWN SIMPSON STRATEGIC GROWTH FUND, L.P.,
HERACLES FUND LTD.
and
THEMIS PARTNERS, L.P.
Dated as of September 17, 1998
================================================================================
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement"), dated as
of September 17, 1998, between 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"), Heracles
Fund Ltd., a ________ company ("Heracles") and Themis Partners, L.P., a ______
limited partnership ("Themis"). Brown Simpson Limited, Brown Simpson LP,
Heracles and Themis are each referred to herein as a "Purchaser" and are
collectively referred to herein as the "Purchasers."
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, shares of the Company's 5% Series G1
Convertible Preferred Stock, no par value (the "Series G1 Preferred") and the
Company's 5% Series G2 Convertible Preferred Stock, no par value (the "Series G2
Preferred," and together with the Series G1 Preferred, the "Preferred Stock").
IN CONSIDERATION of the mutual covenants contained in this Agreement, the
Company and each Purchaser agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED SHARES
1.1 Purchase and Sale.
(a) Subject to the terms and conditions set forth herein, the Company
shall issue and sell to the Purchasers, and the Purchasers, severally and
not jointly, shall purchase from the Company: (i) 5,000 shares of Series G1
Preferred (the "Series G1 Shares") and 100,000 warrants (the "Warrants")
and (ii) up to 5,000 shares of Series G2 Preferred (the "Series G2 Shares,"
and together with the Series G1 Shares, the "Shares") in the respective
amounts set forth in Schedule 1 attached hereto. Notwithstanding anything
to the contrary set forth in this Agreement, the aggregate number of Shares
to be sold hereunder shall not exceed 5,000 Series G1 Shares and 5,000
Series G2 Shares, respectively (the "Maximum Share Amount").
(b) The Series G1 Preferred shall have the respective rights,
preferences and privileges (the "Series G1 Terms") set forth in the
Certificate of Designation (the "Series G1 Designation") the form of which
is attached hereto as Exhibit A, which shall be approved by the Purchasers
and the Company's Board of Directors and filed on or prior to the Series G1
Closing (as defined below) by the Company with the Secretary of State of
Indiana. The Series G2 Preferred shall have respective rights, preferences
and privileges identical to the Series G1 Terms mutatis mutandis, and shall
rank pari passu with the Series G1 Preferred with regard to dividends,
liquidation, voting rights and any other preferential rights designated
therein, except that the Conversion Price (as defined below) for conversion
of the Series G2 Shares shall be determined as of the Series G2 Closing
Date (as defined below) for such Series G2 Shares.
The Series G2 Preferred shall be authorized pursuant to a certificate of
designation identical to the Series G1 Designation, mutatis mutandis, prepared
by the Company,
subject to the approval of the Purchasers, and filed at or prior to the Series
G2 Closing Date, by the Company with the Secretary of State of Indiana (such
certificate of designation, together with the Series G1 Designation, are
referred to as the "Certificates of Designation").
For purposes of this Agreement, "Conversion Price," "Original Issue Date,"
"Conversion Date" "Trading Day" and "Per Share Market Value" shall have the
meanings set forth in Exhibit A; "Market Price" at any date shall mean the
average Per Share Market Value for the five (5) Trading Days immediately
preceding such date; and "Securities" shall mean the Shares, Underlying Shares,
Warrants and Warrant Shares (each as defined herein or in Exhibit A) taken
together.
1.2 Purchase Price. The purchase price per Share which price shall include
the related Warrants shall be $1,000.
1.3 The Closings.
(a) The Series G1 Closing.
(i) The closing of the purchase and sale of the Series G1 Shares
(the "Series G1 Closing") shall take place at the offices of Akin,
Gump, Strauss, Hauer & Feld, L.L.P. ("Akin, Gump"), 590 Madison
Avenue, New York, New York 10022, 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 date of the Series G1 Closing is hereinafter referred to as the
"Series G1 Closing Date." At the Series G1 Closing, the Company shall
sell and issue to the Purchasers, and the Purchasers shall, severally
and not jointly, purchase from the Company, Warrants and 5,000 Series
G1 Shares for an aggregate purchase price of $5,000,000 (the "Series
G1 Purchase Price") in the respective amounts set forth on Schedule 1
attached hereto.
(ii) At the Series G1 Closing, (a) the Company shall deliver to
each Purchaser stock certificates representing the Series G1 Shares
purchased by such Purchaser as set forth next to such Purchaser's name
on Schedule 1 attached hereto and Warrants, each registered in the
name of such Purchaser, and all other documents, instruments and
writings required to have been delivered at or prior to the Series G1
Closing by the Company pursuant to this Agreement and the Registration
Rights Agreement, dated the date hereof, by and between the Company
and the Purchasers, in the form of Exhibit B (the "Registration Rights
Agreement"), and (b) each Purchaser shall deliver to the Company the
portion of the Series G1 Purchase Price set forth next to its name on
Schedule 1, in United States dollars in immediately available funds by
wire transfer to an account designated in writing by the Company for
such purpose on or prior to the Series G1 Closing Date, and all
documents, instruments and writings required to have been delivered at
or prior to the Series G1 Closing by such Purchaser pursuant to this
Agreement and the Registration Rights Agreement.
2
(b) The Series G2 Closing.
