THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY
STATE SECURITIES OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH
SHARES MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER SAID ACT AND UNDER
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR EXEMPTIONS FROM SUCH
REGISTRATION
18,000 Warrant No. G1-1
SIGNAL APPAREL COMPANY, INC.
STOCK PURCHASE WARRANT
Registered Owner: Brown Simpson Strategic Growth Fund, L.P.
This certifies that, for value received, Signal Apparel Company, Inc., an
Indiana corporation, the ("Company") grants the following rights to the
Registered Owner, or assigns, of this Warrant:
1. Issue. Upon tender (as defined in section 5 hereof) to the Company, the
Company shall issue to the Registered Owner, or assigns, up to the number of
shares specified in paragraph 2 hereof of fully paid and nonassessable shares of
Common Stock that the Registered Owner, or assigns, is otherwise entitled to
purchase.
2. Number of Shares. The total number of shares of Common Stock that the
Registered Owner, or assigns, of this Warrant is entitled to receive upon
exercise of this Warrant is 18,000 shares, subject to adjustment from time to
time as set forth in paragraph 6 below. The Company shall at all times reserve
and hold available sufficient shares of Common Stock to satisfy all conversion
and purchase rights represented by outstanding convertible securities, options
and warrants, including this Warrant. The Company covenants and agrees that all
shares of Common Stock that may be issued upon the exercise of this Warrant
shall, upon issuance, be duly and validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the purchase and the
issuance of the shares.
3. Exercise Price. The exercise price of this Warrant, the price at which
the shares of stock purchasable upon exercise of this Warrant may be purchased,
is 125% of the Fixed Strike Price (as defined in the Certificate of
Designation), subject to adjustment from time to time pursuant to the provisions
of paragraph 6 below (the "Exercise Price").
4. Exercise Period. This Warrant may only be exercised beginning on
September 17, 1998 and up to and including September 17, 2003 five years after
the date of the Warrant,
less one day. If not exercised during this period, this Warrant and all rights
granted under this Warrant shall expire and lapse.
5. Tender. This Warrant may be exercised, in whole or in part, by actual
delivery of (i) the Exercise Price in cash, (ii) a duly executed Warrant
Exercise Form, a copy of which is attached to this Warrant as Exhibit A,
properly executed by the Registered Owner, or assigns, of this Warrant, and
(iii) by surrender of this Warrant. The payment and Warrant Exercise Form must
be delivered, personally or by mail, to the registered office of the Company.
Documents sent by mail shall be deemed to be delivered when they are received by
the Company.
6. Adjustment of Exercise Price.
(a) If the Company, at any time while this Warrant is outstanding, (a)
shall pay a stock dividend on its Common Stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine
outstanding shares of Common Stock into a smaller number of shares, or (d)
issue by reclassification of shares of Common Stock any shares of capital
stock of the Company, the Exercise Price shall be multiplied by a fraction
the numerator of which shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and the
denominator of which shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this
paragraph (6)(a) shall become effective immediately after the record date
for the determination of shareholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or re-classification.
(b) If the Company, at any time while this Warrant is outstanding,
shall issue rights or warrants to all of the holders of Common Stock
entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the Per Share Market Value (as defined below) of
Common Stock at the record date mentioned below, the Exercise Price shall
be multiplied by a fraction, the denominator of which shall be the number
of shares of Common Stock (excluding treasury shares, if any) outstanding
on the date of issuance of such rights or warrants plus the number of
additional shares of Common Stock offered for subscription or purchase, and
the numerator of which shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of shares which the aggregate
offering price of the total number of shares so offered would purchase at
such Per Share Market Value. Such adjustment shall be made whenever such
rights or warrants are issued, and shall become effective immediately after
the record date for the determination of shareholders entitled to receive
such rights or warrants. However, upon the expiration of any right or
warrant to purchase Common Stock the issuance of which resulted in an
adjustment in the Exercise Price pursuant to this paragraph (6)(b), if any
such right or warrant shall expire and all or any portion thereof shall not
have been exercised, the Exercise Price shall immediately upon such
expiration be re-computed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Exercise Price made pursuant to the provisions of
section (f) after the issuance of such rights or warrants) had the
adjustment of the Exercise Price made upon the issuance of such rights or
warrants been made on the basis of offering for subscription or purchase
only that
2
number of shares of Common Stock (if any) actually purchased upon the
exercise of such rights or warrants actually exercised.
(c) If the Company, at any time while this Warrant is outstanding,
shall distribute to all of the holders of Common Stock evidences of its
indebtedness or assets or rights or warrants to subscribe for or purchase
any security (excluding those referred to in paragraphs 6(a) and (b)
above), then in each such case the Exercise Price at which the Warrant
shall thereafter be convertible shall be determined by multiplying the
Exercise Price in effect immediately prior to the record date fixed for
determination of shareholders entitled to receive such distribution by a
fraction the denominator of which shall be the Per Share Market Value of
Common Stock determined as of the record date mentioned above, and the
numerator of which shall be such Per Share Market Value of the Common Stock
on such record date less the then fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed
applicable to one outstanding share of Common Stock as determined by the
Board of Directors in good faith; provided, however, that in the event of a
distribution exceeding ten percent of the net assets of the Company, such
fair market value shall be determined by a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (an "Appraiser") selected in good faith
by the holder of the Warrant; and provided, further, that the Company,
after receipt of the determination by such Appraiser shall have the right
to select an additional Appraiser meeting the same qualifications, in good
faith, in which case the fair market value shall be equal to the average of
the determinations by each such Appraiser. Such adjustment shall be made
whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(d) All calculations under this section 6 shall be made to the nearest
cent or the nearest l/l00th of a share, as the case may be.
(e) Whenever the Exercise Price is adjusted pursuant to paragraphs
6(a), (b) or (c), the Company shall promptly mail to the holder of the
Warrant, a notice setting forth the Exercise Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment.
(f) In case of (A) any reclassification of the Common Stock, (B) any
consolidation or merger of the Company with or into another person pursuant
to which (i) a majority of the Company's Board of Directors will not
constitute a majority of the board of directors of the surviving entity or
(ii) less than 51% of the outstanding shares of the capital stock of the
surviving entity will be held by the same shareholders of the Company prior
to such reclassification, consolidation or merger, (C) the sale or transfer
of all or substantially all of the assets of the Company, (D) any
compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, (E) suspension from listing or
delisting of the Common Stock from The New York Stock Exchange or The
Nasdaq National Market for a period of five consecutive days, (F) the
Company's notice to any Holder, including by way of public announcement, at
any time, of its intention, for any reason, not to comply with proper
requests for conversion of any shares of Series G1 Preferred Stock into, or
exercise of this
3
Warrant for, shares of Common Stock, or (G) a breach by the Company of any
representation, warranty, covenant or other term or condition of the
Purchase Agreement, the Registration Rights Agreement, the Certificate of
Designation or any other agreement, document, certificate or other
instrument delivered in connection with the transactions contemplated
thereby or hereby, except to the extent that such breach would not have a
Material Adverse Effect (as defined in Section 2.1(a) of the Purchase
Agreement) and except, in the case of a breach of a covenant which is
curable, only if such breach continues for a period of at least ten days
after the Company knows or reasonably should have known of the existence of
such breach (clauses (A) through (G) above referred to as a "Redemption
Event"), the holder of the Warrant shall have the right thereafter to
convert the Warrant only into the shares of stock and other securities,
cash and property receivable upon or deemed to be held by holders of Common
Stock following such Redemption Event, and the holder of the Warrant shall
be entitled upon such event to receive such amount of securities, cash or
property as the shares of the Common Stock of the Company into which the
Warrant could have been converted immediately prior to such Redemption
Event would have been entitled.
(g) If:
A. the Company shall declare a dividend (or any other distribution)
on its Common Stock; or
B. the Company shall declare a special nonrecurring cash dividend on
or a redemption of its Common Stock; or
C. the Company shall authorize the granting to the holders of the
Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; or
D. the approval of any shareholders of the Company shall be required
in connection with any reclassification of the Common Stock of
the Company, any consolidation or merger to which the Company is
a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share of exchange
whereby the Common Stock is converted into other securities, cash
or property; or
E. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of this Warrant, and shall cause
to be mailed to the holder of this Warrant at its address as it shall
appear below, at least 30 calendar days prior to the applicable record or
effective date hereinafter specified, a notice (provided such notice shall
not include any material non-public information) stating (x) the date on
which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be
taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend,
4
distributions, redemption, rights or warrants are to be determined or (y)
the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and
the date as of which it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for securities,
cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however,
that the failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate action
required to be specified in such notice.
(h) Adjustment to Exercise Price. In order to prevent dilution of the
rights granted under this Warrant, the Exercise Price will be subject to
adjustment from time to time as provided in this Section 6(h).
(i) Adjustment of Exercise Price upon Issuance of Common Stock.
If and whenever on or after the Closing Date, the Company issues or
sells, or is deemed to have issued or sold, any shares of Common Stock
(other than the Underlying Shares, Warrant Shares or shares of Common
Stock deemed to have been issued by the Company in connection with an
Approved Stock Plan (as defined below)) for a consideration per share
less than the Exercise Price in effect immediately prior to such
issuance or sale, then immediately after such issue or sale, the
Exercise Price then in effect shall be reduced to an amount equal to
the consideration per share of Common Stock of such issuance or sale.
If and whenever on or after the Closing Date, the Company issues or
sells, or is deemed to have issued or sold, any shares of Common Stock
(other than the Underlying Shares, Warrant Shares, shares of Common
Stock deemed to have been issued by the Company in connection with an
Approved Stock Plan (as defined below) or shares of Common Stock
issued or deemed to have been issued as consideration for an
acquisition by the Company of a license or of a division, assets or
business (or stock constituting any portion thereof) from another
person) for a consideration per share which is (A) greater than the
Exercise Price in effect immediately prior to such issuance or sale
and (B) less the average of the Per Share Market Values on the five
consecutive trading days immediately preceding the date of such
issuance or sale (the price in this clause (B) is herein referred to
as "Market Price"), then immediately after such issue or sale, the
Exercise Price then in effect shall be reduced to an amount equal to
the product of (x) the Exercise Price in effect immediately prior to
such issue or sale and (y) the quotient determined by dividing (1) the
sum of (I) the product of (A) the Market Price and (B) the number of
shares of Common Stock Deemed Outstanding (as defined below)
immediately prior to such issue or sale, and (II) the consideration,
if any, received by the Company upon such issue or sale, by (2) the
product of (I) the Market Price and (II) the number of shares of
Common Stock Deemed Outstanding (as defined below) immediately after
such issue or sale. For purposes of determining the adjusted Exercise
Price under this Section 6(h)(i), the following shall be applicable:
(A) Issuance of Options. If the Company in any manner grants
any rights or options to subscribe for or to purchase Common
Stock or any stock or other securities convertible into or
exchangeable for Common Stock (such rights or options being
herein called "Options" and such convertible or exchangeable
stock or securities being herein called "Convertible Securities")
and the price per share for which Common Stock is
5
issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than the Exercise
Price in the case of the first sentence of Section 6(h)(i), or
the Market Price in the case of the second sentence of Section
6(h)(i) (collectively, the "Applicable Price"), then the total
maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon
the exercise of such Options shall be deemed to be outstanding
and to have been issued and sold by the Company for such price
per share. For purposes of this Section 6(h)(i)(A), the "price
per share for which Common Stock is issuable upon exercise of
such Options or upon conversion or exchange of such Convertible
Securities" is determined by dividing (I) the total amount, if
any, received or receivable by the Company as consideration for
the granting of such Options, plus the minimum aggregate amount
of additional consideration payable to the Company upon the
exercise of all such Options, plus in the case of such Options
which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the
Company upon the issuance or sale of such Convertible Securities
and the conversion or exchange thereof, by (II) the total maximum
number of shares of Common Stock issuable upon exercise of such
Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such
Options. No adjustment of the Exercise Price shall be made upon
the actual issuance of such Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such
Convertible Securities.
(B) Issuance of Convertible Securities. If the Company in
any manner issues or sells any Convertible Securities and the
price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Applicable Price, then
the maximum number of shares of Common Stock issuable upon
conversion or exchange of such Convertible Securities shall be
deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For the purposes of this
Section 6(h)(i)(B), the "price per share for which Common Stock
is issuable upon such conversion or exchange" is determined by
dividing (I) the total amount received or receivable by the
Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (II) the total maximum number
of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities. No adjustment of the
Exercise Price shall be made upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is
made upon exercise of any Options for which adjustment of the
Exercise Price had been or are to be made pursuant to other
provisions of this Section 6(h)(i), no further adjustment of the
Exercise Price shall be made by reason of such issue or sale.
(C) Change in Option Price or Rate of Conversion. If there
is a change at any time in (i) the purchase price provided for in
any Options, (ii) the additional consideration, if any, payable
upon the issue, conversion or exchange of any Convertible
Securities or (iii) the rate at which any Convertible
6
Securities are convertible into or exchangeable for Common Stock,
then the Exercise Price in effect at the time of such change
shall be readjusted to the Exercise Price which would have been
in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price,
additional consideration or changed conversion rate, as the case
may be, at the time initially granted, issued or sold; provided
that no adjustment shall be made if such adjustment would result
in an increase of the Exercise Price then in effect.
(D) Certain Definitions. For purposes of determining the
adjusted Exercise Price under this Section 6(h)(i), the following
terms have meanings set forth below:
(I) "Approved Stock Plan" shall mean any contract, plan
or agreement which has been approved by the Board of
Directors of the Company, pursuant to which the Company's
securities may be issued to any employee, officer, director
or consultant.
(II) "Common Stock Deemed Outstanding" means, at any
given time, the number of shares of Common Stock issued and
outstanding at such time, plus the number of shares of
Common Stock deemed to be outstanding pursuant to Sections
6(h)(i)(A) and 6(h)(i)(B) hereof regardless of whether the
Options or Convertible Securities are actually exercisable
at such time, but excluding any shares of Common Stock
issuable upon conversion of the shares of Series G1
Preferred Stock or exercise of the Warrants.
(E) Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under this Section
6(h)(i), the following shall be applicable:
(I) Calculation of Consideration Received. If any
Common Stock, Options or Convertible Securities are issued
or sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the net
amount received by the Company therefor. In case any Common
Stock, Options or Convertible Securities are issued or sold
for a consideration other than cash, the amount of the
consideration other than cash received by the Company will
be the fair value of such consideration, except where such
consideration consists of securities, in which case the
amount of consideration received by the Company will be the
arithmetic average of the Per Share Market Values of such
security for the five (5) consecutive Trading Days
immediately preceding the date of receipt. In case any
Common Stock, Options or Convertible Securities are issued
to the owners of the non-surviving entity in connection with
any merger in which the Company is the surviving entity the
amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may
be. The fair value of any consideration other than cash or
securities will be determined jointly by the Company and the
Holders of a majority of the shares of Series G1 Preferred
Stock then outstanding. If such parties are unable to reach
agreement within ten
7
(10) days after the occurrence of an event requiring
valuation (the "Valuation Event"), the fair value of such
consideration will be determined within forty-eight (48)
hours of the tenth (10th) day following the Valuation Event
by an independent, reputable appraiser selected by the
Company. The determination of such appraiser shall be
binding upon all parties absent manifest error.
(II) Integrated Transactions. In case any Option is
issued in connection with the issue or sale of other
securities of the Company, together comprising one
integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the
Options will be deemed to have been issued for an aggregate
consideration of $.01.
(III) Treasury Shares. The number of shares of Common
Stock outstanding at any given time does not include shares
owned or held by or for the account of the Company, and the
disposition of any shares so owned or held will be
considered an issue or sale of Common Stock.
(IV) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them
(1) to receive a dividend or other distribution payable in
Common Stock, Options or in Convertible Securities or (2) to
subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date will be deemed
to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(ii) Certain Events. If any event occurs of the type contemplated
by the provisions of Section 6(h)(i) (subject to the exceptions stated
therein) but not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation rights, phantom
stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Exercise
Price so as to protect the rights of the Registered Holder, or
assigns, of this Warrant; provided, however, that no such adjustment
will increase the Exercise Price as otherwise determined pursuant to
this Section 6(h).
7. Per Share Market Value. Per Share Market Value means on any particular
date (i) the closing bid price per share of the Common Stock on such date on the
New York Stock Exchange or other registered national stock exchange on which the
Common Stock is then listed or if there is no such price on such date, then the
closing bid price on such exchange or quotation system on the date nearest
preceding such date, or (ii) if the Common Stock is not listed then on the New
York Stock Exchange or any registered national stock exchange, the closing bid
price for a share of Common Stock in the over-the-counter market, as reported by
the New York Stock Exchange or in the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting prices)
at the close of business on such date, or (iii) if the Common Stock is not then
publicly traded the fair market value of a share of Common Stock as determined
by an Appraiser selected in good faith by the holder of this Warrant; provided,
however, that the Company, after receipt of the determination by such Appraiser,
shall have the
8
right to select an additional Appraiser, in which case, the fair market value
shall be equal to the average of the determinations by each such Appraiser; and
provided, further that all determinations of the Per Share Market Value shall be
appropriately adjusted for any stock dividends, stock splits or other similar
transactions during such period.
8. Registration Rights. The Company will undertake the registration of the
Common Stock into which such Warrants are convertible at such times and upon
such terms pursuant to the provisions of the Registration Rights Agreement dated
September 17, 1998 by and among the Company, Brown Simpson Strategic Growth
Fund, L.P., Brown Simpson Strategic Growth Fund, Ltd., Heracles Fund Ltd. and
Themis Partners, L.P.
9. Notices. All notices or other communications required hereunder shall be
in writing and shall be sent either (i) by courier, or (ii) by telecopy as well
as by registered or certified mail, and shall be regarded as properly given in
the case of a courier upon actual delivery to the proper place of address; in
the case of telecopy, on the day following the date of transmission if properly
addressed and sent without transmission error to the correct number and receipt
is confirmed by telephone within 48 hours of the transmission; in the case of a
letter for which a telecopy could not be successfully transmitted or receipt of
which could not be confirmed as herein provided, three days after the registered
or certified mailing date if the letter is properly addressed and postage
prepaid; and shall be regarded as properly addressed if sent to the parties or
their representatives at the addresses given below:
To the Company: Signal Apparel Company, Inc.
200A Manufacturers Road
Chattanooga, Tennessee 37405
Attn: President & General Counsel
Phone: (423) 756-8146
Fax: (423) 752-2040
To the holder: Brown Simpson Strategic Growth Fund, L.P.
152 West 57th Street, 40th Floor
New York, New York 10019
Attn: Paul Gustus
Phone: (212) 247-8200
Fax: (212) 247-1329
or such other address as any of the above may have furnished to the other
parties in writing by registered mail, return receipt requested.
[signature page follows]
9
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer as of the date first set forth above.
SIGNAL APPAREL COMPANY, INC.
By: /s/ John W. Prutch
--------------------------------
Name: John W. Prutch
Title: President
10
EXHIBIT A
Warrant Exercise Form
TO: SIGNAL APPAREL COMPANY, INC.
The undersigned hereby: (1) irrevocably subscribes for and offers to
purchase _______ shares of Common Stock of Signal Apparel Company, Inc.,
pursuant to Warrant No. G1 heretofore issued to ___________________ on
____________, 1998; (2) encloses a payment of $__________ for these shares at a
price of $____ per share (as adjusted pursuant to the provisions of the
Warrant); and (3) requests that a certificate for the shares be issued in the
name of the undersigned and delivered to the undersigned at the address
specified below.
Date: ____________________________________________________
Investor Name: ___________________________________________
Taxpayer Identification
Number: ___________________________________________________
By: ______________________________________________________
Printed Name: ____________________________________________
Title: ____________________________________________________
Address: __________________________________________________
Note: The above signature should correspond exactly with
the name on the face of this Warrant Certificate or
with the name of assignee appearing in assignment
form below.
AND, if said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant Certificate is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder less
any fraction of a share paid in cash and delivered to the address stated above.
11
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY
STATE SECURITIES OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH
SHARES MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER SAID ACT AND UNDER
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR EXEMPTIONS FROM SUCH
REGISTRATION
32,000 Warrant No. G1-2
SIGNAL APPAREL COMPANY, INC.