(i) Subject to the terms and conditions set forth in Section 4.2
and elsewhere in this Agreement, the Company shall, so long as the Per
Share Market Value on the date of the receipt by the Purchasers of the
Series G2 Subsequent Financing Notice is not less than the Per Share
Market Value on the Series G1 Closing Date, have the right to deliver
a written notice to the Purchasers (a "Series G2 Subsequent Financing
Notice") requiring the Purchasers, severally and not jointly, to
purchase the Series G2 Shares for a purchase price of $5,000,000. The
Company may deliver a Series G2 Subsequent Financing Notice with at
least 15 days prior written notice for the Series G2 Closing to occur
no earlier than 90 days after the date on which the Registration
Statement on Form S-3 filed with the Securities and Exchange
Commission (the "Commission") with respect to the Series G1 Shares has
been declared effective by the Commission and no later than 115 days
after such effective date. The Purchasers shall not be required to
purchase any Series G2 Shares if the Per Share Market Value on the
Series G2 Closing Date is less than the Per Share Market Value on the
Series G1 Closing Date. The Series G2 Closing Date (as defined below)
may not be later than 205 days after the Series G1 Closing Date. At
the Series G2 Closing, the registration statement with respect to the
Series G2 Shares shall have been declared effective by the Commision
and each Purchaser shall be obligated (subject to the terms and
conditions herein) to purchase such portion of such Series G2 Shares
as equals such Purchaser's pro rata portion of the purchase price for
the Series G1 Shares issued and sold at the Series G1 Closing. The
closing of the purchase and sale of the Series G2 Shares (the "Series
G2 Closing") shall take place in the same manner as the Series G1
Closing, on such date indicated in the Series G2 Subsequent Financing
Notice (which may not be prior to the 15th Trading Day nor subsequent
to the 20th Trading Day after receipt by the Purchasers of the Series
G2 Subsequent Financing Notice, or as otherwise agreed to by the
parties); provided that in no case shall the Series G2 Closing take
place unless and until the conditions listed in Section 4.2 have been
satisfied or waived by the appropriate party. The date of the Series
G2 Closing is hereinafter referred to as the "Series G2 Closing Date"
and the purchase price paid for the Series G2 Shares is hereinafter
referred to as the "Series G2 Purchase Price"). The Company shall only
be entitled to give one Series G2 Subsequent Financing Notice.
(ii) At the Series G2 Closing, (a) the Company shall deliver (A)
to each Purchaser (1) a pro rata portion of the Series G2 Shares
(determined by reference to the amount of Series G1 Shares issued and
sold at the Series G1 Closing) to be issued and sold thereat (or such
other amount upon which the parties may agree), registered in the name
of the appropriate Purchaser, (2) the legal opinions referenced in
Section 4.2(l), substantially in the form attached hereto as Exhibits
C1 and C2, and (3) all other documents, instruments and writings
required to have been delivered at or prior to the Series G2 Closing
by the Company to the Purchasers pursuant to this Agreement; and (b)
each Purchaser shall deliver to the Company (1) the purchase price for
the Series G2 Shares being purchased by it at the Series G2 Closing in
United States dollars in immediately available funds by wire transfer
to an account designated in writing by the Company for such purpose on
or prior to the Series G2 Closing Date and (2) all documents,
instruments and writings required to have been delivered at or prior
to the Series G2 Closing by such Purchaser pursuant to this Agreement.
3
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 in Schedule 2.1(a), the Company has no
material subsidiaries other than as set forth in Exhibit 21 to the
Company's Form 10-K for the year ended December 31, 1997 (collectively the
"Subsidiaries"). Each of the Subsidiaries 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 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 the Preferred
Stock or any of the Transaction Documents (as defined below), (y) have or
result in a material adverse effect on the results of operations, assets,
prospects, or financial condition of the Company and the Subsidiaries,
taken as a whole or (z) adversely 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 other Transaction
Documents, and otherwise to carry out its obligations hereunder and
thereunder. This Agreement, the Certificates of Designation, Transfer Agent
Instructions, the Warrants and the Registration Rights Agreement are
collectively referred to as the "Transaction Documents." The execution and
delivery of each of 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 action on the part of the Company and
no further action is required by the Company. Each of 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 articles of
incorporation, by-laws or other charter documents such that any right of a
holder of the Shares would be affected. Prior to each of the closing dates
the respective Certificate of Designation has been filed with the Secretary
of State of the State of Indiana and will be in full force and effect,
enforceable against the Company in accordance with the terms thereof,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization,
4
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.
(c) Capitalization. The authorized, issued and outstanding capital
stock of the Company as of September 11, 1998, is set forth in Schedule
2.1(c). No shares of Common Stock are entitled to preemptive or similar
rights, 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 of the Transaction Documents. Except as disclosed
in Schedule 2.1(c), there are no outstanding options, warrants, script
rights to subscribe to, calls or commitments of any character whatsoever
relating to, or, except as a result of the purchase and sale of the Shares,
securities, rights or obligations convertible into or exchangeable for, or
giving any person any right to subscribe for or acquire any shares of
Common Stock, or contracts, commitments, understandings, or arrangements by
which the Company or any Subsidiary is or may become bound to issue
additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. No anti-dilution or similar
adjustment provision of securities of the Company will be triggered by the
issuance of the Securities except as described on Schedule 2.1(c) Except as
specifically disclosed in the SEC Documents (as defined below) or Schedule
2.1(c), no Person 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. A "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) Issuance of Shares. The Shares and Warrants are duly authorized,
and when issued and paid for in accordance with the terms hereof, shall be
validly issued, fully paid and nonassessable, free and clear of all liens,
encumbrances and rights of first refusal of any kind (collectively,
"Liens"). The Company has and, at the Series G1 Closing Date and the Series
G2 Closing Date (each a "Closing Date"), as the case may be, will have and
at all times while the Shares and Warrants are outstanding will maintain an
adequate reserve of duly authorized shares of Common Stock to enable it to
perform its obligations under this Agreement, the Warrants and the
Certificates of Designation with respect to the number of Shares issued and
outstanding at such Closing Date and in no circumstances shall such
reserved and available shares of Common Stock be less than the sum of (i)
200% times the maximum number of shares of Common Stock which would be
issuable upon conversion of the Shares issued pursuant to the terms hereof
with respect to the number of Shares issued and outstanding at such Closing
Date were such conversion effected on the Original Issue Date for such
Shares, (ii) the number of shares of Common Stock which would be issuable
upon exercise of the Warrants and (iii) the number of shares of Common
Stock which would be issuable upon payment of dividends on the shares;
assuming each share is outstanding for two years. The shares of Common
Stock issuable upon conversion of the Shares, which may be issued as
payment of dividends on the Shares and which are issuable upon exercise of
the Warrants are collectively referred to herein as the "Underlying
Shares." When issued in accordance with the Certificates of Designation,
the Underlying Shares will be duly authorized, validly issued, fully paid
and nonassessable, free and clear of all Liens.