STOCK PURCHASE WARRANT
Registered Owner: Brown Simpson Strategic Growth Fund, Ltd.
This certifies that, for value received, Signal Apparel Company, Inc., an
Indiana corporation, the ("Company") grants the following rights to the
Registered Owner, or assigns, of this Warrant:
1. Issue. Upon tender (as defined in section 5 hereof) to the Company, the
Company shall issue to the Registered Owner, or assigns, up to the number of
shares specified in paragraph 2 hereof of fully paid and nonassessable shares of
Common Stock that the Registered Owner, or assigns, is otherwise entitled to
purchase.
2. Number of Shares. The total number of shares of Common Stock that the
Registered Owner, or assigns, of this Warrant is entitled to receive upon
exercise of this Warrant is 32,000 shares, subject to adjustment from time to
time as set forth in paragraph 6 below. The Company shall at all times reserve
and hold available sufficient shares of Common Stock to satisfy all conversion
and purchase rights represented by outstanding convertible securities, options
and warrants, including this Warrant. The Company covenants and agrees that all
shares of Common Stock that may be issued upon the exercise of this Warrant
shall, upon issuance, be duly and validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the purchase and the
issuance of the shares.
3. Exercise Price. The exercise price of this Warrant, the price at which
the shares of stock purchasable upon exercise of this Warrant may be purchased,
is 125% of the Fixed Strike Price (as defined in the Certificate of
Designation), subject to adjustment from time to time pursuant to the provisions
of paragraph 6 below (the "Exercise Price").
4. Exercise Period. This Warrant may only be exercised beginning on
September 17, 1998 and up to and including September 17, 2003 five years after
the date of the Warrant,
less one day. If not exercised during this period, this Warrant and all rights
granted under this Warrant shall expire and lapse.
5. Tender. This Warrant may be exercised, in whole or in part, by actual
delivery of (i) the Exercise Price in cash, (ii) a duly executed Warrant
Exercise Form, a copy of which is attached to this Warrant as Exhibit A,
properly executed by the Registered Owner, or assigns, of this Warrant, and
(iii) by surrender of this Warrant. The payment and Warrant Exercise Form must
be delivered, personally or by mail, to the registered office of the Company.
Documents sent by mail shall be deemed to be delivered when they are received by
the Company.
6. Adjustment of Exercise Price.
(a) If the Company, at any time while this Warrant is outstanding, (a)
shall pay a stock dividend on its Common Stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine
outstanding shares of Common Stock into a smaller number of shares, or (d)
issue by reclassification of shares of Common Stock any shares of capital
stock of the Company, the Exercise Price shall be multiplied by a fraction
the numerator of which shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and the
denominator of which shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this
paragraph (6)(a) shall become effective immediately after the record date
for the determination of shareholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or re-classification.
(b) If the Company, at any time while this Warrant is outstanding,
shall issue rights or warrants to all of the holders of Common Stock
entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the Per Share Market Value (as defined below) of
Common Stock at the record date mentioned below, the Exercise Price shall
be multiplied by a fraction, the denominator of which shall be the number
of shares of Common Stock (excluding treasury shares, if any) outstanding
on the date of issuance of such rights or warrants plus the number of
additional shares of Common Stock offered for subscription or purchase, and
the numerator of which shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of shares which the aggregate
offering price of the total number of shares so offered would purchase at
such Per Share Market Value. Such adjustment shall be made whenever such
rights or warrants are issued, and shall become effective immediately after
the record date for the determination of shareholders entitled to receive
such rights or warrants. However, upon the expiration of any right or
warrant to purchase Common Stock the issuance of which resulted in an
adjustment in the Exercise Price pursuant to this paragraph (6)(b), if any
such right or warrant shall expire and all or any portion thereof shall not
have been exercised, the Exercise Price shall immediately upon such
expiration be re-computed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Exercise Price made pursuant to the provisions of
section (f) after the issuance of such rights or warrants) had the
adjustment of the Exercise Price made upon the issuance of such rights or
warrants been made on the basis of offering for subscription or purchase
only that
2
number of shares of Common Stock (if any) actually purchased upon the
exercise of such rights or warrants actually exercised.
(c) If the Company, at any time while this Warrant is outstanding,
shall distribute to all of the holders of Common Stock evidences of its
indebtedness or assets or rights or warrants to subscribe for or purchase
any security (excluding those referred to in paragraphs 6(a) and (b)
above), then in each such case the Exercise Price at which the Warrant
shall thereafter be convertible shall be determined by multiplying the
Exercise Price in effect immediately prior to the record date fixed for
determination of shareholders entitled to receive such distribution by a
fraction the denominator of which shall be the Per Share Market Value of
Common Stock determined as of the record date mentioned above, and the
numerator of which shall be such Per Share Market Value of the Common Stock
on such record date less the then fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed
applicable to one outstanding share of Common Stock as determined by the
Board of Directors in good faith; provided, however, that in the event of a
distribution exceeding ten percent of the net assets of the Company, such
fair market value shall be determined by a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (an "Appraiser") selected in good faith
by the holder of the Warrant; and provided, further, that the Company,
after receipt of the determination by such Appraiser shall have the right
to select an additional Appraiser meeting the same qualifications, in good
faith, in which case the fair market value shall be equal to the average of
the determinations by each such Appraiser. Such adjustment shall be made
whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(d) All calculations under this section 6 shall be made to the nearest
cent or the nearest l/l00th of a share, as the case may be.
(e) Whenever the Exercise Price is adjusted pursuant to paragraphs
6(a), (b) or (c), the Company shall promptly mail to the holder of the
Warrant, a notice setting forth the Exercise Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment.
(f) In case of (A) any reclassification of the Common Stock, (B) any
consolidation or merger of the Company with or into another person pursuant
to which (i) a majority of the Company's Board of Directors will not
constitute a majority of the board of directors of the surviving entity or
(ii) less than 51% of the outstanding shares of the capital stock of the
surviving entity will be held by the same shareholders of the Company prior
to such reclassification, consolidation or merger, (C) the sale or transfer
of all or substantially all of the assets of the Company, (D) any
compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, (E) suspension from listing or
delisting of the Common Stock from The New York Stock Exchange or The
Nasdaq National Market for a period of five consecutive days, (F) the
Company's notice to any Holder, including by way of public announcement, at
any time, of its intention, for any reason, not to comply with proper
requests for conversion of any shares of Series G1 Preferred Stock into, or
exercise of this
3
Warrant for, shares of Common Stock, or (G) a breach by the Company of any
representation, warranty, covenant or other term or condition of the
Purchase Agreement, the Registration Rights Agreement, the Certificate of
Designation or any other agreement, document, certificate or other
instrument delivered in connection with the transactions contemplated
thereby or hereby, except to the extent that such breach would not have a
Material Adverse Effect (as defined in Section 2.1(a) of the Purchase
Agreement) and except, in the case of a breach of a covenant which is
curable, only if such breach continues for a period of at least ten days
after the Company knows or reasonably should have known of the existence of
such breach (clauses (A) through (G) above referred to as a "Redemption
Event"), the holder of the Warrant shall have the right thereafter to
convert the Warrant only into the shares of stock and other securities,
cash and property receivable upon or deemed to be held by holders of Common
Stock following such Redemption Event, and the holder of the Warrant shall
be entitled upon such event to receive such amount of securities, cash or
property as the shares of the Common Stock of the Company into which the
Warrant could have been converted immediately prior to such Redemption
Event would have been entitled.
(g) If:
A. the Company shall declare a dividend (or any other distribution)
on its Common Stock; or
B. the Company shall declare a special nonrecurring cash dividend on
or a redemption of its Common Stock; or
C. the Company shall authorize the granting to the holders of the
Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; or
D. the approval of any shareholders of the Company shall be required
in connection with any reclassification of the Common Stock of
the Company, any consolidation or merger to which the Company is
a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share of exchange
whereby the Common Stock is converted into other securities, cash
or property; or
E. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of this Warrant, and shall cause
to be mailed to the holder of this Warrant at its address as it shall
appear below, at least 30 calendar days prior to the applicable record or
effective date hereinafter specified, a notice (provided such notice shall
not include any material non-public information) stating (x) the date on
which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be
taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend,
4
distributions, redemption, rights or warrants are to be determined or (y)
the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and
the date as of which it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for securities,
cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however,
that the failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate action
required to be specified in such notice.
(h) Adjustment to Exercise Price. In order to prevent dilution of the
rights granted under this Warrant, the Exercise Price will be subject to
adjustment from time to time as provided in this Section 6(h).
(i) Adjustment of Exercise Price upon Issuance of Common Stock.
If and whenever on or after the Closing Date, the Company issues or
sells, or is deemed to have issued or sold, any shares of Common Stock
(other than the Underlying Shares, Warrant Shares or shares of Common
Stock deemed to have been issued by the Company in connection with an
Approved Stock Plan (as defined below)) for a consideration per share
less than the Exercise Price in effect immediately prior to such
issuance or sale, then immediately after such issue or sale, the
Exercise Price then in effect shall be reduced to an amount equal to
the consideration per share of Common Stock of such issuance or sale.
If and whenever on or after the Closing Date, the Company issues or
sells, or is deemed to have issued or sold, any shares of Common Stock
(other than the Underlying Shares, Warrant Shares, shares of Common
Stock deemed to have been issued by the Company in connection with an
Approved Stock Plan (as defined below) or shares of Common Stock
issued or deemed to have been issued as consideration for an
acquisition by the Company of a license or of a division, assets or
business (or stock constituting any portion thereof) from another
person) for a consideration per share which is (A) greater than the
Exercise Price in effect immediately prior to such issuance or sale
and (B) less the average of the Per Share Market Values on the five
consecutive trading days immediately preceding the date of such
issuance or sale (the price in this clause (B) is herein referred to
as "Market Price"), then immediately after such issue or sale, the
Exercise Price then in effect shall be reduced to an amount equal to
the product of (x) the Exercise Price in effect immediately prior to
such issue or sale and (y) the quotient determined by dividing (1) the
sum of (I) the product of (A) the Market Price and (B) the number of
shares of Common Stock Deemed Outstanding (as defined below)
immediately prior to such issue or sale, and (II) the consideration,
if any, received by the Company upon such issue or sale, by (2) the
product of (I) the Market Price and (II) the number of shares of
Common Stock Deemed Outstanding (as defined below) immediately after
such issue or sale. For purposes of determining the adjusted Exercise
Price under this Section 6(h)(i), the following shall be applicable:
(A) Issuance of Options. If the Company in any manner grants
any rights or options to subscribe for or to purchase Common
Stock or any stock or other securities convertible into or
exchangeable for Common Stock (such rights or options being
herein called "Options" and such convertible or exchangeable
stock or securities being herein called "Convertible Securities")
and the price per share for which Common Stock is
5
issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than the Exercise
Price in the case of the first sentence of Section 6(h)(i), or
the Market Price in the case of the second sentence of Section
6(h)(i) (collectively, the "Applicable Price"), then the total
maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon
the exercise of such Options shall be deemed to be outstanding
and to have been issued and sold by the Company for such price
per share. For purposes of this Section 6(h)(i)(A), the "price
per share for which Common Stock is issuable upon exercise of
such Options or upon conversion or exchange of such Convertible
Securities" is determined by dividing (I) the total amount, if
any, received or receivable by the Company as consideration for
the granting of such Options, plus the minimum aggregate amount
of additional consideration payable to the Company upon the
exercise of all such Options, plus in the case of such Options
which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the
Company upon the issuance or sale of such Convertible Securities
and the conversion or exchange thereof, by (II) the total maximum
number of shares of Common Stock issuable upon exercise of such
Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such
Options. No adjustment of the Exercise Price shall be made upon
the actual issuance of such Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such
Convertible Securities.
(B) Issuance of Convertible Securities. If the Company in
any manner issues or sells any Convertible Securities and the
price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Applicable Price, then
the maximum number of shares of Common Stock issuable upon
conversion or exchange of such Convertible Securities shall be
deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For the purposes of this
Section 6(h)(i)(B), the "price per share for which Common Stock
is issuable upon such conversion or exchange" is determined by
dividing (I) the total amount received or receivable by the
Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (II) the total maximum number
of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities. No adjustment of the
Exercise Price shall be made upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is
made upon exercise of any Options for which adjustment of the
Exercise Price had been or are to be made pursuant to other
provisions of this Section 6(h)(i), no further adjustment of the
Exercise Price shall be made by reason of such issue or sale.
(C) Change in Option Price or Rate of Conversion. If there
is a change at any time in (i) the purchase price provided for in
any Options, (ii) the additional consideration, if any, payable
upon the issue, conversion or exchange of any Convertible
6
Securities or (iii) the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock, then the
Exercise Price in effect at the time of such change shall be
readjusted to the Exercise Price which would have been in effect
at such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at
the time initially granted, issued or sold; provided that no
adjustment shall be made if such adjustment would result in an
increase of the Exercise Price then in effect.
(D) Certain Definitions. For purposes of determining the
adjusted Exercise Price under this Section 6(h)(i), the following
terms have meanings set forth below:
(I) "Approved Stock Plan" shall mean any contract, plan
or agreement which has been approved by the Board of
Directors of the Company, pursuant to which the Company's
securities may be issued to any employee, officer, director
or consultant.
(II) "Common Stock Deemed Outstanding" means, at any
given time, the number of shares of Common Stock issued and
outstanding at such time, plus the number of shares of
Common Stock deemed to be outstanding pursuant to Sections
6(h)(i)(A) and 6(h)(i)(B) hereof regardless of whether the
Options or Convertible Securities are actually exercisable
at such time, but excluding any shares of Common Stock
issuable upon conversion of the shares of Series G1
Preferred Stock or exercise of the Warrants.
(E) Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under this Section
6(h)(i), the following shall be applicable:
(I) Calculation of Consideration Received. If any
Common Stock, Options or Convertible Securities are issued
or sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the net
amount received by the Company therefor. In case any Common
Stock, Options or Convertible Securities are issued or sold
for a consideration other than cash, the amount of the
consideration other than cash received by the Company will
be the fair value of such consideration, except where such
consideration consists of securities, in which case the
amount of consideration received by the Company will be the
arithmetic average of the Per Share Market Values of such
security for the five (5) consecutive Trading Days
immediately preceding the date of receipt. In case any
Common Stock, Options or Convertible Securities are issued
to the owners of the non-surviving entity in connection with
any merger in which the Company is the surviving entity the
amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may
be. The fair value of any consideration other than cash or
securities will be determined jointly by the Company and the
Holders of a majority of the shares of Series G1 Preferred
Stock then outstanding. If such parties are unable to reach
agreement within ten
7
(10) days after the occurrence of an event requiring
valuation (the "Valuation Event"), the fair value of such
consideration will be determined within forty-eight (48)
hours of the tenth (10th) day following the Valuation Event
by an independent, reputable appraiser selected by the
Company. The determination of such appraiser shall be
binding upon all parties absent manifest error.
(II) Integrated Transactions. In case any Option is
issued in connection with the issue or sale of other
securities of the Company, together comprising one
integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the
Options will be deemed to have been issued for an aggregate
consideration of $.01.
(III) Treasury Shares. The number of shares of Common
Stock outstanding at any given time does not include shares
owned or held by or for the account of the Company, and the
disposition of any shares so owned or held will be
considered an issue or sale of Common Stock.
(IV) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them
(1) to receive a dividend or other distribution payable in
Common Stock, Options or in Convertible Securities or (2) to
subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date will be deemed
to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(ii) Certain Events. If any event occurs of the type contemplated
by the provisions of Section 6(h)(i) (subject to the exceptions stated
therein) but not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation rights, phantom
stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Exercise
Price so as to protect the rights of the Registered Holder, or
assigns, of this Warrant; provided, however, that no such adjustment
will increase the Exercise Price as otherwise determined pursuant to
this Section 6(h).
7. Per Share Market Value. Per Share Market Value means on any particular
date (i) the closing bid price per share of the Common Stock on such date on the
New York Stock Exchange or other registered national stock exchange on which the
Common Stock is then listed or if there is no such price on such date, then the
closing bid price on such exchange or quotation system on the date nearest
preceding such date, or (ii) if the Common Stock is not listed then on the New
York Stock Exchange or any registered national stock exchange, the closing bid
price for a share of Common Stock in the over-the-counter market, as reported by
the New York Stock Exchange or in the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting prices)
at the close of business on such date, or (iii) if the Common Stock is not then
publicly traded the fair market value of a share of Common Stock as determined
by an Appraiser selected in good faith by the holder of this Warrant; provided,
however, that the Company, after receipt of the determination by such Appraiser,
shall have the
8
right to select an additional Appraiser, in which case, the fair market value
shall be equal to the average of the determinations by each such Appraiser; and
provided, further that all determinations of the Per Share Market Value shall be
appropriately adjusted for any stock dividends, stock splits or other similar
transactions during such period.
8. Registration Rights. The Company will undertake the registration of the
Common Stock into which such Warrants are convertible at such times and upon
such terms pursuant to the provisions of the Registration Rights Agreement dated
September 17, 1998 by and among the Company, Brown Simpson Strategic Growth
Fund, L.P., Brown Simpson Strategic Growth Fund, Ltd., Heracles Fund Ltd. and
Themis Partners, L.P.
9. Notices. All notices or other communications required hereunder shall be
in writing and shall be sent either (i) by courier, or (ii) by telecopy as well
as by registered or certified mail, and shall be regarded as properly given in
the case of a courier upon actual delivery to the proper place of address; in
the case of telecopy, on the day following the date of transmission if properly
addressed and sent without transmission error to the correct number and receipt
is confirmed by telephone within 48 hours of the transmission; in the case of a
letter for which a telecopy could not be successfully transmitted or receipt of
which could not be confirmed as herein provided, three days after the registered
or certified mailing date if the letter is properly addressed and postage
prepaid; and shall be regarded as properly addressed if sent to the parties or
their representatives at the addresses given below:
To the Company: Signal Apparel Company, Inc.
200A Manufacturers Road
Chattanooga, Tennessee 37405
Attn: President & General Counsel
Phone: (423) 756-8146
Fax: (423) 752-2040
To the holder: Brown Simpson Strategic Growth Fund, Ltd.
152 West 57th Street, 40th Floor
New York, New York 10019
Attn: Paul Gustus
Phone: (212) 247-8200
Fax: (212) 247-1329
or such other address as any of the above may have furnished to the other
parties in writing by registered mail, return receipt requested.
[signature page follows]
9
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer as of the date first set forth above.
SIGNAL APPAREL COMPANY, INC.
By: /s/ John W. Prutch
---------------------
Name: John W. Prutch
Title: President
10
EXHIBIT A
Warrant Exercise Form
TO: SIGNAL APPAREL COMPANY, INC.
The undersigned hereby: (1) irrevocably subscribes for and offers to
purchase _______ shares of Common Stock of Signal Apparel Company, Inc.,
pursuant to Warrant No. G1 heretofore issued to ___________________ on
____________, 1998; (2) encloses a payment of $__________ for these shares at a
price of $____ per share (as adjusted pursuant to the provisions of the
Warrant); and (3) requests that a certificate for the shares be issued in the
name of the undersigned and delivered to the undersigned at the address
specified below.
Date: ____________________________________________________
Investor Name: ___________________________________________
Taxpayer Identification
Number: ___________________________________________________
By: ______________________________________________________
Printed Name: ____________________________________________
Title: ____________________________________________________
Address: __________________________________________________
Note: The above signature should correspond exactly with
the name on the face of this Warrant Certificate or
with the name of assignee appearing in assignment
form below.
AND, if said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant Certificate is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder less
any fraction of a share paid in cash and delivered to the address stated above.
11
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY
STATE SECURITIES OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF
SUCH SHARES MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER SAID ACT AND UNDER
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR EXEMPTIONS FROM SUCH
REGISTRATION
12,500 Warrant No. G1-3
SIGNAL APPAREL COMPANY, INC.
STOCK PURCHASE WARRANT
Registered Owner: Themis Partners, L.P.