5
(e) No Conflicts. The execution, delivery and performance of this
Agreement and the other Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated hereby and
thereby do not and will not (i) conflict with or violate any provision of
its articles of incorporation, bylaws or other charter documents (each as
amended through the date hereof) or (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 or instrument (evidencing a
Company debt or otherwise) to which the Company is a party or by which any
property or asset of the Company 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 is subject (including Federal and state securities laws and
regulations), or by which any material property or asset of the Company is
bound or affected, except in the case of each of clauses (ii) and (iii),
such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the
aggregate, have or result in a Material Adverse Effect. The business of the
Company is not being conducted in violation of any law, ordinance or
regulation of any governmental authority, except for any such 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 in
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 or other person in connection with
the execution, delivery and performance by the Company of the Transaction
Documents, other than (i) the approval of the Company's Board of Directors
and the filings of the Certificates of Designation with respect to the
Preferred Stock with the Secretary of State of Indiana, which filings and
approvals with respect to each of the Series G1 Shares and the Series G2
Shares shall be effected on or prior to the Series G1 Closing Date and the
Series G2 Closing Date, as appropriate, (ii) the filing of Underlying
Shares Registration Statements with the Commission, which shall be filed in
accordance with and in the time periods set forth in the Registration
Rights Agreement, (iii) the application(s) or any letter(s) acceptable to
the New York Stock Exchange for the listing of the Underlying Shares with
the New York Stock Exchange (and with any other national securities
exchange or market on which the Common Stock is then listed), and (iv) any
filings, notices or registrations under applicable state securities laws
(together with the consents, waivers, authorizations, orders, notices and
filings referred to in Schedule 2.1(f), the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically set forth in
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 the Transaction Documents or the
Preferred Stock or (ii) could reasonably be expected to, individually or in
the aggregate, have a Material Adverse Effect.
6
(h) No Default or Violation. Neither the Company nor any Subsidiary
(i) is in default under or in violation of any indenture, loan or 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 reasonably be expected to,
individually or in the aggregate, have a Material Adverse Effect, or (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.
(i) Schedules. The Schedules to this Agreement furnished by or on
behalf of the Company do not contain any untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they
were made, not misleading.
(j) Private Offering. The Company and all Persons acting on its behalf
have not made, and will not make, offers or sales of the Preferred Stock or
Warrants, and any securities that might be integrated with offers or sales
of the Preferred Stock or Warrants, except to Accredited Investors (as
defined in Regulation D ("Regulation D") under the Securities Act of 1933,
as amended (the "Securities Act") without any general solicitation or
advertising and otherwise in compliance with the conditions of Regulation
D. Subject to the accuracy and completeness of the representations and
warranties of the respective Purchasers contained in Section 2.2 hereof,
the offer and sale by the Company to the Purchasers of the Preferred Stock,
the Warrants and the Underlying Shares into which the Preferred Stock is
convertible or the Warrants are exercisable is exempt from the registration
requirements of the Securities Act.
(k) SEC Documents; Financial Statements; No Adverse Change. The
Company has filed all reports required to be filed by it under the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the three
years preceding the date hereof (or such shorter period as the Company was
required by law to file such material) (the foregoing materials being
collectively referred to herein as the "SEC Documents" and, together with
the Schedules to this Agreement, the "Disclosure Materials") 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 is a party or to which the property or
assets of the Company are subject have been filed as exhibits to the SEC
Documents as required; neither the Company nor any of its subsidiaries is
in breach of any agreement where such breach could reasonably be expected
to, individually or in the aggregate, have a Material Adverse Effect. The
financial statements of the Company included in the SEC Documents comply in
all material respects with applicable accounting requirements and the 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
7
principles 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 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 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 June 30, 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.
(l) Seniority. No class of equity securities of the Company will be
senior to the Preferred Stock in right of payment, whether upon
liquidation, dissolution or otherwise following the closing of the exchange
by WGI, LLC of all of its Series F Preferred Stock for Series H Preferred
Stock. Such closing shall take place simultaneously with or prior to the
Series G1 Closing. So long as any Series G1 Preferred Stock or Series G2
Preferred Stock remains outstanding, the Company shall not exchange,
redeem, or convert any of the Company's capital stock for indebtedness,
including convertible debt, of the Company.
(m) 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.
(n) Certain Fees. Except for fees payable to Brown Simpson Asset
Management, LLC ("Brown Simpson") pursuant to the section entitled "Fees
and Expenses" of the letter agreement (the "Term Letter") dated August 25,
1998 between the Company and Brown Simpson, fees payable to the Company's
placement agent in connection with this transaction and fees payable in
respect of this transaction to Messrs. Thomas A. McFall (the Company's
Co-CEO) and John W. Prutch (the Company's President) pursuant to the
Company's compensation agreements with each of such individuals, no fees or
commissions 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(n) that may be due in connection with the transactions
contemplated by this Agreement. The Company shall indemnify and hold
harmless each of the Purchasers, its employees, officers, directors,
agents, and partners, and their respective Affiliates (as such term is
defined under Rule 405 promulgated under the Securities Act), 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.
(o) Solicitation Materials. The Company has not (i) distributed any
offering materials in connection with the offering and sale of the Shares
or the Underlying Shares other than the Disclosure Materials and any
amendments and supplements thereto or (ii) solicited any offer to buy or
sell the Shares or the Underlying Shares by means of any form of general
solicitation or advertising. None of the Disclosure Materials or any other
information provided to
8
the Purchasers by or on behalf of the Company contain any untrue statement
of material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Company confirms (i) that it has not provided Heracles or Themis or their
agents or counsel with any information that constitutes or might constitute
material non-public information and (ii) that on or prior to the Effective
Date (as defined herein) it will publicly announce any material non-public
information that legally can be announced that it may have provided to
Brown Simpson Limited or Brown Simpson LP. The Company shall not enter into
any subsequent non-disclosure agreements with respect to any material
non-public information which any of the Purchasers may already have
knowledge of that would prevent it from announcing any of such information
that otherwise legally could have been announced on or prior to the
Effective Date.
The Company understands and confirms that the Purchasers shall be relying
on the representations set forth in this Section 2.1 in effecting transactions
in securities of the Company.