This certifies that, for value received, Signal Apparel Company, Inc., an
Indiana corporation, the ("Company") grants the following rights to the
Registered Owner, or assigns, of this Warrant:
1. Issue. Upon tender (as defined in section 5 hereof) to the Company, the
Company shall issue to the Registered Owner, or assigns, up to the number of
shares specified in paragraph 2 hereof of fully paid and nonassessable shares of
Common Stock that the Registered Owner, or assigns, is otherwise entitled to
purchase.
2. Number of Shares. The total number of shares of Common Stock that the
Registered Owner, or assigns, of this Warrant is entitled to receive upon
exercise of this Warrant is 12,500 shares, subject to adjustment from time to
time as set forth in paragraph 6 below. The Company shall at all times reserve
and hold available sufficient shares of Common Stock to satisfy all conversion
and purchase rights represented by outstanding convertible securities, options
and warrants, including this Warrant. The Company covenants and agrees that all
shares of Common Stock that may be issued upon the exercise of this Warrant
shall, upon issuance, be duly and validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the purchase and the
issuance of the shares.
3. Exercise Price. The exercise price of this Warrant, the price at which
the shares of stock purchasable upon exercise of this Warrant may be purchased,
is 125% of the Fixed Strike Price (as defined in the Certificate of
Designation), subject to adjustment from time to time pursuant to the provisions
of paragraph 6 below (the "Exercise Price").
4. Exercise Period. This Warrant may only be exercised beginning on
September 17, 1998 and up to and including September 17, 2003 five years after
the date of the Warrant,
less one day. If not exercised during this period, this Warrant and all rights
granted under this Warrant shall expire and lapse.
5. Tender. This Warrant may be exercised, in whole or in part, by actual
delivery of (i) the Exercise Price in cash, (ii) a duly executed Warrant
Exercise Form, a copy of which is attached to this Warrant as Exhibit A,
properly executed by the Registered Owner, or assigns, of this Warrant, and
(iii) by surrender of this Warrant. The payment and Warrant Exercise Form must
be delivered, personally or by mail, to the registered office of the Company.
Documents sent by mail shall be deemed to be delivered when they are received by
the Company.
6. Adjustment of Exercise Price.
(a) If the Company, at any time while this Warrant is outstanding, (a)
shall pay a stock dividend on its Common Stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine
outstanding shares of Common Stock into a smaller number of shares, or (d)
issue by reclassification of shares of Common Stock any shares of capital
stock of the Company, the Exercise Price shall be multiplied by a fraction
the numerator of which shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and the
denominator of which shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this
paragraph (6)(a) shall become effective immediately after the record date
for the determination of shareholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or re-classification.
(b) If the Company, at any time while this Warrant is outstanding,
shall issue rights or warrants to all of the holders of Common Stock
entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the Per Share Market Value (as defined below) of
Common Stock at the record date mentioned below, the Exercise Price shall
be multiplied by a fraction, the denominator of which shall be the number
of shares of Common Stock (excluding treasury shares, if any) outstanding
on the date of issuance of such rights or warrants plus the number of
additional shares of Common Stock offered for subscription or purchase, and
the numerator of which shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of shares which the aggregate
offering price of the total number of shares so offered would purchase at
such Per Share Market Value. Such adjustment shall be made whenever such
rights or warrants are issued, and shall become effective immediately after
the record date for the determination of shareholders entitled to receive
such rights or warrants. However, upon the expiration of any right or
warrant to purchase Common Stock the issuance of which resulted in an
adjustment in the Exercise Price pursuant to this paragraph (6)(b), if any
such right or warrant shall expire and all or any portion thereof shall not
have been exercised, the Exercise Price shall immediately upon such
expiration be re-computed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Exercise Price made pursuant to the provisions of
section (f) after the issuance of such rights or warrants) had the
adjustment of the Exercise Price made upon the issuance of such rights or
warrants been made on the basis of offering for subscription or purchase
only that
2
number of shares of Common Stock (if any) actually purchased upon the
exercise of such rights or warrants actually exercised.
(c) If the Company, at any time while this Warrant is outstanding,
shall distribute to all of the holders of Common Stock evidences of its
indebtedness or assets or rights or warrants to subscribe for or purchase
any security (excluding those referred to in paragraphs 6(a) and (b)
above), then in each such case the Exercise Price at which the Warrant
shall thereafter be convertible shall be determined by multiplying the
Exercise Price in effect immediately prior to the record date fixed for
determination of shareholders entitled to receive such distribution by a
fraction the denominator of which shall be the Per Share Market Value of
Common Stock determined as of the record date mentioned above, and the
numerator of which shall be such Per Share Market Value of the Common Stock
on such record date less the then fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed
applicable to one outstanding share of Common Stock as determined by the
Board of Directors in good faith; provided, however, that in the event of a
distribution exceeding ten percent of the net assets of the Company, such
fair market value shall be determined by a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (an "Appraiser") selected in good faith
by the holder of the Warrant; and provided, further, that the Company,
after receipt of the determination by such Appraiser shall have the right
to select an additional Appraiser meeting the same qualifications, in good
faith, in which case the fair market value shall be equal to the average of
the determinations by each such Appraiser. Such adjustment shall be made
whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(d) All calculations under this section 6 shall be made to the nearest
cent or the nearest l/l00th of a share, as the case may be.
(e) Whenever the Exercise Price is adjusted pursuant to paragraphs
6(a), (b) or (c), the Company shall promptly mail to the holder of the
Warrant, a notice setting forth the Exercise Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment.
(f) In case of (A) any reclassification of the Common Stock, (B) any
consolidation or merger of the Company with or into another person pursuant
to which (i) a majority of the Company's Board of Directors will not
constitute a majority of the board of directors of the surviving entity or
(ii) less than 51% of the outstanding shares of the capital stock of the
surviving entity will be held by the same shareholders of the Company prior
to such reclassification, consolidation or merger, (C) the sale or transfer
of all or substantially all of the assets of the Company, (D) any
compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, (E) suspension from listing or
delisting of the Common Stock from The New York Stock Exchange or The
Nasdaq National Market for a period of five consecutive days, (F) the
Company's notice to any Holder, including by way of public announcement, at
any time, of its intention, for any reason, not to comply with proper
requests for conversion of any shares of Series G1 Preferred Stock into, or
exercise of this
3
Warrant for, shares of Common Stock, or (G) a breach by the Company of any
representation, warranty, covenant or other term or condition of the
Purchase Agreement, the Registration Rights Agreement, the Certificate of
Designation or any other agreement, document, certificate or other
instrument delivered in connection with the transactions contemplated
thereby or hereby, except to the extent that such breach would not have a
Material Adverse Effect (as defined in Section 2.1(a) of the Purchase
Agreement) and except, in the case of a breach of a covenant which is
curable, only if such breach continues for a period of at least ten days
after the Company knows or reasonably should have known of the existence of
such breach (clauses (A) through (G) above referred to as a "Redemption
Event"), the holder of the Warrant shall have the right thereafter to
convert the Warrant only into the shares of stock and other securities,
cash and property receivable upon or deemed to be held by holders of Common
Stock following such Redemption Event, and the holder of the Warrant shall
be entitled upon such event to receive such amount of securities, cash or
property as the shares of the Common Stock of the Company into which the
Warrant could have been converted immediately prior to such Redemption
Event would have been entitled.
(g) If:
A. the Company shall declare a dividend (or any other distribution)
on its Common Stock; or
B. the Company shall declare a special nonrecurring cash dividend on
or a redemption of its Common Stock; or
C. the Company shall authorize the granting to the holders of the
Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; or
D. the approval of any shareholders of the Company shall be required
in connection with any reclassification of the Common Stock of
the Company, any consolidation or merger to which the Company is
a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share of exchange
whereby the Common Stock is converted into other securities, cash
or property; or
E. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of this Warrant, and shall cause
to be mailed to the holder of this Warrant at its address as it shall
appear below, at least 30 calendar days prior to the applicable record or
effective date hereinafter specified, a notice (provided such notice shall
not include any material non-public information) stating (x) the date on
which a record is to be taken for the purpose of such dividend,
4
distribution, redemption, rights or warrants, or if a record is not to be
taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants
are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to
become effective or close, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer or share
exchange; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of
the corporate action required to be specified in such notice.
(h) Adjustment to Exercise Price. In order to prevent dilution of the
rights granted under this Warrant, the Exercise Price will be subject to
adjustment from time to time as provided in this Section 6(h).
(i) Adjustment of Exercise Price upon Issuance of Common Stock.
If and whenever on or after the Closing Date, the Company issues or
sells, or is deemed to have issued or sold, any shares of Common Stock
(other than the Underlying Shares, Warrant Shares or shares of Common
Stock deemed to have been issued by the Company in connection with an
Approved Stock Plan (as defined below)) for a consideration per share
less than the Exercise Price in effect immediately prior to such
issuance or sale, then immediately after such issue or sale, the
Exercise Price then in effect shall be reduced to an amount equal to
the consideration per share of Common Stock of such issuance or sale.
If and whenever on or after the Closing Date, the Company issues or
sells, or is deemed to have issued or sold, any shares of Common Stock
(other than the Underlying Shares, Warrant Shares, shares of Common
Stock deemed to have been issued by the Company in connection with an
Approved Stock Plan (as defined below) or shares of Common Stock
issued or deemed to have been issued as consideration for an
acquisition by the Company of a license or of a division, assets or
business (or stock constituting any portion thereof) from another
person) for a consideration per share which is (A) greater than the
Exercise Price in effect immediately prior to such issuance or sale
and (B) less the average of the Per Share Market Values on the five
consecutive trading days immediately preceding the date of such
issuance or sale (the price in this clause (B) is herein referred to
as "Market Price"), then immediately after such issue or sale, the
Exercise Price then in effect shall be reduced to an amount equal to
the product of (x) the Exercise Price in effect immediately prior to
such issue or sale and (y) the quotient determined by dividing (1) the
sum of (I) the product of (A) the Market Price and (B) the number of
shares of Common Stock Deemed Outstanding (as defined below)
immediately prior to such issue or sale, and (II) the consideration,
if any, received by the Company upon such issue or sale, by (2) the
product of (I) the Market Price and (II) the number of shares of
Common Stock Deemed Outstanding (as defined below) immediately after
such issue or sale. For purposes of determining the adjusted Exercise
Price under this Section 6(h)(i), the following shall be applicable:
(A) Issuance of Options. If the Company in any manner grants
any rights or options to subscribe for or to purchase Common
Stock or any stock or other securities convertible into or
exchangeable for Common Stock (such rights or options being
herein called "Options" and such convertible or exchangeable
stock or securities being herein called "Convertible Securities")
and the price per share for which Common Stock is
5
issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than the Exercise
Price in the case of the first sentence of Section 6(h)(i), or
the Market Price in the case of the second sentence of Section
6(h)(i) (collectively, the "Applicable Price"), then the total
maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon
the exercise of such Options shall be deemed to be outstanding
and to have been issued and sold by the Company for such price
per share. For purposes of this Section 6(h)(i)(A), the "price
per share for which Common Stock is issuable upon exercise of
such Options or upon conversion or exchange of such Convertible
Securities" is determined by dividing (I) the total amount, if
any, received or receivable by the Company as consideration for
the granting of such Options, plus the minimum aggregate amount
of additional consideration payable to the Company upon the
exercise of all such Options, plus in the case of such Options
which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the
Company upon the issuance or sale of such Convertible Securities
and the conversion or exchange thereof, by (II) the total maximum
number of shares of Common Stock issuable upon exercise of such
Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such
Options. No adjustment of the Exercise Price shall be made upon
the actual issuance of such Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such
Convertible Securities.
(B) Issuance of Convertible Securities. If the Company in
any manner issues or sells any Convertible Securities and the
price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Applicable Price, then
the maximum number of shares of Common Stock issuable upon
conversion or exchange of such Convertible Securities shall be
deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For the purposes of this
Section 6(h)(i)(B), the "price per share for which Common Stock
is issuable upon such conversion or exchange" is determined by
dividing (I) the total amount received or receivable by the
Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (II) the total maximum number
of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities. No adjustment of the
Exercise Price shall be made upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is
made upon exercise of any Options for which adjustment of the
Exercise Price had been or are to be made pursuant to other
provisions of this Section 6(h)(i), no further adjustment of the
Exercise Price shall be made by reason of such issue or sale.
(C) Change in Option Price or Rate of Conversion. If there
is a change at any time in (i) the purchase price provided for in
any Options, (ii) the additional consideration, if any, payable
upon the issue, conversion or exchange of any Convertible
6
Securities or (iii) the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock, then the
Exercise Price in effect at the time of such change shall be
readjusted to the Exercise Price which would have been in effect
at such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at
the time initially granted, issued or sold; provided that no
adjustment shall be made if such adjustment would result in an
increase of the Exercise Price then in effect.
(D) Certain Definitions. For purposes of determining the
adjusted Exercise Price under this Section 6(h)(i), the following
terms have meanings set forth below:
(I) "Approved Stock Plan" shall mean any contract, plan
or agreement which has been approved by the Board of
Directors of the Company, pursuant to which the Company's
securities may be issued to any employee, officer, director
or consultant.
(II) "Common Stock Deemed Outstanding" means, at any
given time, the number of shares of Common Stock issued and
outstanding at such time, plus the number of shares of
Common Stock deemed to be outstanding pursuant to Sections
6(h)(i)(A) and 6(h)(i)(B) hereof regardless of whether the
Options or Convertible Securities are actually exercisable
at such time, but excluding any shares of Common Stock
issuable upon conversion of the shares of Series G1
Preferred Stock or exercise of the Warrants.
(E) Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under this Section
6(h)(i), the following shall be applicable:
(I) Calculation of Consideration Received. If any
Common Stock, Options or Convertible Securities are issued
or sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the net
amount received by the Company therefor. In case any Common
Stock, Options or Convertible Securities are issued or sold
for a consideration other than cash, the amount of the
consideration other than cash received by the Company will
be the fair value of such consideration, except where such
consideration consists of securities, in which case the
amount of consideration received by the Company will be the
arithmetic average of the Per Share Market Values of such
security for the five (5) consecutive Trading Days
immediately preceding the date of receipt. In case any
Common Stock, Options or Convertible Securities are issued
to the owners of the non-surviving entity in connection with
any merger in which the Company is the surviving entity the
amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may
be. The fair value of any consideration other than cash or
securities will be determined jointly by the Company and the
Holders of a majority of the shares of Series G1 Preferred
Stock then outstanding. If such parties are unable to reach
agreement within ten
7
(10) days after the occurrence of an event requiring
valuation (the "Valuation Event"), the fair value of such
consideration will be determined within forty-eight (48)
hours of the tenth (10th) day following the Valuation Event
by an independent, reputable appraiser selected by the
Company. The determination of such appraiser shall be
binding upon all parties absent manifest error.
(II) Integrated Transactions. In case any Option is
issued in connection with the issue or sale of other
securities of the Company, together comprising one
integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the
Options will be deemed to have been issued for an aggregate
consideration of $.01.
(III) Treasury Shares. The number of shares of Common
Stock outstanding at any given time does not include shares
owned or held by or for the account of the Company, and the
disposition of any shares so owned or held will be
considered an issue or sale of Common Stock.
(IV) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them
(1) to receive a dividend or other distribution payable in
Common Stock, Options or in Convertible Securities or (2) to
subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date will be deemed
to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(ii) Certain Events. If any event occurs of the type contemplated
by the provisions of Section 6(h)(i) (subject to the exceptions stated
therein) but not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation rights, phantom
stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Exercise
Price so as to protect the rights of the Registered Holder, or
assigns, of this Warrant; provided, however, that no such adjustment
will increase the Exercise Price as otherwise determined pursuant to
this Section 6(h).
7. Per Share Market Value. Per Share Market Value means on any particular
date (i) the closing bid price per share of the Common Stock on such date on the
New York Stock Exchange or other registered national stock exchange on which the
Common Stock is then listed or if there is no such price on such date, then the
closing bid price on such exchange or quotation system on the date nearest
preceding such date, or (ii) if the Common Stock is not listed then on the New
York Stock Exchange or any registered national stock exchange, the closing bid
price for a share of Common Stock in the over-the-counter market, as reported by
the New York Stock Exchange or in the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting prices)
at the close of business on such date, or (iii) if the Common Stock is not then
publicly traded the fair market value of a share of Common Stock as determined
by an Appraiser selected in good faith by the holder of this Warrant; provided,
however, that the Company, after receipt of the determination by such Appraiser,
shall have the
8
right to select an additional Appraiser, in which case, the fair market value
shall be equal to the average of the determinations by each such Appraiser; and
provided, further that all determinations of the Per Share Market Value shall be
appropriately adjusted for any stock dividends, stock splits or other similar
transactions during such period.
8. Registration Rights. The Company will undertake the registration of the
Common Stock into which such Warrants are convertible at such times and upon
such terms pursuant to the provisions of the Registration Rights Agreement dated
September 17, 1998 by and among the Company, Brown Simpson Strategic Growth
Fund, L.P., Brown Simpson Strategic Growth Fund, Ltd., Heracles Fund Ltd. and
Themis Partners, L.P.
9. Notices. All notices or other communications required hereunder shall be
in writing and shall be sent either (i) by courier, or (ii) by telecopy as well
as by registered or certified mail, and shall be regarded as properly given in
the case of a courier upon actual delivery to the proper place of address; in
the case of telecopy, on the day following the date of transmission if properly
addressed and sent without transmission error to the correct number and receipt
is confirmed by telephone within 48 hours of the transmission; in the case of a
letter for which a telecopy could not be successfully transmitted or receipt of
which could not be confirmed as herein provided, three days after the registered
or certified mailing date if the letter is properly addressed and postage
prepaid; and shall be regarded as properly addressed if sent to the parties or
their representatives at the addresses given below:
To the Company: Signal Apparel Company, Inc.
200A Manufacturers Road
Chattanooga, Tennessee 37405
Attn: President & General Counsel
Phone: (423) 756-8146
Fax: (423) 752-2040
To the Holder: 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
or such other address as any of the above may have furnished to the other
parties in writing by registered mail, return receipt requested.
[signature page follows]
9
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer as of the date first set forth above.
SIGNAL APPAREL COMPANY, INC.
By: /s/ John W. Prutch
-----------------------------
Name: John W. Prutch
Title: President
10
EXHIBIT A
Warrant Exercise Form
TO: SIGNAL APPAREL COMPANY, INC.
The undersigned hereby: (1) irrevocably subscribes for and offers to
purchase _______ shares of Common Stock of Signal Apparel Company, Inc.,
pursuant to Warrant No. G1 heretofore issued to ___________________ on
____________, 1998; (2) encloses a payment of $__________ for these shares at a
price of $____ per share (as adjusted pursuant to the provisions of the
Warrant); and (3) requests that a certificate for the shares be issued in the
name of the undersigned and delivered to the undersigned at the address
specified below.
Date: ____________________________________________________
Investor Name: ___________________________________________
Taxpayer Identification
Number: ___________________________________________________
By: ______________________________________________________
Printed Name: ____________________________________________
Title: ____________________________________________________
Address: __________________________________________________
Note: The above signature should correspond exactly with
the name on the face of this Warrant Certificate or
with the name of assignee appearing in assignment
form below.
AND, if said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant Certificate is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder less
any fraction of a share paid in cash and delivered to the address stated above.
11
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY
STATE SECURITIES OR BLUE SKY LAWS. NEITHER THIS WARRANT NOR ANY OF SUCH
SHARES MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER SAID ACT AND UNDER
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS OR EXEMPTIONS FROM SUCH
REGISTRATION
37,500 Warrant No. G1-4
SIGNAL APPAREL COMPANY, INC.
STOCK PURCHASE WARRANT
Registered Owner: Heracles Fund Ltd.
This certifies that, for value received, Signal Apparel Company, Inc., an
Indiana corporation, the ("Company") grants the following rights to the
Registered Owner, or assigns, of this Warrant:
1. Issue. Upon tender (as defined in section 5 hereof) to the Company, the
Company shall issue to the Registered Owner, or assigns, up to the number of
shares specified in paragraph 2 hereof of fully paid and nonassessable shares of
Common Stock that the Registered Owner, or assigns, is otherwise entitled to
purchase.