(p) Form S-3 Eligibility. The Company is, and at each Closing Date
will be, eligible to register securities (including the Underlying Shares)
for resale with the Commission under Form S-3 promulgated under the
Securities Act.
(q) Exclusivity. The Company shall not issue and sell the Preferred
Stock to any Person other than the Purchasers pursuant to this Agreement
other than with the specific prior written consent of each of the
Purchasers.
(r) Listing and Maintenance Requirements Compliance. Except as
disclosed in Schedule 2.1(r), the Company has not in the three years
preceding the date hereof received notice (written or oral) from 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
exchange or market. After giving effect to the transactions contemplated in
this Agreement, the Company believes that it is in compliance with all such
maintenance requirements.
(s) Patents and Trademarks. The Company has, or has rights to use, all
patents, patent applications, trademarks, trademark applications, service
marks, trade names, copyrights, licenses and rights (collectively, the
"Intellectual Property Rights") which are necessary for use in connection
with its business, as currently conducted and as described in the SEC
Documents. To the best knowledge of the Company, there is no existing
infringement by another Person of any of the Intellectual Property Rights
which are necessary for use in connection with the Company's business which
could reasonably be expected to, individually or in the aggregate, have a
Material Adverse Effect and the Company is not infringing on any other
person's Intellectual Property Rights.
(t) Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Underlying Shares upon conversion of the Shares and payment
of dividends thereon in accordance with the Certificates of Designation may
result in dilution of the outstanding shares of Common Stock, which
dilution may be substantial under certain market conditions. The
9
Company further acknowledges that its obligation to issue Underlying Shares
upon conversion of the Shares and payment of dividends thereon in
accordance with the Certificates of Designation is unconditional and
absolute regardless of the effect of any such dilution.
(u) Registration Rights; Rights of Participation. Except as described
on Schedule 2.1(u) hereto, (A) 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 (B) no
Person, including, but not limited to, current or former shareholders 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 other
Transaction Document.
(v) Title. Except as disclosed in Schedule 2.1(v), 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, claims or encumbrances as 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 its
Subsidiaries. Any real property and facilities held under lease by the
Company and its Subsidiaries are held by them under valid, subsisting and
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 its Subsidiaries.
(w) Regulatory Permits. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Documents except where the
failure to possess such permits would not, individually or in the
aggregate, have a Material Adverse Effect ("Material Permits"), and neither
the Company nor any such Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
(x) Material Misstatement. None of 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
hereby contained, contains or will contain at the time it was or is so
furnished any material misstatement of fact or omitted, omits or will omit
at such time to state any material fact necessary to make the statements
therein, in the light of the circumstances under which they were, are or
will be made, not misleading.
(y) No Integrated Offering. Neither the Company, nor any of its
Affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any
offers to buy any security, under circumstances that would require
registration of any of the Securities under the Securities Act or cause
this offering of the Securities to be integrated with prior offerings by
the Company for purposes of the Securities Act or any regulations of any
exchange or automated quotation system on which any of the securities
10
of the Company are listed or designated, nor will the Company or any of its
Subsidiaries take any action or steps that would require registration of
any of the Securities under the Securities Act or cause the offering of the
Securities to be integrated with other offerings, except for complying with
the obligations under the Registration Rights Agreement.
(z) 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 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.
(aa) Internal Accounting Controls. The Company and each of its
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 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.
(ab) Tax Status. The Company and each of its 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 charged that are material in amount, shown or
determined to be due on such returns, reports and declarations, except
those being contested in good faith 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.
(ac) Transactions With Affiliates. Except as set forth on Schedule
2.1(ac) and in the SEC Documents filed at least ten days prior to the date
hereof 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.
11
(ad) 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 laws of the state of its
incorporation which is or could become applicable to the Buyers as a result
of the transactions contemplated by this Agreement, including, without
limitation, the Company's issuance of the Securities and the Purchaser's
ownership of the Securities.
(ae) No Other Agreements. The Company has not, directly or indirectly,
made any agreements with any Purchasers relating to the terms or conditions
of the transactions contemplated by the Transaction Documents except as set
forth in the Transaction Documents.
Each of the Purchasers hereby acknowledges and agrees that the Company
makes no representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 2.1.
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 corporation duly
incorporated or a limited liability company or 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 Registration Rights Agreement
and otherwise to carry out its obligations hereunder and thereunder. The
purchase by such Purchaser of the Shares 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 Shares and the
Underlying Shares for its own account for investment purposes only and not
with a view to or for distributing or reselling such Shares or Underlying
Shares or any part thereof or interest therein, without prejudice, however,
to such Purchaser's right, subject to the provisions of this Agreement and
the Registration Rights Agreement, at all times to sell or otherwise
dispose of all or any part of such Shares or Underlying Shares pursuant to
an effective registration statement under the Securities Act and in
compliance with applicable State securities laws or under an exemption from
such registration; provided, however, that by making the representations
herein, such Purchaser does not agree to hold any of the Securities for any
minimum or other specific term and reserves the right to dispose of the
Securities 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
Shares, and at each Closing Date, (i) it was and will be, an "accredited
investor" as defined in Rule 501 under the Securities Act, or (ii) such
Purchaser either alone or together with its representatives, had and
12
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 Shares and the Underlying Shares, and had
and will have so evaluated the merits and risks of such investment.
(d) Ability of Purchaser to Bear Risk of Investment. Such Purchaser is
able to bear the economic risk of an investment in the Shares and the
Underlying Shares and, at the present time, is able to afford a complete
loss of such investment.
(e) Reliance. Each Purchaser understands and acknowledges that (i) the
Shares are being offered and sold to the 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.
(f) Non-Public Information. Brown Simpson Limited and Brown Simpson LP
acknowledge and agree that they are bound by the terms of that certain
Confidentiality Agreement dated August 3, 1998 (the "Confidentiality
Agreement") between the Company and such Purchasers, and that no sale,
transfer or other disposition by them of any of the Shares (or any of the
Underlying Shares, as applicable) may be effected by such Purchasers except
in compliance with all of the terms and conditions of such Confidentiality
Agreement until such time as the Company discloses any material non-public
information that may have been covered by the Confidentiality Agreement.
Neither Heracles nor Themis are parties to the Confidentiality Agreement.
Brown Simpson Limited and Brown Simpson LP have abided by the terms of the
Confidentiality Agreement in all communication they have had with Heracles
and Themis with respect to the transactions contemplated by this Agreement.
(g) Short Sales. For the 31-day period prior to and including the
Series G1 Closing Date, such Purchaser has not been and currently is not
net short with respect to shares of Common Stock of the Company.
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.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions.
(a) If any Purchaser should decide to dispose of Shares (and upon
conversion thereof any of the Underlying Shares) held by it, each 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
13
Securities Act. Brown Simpson Limited and Brown Simpson LP may make no
disposition or other transfer of any Shares or Underlying Shares except in
compliance with all of the requirements of the Confidentiality Agreement
until such time as the Company discloses any material non-public
information that may have been covered by the Confidentiality Agreement.
The Company shall announce any material non-public information it legally
can announce on or prior to the Effective Date of the Underlying Shares
Registration Statement and shall not enter into any subsequent
non-disclosure agreements that would prevent it from announcing any such
information that otherwise legally could have been announced on or prior to
the Effective Date. In connection with any transfer of any Shares or any
Underlying Shares other than pursuant to an effective registration
statement 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 reasonably satisfactory to the
Company, to the effect that such transfer does not require registration of
such transferred securities under the Securities Act. Notwithstanding the
foregoing, the Company hereby consents to and agrees to register (i) any
transfer of Shares by one Purchaser to another Purchaser, and agrees that
no documentation other than executed transfer documents shall be required
for any such transfer, and (ii) any transfer by any Purchaser to an
Affiliate of such Purchaser or to an Affiliate of another Purchaser, or any
transfer among any such Affiliates, provided that 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 be bound by the terms
of this Agreement and shall have the rights of a Purchaser under this
Agreement and the Registration Rights Agreement, and any such transferee of
Brown Simpson Limited or Brown Simpson LP shall be bound by the terms of
the Confidentiality Agreement.
(b) Each Purchaser agrees to the imprinting, so long as is required by
this Section 3.1(b), of the following legend on the Shares and Warrants:
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.
The Underlying Shares issuable upon conversion of Shares or as payment of
dividends thereon shall not contain the legend set forth above if (i) the
conversion of such Shares or the payment of such dividends occurs at any time
while the Underlying Shares Registration Statement is effective under the
Securities Act, (ii) 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) such Shares or underlying Shares may be sold pursuant to Rule 144. The
Company agrees that it will provide each Purchaser, upon
14
request, with a certificate or certificates representing Underlying Shares, free
from such legend at such time as such legend is no longer required hereunder.
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 of transfer set forth in Section 3.1.
3.3 Furnishing of Information. As long as any Purchaser owns Shares or
Underlying Shares, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act and to promptly furnish the Purchasers with
true and complete copies of all such filings. As long as any Purchaser owns
Shares or Underlying 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 Shares 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
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 qualify the Underlying Shares under the securities or Blue Sky
laws of such jurisdictions as the Purchasers may request and shall continue such
qualification at all times through the third anniversary of the last 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 Shares or the Underlying Shares in a manner that would require the
registration under the Securities Act of the sale of the Shares or the
Underlying Shares to any Purchaser.
3.6 Certain Agreements. As long as any Purchaser owns Shares, the Company
shall not and shall cause the Subsidiaries not to, without the consent of
two-thirds of the holders of all of the Shares then outstanding, (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 Certificates of Designation and as would not adversely
affect the rights of any Purchaser hereunder or under the Certificates of
Designation; (iii) repay, repurchase or offer to repay, repurchase or otherwise
acquire or pay dividends or make distributions on shares of its
15
Common Stock in any manner, except as may be subject to prior commitments
reflected in the Disclosure Materials; (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 Shares, or (v) enter into any
agreement with respect to any of the foregoing.
3.7 Listing and Reservation of Underlying Shares.
(a) The Company shall (i) not later than the applicable Closing Date
prepare and file with the New York Stock Exchange (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 New York Stock Exchange covering and listing a number of shares of
Common Stock which is at least equal to 200% of the maximum number of
Underlying Shares then issuable assuming the payment of all future
dividends on the 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 New York Stock Exchange (as well as on any
other national securities exchange or market on which the Common Stock is
then listed) as soon as possible thereafter and (iii) provide to the
Purchasers evidence of such listing, and the Company shall maintain the
listing of its Common Stock on such exchange.
(b) The Company at all times shall reserve shares of its authorized
but unissued Common Stock for issuance upon (i) conversion of the Shares,
(ii) payment of dividends thereupon in shares of Common Stock and (iii)
exercise of the Warrants, pursuant to the terms of the Certificates of
Designation, the the sum of (a) 150% times the maximum number of shares of
Common Stock which would be issuable upon conversion of the Shares issued
pursuant to the terms hereof with respect to the number of Shares issued
and outstanding at such time were such conversion effected on such date for
such Shares, (b) the number of shares of Common Stock which would be
issuable upon exercise of the Warrants and (c) the number of shares of
Common Stock which would be issuable upon payment of dividends on the
shares; assuming each share is outstanding for two years. Shares of Common
Stock reserved for issuance upon the conversion of the Shares as set forth
in Section 3.7(a) shall be allocated pro rata to each of the Purchasers in
accordance with the amount of Shares issued and delivered to such Purchaser
at each Closing, as applicable.
3.8 No Violation of Applicable Law. Notwithstanding any provision of this
Agreement to the contrary, if the redemption of Shares or Underlying Shares
otherwise required under this Agreement, any applicable Certificate of
Designations or the Registration Rights Agreement 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 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 Certificate of Designation.
3.9 Notice of Breaches.
(a) Each of 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
16
Agreement or in the Registration Rights Agreement, as well as any events or
occurrences arising after the date hereof and prior to, with respect to the
Series G2 Closing, the Series G2 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 such Closing Date provided such notice will not constitute material
non-public information. However, no disclosure by either party pursuant to
this Section 3.9 shall be deemed to cure any breach of any representation,
warranty or other agreement contained herein or in the Registration Rights
Agreement.