2. Number of Shares. The total number of shares of Common Stock that the
Registered Owner, or assigns, of this Warrant is entitled to receive upon
exercise of this Warrant is 37,500 shares, subject to adjustment from time to
time as set forth in paragraph 6 below. The Company shall at all times reserve
and hold available sufficient shares of Common Stock to satisfy all conversion
and purchase rights represented by outstanding convertible securities, options
and warrants, including this Warrant. The Company covenants and agrees that all
shares of Common Stock that may be issued upon the exercise of this Warrant
shall, upon issuance, be duly and validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the purchase and the
issuance of the shares.
3. Exercise Price. The exercise price of this Warrant, the price at which
the shares of stock purchasable upon exercise of this Warrant may be purchased,
is 125% of the Fixed Strike Price (as defined in the Certificate of
Designation), subject to adjustment from time to time pursuant to the provisions
of paragraph 6 below (the "Exercise Price").
4. Exercise Period. This Warrant may only be exercised beginning on
September 17, 1998 and up to and including September 17, 2003 five years after
the date of the Warrant,
less one day. If not exercised during this period, this Warrant and all rights
granted under this Warrant shall expire and lapse.
5. Tender. This Warrant may be exercised, in whole or in part, by actual
delivery of (i) the Exercise Price in cash, (ii) a duly executed Warrant
Exercise Form, a copy of which is attached to this Warrant as Exhibit A,
properly executed by the Registered Owner, or assigns, of this Warrant, and
(iii) by surrender of this Warrant. The payment and Warrant Exercise Form must
be delivered, personally or by mail, to the registered office of the Company.
Documents sent by mail shall be deemed to be delivered when they are received by
the Company.
6. Adjustment of Exercise Price.
(a) If the Company, at any time while this Warrant is outstanding, (a)
shall pay a stock dividend on its Common Stock, (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine
outstanding shares of Common Stock into a smaller number of shares, or (d)
issue by reclassification of shares of Common Stock any shares of capital
stock of the Company, the Exercise Price shall be multiplied by a fraction
the numerator of which shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and the
denominator of which shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this
paragraph (6)(a) shall become effective immediately after the record date
for the determination of shareholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or re-classification.
(b) If the Company, at any time while this Warrant is outstanding,
shall issue rights or warrants to all of the holders of Common Stock
entitling them to subscribe for or purchase shares of Common Stock at a
price per share less than the Per Share Market Value (as defined below) of
Common Stock at the record date mentioned below, the Exercise Price shall
be multiplied by a fraction, the denominator of which shall be the number
of shares of Common Stock (excluding treasury shares, if any) outstanding
on the date of issuance of such rights or warrants plus the number of
additional shares of Common Stock offered for subscription or purchase, and
the numerator of which shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of shares which the aggregate
offering price of the total number of shares so offered would purchase at
such Per Share Market Value. Such adjustment shall be made whenever such
rights or warrants are issued, and shall become effective immediately after
the record date for the determination of shareholders entitled to receive
such rights or warrants. However, upon the expiration of any right or
warrant to purchase Common Stock the issuance of which resulted in an
adjustment in the Exercise Price pursuant to this paragraph (6)(b), if any
such right or warrant shall expire and all or any portion thereof shall not
have been exercised, the Exercise Price shall immediately upon such
expiration be re-computed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Exercise Price made pursuant to the provisions of
section (f) after the issuance of such rights or warrants) had the
adjustment of the Exercise Price made upon the issuance of such rights or
warrants been made on the basis of offering for subscription or purchase
only that
2
number of shares of Common Stock (if any) actually purchased upon the
exercise of such rights or warrants actually exercised.
(c) If the Company, at any time while this Warrant is outstanding,
shall distribute to all of the holders of Common Stock evidences of its
indebtedness or assets or rights or warrants to subscribe for or purchase
any security (excluding those referred to in paragraphs 6(a) and (b)
above), then in each such case the Exercise Price at which the Warrant
shall thereafter be convertible shall be determined by multiplying the
Exercise Price in effect immediately prior to the record date fixed for
determination of shareholders entitled to receive such distribution by a
fraction the denominator of which shall be the Per Share Market Value of
Common Stock determined as of the record date mentioned above, and the
numerator of which shall be such Per Share Market Value of the Common Stock
on such record date less the then fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed
applicable to one outstanding share of Common Stock as determined by the
Board of Directors in good faith; provided, however, that in the event of a
distribution exceeding ten percent of the net assets of the Company, such
fair market value shall be determined by a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (an "Appraiser") selected in good faith
by the holder of the Warrant; and provided, further, that the Company,
after receipt of the determination by such Appraiser shall have the right
to select an additional Appraiser meeting the same qualifications, in good
faith, in which case the fair market value shall be equal to the average of
the determinations by each such Appraiser. Such adjustment shall be made
whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(d) All calculations under this section 6 shall be made to the nearest
cent or the nearest l/l00th of a share, as the case may be.
(e) Whenever the Exercise Price is adjusted pursuant to paragraphs
6(a), (b) or (c), the Company shall promptly mail to the holder of the
Warrant, a notice setting forth the Exercise Price after such adjustment
and setting forth a brief statement of the facts requiring such adjustment.
(f) In case of (A) any reclassification of the Common Stock, (B) any
consolidation or merger of the Company with or into another person pursuant
to which (i) a majority of the Company's Board of Directors will not
constitute a majority of the board of directors of the surviving entity or
(ii) less than 51% of the outstanding shares of the capital stock of the
surviving entity will be held by the same shareholders of the Company prior
to such reclassification, consolidation or merger, (C) the sale or transfer
of all or substantially all of the assets of the Company, (D) any
compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, (E) suspension from listing or
delisting of the Common Stock from The New York Stock Exchange or The
Nasdaq National Market for a period of five consecutive days, (F) the
Company's notice to any Holder, including by way of public announcement, at
any time, of its intention, for any reason, not to comply with proper
requests for conversion of any shares of Series G1 Preferred Stock into, or
exercise of this
3
Warrant for, shares of Common Stock, or (G) a breach by the Company of any
representation, warranty, covenant or other term or condition of the
Purchase Agreement, the Registration Rights Agreement, the Certificate of
Designation or any other agreement, document, certificate or other
instrument delivered in connection with the transactions contemplated
thereby or hereby, except to the extent that such breach would not have a
Material Adverse Effect (as defined in Section 2.1(a) of the Purchase
Agreement) and except, in the case of a breach of a covenant which is
curable, only if such breach continues for a period of at least ten days
after the Company knows or reasonably should have known of the existence of
such breach (clauses (A) through (G) above referred to as a "Redemption
Event"), the holder of the Warrant shall have the right thereafter to
convert the Warrant only into the shares of stock and other securities,
cash and property receivable upon or deemed to be held by holders of Common
Stock following such Redemption Event, and the holder of the Warrant shall
be entitled upon such event to receive such amount of securities, cash or
property as the shares of the Common Stock of the Company into which the
Warrant could have been converted immediately prior to such Redemption
Event would have been entitled.
(g) If:
A. the Company shall declare a dividend (or any other distribution)
on its Common Stock; or
B. the Company shall declare a special nonrecurring cash dividend on
or a redemption of its Common Stock; or
C. the Company shall authorize the granting to the holders of the
Common Stock rights or warrants to subscribe for or purchase any
shares of capital stock of any class or of any rights; or
D. the approval of any shareholders of the Company shall be required
in connection with any reclassification of the Common Stock of
the Company, any consolidation or merger to which the Company is
a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share of exchange
whereby the Common Stock is converted into other securities, cash
or property; or
E. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the
Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of this Warrant, and shall cause
to be mailed to the holder of this Warrant at its address as it shall
appear below, at least 30 calendar days prior to the applicable record or
effective date hereinafter specified, a notice (provided such notice shall
not include any material non-public information) stating (x) the date on
which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be
taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend,
4
distributions, redemption, rights or warrants are to be determined or (y)
the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and
the date as of which it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for securities,
cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange; provided, however,
that the failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate action
required to be specified in such notice.
(h) Adjustment to Exercise Price. In order to prevent dilution of the
rights granted under this Warrant, the Exercise Price will be subject to
adjustment from time to time as provided in this Section 6(h).
(i) Adjustment of Exercise Price upon Issuance of Common Stock.
If and whenever on or after the Closing Date, the Company issues or
sells, or is deemed to have issued or sold, any shares of Common Stock
(other than the Underlying Shares, Warrant Shares or shares of Common
Stock deemed to have been issued by the Company in connection with an
Approved Stock Plan (as defined below)) for a consideration per share
less than the Exercise Price in effect immediately prior to such
issuance or sale, then immediately after such issue or sale, the
Exercise Price then in effect shall be reduced to an amount equal to
the consideration per share of Common Stock of such issuance or sale.