(b) Notwithstanding the generality of Section 3.9(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 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, and the
Company shall promptly furnish by facsimile to the holders of the Shares 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 any Transaction Document shall not be
imputed to, and shall have no effect upon, any other Purchaser or affect
the Company's obligations under the Transaction Documents to any
non-defaulting Purchaser.
3.10 Conversion Obligations of the Company. The Company covenants to
convert Shares and to deliver Underlying Shares in accordance with the terms and
conditions and time period set forth in the respective Certificates of
Designation.
3.11 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
Underlying Shares Registration Statement relating to the securities issued at
the Series G1 Closing Date and the Series G2 Closing Date 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 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 Company of any of its
securities. Any days that any Purchaser is unable to sell Underlying Shares
under an Underlying Shares Registration Statement shall be added to such 90
Trading Day period for the purposes of (i), (ii) and (iii) above.
3.12 Use of Proceeds. The Company shall use all of the proceeds from the
sale of the Shares 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
17
the manner permitted hereby, the Company will invest such proceeds in interest
bearing accounts and/or short-term, investment grade interest bearing
securities.
3.13 Reimbursement. In the event that any Purchaser, other than by reason
of its 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.
3.14 Short Sales. No Purchaser shall engage in a short selling transaction
in which the number of shares of Common Stock shorted exceeds the number of
shares of Common Stock held by such Purchaser plus (i) the number of shares of
Common Stock into which the shares of Preferred Stock held by such Purchaser are
then convertible, (ii) the number of Shares of Common Stock that are accrued and
unpaid as dividends thereon and (iii) the number of Shares of Common Stock into
which the Warrants are exercisable (without regard to any restrictions on
conversion).
3.15 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 180 days
after any 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
18
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 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 Preferred Stock purchased by the Purchasers under this Agreement
at the Series G1 Closing. Notwithstanding the foregoing, the Company may, after
a period of not less than thirty (30) Trading Days after the respective dates
that the Underlying Shares Registration Statements relating to the securities
issued on the Series G1 Closing Date and the Series G2 Closing Date are declared
effective, sell its or its Affiliates' equity securities in an underwritten
public offering, provided, that written notice of such an offering be provided
to the Purchasers ten (10) Trading Days in advance of the commencement of such
an offering.
3.16 Filing of Form 8-K. On or before the 3rd business day following each
of the Closing Dates, the Company shall file a Form 8-K with the Commission
describing the terms of the transactions contemplated by the Transaction
Documents in the form required by the Exchange Act.
3.17 Transactions With Affiliates. Notwithstanding the Subordinated Credit
Facility between the Company and WGI, LLC, so long as (i) any Shares 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
19
agreement, transaction, commitment or arrangement with any of its Subsidiary's
officers, directors, person 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 with any individual related by blood, marriage or
adoption toany such individual or with any entity in which any such entity or
individual owns a 5% or more beneficial interest (each a "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
obtained 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 3.18 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 hereof means that a person or
entity has the power, direct or indirect, to conduct or govern the policies of
another person or entity.
3.18 Transfer Agent Instructions. The Company shall issue irrevocable
instructions to its transfer agent, and any subsequent transfer agent, to issue
certificate, registered in the name of each Purchaser or its respective
nominee(s), for shares of Common Stock issuable upon conversion of the Shares or
as payment of dividends thereon (the "Conversion Shares") and the shares of
Common Stock issuable upon exercise of the Warrants (the "Warrant Shares") in
such amounts as specified from time to time by each Purchaser to the Company
upon conversion of the Shares or exercise of the Warrants, in the form attached
hereto as Exhibit D (the "Irrevocable Transfer Agent Instructions"). Prior to
registration of the Conversion Shares and Warrant Shares under the Securities
Act, 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
3.19, and stop transfer instructions to give effect to Section 3.1 hereof (in
the case of the Conversion Shares and the Warrant Shares, prior to registration
of the Conversion Shares under the Securities Act) will be given by the Company
to its transfer agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. If a Purchaser
provides the Company with an opinion of counsel, in form and substance
reasonably satisfactory to the Company, to the effect that a public sale,
assignment or transfer of the Securities may be made without registration under
the Securities Act or the Purchaser provides the Company with reasonable
assurances that the Securities 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 Conversion Shares and the Warrants 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 vitiating the intent and purpose of
the transaction contemplated hereby. Accordingly, the Company acknowledges that
20
the remedy at law for a breach of its obligations under this Section 3.19 will
be inadequate and agrees, in the event of a beach or threatened breach by the
Company of the provisions of this Section 3.19, 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.
ARTICLE IV
conditions
4.1 (a) Conditions Precedent to the Obligation of the Company to Sell the
Series G1 Shares. The obligation of the Company to sell the Series G1 Shares
hereunder is subject to the satisfaction or waiver (with prior written notice to
each Purchaser) by the Company, at or before the Series G1 Closing, of each of
the following conditions:
(i) Accuracy of the Purchasers' Representations and Warranties. The
representations and warranties of each Purchaser shall be true and correct
as of the date when made and as of the Series G1 Closing Date, as though
made on and as of such 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
Series G1 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 Registration Rights Agreement.
(b) Conditions Precedent to the Obligation of the Purchasers to Purchase
the Series G1 Shares. The obligation of each Purchaser hereunder to acquire and
pay for the Series G1 Shares is subject to the satisfaction or waiver by such
Purchaser, at or before the Series G1 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
and in the Registration Rights Agreement shall be true and correct as of
the date when made and as of the Series G1 Closing Date as though made on
and as of such 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 Series G1
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
21
governmental authority of competent jurisdiction which prohibits the
consummation of any of the transactions contemplated by this Agreement or
the Registration Rights Agreement;
(iv) 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 Disclosure Materials (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;
(v) 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.
(vi) No Suspensions of Trading in Common Stock. The trading in the
Common Stock shall not have been suspended by the Commission or on the New
York Stock Exchange which suspension shall remain in effect;
(vii) Listing of Common Stock. The Company shall have filed a listing
application to list the Underlying Shares for trading on the New York Stock
Exchange;
(viii) Legal Opinion. The Company shall have delivered to the
Purchasers the opinions of Witt, Gaither & Whitaker, P.C., the Company's
outside legal counsel and Robert J. Powell, the Company's general counsel,
in the forms attached hereto as Exhibits C1 and C2;
(ix) Required Approvals. All Required Approvals shall have been
obtained other than those relating solely to the Series G2 Shares;
(x) Shares of Common Stock. On or prior to the Series G1 Closing Date,
the Company shall have duly reserved the number of Underlying Shares
required by the Transaction Documents to be reserved for issuance upon
conversion of Series G1 Shares and payment of dividends thereon;
(xi) Delivery of Stock Certificates. The Company shall have delivered
to each Purchaser or such Purchaser's designee, the stock certificate(s)
representing the Series G1 Shares, registered in the name of such
Purchaser, each in form satisfactory to the Purchaser;
(xii) Registration Rights Agreement. The Company shall have executed
and delivered the Registration Rights Agreement;
(xiii) Certificates of Designation. The Series G1 Designation shall
have been duly approved by the Company's Board of Directors and filed with
the Secretary of State of Indiana, and the Company shall have delivered a
copy thereof to the Purchaser certified as filed by the office of the
Secretary of State of Indiana;
22
(xiv) Change of Control. No Change of Control (as hereafter defined)
shall have occurred between the date hereof and the Series G1 Closing Date;
and
(xv) Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit D attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(xvi) Series G1 Warrant. The Company shall at the Series G1 Closing,
deliver warrants (the "Warrants"), in the form attached hereto as Exhibit
E, to purchase 100,000 shares of the Common Stock to the Purchasers
allocated pro rata based on Shares purchased. The warrant shall have a term
of five years, an exercise price of 125% of Fixed Strike Price and shall
not be redeemable by the Company.
(xvii) Officer's Certificate. On the Closing Date the Company shall
deliver to the Purchasers 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 such
Closing Date and confirming the compliance by the Company with the
conditions precedent set forth in this Section 4.1 as of such Closing Date.
(xviii) Secretary's Certificate. On the Closing Date the Company shall
deliver to the Purchasers 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
Restated Articles of Incorporation of the Company, as in effect on the
Closing Date, (B) that attached thereto is a true and complete copy of the
bylaws 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 the Transaction Documents.
4.2 Conditions Precedent to the Obligation of the Purchasers to Purchase
the Series G2 Shares. The obligation of each Purchaser hereunder to acquire and
pay for the Series G2 Shares is subject to the satisfaction or waiver by each
Purchaser, at or before the Series G2 Closing, of each of the following
conditions:
(a) Series G1 Closing. The Series G1 Closing shall have occurred.
(b) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company contained herein and in the
Registration Rights Agreement shall be true and correct as of the date when
made and as of the Series G2 Closing Date, as though made on and as of such
date.
(c) 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 and the Registration
Rights Agreement to be performed, satisfied or complied with by the Company
at or prior to the Series G2 Closing Date.
(d) Underlying Shares Registration Statements. With respect to the
Series G2 Closing, the Underlying Shares Registration Statement with
respect to at least 150% of the
23
Underlying Shares issuable on conversion of all outstanding Series G1
Shares and as payment of dividends thereon and upon exercise of the
Warrants shall have been declared effective under the Securities Act by the
Commission; and on the Series G2 Closing Date such Underlying Shares
Registration Statement shall be effective, not subject to any stop order
and not be subject to any suspension pursuant to Section 3(n) of the
Registration Rights Agreement, and shall have been effective and shall not
have been subject to any stop order for the thirty (30) business days prior
to such Closing Date and no stop order shall be pending or threatened as at
such Closing Date. Prior to the Series G2 Closing, the Underlying Shares
Registration Statement with respect to at least 150% of the Underlying
Shares issuable, as of the Series G2 Closing Date, upon conversion of the
Series G2 Shares to be issued at the Series G2 Closing and as payment of
dividends thereon shall have been declared effective under the Securities
Act by the Commission; and on the Series G2 Closing Date such Underlying
Shares Registration Statement shall be effective, not subject to any stop
order and not be subject to suspension pursuant to Section 3(n) of the
Registration Rights Agreement and no such stop order or suspension shall be
pending or threatened.
(e) Certificate of Designation. The Company shall have filed with the
Secretary of State of the State of Indiana the Certificate of Designation
with respect to the Series G2 Shares.
(f) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or endorsed by any court of governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement or the Registration Rights Agreement
relating to the issuance or conversion of any of the Shares.
(g) 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.
(h) Management. There shall have been no substantial changes in the
position or responsibilities of any of the following members of the
Company's senior management team: Stephen Walsh, Chairman of the Board and
Co-CEO; Thomas A. McFall, Co-CEO; and John W. Prutch, President.
(i) No Suspensions of Trading in Common Stock. The trading in the
Common Stock shall not have been suspended by the Commission or on the New
York Stock Exchange (except for any suspension of trading of limited
duration solely to permit dissemination of material information regarding
the Company).
(j) Listing of Common Stock. The Common Stock shall have been at all
times since the Series G1 Closing Date, and on the Series G2 Closing Date
be listed for trading on the New York Stock Exchange.
(k) Change of Control. No Change of Control in the Company shall have
occurred. "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
24
under the Exchange Act), other than WGI, LLC or any of its 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,
consolidation or sale of all or substantially all of the assets of the
Company in one or a series of related transactions or (iv) 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) or
(iii).
(l) Legal Opinions. The Company shall have delivered to the Purchasers
the opinions of Witt, Gaither & Whitaker, P.C., outside counsel to the
Company, and of Robert J. Powell, the Company's general counsel, in
substantially the forms attached hereto as Exhibits C1 and C2, dated the
applicable Closing Date.
(m) Required Approvals. All Required Approvals shall have been
obtained.
(n) Shares of Common Stock. On the Series G2 Closing Date, the Company
shall have duly reserved the number of Underlying Shares required by this
Agreement to be reserved for issuance upon conversion of Series G2 Shares,
and payment of dividends thereon.