If and whenever on or after the Closing Date, the Company issues or
sells, or is deemed to have issued or sold, any shares of Common Stock
(other than the Underlying Shares, Warrant Shares, shares of Common
Stock deemed to have been issued by the Company in connection with an
Approved Stock Plan (as defined below) or shares of Common Stock
issued or deemed to have been issued as consideration for an
acquisition by the Company of a license or of a division, assets or
business (or stock constituting any portion thereof) from another
person) for a consideration per share which is (A) greater than the
Exercise Price in effect immediately prior to such issuance or sale
and (B) less the average of the Per Share Market Values on the five
consecutive trading days immediately preceding the date of such
issuance or sale (the price in this clause (B) is herein referred to
as "Market Price"), then immediately after such issue or sale, the
Exercise Price then in effect shall be reduced to an amount equal to
the product of (x) the Exercise Price in effect immediately prior to
such issue or sale and (y) the quotient determined by dividing (1) the
sum of (I) the product of (A) the Market Price and (B) the number of
shares of Common Stock Deemed Outstanding (as defined below)
immediately prior to such issue or sale, and (II) the consideration,
if any, received by the Company upon such issue or sale, by (2) the
product of (I) the Market Price and (II) the number of shares of
Common Stock Deemed Outstanding (as defined below) immediately after
such issue or sale. For purposes of determining the adjusted Exercise
Price under this Section 6(h)(i), the following shall be applicable:
(A) Issuance of Options. If the Company in any manner grants
any rights or options to subscribe for or to purchase Common
Stock or any stock or other securities convertible into or
exchangeable for Common Stock (such rights or options being
herein called "Options" and such convertible or exchangeable
stock or securities being herein called "Convertible Securities")
and the price per share for which Common Stock is
5
issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than the Exercise
Price in the case of the first sentence of Section 6(h)(i), or
the Market Price in the case of the second sentence of Section
6(h)(i) (collectively, the "Applicable Price"), then the total
maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the
total maximum amount of such Convertible Securities issuable upon
the exercise of such Options shall be deemed to be outstanding
and to have been issued and sold by the Company for such price
per share. For purposes of this Section 6(h)(i)(A), the "price
per share for which Common Stock is issuable upon exercise of
such Options or upon conversion or exchange of such Convertible
Securities" is determined by dividing (I) the total amount, if
any, received or receivable by the Company as consideration for
the granting of such Options, plus the minimum aggregate amount
of additional consideration payable to the Company upon the
exercise of all such Options, plus in the case of such Options
which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable to the
Company upon the issuance or sale of such Convertible Securities
and the conversion or exchange thereof, by (II) the total maximum
number of shares of Common Stock issuable upon exercise of such
Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such
Options. No adjustment of the Exercise Price shall be made upon
the actual issuance of such Common Stock or of such Convertible
Securities upon the exercise of such Options or upon the actual
issuance of such Common Stock upon conversion or exchange of such
Convertible Securities.
(B) Issuance of Convertible Securities. If the Company in
any manner issues or sells any Convertible Securities and the
price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Applicable Price, then
the maximum number of shares of Common Stock issuable upon
conversion or exchange of such Convertible Securities shall be
deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For the purposes of this
Section 6(h)(i)(B), the "price per share for which Common Stock
is issuable upon such conversion or exchange" is determined by
dividing (I) the total amount received or receivable by the
Company as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (II) the total maximum number
of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities. No adjustment of the
Exercise Price shall be made upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities,
and if any such issue or sale of such Convertible Securities is
made upon exercise of any Options for which adjustment of the
Exercise Price had been or are to be made pursuant to other
provisions of this Section 6(h)(i), no further adjustment of the
Exercise Price shall be made by reason of such issue or sale.
(C) Change in Option Price or Rate of Conversion. If there
is a change at any time in (i) the purchase price provided for in
any Options, (ii) the additional consideration, if any, payable
upon the issue, conversion or exchange of any Convertible
6
Securities or (iii) the rate at which any Convertible Securities
are convertible into or exchangeable for Common Stock, then the
Exercise Price in effect at the time of such change shall be
readjusted to the Exercise Price which would have been in effect
at such time had such Options or Convertible Securities still
outstanding provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at
the time initially granted, issued or sold; provided that no
adjustment shall be made if such adjustment would result in an
increase of the Exercise Price then in effect.
(D) Certain Definitions. For purposes of determining the
adjusted Exercise Price under this Section 6(h)(i), the following
terms have meanings set forth below:
(I) "Approved Stock Plan" shall mean any contract, plan
or agreement which has been approved by the Board of
Directors of the Company, pursuant to which the Company's
securities may be issued to any employee, officer, director
or consultant.
(II) "Common Stock Deemed Outstanding" means, at any
given time, the number of shares of Common Stock issued and
outstanding at such time, plus the number of shares of
Common Stock deemed to be outstanding pursuant to Sections
6(h)(i)(A) and 6(h)(i)(B) hereof regardless of whether the
Options or Convertible Securities are actually exercisable
at such time, but excluding any shares of Common Stock
issuable upon conversion of the shares of Series G1
Preferred Stock or exercise of the Warrants.
(E) Effect on Exercise Price of Certain Events. For purposes
of determining the adjusted Exercise Price under this Section
6(h)(i), the following shall be applicable:
(I) Calculation of Consideration Received. If any
Common Stock, Options or Convertible Securities are issued
or sold or deemed to have been issued or sold for cash, the
consideration received therefor will be deemed to be the net
amount received by the Company therefor. In case any Common
Stock, Options or Convertible Securities are issued or sold
for a consideration other than cash, the amount of the
consideration other than cash received by the Company will
be the fair value of such consideration, except where such
consideration consists of securities, in which case the
amount of consideration received by the Company will be the
arithmetic average of the Per Share Market Values of such
security for the five (5) consecutive Trading Days
immediately preceding the date of receipt. In case any
Common Stock, Options or Convertible Securities are issued
to the owners of the non-surviving entity in connection with
any merger in which the Company is the surviving entity the
amount of consideration therefor will be deemed to be the
fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common
Stock, Options or Convertible Securities, as the case may
be. The fair value of any consideration other than cash or
securities will be determined jointly by the Company and the
Holders of a majority of the shares of Series G1 Preferred
Stock then outstanding. If such parties are unable to reach
agreement within ten
7
(10) days after the occurrence of an event requiring
valuation (the "Valuation Event"), the fair value of such
consideration will be determined within forty-eight (48)
hours of the tenth (10th) day following the Valuation Event
by an independent, reputable appraiser selected by the
Company. The determination of such appraiser shall be
binding upon all parties absent manifest error.
(II) Integrated Transactions. In case any Option is
issued in connection with the issue or sale of other
securities of the Company, together comprising one
integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the
Options will be deemed to have been issued for an aggregate
consideration of $.01.
(III) Treasury Shares. The number of shares of Common
Stock outstanding at any given time does not include shares
owned or held by or for the account of the Company, and the
disposition of any shares so owned or held will be
considered an issue or sale of Common Stock.
(IV) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them
(1) to receive a dividend or other distribution payable in
Common Stock, Options or in Convertible Securities or (2) to
subscribe for or purchase Common Stock, Options or
Convertible Securities, then such record date will be deemed
to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(ii) Certain Events. If any event occurs of the type contemplated
by the provisions of Section 6(h)(i) (subject to the exceptions stated
therein) but not expressly provided for by such provisions (including,
without limitation, the granting of stock appreciation rights, phantom
stock rights or other rights with equity features), then the Company's
Board of Directors will make an appropriate adjustment in the Exercise
Price so as to protect the rights of the Registered Holder, or
assigns, of this Warrant; provided, however, that no such adjustment
will increase the Exercise Price as otherwise determined pursuant to
this Section 6(h).
7. Per Share Market Value. Per Share Market Value means on any particular
date (i) the closing bid price per share of the Common Stock on such date on the
New York Stock Exchange or other registered national stock exchange on which the
Common Stock is then listed or if there is no such price on such date, then the
closing bid price on such exchange or quotation system on the date nearest
preceding such date, or (ii) if the Common Stock is not listed then on the New
York Stock Exchange or any registered national stock exchange, the closing bid
price for a share of Common Stock in the over-the-counter market, as reported by
the New York Stock Exchange or in the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting prices)
at the close of business on such date, or (iii) if the Common Stock is not then
publicly traded the fair market value of a share of Common Stock as determined
by an Appraiser selected in good faith by the holder of this Warrant; provided,
however, that the Company, after receipt of the determination by such Appraiser,
shall have
8
the right to select an additional Appraiser, in which case, the fair market
value shall be equal to the average of the determinations by each such
Appraiser; and provided, further that all determinations of the Per Share Market
Value shall be appropriately adjusted for any stock dividends, stock splits or
other similar transactions during such period.
8. Registration Rights. The Company will undertake the registration of the
Common Stock into which such Warrants are convertible at such times and upon
such terms pursuant to the provisions of the Registration Rights Agreement dated
September 17, 1998 by and among the Company, Brown Simpson Strategic Growth
Fund, L.P., Brown Simpson Strategic Growth Fund, Ltd., Heracles Fund Ltd. and
Themis Partners, L.P.
9. Notices. All notices or other communications required hereunder shall be
in writing and shall be sent either (i) by courier, or (ii) by telecopy as well
as by registered or certified mail, and shall be regarded as properly given in
the case of a courier upon actual delivery to the proper place of address; in
the case of telecopy, on the day following the date of transmission if properly
addressed and sent without transmission error to the correct number and receipt
is confirmed by telephone within 48 hours of the transmission; in the case of a
letter for which a telecopy could not be successfully transmitted or receipt of
which could not be confirmed as herein provided, three days after the registered
or certified mailing date if the letter is properly addressed and postage
prepaid; and shall be regarded as properly addressed if sent to the parties or
their representatives at the addresses given below:
To the Company: Signal Apparel Company, Inc.
200A Manufacturers Road
Chattanooga, Tennessee 37405
Attn: President & General Counsel
Phone: (423) 756-8146
Fax: (423) 752-2040
To the Holder: 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
or such other address as any of the above may have furnished to the other
parties in writing by registered mail, return receipt requested.
[signature page follows]
9
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officer as of the date first set forth above.
SIGNAL APPAREL COMPANY, INC.
By: /s/ John W. Prutch
---------------------------
Name: John W. Prutch
Title: President
10
EXHIBIT A
Warrant Exercise Form
TO: SIGNAL APPAREL COMPANY, INC.
The undersigned hereby: (1) irrevocably subscribes for and offers to
purchase _______ shares of Common Stock of Signal Apparel Company, Inc.,
pursuant to Warrant No. G1 heretofore issued to ___________________ on
____________, 1998; (2) encloses a payment of $__________ for these shares at a
price of $____ per share (as adjusted pursuant to the provisions of the
Warrant); and (3) requests that a certificate for the shares be issued in the
name of the undersigned and delivered to the undersigned at the address
specified below.
Date: ____________________________________________________
Investor Name: ___________________________________________
Taxpayer Identification
Number: ___________________________________________________
By: ______________________________________________________
Printed Name: ____________________________________________
Title: ____________________________________________________
Address: __________________________________________________
Note: The above signature should correspond exactly with
the name on the face of this Warrant Certificate or
with the name of assignee appearing in assignment
form below.
AND, if said number of shares shall not be all the shares purchasable under the
within Warrant, a new Warrant Certificate is to be issued in the name of said
undersigned for the balance remaining of the shares purchasable thereunder less
any fraction of a share paid in cash and delivered to the address stated above.
11