(o) Delivery of Stock Certificates. The Company shall have delivered
to each Purchaser or such Purchaser's designee the stock certificate(s)
representing the Shares being purchased at such Closing, registered in the
name of such Purchaser, each in form satisfactory to such Purchaser.
(p) Performance of Conversion/Exercise Obligations. The Company shall
have delivered Underlying Shares upon conversion of Shares and otherwise
performed its obligations in accordance with the terms, conditions and
timing requirements of each Certificate of Designation and the other
Transaction Documents.
(q) Common Stock Price. The Per Share Market Value on the Series G2
Closing Date shall not be less than the Per Share Market Value of the
Common Stock on the Series G1 Closing Date.
(r) Transfer Agent Instructions. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit D attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
(s) Officer's Certificate. On the Closing Date the Company shall
deliver to the Purchasers 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 such
Closing Date and confirming the compliance by the Company with the
conditions precedent set forth in this Section 4.2 as of such Closing Date.
(t) Interim Financings. The Purchasers shall have no obligation to
purchase the Series G2 Preferred if, after the Series G1 Closing the
Company has sold or issued, in a private placement transaction that
violates Section 3.11(i) (excluding a private placement in connection
25
with an acquisition of a license or of a division, assets or business (or
stock constituting any portion thereof) from another Person (an
"Acquisition")) or series of such transactions to a single entity or a
group of entities under common control or which are related such that they
could be considered a single entity, equity or equity equivalent securities
in an amount exceeding $500,000.
(u) Secretary's Certificate. On the Closing Date the Company shall
deliver to the Purchasers 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
Restated Articles of Incorporation of the Company, as in effect on the
Closing Date, (B) that attached thereto is a true and complete copy of the
bylaws 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 the Transaction Documents.
(v) Shareholder Approval. The Company's shareholders shall have
approved issuances of Common Stock greater than 20% of the voting power of
the outstanding shares of Common Stock of Company.
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses. Except (i) as set forth in the Term Letter under the
caption "Fees and Expenses," (ii) as set forth in the Registration Rights
Agreement and (iii) as otherwise set forth in this 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.
The Company shall pay all stamp and other taxes and duties levied in connection
with the issuance of the Shares pursuant hereto.
5.2 Entire Agreement; Amendments. This Agreement, together with the
Exhibits and Schedules hereto, the Registration Rights Agreement and each
Certificate of Designation (each when filed) 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.
5.3 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 7:00 p.m. EST
where such notice is to be received), or the first business day following such
delivery (if delivered on a business day after during normal business hours
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 shall be as set forth below each parties'
name on Schedule 1, and (i) if to the Company, with copies to Witt, Gaither
26
& Whitaker, P.C., 1100 SunTrust Bank Building, 736 Market Street, Chattanooga,
Tennessee 37402, Attn: Steven R. Barrett, fax: (423) 266-4138, and (ii) if to
any Purchaser with copies to Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1700
Pacific Avenue, Suite 4100, Dallas, Texas 75201, Attn: Diane B. Muse, fax: (214)
969-4343, or such other address as may be designated in writing hereafter, in
the same manner, by such person.
5.4 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 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 Shares 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.
5.5 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.
5.6 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, except 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 under the Registration
Rights Agreement.
5.7 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.
5.8 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.
27
5.9 Survival. The agreements, covenants, representations, warranties and
provisions contained in this Agreement shall survive the delivery of the Shares
pursuant to this Agreement and each Closing hereunder and any conversion of
Shares.
5.10 Execution. 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.
5.11 Publicity. The Company and each Purchaser 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.
5.12 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 affecting 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.
5.13 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
the Transaction Documents without the showing of economic loss and without any
bond or other security being required. Each of the Company and the Purchasers
(severally and not jointly) agree 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 agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.
5.14 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 any 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
28
limitation the rights arising out of this Agreement or out of the other
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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
29
IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Preferred Stock Purchase Agreement to be duly executed by their respective
authorized persons as of the date first indicated above.
SIGNAL APPAREL COMPANY, INC.
By: /s/ John W. Prutch
-----------------------------
Name: John W. Prutch
Title: President
BROWN SIMPSON STRATEGIC
GROWTH FUND, LTD.
By: /s/ Evan Levine
-----------------------------
Name: Evan Levine
Title: Principal
BROWN SIMPSON STRATEGIC
GROWTH FUND, L.P.
By: /s/ Evan Levine
-----------------------------
Name: Evan Levine
Title: Principal
HERACLES FUND LTD.
By Promethean Investment Group, LLC
Its: Investment Advisor
By: /s/ James F. O'Brien, Jr.
-----------------------------
Name: James F. O'Brien, Jr.
Title: President
THEMIS PARTNERS, L.P.
By Promethean Investment Group, LLC
Its: Investment Advisor
By: /s/ James F. O'Brien, Jr.
-----------------------------
Name: James F. O'Brien, Jr.
Title: President
Company:
Signal Apparel Company, Inc.
200A Manufacturers Road
Chattanooga, Tennessee 37405
Attn: President & General Counsel
Fax: (423) 752-2040
Purchasers:
Brown Simpson Strategic Growth Fund, Ltd.
152 West 57th Street, 40th Floor
New York, New York 10019
Attn: Paul Gustus
Fax: (212) 247-1329
Portion of Series G1 Purchase Price $1,600,000
Series G1 Shares 1600
Brown Simpson Strategic Growth Fund, L.P.
152 West 57th Street, 40th Floor
New York, New York 10019
Attn: Paul Gustus
Fax: (212) 247-1329
Portion of Series G1 Purchase Price $900,000
Series G1 Shares 900
Heracles Fund Ltd.
c/o Promethean Investment Group
40 W. 57th Street, Suite 1520
New York, NY 10019
Attn: Jamie O'Brien
Tel: (212) 698-0588
Fax: (212) 698-0505
Portion of Series G1 Purchase Price $1,875,000
Series G1 Shares 1,875
Themis Partners, L.P.
c/o Promethean Investment Group
40 W. 57th Street, Suite 1520
New York, NY 10019
Attn: Jamie O'Brien
Tel: (212) 698-0588
Fax: (212) 698-0505
Portion of Series G1 Purchase Price $625,000
Series G1 Shares 625
1